Tag Archive for Tax Blog

Bitcoin Taxation – Clarity and Mystery

In March 2014, the IRS finally released important guidance on taxation of virtual currency, such as Bitcoin. The key point made in the guidance (Notice 2014-21) is that such currency should be treated as property rather than a foreign currency. That is helpful. I blogged on that earlier (4/1/14).  If you are a tax practitioner and don’t think you need to deal with it, I’d be surprised if none of your clients uses bitcoin. In fact, a new standard question to ask of people you prepare returns for needs to be: Do you own or use a virtual currency, such as Bitcoin? There are also a lot of dollars going into Bitcoin and other virtual currency start-ups – one could be your client.

There are still some significant issues for the IRS to address. I note several in the article. A key one is how to track the use of the virtual currency so you can calculate the gain or Read More

Written by | Posted in International • Tax Tips

US v. Clarke SCOTUS Decision Favors Taxpayers

The SCOTUS clarified the 11th Circuit Court of Appeals in the United States v. Clarke Et. Al. that…

“a taxpayer has a right to conduct an examination of IRS Officials regarding their reasons for issuing a summons when (s)he points to specific facts or circumstances plausibly raising an inference of bad faith.”

JUSTICE KAGAN delivered the opinion of the Court as follows.

“The Internal Revenue Service has broad statutory authority to summon a taxpayer to produce documents or give testimony relevant to determining tax liability. If the taxpayer fails to comply, the IRS may petition a federal district court to enforce the summons. In an Read More

Written by | Posted in IRS

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.3.3.4)

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

3.3.3.4 Unlawful fettering Read More

Written by | Posted in Africa • Audit

Discharging Taxes in Bankruptcy – Part 4

Bankruptcy falls under U.S.C. Title 11. This can sometimes cause confusion as there is a bankruptcy Chapter 11 as well. We are going to deal with the two chapters that are most prevalent in our jobs as tax professionals, Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 is better known as a “liquidation” bankruptcy. This is because the things included in the bankruptcy are liquidated (or sold) to pay off the debt and all other debts included in the bankruptcy are eliminated.

Most Chapter 7 cases are “no asset/no equity” cases. Meaning that the filer has no assets or equity in any property so nothing is lost but all debts are eliminated. Read More

Written by | Posted in Individual

The Basics of Offshore Tax Planning For Canadian Corporations – Part 7

Optimal Ownership Structures

So far, I have discussed the use of Forco within the context of a relatively simple structure where it would be a wholly-owned subsidiary of Canco.
In many situations, that simple structure will be appropriate, but in others situations, there may be a better alternative. Two common variations are discussed below.

Ownership by Canadian Sister Corporation of Canco

If the shareholders of Canco are Canadian resident individuals, consideration should be given to the possible application of the “capital gains exemption”, currently applicable to up to $800,000 in capital gains from the sale of “qualified small business corporation Read More

Written by | Posted in Corporate • Expatriate • International

Ironclad Defenses To Tax Crimes – Part II

II. Good-Faith Belief Defense

A key element of most tax crimes is willfulness. The government must show that the defendant willfully evaded taxes or willfully filed a false return. This means that the government must prove that (1) the defendant knew what was required by law and, (2) notwithstanding, intentionally violated the law.

This definition raises several opportunities for the defense. For example, the defendant may introduce evidence that he was mistaken as to the state of the law or that he had a good-faith misunderstanding as to what the law provided. Such a defense would negate willfulness and would enable the jury to acquit. On the other hand, a good-faith belief that Read More

Written by | Posted in Tax Fraud/Evasion/Crimes

US Tax Issues – Ownership of Real Property Abroad

When purchasing a real property overseas, there are situations when it may prove advantageous or even necessary to do so through an offshore corporation, rather than owning the property individually. It is crucial to understand that this can also have significant US tax consequences for US persons. Fortunately, “checking the box” on Form 8832 provides a possible solution to this problem, taking advantage of the protections provided by the corporate entity while avoiding many of its tax repercussions.

Benefits of Corporate Ownership

Investment in real property through a vehicle offering limited liability, as opposed to direct ownership, offers numerous protections. Should any legal claims arise, such as in the case of tenant injury when renting out property owned through a corporation, the liability of Read More

Written by | Posted in Real Estate

Sorry Kids! You May Have To Pay Taxes On Your Summer Jobs!

One of my teens starts her baby sitting gig tomorrow. This tax consultant’s heart swelled up with pride when she asked if there would be taxes on her earnings! Well, wish I could say “no”!

So if you are or you know a student on their first summer job, these are somethings you need to remember:

1. Every new employee has to submit a Form W-4. This is an Employer’s Withholding Certificate, telling them how much you want taken out in taxes from your pay. You can use the Withholding Calculator on irs.gov to help fill out this form.

2. If the employer does not withhold taxes from your pay, you may be liable to send in your Read More

Written by | Posted in Income Tax • Individual

Transitional Treatment Under OVDP

1. What is the purpose of transitional treatment under OVDP?

Transitional treatment under OVDP allows taxpayers currently participating in OVDP who meet the eligibility requirements for the expanded Streamlined Filing Compliance Procedures announced on June 18, 2014, an opportunity to remain in the OVDP while taking advantage of the favorable penalty structure of the expanded streamlined procedures.

2. When am I considered to be currently participating in an OVDP for purposes of receiving transitional treatment?

A taxpayer is considered to be currently participating in an OVDP for purposes of receiving Read More

Written by | Posted in OVDP

Discharging Taxes In Bankruptcy – Part 3

Other Showstoppers

Timing is not the only showstopper involving taxes and bankruptcy. There are several other items that will disqualify liabilities from discharge.

1. The taxes involved must be income taxes. This means that things like trust fund taxes (payroll taxes that belong to the employee) are not eligible. Federal and state unemployment taxes and workers compensation payments are NOT trust fund taxes as qualify the same way as income taxes.

2. The taxpayer must have actually filed a true tax return. The taxpayer must be compliant in all federal and state tax filings. The IRS having filed a Substitute For return (SFR) is not Read More

Written by | Posted in Individual

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.3.3.3)

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

3.3.3.3 Failure to apply mind or relevant and irrelevant considerations Read More

Written by | Posted in Africa • Audit

The Basics of Offshore Tax Planning For Canadian Corporations – Part 6

Using an Offshore Subsidiary to Finance Other Foreign Affiliates

In situations where substantial amounts of capital are needed to finance the active business operations of Canco’s foreign affiliates (“Forcos”), Canadian tax laws provide an incentive for Canco to form a financing affiliate (“Finco”) in an appropriate jurisdiction, which will permit little or no income tax to be paid on the interest that Finco earns.

This incentive is the fact that, as long as the interest received by Finco is deductible against the active business income earned by Forco in a foreign jurisdiction, that interest income will be deemed to be active business income, rather than FAPI, in Finco’s hands [1]. This will be the case even if Finco is relatively passive. Read More

Written by | Posted in Corporate • Expatriate • International
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