An Example by the Numbers
What an IC-DISC can do for your business
IC-DISC shareholdings can be used in a number of ways to help achieve business goals and objectives.
Permanent tax savings on global sales
Permanent tax savings begins with the exporting company deducting the commission it pays to the IC-DISC from its ordinary income, which is taxed at 35 percent. Tax law sets the commission rate, which is based on export sales revenue, as the greater of either 50 percent of net income or 4 percent of gross income. Because the IC-DISC is tax exempt, tax is paid only on distributions to shareholders. Individual and pass-through company shareholders pay income tax on dividends at the capital gains rate of 15 percent.
The following example illustrates how a 20* percent tax rate arbitrage creates a permanent tax benefit of $160,000 on a commission of $800,000:
Freed Maxick's International tax team helps companies all over the U.S. implement and administer the IC-DISC. To learn more about how we can help you navigate the complexities of international tax, contact us to speak with one of our experts.
*Results may vary depending on the corporate and individual rates applicable to you.
Report of Foreign Bank and Financial Accounts (FBAR) Deadline June 30th
Did you know the deadline to file foreign bank and financial accounts (FBARs) is coming up soon? June 30th is right around the corner!
Many companies and individuals agree that the IRS rules and regulations in regard to foreign bank accounts and international tax issues are confusing and intimidating. That’s why it is important to connect with a trusted international tax professional… someone who can navigate through the complexities of these regulations and make things easy and more understandable to those who need to file.
A Little Background
From the IRS website, “If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”
Important Reporting and Filing Information- Deadline June 30th
From the IRS website, “The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported. While FinCEN strongly encourages individuals to electronically file FBARs, the form can be mailed to one of the two addresses below, provided that the mailing is received by June 30, 2013.”
What Should You Do Next?
There is limited time left to comply with IRS regulations regarding foreign bank accounts. Please feel free to contact us to connect with a member of our International Tax team. We at Freed Maxick CPAs are poised to assist you in assessing your FBAR filing requirements, assimilating the necessary information and preparing your current and past due FBARs. We also have considerable experience in helping taxpayer’s that have not been historically compliant to navigate the IRS guidelines and minimize their potential penalties through the various IRS Voluntary Disclosure Programs that have been available.
International Tax Services
Expatriation Consulting Services
Failure to File FBAR | Penalties
FBAR Penalty Relief Under Certain Circumstances
Recent FBAR Developments
Foreign Account Tax Compliance Act (FATCA)
U.S. Tax Services for Canadians
By: Howard Epstein, CPA, Director, International Tax
Opening a new front in the U.S. crackdown on offshore tax evasion, federal investigators have won court approval for a summons on a Caribbean bank, to turn over account data for wealthy American clients. This is just the latest of several overseas banks served with similar demands from the IRS, in an effort to identify federal tax evaders who have assets and income hidden offshore. This comes in response to the IRS leniency program (or Voluntary Disclosure Program), in which Americans can disclose previously secret foreign accounts to the IRS to avoid tax liens and pay back taxes.
The fact that the IRS is using John Doe Summons and other data mining means to flesh out non filers of FBARs provides further proof that they are steadfast in their resolve to find people committing tax fraud. The unfortunate part is that honest people that simply don't know the law are being compromised at the same time. It is important that those innocent people come forward under the current programs available before the IRS taps them on the shoulder and such relief is not available.
FBAR Filing Assistance
At Freed Maxick, we are poised to assist you in assessing your FBAR filing requirements, integrate the necessary information, and prepare your current and past due FBARs. We also have considerable experience helping taxpayers that have not been historically compliant navigate the IRS guidelines, minimizing any potential penalties through the various IRS Voluntary Disclosure Programs that are available.
For a confidential discussion of your FBAR situation, call us at 716.847.2651, or complete and submit this form for more information.
In April of 2010, the Department of the Treasury and the IRS asked for public comment regarding guidance projects and issues concerning interpretation and implementation of the new Foreign Account Tax Compliance Act (FATCA) provisions that stemmed from the HIRE Act of 2010. Unlike its FBAR compliance efforts that rely on delegated authority from the FinCEN and that are restricted due to concerns in the use of tax return or tax return information under Internal Revenue Code ( I.R.C.) 6103, the new provision eliminates these concerns and allows the IRS to use its own tax administration authority.
While there are benefits to the IRS using its own tax administrative authority, there are still some issues. Many of the issues encountered with the FBAR will continue to plague the new provision as well. For example:
The IRS will face the same problem with the new FATCA provisions as it does with the FBAR provisions, as there is no easy method to determine what constitutes the potential population filing base.
The new provision will be self-reported, similar to the FBAR.
Other roadblocks include the burden of what taxpayers will face, and increases filing requirements that have become considerably more complicated as a result of the addition of the FATCA filing. For example:
In addition to the required FBAR filing, taxpayers are now required to file the new FATCA information.
Taxpayers may also find that certain terms are defined differently in the BSA regulations and the Internal Revenue Code. For example, the term United States is defined in the BSA regulations as …the States of the United States, the District of Columbia, the Indian lands, and the Territories and Insular Possessions of the United States.20 While in the I.R.C. it is defined as “United States” when used in a geographical sense includes only the States and the District of Columbia
(Source from IRS.gov/pub/IRS-wd I.R.C 7701(a)(9) (2010).
Are you hitting roadblocks in filing your FBAR and FATCA? Do you have questions on how to navigate the complex IRS tax rules? If so, we can help. Freed Maxick is committed to helping you! Contact us today to get started.
By: Howard B. Epstein, CPA
The Bank Records and Foreign Transactions Act- commonly referred to as the Bank Secrecy Act, became law in 1970 out of a growing complexity of the national and international economy, and technological revolution. Activities increased not just at home but abroad. This allowed the IRS to require citizens or residents of the U.S., or a person in, or doing business in the U.S. to file reports on any financial accounts with aggregate totals valuing $10,000 or more. But did you know……
As a result of new legislation on foreign tax reporting and disclosure of financial assets, some taxpayers may be required to file the new foreign financial assets disclosure statement (Form 8938) with the income tax return, and the Report of Foreign Bank and Financial Accounts (FBAR) seperately. Filings and returns are due April 15th or June 15th, if living in the U.S. For those living outside the U.S., extensions for October 15th filings can go through December 15th. These reporting requirements will potentially add to both taxpayer roadblocks and the complexity of tax law changes.
On March 18, 2010, the President signed the HIRE Act, containing the Foreign Account Tax Compliance Act, into law. Addressing taxpayer concerns, the law requires individual taxpayers with foreign financial assets with an aggregate balance exceeding stipulated dollar amounts during a taxable year to file a disclosure statement with his or her income tax return for that taxable year. The stipulated dollar amounts can be found in IRS Form 8938. Beginning with 2011 individual tax return filings; the new law requires compliance with filing the disclosure statement (Form 8938) describing the maximum value of the assets during the taxable year. The disclosure statement should also provide the following information in the case of a:
Financial account – the name and address of the foreign financial institution in which such accounts are maintained and the number of such account.
Stock or security – the name and address of the foreign issuer and such information as is necessary to identify the class or issue of which such stock or security is part of.
Contract, interest, or other instrument – such information as is necessary to identify such contract, interest, or other instrument and the name(s) and addresses of all foreign issuers and counterparties with respect to such contact, interest, or other instrument.
What should you do next?
It is important to note that while there are similarities between the FBAR and FATCA filings, there are also a number of differences when filing each of the Forms. Freed Maxick International tax practice professionals are here to assist you with your FBAR filings. We can assess FBAR filing requirements and prepare current and past due FBARs. We can navigate the IRS guidelines and minimize potential penalties through the various IRS Voluntary Disclosure Programs available. Contact us to connect with our experts.
Are you a Canadian “snowbird” spending winters in the United States? You may not realize it, but you could be considered a U.S. tax resident. If this is the case, the basis on which tax residency is determined is through the IRS “Substantial Presence Test.”
For this purpose, you will be considered a U.S. tax resident if you meet the following requirements:
Physically present in the United States at least 31 days in the current year, and
183 days during the 3 year period that includes the current year and the 2 years immediately before that.
If you fall into this category, don’t panic! There is potential relief available to Canadian citizens that are caught by this Substantial Presence Test:
You are present in the U.S. for fewer than 183 days in the current year.
You maintain a “tax home” in a foreign country during the year.
You have a “closer connection” to the foreign country where your “tax home” is than to the U.S.
Are there exceptions to the rule?
There are exceptions to the substantial presence test. The following are a few examples:
Days you are in the United States for less than 24 hours- when you are in transit between two places outside the United States.
Days you are in the United States as a crew member of a foreign vessel.
Days you can classify “exempt individual.”
The term “exempt individual” does not refer to someone exempt from U.S. taxes, but to anyone that claims exemption from counting days of presence in the United States. For example- a teacher or trainee temporarily in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. For a full list of exemptions and exceptions, please refer to the IRS substantial presence test.
What should you do next?
If you exclude days of presence in the United States because you fall under a special category, you must file Form 8840 (Closer Connection Statement) or Form 8843 (Statement of exempt individuals and individuals with a medical condition).
Freed Maxick International tax practice professionals can help you determine if you qualify as a U.S. tax resident, and assist you with Substantial Presence Test filings. We can navigate the IRS guidelines and minimize potential penalties. Contact us to connect with our experts.
Government expanding crackdown of offshore tax evasion
Author: Howard B. Epstein, CPA
From a recent article in the Wall Street Journal, it’s reported that U.S. officials are sending a strong message that offshore tax evasion will not be taken lightly. For those who ignore the complex rules, results can be criminal prosecution, high penalties and even potential jail time.
Check out this startling example, featuring Mary Estelle Curran, a Florida widow and Palm Beach heiress who recently pleaded guilty to using foreign bank accounts to hide more than $43 million from the IRS in one of the largest cases in the continuing U.S. crackdown on offshore tax evasion. The penalties are staggering, but a clear example that the Justice Department and IRS mean business.
From the article: "U.S. citizens who seek to avoid their tax obligations by hiding income in undeclared bank accounts abroad should by now be fully on notice that they will be held accountable for their actions, both civilly and criminally," said U.S. Attorney Wifredo Ferrer of Florida's Southern District.Just take a look below at several related articles on the web, all taking note of increased levels of scrutiny and amplified preparation of tax-evasion cases.
Might you be affected?
Foreign Bank Account Report | FBAR- U.S. citizens, residents and certain nonresidents who have a financial interest in or signature or other authority over any “financial accounts” in a foreign country are required to make a separate filing if the aggregate value of these accounts exceeded $10,000 at any time during a calendar year. The complex rules may be hard to make sense of unless you have a trained international tax professional assisting you.
On the positive side, the IRS has provided potential relief from some of these harsh penalties under the 2012 Offshore Voluntary Disclosure Initiative as well as the Streamlined Program. If a taxpayer comes forward under one of these programs BEFORE the IRS contacts them, they may be able to avoid some or all of the penalties discussed above.
Freed Maxick International tax practice professionals are poised to assist clients who need help. We can assess FBAR filing requirements, assimilating the necessary information, and prepare current and past due FBARs. We also have considerable experience helping taxpayers that have not been historically compliant, and can navigate the IRS guidelines and minimize potential penalties through the various IRS Voluntary Disclosure Programs available.
Feel free to contact us to learn more about how we can help!
New Streamlined Filing Compliance Procedures for Non-Resident U.S. Taxpayers
The instructions to the new streamlined filing procedures for nonresident US taxpayers were released by the IRS on August 31, 2012. The procedures, which went into effect on September 1, 2012, will reduce the number of filing years for overseas US taxpayers who are considered to be “low compliance risks.”
Taxpayers utilizing the new procedures will be required to file delinquent tax returns for the past three years, and delinquent FBARs for the past six years. The good news is that these procedures are far less burdensome than the filings required under the current 2012 Offshore Voluntary Disclosure Program (OVDP).
For more details, please see our previous post New Procedure to Catch-Up on Delinquent Tax Filings for Non-Resident U.S. Taxpayers.
The August 31 announcement provided more detail concerning the following:
• Eligibility for the new procedures,
• Who is considered to be a “low compliance risk”
• Instructions on how to use the new procedures to qualify for the more favorable filing requirements.
Who Qualifies For the New Procedure – Definition of “low risk” individuals?
• (1) Simple returns with little or no U.S. tax due
• (2) Less than $1,500 of tax due in each of the years filed
• (3) Risk level rises as a taxpayer’s income and amount of assets rises
• (4) No indications of sophisticated tax planning or tax avoidance
• (5) No material economic activity in the United States
• (6) No additional history of noncompliance with United States tax law
• (7) The amount and type of United States source income.
It should be noted that those taxpayers that are considered “higher risk” are not eligible for the new procedure and will be subject to a more thorough review and possibly a full examination.
The instructions stipulate the following steps that must be taken for eligible taxpayers:
1. Submit complete and accurate delinquent tax returns for the last three years for which a U.S. tax return is due.
2. Include at the top of the first page of each tax return "Streamlined" to indicate that the returns are being submitted under the new procedure.
3. Submit payment of all tax and interest due and owing with the returns.
4. Submit complete and accurate delinquent FBARs for the last six years for which an FBAR is due.
5. Submit a complete and signed Questionnaire recently developed by the IRS. The Questionnaire is entitled “Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer Taxpayers Questionnaire”.
6. Those seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty are required to submit various statements and forms along with a statement signed under penalties of perjury describing the events leading to the failure and discovery of the failure and whether the extent to which the taxpayer relied on a professional advisor.
7. This program has been established for non-resident non-filers. Generally amended returns will not be accepted in this program. However, amended returns filed for the purpose of submitting late-filed Forms 8891for relief from failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be accepted.
It should be noted that this new procedure does not provide taxpayers with protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. As a result, taxpayers concerned about criminal prosecution are advised to consult their legal advisers about eligibility under the 2012 OVDP that is still in place.
At Freed Maxick, we try to gain an understanding of the issues you face. Our international tax professionals serve businesses in all 50 States, dedicating their time advising companies like yours on international tax issues. We draw upon our multi-national knowledge to implement global tax strategies relevant to your company. To learn more about how we may be able to help you Contact Us today.
IRS Offering Different Method for International Filings
The IRS is moving in a “kinder and gentler” direction to help U.S. taxpayers living abroad catch up on their delinquent tax filings. Some U.S. taxpayers who had previously failed (many unwittingly) to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1 now have available a simpler compliance procedure under a new Offshore Voluntary Disclosure Program (OVDP).
The new procedure is scheduled to go into effect on Sept. 1, 2012. As the procedure has not been finalized, the IRS has promised to provide more information about the application process prior to the effective date.
Who Qualifies For the New Procedure?
Those considered “low risk” individuals qualify for the benefits of the new procedure. How is “low risk” defined? Some considerations are:
(1) Simple returns with little or no U.S. tax due
(2) Less than $1,500 of tax due in each of the years filed
(3) Risk level rises as a taxpayer’s income and amount of assets rises
(4) No indications of sophisticated tax planning or tax avoidance
(5) No material economic activity in the United States
(6) No additional history of noncompliance with United States tax law
(7) The amount and type of United States source income.
Those that are considered “higher risk” are not eligible for the new procedure and will be subject to a more thorough review and possibly a full examination.
How Do You Take Advantage of the New Procedure?
Taxpayers wishing to avail themselves of the new procedure are required to submit:
(1) delinquent tax returns with appropriate related information returns for the past three years,
(2) delinquent FBARs for the past six years,
(3) any additional information regarding compliance risk factors required by future IRS instructions, and
(4) To make payment of any federal tax and interest due.
Taxpayers claiming reasonable cause for failure to file tax returns, information returns or FBARs will have to submit a statement, signed under penalties of perjury, explaining the facts and why there is reasonable cause.
The new procedure also provides relief for failure to timely elect deferral of income from certain foreign retirement or savings plans where deferral is permitted by tax treaty, e.g. the Canadian Registered Retirement Savings Plan (RRSP). Streamlined procedures allow taxpayers to obtain relief by submitting a statement requesting an extension of time to make the election, filing Form 8891, submitting a statement explaining why there was a failure to make the election, what led to the discovery of the failure, and if the taxpayer relied on a tax advisor, the nature of the engagement and the responsibilities of the tax advisor.
This new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution should consult their legal advisers about eligibility under the OVDP which began in January 2012.
Once a taxpayer makes a submission under the new procedure, the OVDP which began in January 2012 will no longer be available. Taxpayers who are ineligible to participate in the January 2012 OVDP are also ineligible to participate in the new procedure.
Overall, the new procedure is welcomed news for nonresident U.S. taxpayers who have not been tax compliant. Although it may still be expensive for nonresident U.S. taxpayers to comply with U.S. filing requirements under the new procedure, it’s certainly less costly than filing under previous OVDPs.
If you have any questions, please contact our tax professionals to find out if you qualify under this new procedure, or call us at 716.847.2651.