Purpose of Form 941

Employers are required under Federal law to withhold necessary amounts of federal income tax as well as Social Security and Medicare taxes from their employees’ paychecks, and to pay any portion of the employer’s liability for Social Security and Medicare taxes (this portion is not withheld from employees).  Whenever an employer pays wages, the required amounts must be withheld. In addition to the items mentioned above, in general, Form 941 needs to be filed to report tips received by employees, current quarter’s adjustments to Social Security and Medicare taxes (for fractions of cents, sick pay, tips, and group-term life insurance), and credit for COBRA premium assistance payments.

Certain exceptions may apply to the filing requirements.  For instance, seasonal employers may not need to file Form 941 for certain quarters if they have not paid wages during that time.  (Line 19 of the form should be checked, however, for every quarter that such employers do file, in order to properly notify the IRS of this exception).  Employers of household and farm employees also usually do not need to file the form (instead, Form 943 “Employer’s Annual Federal Tax Return for Agricultural Employees” may need to be filed for farm employees).

When Form 941 Must be Filed

In general, Form 941 should first be filed in the quarter for which an employer has initially paid wages subject to Social Security, Medicare and/or Federal income tax withholding.  Form 941 is required to be filed by the last day of the month following the end of the quarter.

Specifically, Form 941 is due April 30th for quarters ending March 31 (i.e. quarters that consist of January, February, and March), July 31st for quarters ending June 30th (i.e. quarters including April, May, and June), October 31st  for quarters ending September 30th (quarters including July, August, and September), and January 31st for quarters ending December 31st (quarters including  October, November, and December).  In other words, employers must generally report wages paid during a quarter by the required due dates.  (If a due date falls on a Saturday, Sunday, or legal holiday, employers may file on the next business day).  If timely deposits have been made in full payment of required taxes owed for a quarter, an employer has 10 more days after the due dates listed above to file Form 941.

For forms received after the due date, the IRS will treat Form 941 as being filed when the form is actually received, unless certain conditions are met (such as a Form 941 postmarked by the US Postal Service on or before the due date in a properly addressed envelope with sufficient postage, or one sent by an IRS-designated private delivery service on or before the due date).

Once the initial Form 941 is filed by an employer, the form must be then filed for every following quarter (subject to certain exceptions, including those explained above).

Contact Sherayzen Law Office for Legal Help With Form 941

If your business has not filed the required Forms 941 or you have not paid the payroll taxes to the IRS, contact Sherayzen Law Office for help NOW!  Our experienced tax attorneys will work hard to protect your business against the IRS and will strive to achieve the most beneficial resolution of your case possible.   Our attorneys will also help you if you facing criminal charges due to your non-payment of taxes.

IRS Authority under IRC Section 482

In general, IRC Section 482 gives the IRS the ability to distribute, apportion, or allocate gross income, deductions, credits or allowances between certain organizations if they are controlled or owned by the same taxpayers, and it is determined that such action is necessary to prevent tax evasion, or to clearly reflect such organizations’ income.  The IRS has broad authority under this section (and the definition of “control” is similarly interpreted broadly); taxpayers, on the other hand, are generally not able to use this section to reallocate income, deductions or other items on their own.

IRS authority under this section to make such determinations is generally granted whenever taxpayers report different income, deductions, or other related items than they would have had if the taxpayers made an arm’s-length transaction with organizations that were not controlled or owned by them.  Various methods are available to the IRS to determine the proper arm’s-length price.

In the context of international taxation, one of the purposes of this section is to prevent taxpayers from improperly shifting income to controlled organizations in countries with lower tax rates (or conversely, transferring deductions to controlled organizations in high tax rate countries).

Penalties under IRC Section 482

Severe penalties may apply under IRC Section 482.  IRC 6662(e)(1)(B) imposes transfer pricing penalties on any underpayment attributable to a “substantial valuation misstatement” pertaining to transfer pricing. There are two types of transfer pricing penalties under this particular provision: (A) the transactional penalty, which applies when the price reported for any property or services is 200% or more (or 50% or less) of the amount determined to be the proper price, and (B) the net adjustment penalty, which applies when the net IRC 482 adjustment (i.e. the reallocation of profit determined by the IRS) exceeds the lesser of $5 million or 10% of a taxpayer’s gross receipts.  An accuracy-related penalty of 20% may be applied in such circumstances.  Further, under IRC Section 6662(h), a 40% penalty for “gross misstatements” (as defined in the provision) may be applied.

Contact Sherayzen Law Office for Legal Advice on Business Transactions and Structure

The powers of the IRS under IRS Section 482 are broad and the penalties can be substantial.  Therefore, it is important to contact a business tax attorney to plan the business transactions and business structure ahead of time, identifying the problem areas and accurately evaluating the risk of potential IRS actions.

This is why you should contact the experienced business tax lawyers of Sherayzen Law Office for legal help with analyzing your business structure and planning your business transactions.

Three Trends Greatly Enhanced IRS Ability to Identify and Prosecute Non-Compliance

In 2012, waiting with the voluntary disclosure of previously unreported foreign financial accounts is just too dangerous for any U.S. taxpayer to afford. This is the result of three converging trends in U.S. tax enforcement.

First, as a result of the 2009 and 2011 offshore voluntary disclosure programs, the IRS is currently sitting on top of a gigantic mountain of information about the financial institutions, wealth-management advisors, and individual taxpayers involved in the U.S. tax non-compliance. Once processed, this information should allow the IRS to effectively identify and target the main sources of noncompliance, including common countries, financial institutions, and individuals (including U.S. taxpayers). Therefore, the risk of discovery – whether intentional or accidental – has risen tremendously for U.S. taxpayers who either willfully or non-willfully failed to disclosure their reportable foreign assets and foreign income.

Second, the new reporting requirements force U.S. taxpayers to disclose assets that previously may have escaped the IRS disclosure. The first and foremost of these new requirements is Form 8938, which should allow the IRS to collect the information that previously was not required to be collected as well as effectively connect various tax reporting requirements, allowing the IRS to assess the scope of potential non-compliance with relative ease.

Moreover, in addition to Form 8938, a stricter interpretation as well as expansion of other existing forms allows the IRS to upgrade the reach of other reporting requirements. Form 8621 is the best-known example of this trend. Form 8621 is used to report PFIC (Passive Foreign Investment Company) income; soon, the U.S. taxpayers will be required to file a new version of Form 8621 to report their PFIC holdings even if they do not have PFIC income.

Finally, the third trend is the ever expanding IRS statute of limitations. The IRS has been given (or it interpreted the law in such a way) an increasing power to look back farther and deeper into older U.S. tax returns. FATCA (Foreign Account Tax Compliance Act) further enhanced this ability. At this point, failure to file any of the major disclosure forms, such as Forms 5471, 8865, 8938 and so on, is likely to prevent the IRS Statute of Limitations from running, keeping a tax return open potentially forever.

Impact of These Trends on Taxpayer Compliance Strategies

These three trends have a tremendous impact on the tax compliance strategies of U.S. taxpayers. First, as a result of the extended Statute of Limitations, the U.S. taxpayers cannot now just contend themselves with making sure that they are in full compliance in the current year – they need to make sure that they were compliant in all years potentially open to the IRS audit.

This means that the “quiet disclosure” practice (where taxpayers are attempting to amend their tax returns and comply with current reporting requirements without providing any explanation to the IRS) employed by so many accountants in the past can be more damaging than helpful at this point. While I have always been in disagreement with this strategy, it appears that the current enhanced abilities of the IRS to identify and prosecute non-compliance make this strategy downright dangerous for most non-compliant taxpayers.

Second, with the issuance of new Form 8938, the taxpayers’ ability to maneuver around the foreign asset reporting requirements is greatly reduced. Moreover, it appears that Form 8938 forces the previously non-compliant (whether willful or non-willful) taxpayers into a situation where they have to choose between further exacerbating their non-compliance with potentially grave consequences or complete disclosure of all of the assets that they previous did not or could not report.

Third, there is now an added urgency to the voluntary disclosure to non-compliant taxpayers. From one side, the aforementioned obligation to comply with Form 8938 and other forms during this tax season places strict deadlines for conducting voluntary disclosure (even with extensions). From the other side, for the taxpayers who have unreported assets in countries and institutions that were exposed during the 2009 and 2011 offshore voluntary disclosure programs, this is a race against time. As soon as the IRS is able to process the gigantic pile of data that they have accumulated as a result of those programs, these taxpayers are at heightened risk of discovery. It is well-known that, once the IRS launches an investigation against a particular taxpayer, this taxpayer will not be able to take advantage of any existing voluntary disclosure options.

Cumulative Effect: 2012 is the Year of Voluntary Disclosures

The cumulative effect of all of these trends and strategies is likely to be a heavy pressure on the U.S. taxpayers to conduct some form of voluntary disclosure of previously-unreported foreign assets. Therefore, it is very likely that year 2012 will continue to build on the previous years’ pattern of increasing number of disclosures – perhaps, the numbers will climb even higher than in 2011.

Contact Sherayzen Law Office for Help With 2012 Offshore Voluntary Disclosure

If you have any unreported foreign accounts, foreign assets or foreign income, contact Sherayzen Law Office NOW. Our experienced voluntary disclosure attorneys will assist you during every stage of your disclosure – analysis of your legal situation and your risk exposure, choosing the right disclosure based on your fact pattern, preparation of all necessary documents (including tax returns, FBARs, business ownership disclosure (5471, 8864, 8858), PFIC, foreign trust distribution, foreign inheritance, and other forms), management of proper filing of the disclosure, creative ethical approach to establishing the legal foundation of your case, and rigorous advocacy of your interests during IRS negotiations.

Main Failure to File and Failure to Maintain Records Penalties

If a corporation fails to timely file the required Form 5472, a $10,000 penalty may be assessed. Furthermore, a reporting corporation that files a substantially incomplete Form 5472 will be deemed as having failed to file Form 5472, and penalties may apply.

An interesting twist in Form 5472 penalties is that, in addition to failure to file penalties, the IRS imposes substantial record-keeping penalties. A $10,000 penalty may be assessed for failure to maintain records, as required under IRS regulation Section 1.6038A-3. Under this regulation, “a reporting corporation must keep the permanent books of account or records… that are sufficient to establish the correctness of the federal income tax return of the corporation, including information, documents, or records (“records”) to the extent they may be relevant to determine the correct U.S. tax treatment of transactions with related parties.”

It is also important to note that, for the purposes of Form 5472 penalties, each member of a group of corporations filing a consolidated information return is treated as a separate reporting corporation, and each member is potentially subject to a separate $10,000 penalty, as well as being jointly and severally liable.

Additional Failure to File Penalties

If the IRS issues a failure to file notification, and the failure continues for more than 90 days after such notification, an additional penalty of $10,000 may apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period end.

Criminal Penalties

Under IRC Sections 7203 (Willful failure to file return, supply information, or pay tax), 7206 (Fraud and False Statements), and 7207 (Fraudulent returns, statements, or other documents), criminal penalties may potentially apply for failure to submit necessary information, or for filing false or fraudulent information.

Contact Sherayzen Law Office for Legal Help With Form 5472 Reporting Requirements

Complying with Form 5472 requirements and dealing with Form 5472 penalties usually requires professional review. Contact Sherayzen Law Office for tax assistance with Form 5472; our experienced international tax attorneys will determine whether you need to file Form 5472, explain how to comply with the form’s requirement, complete the form for you, and handle any necessary IRS negotiations.

At that point, a Board of Directors of such an organization may start to wonder about whether it is possible to convert the status of an organization, how to do it and whether there are any viable alternatives.  In this article, I will examine the possibility of converting a non-profit organization’s tax-exempt classification, focusing on 501(c)(3) and 501(c)(6) classifications.

General Conversion Process

First, in order to attempt the conversion from one classification to another, a tax-exempt organization will need to change its organizational documents (such as the Articles of Incorporation and the corporation’s Bylaws) to reflect the primary purpose of the new type of tax-exempt organization being sought and to comply with the requirements of such organizations. Usually, the Bylaws or the Articles of Incorporation govern the exact process of approval of the amendment of these important organizational documents. Frequently, these documents will say that a Board of Directors’ resolution is sufficient, but, often, an approval of the majority of members maybe required. If the organizational documents are silent on the amendment process, your state’s statute would need to be consulted on the amendment process.

Amending the documents is usually not enough. Changing the primary purpose of an organization may also entail eliminating, or at least substantially reducing, any prohibited or limited activities under the new desired classification. For instance, if you seek to convert a 501(c)(6) organization into a new 501(c)(3) organization, then, after changing the original organizational documents (and following any necessary rules in doing so) to comply with applicable 501(c)(3) requirements, will also need to limit substantial lobbying activities and any other activities that are prohibited or limited under 501(c)(3) rules. Usually, these activities require a wholesale overview of the organization’s activities by an attorney in order to determine what types of practices need to be modified and how.

Finally, in order to convert, a new form will need to filed with the IRS requesting the grant of the new tax-exempt status, demonstrating compliance with the relevant regulations. For example, in case of conversion to 501(c)(3), Form 1023 will need to filed, demonstrating compliance with IRS 501(c)(3) rules. This, in turn, will require paying an application fee as well as providing any applicable required verification documents. There is no guarantee that the IRS will recognize the new tax-exempt status being sought. This is why it is important for the application to be well drafted, demonstrating adherence to the relevant law and regulations.

Alternatives to Conversion

The motivations for seeking alternatives to full conversion from one classification to another are numerous. Nevertheless, the most popular reason for avoiding such conversion and seeking an alternative is the fact that an outright change in classification of an entity may significantly limit the ability of such organization to achieve their goals.

It is not easy to discuss alternatives to conversion, because the particular circumstances of an organization will determine what alternatives are available and whether they are more desirable than the process of conversion.

Yet, one can identify two general trends (which may or may not apply to a particular organization), which I will state here in their ideal form. First, some organizations attempt to create a hybrid organization which contains completely separate components – one that strictly follows the rules of a 501(c)(3) and another that adheres to the 501(c)(6) rules. This alternative will require separate application forms and fees, but it may give the most flexibility to the Board of Directors (assuming the IRS grants the requested status).

On the other hand, as a second alternative, a lot of organizations opt to create a new organization altogether in order to avoid legal complications. The idea here is that the members of the Board of the old corporation will form the majority of the members of the Board of the new corporation. Beware, while this alternative may solve one type of legal complications, it may actually bring a host of others.

Conclusion

Conversion from one tax-exempt classification to another can be very complex and usually requires an in-depth knowledge of the Internal Revenue Code, IRS regulations and case law. Therefore, you will need to consult an experienced attorney familiar with both business and tax aspects of these issue.

If you have any questions concerning tax-exempt classifications of non-profit corporations, contact Sherayzen Law Office for legal help. Our experienced attorneys can assist you in resolving any problems in this area of law.

One of these latest developments is the new Form 8938, which was born out of the passage of FATCA (Foreign Account Tax Compliance Act). In this article, I will analyze some of the key aspects of the interaction between Form 8938 and OVDP 2012.

Link between OVDP 2012 and Form 8938

In an earlier article, I already described the main features of the OVDP 2012. In announcing the OVDP 2012, IRS cited several reasons for announcing the new voluntary disclosure program for U.S. taxpayers with offshore assets, particularly the success of the previous programs and the mountain of information gathered by the IRS which would allow it to investigate (and ultimately penalize and/or prosecute) additional non-compliant U.S. taxpayers as well as Swiss bankers. Some international tax attorneys elaborated on the IRS motivation as well as added some of their own reasoning.

Yet, among all of these reasons, most international tax attorneys completely omitted even mentioning the new Form 8938. Yet, in my opinion, Form 8938 is likely to play a very important role in driving additional U.S. taxpayers toward OVDP 2012.

Form 8938′s Impact on Foreign Asset Disclosure Structure

The main reason for Form 8938′s potentially profound impact on OVDP 2012 participation lies in the nature of Form 8938.

As I explained in an earlier article, Form 8938 is a fundamental tool for the IRS to identify the scope of international tax non-compliance of a given U.S. taxpayer. It is very important to understand the reason why Form 8938 is so useful for the IRS. It is not only because Form 8938 now requires a taxpayer to disclose more information, but, rather, because Form 8938 connects various parts of a taxpayer’s international tax compliance including the information that escaped disclosure on other forms earlier. This summary, in turn, allows the IRS to identify the overall scope of a taxpayer’s noncompliance in an efficient manner. Moreover, compliance with Form 8938 may lay the foundation for an IRS investigation of whether the taxpayer has been in compliance previously.

Compliance With Form 8938 May Force Taxpayers to Enter a Voluntary Disclosure Program

This ability by the IRS to discern whether the areas of actual or potential non-compliance in current as well as prior years puts previously non-compliant taxpayers in a highly uncomfortable position.

For example, suppose that taxpayer T was previously non-compliant with respect to reporting his foreign bank accounts because he did not know anything about the FBAR. Since Form 8938 is filed together with the tax return, T will have to go through a voluntary disclosure of some type because failure to file Form 8938 at this point is likely to turn his previous non-willful non-compliance into a willful one.

Similarly, suppose T was did not report his ownership of a business entity because he classified the entity as a partnership (assuming at this point that it is not a “controlled partnership”) instead of as a corporation. Prior to Form 8938, it was unlikely that the IRS would challenge this classification because the partnership ownership was never disclosed. However, with Form 8938, T will have to disclose his partnership ownership drawing IRS attention to the classification issue. T will have to consult Sherayzen Law Office in order to figure out what is the best course of action to deal with this dilemma.

Thus, as the examples above demonstrate, Form 8938 is likely to have a profound impact on the number and depth of voluntary disclosures as taxpayers are forced to re-evaluate their tax compliance strategies.

It is important to emphasize that the impact of Form 8938 on your particular situation should be analyzed separately by an international tax attorney. This article can only provide a very general background, because the exact strategies, including the optional enrollment into OVDP 2012, will differ from situation to situation.

Contact Sherayzen Law Office for Legal Help With U.S. Tax Compliance Issues

If you have any questions with respect to Form 8938, OVDP 2012, and any other international tax compliance issues, contact Sherayzen Law Office NOW. Our experienced international tax attorneys will guide you through the complex web of international tax requirements, identify potential problem areas, create a plan of action to deal with these problems, and implement the plan while providing zealous ethical IRS representation.

In finding the right offshore voluntary disclosure attorney, you should look at the following four factors:

1. Areas of Practice and Experience

For offshore voluntary disclosure purposes, you should be looking for an international tax attorney who is experienced in voluntary disclosure. It does not have to be his only area of practice, but it needs to be a major area of his practice.

In terms of experience, you should be looking for an attorney who conducted voluntary disclosures for clients in the past. This experience is very important and should differentiate that attorney from other international tax lawyers.

It is important to emphasize that your voluntary disclosure attorney needs to have a wide range of knowledge in international tax compliance. The main reason is because offshore voluntary disclosures often involve more tax issues than you may think.

In 90% of the voluntary disclosures that I conducted, the clients came with one set of issues (usually FBARs and undisclosed foreign income), but, by the end of the consultation, I identified that there were additional issues to take into consideration while considering various disclosure options, such as: foreign business ownership, PFIC (Passive Foreign Investment Company) income, foreign inheritance, subpart F income, collectible capital gain tax rates, and so on.

In reality, very often, a voluntary disclosure may lead to substantial tax planning going into the voluntary disclosure as well as afterwards. A lot of my clients experience significant changes in their overall tax structures which is likely to benefit them for years to come.

Such approach to voluntary disclosures requires a very profound understanding of tax laws as well as the ability to take advantage of the interaction between the various parts of the Internal Revenue Code.

2. Personal Attention – the Advantage of Retaining Small Law Firms

It is crucially important that the attorney that you met during the initial consultation is going to be the one who is actually handling your voluntary disclosure. Unfortunately, it is common practice for large law firms to divide up the work between the partner and the associates to the extent that the partner (usually an experienced attorney) contributes very little beyond getting you to sign the retainer agreement while inexperienced associates do most of the work, potentially jeopardizing your entire voluntary disclosure. The smaller your case is, the more likely that the firm will assign a young associate to work on it.

In contrast, small law firms tend to assign very small portions of your case to a constantly-supervised associate and partners do most of the work on your case. This is exactly what you want in your offshore voluntary disclosure attorney.

3. Creative Ethical Approach

You need an offshore voluntary disclosure attorney who will approach your case in a creative and ethical manner. In my practice, a comprehensive strategic review of the case has helped numerous clients to avoid or reduce penalties. I strive to examine every possibility based on all relevant facts (which may require additional document collection and investigations) in order to achieve the best outcome possible for the client while remaining within the bounds of the tax laws and ethics.

Beware of two types of lawyers. First, the lawyers who suggest that you do something illegal or that they will use their government connections in an improper way. This approach is likely to get you in more trouble rather than get you out of the troubles you are currently in.

Second, beware of the attorneys who advise you to go through the offshore voluntary disclosure program without exploring any other possibilities. Not every case is suited for the official offshore voluntary disclosure program; there are other possibilities who may result in substantial reductions in and even elimination of penalties, while bringing you into complete compliance with U.S. tax system.

Your offshore voluntary disclosure attorney needs to be able to advise you not only on the official voluntary disclosure program, but also ethically and creatively explore other possibilities.

Contact Sherayzen Law Office to Retain The Right Offshore Voluntary Disclosure Tax Attorney

Retaining an offshore voluntary disclosure attorney can be very expensive, but it is necessary. However, while you are going through this expensive ordeal, it is important to make sure that you are doing it with the right attorney.

This is why you should contact Sherayzen Law Office NOW. We are a boutique experienced international tax law firm that can provide you with a comprehensive, creative, and ethical approach to your voluntary disclosure, including rigorous IRS representation. We already helped numerous clients in the United States, Canada, Mexico, Australia, and other countries in Asia, Europe and South America to get their tax affairs in full compliance with the U.S. tax system.

Call or email us to schedule an initial consultation so that we can now help you!

Yet, while the addition of Form 8938 to the long list of international tax compliance forms has created a burst of interest among various international tax attorneys (as evidenced in their writings), a very important assessment of the impact of Form 8939 on the rest of the IRS international tax compliance structure appears to be missing in these writings. It is this crucial strategic aspect of the new Form that I wish to address in this article.

Pre-8938 Structure of the IRS International Tax Compliance Requirements

In order to assess the impact of the IRS Form 8938 on the rest of the international tax compliance requirements, it is necessary to briefly explore the pre-8938 (or pre-FATCA (Foreign Account Tax Compliance Act)) international tax compliance structure.

Prior to Form 8938, the IRS has already imposed a tremendous variety of reporting requirements on U.S. taxpayers with economic ties to the overseas. First and foremost, the FBAR (the Report on Foreign Bank and Financial Accounts) already forced the disclosure of the foreign bank and financial accounts which are either owned by the U.S. taxpayers or over which these taxpayers have signatory or other authority. Moreover, the FBAR disclosure is tied to the taxpayers’ tax returns through Section III of Schedule B.

From the business side, the IRS required the taxpayers to file a relevant tax form if to report partial or full ownership of a business entity (or if the taxpayer were a director or officer of such entity), including a disregarded business entity. The most prominent examples are Forms 5471, 8865, and 8858. On top of that, Form 3520 and 3520-A address foreign trust ownership and income issues.

Then, there are numerous other reporting requirements addressing such diverse issues as foreign gifts and inheritances, PFIC (Passive Foreign Investment Company) income, Controlled Foreign Corporations, and so on.

In essence, the IRS managed to cover huge areas of international economic activity with various forms and regulations. Moreover, in the past decade, all of these forms were supported by a radical, almost atrocious, increase in penalties in case of non-compliance.

Main Enforcement Problem With Pre-8938 Structure

If the IRS had all of these tools before FATCA, why did the IRS then need any additional forms?

A careful analysis reveals that, despite the presence of the multitude of various forms, it is still not easy to spot a taxpayer’s non-compliance or address all of the non-compliance issues in a given situation for one important reasons – these forms are not connected. Prior to FATCA, there was no form that would allow the IRS to immediately assess the extent of a taxpayer’s non-compliance.

Moreover, despite the number of various tax compliance forms, a lot of information still escaped the IRS. For example, suppose that T (a U.S. taxpayer) owns 15 percent of a business entity B in a country X; other owners are not U.S. taxpayers under any definition. Let us further suppose that business entity B possesses characteristics of a corporation and of a partnership. Assuming all other conditions are met, if B is a foreign corporation, then T would have to file Form 5471. However, if B is a partnership (and assuming all other conditions are met), T would not have to file Form 8865. T was able to classify it as a partnership for U.S. tax purposes, therefore, he needs to file neither Form 5471 nor 8865, leaving the IRS with no information (again, assuming this information would not fall under any other reporting requirement) of T’s foreign business ownership.

Form 8938 is a “Catch-All” Form That Fixes Enforcement Problem for the IRS

This is where Form 8938 comes in. In an example above, the Form 8938 may potentially force T to disclose the ownership information that did not need to be disclosed on Form 8865. If T is particularly unlucky, the IRS may decide to challenge his classification of the business entity, require him to file Form 5471 and impose non-compliance penalties under Form 5471.

This is just one possible scenario. In fact, Form 8938′s reach is far more ambitious – it is the catch-all form that the IRS desired so much. The Form is directly tied to Forms 3520, 3520-A, 5471, 8621, 8865 and 8891. Moreover, it forces the taxpayers to re-state their foreign bank and financial accounts that should be reported on the FBAR, thereby allowing IRS to identify with ease if a taxpayer has not complied with the FBAR requirements. Then, it imposes additional reporting requirements that may potentially expose any other taxpayer non-compliance (as in example above).

If that were not enough, failure to file Form 8938 will render the filing of a tax return incomplete, keeping the Statute of Limitations open until the Form is actually filed.

Impact of Form 8938: Breeding Ground for IRS Audits

Thus, Form 8938 is not just another tax compliance form. Rather, it is a fundamental, crucially-important tool which the IRS needs in order to effectively identify potential taxpayer non-compliance.

Hence, the most likely consequence of Form 8938 will the commencement of numerous IRS audits and investigations (which will also feed on the mountain of information obtained by the IRS through various voluntary disclosure programs) of the potentially non-compliant taxpayers. I also expect that the IRS ability to identify and challenge problematic classifications will be increased manifold.

Contact Sherayzen Law Office for Help With Form 8938

If you need help with Form 8938 or you are worried about your tax compliance exposure in light of Form 8938 or any other form, contact Sherayzen Law Office NOW. Our experienced international tax attorneys will guide you through the complex web of international tax requirements, identify potential problem areas, create a plan of action to deal with these problems, and implement the plan while providing zealous ethical IRS representation.

The purpose of Form 5472 is to provide information required by the IRS when “reportable transactions” occur during the tax year of a “reporting corporation”, with a foreign or domestic related party. In general, “reportable transactions” are defined to mean certain types of transactions listed in part IV of the form (such as sales, rents, royalties, interest), for which either monetary consideration was the sole consideration paid or received during the reporting corporation’s tax year, or if any part of the consideration paid or received was either not monetary consideration, or was less than full consideration.

“Reporting companies” that generally are required to file Form 5472 include both: 25% foreign-owned U.S. corporations and foreign corporations engaged in a trade or business within the United States.  Broadly speaking, the 25% ownership requirement is meant to apply to a foreign person who owns either directly or indirectly 25% of a US corporation, but not to multiple foreign persons owning only 25% in the aggregate.  However, the related party rules apply to determining ownership.  In certain situations, filing of Form 5472 may not be necessary if applicable exceptions are met.

For those required to file, Form 5472 must be filed with the reporting corporation’s tax return.  The IRS may consider a substantially incomplete Form 5472 to constitute a failure to file the Form.  For each foreign or domestic related party with which a reporting corporation had a reportable transaction during its tax year, a separate Form 5472 must be filed.  The IRS recently issued temporary and proposed regulations with the intent to remove a requirement under existing regulations mandating duplicate filing of the form.

Contact Sherayzen Law Office for Legal Help With Form 5472

If you have any legal or tax questions about Form 5472, contact Sherayzen Law Office for professional help.  Our experienced international tax attorneys will help you determine your 5472 filing requirements as well as assist you in properly completing the form.

While there has been various demands for Congress to address the “carried interest”  tax advantages that private-equity, venture-capital, and certain hedge fund managers enjoy, the proposed Enterprise Value Tax (EVT) takes a slightly different form.  While some have argued that such a tax is necessary for raising revenues, critics have objected that the proposal leads to onerous taxes that will impede investment and entrepreneurship.

Under the EVT (proposed IRC Section 710), investment management partnerships (such as private equity, venture capital, hedge fund firms, or certain real estate investment groups) would be taxed at ordinary income rates, rather than at capital gains rates, for the net proceeds from sales of “investment services partnership interest”.  In general, an investment services partnership interest is defined to be any interest (direct or indirect) in an investment partnership, acquired or held by a person who in the conduct of an active trade or business provides a substantial quantity certain services (such as managing, purchasing, selling, and advising, among others) related to “specified assets” held by the partnership.  Specified assets include items such as partnership interests, securities and real estate holdings.

In other words, unlike the standard capital gains tax rates applicable to almost all other sales of assets  of a business, under the EVT, sales by partnerships targeted by this proposal would be taxed at ordinary income rates.

Will the EVT, or some variation of it, eventually be part of the Internal Revenue Code?  Only time will tell.  But anyone subject to these new requirements may want be on the alert for that possibility.