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.
At first glance, Federal income tax is fairly simple. Tax is due on all wages and the term wages includes more than just salary, but the full spectrum of compensation. When an employee is offered severance pay, this is treated the same ordinary wages and subject to income tax. On that point, there isn’t much debate.
There is disagreement, however, concerning severance pay and another federal tax, FICA. FICA stands for Federal Insurance Contributions Act. It’s a tax that helps finance Social Security and Medicare. Both employers and employees have FICA contributions. Typically the employee portion is withheld from their paychecks, same as income tax.
But on whether severance pay is subject to FICA tax, opinions differ. The IRS has held that severance pay is to be treated like any other wages and thus subject to FICA. In 2008, a federal appeals court upheld the IRS position in a case dealing with the railroad company CSX Corp. In 2012, however, the 6th U.S. Circuit Court of Appeals ruled that Quality Stores, Inc and its former employees, could claim a refund from the IRS for FICA tax paid on severance payments. It is that Quality Stores case which is now brought before the Supreme Court.
The Supreme Court’s current session began this month and runs through June.
For more on FICA, other federal taxes, or other tax law matters, please contact Horowitz Law Offices at 312-787-5533 or email@example.com
IRS Revenue Ruling 2013-17 implements the June decision by the Supreme Court that struck down parts of the Defense of Marriage Act and opened the way for federal recognition of same sex marriages. The Ruling provides that same sex couples who have been legally married in a state that permits same sex marriages (as opposed to civil unions), will be able to file their tax year 2013 returns as married-joint.
The effects of the Supreme Court decision, however, begin even even sooner than next April. The IRS has circulated its proposed 2013 Gift Tax Return. Although the current form does not address same sex marriages, it is expected that the final form will. In addition to the lifetime gift tax exception, currently at $5,250,000 and indexed to inflation, and the annual gift tax exception, currently at $14,000, there is also an unlimited exemption from gift tax for spousal gifts. That is, gifts from one spouse to another are never subject to gift tax.
The IRS Ruling applies to transactions on and after September 16, 2013, which means beginning that date, gifts between same sex spouses enjoy the spousal exemption from gift tax. Any transactions before that date will not be covered by the spousal exemption.
Horowitz Law Offices represent individuals and businesses in a variety of tax situations including Gift Tax. You are welcome to contact us with your questions at 312 787 5533 or firstname.lastname@example.org .
Generally, if a married couple file a joint return, each spouse is liable for the tax and for interest and penalties that may arise (with a few exceptions). The Internal Revenue Code, however, provides relief for some spouses if it is deemed inequitable to hold them liable. To take one common example, if tax was underpaid, a spouse can be relieved of the tax burden if the requesting spouse did not know and had no reason to know that money intended to pay the tax had instead been used elsewhere.
The IRS recently released new and clarified regulations regarding innocent spouse relief. These include changing the time frame from two years after the first collection notice is received to the full statute of limitations for collection of the tax. The new guidelines give afford greater weight to the presence of abuse and how it can affect other relevant factors. For example, absent abuse the requesting spouse’s knowledge of the underpayment or deficiency weighs against the request for relief, but in cases of abuse the knowledge can actually weight in the spouse’s favor.
The IRS has clarified how economic hardship — that is, how the requesting spouse would be negatively effective economically if denied relief — is factored in, including minimum standards for determining economic hardship. The lack of such a hardship is no longer a mark against the spouse seeking relief.
Previously, a requesting spouse’s compliance with subsequent tax laws was always treated as neutral toward relief. Now compliance will weigh in their favor.
Horowitz Law Offices represents taxpayers before the Internal Revenue Service and the Illinois Department of Revenue for innocent spouse relief and other tax matters. You are welcome to contact us at (312) 787-5533 or email@example.com
We have written about Federal employees threatening to quit for the private sector if they were required to transfer from existing federal healthcare plans to Obamacare plans. Specifically, it just dawned on government employees that the switch would eliminate the government participation in payment of their premiums. It seems the very people who passed legislation affecting practically every person in the entire country do not want to be governed by those same rules.
In the wake of this dustup, and reportedly after President Obama personally intervened, the Federal Office of Personnel Management has agreed to issue a regulation next week wherein Federal employees would continue to receive Federal participation in their health care premiums notwithstanding being covered by an Obamacare Exchange product.
Our earlier articles pointed out the differing tax treatments to employees moving from employer provided health care to Obamacare Exchange Healthcare resulting in substantially increased taxes. We also pointed out that without a “fix” for Federal employees, the increased cost to Federal employees transferring from their existing plans to Obamacare is about $5,000.00 per taxpayer.
Now, assuming this regulation is issued, government employees will be relieved from the adverse effects of going onto Obamacare while employees in the private sector will experience the higher cost.
What is perhaps even more amazing is if the government was not prepared to issue an appropriate regulation, Congress was prepared to pass legislation to accomplish the same thing.
Horowitz Law Offices represents individuals and businesses for IRS Appeals, Tax Court, Audits and Collection. We also represent clients before the Illinois Department of Revenue (IDOR) for sales tax, use tax and motor fuel tax audits and collections as well as advocating for the various exemptions such as airplane, rolling stock, motor vehicle and heavy machinery.
We welcome your inquiries at: 312 787 5533 or firstname.lastname@example.org