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Individual IRS Tax Deadlines in the Calendar Year 2016

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As the New Year festivities are drawing to an end, the attention of hundreds of millions of US taxpayers focuses more and more on its annual US tax compliance in the calendar year 2016. In this brief article, I would like to summarize some of the most important deadlines of the calendar year 2016. Obviously, other calendar year 2016 deadlines may also apply to you depending on your situation; please, consult your tax attorney for a detailed review of your US tax requirements.

January 15, 2016: Form 1040-ES for the final installment of estimated tax payments for the tax year 2015.

February 1, 2016: If you did not make your final estimated tax payment by January 15, 2016, you can still avoid the penalty by filing your 2015 US tax return by February 1, 2016.

April 18, 2016: Three important deadlines fall on this date.

First, due to the fact that April 15 falls on Saturday and the following Monday (April 17) is a federal holiday, the US taxpayers will receive a few extra days to file their 2015 individual tax returns by April 18, 2016.

Second, April 18 is also the deadline for the first installment of 2016 estimated tax payments that should be filed with Form 1040-ES.

Third, April 18 is the deadline for filing the automatic 6-month extension to file 2015 income tax return. The extension is done by filing Form 4868 with the IRS. Remember, the estimated tax liability must still be paid by April 18 (i.e. the extension applies to the return filing deadline, not to the actual income tax payment).

June 15, 2016: this is a dual deadline for US individual taxpayers who reside outside of the United States. First, June 15 is the 2015 income tax return filing deadline for such individuals. Second, if these US individual taxpayers do not yet desire to file their 2015 individual income tax returns, then they can file an automatic four-month extension by June 15, 2016. Similar to April 18 extensions, however, the estimated 2015 income tax liability must still be paid by June 15, 2016.

Furthermore, June 15, 2016, is the deadline for the second installment for 2016 estimated tax payments.

June 30, 2016: FinCEN Form 114, commonly known as FBAR (Report of Foreign Bank and Financial Accounts), is due for the calendar year 2016. This is one of the most important international tax deadlines and no extensions are allowed.

September 15, 2016: this is the deadline for the third installment for 2016 estimated tax payments.

October 17, 2016: if the filing extensions to file 2015 individual income tax returns were properly filed, these returns will be due on October 17, 2016 (normally, the deadline would be on October 15, but it falls on a Saturday in the 2016 and the deadline shifts to the following Monday).

Interest Rates for the Fourth Quarter of 2015 and First Quarter of 2016

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The IRS underpayment and overpayment interest rates are highly important in US tax law in general, and offshore voluntary disclosures in particular. Not only do these rates determine the interest on additional tax liability on the amended tax returns, but the same rates are sued to determine the PFIC interest rate on “excess distributions”. During the fourth quarter of 2015 and the first quarter of 2016, the IRS underpayment and overpayment interest rates will be:

three (3) percent for overpayments (two (2) percent in the case of a corporation);
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code (IRC), the interest rates are determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

IRS 2016 Standard Mileage Rates for Business, Medical and Moving

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On December 17, 2015, the IRS issued its 2016 standard mileage rates to calculate deductible automobile operation costs for business, charitable, medical or moving purposes.

The 2016 standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

54 cents per mile for business miles driven, down from 57.5 cents for 2015
19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
14 cents per mile driven in service of charitable organizations

These 2016 standard mileage rates are effective January 1, 2016 and they are optional; taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

There are some circumstances where a taxpayer cannot use the business standard mileage rate. These exceptions include where a vehicle is depreciated using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Furthermore, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

The 2016 Standard Mileage Rates apply to the vehicles that the taxpayers own or lease (though, there may be additional complications if the vehicle is leased). In addition to standard mileage rates, taxpayers may also deduct, as separate items: parking fees and tolls attributable to the use of a car for business purposes; interest related to the business purchase of a car; state and local personal property taxes (to the extent allowed by IRC Sections 163 and 164).

Parking fees and tools are also available for deduction, as separate items, for the use of a car for charitable, medical, or moving expense purposes. The interest related to the purchase of a car and state/local property taxes are not deductible as charitable, medical or moving expenses; however, they may be deducted as separate items to the extent allowed by IRC Sections 163 and 164.

IRS Notice 2016-01 contains the 2016 standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

US Tax Return Statute of Limitations and IRC Section 6501(c)(8)

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Most tax practitioners are familiar with the general rules of assessment statute of limitation for US tax returns. However, very few of them are aware of the danger of potentially indefinite extension of the statute of limitations contained in IRC Section 6501(c)(8). In this article, I would like to do offer a succinct observation of the impact of IRC Section 6501(c)(8) on the US tax return Statute of Limitations as well as your offshore voluntary disclosure strategy.

Background Information

While IRC Section 6501(c)(8) has existed for a while, its present language came into existence as a result of the infamous HIRE act (the same that gave birth to FATCA) in 2010. The major amendments came from PL 111-147 and PL 111-226.

When IRC Section 6501(c)(8) Applies

IRC Section 6501(c)(8) applies when there has been a failure to by the taxpayer to supply one or more accurate foreign information return(s) with respect to reporting of certain foreign assets and foreign-related transactions under IRC Sections 1295(b), 1298(f), 6038, 6038A, 6038B, 6038D, 6046, 6046A and 6048. In essence, it means IRC Section 6501(c)(8) applies whenever the taxpayer fails to file Forms 8621, 5471, 5472, 926, 3520, 3520-A, 8865, 8858 and 8938 (and potentially other forms). In essence, this Section comes into play with respect to virtually all major international tax reporting requirements, with the exception of FBAR (which is governed by its own Title 31 Statute of Limitations provisions).

It is important to emphasize that it is not just the failure to file these international tax returns that triggers IRC Section 6501(c)(8). Rather, most international tax attorneys agree that, if the filed international tax returns are inaccurate or incomplete, IRC Section 6501(c)(8) still applies.

IRC Section 6501(c)(8) only applies to the returns filed after the date of the enactment of the provisions that amended the section – March 18, 2010. The Section also applies to returns filed on or before March 18, 2010 if the statute of limitations under Section 6501 (without regard to the amendments) has not expired as of March 18, 2010.

The Impact of IRC Section 6501(c)(8) On the Statute of Limitations

As amended by PL 111-147 and PL 111-226, IRC Section 6501(c)(8) may have a truly monstrous effect on the statute of limitations for the entire affected tax return – a failure to file any of the aforementioned international tax forms (including a failure to provide accurate and complete information) will keep the statute of limitations open indefinitely with respect to “any tax return, even, or period to which such information relates”.

Thus, a failure to file a foreign information return may keep the statute of limitations open forever for the entire tax return, not just that particular foreign information return. This means that the IRS can potentially audit a taxpayer’s return and assess additional taxes outside of the usual statute of limitations period; the IRS changes can affect any item on the US tax return, not just the items on the foreign information return.

Reasonable Cause Exception to the “Entire Case” Rule

IRC Section 6501(c)(8)(B) provides a limited exception to the “entire case” rule. Where a taxpayer establishes that the failure to file an accurate international information return was due to a reasonable cause and not willful neglect, only the international tax forms will be subject to indefinite statute of limitations and not the entire return.

Impact of IRC Section 6501(c)(8) on Your Voluntary Disclosure Strategy

IRC Section 6501(c)(8) may have a significant impact on the voluntary disclosure strategy where multiple international tax forms need to be filed. In these cases, the taxpayers are more likely to go into Streamlined disclosures or 2014 OVDP (now closed) rather than attempt doing a reasonable cause disclosure.

This is the case because this indefinite statute of limitations may undermine a reasonable cause strategy if the disclosure period does not coincide with the years in which the international tax returns were due. For example, let’s suppose that US citizen X owned PFICs during the years 2008-2014, but he never filed Forms 8621 even though they were required. If X decides to do a reasonable cause disclosure and files amended 2012-2014 tax returns only, then, the years 2008-2011 will still be open to an IRS audit (though, if X successfully establishes reasonable cause for the earlier non-filing, only Forms 8621 will be subject to an IRS audit). In this case, X may have to make a choice between an unpleasant filing of amended 2008-2011 tax return or doing a Streamlined disclosure.

Obviously, IRC Section 6501(c)(8) is just one factor in what could be a very complex maze of pros and cons of a distinct voluntary disclosure strategy. Other factors need to be taken into effect in determining, including whether the financials were disclosed on the FBAR and Form 8938 and the amounts of underreported income (which may actually keep the statute of limitations open for the years 2009-2011 as well).

These types of decisions need to be made carefully by a tax professional on a case-by-case basis with detailed analysis of the facts and potential legal strategies; I strongly recommend retaining an experienced tax attorney for the creation and implementation of your voluntary disclosure strategy.

Contact Sherayzen Law Office for Help With Your Delinquent International Tax Forms

If you have not filed international tax forms and you were required to do so, contact the professional international tax team of Sherayzen Law Office. Our team is lead by an experienced international tax attorney, Mr. Eugene Sherayzen, and has helped hundreds of US taxpayers around the world to bring their US tax affairs into fully US tax compliance.

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US Tax Consequences of the New Indian Gold Monetisation Scheme

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A recent article from Reuters discusses the appearance of the new Indian Gold Monetisation Scheme. The idea is to allow Indians to deposit gold into the banks in return for interest payments; in return, the Indian government is hoping to utilize the gold hoarded by its citizens to reduce gold imports.

While the idea is that the Indian Gold Monetisation Plan will be open to resident Indians only, it is likely that at least some US tax residents will be able to participate in the scheme either as US citizens and US permanent residents (who are US tax residents irrespective of where they live) or as Indian non-residents who never declared their non-residency status in India.

This article intends to explore some of the potential US tax problems that may arise as are result of participation in the Indian Gold Monetisation Scheme. The conclusions drawn in this article are preliminary and they may or may not reflect the actual IRS position in the future; the conclusions are and also should be treated simply as general discussion of the subject, not as a legal advice.

2015 Indian Gold Monetisation Scheme

In October 25, 2015, Indian Prime Minister Narendra Modi announced that a new Indian Gold Monetisation Scheme will be in place by the time of an ancient Hindu festival – Diwali (November 11, 2015). Under the scheme, Indian residents (as well as mutual funds and ETFs) will be able to use gold to open an essentially a fixed-deposit bank account (based on a gold certificate) with an Indian bank; in return, they will receive a gold certificate valued at the “prevailing gold price” at the time the account is opened and they will further receive interest on these gold deposits.

The gold will be collected by the Collection and Purity Testing Centers (CPTCs) certified by the Bureau of Indian Standards. The banks will issue the gold certificates against these gold deposits.

The new bank accounts will start earning interest after the deposited gold is refined into tradable gold bars or 30 days after the receipt of gold at the CPTCs or the bank’s designated branch – whichever is earlier.

There will be three types of fixed-deposit accounts under the Indian Gold Monetisation Scheme: short-term (1-3 years), medium term (5-7 years) and long-term (12-15 years). The banks will determine any premature withdrawal penalties.

Upon the maturity of the fixed-deposit account, the depositor will receive either the gold or the equivalent amount in rupees. The choice of receiving the gold or the rupees needs to be made at the time the account is opened.

Indian Tax Treatment of Interest and Capital Gains Earned As a Result of the Indian Gold Monetisation Scheme

In this Indian Gold Monetisation Scheme, there are three potential points of tax recognition by the participating depositors: capital gain on the original gold deposit, interest earned on the gold deposit at maturity and capital gain at the point of gold redemption (or principal redemption) at the then-current market prices.

The Indian government does not tax any of these three tax recognition events – i.e. neither capital gains nor the interest earned.

Potential US Tax Treatment of Interest Earned As Part of Indian Gold Monetisation Scheme

Despite the fact that Indian government does not tax the interest return on the gold certificates and absent any tax treaty changes, I believe that the most likely outcome is that this interest will be taxed as ordinary income in the United States. There is some marginal potential for the interest to be treated as collectible gain, but I just do not see this as a likely scenario when the IRS has a chance to make a ruling on it.

Potential Problems in US Tax Treatment of the Initial Deposit of Gold to Obtain Gold Certificates under the Indian Gold Monetisation Scheme

Generally, in the United States, any gain on the sale of gold bars and gold jewelry is treated as a capital gain from the sale of a collectible subject to 28% tax gain. There is a potential additional 3.8% Net Investment Income Tax as a result of Obamacare.

The question really becomes whether the opening of the gold account under the Gold Monetisation Scheme, where the gold is being melted into bars and the depositor receives a gold certificate with a rupee account at fair market value, should be considered as a sale or exchange of gold or is this just a 1031 exchange of the like properties?

The answer cannot be given with any certainty at this point, because the IRS has made no rulings on this very subject. However, it is possible that such an even will be treated by the IRS as a taxable exchange, because the gold is transformed into a rupees-based deposit account based on its market value – i.e. the number of rupees given to the depositor is equivalent to the fair market value, not the cost-basis that the depositor has at the point the gold is given to CPTCs.

On the other hand, the IRS could agree with an argument that, under the Indian Gold Monetisation Scheme, the gold is nothing but a guarantee for the rupee deposit account. Since the depositor receives a Gold Certificate and can get the same gold back upon the maturity of the account, it does not seem fair to tax the gain on the gold at this point (this argument, may not work if the deposit chooses to receive the original deposit back in rupees). If the 1031 rules are used to analyze this situation, the majority of secondary sources (such as EFT law firm opinions) seem to indicate that there may not be a taxable exchange for US tax purposes in this case. I tend to agree with this position in most situations, but it is too early to make the final determination at this point.

There is actually merit to both arguments and, until the gold certificates are actually issued and all facts can be analyzed, it is difficult to state what the IRS position will be.

Potential US Tax Treatment of the Gold/Rupee Redemption Based on Gold Certificates Issued under the Indian Gold Monetisation Scheme

There are two issues here: (1) is the gold redemption considered to be a taxable event; (2) is the rupee redemption under the gold certificates considered to be a taxable and how should it be taxed.

1. Gold Redemption

Let’s analyze the physical gold redemption first. It appears that the deposit will be able to obtain the same amount of gold irrespective of the changes in value since the original gold was melted into bars at CPTCs. This means that, if the 1 gram of gold is originally melted at 2,500 rupees, and rises in price to 3,000 rupees within three years, the deposit will still get one gram of gold. There seems to be a gain here of 500 rupees, but there is no actual monetization of gain. This is a hypothetical gain on the conversion of the gold certificate into physical gold.

The taxation of gain in a situation where one form of gold is transformed into another form of gold is one of the most complex topics in the US taxation of collectibles. Often times, even the same certificates may be taxed in a different manner.

Due to the fact that this topic is heavily fact-dependent with little IRS official guidance, it is best to delay the answer of this question until the time when these certificates are issued and can be analyzed in the actual factual context. At that time, if you have any questions regarding taxation of your gold certificate, contact Sherayzen Law Office directly.

2. Rupee Redemption

Unlike the gold redemption (which, depending on the circumstances, may not be taxable at all), the issue of taxability of the rupee redemption of the gold is fairly straightforward – this is a taxable event where gold is exchanged for rupees. Most likely, this exchange will be taxed in the United States as a collectible capital gain rate of 28% percent.

However, there are a couple of complications with respect to calculating the collectible gain. First, it should be remembered that the collectible gain should be calculated in US dollars (contact Sherayzen Law Office directly for more information). Second, the cost-basis of the gold will depend on whether the conversion of gold into a Gold Certificate is considered to be a taxable gain. If it is, then, the cost basis would be the fair market value at the time the gold is submitted by the depositor to be melted into bars at CPTCs. If it is not, then the original cost-basis (i.e. what the gold was actually acquired for) will be used in the determination of the collectible gain.

Other Issues Regarding 2015 Indian Gold Monetisation Scheme

In addition to US collectible and interest tax issues discussed above, investing through Indian Gold Monetisation Scheme may bring forth other US tax requirements. In particular, I wish to emphasize here that accounts opened through Indian Gold Monetisation Scheme are most likely reportable accounts for FBAR and Form 8938 purposes.

Contact Sherayzen Law Office for Help With US Tax Compliance

If you are a US person who has foreign accounts, foreign assets and/or foreign income, you should contact Sherayzen Law Office for professional help with your US tax compliance. Our experienced legal team, headed by the firm’s founder, attorney Eugene Sherayzen, will thoroughly analyze your case, identify your current and past US international tax compliance issues, develop a compliance plan for you (whether for current-year compliance or as part of your voluntary disclosure), and implement this plan, including preparation of all legal documents and tax forms.

US international tax laws are complex and should be handled by professionals with deep knowledge of the subject matter. This why You should contact Sherayzen Law Office Now!