2013 IRS Changes to Lockbox Addresses

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The Treasury Department’s Financial Management Service (FMS) and the IRS are in the process of streamlining the lockbox network. Effective December 31, 2012, the IRS will close lockbox operations located in the Atlanta (State of Georgia) and St. Louis (State of Missouri) areas. Moreover, other P.O. box address closings affect addressed in Hartford, Connecticut and Charlotte, North Carolina. These changes will affect individual taxpayers in nine states and business taxpayers in 26 states.

Effective January 1, 2013, individual and business taxpayers living or located in affected states will send payments to new lockbox sites.

P.O. Boxes Closed on December 31, 2012

The P.O. Boxes for the following lockbox sites will close effective December 31, 2012. To avoid any delays with mail, check your office materials and discard anything referring to these P.O. boxes. If you are an accountant or a tax attorney, make sure that your office discards of the following addresses.

St. Louis, MO – closing 12/31/12
P. O. Box 970007
P.O. Box 970009
P. O. Box 970010
P. O. Box 970019
P. O. Box 970026

Atlanta, GA – closing 12/31/12
P. O. Box 105877
P. O. Box 105659
P. O. Box 105703
P. O. Box 105094
P. O. Box 105092
P. O. Box 105279
P. O Box 105421
P. O. Box 105401
P. O. Box 105900
P. O. Box 105093
P. O. Box 105073
P. O Box 105571

Charlotte, NC- – closing 12/31/12
P. O. Box 1210
P. O. Box 1212
P. O. Box 1213
P. O. Box 1269
P. O. Box 1236
P. O. Box 70503
P. O. Box 660002
P. O. Box 660169

Hartford, CT – – closing 12/31/12
P. O. Box 37001
P. O. Box 37002

2013 New Address for Individual Taxpayers Living in Certain States

Starting January 1, 2013, if you or your individual client live in Alabama, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, Missouri, New Jersey, and Virginia, then the following address changes will affect you:

Forms 1040, 1040A, 1040EZ should be mailed to:

P. O. Box 1000
Louisville, KY
40293-1000

Forms 1040ES should be mailed to:

P. O. Box 1100
Louisville, KY
40293-1100

Forms 4868 should be mailed to:

P. O. Box 1300
Louisville, KY
40293-1300

2013 New Address for Business Taxpayers Living in Certain States

Starting January 1, 2013, if your business or your business clients are located in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming then the following address changes will affect your business and your business clients:

Forms 940 should be mailed to:

P. O. Box 37940
Hartford, CT 06176-7940

Forms 941 should be mailed to:

P. O Box 37941
Hartford, CT 06176-7941

Forms 943 should be mailed to:

P. O. Box 37943
Hartford, CT 06176-7943

Forms 944 should be mailed to:

P. O. Box 37944
Hartford, CT 06176-7944

Forms 945 should be mailed to:

P. O. Box 37945
Hartford,CT 06176-7945

Automatic 5471 Penalties Submitted With Form 1120

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In an earlier article, I discussed various penalties generally associated with late or inaccurate filing of Form 5471 (this form is required under IRC Section 6038(a) to provide information with respect to certain US shareholders of foreign corporations). These penalties are generally subject to “reasonable cause” exception and are not imposed in every case.

Since 2009, however, this is not the case. Starting January 1, 2009, the IRS automatically assesses a $10,000 penalty (under IRC Section 6038(b)(1)) for each late filed Form 5471 if the related Form 1120 is not filed timely. Note, the automatic assessment of penalty results in this case even if there is no tax due.

Furthermore, IRC Section 6038(c) provides for a 10% reduction of the foreign taxes available for credit under IRC Sections 901, 902 and 960. Per IRC Section 6038(c)(3), this reduction to the foreign taxes can be applied in addition to the monetary penalty. It is important to realize that the automatic assessment of the $10,000 penalty does not preclude a later assessment under IRC Section 6038(c).

In addition, the IRS will also assess the penalty for the failure to file income tax returns (i.e. Form 1120) under IRC Section 6651(a)(1). The penalty is 5% of the tax required to be shown on the income tax return for each month (or fraction thereof) during which such failure continues. The amount of the penalty shall not exceed 25%. No penalty is applicable under IRC Section 6651(a)(1) if no underpayment of tax is shown on the return.

There is an interesting procedural twist with respect to automatic assessment of penalties – the IRS does not want you to include the reasonable cause statement together with Form 5471 filed late together with Form 1120. Rather, the IRS Service Centers will first send the taxpayer a Notice to Respond and the taxpayer can respond with a reasonable cause statement.

Whether or not to follow this procedural suggestion will depend on the individual case and such decision should be made by your tax attorney.

Of course, the situation is radically different if Form 1120 has already been timely filed. In this case, the taxpayer must file Form 1120X with the late Form 5471 and he should include his reasonable cause statement.

Contact Sherayzen Law Office For Help with Form 5471 Penalties

If you have not filed your Form 5471 yet or if you are facing a penalty for the already filed Form 5471, contact Sherayzen Law Office for legal help. Our experienced international tax firm will thoroughly analyze your case, present options for proceeding forward, prepare all of the required documentation and tax forms, and rigorously represent your interests during your negotiations with the IRS.

Additional Medicare Tax: Introduction

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Starting January 1, 2013, Additional Hospital Insurance Tax (Additional Medicare Tax) will come to life as a result of section 9015 of the Patient Protection and Affordable Care Act (PPACA) (as amended).

In essence, PPACA increased the existing Medicare tax for high-income earners. Currently, the Medicare tax rate is a flat 2.9% tax on all wage and self-employment income. Starting January 1, 2013, the flat 2.9% Medicare tax is likely to continue to apply to wages under the threshold amount (see below). However, PPACA imposes Additional Medicare Tax on wages, compensation and self-employment income above a certain threshold amount received after December 31, 2012. The tax rate is 0.9 percent.

The threshold amount depends on your filing status as indicated below:

Married filing jointly $250,000
Married filing separately $125,000
Single $200,000
Head of household (with qualifying person) $200,000
Qualifying widow(er) with dependent child $200,000

It is important to remember that Health Care and Education Reconciliation Act of 2010 further expands the Medicare tax by imposing a 3.8% Medicare tax on investment income – the so-called “unearned income Medicare contribution tax”. The details of this tax increase are discussed in another article.

Tax Year 2012 Income Tax Brackets for Individuals

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The 2012 tax season is nearing. As calendar year 2012 is drawing to its end, the time for any tax planning is getting shorter and shorter. In order to do the tax planning properly, it is essential to know what tax bracket you are likely to be in and whether you can lower this bracket.

For the year 2012, the following tax brackets apply:

Filing Single

10% $0 – $8,700
15% $8,701 – $35,350
25% $35,351 – $85,650
28% $85,651 – $178,650
33% $178,651 – $388,350
35% Over $388,350

Filing Married Filings Jointly

10% $0 – $17,400
15% $17,401 – $70,700
25% $70,701 – $142,700
28% $142,701 – $217,450
33% $217,451 – $388,350
35% Over $388,350

Filing Married Filings Separately

10% $0 – $8,700
15% $8,701 – $35,350
25% $35,351 – $71,350
28% $71,351 – $108,725
33% $108,726 – $194,175
35% $194,176 or more

Filing Head of Household

10% $0 – $12,400
15% $12,401 – $47,350
25% $47,351 – $122,300
28% $122,301 – $198,050
33% $198,051 – $388,350
35% Over $388,350

Retiring in Panama – Tax Traps for U.S. taxpayers

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In recent years, a new retirement trend emerged among U.S. citizens – retirement abroad in relatively peaceful countries of Latin America. Panama appears to be one of the preferred destinations. Retirement is a process, though, and it takes time to set up properly. Therefore, U.S. citizens typically start their preparation for retirement abroad in theirs 50s, before they actually retire. In this article, I wish to discuss some of the most prominent U.S. tax issues that these potential retirees may face.

Typical Retirement Process

At lot of U.S. citizens who make the decision to retire in Panama start the process by retaining a local attorney to acquire land. They open up an account in Panama to finance the deal. Then, they sign a contract with a construction company to build a house. At that point, most Panamanian lawyers typically advise to organize a Panamanian corporation and put the house into the corporation for the purported reasons of liability and privacy. The house construction is then financed by the owner’s funds through new Panamanian corporate accounts. After the house is built, the lawyers will then attempt to obtain an exoneration of the property from Panamanian taxation for a fixed number of years allowed by law.

Throughout the process, the U.S. citizens are advised by Panamanian tax advisors that there are not tax consequences for structuring the retirement home purchase and construction through a corporation.

Tax Problems with this Process

Despite the apparent innocence of this project, there are potentially large problems with it if the U.S. tax citizens are not independently advised of the U.S. tax consequences of structuring their retirement in this manner.

Let’s take this scenario apart and focus on the three most common problems here. First, the opening of the bank accounts. If the aggregate balance on these accounts exceeds $10,000, then the Report on Foreign Bank and Financial Accounts must be filed by U.S. taxpayers. Failure to do so may bring tremendous IRS penalties, civil and criminal.

The interesting point here is that, in calculation of the aggregate $10,000 balance, a U.S. taxpayer should take into account the corporate accounts over which he has signature authority if owns more than 50% of the corporation (directly or constructively).

Second, organizing a Panamanian corporation owned by U.S. taxpayers may bring forth another highly-complicated U.S. tax compliance feature – Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Depending on the asset valuation (under US GAAP) and some other features of the corporation, Form 5471 can become a truly monstrous compliance requirement for this seemingly simple transaction of buying a retirement house through a corporation. Failure to file Form 5471 can lead to substantial penalties depending on circumstances.

Third, there is a new Form 8938 that requires U.S. taxpayers to disclose information with respect to specified foreign assets as long as these assets exceed a certain threshold. The Form has its own penalty structure.

The truly tragic aspect of this scenario is that a large number of Panamanian attorneys are completely oblivious to these U.S. tax reporting requirements as well as the penalties associated with them. Therefore, they fail to advise their U.S. clients about these IRS requirements and that the clients should consult a U.S. tax attorney experienced in these matters.

This is why it is highly important that you consult with a U.S.-based international tax attorney regarding U.S. tax consequences of your particular foreign retirement plan.

Contact Sherayzen Law Office to Learn About U.S. Tax Consequences of Your Foreign Asset Ownership and Retirement

The above article does not summarize all of the tax forms that should be filed in such situations, but merely points out the most prominent ones.  The exact U.S. tax compliance requirements will also depend on your particular situation.

If you are a U.S. citizen who is planning to retire in Panama or you wish own a property or do business there, you should contact Sherayzen Law Office. Our experienced international tax firm will analyze your situation in depth and offer professional legal advice with respect to your particular situation.