Last week, the IRS and the Department of the Treasury, released a set of amendments to the final regulations to implement the Foreign Account Tax Compliance Act (FATCA). The final regulations had been released the beginning of last year and the law is slated to go into effect beginning in July. These recent amendments address concerns raised since the release of the final regs.
Passed in 2010 as part of the HIRE Act, FATCA aims to combat tax evasion by allowing the IRS to create agreements to work with foreign governments or financial institutions to obtain information on US depositors. To date 22 countries have signed FATCA agreements with the US, with many others at various stages of completing agreements. There are two models for these agreements, one in which the IRS deals with foreign governments who in turn communicate with the financial institutions in their countries, and a second where the IRS talks directly to the foreign financial institutions. In either model the end goal is the same, gathering information on US depositors to identify tax evasion.
FATCA has received criticism and resistance since it was first passed. Some have blamed it for the spike in US citizens renouncing their citizenship since 2010. Some foreign financial institutions have also pushed back against the law, while others have decided no longer to accept US depositors.
Treasury officials have said they expect FATCA to be a model for future laws in other countries, for there eventually to be an established framework of information sharing among countries and financial institutions to combat tax evasion. Earlier this month, the Organization for Economic Cooperation and Development announced new standards for the automatic, FATCA-like exchange of financial information across borders.
Augmented in their efforts by FATCA, the IRS continues an aggressive stance toward US citizens who keep money offshore to evade paying tax or who fail to report those assets. The penalties for failing to declare foreign financial assets or evading taxes through offshore accounts are severe and can include time in prison. Since 2009, the IRS has continued its Offshore Voluntary Disclosure Program, which allows taxpayers to “come clean” regarding previously undisclosed offshore bank accounts and other assets and to receive a reduction in penalties and to avoid criminal prosecution.
Horowitz Law Offices represents taxpayers before the IRS in connection with offshore disclosure, reporting requires (including FBARs), and for other tax concerns. You are welcome to contact us as (312) 787-5533 or firstname.lastname@example.org
We have been treated over the years to memorable quotes by Yogi Berra. Among some of the more well known are: “if you come to a fork in the road, then take it” and “déjà vu all over again.” One of his lesser known quotes is “nobody goes to that restaurant anymore because it’s too crowded.” The IRS inadvertently treaded on that quote this week when it announced to the public: “We do not want anyone calling the IRS next week because too many people will be calling.”
The rationale is a combination of budget cuts affecting staffing IRS phones and the Federal Holiday on Monday crunching calls into four days instead of five.
Notwithstanding, the rationale, one has to admit the IRS does have a sense of humor.
The Illinois Department of Revenue has published a complete list of changes to sales tax rates in Illinois. These rates went into effect January 1, 2014. The list can be found on the Department’s website here.
These are changes to local sales tax rates, not to the sales tax rate for the entire state. The Illinois Retailer Occupation Tax (ROT) rate remains at 6.25%. The actual sales tax paid for a given transaction can of course be modified by the additional rates imposed by other jurisdictions, by counties or cities for example.
For more on sales tax or other tax law matters, you are welcome to contact Horowitz Law Offices at (312) 787-5533 or email@example.com
Earlier this month, the Supreme Court declined to hear a case arising from a New York law passed in 2009 intended to allow that state to collect sales tax on online purchases by New York residents. Although the current debate focuses mostly on online sales tax, the issue stretches back to the early 1990s. Back then the focus was on catalog purchases but the same questions were in play.
The key legal issue in these cases is nexus, a term which means all the links between a particular entity (a company, for example) and a jurisdiction (say, the state of New York). If nexus passes a certain threshold, that company is deemed to be doing business in that state and must charge sales tax on purchases made by that state’s residents.
The nexus gold standard, set in a 1992 Supreme Court decision, is a physical, brick and mortar presence in the state. When it comes to retailers without a physical presence in a state, however, things get fuzzier.
The New York law proposed to broaden the definition of nexus to include affiliate agreements a company had with New York residents. So if Amazon, for example, had affiliate agreements with bloggers in New York, that would create sufficient nexus for Amazon to have to collect sales tax from purchases made by New York residents.
The Supreme Court decision this month means the earlier decision of the New York Appellate Court, which upheld the law, will stand. Interestingly, a similar law passed in Illinois was overturned by its Supreme Court. Several other states have passed similar laws or made or other attempts to increase their ability to tax online retailers. Some in Congress, such as Illinois senator Dick Durbin, have proposed national efforts to allow all states to collect sales tax from out of state retailers (online or otherwise).
For more on sales tax, use tax, or other tax law concerns, you are welcome to contact Horowitz Law Offices at 312-787-5533 or firstname.lastname@example.org
A critical deadline is coming up for Swiss banks on December 31st. Under agreements put in place last summer, the IRS has implemented a bank version of its offshore voluntary disclosure programs (OVDP /OVDI) that have been in place for individuals since 2009.
The programs offered to these Swiss banks may have serious ramifications for their depositors. These programs provide for the banks to obtain non-prosecution agreements from the IRS. Banks may also seek non-target letters. What’s perhaps most important is what these agreements do not include. They provide protection only for the banks, not for any of their depositors.
Part of the requirements for a Swiss bank to obtain one or more of these agreements is a for the Swiss bank to offer up (“hand over”) information regarding its U.S. depositors and its employees and agents. In some if not many cases, this information will provide the IRS with a road map of how Swiss bank employees and agents may have advised U.S. depositors to commit criminal violations of the Internal Revenue Code. It also provides a quite literal road map to the front door of U.S. depositors who may have not disclosed their foreign offshore accounts and or failed to report income from those accounts.
In our practice we are aware of stepped up pressure by certain Swiss banks to encourage their U.S. account holders to enter into the IRS Offshore Voluntary Disclosure Program. Examining the details of the IRS Non-Prosecution Agreements may provide the motivation for this. One of the requirements s of the program is for the Swiss bank to pay penalties for its potentially criminal actions. One way for the Swiss banks to reduce the amount of the penalties is to show substantial efforts to encourage U.S. depositors to enter into the IRS disclosure (OVDP) initiative. Moreover the first deadline for submitting an application for a Non-Prosecution Agreement is December 31, 2013 thereby providing a possible reason for Swiss banks to ramp up pressure on its U.S. Offshore Account Holders.
Horowitz Law Offices represents U. S. taxpayers who maintain foreign offshore bank accounts. You are welcome to contact us at: 312 787 5533 or email@example.com .
The Illinois Appellate Court, Fourth District, issued a ruling last month on the matter of Wendy’s International V. Brian A. Hamer. (Brian Hamer is the Director of the Illinois Department of Revenue.) The case concerned the tax status of a captive insurance company owned by Wendy’s, specifically the issue of whether that captive should be treated as a bona fide insurance company for Illinois tax purposes.
A bit of background first. A captive insurance company is a subsidiary company formed to provide insurance to its parent company. Doing insurance in house can save on the bottom line, and captives also often net tax benefits for their parent companies and they’ve become increasingly popular over the last several years.
This issue in Wendy’s v. Hamer was whether the captive should be taxed as an insurance company, or if it should be included in a combined return for the larger Wendy’s group. Because of how insurance companies are taxed in Illinois–based on the premiums they write–and because many of the profits for the Wendy’s captive derived from intercompany trademark royalties and interest, this distinction would affect the taxes owed significantly.
The district court which initially heard the case found in favor of the Department on a motion for summary judgment. The Appellate Court, however, reversed that decision and held that the captive should be treated as an insurance company. More than the particular consequences for captive insurance, it’s the reasoning behind the decision that’s most interesting.
The court pointed to three elements in particular. First, that the captive was a licensed insurance company under Vermont law (where the company was incorporated). Second, that in offering a broad range of coverage to its parent, the captive met the test of risk shifting and risk distribution, one of the benchmarks of an insurance company. Finally, and perhaps most interesting, the court looked to the IRS for precedent, pointed to how the IRS had treated the captive as an insurance company under multiple audits, even making adjustments to the company’s deductions consistent with treatment as an insurance company.
Horowitz Law Offices represents numerous individuals and bushiness before the Illinois Department of Revenue, the Internal Revenue Service and the Chicago Department of Finance on a wide range of tax matters. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org
We have written frequently written about the FATCA statute. Every month, more and more FATCA agreements are being negotiated between the U.S. and foreign governments. These agreements provide for foreign banks to disclose U.S. depositor information to the U.S. government. To this point, we are aware of several major foreign banks that have sent letters to their depositors which state that either via FATCA or separate unrelated agreements, the bank is going to release their information to the IRS. The letters advise that if the depositors have not properly reported their foreign income and or accounts to the IRS, they ought to seek tax advice.
Recently it’s not just large bank that are issuing these types of disclosure letters. Rather, smaller banks are beginning to issue letters to the same effect.. In other words, the IRS is digging deeper.
Horowitz Law Offices has represented clients with offshore bank account issues for several years. If you have an offshore account disclosure question, or other tax matter, you are welcome to contact us at 312 787 5533 or email@example.com.
After months of delays in the House, yesterday the Illinois General Assembly passed a bill to make Illinois the 15th state to legalize same-sex marriages. The bill goes now to Governor Quinn who has already pledged to sign it into law. The law will go into effect June 1, 2014. For same-sex couples, this law will have far reaching tax implications.
There are of course numerous tax benefits for marriage. Spouses can file their yearly income tax returns jointly, which provides for a lower overall tax burden for many couples. Spouses similarly enjoy unlimited estate and gift exemptions when gifting or bequeathing assets to their spouses.
Currently in Illinois, same sex couples can have civil unions but not a full marriage. The distinction between the two varies with jurisdiction. In Illinois itself, there is little legal difference between a civil union and a marriage. Members of a civil union can file Illinois income tax returns jointly, for example.
It’s a different story with Washington. The federal government does distinguish between a marriage and a civil union. Following the Supreme Court’s ruling in June of this year that overturned portions of the 1993 Defense of Marriage Act (DOMA), the federal government now recognizes marriages between same-sex spouses. The federal government recognizes a same-sex marriage even if the couple in question lives in a state that doesn’t.
It should be noted that the June court ruling only struck down part of DOMA, the section which forbid the federal government from recognizing same-sex marriages, the rest of the act remained in effect. This includes the provision that prevents states from being required to recognize same-sex marriages. If a heterosexual couple marries in Illinois, for example, every other state must recognize that marriage. This is not true, because of the still active parts of DOMA, for same-sex couples, and this could of course have tax consequences.
After June 1, 2014, a same-sex couple will be able to get married in Illinois and enjoy the full state and federal benefits of that marriage. This will have large effects on the tax situations of many of those couples and likewise has reaching implications for their estate plans.
Horowitz Law Offices has helped many people navigate their particular tax situations and controversies and works daily with the Internal Revenue Service, Illinois Department of Revenue and Chicago Finance Department on behalf of our clients. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org
The core provisions of the Affordable Care Act (ACA), aka “Obamacare,” are now coming into effect. The health insurance exchanges went live at the beginning of this month and the personal mandate to have health insurance goes into effect January 1, 2014. The penalty connected to that mandate is widely misunderstood and has been incorrectly reported.
In 2014, the penalty is $95 or 1% of taxable income, whichever amount is more. By 2016, the penalty will rise to $695 ($2085 for jointly filing spouses) or 2.5% of income, again whichever is higher. The penalty, however, is a hybrid. And just like the ability of the Toyota Prius or other hybrid cars to fight global warming is debated, so too there is doubt about whether or not this penalty really has teeth.
For most tax related penalties, the IRS has the legal authority to garnish wages and file liens in order to collect those amounts. The IRS is unable to do so with the ACA penalty, however. The personal mandate penalty is only taken out of your Federal tax refund. If you had no tax refund, the IRS would not be able to collect the penalty. Moreover, while there are penalties for failure to pay taxes, there are no penalties on failure to pay other penalties. This does not mean, however, that you can carry such a penalty indefinitely. You never know when the need will arise to show you have no open liabilities on your taxes to the IRS.
There is something else very important to keep in mind here (aside from the fact that living without health insurance is probably not advisable). If someone in tax year 2014 has no health insurance and is thus subject to the $95 penalty but has no tax refund, the IRS will not collect the penalty, since they can only deduct it from a refund, but the penalty is still due. And like all other outstanding amounts owed to the IRS, that penalty will continue to accrue interest. The IRS interest is currently low, 3%, but it has risen much higher historically and could do so again. $95 could become very unwieldy if left unaddressed for five or ten years.
Horowitz Law Offices has helped numerous taxpayers navigate their specifc tax situations and deals regularly with the Internal Revenue Service, the Illinois Department of Revenue, and the Chicago Finance Department. You are welcome to contact us at (312) 787-5533 or email@example.com
Chicago Alderman Pat Dowell of the Third Ward, has proposed an annual tax of $25 on bicycles in the city. The tax is proposed as an alternative to Mayor Rahm Emanuel’s proposal to increase taxes on cable television. Dowell has also proposed that bicyclists should be required to take a rules of the road class.
When asked, the Mayor did not support the proposed tax, which likely means the tax has little chance of coming to pass. He said it is in Chicago’s interest to be bike friendly and he also said that checking bicycle registrations is not the best use of the time of Chicago police officers.
Interestingly enough, the city currently has an ordinance on the books requiring all bicycles to be registered with the police department (Municipal Code of Chicago 9-120-20) but the ordinance does not include any penalty for failure to do so.
For more information on Chicago taxes or other tax law concerns, you are welcome to contact Horowitz Law Offices at (312) 787-5533 or firstname.lastname@example.org.