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The IRS Hiring Spree in 2019 and 2020 | Tax Lawyer & Attorney

The IRS stated in December of 2019 that it hired about 9,500 people during the fiscal year 2019 and it is trying to add another about 5,300 employees as soon as possible. This new IRS hiring spree is meant to reverse the long-term declining trend in IRS employment.

The IRS Hiring Spree: 2009-2018 Trend

Between 2009 and 2017, the IRS suffered a spectacular loss in employees. From about 95,000 employees in 2009, the number of employees dropped to less than 75,000 in 2018. In other words, the IRS lost about 20,000 employees during these years. These losses were mostly due to budget cuts.

The IRS Hiring Spree: 2019-2020 Trend Change

While the IRS did not receive all of the funds it requested, the Trump administration was able to secure sufficient funds for the agency to start hiring again. The fiscal year 2019 saw a complete reversal in the trend with about 9,500 employees added. This is definitely not the end of the IRS hiring spree – the IRS is planning to add another 5,300 employees in early 2020.

The IRS Hiring Spree: What It Means to US Taxpayers

This huge hiring spree at the IRS will have a direct impact on US taxpayers. On the one hand, the IRS customer service should improve with the larger number of representatives.

On the other hand, such a huge inflow of future IRS agents means an inevitable rise in IRS enforcement efforts, particularly IRS audits. Reinforced by hundreds of additional examiners, the IRS will be able to expand audits everywhere, including international tax audits concerning FBAR and FATCA compliance.

US taxpayers with undisclosed foreign assets and foreign income should keep in mind this impending wave of IRS FBAR and FATCA audits. Rather than just wait for the IRS to discover their prior noncompliance with US tax laws, these taxpayers should explore their offshore voluntary disclosure options with an experienced international tax attorney as soon as possible.

Contact Sherayzen Law Office for Professional Help with IRS International Tax Audits

Mr. Eugene Sherayzen is a highly experienced international tax attorney and owner of international tax law firm, Sherayzen Law Office, Ltd. He and his law firm have successfully helped hundreds of US taxpayers to resolve their prior noncompliance with US international tax laws. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Related Person Definition – IRC §267 | International Tax Lawyer & Attorney

Internal Revenue Code (“IRC”) §267 imposes significant restrictions on the ability of related persons to recognize loss from a transaction that involves a sale or exchange of property. Hence, it is important for a tax attorney who advises on such a transaction to understand the concept of a “related person” in order to properly advise his client. In this article, I will discuss the general related person definition; in a future article, I will discuss the related person definition in a more specific context.

Related Person Definition: IRC §267(b) and IRC §267(a)(2)

The related person definition is set forth in two part of IRC §267. The first and most comprehensive description of related persons can be found in IRC §267(b) – this description is used throughout IRC §267. The second part is found §267(a)(2) and it applies for the purposes of §267(a)(2) only. Let’s discuss both parts of the related party definition in more detail.

Related Person Definition: Thirteen Categories of IRC §267(b)

IRC §267(b) describes the following thirteen categories of related persons:

1). Family Members;

2). A corporation and an individual shareholder who owns more than 50% of the value of the stock;

3). Two corporations which are members of the same controlled group. Pursuant to §267(b)(3), the term “controlled group” is similar to the definition used for the purposes of the affiliated corporation rules, but with merely a 50% instead of 80% common ownership requirement;

4). A grantor and a fiduciary of any trust;

5). Fiduciaries of different trusts if the same person is the grantor of both trusts;

6). A fiduciary of a trust and a beneficiary of that trust;

7). A fiduciary of a trust and a beneficiary of another trust as long as the same person is the grantor of both trusts;

8). A corporation and a fiduciary of a trust that owns more than 50% of the value of the stock (also, if the trust’s grantor owns more than 50% of the value of the stock);

9). A tax-exempt organization and a person or individual or the individual’s family member who controls the organization;

10). A corporation and a partnership if the same person owns more than 50% of the value of the corporate stock and more than 50% of the capital or profits interest in the partnership;

11). Two or more S-corporations owned more than 50% by the same person;

12). An S-corporation and a C-corporation if the same person owns more than 50% of the value of each; and

13). An executor and a beneficiary of an estate (there is an exception where a sale of property is made to satisfy a pecuniary bequest).

Related Person Definition: IRC §267(a)(2) Category

As it was mentioned above, the fourteenth category of related persons is described in §267(a)(2). This section contains the income-deduction matching provision (i.e. deduction can be taken in a related party transaction by a related party only when an income is recognized by the second party). For the purposes of §267(a)(2), a personal service corporation (within the meaning of IRC §441(i)(2)) and any employee-owner (within the meaning of §269A(b)(2), as modified by §441(i)(2)) are related as persons under IRC §267.

Related Person Definition: Special Rules for Pass-Through Entities

While I will not cover them over here, it is important to note that special rules exist with respect to pass-through entities such as partnerships and S-corporation. These rules can be found in two separate code provisions. IRC §707(b)(1) governs disallowance of losses on transactions between a partnership and its members. IRC §267(a)(1) governs losses on sales or exchanges between a partnership and any person other than a member of the partnership (a third party).

Related Person Definition: Constructive Ownership Rules

Moreover, I would like to emphasize that the determination of whether a person or entity satisfies any of the IRC §267 categories of the related person definition is not limited to the actual ownership percentage of such person or entity. Rather, §267(c) contains elaborate constructive ownership rules that force one to include in the analysis the ownership by closely connected individuals or entities.

Contact Sherayzen Law Office for Professional Help With IRC §267 Related Person Definition and Other Business Tax Issues

US tax law is incredibly complex; the related person definition of IRC §267 is just one example of this complexity. In order to safely navigate through the labyrinth of US tax laws, you need an experienced tax attorney.

This is why you should contact Sherayzen Law Office for professional help. Our legal team, headed by an international tax attorney Eugene Sherayzen, is highly experienced in helping US taxpayers with proper individual and business tax planning and tax compliance. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Happy New Year 2020 from Sherayzen Law Office!

Sherayzen Law Office wishes everyone a very happy and prosperous New Year 2020! We also wish you stay in full US tax compliance with US international tax laws while your tax burden decreases!

And, we are here to help our clients to turn these wishes into reality! In the year 2020, Sherayzen Law Office will continue to help its clients with all US international tax law issues, including compliance with FATCA, FBAR and all US international information returns such as Forms 3520, 5471, 8621, 8865 and others.

Moreover, Sherayzen Law Office will continue its leadership in the area of offshore voluntary disclosures, helping its clients to bring themselves into full compliance with US tax laws while lowering and, in some cases, even eliminating numerous IRS penalties. We will continue to do all types of offshore voluntary disclosures, including: Streamlined Domestic Offshore Procedures (“SDOP”), Streamlined Foreign Offshore Procedures (“SFOP”), Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures, Modified Traditional Voluntary Disclosure, Reasonable Cause Disclosures and others.

If you are audited by the IRS with respect to your compliance with FBAR, FATCA or any other international information return filing requirements during any point of the new year 2020, then you can advantage of Sherayzen Law Office’s services with respect to IRS audits. We have helped clients throughout the worldwide with IRS audits, including audits related to foreign corporations and offshore voluntary disclosures (e.g. SDOP IRS audit or SFOP IRS audit).

Furthermore, during the new year 2020, Sherayzen Law Office will continue to create new creative and ethical tax plans and implement the old ones in order to allow our clients to take full advantage of the benefits offered by the Internal Revenue Code.

At Sherayzen Law Office, we look at the new year 2020 as an exciting opportunity to continue to deliver top-quality US international tax services to our clients around the globe. Helping people and their businesses with their US international tax issues is our goal!

Contact us directly by phone or email to schedule your confidential consultation!

Happy New Year 2020 to you and your family!

Attribution Rules: Introduction | International Tax Lawyer & Attorney

One of the most popular tax reduction strategies is based on shifting an ownership interest in an entity or property to related persons or related entities. In order to prevent the abuse of this strategy, the US Congress has enacted a large number of attribution rules. In this brief essay, I will introduce the concept of attribution rules and list the most important attribution rules in the Internal Revenue Code (“IRC”).

Attribution Rules: Definition and Purpose

The IRC attribution rules are designed to prevent taxpayers from shifting an ownership interest to related persons or entities. They achieve this result through a set of indirect and constructive ownership rules that shift the ownership interest assigned to third parties back to the taxpayer. In other words, the rules disregard the formal assignment of an ownership interest to a related third party and re-assign the ownership interest back to the assignor for specific determination purposes.

For example, in the context of determining whether a foreign corporation is a Controlled Foreign Corporation, all shares owned by the spouse of a taxpayer are deemed to be owned by the taxpayer if both spouses are US persons.

Attribution Rules: Design Similarities and Differences

The IRC contains a great variety of attribution rules. All of them are very detailed and have achieved a remarkable degree of specificity. Behind this specificity, all of the rules are always concerned with the substance of a transaction rather than its form. Hence, there always lurks a general question of whether there was a tax avoidance motive when a taxpayer entered into a transaction.

In spite of the fact that they share similar goals, the rules differ from each other in design. Most of these differences can be traced back to legislative history.

List of Most Important Attribution Rules

Here is a list of the most important attribution rules in the IRC (all section references are to the IRC):

1. The constructive ownership rules of §267, which apply to disallow certain deductions and losses incurred in transactions between related parties;

2. The constructive ownership rules of §318, which apply in corporate-shareholder transactions and other transactions, including certain foreign transactions expressly referenced in §6038(e).

3. The constructive ownership rules of §544; these are the personal holding company rules which apply to determine when a corporation will be subject to income tax on undistributed income.

3a. While they are now repealed, the foreign personal holding company rules of §554 are still important. In the past, they applied to determine whether US shareholders of a foreign corporation would be taxed on deemed distributions which were not actually made;

4. Highly important Subpart F constructive ownership rules of §958, which apply to determine when US shareholders of a Controlled Foreign Corporation should be taxed on deemed distributions which are not actually made;

5. The PFIC constructive ownership rules of §1298, which apply to determine whether a US shareholder is subject to the unfavorable rules concerning certain distributions by a PFIC and sales of PFIC stock; and

6. The controlled group constructive ownership rules of §1563 which determine whether related corporations are subject to the limitations and benefits prescribed for commonly controlled groups.

This is not a comprehensive list of all attribution rules, there are other rules which apply in more specific situations.

Contact Sherayzen Law Office for Professional Help With the Attribution Rules

The rules of ownership attribution are highly complex. A failure to comply with them may result in the imposition of high IRS penalties.

This is why you need to contact the highly experienced international tax law firm of Sherayzen Law Office. We have helped US taxpayers around the globe to deal with the US tax rules concerning ownership attribution, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Income Reporting Without Forms W-2 or 1099 | Tax Lawyer

There is a surprisingly large number of US taxpayers who believe that reporting foreign income that was not disclosed on a Form W-2 or 1099 is unnecessary. Even if they honestly believe it to be true, this erroneous belief exposes these taxpayers to an elevated risk of imposition of high IRS penalties. In this article, I will discuss the US tax rules concerning foreign income reporting which was never disclosed on a Form W-2 or 1099 and how the IRS targets tax noncompliance in this area.

Foreign Income Reporting: Worldwide Income Reporting Requirement

If you are a US tax resident, you are subject to the worldwide income reporting requirement. In other words, you are required to disclose your US-source income and your foreign-source income on your US tax return.

This requirement applies to you irrespective of whether this income was ever disclosed to the IRS on a Form W-2 or Form 1099. It is important to understand that Forms W-2 and 1099 are only third-party reporting requirements. They do not impact your foreign income reporting on your US tax return in any way, because such a disclosure is your personal obligation as a US tax resident.

This means that, if your foreign employer pays you a salary for the work performed in a foreign country, you must disclose it on your US tax return. Similarly, if you are a contractor who receives payments for services performed overseas, you are obligated to disclose these payments on your US tax return. The fact that neither your foreign employer nor your clients ever filed any information returns, such as Forms W-2 or 1099, with the IRS is irrelevant to your foreign income reporting obligations in the United States.

Foreign Income Reporting: Many US Taxpayers Are Noncompliant

Unfortunately, many US taxpayers are not complying with their foreign income reporting obligations. Some of them are doing it willfully, taking advantage of the absence of third-party IRS reporting (such as Forms W-2 and 1099). Others have fallen victims to numerous online false claims of exceptions to the worldwide income reporting.

Foreign Income Reporting: Noncompliant Taxpayers at Elevated Risk of IRS Penalties

The noncompliance in this area is so great that it drew the attention of the IRS. In July of 2019, the IRS announced a specific compliance campaign that targets high-income US citizens and resident aliens who receive compensation from overseas that is not reported on a Form W-2 or Form 1099.

The IRS has adopted a tough approach to noncompliance with the worldwide income reporting requirement – IRS audits only. The IRS did not mention any other, more lenient treatment streams for this campaign.

This means that we will see an increase in the number of IRS audits devoted mainly to discovering unreported foreign income and punishing noncompliant US taxpayers. Of course, these audits may further expand depending on other facts that the IRS discovers during these audits. For example, if foreign income comes from a foreign corporation owned by the taxpayer, the IRS may also impose Form 5471 penalties. If this corporation owns undisclosed foreign accounts, then the taxpayer may also face draconian FBAR civil as well as criminal penalties.

Contact Sherayzen Law Office for Professional Help With Your Foreign Income Reporting Obligations and Your Voluntary Disclosure of Unreported Foreign Income

If you are a US taxpayer who earns income overseas, contact Sherayzen Law Office for professional help with your US tax compliance. Furthermore, if you have not reported your overseas income for prior years, you should explore your voluntary disclosure options as soon as possible in order to reduce your IRS civil penalties and avoid potential IRS criminal prosecution. We have helped hundreds of US taxpayers like you to resolve their US tax noncompliance issues, including those concerning foreign income reporting, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!