Taxability of Grants and Fellowship Amounts

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With the cost of higher education sky-rocketing, it may make financial sense for students and families to consider grants and fellowships.  But what about the tax consequences of receiving a grant or fellowship payment? Are grants and fellowship taxable?

The question depends upon whether the individual is a degree candidate.  A degree candidate can exclude from taxation grants and fellowships that pay for tuition and course-related fees, books, supplies and equipment necessary for courses (candidates must first meet the degree test under IRS rules).  Non-degree students, however, must report the entire amount of grants and fellowships as income received.

There are some limitations as well for degree candidates.  Degree candidates may not exclude any portion of a grant and/or fellowship received for purposes not described above, including room, board or similar expenses.  Additionally, in general, amounts received for grants or tuition reductions that pay for teaching, research or other services, required as a condition for receiving such amounts, may not be excluded from income.  This will be the case even if all degree candidates in a particular program are required to perform such services.

Finally, federal grants received by a candidate in return for the individual performing future work with the federal government, generally may not be excluded (however, there may be limited, specific exceptions under certain programs).

2011 Form TD F 90-22.1 (FBAR) is Due on June 30, 2012

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Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “DOT”) has established certain recordkeeping and filing requirements for United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If the aggregate balances of such foreign accounts exceed $10,000 at any time during the relevant year, FinCEN form 114 formerly Form TD F 90-22.1 (the FBAR form) must be filed with the DOT.

The FBAR must be filed by June 30 of each relevant year, including this year (2012). Thus, 2011  FBAR must be received by the DOT on June 30, 2012.  This rule is contrary to your regular tax returns where the mailing date determines whether the filing is timely.  There are no extensions available – the FBAR must be received by June 30 or it will be considered delinquent.

If the FBAR becomes delinquent, it may be subject to severe penalties.

Contact Sherayzen Law Office for FBAR Assistance

If you have any questions or concerns regarding whether you need to file the FBAR or how to prepare the form, please contact Sherayzen Law Office directly.  If you have not previous filed the FBARs and you were required to do so, contact our experienced international tax firm to schedule a consultation now.  We will assess your situation, determine your potential FBAR liability, explain the available options and guide you through this complex process of voluntary disclosure.

Estimated Tax Payments are due on June 15, 2012

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Estimated tax payments for the second quarter (April 1 –  May 31) of 2012 are due on June 15, 2012. The estimated tax payments should be made using Form 1040-ES. Note, if the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be considered on time if it is made on the next business day.

IRS 2013 Budget Proposal Emphasizes International Tax Enforcement

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Every year, the President has to submit a budget request to U.S. Congress for federal agencies, including the Internal Revenue Service. In February of 2012, the IRS posted the following information regarding its budget.

Administration’s fiscal year (FY) 2013 budget request for the Internal Revenue Service is approximately $12.8 billion, a $944.5 million increase (8%) over the FY 2012 enacted level.

A significant portion of the increase from FY 2012 represents the Administration’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years. This request is designed to provide the resources necessary to administer and enforce the current tax code, implement recent changes to the law to update the Code and serve the American taxpayer in a timely manner.

In FY 2011, the IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts. The IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion.

The IRS consistently achieves a high return on investment for its activities while running a fiscally disciplined operation. In FY 2013, the IRS expects to identify nearly $71 million in cost savings from increased use of electronic return filing, reductions in non-case related travel and streamlining operations.

Enforcement Program

IRS Enforcement Program is projected to receive the lion’s share of the increase. The FY 2013 budget includes $403 million in new IRS enforcement activities, which are expected to raise $1.48 billion in revenue annually at full performance, once new hires are fully trained and develop broader experience by FY 2015. This is a 4.3-to-1 return on investment. The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programs, which is conservatively estimated to be at least three times the direct revenue impact.

The enforcement budget also includes $200 million in additional examination and collection programs that will generate more than $1.1 billion in additional annual enforcement revenue by FY 2015. Investments such as these in IRS enforcement programs are especially important to further the IRS’ mission of improving tax compliance.

International Tax Compliance Emphasized by the IRS

International tax compliance is specifically emphasized by the IRS. The IRS will continue to address offshore tax evasion by individuals through a combined “carrot and stick” approach – special offshore voluntary disclosure program and increased examinations and prosecutions.

International tax compliance will also concern domestic businesses operating abroad and foreign businesses owned by U.S. taxpayers. In order to ensure business entity compliance, the IRS will provide additional international technical specialists to increase coverage of complex international transactions.

Contact Sherayzen Law Office for Tax Help with International Tax Compliance Issues

If you have any issues regarding international tax compliance with U.S. laws and regulations, contact Sherayzen Law Office. Our experienced international tax firm will review the facts of your case, analyze the available options, propose a concrete plan of action with respect to your U.S. tax compliance issues, and implement this plan (including drafting and completing the necessary tax documents and forms).