TaxConnections


Access Tax Education On-Demand


Stay Informed With Free Subscription To TaxConnections Blogs




Understanding The Foreign Tax Credit Limitation

TaxConnections Picture - Pie Chart With Percentages 1 - square
A. Purpose of Limitation

The purpose of the foreign tax credit limitation is to confine the effects of the credit to mitigating double taxation of foreign-source taxable income.

The limitation accomplishes this by preventing U.S. persons operating in high tax foreign countries from offsetting those higher foreign taxes against the U.S. tax on U.S.-source taxable income.

Example # 1

Facts: USAco is a domestic corporation. During the current year, USAco has $ 200 of U.S.-source taxable income and $ 100 of foreign-source taxable income that is subject to Read More

Liens and Levies: Keeping Your Clients Options Open – Part 4

3D virtual question mark
Collection Appeal Program (CAP)

We have been talking about all the things the IRS Collections Division can do to a taxpayer who fails to pay their tax liability. Now is the time to talk about what we, as out client’s representative, can do to stand between our client and all the things the IRS will try to put in place.

As we discussed before there are very specific things the IRS must do, in order, on the correct time line, and document to be able to take these types of drastic collections activities against a taxpayer. That is the place for us to start. Did the IRS follow it’s own rules? If you are not familiar with IRM Chapter 5, Collecting Process, and Chapter 8, Read More

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 – 5.5.6.8)

South Africa waving flag against blue sky

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B -

5.5.6.8 Legitimate expectations Read More

New Information on US – Canada Income Tax Treaty

TaxConnections Picture - USA and Canada Puzzle Pieces 2 - square

There are a LOT of people from Canada in Denver, Colorado where I spend the majority of my time as a student of the US tax code. Many dual citizens got stung by the reasonably new US FBAR tax laws and there were some tragic cases that filtered there way up to my desk. Having grown up in Wisconsin and consider myself a Minnesotan I truly believe that anyone hearty enough to live north of Lake Michigan has to be by definition a good spirit. I personally love most everything about Canada from the cold winters to the oxygen rich summers.

With that I write today to my Canadian friends and clients to inform them that the IRS recently updated Publication 597, Information on the United States – Canada Income Tax Treaty. This publication discusses a number of treaty provisions that often apply to U.S. Read More

Bitcoins Are Not “Currency” – Australian Tax Office

Bitcoin

The Australian Taxation Office (ATO) has just issued a guidance paper stating: “The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes.”

Furthermore, the ATO says: “Bitcoin is, however, an asset for capital gains tax (CGT) purposes.”

For businesses that use Bitcoins (or any other crypto-currencies) to buy and sell trading stock, the transactions will be treated for tax purposes as a bartering arrangement. Buying trading stock with Bitcoins will require businesses to charge the 10% GST on the coins. Selling trading stock for Bitcoins will mean the business can claim an input tax credit for Read More

IRS Simplifies Entering The New Streamline Program By Issuing New Forms 14653 And 14654!

TaxConnections Picture - IRS Website With Paperwork 2 - square

We previously posted on Wednesday, June 18, 2014, “IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance” where we discussed that the IRS released IR-2014-73, which provides major changes in its offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas and those residing in the United States.

The modified streamlined filing compliance procedures are designed for only individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. Read More

Beyond The FBAR

TaxConnections Picture - gold vault 1 - square
Other Civil Penalties Lying In Wait For The Unwary Taxpayer With Undisclosed Offshore Assets

With all of the focus on FBAR penalties when it comes to foreign asset reporting, it’s easy to overlook the others, some of which can be just as onerous as the FBAR penalty itself. What other pestilent civil penalties are lying in wait for the unwary taxpayer who decides not to participate in one of the IRS’s voluntary disclosure programs and is subsequently audited?

I. Failure to File a Tax Return Penalty

The civil penalty applicable for failure to timely file returns is section 6651(a)(1). This Read More

Liens and Levies: Keeping Your Clients Options Open – Part 3

3D virtual question mark
When is a Levy Issued?

Technically, there is no legal difference between a levy and a seizure. The IRS uses these terms to specify who was the custody of the property that was taken, either a third party or the taxpayer himself. For the purpose of this discussion we will term property taken from a third party as a levy and property taken directly from the taxpayer as a seizure.

As with the NFTL, the IRS can not levy until the three requirements (notice, demand, and notice of intent to levy) have been issued. These notifications can occur after the NFTL process or in conjunction with it, depending on the specific circumstances.

The Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, must Read More

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 – 5.5.6.7)

South Africa waving flag against blue sky

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B -

5.5.6.7 Natural justice and Procedural Fairness Read More

Taxpayer Awarded Attorneys’ Fees Where IRS Refuses to Reverse Math Error

TaxConnections Picture - Calculator 1 - square

A taxpayer was entitled to attorneys’ fees because the IRS wasn’t substantially justified in refusing to abate an assessment attributable to an invalid change in filing status.

U.S. Tax Court Judge Buch says the IRS was required to abate an assessment that it made under Section 6213 as resulting from a mathematical or clerical error but was based on its changing taxpayer Michael Swiggart’s filing status from head of household.

The IRS wasn’t substantially justified in requiring Swiggart to prove head of household status when he had timely requested an abatement under Section 6213, Buch says.

Background

On May 19, 2011, Mr. Swiggart filed a 2010 Form 1040, U.S. Individual Income Tax Return. Read More

Becoming US Tax Compliant Poses A Hidden Problem For Many Iranian-Americans

TaxConnections Picture - USA umbrella 1 - squarel

Along with a host of others, many US-Iranian dual nationals are now becoming aware of their US tax and reporting obligations and trying to become US tax compliant.  All fine and good.  In advising these clients, however, the professional cannot forget that Iran is a sanctioned country and that the US has some very complicated sanction rules in place with Iran.  Generally, the sanction rules prohibit US persons from engaging in most business activities with Iran unless a license is first obtained from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).

My blog post today, imparts knowledge graciously shared by George M. Clarke, a tax partner at Baker & McKenzie in Washington D.C. George and I have worked on a number of very complex tax matters together and George has an expertise in dealing with the Read More

Man With Offshore Account Pleads Guilty To Hiding $1.1 Million From IRS

TaxConnections Picture - Cartoon Man In Jail 2

An 83-year-old Florida man pleaded guilty this week to hiding at least $1.1 million from the IRS in secret Swiss and Israeli bank accounts for over a quarter century.

Bernard Kramer held the secret accounts from 1987 to about 2012. He used the code phrase “Hot Lips” when referring to them in conversations with Swiss bankers in Zurich according to a criminal filing in Manhattan federal court.

Mr. Kramer pleaded guilty to one count of conspiracy and one count of tax perjury. As a condition of his plea agreement, Mr. Kramer agreed to cooperate with government investigators and to pay a civil penalty in the amount of $588,042 along with past due taxes. He potentially faces a maximum eight-year prison term — five years for conspiracy Read More