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Washington DC Tax Law Blog

Reminder: Get foreign accounts in order before OVDP sunsets

The Internal Revenue Service (IRS) recently announced the impending end of the Offshore Voluntary Disclosure Program (OVDP). The program, scheduled to end this September, offers a trade. In exchange for reporting previously undisclosed foreign assets, the IRS will cap some of the potential penalties.

The IRS also notes that participation in the OVDP reduces the risk of criminal prosecution.

IRS recommends “paycheck checkup” to adjust tax obligations

Considering recent tax law changes, the Internal Revenue Service (IRS) encourages taxpayers to conduct a “paycheck checkup” and adjust tax obligations accordingly.

What is a paycheck checkup? This term refers to a review of one’s paycheck to check and adjust the withholding status as needed.

SCOTUS rules in favor of online tax — what’s next for businesses?

The Supreme Court of the United States (SCOTUS) agreed to allow states to impose a tax on online transactions in the recent case South Dakota v. Wayfair.

Why is the ruling important? In order to move forward with this change, SCOTUS had to overturn two previous decisions, one in 1967 and one in 1992. These rulings led to a required physical presence rule in order for a state to tax a business. If a business did not have a physical presence in a state, the state could not tax the business.

The price of paradise: Taxes and foreign property

The allure of a foreign country calls to many United States citizens. Some fall in love with the views, the culture, the weather. Some choose to make their vacation destinations more than just an occasional stop, but rather invest in property and visit their personal paradise on a more regular basis.

Ownership of property in a foreign land can come with unforeseen tax obligations that are much less alluring then the appeal of life in a foreign country. United States citizens  that purchase property in a foreign country will likely be required to pay taxes to two different countries: the country the property is located as well as tax obligations to the Internal Revenue Service (IRS).

Recent case questions limit on FBAR penalties

The Internal Revenue Service (IRS) requires those who hold an interest in or signature authority over a foreign account with a value over $10,000 at any point during the applicable tax year file the Foreign Bank Account Report (FBAR). A failure to do so can lead to both civil and criminal penalties.

But how harsh are the penalties? A recent case out of Texas delves into this question.

What happens if you didn't pay the transition tax under 965(e)?

The Internal Revenue Service (IRS) recently provided guidance on the application of section 965(e) of the Code. This section applies specifically to those who receive income from “certain specified foreign corporations.” The law basically requires a transition tax on foreign earnings.

Who must pay this tax? The IRS requires United States shareholders as well as both direct and indirect partners of deferred foreign income corporations pay a transition tax on income from these corporations.

Giving up citizenship? 3 times you could owe an expatriation tax.

Thinking of giving up United States citizenship? You may owe an exit tax. The exit tax, also known as the expatriation tax, is due in certain situations when a citizen of the United States renounces his or her citizenship. The government determines this tax obligation based on one of three tests.

A failure of any one of the tests noted below will likely result in an expatriation tax.

IRS scores big win in battle against Facebook

The Internal Revenue Service (IRS) is taking on Facebook. The agency has accused Facebook of failing to report and pay taxes on billions of dollars of overseas income.

The agency conducted an audit on the social platform in 2011. The audit focused on alleged financial discrepancies from 2008 and 2009. Eventually, the agency expanded the audit to include 2010. The IRS has made over 200 requests for documents from Facebook. Facebook has complied. The IRS then sent Facebook a Statutory Notice of Deficiency. Basically, this is a letter from the IRS stating that the agency plans to assess a tax deficiency. The recipient of the letter can wait and comply with the process or petition the Tax Court. Facebook chose to move forward with a petition.

Court provides clarity on standard of proof in FBAR dispute

The United States of America filed suit against a taxpayer for his alleged “willful” violation of the requirement to report an interest in a foreign account. The government had already established the taxpayer was required to file a Report of Foreign Bank and Financial Accounts (FBAR). The court is asked to determine which standard of review is required to establish if the violation was willful.  

What was the outcome of the case? The government argued it only needed to establish the violation was willful by the preponderance of the evidence standard. The taxpayer countered that the clear and convincing evidence standard was more appropriate for this case. The clear and convincing standard is a more rigorous standard.

5 face criminal charges for FATCA violations

The Department of Justice recently indicted five individuals for obstruction of the Internal Revenue Service’s (IRS) administration of the Foreign Account Tax Compliance Act (FATCA). These individuals allegedly agreed to open offshore accounts without collecting required FATCA information. The agency accuses these individuals of scheming to evade reporting requirements.

As noted in a recent press release from the Department of Justice, the accused were allegedly part of two schemes:

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