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8ebe66131b0767ca29214cd9228a9fe2	https://www.forbes.com/sites/robertwood/2011/10/17/irs-wants-more-penalties/	IRS Wants More Penalties	IRS Wants More Penalties Image via gizmodo.fr Sometimes when the IRS loses in court, it announces that it isn't going to follow the court's decision. That may sound like the height of hubris. But since the IRS operates nationwide and most courts have limited jurisdiction, the IRS can choose to keep fighting elsewhere, even if the court decision is binding in one place. That's what happened when the Ninth Circuit Court of Appeals decided it would not impose a 40% penalty on the taxpayer in Keller v. Commissioner. The IRS had sought a special 40% gross valuation penalty, but the court said no. Here's the background. Penalties on Penalties? In general, a 20% penalty applies to tax underpayments attributable to a substantial valuation misstatement. See Code Section 6662(a). However, this penalty is doubled to a whopping 40% if there is a gross valuation misstatement. See Code Section 6662(h)(1). A gross valuation misstatement generally involves a claim for 200% or more of the correct value or basis. Michael Keller participated in a bad tax shelter deal---he purported to purchase 146 cattle and cow embryos (no kidding) in exchange for a 15-year promissory note. Other than a $50 application fee, Keller made no initial payments to finance his investment, but agreed to allocate 75% of the tax savings from the investment back to the promoter. He eventually began making monthly payments on the promissory note, but otherwise this was pretty much a sham. But boy did Keller claim tax benefits! He reported large losses and deductions on his '94 and '95 returns (despite not investing until '95!), carried back losses to '91 through '93, and received refunds for '91 through '94. Eventually, the IRS came crashing down on him. Among other taxes and penalties, the IRS imposed accuracy-related penalties, including the 40% gross valuation misstatement penalty. Keller wasn't arguing that he didn't owe the tax. He clearly did. In fact, before the trial he agreed he wasn't entitled to the deductions. But he didn't think he should have to pay the 40% gross valuation misstatement penalty. Nevertheless, the Tax Court upheld the penalty, so Keller appealed. In the Ninth Circuit, Keller agreed the tax underpayments were attributable to invalid deductions, but not to any asset overvaluation. Under Ninth Circuit precedent---Gainer v. Commissioner---the 40% penalty couldn't apply. The Ninth Circuit agreed and reversed, holding that “when a deduction is disallowed in total, an associated penalty for overvaluing an asset is precluded.” With one exception, the Keller decision conflicts with that of every other circuit court to have addressed the issue. The other court to similarly deny valuation misstatement penalties is the Fifth Circuit. See Heasley v. Commissioner. The IRS issued an Action on Decision (AOD) in regard to the Heasley decision in '91. Now the IRS has done the same with Keller, announcing that it disagrees with the Ninth Circuit's decision. Thus, IRS will continue to argue in appropriate cases, including those appealable to the Ninth Circuit, that the gross valuation misstatement penalty applies if an overvaluation is an integral part of a transaction, regardless of the grounds for disallowance of the related deduction or credit. For more, see: Got A Tax Notice? Here's What To Do Ten Things To Know About Fighting An IRS Bill Received An IRS Notice? 10 Simple Tips Choose Your Ground In Tax Disputes IRS: The Section 6662(e) Substantial and Gross Valuation Misstatement Penalty Internal Revenue Manual - 20.1.12 Penalties Applicable to Incorrect Appraisals Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
5b74db4ff30f832fa49355f3e1a7f2a7	https://www.forbes.com/sites/robertwood/2011/11/12/paying-taxes-pennies-on-the-dollar/	Paying Taxes Pennies On The Dollar	Paying Taxes Pennies On The Dollar Image via ehow.com I'll bet you've seen the TV ads from tax services claiming they can settle your tax debts for “pennies on the dollar.” See Attorney General Pursues 'Tax Lady' Roni Deutsch. If you’re like me, you may wonder whether some claims are too good to be true. But I confess I still find them darned entertaining. But sometimes these efforts aren’t too successful. Take the recent case of Joseph Mangiardi, who died with a trust worth $4.5 million and IRAs worth $3.4 million. See Estate of Joseph L. Mangiardi v. Commissioner. That nest egg doesn’t sound shabby, but the estate figured it owed estate tax of more than $2.5 million. That sounds managable, since there was still plenty of money to go around. But the IRS had to get in line. First, the IRAs went to Mangiardi’s nine kids. Then, over four years, the estate asked for six extensions of time to pay the tax. By that point, the value of the trust was a measly $542,714. If the trust sold these now deflated securities, the estate was going to have a whopping loss. Three years later, with the IRS still standing in line, the estate offered to settle the estate tax debt for $700,000 . In a kind of turn-out-your-pockets serendipity, that was the remaining value of the trust at that point. Gee, IRS, this is all we’ve got left, so please accept it and don’t claim we still owe $2.5 million! This may sound appealing if you watch a lot of TV. In fact, if you’re an infomercial fan you’ll be thinking that this tax debt should settle for only a few thousand dollars. Nope. The IRS rejected the $700,000 offer because it planned to go after the children who had received the IRAs. The estate went to court to challenge the IRS, claiming that the IRS had abused its discretion in failing to properly consider the settlement offer. The Tax Court said the IRS was right. But just like on TV, these people didn’t give up and went to the Court of Appeals. Surely the Judge Judy of the appellate court would give the IRS a smack down! Nope, not hardly. In fact, the Eleventh Circuit Court of Appeals agreed with the IRS too. That clears the way for the IRS to proceed against the children. For more, see: Tax Lady Roni Deutsch Bankrupt, Surrendering Bar License Name This Tax Deal When Too Good Tax Deals Become Fraud Attorney General Pursues 'Tax Lady' Roni Deutsch Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
e82d022e67824d261bf7c7f37161ba6e	https://www.forbes.com/sites/robertwood/2011/11/30/fatca-carries-fat-price-tag/	FATCA Carries Fat Price Tag	FATCA Carries Fat Price Tag Image via Time.com FATCA—the Foreign Account Tax Compliance Act—could cost financial institutions $100 million. No, that's not penalties or taxes. We're just talking compliance costs. So says James Broderick, head of JP Morgan's European, Middle Eastern and African asset management business. See U.S. tax evasion law could cost big banks $100 million. The figure is an estimate of the cost each big multinational institution faces to implement FATCA. FATCA is much maligned by multinationals, but these big financial institutions can’t be too happy either. See Scratched By The FACTA. Speaking at a conference of Italy's Assogestioni asset management association, Mr. Broderick forecast the law's fat impact. If $100 million per institution doesn’t seem massive, he suggested overall implementation costs could equal the roughly $8 billion FATCA is supposed to raise over 10 years. Taxpayer Reporting. On top of FBAR TD F 90-22.1 filings, FATCA's Section 6038D requires U.S. taxpayers to report foreign accounts and assets with an aggregate value exceeding $50,000. Required reporting includes: Any financial account maintained by an FFI; Any stock or security issued by a non-U.S. person; Any financial interest or contract held for investment that has a non-U.S. issuer or counterparty; and Any interest in a foreign entity. That means taxpayers who purchase foreign real estate through an entity are covered Institutional Reporting. FATCA requires foreign banks to report U.S. account holders to the IRS. After identifying them, institutions must impose a 30% tax on payments or transfers to account holders who refuse to step up. The IRS issued Notice 2011-53 to give foreign financial institutions (FFIs) and U.S. withholding agents time to implement compliance systems. FFIs must file IRS reports by September 30, 2014. At first, FFIs must report only: Name, address, and U.S. taxpayer identification number of U.S. account holder. For U.S.-owned foreign entities, the name, address, and U.S. TIN of each substantial U.S. owner is required. Account balance as of December 31, 2013. Account number. If FATCA will cost $8 billion and raise $8 billion, it doesn’t sound too efficient. JP Morgan’s Mr. Broderick noted that, "It would be easier to just write a check to the IRS." Yet as the clamor for repeal seems to have waned, it seems likely that FATCA is here to stay. For more, see: Firms count cost of FATCA compliance IRS FATCA Guidance, Round 3 Oh Canada! Hating FBARs And FATCA Expats Call For FATCA Repeal Please Sir, Can I Have Some More FATCA? Stripping FATCA From Our Diet FBAR And FATCA Haters Unite Analysis: Critics say new law makes them tax agents‎ Beware Foreign Trust Reporting to IRS Are You Getting Enough FBAR? Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
2bc29b33e14c4f8265dd768eb7b1018a	https://www.forbes.com/sites/robertwood/2012/02/01/will-irs-get-fat-off-fatca/	Will IRS Get Fat Off FATCA?	Will IRS Get Fat Off FATCA? Image via m.inmagine.com I was hoping we might see a bill trimming the Foreign Account Tax Compliance Act (FATCA) down to size so I could pun its name, but no such luck. The IRS, Treasury Department, and Congress are sticking to their guns about implementing the dreaded law. They appear to have high expectations--Just think of all of that tax information! A Treasury official says the U.S. hopes agreements with other governments to implement FATCA will ramp up information exchanges. Speaking at a New York State Bar meeting, Treasury Acting Assistant Secretary for Tax Policy Emily S. McMahon said: "We believe that our optimism in this regard is justified in view of the very significant progress that has been made just in the last couple of years on facilitating global exchange of information." Why Care About FATCA? It's effective January 1, 2013, but the IRS and Treasury Department are phasing it in to smooth out a bumpy road. Notice 2011-53 is the third guidance on FATCA. See Notice 2010-60, 2010-37 IRB 329 and Notice 2011-34, 2011-19 IRB 765. Institutional Reporting. FATCA requires foreign banks to report U.S. account holders to the IRS. After identifying them, institutions must impose a 30% tax on payments or transfers to account holders who refuse to step up. Foreign financial institutions (FFIs) must file IRS reports by September 30, 2014. At first, FFIs must report only: Name, address, and U.S. taxpayer identification number of U.S. account holder. For U.S.-owned foreign entities, the name, address, and U.S. TIN of each substantial U.S. owner is required. Account balance as of December 31, 2013. Account number. Withholding isn't required if the payee or beneficial owner provides the withholding agent with a certification that the foreign entity does not have a substantial U.S. owner, or provides the withholding agent with the name, address and taxpayer identification number (TIN) of each substantial U.S. owner. Several exceptions apply. For example, withholding doesn't apply to any payment beneficially owned by a publicly traded corporation or member of an expanded affiliated group of a publicly traded corporation. There's also no withholding on payments the IRS identifies as posing a low risk of U.S. tax evasion. The U.S. Treasury and various trading partners are discussing approaches to overcome legal impediments. FFIs may end up reporting the FATCA data to their own government, which will turn around and send it to the IRS—think tax treaty tax information exchange agreement. See IRS Makes Swiss Cheese Of Swiss Banks. Venues include the Global Forum on Transparency and Exchange of Information, a collaborative effort that could produce data swaps. The OECD Treaty Relief and Compliance Enhancement project is pushing too. Plus, the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters wasamended to allow non-OECD and non-Council of Europe members to join. Recent signatories include Argentina, Brazil and Japan. Expect more data in more places soon. Taxpayer Reporting Too. On top of FBAR TD F 90-22.1 filings, FATCA’s Section 6038D requires U.S. taxpayers to report foreign accounts and assets with an aggregate value exceeding $50,000. Required reporting includes: Any financial account maintained by an FFI; Any stock or security issued by a non-U.S. person; Any financial interest or contract held for investment that has a non-U.S. issuer or counterparty; and Any interest in a foreign entity. That means taxpayers who purchase foreign real estate through an entity are covered. For more, see: Are Expats Derailing The FATCA Express? IRS: Expect Even More Transparent Foreign Accounts Happy FATCAFiling Season IRS Exempts Many Expats From FACTA FATCA Carries Fat Price Tag IRS FATCA Guidance, Round 3 Oh Canada! Hating FBARs And FATCA Expats Call For FATCA Repeal Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
06ac0c72fa0a58937f735f1c5788fc23	https://www.forbes.com/sites/robertwood/2012/02/10/5-nations-join-u-s-in-tax-evasion-crackdown/	5 Nations Join U.S. In Tax Evasion Crackdown	5 Nations Join U.S. In Tax Evasion Crackdown Image via netstockupdate.com If you thought the world was becoming a smaller place before, get ready. The U.S. Treasury—jointly with France, Germany, Italy, Spain and the U.K.--issued a statement expressing the intent to implement a government-to-government Foreign Account Tax Compliance Act (FATCA) framework. With nice timing, this notice was paired with the parallel release of massive proposed regulations to implement FATCA. See Treasury, IRS Issue Proposed Regulations for FATCA Implementation. Whatever your view on the U.S. taxing authorities, it's hard not to be impressed by the IRS' foray into disclosure, reporting and withholding. After the U.S. carrot-and-stick approach with UBS and others, it enacted FATCA as the reporting and disclosure law for foreign financial institutions (FFIs). See Stripping FATCA From Our Diet. The law has rankled many in the international community, reaching the long arm of the IRS into foreign countries. In effect, it orders foreign banks how to behave, forcing foreign institutions to do the IRS's dirty work. See Expats Call For FATCA Repeal. At least that's the pejorative spin that seemed to threaten the very survival of the law. See Are Expats Derailing The FATCA Express? But that was then. Now, the U.S. and five key nations are shaking hands on joint efforts against tax dodgers. The U.S. is the big winner, but there's something for the gang of five nations too. See U.S. enlists 5 EU nations in offshore tax crackdown. The U.S. is willing to reciprocate in collecting and exchanging data on an automatic basis. See IRS: Expect Even More Transparent Foreign Accounts. That means key details on accounts held in U.S. financial institutions by residents of France, Germany, Italy, Spain and the United Kingdom will be transparent. The approach under discussion would enhance compliance and facilitate enforcement to the benefit of all parties. See Foreign Deal on Tax Dodging. Many details remain to be worked out, but an outline is in place. The five U.S.-tied countries support the underlying goals of FATCA. That segues nicely into the concerns whether some FFIs may not be able to comply with reporting and withholding requirements because of their own foreign country legal restrictions. In many cases, existing tax treaties will be used so FFIs can turn over information to their own governments rather than to the IRS directly. What if the laws aren't in place to require FFIs to hand over data to their governments? The five nations will pursue such laws. Then the governments can swap data with each other, and tax dodgers get caught. For its part, the U.S. will ease up on the FFIs and not require separate agreements as long as FFIs are registered (or exempt), and as long as the U.S. is getting the info from the foreign governments. It's a win-win. See Will IRS Get Fat Off FATCA? The U.S. is even willing not to sweat the small stuff that is unlikely to present big risks of tax evasion. That's good news for overburdened institutions. Some accounts are too small to bother with. Plus, it looks as if FFIs won't need to take the most serious actions like terminating accounts of customers who refuse to comply with disclosure details. The U.S. may still not have elevated FATCA to the ranks of the most popular laws. See FATCA Carries Fat Price Tag. However, the joint announcement with five European nations is a huge win for the U.S. Treasury and the IRS. More will clearly follow. For more, see: FATCA: costs of compliance may be less than expected With Indictments, IRS Will Get More Data From Swiss IRS Exempts Many Expats From FATCA Happy FATCA Filing Season IRS FATCA Guidance, Round 3 Oh Canada! Hating FBARs And FATCA Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
fabb10e0825988f8c48b22721e895a17	https://www.forbes.com/sites/robertwood/2012/03/06/will-bp-oil-spill-victims-pay-tax-on-7-8b-settlement/	Will BP Oil Spill Victims Pay Tax On $7.8B Settlement?	Will BP Oil Spill Victims Pay Tax On $7.8B Settlement? Image via leftfutures.org The news release that BP reached a $7.8 billion settlement over its Deepwater Horizon oil spill could mean cash for many victims soon. It’s good news for BP too, although BP must still deal with probable government fines. See BP Spill Saga Far From Over. BP can deduct compensation paid to victims but may have a hard time deducting government fines. BP set aside a whopping $20 billion to cover costs after its rig exploded and spread crude across a large portion of the Gulf of Mexico back in April of 2010. Although repeatedly trumpeting the $20 billion figure, BP has paid out only $8.1 billion from the trust administered by Kenneth Feinberg. Individuals and businesses can file claims directly against the fund without paying lawyers. The proposed settlement includes a matrix of scheduled payments for a variety of illnesses said to have been caused by leaking oil. A 21-year window allows more health claims to materialize. The settlement is designed to resolve most private claims for economic loss, property damage and medical injuries. That mix of claims means some monies won’t be taxed but others will. Understandably, most victims were focused on recovering, but now that payment is on the way, what's taxed and what's not? Physical Injury Awards are Tax-Free. Damages for personal physical injuries or physical sickness are tax-free. Up until 1996, just about anything qualified including emotional distress, defamation or invasion of privacy. See Don’t Fail To Consider Taxes When Settling Litigation. But in 1996, Section 104 of the tax code was amended so only recoveries for personal physical injuries or physical sickness count. Since then, there’s been no end of litigation about how “physical” injuries must be. Headaches, insomnia and stomachaches are not enough. See IRS To Collect on Italian Cruise Ship Settlements. But many injuries are internal and much physical sickness can’t be observed with the naked eye. See Are PTSD Recoveries Tax Free? Property Damages Can Be Tax-Free. If a settlement pays for damaged or destroyed property it may be a “recovery of basis.” That means tax-free as long as you don’t get back more than you paid and haven’t claimed a casualty loss deduction. A recovery in excess of your basis may be taxed at the 15% capital gains rate. Punitive Damages and Interest. These items are always taxable. Attorney Fees Can Be a Tax Trap. Contingent legal fees can produce tax traps. If a 40% of a settlement goes to the lawyer, the tax law still treats the plaintiff as receiving 100%. If the damages aren’t taxable, arise out of employment or your business, that’s no problem. See Six Tax-Wise Ways To Reduce Your Legal Bills. But elsewhere attorney fees are usually a miscellaneous itemized deduction, meaning the alternative minimum tax and other gotcha tax provisions may mean you pay tax on moneys your attorney received. It's another reason to talk to a tax expert before you sign any settlement. For more, see: BP Case Shifts to Fight Over U.S. Pollution Fines That May Top $17B‎ Tax-Free Physical Sickness Recoveries In 2010 And Beyond BP, Plaintiffs Reach Gulf Oil Spill Settlement BP Announces Settlement With PSC Your Pain, The IRS' Gain IRS Issues New Rules For Tax-Free Legal Settlements IRS To Collect on Italian Cruise Ship Settlements Bar Is Burned Down, Condemned, Then Taxed! Duke Lacrosse Tax Lien Highlights How Lawsuits Are Taxed Tax Issues in Employment Mediations Six Tax-Wise Ways To Reduce Your Legal Bills Is Physical Sickness the New Emotional Distress? Watch Your Mail For 1099s Address Taxes When You Mediate Civil Disputes Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
3dcb9f971a0a60716ffcdbad34914070	https://www.forbes.com/sites/robertwood/2012/03/09/beware-more-irs-audits-especially-for-wealthy/	Beware More IRS Audits, Especially for Wealthy	Beware More IRS Audits, Especially for Wealthy Image via nashvillecpafirm.com No one wants to be noticed by the IRS, much less audited. While it might be nice to have your peers or former high school classmates look upon you as someone who made it big time, do you want the IRS to think you're a big shot? Look what happened to Leona Helmsley after she uttered her now immortal words: “Only the little people pay taxes.” There are many old wives’ tales about what triggers an audit. See Proprietors: To Avoid Audit, Avoid Schedule C. The size of your income is only one factor. Your deductions matter, your tax credits, and even which specific items you claim. But does mere wealth trigger an audit? The IRS's Global High Wealth Industry Group—aka the Rich Squad—has been around since 2009 and is now finally ramping up. Audits can start with a plain old Form 1040 but can expand into gift transfers, charitable issues and excise taxes. The high-net-worth person can expect a holistic approach. All entities connected to the taxpayer are up for grabs, including family companies. The fact that the Rich Squad is part of the IRS's Large Business and International Division says a lot. They are adept at dealing with complex business and investment structures used by wealthy people. Rich Squad audits take into account the range of assets and entities in a family group. Trained to ferret out data from large and sophisticated businesses, the IRS is turning these big guns on individuals. See Richie Rich Tax Audits. That means the IRS will ask questions and want documentation for virtually everything, overwhelming even wealthy taxpayers. Families (even wealthy ones) don't have big tax staffs the way major corporations do. The Rich Squad is not dealing primarily with those who simply have high income on their Form 1040. The focus is not so much with high income as with complicated structures of business entities, trusts and assets. If you're in this category, you may want to get organized. More of these audits appear to be on the way. For more, see: IRS ‘Wealth Squads’ On The Way Is the New IRS Wealth Squad Coming for You? Is The IRS’s Wealth Squad Working? IRS Global High Wealth Taxpayer Program Lags Avoid IRS Audit Triggers IRS Audit Risk If You’re “Rich” How the IRS Is Probing the Rich How to Speak ‘IRS’ Language During an Audit What to Expect and How to be Prepared for an Audit Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
15b8fd8d8acd3240e64f98f0a4277472	https://www.forbes.com/sites/robertwood/2012/03/12/failing-to-pay-employment-taxes-means-personal-liability/	Failing To Pay Employment Taxes Means Personal Liability	Failing To Pay Employment Taxes Means Personal Liability Image via bills.com Employers have a duty to withhold taxes from employees. That’s one reason the IRS likes employees better than independent contractors. See IRS, DOL And States Mount Independent Contractor Attack. The IRS gets its tax money sooner and more reliably by withholding, causing some people to believe that someday everyone will be an employee. If the employer withholds the tax money but doesn’t hand it over to the IRS, it means big penalties. See Don't Cross IRS On Payroll Taxes. It also means personal liability even if you didn’t benefit from the money. See Officers Of Nonprofits Face Personal Liabilities For Taxes. The IRS rarely accepts excuses. See 9/11 Excuse Not Enough To Escape IRS Tax Bill. In a cash-strapped business, you might think there are more important obligations, but taxes should be at the top of your list. See IRS Pursues Payroll Tax Pyramiding. When you withhold tax money but fail to give it to the IRS, they will come after you. Quite rightly, the IRS views it as government money, a trust fund belonging to the IRS. The IRS takes a tough stance and the courts usually go along. A recent example is Kobus v. U.S., where the U.S. Court of Federal Claims agreed Kobus was a “responsible person” personally liable when payroll taxes went missing. Kobus claimed he wasn’t willful, saying he didn’t know taxes weren’t paid and the corporation had no funds. Kobus owned Village Turf, a landscaping business that expanded into a retail store. Kobus hired others to handle details such as payroll taxes. By the time of the retail expansion he hired a manager to run the business. Escalating tax-collection activities lead Kobus to ask the manager to investigate. Kobus claimed the manager was to handle all taxes but the manager denied it. Claiming he was innocent of wrongdoing, Kobus said he had no knowledge taxes weren’t being paid. The IRS said even if that was true, Kobus was reckless. Since Village Turf was paying creditors, it could have paid the IRS. The court agreed Kobus was willful. The court acknowledged that Kobus may not have had the money on hand to pay the taxes. After all, vendors held security interests requiring first payment. Nevertheless, Kobus should have found a way to pay the IRS. Besides, the court didn’t believe Kobus was so "oblivious" that he didn’t know large payroll taxes weren’t being paid. For more, see: IRS Penalties Despite Dead/Embezzling Accountant! Employers Who Violate Tax Law May Go To Jail IRS Nightmare: What Employment Taxes? Personal Tax Liability When A Business Goes Under Supreme Court Deaf To Payroll Tax Woes IRS Pursues Payroll Tax Pyramiding Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
d42d9a431101360110536feb3606cbbd	https://www.forbes.com/sites/robertwood/2012/04/06/filing-taxes-beware-sharp-increase-in-audit-rates/	Filing Taxes? Beware Sharp Increase In Audit Rates	Filing Taxes? Beware Sharp Increase In Audit Rates Image via barrons Ah, tax day with its inevitable fretting over returns, extensions and payments is almost upon us! It's hard not to think about your chance of audit when filing your taxes. Yet as a tax lawyer, I must assume every return will be audited. If I believe there's a 50% chance a deduction is correct, my advice must be based on the merits not on the audit lottery. Still, when I wrote Beware More IRS Audits, Especially For Wealthy, I hadn’t seen the latest statistics that prove just how wary you should be. The IRS has released its 2011 IRS Data Book showing an unprecedented 62.8% spike in audit rates on the wealthiest taxpayers. These audits top out an all-time high of 30%. The IRS has long been criticized for putting too many resources into auditing taxpayers with comparatively simple issues and relatively few dollars at stake. High income persons not only have more dollars on the table but tend to have tougher and more nuanced tax issues. That can make audits more revenue productive. The IRS has been expanding audits in the upper income echelons for a few years, but in 2011 made great strides. The extremely wealthy are in a class by themselves when it comes to audits. The most heavily audited group makes more than $10 million. A whopping 30% of this rarefied income group was audited last year, up from 18% the year before. For those making between $5M and $10M, 21% were audited in 2011, compared with 12% last year. Of taxpayers making between $1M and $5M, 12% were audited last year, up from 6.7% the prior year. Even taxpayers in the $500,000 to $1M range had a sharp uptick in audits: 5.4% were audited last year, an increase of 3.4% the year before. See chart below. Image via thedaily In all, audit rates are still comparatively low. If you have a 5% chance of being audited, there’s a 95% chance you’ll skate by. But over a lifetime of paying taxes, sooner or later your number may come up. The IRS says only 1.1% of all individual returns are audited, but upper income taxpayers are being targeted today more than in the past. Don’t confuse these new statistics with the IRS’s Global High Wealth Industry Group—aka the Rich Squad. Launched in 2009, it is more concerned with assets than income. If you have $10M or more in assets, expect scrutiny. Audits can start with a plain old Form 1040 but can expand into gift transfers, charitable issues and excise taxes. See Avoid IRS Audit Triggers. The high-net-worth person can expect a holistic approach, including family companies, gifts, and more. The IRS is turning big guns who are trained to ferret out data from large and sophisticated businesses on individuals. That means the IRS will ask questions and want documentation for virtually everything, overwhelming even wealthy taxpayers. See Richie Rich Tax Audits. For more, see: IRS Ramps Up Audits of Wealthiest More IRS Audits Coming Your Way IRS Increases Audits of Wealthy IRS Audit Rate Nears 30% for Those Making $10 Million and Up Audit Rates of Millionaires Nearly Double IRS ‘Wealth Squads’ On The Way Is the New IRS Wealth Squad Coming for You? Is The IRS’s Wealth Squad Working? IRS Global High Wealth Taxpayer Program Lags IRS Wins Big In Six Year Audit Push What To Give IRS In An Audit Beware Amending Tax Returns Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
86b1e48f0c67afc6b47ae9a5c88a674a	https://www.forbes.com/sites/robertwood/2012/04/07/forget-travel-if-you-owe-the-irs/	Forget Travel If You Owe The IRS	Forget Travel If You Owe The IRS image via passportvisaexpress.com If he were in charge of travel, the Soup Nazi might say, "No Passport for you!" In real life, travel may seem unrelated to taxes, except perhaps for those annoying airport taxes on international destinations. But a bigger tax and travel connection could keep you at home—permanently. A tax law quietly proposed a few months ago—Owe IRS Taxes, Lose Your Passport—is quietly gaining momentum. Now more people have noticed. If you owe the IRS? You're not going anywhere if this law passes. In America, we love to tinker with our tax laws. Congress is always introducing one bill or another to tweak an already bloated and increasingly dysfunctional tax system. It's curious how ingredients go into the sausage, often making strange legislative bedfellows. Sen. Harry Reid (D-Nev.) proposed that if you owe the IRS more then $50,000, you shouldn't get a passport. See Sen. Orrin Hatch’s Memo to Reporters and Editors. Now this 'we-need-the-money' provision has morphed into Senate Bill 1813, introduced by Senator Barbara Boxer (D-CA). It was introduced in November and passed by the Senate on March 14 “to reauthorize Federal-aid highway and highway safety construction programs, and for other purposes.” At best, there seems a titular connection between this provision and highway safety. Nevertheless, the law would authorize the federal government to prevent Americans from leaving the country if they owe back taxes. It was Senate Majority Leader Harry Reid who proposed allowing the State Department to revoke, deny or limit passports for anyone the IRS certifies as having “a seriously delinquent tax debt in an amount in excess of $50,000.” Does this apply in all cases? Mercifully no. You could travel if your tax debt is being paid in a timely manner or in emergency circumstances or for humanitarian reasons. But this isn't limited to criminal tax cases or situations where the government fears someone is fleeing a tax debt. In fact, if the bill is passed you could have your passport revoked merely because you owe say $60,000 and the IRS has filed a notice of lien. Bear in mind that the IRS files tax liens routinely when you owe taxes—it's just the IRS way of putting creditors on notice so the IRS will eventually get paid. See Tax Liens Means IRS Thinks You Owe. In that sense, this you-can't-travel idea seems pretty extreme. Some commentators note that a far smaller sum of unpaid child support can trigger the same kind of passport action. Why shouldn't unpaid taxes, they argue? Others attack the proposal as potentially unconstitutional. Stay tuned as this proposed law is debated. For more, see: Owe The IRS? Bill Would Suspend Passport Rights For Delinquent Taxpayers Got A Tax Notice? Here’s What To Do Ten Things To Know About Fighting An IRS Bill Ten Ways To Audit-Proof Your Tax Return Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
002504b6ac57e5a8a29deb8bbfa008e8	https://www.forbes.com/sites/robertwood/2012/05/11/living-abroad-sounds-idyllic-until-you-consider-taxes/	Living Abroad Sounds Idyllic--Until You Consider Taxes	Living Abroad Sounds Idyllic--Until You Consider Taxes Photo credit: Wikipedia Ah, Paris. Or Ireland, Bali or New Zealand. Wherever you dream of calling home, you are probably not thinking primarily about tax forms. It's hard to complete them in a hammock, and they don't fit neatly on a bistro table. Yet if you're an American, living abroad has tax compliance aspects that can derail the idyll you hope to cultivate. See FATCA Makes Banks Shut Out Americans. At least that's what American expats are saying and writing. Just stop into an overseas watering hole frequented by Americans at quit-work time in any corner of the world. You're likely to get an earful. See Expats Lobby For Tax on Residence, Not Worldwide Income. U.S. citizens and permanent residents must report their worldwide income to the IRS even if they are paying taxes somewhere else. Paying tax in other countries may earn you a foreign tax credit on your U.S. return. But the rules are complex and you rarely are made perfectly whole. Fortunately, the U.S. tax burden for many people is softened by the foreign earned income exclusion ($92,900 for 2012). Still, even this rule has qualifications and nuances to observe. See Dual Citizen Tax Relief From IRS. Beyond worldwide reporting, there is reporting foreign bank accounts and other assets. If you have more than $10,000 at any time during the year overseas, you must file a Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). New Form. This year, FATCA, the Foreign Account Tax Compliance Act, unveils IRS Form 8938, required if your foreign assets meet certain criteria. The FBAR now seems mostly accepted, but Form 8938 is causing waves of discomfort. See IRS Form 8938 Or FBAR? Timing. This new reporting rule kicks in for calendar year 2011 and thereafter. Unlike the FBAR, this form is attached to your Form 1040. If your return is on extension you still have time. If you already filed your 2011 tax return, were required to file an 8938 but failed, you should amend your return. This new rule does not obviate the FBAR. In fact, you could be required to make a FATCA disclosure but not have an FBAR filing obligation. For example, if you have an investment in a foreign hedge fund or private equity fund, it would be subject to FATCA but should not require an FBAR. What Assets? The shorthand for an FBAR filing is a “foreign bank account worth over $10,000.” What’s the shorthand for FATCA filings? Report “specified foreign financial assets” with an aggregate value exceeding $50,000. A “specified foreign financial asset” includes ownership of: Any financial account maintained by a foreign financial institution; Any stock or security issued by a non-U.S. person; Any financial interest or contract held for investment that has a non-U.S. issuer or counterparty; and Any interest in a foreign entity. That means taxpayers who purchase foreign real estate through an entity are covered. Penalties. It's hard to talk of filing and disclosure obligations without talk of penalties. The minimum FATCA penalty for failing to make the required disclosure is $10,000. For more, see: More On IRS Form 8938 vs. FBAR FBARs & FATCA Form 8938: Maddening Duplication? IRS Exempts Many Expats From FACTA 10 IRS Rules for Stress-Free Foreign Accounts Celebrity Leavings: Bidding Stars Adieu Ten Facts About Tax Expatriation Primer For First Time FBAR Filers Who Pays Tax On Joint Bank Accounts? Is Closing Foreign Bank Accounts An Alternative To Disclosure? Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
e101852eeb91f9c1ccf9211b066fd8d6	https://www.forbes.com/sites/robertwood/2012/05/11/why-facebooks-co-founder-just-defriended-america/	Why Facebook's Co-Founder Just Defriended America	Why Facebook's Co-Founder Just Defriended America Image via CrunchBase One word: Taxes. More? Rates, complexity, worldwide reporting, and comprehensive---some say downright intrusive---disclosure. Facebook’s Mark Zuckerberg---with or without signature hoodie---may get all the hype in the romping roadshow run-up to the company’s historic IPO. Most of us are agog that Mr. Zuckerberg may be poised to pay the highest individual tax bill ever. See Top Tax Tips From Zuckerberg's Facebook Bonanza. But the latest news-grabbing Facebook co-founder is Eduardo Saverin, best known for his bitter legal battle with Mr. Zuckerberg. In The Social Network, we saw Mr. Zuckerberg’s Jesse Eisenberg outsmart Saverin and the Winklevoss twins to make Facebook, Harvard, Internet, and Wall Street history. In Hollywood’s version, maybe Mr. Saverin came off as wimpy but he may get the last laugh, especially when it comes to taxes. As Mr. Zuckerberg prepares to pay over a billion in taxes, Mr. Saverin renounced his U.S. citizenship ahead of the company’s IPO. In fact, it turns out he did it a good deal ahead of the IPO, and that’s likely to matter. This is actually old news, dating to September 30, 2011 when the IPO was a pipedream. But the information didn’t become public until Bloomberg reported that the IRS released his name on April 30. Born and raised in Brazil before moving to the U.S. in 1992, the 30-year old Mr. Saverin now lives in Singapore. It is unimaginable that U.S. taxes were not a huge part of his decision, since "taxpatriations" are now all the rage. See Celebrity Leavings: Bidding Stars Adieu. And that is perfectly legal. Tax avoidance intent when expatriating used to trigger tougher tax rules, but that changed in 2008. Tax motivation is no longer even relevant to the tax treatment of citizens or permanent residents who permanently depart the U.S. See Ten Facts About Tax Expatriation. Inevitably there are tax issues on the way out. See Ten Facts About Tax Expatriation. U.S. citizens or long-term residents who expatriate after June 16, 2008 are treated as having sold all their worldwide property for its fair market value the day before leaving the U.S. Although taxe as a capital gain, this “exit tax” is unforgiving. See Rich Americans Voting With Their Feet To Escape Obama Tax Oppression. Fortunately, only “covered expatriates” face the exit tax. Some people born with dual citizenship are exempt but must still file an IRS Form 8854, Initial and Annual Expatriation Statement. More generally, you can escape the exit tax if you have less than $651,000 of income from the deemed sale of your assets, adjusted for inflation. As you might expect, appraisals of property are a good idea. See Fancy Appraisals Can Defeat IRS. Even if you owe the exit tax, you may apply to defer it by filing IRS Form 8854 (in some cases for ten years). Additional forms may be required if you have deferred compensation, tax deferred accounts, certain non-grantor trusts, etc. A good resource is Notice 2009-85. As for Mr. Saverin, the value of his holdings as of September 30, 2011 was probably a pittance compared with today's figure. For someone with appreciating assets not tied irrevocably to the U.S., taxpatriation may simply be too tempting to pass up. For more, see: Facebook co-founder Eduardo Saverin gives up U.S. citizenship What Do I Need to Know to Be an Expatriate? Celebrity Leavings: Bidding Stars Adieu Top Tax Tips From Zuckerberg's Facebook Bonanza Grab Your Fistful Of Zuckerberg's IPO Dollars If IRS Is Like Kryptonite, What Would Superman Do? FATCA Makes Banks Shut Out Americans Ten Facts About Tax Expatriation Primer For First Time FBAR Filers Got FBARs? But Which One? Should You File FBAR For The First Time? Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
fce1e1473cfa9d5d5e05180ef91ce987	https://www.forbes.com/sites/robertwood/2012/05/19/british-lawyer-nabbed-at-jfk-for-helping-americans-hide-swiss-accounts/	British Lawyer Nabbed at JFK For Helping Americans Hide Swiss Accounts	British Lawyer Nabbed at JFK For Helping Americans Hide Swiss Accounts Image via tibetanaltar.com With the IRS success with UBS and breaking the back of foreign bank secrecy, it’s no wonder many Americans have come forward to disclose foreign accounts and assets. See Is Closing Foreign Bank Accounts An Alternative To Disclosure? After historic 2009 and 2011 voluntary disclosure programs, the IRS announced a third program that is still gathering participants. See New IRS Offshore Amnesty Announced: Third Time's A Charm. More globally, the IRS is implementing FATCA, something the Obama administration feels strongly about. See FBARs & FATCA Form 8938: Maddening Duplication? Despite significant foreign criticism, the system is changing the face of global financial reporting and disclosure. See 5 Nations Join U.S. In Tax Evasion Crackdown. Yet even with all this activity, there’s more afoot. See FATCA Makes Banks Shut Out Americans. As part of the carrot and stick of reform, the IRS and Justice Department are making examples of those who are not making amends. See No Jail In UBS Tax Evasion Case. The latest example involves a British lawyer arrested on arrival at JFK. His alleged crime was helping wealthy Americans hide $10 million in Swiss accounts. Federal authorities arrested Michael Little on charges he participated in an 11-year tax fraud scheme. A British lawyer, Little may have assumed he had nothing to fear. Residing in England, Little is also licensed to practice in New York. His alleged crimes date to August of 2001. Upon the death of a client named Seggerman, Little met with his descendants at a New York hotel. Explaining there was $10 million of undeclared money, Little advised family members how to hide it from the IRS. See British attorney accused of keeping cash for family of ex-Fidelity Investments exec overseas. He allegedly suggested ways to send money to the U.S. without alerting the IRS, including travelers checks and art and jewelry deals. With secrecy befitting Jason Bourne, they used code words for communicating: "FDA" for the IRS; "Beef” for money; "Lbs" for units of $1,000; "Small" for Michael Little; "Moxly" for the Swiss lawyer; "Leaky" was the Seggerman Family matriarch; "BG" was a New Jersey accountant; "Rusty nail" was a trust; and A "Refrigerator" was an account to hold or transfer funds. Mr. Little’s alleged scheme went on between 2001 and 2008. He even had a New Jersey accountant prepare false and fraudulent individual and corporate tax returns, the government claims. Little allegedly sent millions surreptitiously to the U.S. He allegedly arranged a sham mortgage to allow one family member to access approximately $600,000 in overseas assets. Although Little lives principally in England, he maintains a residence in New York. He was charged with one count of conspiracy, carrying a maximum sentence of five years. Suzanne Seggerman previously pled guilty to conspiracy to defraud U.S. taxing authorities and to subscribing to false individual tax returns. She awaits sentencing. As the U.S. enforcement efforts continue, this is probably not the last such case. For more, see: Living Abroad Sounds Idyllic-Until You Consider Taxes Who Pays Tax On Joint Bank Accounts? 10 IRS Rules for Stress-Free Foreign Accounts Can Foreign Account Nondisclosure Be A Conspiracy? Is Closing Foreign Bank Accounts An Alternative To Disclosure? How To Report Foreign Gifts And Bequests To IRS Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
ce4cf3689eaedeee4f6c0188afcb0fd4	https://www.forbes.com/sites/robertwood/2012/06/05/beware-film-and-other-tax-shelter-deals-that-go-criminal/	Beware Film And Other Tax Shelter Deals That Go Criminal	Beware Film And Other Tax Shelter Deals That Go Criminal Daniel Adams (Image via movies.yahoo.com) Special tax incentives are as American as apple pie. Tax deductions are great. Tax credits are even better since they reduce your taxes dollar-for-dollar. That can make tax credits practically intoxicating. But confusingly, some laws remain in place for decades while others pass in and out of the law quickly. See Snookered By The Snooki Tax Credit? Tax credits can be federal or state and the rules may not apply across the board. No one can be expected to know them all, but you don’t want to misstep, especially when trafficking in tax shelters can mean jail. That may be what Richard Dreyfuss and others were thinking when they saw a Massachusetts film tax credit deal go up in smoke. Daniel Adams pleaded guilty to larceny, a false filing with the Massachusetts Department of Revenue and procuring the preparation of a false tax return. See Director Daniel Adams Sentenced to Prison for Tax Credit Fraud. Adams was sentenced to 3 years in prison and 10 years probation. Plus, he was ordered to pay over $4 million in restitution. See Movie Director Pleads Guilty to Massachusetts Film Tax Credit Fraud. Like many film tax credits, this one hoped to bring movies to the state. But Adams overstated expenses, including how much he paid to Richard Dreyfuss for starring in The Lightkeepers. Another questioned movie was The Golden Boys, starring Bruce Dern, David Carradine, Rip Torn and Mariel Hemingway. Adams may have forgotten the fundamentals. Whatever the tax rule, you can say you paid one figure when you really paid another. The IRS, state and local tax authorities will notice. See IRS Wins Tax Shelter Trifecta. And when they do, the treatment can be severe. An Iowan judge sentenced Minnesota film producer Wendy Weiner Runge to a whopping 10 years in prison over the Iowa film credit. See When Too Good Tax Deals Become Fraud. The Iowa program promised big tax credits---a whopping 50% of production costs---to filmmakers. But the credits were widely transferred, with filmmakers swapping credits for cash to those having Iowa tax liabilities. It wasn’t even clear that the production costs were legitimate. Audit figures showed film budgets padded with expensive and unneeded items that were really being financed with the tax credits. See Iowa Film Tax Credit Program Racked By Scandal. Be careful out there. For more, see: When Too Good Tax Deals Become Fraud Avoid IRS Hit List Of Tax Scams Don't Look For (Tax) Shelter Under Wells Fargo Wagon Paying Taxes Pennies On The Dollar How Bad Is Your Tax Shelter? British Lawyer Nabbed at JFK For Helping Americans Hide Swiss Accounts Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
f19c0aec3929f6c071b2644e2bae8b9b	https://www.forbes.com/sites/robertwood/2012/08/27/post-olympics-brits-even-embrace-fatca/	Post Olympics, Brits Even Embrace FATCA	Post Olympics, Brits Even Embrace FATCA Image credit: AFP/Getty Images via @daylife It’s hard to whisper FATCA---shorthand for the Foreign Account Tax Compliance Act---without sparking curse words. U.S. expats hate it since some foreign banks just shut out Americans they see as more trouble than they’re worth. See FATCA Makes Banks Shut Out Americans. Financial institutions hate it for the high standards and hassles it causes. See FATCA Carries Fat Price Tag. Foreign governments hate it for making the IRS more powerful than their own countries' tax agencies. Besides, FATCA won’t even make the IRS much money. See Will IRS Get Fat Off FATCA? But the Obama administration has done a slick job of greasing the wheels of international commerce and quelling what could have been veritable repeal riots. See 5 Nations Join U.S. In Tax Evasion Crackdown. Now FATCA has a new fan base from an unlikely source: the Brits. Sure, there's a post-Olympic glow and international goodwill. Yet it turns out British legislators want their own FATCA. See MPs seek British version of US tax disclosure rules. Just like Brits embraced the hamburger, they want a U.S.-style automatic disclosure by foreign banks and tax authorities on U.K. citizens. Why? Cross-border tax evasion. That means U.K. citizens and U.K. companies will get reported for foreign accounts just like Americans. The Brits even want to drum up support from other European nations to join the FATCA bandwagon. It’s too soon to say if British legislators will enact a right-hand drive version of FATCA. But who would have thought it? FATCA isn’t even fully implemented yet. Many think the true test is coming in January 2013. In 2012, most taxpayers with foreign financial assets worth $50,000 or more must file a Form 8938. See Summary of Key FACTA Provisions. Unlike FBARs, this form is filed with your tax return. If you extended your tax return filing to October 15, 2012, it extends the date to file your Form 8938. That gives you a little time to figure this out. See IRS Form 8938 Or FBAR? and More On IRS Form 8938 vs. FBAR. Yet this filing is nothing compared to what’s facing foreign financial institutions. January 1, 2013 is D-Day for FATCA implementation. See IRS Plans to Retain January 1 Effective Date for FATCA. Foreign institutions have to comply or face serious U.S. actions. Many foreign banks don’t want to open new---or even keep existing---accounts for Americans. See Living Abroad Sounds Idyllic---Until You Consider Taxes. FATCA seems pretty secure now despite resounding critiques. The Wall Street Journal’s William McGurn castigates FATCA here: Obama’s IRS Snoops Abroad. But as they say, imitation is the sincerest form of flattery. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
183bc8c81198eb2a0d0d933c38764c0c	https://www.forbes.com/sites/robertwood/2012/10/30/estate-planning-isnt-ghoulish-and-can-save-millions-this-year/	Estate Planning Isn't Ghoulish And Can Save Millions This Year	Estate Planning Isn't Ghoulish And Can Save Millions This Year Photo credit: solyanka It's not ghoulish to think about death, especially this year. On Halloween, in mid-November or early December, there's still time to plan. If there's no revised estate tax law by New Year’s it will be too late: January 1 a $5 million perk drops to $1 million. Most people haven't taken advantage of the incredibly favorable estate and gift tax law expiring in 2012. See It Pays To Plan For Future Estate Tax Changes. Congress enacted a $5 million exemption for both gift and estate taxes but only through 2012. See Making Tax Decisions In Limbo. Indexed for inflation, the exemption is now $5,120,000. But the exemption drops to $1 million January 1, 2013. A free pass to give away up to $5,120,000 without tax (up to $10,240,000 for a married couple) may never come again. Properly managed, lifetime gifts of appreciating property can allow even more appreciation to escape estate tax. Gifts need not be made with no strings attached. Trusts, LLCs, and insurance can increase the amount escaping tax yet allow you to retain control. That way recipients don’t have unfettered access to the assets. Even if you have never done estate planning, this year is a good time to start. In 2001, Congress increased the estate tax exemption in measured steps until December 31, 2009. Everyone assumed there would be comprehensive reform. But what happened? Congress failed to act so in 2010, there was no estate tax. With superb timing more than a few billionaires died in 2010, and no estate tax was due for these whopping estates. See Ghoulish Estate Planning Before New Year’s? As for Mr. Obama and Mr. Romney, the estate tax remains a political football. Mr. Romney advocates estate tax repeal, while Mr. Obama proposes a 45% rate with a $3.5 million exemption. But post-election there will be debates about this. See Death Tax Resurrection. In the meantime, the rest of 2012 is a bargain and you don’t have to die to take advantage of it. Between now and December 31, 2012, each person can can give away $5,120,000 without gift or estate tax. That’s up to $10,240,000 per couple tax-free. Consider it before it’s too late. It’s almost as certain as death and taxes. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
81ec7fe7f99363776d4b33100015dbaf	https://www.forbes.com/sites/robertwood/2012/11/07/irs-thwarts-voters-who-legalized-medical-marijuana/	Voters Say Yes To Marijuana, IRS Says No	Voters Say Yes To Marijuana, IRS Says No Photo credit: dannybirchall A total of 18 states and the District of Columbia have legalized medical marijuana. Massachusetts just came on line after the November 6, 2012 vote. Colorado and Washington just went further to legalize recreational use too. See Colorado, Washington First States to Legalize Recreational Pot. But can a legal dispensary operate like a “legitimate” business? Amazingly, they can’t and are still labeled as drug traffickers. Massachusetts eliminated state criminal and civil penalties for the medical use of marijuana by patients with cancer, glaucoma, HIV-positive status or AIDS, hepatitis C, Crohn’s disease, Parkinson’s disease, ALS, or multiple sclerosis. See Medical marijuana law passes in Massachusetts. But no matter how “legal” the states make it the IRS is federal and that means trouble. American businesses pay tax on their net not their gross income and business expenses are as American as apple pie. But Section 280E of the tax code denies deductions for any business trafficking in controlled substances. This black letter rule to stop drug dealer tax deductions also covers medical marijuana since federal law still classifies it as a controlled substance. Every dispensary is impacted including California’s massive Harborside Health Center. Understandably, the IRS says it must abide by and enforce Section 280E. Yet the U.S. Tax Court has opened the door a crack, allowing dispensaries to deduct other expenses distinct from dispensing marijuana. See Californians Helping to Alleviate Medical Problems Inc. v. Commissioner. The end-run works like this. If a dispensary sells marijuana and engages in the separate business of caregiving, the caregiving expenses are deductible. If only 10% of the premises are used to dispense marijuana, most of the rent is deductible. But good record-keeping is essential. See Medical Marijuana Dispensaries Persist Despite Tax Obstacles. But good records won't make expensive vaporizers or other drug "paraphernalia" deductible. In Olive v. Commissioner, Martin Olive sold medical marijuana at the Vapor Room. Vaporizers extract marijuana’s principal active component, allowing patients to inhale vapor rather than smoke. The IRS presented a big bill which the Tax Court upheld. With only one business, Section 280E precluded Olive’s deductions. Mr. Olive may have had other problems---the IRS said he under-reported gross receipts. But the need for the two business allocation dance is unfortunate. If a dispensary only sells marijuana, all deductions are verboten. At least inventory costs---buying product for resale---appear to be treated as cost of goods sold and can be claimed as an offset to income. Here again, though, good records are key. In any event, further legal battles---tax and otherwise---seem inevitable. Until the tax code is changed, taxes make for a messy and expensive situation. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
0f3e8d3fa239d7aa2b63bf8e6b1fa8b7	https://www.forbes.com/sites/robertwood/2012/11/08/leaving-california-and-its-taxes-be-careful/	Leaving California And Its Taxes? Be Careful	Leaving California And Its Taxes? Be Careful It is easy to love California, but its high taxes? Not so much. And it just got worse as California Voters Sock It To The Rich. Some will head for the exits before selling real estate or a business, taking a company public or winning a large legal settlement. Here are a few tips culled from 30 years of tax practice in the Golden State. A California resident is anyone in the state for other than a temporary or transitory purpose. See FTB Publication 1031. Plus, it includes anyone domiciled in California who is outside the state for a temporary or transitory purpose. The burden is on you to show you’re not a Californian. If you’re in California for more than 9 months, you are presumed a resident. Yet if your job requires you to be outside the state, it usually takes 18 months to be presumed no longer a resident. Your domicile is your true, fixed permanent home, the place where you intend to return even when you’re gone. Do you maintain a California base in a state of constant readiness for your return? You can have only one domicile, and it depends on your intent. How do you measure intent? Objective facts, and many are relevant. Start with where you own a home. If you own several, compare size and value. Consider if you claim a homeowner’s property tax exemption as a resident. Where your spouse and children reside count too, as does where your children attend school. If you claim not to be a California resident, make sure you are paying non-resident tuition for college students. Your days inside and outside the state are important, as is the purpose of your travels. Where do you have bank accounts and belong to social, religious, professional and other organizations? Voter registration, vehicle registration and driver’s licenses count. Where you are employed is key. You may be a California resident even if you travel extensively and are rarely in the state. Where you own or operate businesses counts, as does the relative income and time you devote to them. You can own investments far and wide, but you can expect them to be compared. Where you obtain professional services matters, including doctors, dentists, accountants and attorneys. Fortunately for California tax advisers, the mere fact that you hire a California tax lawyer to advise you about your California tax exposure doesn’t mean you’re a resident. Many of these points are probably not too significant one by one. Yet they have a cumulative effect pro or con. If you leave California, sell your residence or at least rent it out on a long-term lease. Don’t just get a post office box in Nevada. That doesn’t work and you will end up with bills for taxes, interest and penalties or worse. If you're going to move, you need to actually do it. Like other high tax states, California is likely to pursue you and probe how and when you stopped being a resident. Get some legal advice and plan carefully. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
a7b5269e025aa2e769aa72a8658ed27f	https://www.forbes.com/sites/robertwood/2012/11/11/should-you-grab-pay-in-2012-or-defer-til-2013/	Should You Grab Pay In 2012 Or Defer 'Til 2013?	Should You Grab Pay In 2012 Or Defer 'Til 2013? NASDAQ in Times Square, New York City, USA. (Photo credit: Wikipedia) Conventional wisdom says always pay tax later. That means delaying income into January when you can. But climbing rates and uncertainty cut the other direction, and this year-end is especially hard to handicap. Long term capital gains are easiest to decipher. The current 15% rate jumps to 23.8% January 1, wrought from a combination of the new 20% rate plus the 3.8% health care add on that will hit most with incomes above $200,000. That means selling in 2012 is preferred. Ordinary income isn’t so clear, though top rates jump from 35% to 39.6% in January. The payroll tax cut ends too. But some people still want to delay taking receipt. Just remember that for some income you may not have a choice. If you have a legal right to payment, the IRS can tax you even if you choose not to receive it. It’s called constructive receipt. The classic example is a bonus. Say your employer tries to hand it to you at year-end, but you insist you’d rather receive it in January to postpone taxes. Because you had the right to receive it in December it is taxable then even though you might not pick it up until January. If your company agrees to delay payment and actually reports it as paid in January you will probably be successful. Yet even here the IRS might say you had the right to it in the earlier year. The situation is different if you negotiate for deferred payments before you provide services. In general, you can negotiate for delayed pay up front. You can also set conditions. Suppose you are selling your car. A buyer offers you $30,000 and holds out a check. Is this constructive receipt? No. You can agree to sell but insist on payment in January and it will be respected. Because you condition the transaction on a transfer of legal rights (title and delivery), there is no constructive receipt. See Want A Piece Of Nasdaq’s $40M Facebook Settlement? If you are settling a lawsuit, you can refuse to sign the settlement agreement unless it says the defendant will pay you in installments. See When ‘I’m Too Sexy’ Lawsuit Settles, Will IRS Win Too? There is no constructive receipt if you condition your signature on receiving payment in the fashion you want. That is different from having already performed services, being offered a paycheck and delaying accepting it. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
17362c45fd94a3115eff38c4f71b7509	https://www.forbes.com/sites/robertwood/2012/11/30/how-to-manipulate-your-2012-v-2013-pay/	How (Not) To Manipulate Your 2012 v. 2013 Pay	How (Not) To Manipulate Your 2012 v. 2013 Pay (Photo credit: MoneyBlogNewz) With tax rates rising, there's a lot of year-end jockeying. Most people want to grab income now, not next year when rates will be up. Should you grab pay in 2012 or defer 'til 2013? Some want the reverse, but you can't always choose. Constructive receipt requires you to pay tax when you have a legal right to payment even if you chose to be paid later. The classic example is a bonus your employer tries to hand you, but you insist you’d rather receive it in January. Because you had the right to receive it in December, it is taxable then. The IRS can say you had the right to it in the earlier year even if your company pays you in January and puts it on your next year’s Form W-2. It’s different if you negotiate for deferred payments before you provide services. If you contract to provide services in 2012 with the understanding that you will complete all services in 2012, but will not be paid until February 1, 2013, is there constructive receipt? No. In general, you can do this kind of tax planning as long as you negotiate for it up front and have not yet performed the work. The IRS won't like it if you document a transaction one way and later argue you didn’t mean it. That’s what happened to consulting partners of Ernst & Young when they sold to Cap Gemini for stock. The stock was subject to restrictions, but the partners thought it was better to pay tax that year so increases in the Cap Gemini stock would be long term capital gain. When the Cap Gemini stock plummeted instead, the partners filed amended returns claiming the stock was restricted so couldn’t be taxed. In Hartman v. U.S., the Court of Appeals for the Federal Circuit held the returns were right the first time. The partner exercised control even though he couldn't sell for five years. These courts agreed in similar cases: The Fourth Circuit in U.S. v. Bergbauer; The Seventh Circuit in U.S. v. Fletcher; and The Eleventh Circuit in U.S. v. Fort. Apart from the obvious importance of the constructive receipt rule, these cases are also about being consistent and sticking with your choices. Sometimes things just can't be undone. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
c2ba0d5b213d99bdda2f31bf004769cf	https://www.forbes.com/sites/robertwood/2012/12/27/facebook-mirrors-googles-offshore-tax-scheme/	Facebook Mirrors Google's Offshore Tax Scheme	Facebook Mirrors Google's Offshore Tax Scheme google+ facebook (Photo credit: Sean MacEntee) What is a tax scheme and what’s legitimate tax planning? It may be a question of opinion. Besides, a “scheme” has different connotations in the U.S. and U.K. But however you slice it, Google and Facebook have something in common. Both companies have used a kind of sandwich not for sustenance but for tax minimization. Recent reports state that Facebook flipped more than $700 million to the Cayman Islands last year as part of a "Double Irish" tax reduction strategy. See Facebook Defends its 'Double Irish' Tax Reduction Deal. Recall that former Zuckerberg pal and co-founder Eduardo Saverin took considerable heat when he exited the U.S. for Singapore. See Expats Face Steep Exit Tax Courtesy Of Facebook. Yet Facebook is recently under more fire than Mr. Saverin. See Facebook Paid £2.9m Tax on £840m Profits Made Outside US. From an outsider’s perspective, it looks like Facebook Funneled Nearly Half a Billion Pounds Into the Cayman Islands Last Year. Yet Facebook's technique may not be overly aggressive. Big multinational companies can hire tax lawyers to come up with ways to reduce the company's effective tax rate from 35% to much less. Google reportedly used the Double Irish and the Dutch Sandwich, saving the company billions in U.S. taxes. The Double Irish involves forming a pair of Irish companies to turn payments on intellectual property into tax-deductible royalty payments. The U.S. parent company forms a subsidiary in Ireland. The parent signs a contract giving European rights to its intangible property to the new company. In return, the new subsidiary agrees to help market or promote those products in Europe. Thus, all the European income–that previously would have been taxed in the U.S.—is taxed in Ireland instead. Then the Irish company changes its headquarters to Bermuda–a true tax haven. So far, there has been no Irish tax, no Bermuda tax, and no U.S. tax. Finally, the parent forms a second Irish subsidiary that elects to be treated as disregarded under U.S. tax law–by filing a one-page form. The first Irish company (now in Bermuda) can now license company products to the second Irish company for royalties. The net result is one low 12.5% Irish tax compared to 35% in the U.S. Even this tax can be reduced, since the royalties going to the Bermuda company are deductible. Some of these steps may seem circuitous (they are). Tax treaties permit this, yet a deal done directly with Bermuda (and without all the layers) would incur a tax. Lunch Money? The Dutch Sandwich has been used for decades but involves another layer of complexity. One starts with a Double Irish but adds a third subsidiary in the Netherlands. Instead of licensing the parent’s products directly to the second Irish subsidiary, the Bermuda-based subsidiary first grants them to the Dutch subsidiary, which in turn pays the third subsidiary. The key is that Ireland does not tax money as it moves between European countries. Then the Netherlands takes only a tiny fee on monies going from a Netherlands company to the Bermuda subsidiary. In the end, there is virtually no tax. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
bf629336d2d75ef80870c1ed4edc5ee8	https://www.forbes.com/sites/robertwood/2013/01/29/judge-gives-irs-access-to-more-accounts-at-ubs-and-wegelin/	Judge Gives IRS Access To More Accounts At UBS And Wegelin	Judge Gives IRS Access To More Accounts At UBS And Wegelin (Image credit: AFP/Getty Images via @daylife) Just when it seemed as if every Swiss bank account was out in the open, the IRS is on the scent again. A federal judge has approved a John Doe Summons on UBS for secret account data about Wegelin & Co, the indicted and doomed Swiss bank. That means more names of more account holders. See With Indictments, IRS Will Get More Data From Swiss. U.S. District Judge William H. Pauley III in New York ruled that the IRS can demand information from UBS about U.S. clients of Wegelin. After all, Wegelin already pleaded guilty to conspiring to help cheat the IRS and to hiding more than $1.2 billion. The IRS brought down the oldest Swiss bank with a guilty plea despite the fact that Wegelin has no U.S. offices and no U.S. presence. That by itself was a powerhouse feat. See FATCA Cliff: Tax Evasion Guilty Plea And Death For Oldest Swiss Bank. Now, the other shoe has landed with a coveted John Doe Summons that will surely turn up records showing U.S. authorities who held assets at Wegelin and other Swiss institutions using the UBS account. With a normal summons, the IRS seeks information about a specific taxpayer whose identity it knows. A John Doe summons allows the IRS to get the names of all taxpayers in a certain group. It's like fishing with a net and the IRS needs a judge to approve it. It was a John Doe summons that blew the lid off Swiss banking in 2008. A judge allowed the IRS to issue a John Doe summons to UBS for information about U.S. taxpayers using Swiss accounts. Swiss law prohibits banks from revealing the identity of account holders, but the rest is history. After sniffing out American taxpayers with UBS accounts, the IRS did the same with HSBC in India. See Can Foreign Account Nondisclosure Be A Conspiracy? Now, with another round of names coming, the UBS mess comes full circle. The fact that the Wegelin names will come via UBS may seem ironic. After all, when UBS was under scrutiny, many Americans moved accounts from UBS to the lower profile and more decidedly Swiss Wegelin. With no offices anywhere outside Switzerland, Wegelin was perfectly discreet. But that was then. Wegelin is now convicted and closing. That may be the last chapter for Wegelin but not for the Swiss banking debacle. More disclosures and more prosecutions seem certain. In the meantime, this goes down as another big IRS victory. It seems likely to produce more account holders, some of whom may have been fence sitting about voluntary disclosures. If there's any lesson here, it may be that the fence is getting narrower and sharper. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
d638fdfd999a039a953108e218f90ff3	https://www.forbes.com/sites/robertwood/2013/02/20/like-a-good-neighbor-they-too-move-for-tax-reasons/	Good Neighbor? Even State Farm May Move For Tax Reasons	Good Neighbor? Even State Farm May Move For Tax Reasons State Farm Insurance (Photo credit: Wikipedia) There’s been considerable talk about moving for tax reasons. Facebook’s Eduardo Saverin, left the U.S. for Singapore, France’s Gerard Depardieu considered Belgium but settled on Russia, and Phil Mickelson grumbled about California’s tax rates compared to no-tax Florida and Texas. There’s a curious debate over whether such talk is patriotic or mercenary. Some tax motivated moves are disguised as something else to quell criticism aimed at anyone preferring a place with a lower rate. When France’s Gerard Depardieu said he was leaving France’s 75% rate, he was accused of being unpatriotic. Facebook’s Eduardo Saverin's expatriation prompted a tax bill to slap even higher taxes on those deigning to say sayonara. See Why Facebook’s Co-Founder Just Defriended America. There’s even a debate whether taxes motivate moves, with some arguing it does not. See The Myth of the Rich Who Flee From Taxes. Yet whether taxes are at the heart of a move or merely one factor, they matter. See Mickelson's Law: Tax Moves Aren't Myths. Even Illinois stalwart State Farm Insurance could leave its home state. Based in Bloomington Illinois, State Farm is a major employer. It has not announced plans to move. Some say it is doing the opposite, telling management there’s no move planned. However, some have noted new office leases in Dallas, and reported that Atlanta too may get State Farm workers. See Like a Good Neighbor, State Farm Flees Illinois. If the move happens, is it tax motivated? Taxes are almost surely part of the equation. After all, Illinois raised individual and corporate tax rates substantially, and State Farm would not be the only company to go. Texas Governor Rick Perry has made no secret of the fact that his no-tax state is a great place for business and workers. To the chagrin of California Governor Jerry Brown, Perry’s recent romp through California may have drummed up some future Texans. See Tax Alamo: California, Texas Fight For Residents. Time will tell. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
12285d5c0a98b7f2f79afc1f28e4e416	https://www.forbes.com/sites/robertwood/2013/04/25/harvard-law-school-offers-tax-planning-for-marijuana-dealers-no-joke/	Harvard Law School Offers 'Tax Planning For Marijuana Dealers'---No Joke	Harvard Law School Offers 'Tax Planning For Marijuana Dealers'---No Joke Pound Hall at Harvard Law School (Photo credit: Wikipedia) I’m the last one to say this is a silly topic, because it is not. But you have to admit it sounds a little funny. Bizarrely--and there’s much in our tax law that’s downright bizarre--there’s actually a need for this kind of, er, down and dirty tax planning session. And someone should bring the Cheetos. Perhaps Harvard's Board of Trustees will get wind of it and get upset. But the ire should be directed at tax rules that need fixing. Now that we have legalized medical marijuana in 18 states and the District of Columbia can these businesses be run like businesses? Not really. Massachusetts was the most recent entrant, and its marijuana businesses, like those in all the other states, face legal and tax problems. For that matter, Colorado and Washington have even legalized recreational use. Again, tax problems there too. Why? Because even legal dispensaries are drug traffickers to the feds. Section 280E of the tax code denies them tax deductions, even for legitimate business costs. Of all the federal enforcement efforts, taxes hurt most. “The federal tax situation is the biggest threat to businesses and could push the entire industry underground,” the leading trade publication for the marijuana industry reports. One answer is for dispensaries to deduct other expenses distinct from dispensing marijuana. If a dispensary sells marijuana and is in the separate business of care-giving, the care-giving expenses are deductible. If only 10% of the premises are used to dispense marijuana, most of the rent is deductible. Good record-keeping is essential. See Medical Marijuana Dispensaries Persist Despite Tax Obstacles. Another idea was presented April 24 at Harvard by Professor Benjamin Leff of American University’s Law School. Professor Leff’s paper carried an unvarnished title: Tax Planning for Marijuana Dealers. It was part of Harvard’s Tax Policy Seminar hosted by Harvard Prof. Stephen Shay. Mr. Leff correctly pointed out the 280E Catch 22 and came up with another end run. Marijuana sellers could operate as nonprofit social welfare organizations, he suggested. See Growing the Business: How Legal Marijuana Sellers Can Beat a Draconian Tax. That way Section 280E shouldn’t apply. A social welfare organization must promote the common good and general welfare of people in its neighborhood or community. Operating businesses in distressed neighborhoods to provide jobs and job-training for residents? That could fit a dispensary nicely. You don’t need a Harvard education to see that there’s something wrong with this picture. Meanwhile, Congressmen Jared Polis (D-CO) and Earl Blumenauer (D-OR) have introduced a bill to end the federal prohibition on marijuana and allow it to be taxed. This legislation would remove marijuana from the Controlled Substances Act. That way growers, sellers and users could no longer fear violating federal law. Their Marijuana Tax Equity Act would also impose an excise tax on cannabis sales and an annual occupational tax on workers dealing in the growing field of legal marijuana. Whatever happens, it's at least good that someone is paying attention to this mess. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. Also on Forbes: Gallery: The 25 Law Schools Whose Grads Earn The Most 26 images View gallery
a671e20fe24d7dae28531e4b1669a842	https://www.forbes.com/sites/robertwood/2013/04/29/despite-offshore-haul-irs-hunts-quiet-disclosures-first-time-fbars/?commentId=comment_blogAndPostId%2Fblog%2Fcomment%2F1057-18564-3597	Despite Offshore Haul, IRS Hunts Quiet Disclosures, First Time FBARs	Despite Offshore Haul, IRS Hunts Quiet Disclosures, First Time FBARs Photo credit: Wikipedia The latest report from a government watchdog agency called the Government Accountability Office (GAO) may not be pleasure reading, but if you want to know how well the IRS attack on offshore tax evasion is coming, it is worth a look. Besides, the GAO makes recommendations to the IRS, and the IRS pays attention. Those recommendations could put some taxpayers in trouble or maybe even prison. So-called “quiet disclosures” are evidently rampant. Taxpayers quietly amend past tax returns and FBARs to avoid the Offshore Voluntary Disclosure penalties. See “Quiet” Foreign Account Disclosure Not Enough. Billions of dollars are at stake. As the IRS ramps up its new hunt, some with foreign accounts might alter their intended course of action. The GAO report, Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion, starts with key findings: 39,000 disclosures to the IRS scooped up $5.5 billion in taxes and penalties. The median foreign account balance (of 10,000 cases from the 2009 OVDP) was $570,000. 6% paid IRS penalties over $1 million. More than half involved UBS. Quiet Storm. But the GAO says the IRS knows there are many quiet disclosures. The GAO analyzed 2003-2008 amended tax returns, matched them to offshore accounts and found even more quiet disclosures than the IRS. First time reporters of offshore accounts skyrocketed. The IRS is missing out on many. Find them, says the GAO. Reports of foreign accounts nearly doubled to 516,000 from 2007-2010. If 39,000 people applied for IRS amnesty, what about the hundreds of thousands who didn’t? Many people don’t participate and make “quiet disclosures” by amending returns or just reporting prospectively. And that means several tens of billions of dollars. Among other things, GAO says the IRS should: Explore options to more effectively detect and pursue quiet disclosures; and Analyze first-time offshore account reporting trends to catch people trying to avoid paying what they owe. In fact, GAO says the IRS should identify, ferret out and pursue quiet disclosures. While the IRS is free to take action however it wants, GAO says it should look at Schedule B and see if the “I have a foreign account” box has been checked. If it wasn’t checked the prior year? Check it out! The same with new FBARs. Why didn’t you file an FBAR last year, sir? Just when was that account opened anyhow? See FBAR Penalties: When Will IRS Let You Off With A Warning? As for the IRS, it quickly agreed with all of the GAO's recommendations. That means we should expect a wave of audits, investigations, and action. How many and how serious they will be is anyone's guess. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
690ed49cc28293d9d1a99179042d912a	https://www.forbes.com/sites/robertwood/2013/05/02/irs-takes-a-bite-out-of-bitcoin/	IRS Takes A Bite Out Of Bitcoin	IRS Takes A Bite Out Of Bitcoin (Photo credit: btckeychain) Bitcoin is virtual currency much in the news these days. It's peer-to-peer so there’s no central bank or government. But if you think that means the IRS won’t get a piece, think again. The IRS already gets a piece where you swap one product or service for another, as the IRS explains at its Bartering Tax Center. Soon the IRS may have a Bitcoin Center too. The Treasury unit called FinCEN, the Financial Crimes Enforcement Network, already has rules about Bitcoin and the IRS is likely to follow. In the meantime, the tax rules seem pretty clear. If you provide services or sell goods for Bitcoin, you have income. If you exchange Bitcoins for cash, whether you have gain may depend on whether Bitcoin is really currency or commodity. The latter seems more likely, meaning you have gain to the extent of the appreciation in your Bitcoin. Income is income, whether you get it in cash or in kind. Bitcoin may be accepted as currency and may not be easy to trace but so are trades and barters. When you barter or swap one item for another, both parties have tax consequences. That's so even if one party wants credit for later. Trade or barter dollars allow you to barter when one party wants goods or services and the other wants credit for the future. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash. And even trades are still taxed. Plumbing for dental work? The IRS taxes it. You name the swap, it’s income to both sides just like cash. Both must report the fair market value of goods or services received on their tax returns. See Do You Barter? The IRS Wants Its Cut. Most casual barter exchanges probably aren’t on the tax radar. Most Bitcoin transactions aren’t either. But even simple trades trigger multiple tax rules. If you receive $1,000 of dental work for your gardening services, you have $1,000 of income. If you swap your wristwatch for a painting, it’s two separate taxable transactions. Say you inherited the watch from your uncle when it was worth $5,000. If it’s doubled in value to $10,000 and the painting is also worth $10,000, you have $5,000 of income. (Section 1031 exchanges of some business and investment property can be tax-free, but that's no help here.) The Forbes E-book On Bitcoin Secret Money: Living on Bitcoin in the Real World, by Forbes staff writer Kashmir Hill, can be bought in Bitcoin or legal tender. How will the IRS know about your swap? They probably won’t unless you receive a Form 1099. Still, the IRS says you must report any income on your return regardless of whether you receive a Form 1099. See IRS Form 1099: God Particle Of The Tax System. The FinCEN rules say Bitcoin exchanges and Bitcoin miners should register as Money Services Businesses (MSBs) and comply with anti-money laundering regulations. Ordinary Bitcoin users don't have to register just to purchase goods and services. But will Forms 1099 and other nettlesome signs of civilization soon bite Bitcoin? Yes, and probably soon. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. Also From Forbes: Gallery: Taxes A To Z: 2013 26 images View gallery
dd531f3cf4f910ecb5f4a070b244595f	https://www.forbes.com/sites/robertwood/2013/05/03/six-rules-about-betting-on-the-kentucky-derby/	Six Rules About Betting On The Kentucky Derby	Six Rules About Betting On The Kentucky Derby LOUISVILLE, KY - MAY 02: Orb runs on the track during the morning training for the 2013 Kentucky... [+] Derby at Churchill Downs on May 2, 2013 in Louisville, Kentucky. (Image credit: Getty Images via @daylife) On May 4th, the 20 horses in the Kentucky Derby will race for the finish line and a healthy purse, but the winnings are actually much bigger for the owners, trainers, jockeys and many others connected with the sport. And the gambling take is another matter entirely. It’s traditional to place a bet and the winnings can pay off handsomely. Plus, U.S. law still allows legal online betting and some of the rewards are grand. How grand? 2012 saw a 15-1 payoff on I’ll Have Another, and the second-place finisher Bodemeister was 4-1. As handicapper Seth Merrow points out in Who Do You Like? Betting The 2013 Kentucky Derby "the exacta paid $306.60. In 2011, it was 20-1 over 8-1, paying $329.80. In 2010, 8-1 over 11-1 for a $152.40 exacta. And in 2009 --- when things got 'a little bit crazy' --- it was 50-1 Mine That Bird winning over a 6-1 shot. The exacta paid a whopping $2,074.80. At the $1 bet increment, a seven-horse exacta box will cost $42, and we win if any of our seven horses finish first and second." Top choices this year include Orb at 5:1, with a Florida Derby win. The jockey is Joel Rosario, now ranked third among active jockeys. Verrazano is at 9:2 with a Wood Memorial win, ridden by 2011 Kentucky Derby winner, John Velazquez. But whoever wins, there will be some nice payoffs. But remember to save some for the tax man. Gambling winnings are fully taxable and must be reported. Yup, gambling winnings are always taxable income. What’s included? Gambling income includes winnings from lotteries, raffles, horse and dog races and casinos. What’s more, if you win in kind, you’ll have to pay tax on the fair market value of prizes such as cars, houses, trips or other noncash prizes. You name it, it’s taxed. Here are six tax rules about gambling winnings: 1. Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G, a special form for reporting certain gambling winnings. They may even withhold federal income taxes from the payment. But even if they don’t, you still have to report and pay tax. For information on withholding on gambling winnings, refer to IRS Publication 505, Tax Withholding and Estimated Tax. 2. The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You like the simpler form? Too bad. You can’t use Form 1040A or Form 1040EZ. But don’t wait until tax return time. In some cases you may be required to pay an estimated tax on your gambling winnings. 3. If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040. (But see below for strict recordkeeping rules.) 4. You can’t deduct gambling losses that are more than your winnings. 5. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. 6. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Sadly, this is why most people are not able to claim their losses. See IRS Publication 529, Miscellaneous Deductions. Bottom Line? Keep Good Records. Recreational gamblers need to keep a diary or other contemporaneous record of how much they bet and lose on each visit. That’s because your occasional big win will be reported to the IRS by the casino. You can use gambling losses to offset your winnings. But if you don’t keep good records you could end up a two-time loser—losing once at the tables and once to Uncle Sam. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement,Tax Institute), he can be reached at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
81558e31354a2783df01d38b726d8851	https://www.forbes.com/sites/robertwood/2013/05/09/trending-now-giving-up-u-s-citizenship/	Trending Now: Giving Up U.S. Citizenship	Trending Now: Giving Up U.S. Citizenship Photo credit: Wikipedia When CNN reports U.S. Citizens Ditching Passports in Record Numbers, it must be true. Like CNN’s election night coverage, the stats don’t lie. With over 670 U.S. citizens saying sayonara in the first 90 days of 2013, it’s shaping up to be the year of the expat. See also Q1 2013 - Highest Quarterly Number of Expatriates Ever (But...). Want to see if your neighbor is on the list? Check out this federal data. Notables include Mahmood Karzai, brother of Afghanistan’s President Karzai, Isabel Getty, daughter of Getty oil heir Christopher Getty and wife Pia. Maybe there’s someone from your own neighborhood. Last year the list included Facebook co-founder Eduardo Saverin and wealthy socialite Denise Rich, whose husband Marc was pardoned by President Clinton. See Why Denise Rich Followed Eduardo Saverin's Expat Lead. Then there was music icon Tina Turner. See Swiss Tina Turner Giving Up U.S. Passport. Although last year it looked like the departed were falling--see Forget Taxes And Saverin; Actually, Expatriations Are Falling--this year is going the other direction in a big way. In fact, for a period of only three months, it’s the highest number ever. The last 3 months of 2012 numbered only 45, so there may be some spillover effect. Where they go varies, but many countries are an easier sell in both tax rates and tax systems. America’s controversial worldwide income tax--inflexible and unforgiving--seems to invite greener pastures. See Expats Lobby For Tax on Residence, Not Worldwide Income. But despite grumblings, it is unlikely to change. So citizens seem to be embracing change themselves. And not just Americans. Previously, French and now Russian actor Gérard Depardieu has a low 13% flat rate, even better than Eduardo Saverin's 18% in Singapore. France’s bloated 75% makes Russia’s 13% seem svelte. In Britain, the number of £1 million a year taxpayers fell by over 60%. Still, leaving America has a special tax cost. You generally must prove 5 years of tax compliance in the U.S. Plus, if you have a net worth greater than $2 million or have average annual net income tax for the 5 previous years of $155,000 or more (that's tax, not income), you pay an exit tax. You generally pay 15% on any gain, as if you sold your property when you left. There’s an exemption of approximately $668,000. Citizens aren’t the only ones to suffer. Giving up a Green Card can cost you too. See High Cost To Go Green: Giving Up A Green Card. And it could get worse. Saverin’s post-Facebook fly-away prompted such outrage that Senators Chuck Schumer and Bob Casey introduced a bill to double that tax to 30% for anyone leaving the U.S. for tax reasons. See Senators Go After Eduardo Saverin, Facebook Co-Founder, For Dumping U.S. Passport, Avoiding Taxes. In recent years, the IRS crackdown on foreign accounts and income has been unprecedented. See FBAR Penalties Just Got Even Worse. Could it get worse? Maybe, and that could make this trend go viral. Contact me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
4af92174e3faa0721cc66874a3ee27e7	https://www.forbes.com/sites/robertwood/2013/05/15/angry-obama-says-irs-chief-resigned-other-heads-may-roll/	Angry Obama Says IRS Chief 'Resigned,' Other Heads May Roll	Angry Obama Says IRS Chief 'Resigned,' Other Heads May Roll US President Barack Obama makes a statement in the East Room of the White House May 15, 2013 in... [+] Washington, DC. Obama spoke about the recent scandal where the Internal Revenue Service is accused of targeting conservative organizations and announced that Acting IRS Commissioner Steven T. Miller had resigned. (Image credit: AFP/Getty Images via @daylife) No one wants to be in scotch with the IRS, but having the President mad can’t be any fun either. In the story that just won’t quit, acting Commissioner of the IRS Steven Miller resigned. It seemed inevitable after the story broke that Tea Party and other conservative groups were targeted for extra scrutiny in tax exemption applications. That was bad, but the cover-up was worse, with a mixture of who’s-on-first responses about who knew what when. Considering Congressional hearings and various statements under oath, some of it is inexcusable, especially for an agency that must rely on taxpayers self-assessing their taxes. Mr. Obama said Miller was asked to resign because the agency needs new leadership while it faces a broad probe of its conduct. See Transcript of Obama’s Remarks on IRS Misconduct. The President promised full cooperation with the multitude of congressional investigations. See Acting Chief of I.R.S. Forced Out Over Tea Party Targeting. “It’s important to institute new leadership that can help restore confidence,” said President Obama. The last IRS Commissioner, Douglas Shulman, stepped down in November, so the President is due to appoint a new Commissioner in any event. “This has been an incredibly difficult time for the IRS given the events of the past few days,” Miller wrote in a letter to IRS employees. “And there is a strong and immediate need to restore public trust in the nation’s tax agency.” The president characterized Miller’s resignation as the first step to “hold the responsible parties accountable.” That sounds ominous, and Congress is lining up investigations. There’s good reason, since the report by the Treasury Inspector General for Tax Administration depicted a bureaucratic mess, with some employees ignorant about tax laws, defiant of supervisors and insensitive to the appearance of impropriety. See Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review. Sen. Orrin Hatch, R-Utah, challenged IRS claims that only low-level staffers in Cincinnati went rogue. Steven Miller, IRS Deputy Commissioner at the time, who just resigned as Acting Commissioner, was alleged to have assured members of Congress there was no problem after allegedly being told there was. Mr. Hatch called it “Either the Greatest Cases of Incompetence that I’ve Ever Seen or it was the IRS Willfully Not Telling Congress the Truth.” Announcing Miller’s departure at the White House, President Obama said angrily that IRS actions were “inexcusable and Americans are right to be angry about it and I’m angry about it,” adding, “I will not tolerate this type of behavior in any agency but especially the IRS given the power it has and the reach it has.” The buck--after taxes of course--stops here. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
ab2098c8e50d6c1b98238dd7fa0f69bc	https://www.forbes.com/sites/robertwood/2013/05/21/french-tax-soars-over-100/	French Tax Soars Over 100%	French Tax Soars Over 100% Flag of France (Photo credit: Wikipedia) Over 8,000 French households paid taxes topping 100% of their incomes, according to French Finance Ministry data. See Taxes on Some Wealthy French Top 100% of Income. You may scratch your head in disbelief. How is that possible? Stateside, you might guess it was the alternative minimum tax. In France, it was a one-time 2011 levy on incomes for households with assets over 1.3 million euros ($1.67 million). 8,000 families paying 100% may seem a small number, but nearly 12,000 households paid more than 75%. The percentages sure do grate. There was bitter controversy when President Francois Hollande's Socialist government imposed the tax surcharge shortly after taking office. It lead to some well-publicized departures, including actor Gerard Depardieu. He became a Russian citizen, including dinner with Vladimir Putin. Unimpressed, French Prime Minister Jean-Marc Ayrault labeled Depardieu “pathetic” and “unpatriotic.” The Constitutional Council eventually ruled the 75% rate unfair but gave a kind of template for the future. The government redrafted a proposed bill to levy a temporary 75% tax on earnings over 1 million euros. Taxes on the wealthy had been one of Hollande's campaign pledges. And Socialist President François Hollande did as he promised and slapped a 75% tax rate on millionaires. Despite France’s Constitutional Council, the tax is clearly coming back. Prime Minister Jean-Marc Ayrault said the government would reintroduce a revised version. See French Council Strikes Down 75% Tax Rate. Even so, the 75% tax will only collect a few hundred million dollars. See French Court Rejects 75% Tax Rate. Yet it’s clear France isn’t off the tax increase bandwagon. For example, the controversial taxing of capital gains at the same rates as income was upheld by the Constitutional Council. That provision will impact far more in the country than the millionaire’s tax. Meanwhile, the U.S. worldwide income tax is a bigger issue than mere rates. See Expats Lobby For Tax on Residence, Not Worldwide Income. It’s what caused Facebook’s Eduardo Saverin to decamp for tax-friendly Singapore. See Why Facebook’s Co-Founder Just Defriended America. Yet even decamping is not as easy as it looks given America’s tough and complex tax system. There is already a U.S. exit tax on people who give up their U.S. citizenship. What's more, this exit tax can even apply to handing in a Green Card. See High Cost To Go Green: Giving Up A Green Card. Sure, we live in a global society, but it turns out that tax moves are not always easy. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
98f717981b8eb293277bd0fda5e06f57	https://www.forbes.com/sites/robertwood/2013/06/06/lavish-expenses-are-a-no-no-unless-youre-the-irs/	Lavish Expenses Are A No-No, Unless You're The IRS	Lavish Expenses Are A No-No, Unless You're The IRS President John F. Kennedy said, ‘‘The slogan—‘It’s deductible’—should pass from our scene.’’ See Special Message to Congress on Taxation, Apr. 20, 1961. JFK didn’t like expense accounts and business entertainment in the Mad Men era of the three martini lunch. But his message had broader implications, and more than 50 years later, ‘‘it’s deductible’’ can still sound obnoxious. Spend freely and deduct it so someone else—American taxpayers—will pay the bill. If JFK were alive today he’d probably have something to say about the IRS scandal, too. The IRS is taking a beating over lavish expenses revealed in this report. Acting Commissioner Danny Werfel says the IRS did things differently back in 2010. Yet even if excesses are past tense, there's plenty of fretting over audit findings, including the $4.1 million spent on an Anaheim IRS conference. There were many "questionable expenses," with some described as "lavish." That's curious, since tax rules make lavish expenses a no-no. Taxpayers can deduct reasonable business expenses, but not lavish or extravagant ones. What’s lavish or extravagant? It depends. How about an IRS Manager staying five nights in a $1,499 a night Presidential Suite? See Dep. IRS Commissioner Stayed 5 Nights in Presidential Suite Across Street from Disneyland. The Presidential Suite had a bedroom, living area, conference table, wet bar, and billiard table, according to the Treasury Inspector General for Tax Administration’s review. Fortunately, the posh suite was actually a bargain. Three Disneyland hotels charged the IRS $135 per room for the 2010 conference, including suites. But speaker fees and many perks are being criticized. And two employees were suspended over accepting free gifts. See Two IRS Employees Put on Leave Over Conference. You can't deduct expenses for entertainment that are lavish or extravagant. The IRS doesn't provide much guidance. An expense isn't lavish or extravagant if it is reasonable considering the facts and circumstances. Expenses will not be disallowed just because they are more than a certain amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. So what's lavish? It's sometimes defined as a business expense that is significantly higher than what is considered reasonable. Say a company pays triple the market rate for something. That amount may be a lavish or extravagant expense. That makes them--or at least the portion deemed lavish by the IRS--not tax deductible. And the mere fact that you might conduct business entertainment at a high-end restaurants or hotels doesn't mean it's lavish. Consider some of the World's Most Extravagant Meals. Yet even if you can legitimately deduct it, that doesn't mean such spending is smart. See Chinese official sacked after 'citizen journalists' expose extravagant banquet. And sometimes if you are spending in the stratosphere, you might expect the IRS to claim it's personal. See Justin Timberlake & Jessica Biel's $6.5M Wedding: One Of The Most Expensive. This does remind me of someone who spent $3.46M for lunch with Warren Buffett. Now that’s an expensive meal, even if it was to support Glide Memorial Church in San Francisco. That was for charity and was for up to 8 people, including Buffett, the donor, and up to six guests. Most of that $3.46M should be deductible, but as a charitable contribution (in excess of the meal value), not as a business expense. Should Warren Buffett's $3.46M Lunch Be Tax Deductible? You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
7b846b7cc1af78440e6efd6df0b957b9	https://www.forbes.com/sites/robertwood/2013/06/11/living-abroad-your-tax-home-could-still-be-u-s/	Living Abroad? Your 'Tax Home' Could Still Be U.S.	Living Abroad? Your 'Tax Home' Could Still Be U.S. If you live and work abroad you probably know about the Foreign Earned Income Exclusion that can allow you to collect tax-free money. There are disadvantages to being abroad. See Expats Lobby For Tax on Residence, Not Worldwide Income. If you qualify, the foreign earned income exclusion can make up for some of them. But some people think they qualify and then do not. In James F. Daly and Candace H. Daly, the Tax Court ruled that a couple did not qualify even though the husband worked primarily in Iraq and Afghanistan. His tax home was still in the U.S., said the court. The foreign earned income exclusion is a great benefit, currently allowing up to $97,600 tax-free. Daly’s case concerned 2007 ($85,700) and 2008 ($87,600). One must be either: A U.S. citizen (or, in certain situations, a U.S. resident alien) that is a bona fide resident of one or more foreign countries for an uninterrupted period that includes an entire tax year; or A U.S. citizen or resident who, in 12 consecutive months, is present in one or more foreign countries for at least 330 full days. In some cases waivers of these strict rules are possible. However, you don't have a tax home in a foreign country if your abode is within the U.S. James F. Daly was employed by L3 Communications during 2007 and 2008. L3 was based in Salt Lake City, Utah. L3 contracted with the Department of Defense (DOD). Daly performed services for L3 in Afghanistan and Iraq, and L3 paid him. Daly was in Afghanistan or Iraq from Aug. 29 through Dec. 12, 2007, and Jan. 25 to Apr. 28, 2008. In Afghanistan, he lived on Kandahar Air Base, and in Iraq, on Ballard Air Base. The U.S. Air Force transported Daly and did not permit him to leave the base. The U.S. military did not permit his family to live with him. Daly worked 12-hour shifts seven days a week. Daly also worked in Utah. While there, L3 required him to travel to California, Nevada, and Germany. For 2007, Daly excluded $24,888 in wages, claiming the foreign earned income exclusion. He listed Utah as the couple’s tax home and asked for a waiver of the 330 day requirement. He noted that the foreign earned income exclusion limit for that year was $85,700, about $235 per day. He multiplied the daily figure by 106 to arrive at his excludable amount of $24,888. For 2008, they excluded $22,259 in wages based on a similar calculation. IRS disallowed both exclusions so the Dalys went to Tax Court. The main issue was their tax home. They had strong ties in Utah. In contrast, Daly’s ties to Iraq and Afghanistan were severely limited and transitory. The couple argued that even if Daly's wife had been allowed to join Daly in Iraq or Afghanistan, she nevertheless would have been unable to go because of her separate career. They also contended that Daly maintained a residence in Utah because of his wife's business. The Tax Court said that, even if all of this were true, they would not outweigh Daly's limited ties to Iraq and Afghanistan. Their tax home was in the U.S. so the Dalys were not eligible for the foreign earned income exclusion. The case illustrates a common problem. The rules are technical and unforgiving. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
dbc7b1abf09cfed917d5a1658a886192	https://www.forbes.com/sites/robertwood/2013/07/24/irs-travelgate-brass-spent-100k-each-on-travel/	IRS Brass Spent $100K Each On Travel	IRS Brass Spent $100K Each On Travel (Photo credit: Alan Light) For the IRS, the hits just keep on coming. The no longer obscure watchdog known as the Treasury Inspector General for Tax Administration (TIGTA) has a new bestseller: Analysis of Executive Travel Within the Internal Revenue Service. Ever since the Tea Party scandal, this inspector’s reports are pretty important. Now, he takes on IRS travel. This report is only on travel by IRS executives. Did they travel too much or spend too much? The short answer is yes. In 2011 there were 351 IRS executives, and in 2012, there were 373. In 2011, the IRS spent approximately $4.8 million for executive travel. In 2012, it was about $4.7 million. See IRS Spent Nearly $5M a Year for Executive Travel. Was IRS executive travel excessive? Overall, no, the report says. But a small number of execs had extremely high travel expenses compared to the rest. Plus, several execs frequently traveled to D.C. for day-to-day operations. Moreover, a handful were practically traveling all the time. That seems at least inefficient. The report says that 7 IRS execs in 2011 and 5 IRS execs in 2012 were in travel status for over 200 days each year. Huh, do they really have to go that many places? The rules on this have changed. In April 2013, the IRS instituted a new interim travel policy. It generally restricts executives from being in travel status for more than 75 nights in any year. But the report shows that for 2011 and 2012, some execs weren’t living in places that made sense for their work. The cost and frequency of travel for some execs indicated that they should perhaps move, or that they should be assigned to a different IRS office. Notably, the Federal Travel Regulation does not set any total monetary or duration limits on temporary duty travel. Even so, the report says that the IRS should consider a temporary or permanent change of station as an alternative to long-term temporary duty travel. See Watchdog Finds IRS Executives Racked Up Six-Figure Travel Bills. The report also says this needs addressing. Currently, the IRS does not require decision makers to document whether a temporary or permanent change of station was considered as an alternative to long-term temporary duty travel. TIGTA recommended a comparison of the costs and benefits of long-term taxable travel to a change of station, either temporary or permanent. Someone should be required to document in writing that the more favorable alternative was selected. This should be documented before placing an employee on long-term travel or authorizing a temporary or permanent change of station. See IRS Executives Spent More Days on D.C. Travel Than at Home. IRS officials generally agreed, saying that it would develop and implement guidance to require a business case before an employee is put on a long-term taxable travel. The business case will be used to evaluate and document the costs and benefits of placing the employee in long-term taxable travel status or temporarily or permanently changing the employee’s official station. Additionally, in June 2013, the IRS issued interim guidance that requires an approved post of duty for each executive that is based on the geographic location where most of the work activities are performed. In cases where the work activities can be performed in virtually any geographical location, the post of duty will be considered neutral. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
98537ab60ca03b00abdc37c52eb09538	https://www.forbes.com/sites/robertwood/2013/08/08/three-powerball-winners-split-448m-irs-wins-big-too/	Three Powerball Winners Split $448M, IRS Wins Big Too	Three Powerball Winners Split $448M, IRS Wins Big Too Three Powerball winners--two in New Jersey and one in Minnesota--have won the multistate lottery's latest massive jackpot. See Powerball official: 3 winners for $448 million pot. Because three tickets matched all six numbers, Powerball officials said the three winners would split the $448 million jackpot. The numbers drawn were: 05, 25, 30, 58, 59 and Powerball 32. People may have expected a pot of $425 million, but a frenzy of last-minute ticket buying bloated the jackpot to $448 million. The biggest Powerball jackpot in history was a $590 million win in Florida. The outsize numbers make most plain old state lotteries look puny, which is one reason even holdouts like California joined the Powerball chant. See Powerball added to California lottery lineup. SuperLotto Plus, Mega Millions, and other play can seem downright puny. A $2 Powerball ticket competes for $40 million, and that amount goes up $10 million for each drawing without a winner. Pick five numbers between 1 and 59, and a Powerball number from 1 to 35. Then wait. The odds against hitting Powerball’s six-number jackpot are long, over 175 million to one. Still, you can always dream, and you may as well dream big. Of course, even if you beat long odds and win, you’ll have taxes to pay, and that’s more challenging than you might think. Time and again, winners have trouble paying their taxes or get confused. See How Much Tax Will Your Owe On a $320M Jackpot? A Lot More Than In 2012. Winning big doesn’t mean avoiding taxes. See How Much Tax Will You Owe On A $600 Million Jackpot? The states vary in how they treat lottery winnings. A few states still don’t have lotteries. Some states exempt their own state lottery winnings but not Powerball or other state lotteries. How about the IRS? You can count on consistency from the feds. If you win big, you can assume you’ll pay the top 39.6% federal rate. Paying tax isn’t optional either, as an IRS Form W-2G will report your winnings. In fact, you can be taxed even if you split the money with family, friends or even charity unless you are very, very careful. Lottery winners frequently make mistakes, and form and timing in such matters are key. And a run for the state border with your cash isn’t likely to work either, however tempting it may be. As Deborah Jacobs’ 10 Things To Do When You Win The Lottery notes, if you win, see a tax adviser soon. Plan your tax moves carefully. It pays to underscore this advice because tax problems can snowball--not unlike a Powerball jackpot. Keep a reserve for taxes, and allow for extra taxes if you give money to charity or family. Plan any transfer to charity, family or friends carefully. Charitable contribution tax deductions are usually limited to 50% of your income and in some cases less. Thus, a winner giving all the money to charity might still pay tax on half. In Dickerson v. Commissioner, an Alabama waitress won a $10 million jackpot on a ticket given to her by a customer. The Tax Court held she was liable for gift tax when she transferred the winning ticket to a family S corporation (she owned 49 percent). See Don't Assign Litigation Claims in a Waffle House. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. More on Forbes: Gallery: Biggest Lottery Winners Ever 8 images View gallery
70f54a3a16daff394b04e1ddbba1db3d	https://www.forbes.com/sites/robertwood/2013/08/09/if-weiner-can-make-it-in-new-york-he-can-make-it-anywhere/	If Weiner Can Make It In New York, He Can Make It Anywhere	If Weiner Can Make It In New York, He Can Make It Anywhere New York City Mayoral candidate Anthony Weiner attends the Council of Senior Centers and Services of... [+] NYC Mayoral Forum at New York University on July 11, 2013 in New York City. (Image credit: Getty Images via @daylife) Former New York Congressman Anthony Weiner is steadfast about one thing: staying in the Mayor’s race. The gym rat, former Congressman and former current sexter was still sexting even after he gave up his Congressional seat. See Anthony Weiner kept sexting after resignation. The Weiner wagger-candidate’s disrespectful “grandpa” remark to Republican Mayoral opponent George McDonald was ill-timed: right before an AARP meeting. Yes, the king of sexting found new ways to offend. See Anthony Weiner Finds New Way to Offend People at AARP Forum. But you have to give him a hand. The quick-change artist would rebound by taking cookies to seniors and revealing his, er, sincerity. See A Cookie-Carrying Anthony Weiner Wins Over Brownsville Seniors. Truly, only a Weiner could pull it off in public. And he won’t give up despite his low poll ratings. Many have called for Weiner to pull out--from the Mayor’s race. Yet Mr. Weiner does not do things half-way. That means if New Yorkers want to rid themselves of his antics, they must go to the polls. Even that may not be enough to stop this never-say-die maker of sausage. For a true Weiner Ban, the City That Never Sleeps could emulate its Soda Ban. New York’s soda ban, like so much else Bloombergian, was historic. But unfortunately, the soda ban was struck down. A tax then. See NY City Asks Top State Court to Review Large-Soda Ban. The soda ban failed in part because it was a ban, not a tax. A ban seems un-American. A tax is anything but. See NYC’s Soda Ban Is A Good Idea, But A Tax Would Be Better. A published study estimated that a 15% cut in consumption of sugared beverages would prevent many deaths and illnesses and save billions in medical costs. Plus, a soda tax would generate billions in revenue. I’m lovin’ it. And unlike bans, we do understand new taxes. Federal, state and local governments love to tax and to regulate by taxing. Soda is an untapped resource to tax. There’s Botox, tanning, music downloads, alcohol, cigarettes, candy, and more. Sin taxes target what legislators view as socially irresponsible behavior. They raise revenue and decrease the targeted bad conduct. Win-Win. As a practical matter, these taxes are usually passed on to buyers, just like sales tax. Services can be targeted too. The 10% federal tanning tax was projected to raise $2.7 billion in 10 years from 20,000 indoor tanning salons. See Tan Tax Causes Confusion. A proposed tax on cosmetic surgery, a/k/a the Botox tax, was dropped but would have imposed a 5% excise tax. Tanning was taxed instead. So, doesn’t a Weiner Tax sound perfect? It could help discourage the man, the candidate, the sexter. It could raise revenue for New York City. And it could take a number of variations. The Weiner Poll Tax could slap a tax on anyone voting for Mr. Weiner. Some famously contentious New Yorkers might still vote for Huma’s better other half, but most? I doubt it. The Weiner Pole Tax could emulate the pole taxes used to stamp out strippers. And a Weiner Pole Tax would thus seem eminently suited for Anthony’s proclivities. See Texas Justices Uphold 'Pole Tax' on Strip Clubs. The Polish Weiner Tax could be fashioned after junk food taxes that raise revenue and discourage consumption. Still, if only Polish dogs were taxed, expect some relabeling of sausages. A Ballpark Weiner Tax could just tax dogs consumed at the ballpark. Yankee Stadium is in the Bronx. The Mets play at Citi Field in Queens. But Mr. Weiner was born in Brooklyn. In taxes or otherwise, it sure seems like Brooklyn should answer for it. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
ba608792bdaf6d0ca9419e677f3bedaf	https://www.forbes.com/sites/robertwood/2013/08/11/irs-targets-thousands-of-small-businesses-can-you-prove-you-didnt-under-report/	IRS Targets Thousands Of Small Businesses For Extra Scrutiny	IRS Targets Thousands Of Small Businesses For Extra Scrutiny Demonstrators with the Tea Party protest the Internal Revenue Service (IRS) targeting of the Tea... [+] Party and similar groups during a rally called 'Audit the IRS' outside the US Capitol in Washington, DC, June 19, 2013. (Image credit: AFP/Getty Images via @daylife) Is the best defense a good offense? Maybe, and the IRS is still under scrutiny for targeting. See Hate The IRS? You'll Love These Laws. The tax agency is doing some targeting of its own, fingering at least 20,000 small businesses. And that number will grow. The scrutiny on this group and in this way is a little frightening. Small business people across America are receiving IRS notices. More will be coming. The IRS gathers data from many third parties—including credit card companies—to see if you picked up every nickel of income. See Small Business in IRS Sights. The IRS is looking at Form 1099 matching—including new merchant reporting of credit cards, mysterious average statistics the IRS uses for comparison and—gulp—cash reporting. Did you remember to record and pay tax on all cash transactions? The controversial IRS notices are titled ‘Notification of Possible Income Reporting.’ Although the IRS says it is just gathering information and not accusing anyone, not everyone is convinced. One Congressman, Sam Graves (R-Mo), Chairman of the House Committee on Small Business, notes that the IRS’s first sentence begins, "Your gross receipts may have been underreported." Says Congressman Graves, that sounds like the IRS is looking for more than just additional information. It sounds like it could mean more taxes, penalties and interest, Mr. Graves wrote in this letter to the agency. Mr. Graves suggests that the letters could intimidate businesses. He says that a small business owner receiving this notice may be alarmed and feel threatened. The IRS notice goes on to say your receipts are off from an IRS average. Within 30 days, please provide documentation to prove why your numbers don’t fall within IRS's standard, the IRS asks. Yet the IRS doesn’t reveal its source and doesn't say what the standard is or where it came from. It sounds like you are being asked to prove that you didn’t underreport your income. That’s proving a negative, and could require extensive correspondence and documentation. As a result of Form 1099 changes and the ever-increasing web of reporting, the IRS receives detailed data about credit- and debit-card transactions. The IRS mines the data and may think that a high percentage of card transactions may mean you are not reporting all the cash you receive. 'Please explain,' the IRS may ask. Why might a business report high card receipts compared with cash? If most items sold are for high dollar amounts, cards may be the norm. Plus, card receipt totals can include cash the customer takes back. Sales tax is another huge issue, since it isn’t income to the business that collects it from customers and sends it in to the state. Gift cards too result in a mismatch. Any or all of these may account for the difference. Many are now criticizing the IRS. See Critics question IRS initiative targeting small businesses. But the IRS defends its compaign as measured and equitable. The agency suggests that many businesses, including mom-and-pop ones, fail to report all their cash sales. The IRS is just trying to determine who is reporting what. But with compliance costs already high for many small businesses, this latest campaign seems unlikely to win the IRS pats on the back. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
3a583c25b66e7681d274af07cdab60b4	https://www.forbes.com/sites/robertwood/2013/09/04/new-doj-marijuana-policy-wont-fly-with-irs/	New DOJ Marijuana Policy Won't Fly With IRS	New DOJ Marijuana Policy Won't Fly With IRS (Photo credit: Wikipedia) The feds and the marijuana industry haven’t had an easy relationship. Plus, more than a few voters probably feel disenfranchised. It’s been nearly a year since voters in Colorado and Washington voted to legalize marijuana. For much longer than that, we have had legalized medical marijuana. The tally is now 20 legal medical marijuana states and D.C. Given the documented medical use of marijuana and state laws, you might think the feds would respect state law and states’ rights. You might also assume that the sizable federal and state taxes to be collected from the industry would be a prize. Oddly enough, though, the tax law discriminates so badly against the industry that it has had to virtually go underground. The feds' view has been that federal law controls. Medical need or not, state legality or not, marijuana is a controlled substance and illegal under federal law. Add to that the fact that many banks are reluctant to allow even legal marijuana businesses to open accounts in their institutions. But now, one might say finally---the U.S. Department of Justice (DOJ) issued this response suggesting for the first time that it will lay off the raids and prosecutions. But there is a big condition. The feds will lay off only if the states create “a tightly regulated market” with rules that address federal “enforcement priorities” such as preventing interstate smuggling, diversion to minors, and “adverse public health consequences.” Those may be key phrases, but they seem imbued with considerable discretion. This memo to U.S. attorneys makes that point clear. In it, Deputy Attorney General James Cole says that the DOJ can still prosecute growers and sellers if Colorado and Washington fail to adequately address federal concerns. As nice as it is to see some movement in the right direction, this new era is unlikely to make growers and sellers (in any state) entirely comfortable. After all, it appears to allow the DOJ wide discretion what to do. Plus, it can presumably be changed at any time. On top of this, it is worth asking how the IRS will react to this. The tax problems of the industry are notorious and one of the major impediments facing the industry. Unfortunately, there has been no IRS announcement on the heels of the DOJ and we should not expect much. The IRS is unlikely to lay off the tax attack it has mounted against marijuana income. The reason is that even legal dispensaries are drug traffickers to the feds. See Voters Say Yes To Marijuana, IRS Says No. And the main culprit is Congress, not the IRS. Section 280E of the tax code denies even legal dispensaries tax deductions. In the past the IRS has said it has no choice but to enforce the tax code passed by Congress. “The federal tax situation is the biggest threat to businesses and could push the entire industry underground,” the leading trade publication for the marijuana industry reported. One answer has been for dispensaries to deduct expenses from other businesses distinct from dispensing marijuana. If a dispensary sells marijuana and is in the separate business of care-giving, the care-giving expenses are deductible. If only 10% of the premises are used to dispense marijuana, most of the rent is deductible. Of course, good record-keeping is essential. See Medical Marijuana Dispensaries Persist Despite Tax Obstacles. And even if one is aggressive in allocating expenses between business, there is only so far one can go. Another idea is that marijuana sellers might operate as nonprofit social welfare organizations. See Growing the Business: How Legal Marijuana Sellers Can Beat a Draconian Tax. That way Section 280E shouldn’t apply. The industry needs to operate more like other businesses. See Medical Marijuana Goes Even More Corporate. Sometimes such matters involve structural questions. See C or S Corporation Choice is Critical for Small Business. To avoid trouble with the IRS, some claim that dispensaries should be organized as cooperatives or collectives. A cooperative is owned and governed by its members. A collective is much less structured. The tax issues here are clearly no joke. Consider that Harvard Law School offers ‘tax planning for marijuana dealers’. Perhaps this facts suggests that the industry has really arrived. In other respects, though, including tax, banking and credit card processing for patients, the industry is still barely off the ground. And that is doubly disturbing, since the tax law seems an entirely inappropriate way to hinder (if not outright doom) these businesses. Congressmen Jared Polis (D-CO) and Earl Blumenauer (D-OR) introduced the Marijuana Tax Equity Act to end the federal prohibition on marijuana and allow it to be taxed. This legislation would remove marijuana from the Controlled Substances Act. That way growers, sellers and users would not need to fear violating federal law. In addition, the bill would impose an excise tax on cannabis sales and an annual occupational tax on workers in the growing field of legal marijuana. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
7f22ea3807265391abc2d9546dbd11ff	https://www.forbes.com/sites/robertwood/2013/09/18/beanie-babies-founder-ty-warner-to-pay-53m-for-offshore-tax-evasion/	Beanie Babies Founder Ty Warner To Pay $53M For Offshore Tax Evasion	Beanie Babies Founder Ty Warner To Pay $53M For Offshore Tax Evasion H. Ty Warner H. Ty Warner, age 69, created Beanie Babies and spawned a generation of collectors. He created wealth for himself and others, since some of the plush stuffed animals became collector’s items worth thousands. But he did some of it in secret Swiss accounts and the IRS now stands to collect a $53 million fine. Charged with tax evasion, Mr. Warner has already said he’ll plead guilty. See DOJ Press Release. In fact, a statement issued by Mr. Warner's lawyer, Gregory Scandaglia, indicated that a plea agreement has already been reached. Mr. Warner will plead guilty to a single count of tax evasion and will resolve all issues of taxes owed. Plus, as part of his plea agreement, he will pay a more than $53 million FBAR penalty. Mr. Warner (#209 on Forbes 400 list) is not the first Forbes 400 member to draw tax charges. Leandro Rizutto (#296), founder of Conair, had his own run in with tax crimes. See The Richest Tax Cheats. And another is Igor M. Olenicoff (#184), a California real estate developer with a net worth of $2.9 billion. See Stay Out Of Jail For $52 Million? According to the charging document, Mr. Warner opened a secret UBS account in 1996. In late 2002, he moved $93 million to Zürcher Kantonalbank. That account produced over $3 million of income in 2002 alone, which he failed to mention on his Form 1040. He even amended his 2002 return in 2007, but once again omitted the offshore income. See Beanie Babies Creator Ty Warner to Admit Tax Evasion. Mr. Warner still paid considerable tax on the nearly $50 million of 2002 income he did report. But he shorted the IRS by about $1.2 million. All these years later, that’s a painful omission, not only drawing the tax evasion charge but huge FBAR penalties too. Here, the FBAR penalty will exceed $53 million. The numbers are staggering. And that ties into criminal penalties. A tax evasion conviction carries up to 5 years in prison and a $250,000 fine. Tax convictions even draw prosecution costs on top of all the back taxes, interest and penalties. And the penalties can be huge. Civil fraud penalties alone can add another 75%. But when it comes to penalties, FBAR charges and penalties—even civil penalties—are the real gravy train for the government. An annual report of foreign accounts in the law since 1970, FBARs target money laundering. They were not widely known—or widely enforced—until the UBS scandal of 2008 and 2009. But now they are ubiquitous, requiring reporting of foreign accounts even by those with mere signature authority but no beneficial interest. A willful failure to file an annual FBAR can trigger a civil penalty of up to 50% of the amount in the account at the time of the violation. Mr. Warner’s attorney indicated that his client tried unsuccessfully to join the IRS Offshore Voluntary Disclosure Program in 2009. Few taxpayers are turned down, but the IRS policy is not to accept taxpayers who are already being investigated. Although Mr. Warner’s numbers are huge, many more garden-variety taxpayers find themselves facing the awkward combination of failing to report interest on foreign bank accounts and failing to file FBARs. Even if the unreported income is small, the combination of amending tax returns to report it plus quietly filing past-due FBARs is a classic “quiet disclosure.” The IRS advises against them and says it can prosecute taxpayers who do it anyway. See Despite Offshore Haul, IRS Hunts Quiet Disclosures, First Time FBARs. What the IRS wants is taxpayers to join the Offshore Voluntary Disclosure Program. Like the 2009 and 2011 programs that preceded it, taxpayers must file up to 8 years of amended returns and up to 8 FBARs. Taxes on the unreported income, interest and a 20% penalty on the taxes seem reasonable. But the sticking point for many is the IRS program’s counterpart to the FBAR penalty. Currently, the program's penalty is 27.5% of the highest aggregate account balance in the undisclosed offshore accounts. For many, that is a crushing penalty, causing some taxpayers to enter the program but then “opt out” at its conclusion to try to negotiate—or even litigate—more digestible penalties. See FATCA Blues? Opt Out Of IRS Offshore Program. Yet charges like Mr. Warner's stratospheric bubble-bursting Beanie Baby tax and FBAR consequences are reminders that the dollars in question can get worse—catastrophically worse—than 27.5%. As for jail time, with sentencing guidelines based on the dollars involved, Mr. Warner may well face that too, despite his cooperation. As for Beanie Babies, their star has also fallen: How Much Beanie Babies Were Predicted To Be Worth Vs. How Much They’re Really Worth. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
bdf31beba7c654445437401c865392ef	https://www.forbes.com/sites/robertwood/2013/09/27/avoiding-obamacare-with-independent-contractors-2/	Avoiding Obamacare With Independent Contractors	Avoiding Obamacare With Independent Contractors One of the precepts of Obamacare is that all employees ought to have affordable health coverage. That’s a laudable goal, but many employers are doing their best not to be covered by the rules. After all, no matter how admirable the goal, the law erects new burdens of complexity. Complexity means expense. There are technical rules about health coverage and affordability, and it isn’t all easy to apply. If you’re a small enough employer, you needn’t navigate all the hurdles. Small employers, those with 50 full-time employees or less, aren’t covered. The act defines a “full-time employee” as someone who works 30 or more hours a week on average during a 1-month period. You don’t have to count seasonal workers who work fewer than 120 days during the year. However, nonseasonal part-time workers are counted. Of course, many rules hinge on who are your employees—independent contractors aren’t covered. But that assumes that your independent contractor classification holds up. If it doesn't and your independent contractors are recharacterized, you are back in the soup. The risk isn't theoretical, as the IRS is active in independent contractor reclassification efforts. And more scrutiny is coming. So can you fire all of your employees and make them independent contractors? Hardly. Firing everyone has plenty of other risks too. Besides, no matter how you label someone, the substance of the work relationship will control. For any independent contractor, it is appropriate to review how strong a case you have for a true independent contractor relationship. That's so with your existing workers and those you might hire in the future. In fact, you should be increasingly vigilant about these rules. How do you determine who is an independent contractor? You can start with labels, but the IRS says you must evaluate 20 factors and assess whether you are controlling the method, manner and means of the work. No one factor is controlling. The duration of your work relationship is important, as is whether it is full or part time, professional credentials, flexible vs. rigid hours, who supplies tools and supplies, expense reimbursements and more. A written contract is key to independent contractor status, but that alone is clearly not enough. Are you paying for a job—like having someone put in a new kitchen—or paying for someone to work by the hour doing reception work. This fundamental worker status issue has become one of the most consequential legal determinations around. If you guess wrong, the liability for past years can be crushing. And the Inspector General of the IRS—the same one who was in the news over the Tea Party targeting scandal—has issued a report saying that despite IRS efforts, employers are still getting it wrong. The report says millions of workers are misclassified as independent contractors. They are really employees, the report claims, and that means payroll tax withholding. Employers are dramatically underpaying employment taxes and that hurts everyone, the report says. Determining who is an employee is a fact-intensive minefield. It always has been. And with Obamacare, stakes that were already high are getting higher. If you have independent contractors, you may need to retool your written agreement, evaluate which groups of workers should be employees, and further differentiate your independent contractors from employees. When you do this, be realistic. Many business people are not. Fighting and losing a worker recharacterization battle can cripple a business. And with the push-me-pull-you of Obamacare, some small businesses are likely to start pushing the worker status envelope even more. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
8ab3612a2e026014dc0183f23169e9bb	https://www.forbes.com/sites/robertwood/2013/10/14/virgin-expat-sir-richard-branson-leaves-uk/	Virgin Expat? Sir Richard Branson Leaves UK	Virgin Expat? Sir Richard Branson Leaves UK Sir Richard Branson (Image credit: Getty Images for Starkey Hearing via @daylife) Dear Phil Mickelson, this is not about taxes. With a Virgin-based fortune estimated at £2.9 billion and still climbing toward Virgin space, Sir Richard can do what he wants. And now he says he is settling down for good on pristine Necker Island, which he bought decades ago. The billionaire is quick to point out that he is not leaving for tax reasons, especially after The Sunday Times suggested otherwise. A Branson spokesperson said, "This move is a lifestyle choice. The sun shines, he feels healthy and he travels around the world doing what he wants." And Branson himself wrote on his blog on the Virgin website, "I have not left Britain for tax reasons but for my love of the beautiful British Virgin Islands." Some of the kerfuffle comes from a sweetheart deal with Branson’s children for his Oxfordshire estate, though that seems a drop in the proverbial bucket. Not long ago Sir Branson himself said, "I don't think people should be leaving the U.K. because of our tax system." Statements say his companies remain in the U.K. and he provides employment for 35,000 Britons and healthy corporate tax revenues. Still, his new nonresident status will be worth something. Like other nonresidents of the U.K., Branson personally will only pay tax on his U.K. income, not on his income from abroad. Americans struggling with the unforgiving worldwide income tax reporting to the IRS may look fondly on a residence-based tax system, one that has also allowed the U.K. to court foreign money for generations. And while the U.K. has not struggled with class tax rates like France, its top rate has been controversial. As this table shows, rates climb quickly, and Britain’s controversial top 50% individual tax rate hit earnings above £150,000. After outrage and some departures from the U.K. in 2012, it was cut to 45% effective April 6, 2013. RATE 2011-12 2012-13 2013-14 Starting rate for savings: 10% £0-£2,560 £0-£2,710 £0-£2,790 Basic rate: 20% £0-£35,000 £0-£34,370 £0-£32,010 Higher rate: 40% £35,001-£150,000 £34,371-£150,000 £32,011-£150,000 Additional rate: 50% Over £150,000 Over £150,000 N/A Additional rate: 45% from 4/6/13 N/A N/A Over £150,000 The U.K. tax system seems far preferable to the U.S. counterpart in many ways. As everywhere, though, the well-advised may not all pay it. For example, former Prime Minister Tony Blair’s taxes appeared in the British press but then died down precipitously. Blair reportedly channeled millions through a web of companies, it was reported. The number of U.K. taxpayers declaring £1 million a year in income fell by more than 60% in the banner year that British millionaires faced the 50% income-tax rate up from 40% the prior year. Incredibly, the total number of millionaire tax filers plunged from 16,000 in 2009-2010 to 6,000 in 2010-2011. It wasn't all the recession. British politicians claimed that the 50% rate would boost tax collections, but collections went down. Of course, after France’s socialist President François Hollande proposed a 75% tax on earnings over one million euros, France’s wealth-king Bernard Arnault applied for Belgian nationality. He later recanted. When Facebook’s Eduardo Saverin left the U.S. for tax-friendly Singapore, his move on the heels of the Facebook IPO prompted a tax bill to slap even higher taxes on those who leave. Although the proposed higher exit tax has not been passed, expatriates already face a U.S. exit tax on their worldwide property. But the tax can be reduced or avoided in many cases. See Ten Facts About Tax Expatriation. You can reach me at [email protected]. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.