Posted on April 11, 2018 in Taxation Law

In recent months, the news has been filled with discussion of cryptocurrencies such as Bitcoin, Ripple, or Ethereum. As these virtual currencies increase in value, many people are looking to invest in them. However, even though digital currencies can be exchanged for goods or services, or paid to employees as income, they are not the same as legal tender. This has resulted in a great deal of confusion as to how virtual currencies are treated under the United States tax laws.

Cryptocurrencies, Property, and Capital Gains

“Convertible” virtual currencies that have an equivalent value in real currency and can be exchanged into U.S. dollars are taxable as property, similar to other capital assets such as stocks or bonds. In general, capital gains taxes apply when these currencies are bought or sold, including when they are converted into cash, when one type of currency is traded for another virtual currency, or when digital currency is exchanged for other property. Any gains or losses are based on the fair market value of the currency at the time it was acquired and at the time of its sale or trade. 

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 Posted on March 23, 2018 in Tax Audits

A tax audit can be a frightening situation. The United States tax code is complex, and many taxpayers are unfamiliar with its intricacies and the potential consequences that they may face if they have committed a violation. In some cases, taxpayers may face what is known as an “eggshell audit,” which is a civil audit that may potentially result in criminal charges. While this is an informal term, it refers to the care that must be taken in these situations as taxpayers seek to minimize their tax liabilities and civil penalties while avoiding criminal prosecution.

Potential Consequences of an Eggshell Audit

Eggshell audits occur because a taxpayer filed a fraudulent tax return. The taxpayer may have underreported the income he or she earned or claimed improper deductions or credits. The end result is that the taxpayer paid less taxes than he or she would have owed if he or she had filed an accurate tax return. Moreover, a return is considered fraudulent if a taxpayer deliberately intended to evade paying the full amount of his or her taxes or if he or she willfully submitted false statements or documents.

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 Posted on March 16, 2018 in Taxation Law

Recently, we examined the options taxpayers have to achieve compliance when they have undisclosed foreign assets. One key method of compliance that the IRS has provided in recent years is the Offshore Voluntary Disclosure Program (OVDP). The program allows taxpayers to report their offshore assets and become compliant while minimizing their civil penalties and avoiding criminal prosecution. However, the IRS recently announced that it will be ending the OVDP on September 28, 2018.

Changing Options for Offshore Tax Compliance

The OVDP was launched in 2009, and the current version of the program has been in effect since 2014. The IRS has reported that since the OVDP was implemented, more than 56,000 taxpayers have used the program to achieve compliance—$11.1 billion in taxes, penalties, and interest have been paid. However, the number of people participating in the program has declined from a high of 18,000 people in 2011 to 600 in 2017.

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 Posted on March 07, 2018 in Taxation Law

The Tax Cuts and Jobs Act of 2017 made seismic changes to tax law in the United States, and individual taxpayers, small businesses, and large corporations are working to determine how they will be affected by the updates that will be going into effect in the near future.

One aspect of the new law that many may not be aware of concerns vehicles purchased or leased by businesses. It is essential that business owners be aware of how these changes can impact the deductions they may claim.

Business Auto Deductions

When a company purchases an automobile for business use, the company will typically be able to claim tax deductions based on the depreciation of the vehicle over five years. However, these deductions and other issues involving business vehicles have been affected by the Tax Cuts and Jobs Act in several ways, including:

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 Posted on February 20, 2018 in Taxation Law

In a recent blog, we discussed how U.S. taxpayers can become compliant with the IRS’s requirements for reporting foreign financial assets through the Offshore Voluntary Disclosure Program (OVDP). While the OVDP provides people with the ability to address outstanding offshore tax issues, it applies to people who have willfully failed to disclose foreign assets, and meeting its requirements can result in significant expenses but also can avoid significant penalties. For people whose failure to disclose offshore assets was non-willful, another option is available: streamlined compliance.

Eligibility for Streamlined Compliance

Streamlined compliance is available for individual U.S. taxpayers, and it consists of two programs: the Streamlined Foreign Offshore Procedures (for U.S. citizens or lawful permanent residents who lived outside of the United States for at least 330 days in one of the three previous years) and the Streamlined Domestic Offshore Procedures (for U.S. taxpayers who do not meet the non-residency requirement).

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 Posted on February 13, 2018 in Taxation Law

Under the Internal Revenue Code, taxpayers are required to include all income on their tax return, including interest accrued on funds held offshore.

Under the Foreign Account Tax Compliance Act (FATCA), taxpayers in the United States are required to report financial assets that are held in foreign countries to the IRS. Failure to report their income or these assets can result in both civil and criminal penalties for offshore tax evasion.

To help people and organizations who own offshore funds or assets become compliant, the IRS provides two resolutions: the Offshore Voluntary Disclosure Program (OVDP) and streamlined compliance. In this blog, we examine the requirements and procedures of the OVDP.

OVDP Requirements

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 Posted on February 06, 2018 in Tax Audits

In recent months, much of the discussion surrounding tax laws in the United States has focused on the changes made by the Tax Cuts and Jobs Act of 2017. Yet while individuals and businesses should understand how they will be affected by tax reform, they should additionally be aware of recent new rules that govern tax audits.

The Centralized Partnership Audit Regime

Under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the Internal Revenue Service (IRS) had certain rules for assessing and collecting taxes for partnerships. Audits of large partnerships, such as hedge funds or private equity firms, required individual audits of every partner. The Bipartisan Budget Act of 2015 (BBA) established a new, centralized audit regime, allowing the IRS to audit partnerships as a whole. This new regime will apply to partnership tax years beginning after December 31, 2017.

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 Posted on January 24, 2018 in Taxation Law

Following the passage of the Tax Cuts and Jobs Act of 2017, financial experts across the United States have been working to understand the full impact of this historic legislation. Much of the discussion surrounding the tax reform bill has focused on how its changes to tax law will affect large corporations (which have seen a reduction in the corporate tax rate from 35 percent to 21 percent). However, the growing portion of the country’s population that participates in the gig economy should also understand how it will be affected.

Taxes for Independent Contractors

Surveys have shown that there are 57 million people in the United States who currently perform freelance work either full-time or part-time, including people who earn an income in the gig economy (also known as the sharing economy), such as drivers for Uber or Lyft or people who rent their property through Airbnb. As independent contractors, these freelancers may be able to take advantage of new tax deductions.

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 Posted on January 17, 2018 in Taxation Law

The United States Congress passed a major tax reform bill in December 2017, and lawmakers stated that one of their top priorities was to help grow the country’s economy by alleviating the tax burden on small businesses. While the full effect of the Tax Cuts and Jobs Act of 2017 has yet to be felt, the reform bill contained a number of provisions that will affect the taxes which small businesses pay. Therefore, small business owners should take steps to understand how to make the most of these changes.

Tax Deductions for Pass-Through Businesses

Pass-through companies, in which income is taxed at the rate of the individual business owner rather than through the corporate tax structure, account for 95 percent of businesses in the United States and include sole proprietorships, partnerships, and S corporations. Under the new tax law, pass-through businesses can take a 20 percent deduction on their taxable income, providing them with some financial relief and allowing them to reinvest these tax savings to grow their business. The deduction is subject to several limitations based on the type of business, its financial condition, and the taxpayer’s income.

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 Posted on January 10, 2018 in Taxation Law

In December 2017, Congress passed a tax bill that represented the most significant reform to the U.S. tax code in the last 30 years. The Tax Cuts and Jobs Act of 2017 made a large number of sweeping changes to tax law in the United States, affecting nearly everyone in the country, from individual taxpayers to large corporations. While many of the effects of this new law are still being worked out, one change that businesses should be aware of is how net operating losses (NOLs) will be handled going forward.

NOLs, Carryback, and Carryforward

In the past, businesses that reported a net operating loss (that is, the business’s expenses were greater than its revenues) in a tax year were able to use this amount to offset taxable income in other tax years. They would be able to carry the amount back to the two preceding years and receive an immediate refund for taxes paid or carry the amount forward up to 20 years to reduce the amount of taxable income in those years. This allowed businesses to help avoid some of the consequences of taxing their income on an annual basis and effectively pay taxes on an average income over multiple years.

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