Archive for October 31, 2013

Australian Tax Office increases pressure on South African émigré – Asks SA Revenue Service to ‘freeze’ his assets

TaxConnections Picture - South African MoneyIn a footnote to it’s recent A$21 million tax claim against businessman Mark Krok (see my earlier blog “South African Emigre’s Offshore Tax Plan Falls Foul of Australian Tax Office’s Aggressive Audit Approach“, the ATO has reportedly seized A$2.85 million from his accounts with Australia’s St George Bank.

Furthermore, it has requested that SARS freeze his shares in South African companies as well as his A$4 million house.

The request to SARS appears to have been made under Article 25A of South Africa’s double tax treaty with Australia which was updated by a Protocol in 2008. This Article provides for SARS to collect the Australian tax as if it was a South African revenue debt.

It should be noted that the Australian tax debt is disputed by Mr. Krok and his legal appeals against the underlying assessments are yet to be heard by the Australian Federal Court.

Written by | Posted in Africa • Australia/Oceania

Year-End Planning – Depreciation

1040 change penThere are many aspects to year-end planning; one of them for businesses is your ability to make choices when it comes to depreciation.  Equipment and machinery purchases can be a big part of a business’s budget, and they can make a big difference when it comes to taxable income.

A piece of equipment that is placed into service before the end of the year will have depreciation expense for the year.  In 2013, new machinery and equipment is eligible for 50% bonus depreciation, meaning 50% can be taken in the very first year.  The bonus depreciation rules are scheduled to lapse, meaning 2013 is the last time this special depreciation perk will be available.

Section 179 is the other big depreciation perk and that allows you to claim up to $500,000 of depreciation on new or used equipment placed in service by the end of the year.  In 2014, the Section 179 limitation is scheduled to go back to $139,000, so again 2013 is the last time the expanded Section 179 is going to be around.  It’s possible they will extend either the bonus depreciation or expanded Section 179, but at this point it doesn’t appear to be likely.

Using depreciation methods to adjust your business’s taxable income is one of the easiest things to do.  If your taxable income is right where you want it, maybe you defer the purchase of equipment into next year or you elect not to claim any Section 179.  Conversely, if your taxable income is high and you want to avoid the new higher tax rates, claiming bonus depreciation and Section 179 can greatly reduce your taxable income.

In accordance with Circular 230 Disclosure

Written by | Posted in Individual • Tax Tips

Form 1040 R.I.P. – Filing A Return From The Grave

TaxConnections Wishes You A Happy Halloween – Trick or Treat!

We Thought You Would Enjoy The Laughter From An IRS Form


Form 1040 R I P

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written by | Posted in Tax Humor

Sellers of Bundled Services Beware

Money GiftA recent Washington excise tax determination points out the need for sellers to be careful when bundling retail sales taxable and service taxable activities into a single package or bundle. In Det. No. 13-0059, 32 WTD 232 (2013) the Department of Revenue held that wedding packages were subject to retail sales tax despite the inclusion of non-taxable services within the wedding package.

The taxpayer sold wedding package that included facility rental, decorations, furnishings, catering and linens. The administrative law judge agreed with the taxpayer that amounts received for facility rentals are licenses to use real property that are subject to services B&O, but not retail sales tax. However, this facility rental was bundled with a number of other items that are clearly subject to retail sales tax, such as catering.

The determination notes that prior to July 1, 2008 Washington used a “true object” test to determine whether a bundle of items and services were subject to retail sales tax. For periods after July 1, 2008 there is a specific bundling rule that must be followed. This rule provides in general that if a bundle of property and services are sold for a single itemized price that includes items that are subject to retail sales tax and items that are not, the entire bundle is subject to retail sales tax. Read More

Written by | Posted in North America • Sales/Use Tax

7 Habitual Mistakes Companies Make – Chapter 3 (1)

TaxConnections Blog PostDirection? Compile a Tax Risk Management Strategy

Executive Summary

ANY BUSINESS GOAL that is set without a carefully thought out and planned strategy will often end in failure. It is a common problem in many businesses that the people involved in tax compliance , other than in the area of traditional tax compliance, don’t know what to do when they encounter a problem. As a result a tax team should be assembled to create cohesion and communication in the process of devising a set tax risk management TRM strategy.

It is simple enough to devise a strategy that will provide the direction. However, there is no quick remedy; a proper process must be put in place. Of importance for this process, and the information divulged in this process, to be subject to legal privilege.

The basic strategy is for the organization to undergo a SWOT (strengths, weaknesses, opportunities, and threats) analysis from a tax point of view. Focus primarily on the weaknesses and threats; this is the area where the majority of your liability will lie. Two broad types of issues must be identified: those  on-the-radar screen and those off-the-radar screen. These risks that are on-the-radar screen are those that are known to the organization as well as the IRS. They are issues that are ongoing and that have some history behind them. However, a strategy of how to deal with these problems must be established, and a Read More

Written by | Posted in Tax Risk Management

Ireland Post – Finance (No. 2) Bill 2013 – Part III

TaxConnections Blog PostFor the beginning of the Post, please see Part I.

There were a number of other budget changes which will have a huge impact on our economy:

One Parent Family Tax Credit

• The One Parent Family Tax Credit was replace by a new Single Person Child Carer Tax Credit.

• This takes effect from 1st January 2014.

• There is no change to the value of the credit or the additional standard rate band.

• The new credit will only be available to the principal carer of the child.

Medical Insurance Tax Relief

• The Bill restricted the Medical Insurance Tax Relief.

• The maximum amount of the Medical Insurance Premium which can qualify for relief at the standard tax rate will be €1,000 for an adult and €500 per child. Read More

Written by | Posted in Europe, Middle East • Tax Policy

IRS Not Detecting Fraudulent Returns

TaxConnections Tax Blog Post - Statute of Limitations on Tax EvasionOn October 28, the Treasury Inspector General for Tax Administration (TIGTA) released the results of its review of the Internal Revenue Service’s fraudulent tax return detection system, the Electronic Fraud Detection System (EFDS), concluding that inadequate income and withholding verification resulted in the IRS’s missing many fraudulent returns (TIGTA, Income and Withholding Verification Processes Are Resulting in the Issuance of Potentially Fraudulent Tax Refunds, Rep’t No. 2013-40-083 (8/7/13)).

The IRS claimed to prevent $1.2 billion of fraudulent tax refunds in 2013, but TIGTA found in an analysis of 2010 tax year returns that the IRS’s EFDS did not screen 92% of the 1.5 million returns that TIGTA identified as potentially fraudulent. Although income and withholding verification is the most efficient method to detect fraud, the IRS is stymied in using that system because most of the information necessary to do this verification is received after many taxpayers have filed their income tax returns. (A new system, the Return Review Program, is expected to replace EFDS beginning in 2015.)

TIGTA specifically reviewed a random sample of 272 of the 120,197 potentially fraudulent 2010 tax returns for which tax refunds were issued and that received a high enough EFDS score to be sent for income and withholding verification. TIGTA found that IRS examiners confirmed that 96 of these tax returns had false income and withholding, but the IRS did not take timely
actions to prevent the issuance of the fraudulent refunds. Another 8 tax returns were not screened within the required time period to prevent the Read More

Written by | Posted in IRS • Tax Fraud/Evasion/Crimes

Section 167 – The Australian Tax Office’s Weapon of Mass Reconstruction

TaxConnections Blogger The case of Mulherin v Commissioner of Taxation [2013] FCAFC 115 decided by the Full Federal Court last week confirms that section 167 of the Income Tax Assessment Act 1936 is a weapon of mass reconstruction in the hands of the Australian Taxation Office (“the ATO”).

Mr Mulherin was born in Australia but spent some years developing his professional activities overseas. Following his return to Australia early in the 1990s he caused a Leichtenstein Foundation to be established. He was effectively both the founder and principal beneficiary of this structure.

The ATO became aware of the existence of the Foundation and of Mr Mulherin via information provided to it by a former employee of LGT Bank in Leichtenstein (who had stolen client records of a subsidiary of the bank).

It transpired that the central management and control of the Foundation was at all relevant times in Australia. The ATO sought to treat the income of the Foundation as having been derived by Mr Mulherin as a resident of Australia. Read More

Written by | Posted in Australia/Oceania • Individual • International • Tax Controversy • Tax Risk Management

South African Emigre’s Offshore Tax Plan Falls Foul of Australian Tax Office’s Aggressive Audit Approach

TaxConnections Picture - South African MoneyThe Australian Tax Office (“ATO”) appears to be aggressively opposing a South African emigre’s appeal against his A$21 million income tax assessments. The case of Mark Krok v Commissioner of Taxation NSD572/2013 is listed for a Directions Hearing on 7 November in Australia’s Federal Court.

A report by Susannah Moran in today’s Australian newspaper – see http://www.theaustralian.com.au/business/ato-sets-sights-on-s-african-millions/story-e6frg8zx-1226750019299 – says that “The ATO has accused Mr. Krok of tax evasion and fraud, claiming he understated his income and failed to declare capital gains made on share sales during the six years he lived in Australia.”

It is suggested that in a 5-day hiatus between leaving South Africa and arriving in Australia, Mr Krok distributed all the assets of a trust established by his father and entered into an arrangement involving a BVI company owned by a Liechtenstein Foundation.

This case will be closely watched by international tax planners and their clients, particularly since the ATO apparently sought and received relevant from the South African Revenue Service in the course of their audit investigation.

Written by | Posted in Africa • Australia/Oceania • Caribbean • Individual • International • Tax Controversy • Tax Risk Management

IRS Pronouncements Make Offers in Compromise Less Available.

TaxConnections Blogger posts about bartered servicesThe Internal Revenue Service issued memorandum SBSE-05-1013-0076 to its Collection employees who are working Offer in Compromise cases, providing them guidance on when Offers should be rejected under “Not in the Best Interest of the Government” or “Public Policy” basis.

This guidance supplements the procedures found in Internal Revenue Manual (IRM) 5.8.7.7, Rejection; IRM 5.8.7.7.1, Not in the Best Interest of the Government Rejection; and IRM 5.8.7.7.2, Public Policy Rejection, and will be incorporated into the next revision of the IRM.

While these provisions may be well-intentioned, they most probably will result in a Subjective Exception to an otherwise, long-standing, objective measurable criteria of Doubt as to Collectibility (DATC).

This may result in allowing Collection employees to reject an Offer based solely on their Subjective Dislike of a particular Taxpayer or of the Taxpayer’s previous lifestyle (including but not limited to, having owned exotic cars, boats, etc.).

Situations that may warrant rejection as

“Not Being in the Best Interest of the Government”

1. The taxpayer’s offer meets processability criteria. However, the taxpayer has an egregious history of past noncompliance, as evidenced by the taxpayer’s failure to voluntarily file correct returns. NOTE: Future collection potential and the ability to secure a collateral agreement should be considerations prior to recommending an offer for rejection under NIBIG. Read More

Written by | Posted in IRS

Ireland Post – Finance (No. 2) Bill 2013 – Part II

TaxConnections Blog PostFor the beginning of the Post, please see Part I.

The construction and building sectors saw the introduction of welcome changes:

I LIVING CITY INITIATIVE – The urban regeneration initiative has been extended to include residential properties constructed up to and including 1914 and covers the cities of Cork, Dublin, Galway and Kilkenny.

The aim is to stimulate regeneration of retail and commercial districts as well as to encourage families to return to historic buildings in Irish city centres.

II HOME RENOVATION INCENTIVE – This is a new incentive for home owners who:

1. carry out repair, renovation or improvement work on their principal private residence

2. from 25th October 2013 to 31st December 2015.

3. Qualifying expenditure carried between 1st January 2016 and 31st March 2016 can be treated as having been incurred in 2015 if planning permission was granted before 31st December 2015. Read More

Written by | Posted in Europe, Middle East • Tax Policy

FATCA: Fear And Terror Caused by America

TaxConnections Picture - Fatca FlagFear And Terror Caused by America – FATCA is Here to Stay

FATCA Express Leaves the Station – Coming Soon to Your Hometown

Yesterday the Department of the Treasury and the United States Internal Revenue Service (IRS) issued Notice 2013-69 for foreign financial institutions (FFIs) to comply with the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA). The US Congress enacted FATCA in 2010 as the ultimate method to identify US persons using foreign accounts and entities to evade US taxes. Back in 2010, very few believed that FATCA would survive. Indeed, its implementation has been delayed several times. Now, however, FATCA is rapidly becoming the global standard to stop offshore tax evasion. We are seeing many other countries implementing FATCA wannabe laws and applauding the US model. The Treasury Department has now signed nine so-called Intergovernmental Agreements (IGAs), negotiated 16 agreements in substance, and is engaged in FATCA bargaining discussions with many more countries. All aboard the FATCA Express! Read More

Written by | Posted in FATCA
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