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Leading Edge Alliance International Tax Teleconference. Director – Patty Brickett International Assignment Services 703-752-2782 pbrickett@argypc.com. July 16, 2008. Agenda. Foreign Bank Account Issues UBS case Increased IRS interest IRS position on failure to file FBAR Heroes Act

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Leading Edge Alliance International Tax Teleconference


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leading edge alliance international tax teleconference

Leading Edge AllianceInternational Tax Teleconference

Director – Patty Brickett

International Assignment Services

703-752-2782

pbrickett@argypc.com

July 16, 2008

agenda
Agenda
  • Foreign Bank Account Issues
    • UBS case
    • Increased IRS interest
    • IRS position on failure to file FBAR
  • Heroes Act
    • Foreign Government Contractors must make FICA payments
    • Expatriation Provisions
  • Confidentiality requirements when transmitting Social Security Numbers to foreign countries
foreign bank account issues
Foreign Bank Account Issues

UBS Case

Facts

  • Swiss bank allegedly assisted US clients in hiding undeclared assets to avoid US tax
  • Igor Olenicoff, UBS client, pleaded guilty to filing a false tax return, related to $200 million in unreported assets and $7.2 million in unpaid taxes
  • Bradley Birkenfeld, UBS banker, pleaded guilty to helping Olenicoff and other US clients hide assets in Swiss and Liechtenstein accounts
  • Birkenfeld estimated UBS holds $20 billion in undeclared US assets belonging to 20,000 American clients
foreign bank account issues1
Foreign Bank Account Issues

UBS Case

US Requests UBS to Disclose Client Names

  • Prosecutors believe UBS violated a 2001 agreement requiring the bank to identify any customers earning taxable US income
  • Justice Dept. issued a “John Doe summons,” used to investigate tax fraud by people whose identities are unknown
  • Summons requests UBS produce records identifying US taxpayers who elected to have their accounts remain hidden from the IRS
  • UBS is now stuck between US tax authorities and Swiss law preventing banks from disclosing confidential information without client approval
foreign bank account issues2
Foreign Bank Account Issues

UBS Case

  • In addition to Swiss accounts, bank accounts in Liechtenstein are also being investigated for more than 100 US taxpayers
  • Joining the US in the investigations are: Australia, Canada, France, Italy, New Zealand, Sweden and the UK
  • Tax evasion is not a criminal offense in Switzerland or Liechtenstein and both countries have laws preventing banks from disclosing information on accounts
  • European countries have been fighting the bank secrecy laws of Switzerland and Liechtenstein for years, in an attempt to catch tax evaders
foreign bank account issues3
Foreign Bank Account Issues

UBS Case

Increased IRS Interest

  • Cost to Taxpayers
    • Currently, offshore tax evasion costs the US an estimated $100 billion in lost revenue each year, according to Sen. Carl Levin (D., Mich.)
  • Increase in rewards for whistleblowers
    • Recently the IRS increased rewards for tax whistleblowers to a maximum of 30% (minimum 15%) of all collected proceeds, including back taxes, interest and penalties
    • To be eligible collections must be in excess of $2 million
foreign bank account issues4
Foreign Bank Account Issues

IRS Position on Failure to File FBAR

  • IRS stated policy of “Zero Tolerance” for failure to file FBAR
  • Statute of Limitations
    • IRS suggests filing 6 years of FBAR’s
    • Statue of limitations remains open for failure to report income
  • Potential penalties for individuals failing to report financial accounts or income
    • May include criminal charges, as well as full payment of back taxes, interest and penalties
foreign bank account issues5
Foreign Bank Account Issues

Options for Clients Who Have Failed to File FBAR

  • Should client obtain legal counsel?
  • Other options
    • Do Nothing
      • Odds of getting caught have increased rapidly due to the number of nations sharing information and pursuing tax evaders
      • Also risk stiffer penalties and possible criminal sanctions
    • Amend Tax Returns and Pay Tax
      • Best approach for escaping criminal prosecution, but not risk-free
    • Surrender Outright
      • Engage legal counsel to speak with IRS on an anonymous basis to determine consequences of confessing to unreported income and paying tax, interest and penalties
heroes act of 2008
Heroes Act of 2008

Foreign Government Contractors Must Make FICA Payments

  • Foreign company is treated as American employer when employee performing service related to contract between US government and any member of a domestically controlled group that includes the foreign company
  • Applies to services performed by US citizens or residents outside the US
  • Only applies to FICA payments
  • Does not apply to totalization agreements or when foreign country has a tax substantially equivalent to FICA
  • Act becomes effective in August
heroes act of 20081
Heroes Act of 2008

Implications to Clients

  • How do clients determine if they are impacted:
    • Review control of foreign affiliates and notify foreign affiliates of change in law
    • Form 2678 allows US entity within controlled group to perform US wage withholding
      • Withholding and reporting (Form 941; W-2 etc.)
      • No change to Federal unemployment law
    • Put process in place to audit
      • Dual Nationals cannot choose what citizenship to work under
      • Statement for each employee to sign
heroes act of 20082
Heroes Act of 2008

Tax on Assets When Renouncing US Citizenship or Residency

  • Exit tax on unrealized gain at current market rates upon giving up citizenship or residency
  • If property left to a US individual it will be taxed at current US gift and estate tax rates
heroes act of 20083
Heroes Act of 2008

Who is Covered?

  • US Citizens
  • Long-Term Permanent Residents
    • Held green card for 8 of the last 15 years
  • Only applies to individuals with:
    • Net worth of $2 million or more on date of expatriation

Or

    • Average 5 year net income tax of $139,000 or greater (2008 amount)
  • Individuals with current dual citizenship held from birth who have been a resident of the US for no more than 10 of the last 15 years are exempt
heroes act of 20084
Heroes Act of 2008

Calculation of Tax

  • Basis is FMV on date US residency began
  • Exit tax
    • First $600,000 of gain is excluded (amount to be adjusted annually)
    • Remainder of gain is taxed as if assets were sold just prior to terminating US status
heroes act of 20085
Heroes Act of 2008

Tax on Distribution

  • Distributions from a US non-grantor trust are subject to tax at 30%
  • Property transferred to a US individual will be taxed at the greater of the highest estate or gift tax rate (45% in 2008)
    • Only subject to typical gift tax exclusion of $12,000; exit tax exclusion does not apply
heroes act of 20086
Heroes Act of 2008

Deferral of Exit Tax and Exceptions

  • Tax may be deferred until property is sold
    • Tax payment bond must be provided
      • Interest accrues at rates applicable to underpayment of income tax
    • Foreign treaty protection must be waived
heroes act of 20087
Heroes Act of 2008

Next Steps for LEA Firms:

  • Include new expatriation rules in discussion with clients regarding obtaining Green Card or US citizenship.
  • Contact clients with Green Cards about new rules.
  • Contact companies you work with regarding their long term in-bound employees and impact of new rules.
social security number transmission
Social Security Number Transmission

CURRENT

Requirements When Releasing a SSN to a Foreign Tax Preparer

  • Currently must mask SSN in all transmissions to a foreign preparer, even with the consent of the taxpayer
  • Could be subject to civil (Sec. 6713) and criminal (Sec. 7216) penalties for unauthorized disclosures
  • Exception for US tax preparer who receives SSN from tax preparer outside US, then may transmit SSN back, with consent from taxpayer
  • Requirements only apply to the 1040 series

Reg 301.7216-3(b)(4), Code Sec. 6713 and 7216

social security number transmission1
Social Security Number Transmission

NEW

Requirements When Releasing a SSN to a Foreign Tax Preparer

(Effective - Jan. 1, 2009)

  • SSN may be disclosed with consent from the taxpayer
  • Both parties must have “adequate data protection safeguards,” as listed in Sec. 4.07 of Rev. Proc. 2008-35
  • Consent form must contain mandatory language found in Sec. 4.04(1)(e)(ii) of Rev. Proc. 2008-35
  • Only applies to forms from the 1040 series

Reg. 301.7216-3T(b)(4)

slide19
Patty Brickett | Director - International Assignment ServicesArgy, Wiltse & Robinson, P.C.___________________________________________ 8405 Greensboro Drive | Suite 700 | McLean, VA 22102Direct 703.752.2782 | Main 703.893.0600 | Fax 703.893.2766 pbrickett@argypc.com | www.argypc.comIRS Circular 230 Disclosure: Please be advised that the tax advice contained herein (including any attachments) is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding any U.S. tax-related penalties that may be imposed on the taxpayer.