Archive for June 30, 2014

A Special Report From Capitol Hill

Before Congress adjourned for its July 4th recess, a number of House and Senate committees and subcommittees deliberated over legislation to address the Highway Trust Fund (HTF), Corporate Tax Inversions, and Tax Extenders amongst other matters including, but not limited to, the subsequent highlights:

• The Senate Finance Committee Chairman Ron Wyden, D-Ore., on June 24 unveiled a measure, the Preserving America’s Transit and Highways (PATH) Bill, to raise $9 billion to temporarily bolster the HTF with modifications to heavy vehicle use taxes, distribution from inherited IRAs and a handful of other modest tax changes. However, two days later, a modified Chairman’s Mark for the PATH Bill fell short of the revenue needed. Wyden said the markup would resume during the week beginning July 7 when Congress returns from Read More

Written by | Posted in Tax Policy • Treasury Regulations

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.5)

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 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.5 PROCEDURAL FAIRNESS Read More

Written by | Posted in Africa • Audit

Taxes And Divorce – Part 1

One of today’s saddest statistics is that more than 50% of marriages end in divorce. Divorce effects every aspect of the lives of those involved, from housing, standard of living, family matters, and, of course, all things money. We will cover a number of these topics as they relate to taxes. As with any topic relating to income taxes there are always exceptions to the general rule and all situations should be looked at individually.

Conflicts of Interest

The first thing, as a tax professional, you should be concerned about is making sure you have no conflict of interest in filing a return for a separated or divorced client. Many times, these are long time clients and you must decide if you can ethically continue to prepare returns for both of them now that they have split up. Read More

Written by | Posted in Individual

Getting To Know The Streamlined Foreign Offshore Procedures

United States taxpayers seeking to use the streamlined foreign offshore procedures must satisfy the following requirements:

(1) The applicable non-residency requirement (for joint return filers, both spouses must satisfy the non-residency requirement); and

(2) Have failed to file an FBAR with respect to a foreign financial account; and

(3) The failure to file an FBAR must have resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. Read More

Written by | Posted in FBAR • OVDP • Tax Fraud/Evasion/Crimes

Knowing Your S-Corporation Basis

Knowing one’s cost basis in an S Corporation is a vital issue for most owners of S corporations. However, to many such shareholders, basis is not understood and not known. Part of the confusion arises from the fact that S Corporations, LLC’s, and partnerships face two different basis numbers – inside basis and outside basis. Both are important, but the outside basis is more likely to become an issue annually for the shareholder. Shareholders may not deduct losses from the corporation in excess of their outside basis.

Inside basis is basically the balance in the owner’s capital account. It is the ownership interest in the corporation, but not necessarily what that ownership interest cost. Inside basis is maintained on the corporate books. It represents: Read More

Written by | Posted in Corporate

The Implications of Spin-off Reorganizations by U.S. Public Companies for Canadian Residents

It is very common for U.S. public corporations to “spin-off” their holdings in other US corporations, so that their shareholders own such holdings directly.

If properly implemented, a reorganization of this nature should be tax-free for US tax purposes as result of the application of IRC Sec. 355.

The Canadian Income Tax Act (“the Act”) has its own system for allowing “divisive reorganizations” to be implemented on a tax-free basis. In this country, they generally have to be structured as a “butterfly reorganization” under complex rules in paragraph 55(3)(b) of the Act, and related section. The shares to be spun-off would not be directly transferred to the shareholders of the distributing company. Instead, a more complex series of Read More

Written by | Posted in Corporate • International

California Oddity – Use Tax Exemption on Certain Foreign Purchases

There are many tax rules that might puzzle us as to why they are there. One I’d like to see repealed is the use tax exemption that a California resident gets if they bring back up to $800 of taxable goods from outside of the U.S. This exemption can be used every 30 days. The goods must be hand carried back. If they ship them, they owe use tax. If they buy the same goods while traveling in Delaware (where no sales tax would have been charged), they owe California use tax.

The exemption has been around since the 1990s. It is intended to match the federal duty exemption, but it does not match it. There are several special rules in the federal exemption. Also, the purpose of a duty exemption has no relationship to why you might want to have a use tax exemption. I’m not sure why you’d ever want a use tax exemption. Read More

Written by | Posted in Sales/Use Tax

Got’cha! Delinquent Taxes Owed to IRS, Now Owed Indefinitely? What About Tax Non-Compliant Expatriates?

It was recently reported in the press that the Social Security Administration was collecting old debts of many deceased persons by intercepting the tax refunds of their children. After much unwanted publicity, the Social Security Administration announced it would stop doing this with regard to debts that were over ten years old. What implications does this case raise for tax noncompliant expatriates?

The case of the Social Security Administration is quite alarming and raises serious concerns for persons with unpaid US tax liabilities. It is widely reported and recognized that there has been a vast increase in expatriations. I suspect that some expatriations will involve taxpayers who were not fully tax compliant and I foresee that this area is ripe for IRS audit and controversy. Read More

Written by | Posted in Audit • Expatriate • Income Tax • IRS • Tax Controversy

Ironclad Defenses To Tax Crimes – Part V

V. Statute of Limitations Defense

Perhaps the most important affirmative defense in tax cases is the statute of limitations. Section 6531 controls the statute of limitations periods for most criminal tax offenses. Under section 6531, the general rule is that the statute of limitations for criminal tax offenses is three years. However, the exceptions to the three-year rule essentially swallow up the general rule.

The CTM includes a helpful table that sets forth the limitations periods for common tax offenses: Read More

Written by | Posted in Tax Fraud/Evasion/Crimes

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.4.2)

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 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.4.2 Proportionality Read More

Written by | Posted in Africa • Audit

The Unknown Tax Comic – Part 3

♦ What’s the difference between death and taxes?
Congress doesn’t meet every year to make death worse.

♦ And the difference between tax avoidance and tax evasion?
Jail.

♦ A good tax return is like a good mystery novel. You follow the clues, make deductions, and arrive at a profitable conclusion. – Eva Rosenberg

♦ A tax accountant dies and goes to heaven (no, that’s not the joke). St. Peter, of course, is there, looking through the files and asking a few quick questions. “What sort of accountant were you?” “Oh, I was a CPA”, was the reply. “Name?” asks St. Pete. The accountant gives Read More

Written by | Posted in Tax Humor • TaxConnections

The Tax Efficient Way For Foreign Corporations To Acquire Canadian Corporations

Envision a situation where a foreign corporation (“Forco”) buys all of the shares of a private Canadian corporation (“Canco”) for $10 million.

What happens if Canco generates profits, and Forco would like to use those profits to recover the $10 million cost of its investment in Canco?

Can Forco just take funds from Canco up to the amount of that cost without paying any Canadian withholding tax? It should be able to, since it is just trying to recover its cost, right?

Unfortunately, that is not the case. Any dividends that Canco pays to Forco will be subject to Read More

Written by | Posted in Corporate • International
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