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October 2018 IRS Compliance Campaigns | International Tax Lawyer & Attorney News

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On October 30, 2018, the IRS Large Business and International division (LB&I) has announced five additional compliance campaigns. Let’s discuss in more detail these October 2018 IRS compliance campaigns.

October 2018 IRS Compliance Campaigns: Background Information

By the middle of the 2010s, the IRS realized that the then-existing structure of the LB&I was not the best format to address modern noncompliance issues; it could not even accurately identify potential noncompliant taxpayers. Also, the IRS believed that LB&I was not applying the IRS funds in an efficient manner.

Hence, after extensive planning, the IRS decided to move LB&I toward issue-based examinations and a compliance campaign process. Under the new format, LB&I itself decided which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this approach made the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

Each campaign was preceded by strategic planning, re-deployment of resources, creation of new training and tools as well as careful taxpayer population selection through metrics and feedback. The IRS has also built a supporting infrastructure inside LB&I for each specific campaign.

The first thirteen campaigns were announced by LB&I on January 13, 2017. Then, the IRS added eleven campaigns on November 3, 2017, five campaigns on March 13, 2018, six campaigns on May 21, 2018, five campaigns on July 2, 2018 and five campaigns on September 10, 2018. In other words, as of September 11, 2018, there were a total of forty-five campaigns. The additional five October 2018 IRS compliance campaigns bring the total number of campaigns to fifty.

Five New October 2018 IRS Compliance Campaigns

Here are the new October 2018 IRS Compliance campaigns that should be added to the already-existing forty-five campaigns: Individual Foreign Tax Credit Phase II, Offshore Service Providers, FATCA Filing Accuracy, 1120-F Delinquent Returns and Work Opportunity Tax Credit. Each of these five campaigns was identified through LB&I data analysis and suggestions from IRS employees.

October 2018 IRS Compliance Campaigns: Individual Foreign Tax Credit Phase II

IRC Section 901 alleviates double-taxation through foreign tax credit for income taxes paid by US taxpayers on their foreign-source income. In order to claim the credit, one must meet certain eligibility requirements. This campaign addresses taxpayers who have claimed the credit, but did not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.

October 2018 IRS Compliance Campaigns: Offshore Service Providers

The goal of this campaign is purely punitive – to target US taxpayers who engaged Offshore Service Providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.

October 2018 IRS Compliance Campaigns: FATCA Filing Accuracy

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the HIRE Act. The overall purpose is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions. Under FATCA, Foreign Financial Institutions and certain Non-Financial Foreign Entities are generally required to report the foreign assets held by US account holders; the same applies to substantial (beneficial) US owners of these assets. This campaign addresses those entities that have FATCA reporting obligations but do not meet all their compliance responsibilities. The Service will address noncompliance through a variety of treatment streams, including termination of the FATCA status.

October 2018 IRS Compliance Campaigns: 1120-F Delinquent Returns

The campaign addresses delinquent (i.e. filed late) Forms 1120-F. Form 1120-F is a US income tax return of a foreign corporation. It must be accurate, true and filed timely in order for a foreign corporation to claim deductions and credits against effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than eighteen months after the due date of the current year’s return.

The IRS may waive the filing deadline where, based on its facts and circumstances, the foreign corporation establishes to the satisfaction of the IRS that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F. The reasonable cause standard is described in Treas. Reg. Section 1.882-4(a)(3)(ii). LB&I Industry Guidance 04-0118-007 (dated February 1, 2018) established procedures to ensure waiver requests are applied in a fair, consistent and timely manner under the regulations.

The objective of the 1120-F Delinquent Returns campaign is to encourage foreign entities to timely file Form 1120-F returns and address the compliance risks for delinquent 1120-F returns. The IRS hopes to accomplish it by field examinations of compliance-risk delinquent returns and external education outreach programs.

October 2018 IRS Compliance Campaigns: Work Opportunity Tax Credit

This campaign addresses the consequences of the Work Opportunity Tax Credit (WOTC) certification delays and the burden of amended return filings. Due to delays associated with the WOTC certification process, taxpayers are often faced with the burdensome requirement of amending multiple years of federal and state returns to claim the WOTC in the year qualified WOTC wages were paid. This requirement, coupled with any resulting examinations of this issue, is an inefficient use of both taxpayer and IRS resources.

Pursuant to Rev. Proc. 2016-19, the IRS has agreed to accept the “WOTC year of credit eligibility” issue into the Industry Issue Resolution (IIR) program. The IIR is intended to provide remedies to reduce taxpayer burden, promote consistency, and decrease examination time to most effectively use IRS resources. The campaign’s objective is to collaborate with industry stakeholders, Chief Counsel, and Treasury to develop an LB&I directive for taxpayers experiencing late certifications and to promote consistency in the examinations of WOTC claims.

Contact Sherayzen Law Office for Professional Tax Help

If you have been contacted by the IRS as part of any of its campaigns, you should contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their US tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2019 IRS Hiring Spree Targets US International Tax Compliance

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On May 11, 2019, the IRS Commissioner Chuck Rettig stated that the IRS is rapidly increasing the number of agents in certain divisions. US international tax compliance is the primary target of this 2019 IRS hiring spree.

2019 IRS Hiring Spree: Affected IRS Divisions

The Commissioner announced this news while speaking at the American Bar Association’s Section of Taxation conference in Washington, D.C. He stated that the Large Business and International (“LB&I), Small Business/Self-Employed (“SB/SE”) and Criminal Investigation (“CI”) divisions are the ones that form the core of the 2019 IRS hiring spree. Additionally, the Office of Chief Counsel and the Modernization and Information Technology Division are also beefing up their staff.

2019 IRS Hiring Spree: Why the IRS is Hiring New Agents

The Commissioner expressly mentioned two reasons for the 2019 IRS hiring spree – reducing the tax gap and assuring international compliance. Interestingly, he also mentioned that he will not allow the illegal tax shelter scandals, like the ones that happened in the 1980s, 1990s and 2000s, to happen on his watch.

The Commissioner went on to identify certain problematic areas where he wants the new hires to focus. He specifically listed: digital economy, transfer pricing, syndicated conservation easements, employment tax and cash-intensive businesses.

Finally, the Commissioner stated that he wants to expand the IRS message to the taxpayers who speak English as a second language. He said: “I’m from Los Angeles. In the grocery store in line there are more than six languages being spoken. This is 2019. We need to have our information available to every American trying to get it right.” He also shared that he was surprised when he found out that the IRS printed tax returns in only six languages.

The Commissioner emphasized that the IRS should not just print the returns in more languages, but also to provide IRS guidance in more languages. Also, he stated that the quality of translation services can be further improved. Undoubtedly, this will be the job of some of the new hires.

2019 IRS Hiring Spree: Consequences for Noncompliant Taxpayers with Foreign Assets and Foreign Income

The new IRS hiring spree means that there will be more audits and investigations of noncompliant taxpayers, including those who own foreign assets and receive foreign income. The fact that the Commissioner specifically mentioned illegal tax shelters and international tax compliance is a direct confirmation that taxpayers with offshore assets will soon be at an even higher risk of the IRS discovery of their tax noncompliance.

Furthermore, with more agents available, the IRS can expand the scope of its international tax audits. We can anticipate that there will be more audits with respect to Forms 3520/3520A (owners and beneficiaries of foreign trusts), 5471 (owners of a foreign corporation), 8621 (PFICs) and 8865 (owners of an ownership interest in a foreign partnership).

The IRS will also able to better utilize the piles of data it receives from foreign financial institutions under the Foreign Account Tax Compliance Act (“FATCA”) and bilateral automatic information exchange treaties. In other words, the IRS will be able to identify more noncompliant taxpayers.

Contact Sherayzen Law Office for Professional Help With Your Undisclosed Foreign Assets and Foreign Income

If you have undisclosed foreign assets and foreign income, you need to contact Sherayzen Law Office for professional help as soon as possible. Within just a few months, the IRS ability to locate you will expand much further than ever. If the IRS audits you or even just commences an investigation of your foreign assets, you may not be able to utilize the offshore voluntary disclosure options to reduce your FBAR and other IRS penalties.

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Maximum Account Value Determination | FBAR Tax Lawyer & Attorney

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Determination of the FBAR maximum account value is a problem with which every FBAR filer has to deal. In this article, I would like to provide the main guidelines for the determination of the FBAR maximum account value.

FBAR Maximum Account Value Determination: Background Information

The Report of Foreign Bank and Financial Accounts or FBAR requires each filer to disclose his financial interest in or signatory authority or any other authority over foreign bank and financial accounts to the IRS. As part of this disclosure, the filer must calculate and report the maximum account value for each of his foreign accounts on his FBAR.

FBAR Maximum Account Value Determination: Definition of Highest Value

FinCEN defines the maximum value of an account for FBAR purposes as “a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year.” In other words, the IRS does not expect you to always get the highest possible value. A reasonable approximation of this value will do if the exact highest value is not possible to determine.

FBAR Maximum Account Value Determination: Usual Problems

There are two main problems that each FBAR filer faces whenever he tries to identify the maximum account value for FBAR purposes. The first and most obvious problem is the determination of the highest account value. How does one determine the highest value for a bank account? What about a securities account where stocks fluctuate all the time? What about a precious metals account which has investments in different precious metals?

Second, FBAR requires that all amounts be stated in US dollars. Hence, an issue arises with respect to proper currency conversion – i.e. what is the proper currency exchange rate? Should the spot rates be used? Or December 31 exchange rates?

Let’s discuss each of these problems in more depth.

FBAR Maximum Account Value Determination: Methodology

Determination of maximum account value depends to a certain degree on the type of an account for which the filer is trying to determine this value. There is no question that, with respect to checking and savings bank accounts, the IRS wants you to use the full-year statements to determine the day on which the highest value was achieved for each of these accounts. This is a simple and effective method.

Determining the maximum value of a securities account is much harder, because securities fluctuate on a daily basis. For this reason, the IRS allows you to rely on periodic account statements to make this determination, especially end-of-year statements. This method is allowed only as long as the statements fairly approximate the maximum value during the calendar year.

Even this method, however, is often insufficient when one deals with mixed-currency accounts, mixed-investment accounts, mixed-metal accounts, et cetera. These situations should be handled on a case-by-case basis by your international tax attorney.

Let’s illustrate the complexity of the issues involved here by a relatively simple example. Generally, an end-of-year statement for an investment account is a good approximation of the maximum value of the account. If, however, there was a withdrawal of funds from the account following a major sale of investments, then the end-of-year statement cannot be relied upon. Instead, one should try a different method to approximate the highest value. One possibility is to use a reliable and known financial website for valuing the remaining assets on the date of the sale plus the proceeds from the sale of investments. The method, however, may fail if the highest value of investments was at the beginning of the year, not the date of sale.

FBAR Maximum Account Value Determination: Currency Conversion

Unlike the identification of the highest account value with its various complications, the currency conversation part of the FBAR maximum account value determination is fairly straightforward. All filers must use the end-of-year FBAR rates published by the Treasury Department. These rates are officially called “Treasury Financial Management Service rates”, but they are commonly called “FBAR rates” by US international tax lawyers. The FBAR rates are division rates, not the multiplication ones. This is standard in US international tax law.

Hence, for the currency conversion purposes, you need to identify the currency in which your account is nominated, find the appropriate FBAR conversion rate for the relevant year and divide your highest balance by the relevant FBAR rate. For your convenience, Sherayzen Law Office also publishes FBAR rates on its website.

Contact Sherayzen Law Office for Professional Help With Your FBAR Preparation

If you are required to file FBARs, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers to comply with their FBAR obligations, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

FBAR United States Definition | FBAR Lawyer & Attorney Minneapolis MN

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The United States is defined differently with respect to different parts (and, sometimes even within the same part) of the United States Code. There is a specific definition of the United States for FBAR Purposes. In this brief essay, I would like to discuss the FBAR United States Definition and explain its importance to FBAR compliance.

Importance of FBAR United States Definition to FinCEN Form 114

Before we discuss the FBAR United States Definition, we need to the context in which it is used and why it is important for US international tax purposes. FBAR is a common acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. It used to be known under a different name – TD F 90-22.1.

FBAR is part of Title 31, Bank Secrecy Act, but the IRS has administered FBAR since 2001. The IRS primarily uses FBAR not to fight financial crimes (which was its original purpose), but for tax enforcement. In particular, the IRS found that FBAR is an extremely useful tool for combating tax evasion associated with a strategy of hiding money in secret foreign bank accounts.

FBAR’s draconian penalties is what makes this form the favorite with the IRS, but much hated by US taxpayers. The penalties range from a jail sentence to civil willful penalties and even civil non-willful penalties which may exceed a taxpayer’s net worth.

It is precisely these penalties which make it absolutely necessary for US taxpayers to understand when they need to file FBARs. One of the aspects of this understanding is the FBAR United States Definition, which allows one to determine two things. First, the FBAR United States Definition is used to define the United States for the purposes of the Substantial Presence Test. Second, the FBAR United States Definition allows one to classify bank accounts as foreign or domestic for FBAR compliance purposes.

FBAR United States Definition

31 CFR 1010.100(hhh) contains the FBAR United States Definition. Under this provision, the United States is defined as: the States of the United States, the District of Columbia, the Indian Lands (as defined in the Indian Gaming Regulatory Act) and the territories and insular possessions of the United States. As of February 3, 2019, the US territories and insular possessions refer to: Puerto Rico, Guam, American Samoa, US Virgin Islands and Northern Mariana Islands.

Contact Sherayzen Law Office for Professional FBAR Help

If you have undisclosed foreign accounts, contact Sherayzen Law Office for professional help. We have successfully helped hundreds of US taxpayers around the world with their FBAR issues, and We can help You! Contact Us Today to Schedule Your Confidential Consultation!

2019 Tax Filing Season Will Begin on January 28, 2019 | Tax Lawyer News

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On January 7, 2019, the IRS confirmed that the 2019 tax filing season will begin on January 28, 2019. In other words, the 2019 tax filing season will begin on schedule despite the government shutdown.

2019 Tax Filing Season for 2018 Tax Returns and 2018 FBAR

During the 2019 tax filing season, US taxpayers must file their required 2018 federal income tax returns and 2018 information returns. Let me explain what I mean here.

One way to look at the US federal tax forms is to group them according to their tax collection purpose. The income tax returns are the tax forms used to calculate a taxpayer’s federal tax liability. The common example of this type of form is Form 1040 for individual taxpayers.

The information returns are a group of federal tax forms (and, separately, FBAR) which taxpayers use to disclose certain required information about their assets and activities. These forms are not immediately used to calculate a federal tax liability. A common example of this form is Form 8938. FinCEN Form 114, the Report of Foreign Bank and Financial Account, commonly known as FBAR, also belongs to this category of information returns even though it is not a tax form.

There is a third group of returns that consists of hybrid forms – i.e. forms used for both, income tax calculation and information return, purposes. Form 8621 for PFICs has been a prominent example of this type of a form since tax year 2013.

2019 Tax Filing Season Deadline and Available Extensions for Individual Taxpayers

Individual US taxpayers must file their required income tax and information returns by Monday, April 15, 2019. An interesting exception exists for residents of Maine and Massachusetts. Due to the Patriots’ Day holiday on April 15 in these two states and the Emancipation Day holiday on April 16 in the District of Columbia, the residents of Maine and Massachusetts will have until April 17, 2019 to file their US tax returns.

Taxpayers who reside overseas get an automatic extension until June 17 , 2019, to file their US tax returns.  The reason why the deadline is on June 17 is because June 15 falls on a Saturday. The taxpayers still must pay their estimated tax due by April 15, 2019.

Taxpayers can also apply for an automatic extension until October 15, 2019, to file their federal tax returns. Again, these taxpayers must still pay their estimated tax due by April 15, 2019, in order to avoid additional penalties.

Finally, certain taxpayers who reside overseas may ask the IRS for additional discretionary extension to file their 2018 federal tax return by December 16 (because December 15 is a Sunday this year), 2019. These taxpayers should send their request for the discretionary extension before their automatic extension runs out on October 15, 2019.

2019 Tax Filing Season Refunds

In light of the ongoing government shutdown, one of the chief concerns for US taxpayers is whether they will be able to get their tax refunds during the 2019 Tax Filing Season. The IRS assured everyone that it has the power to issue refunds during the government shutdown.

The IRS has been consistent in its position that, under the 31 U.S.C. 1324, the US Congress provided a permanent and indefinite appropriation for refunds. In 2011, the Office of Management and Budget (“OMB”) disagreed with the IRS and ordered it not to pay any refunds. It appears, however, that the OMB changed its position sometime after 2011.