Foreign Tax Risks and Bringing Money Back

Indonesia just announced its intent to collect $418 million in taxes and penalties from Google. This comes on the heels of the European Union’s intent to collect $14.5 billion from Apple.

uncle-sam-wants-your-tax These events are real-life evidence of the risks international companies are willing to face in order to minimize their overall tax bill and they create support for the ideal, which would be a unified international tax policy agreed to by all the countries of the world, including the United States. Since that is not going to happen, at least not now, let’s focus on how to help the United States’ budget deficit.

The fallout from Apple and Google’s woes will help encourage United States firms to bring more profits home. Recent history suggests the government can do something to help make this happen.

In 2005, George W. Bush’s Homeland Investment Act (HIA) dramatically reduced the amount of taxes paid on repatriated funds. This act aided in bringing back into the United States roughly $300 billion dollars. Yes…. $300 billion!

I still remember the day my finance professor asked the class to identify the single most important factor influencing top level business decisions. The students’ answers included things like cost, reputation of the supplier, market analysis, etc. He just kept shaking his head rather disappointingly. Finally, he said, “the answer is tax. The one factor that most influences top level business decisions is tax.”

tax-burdenEverything I have witnessed in the ensuing thirty years of my career has confirmed the truth of my professor’s words. During elections, as I see the campaigns unfold, I hear his words in the back of my mind as candidates lay out their plans. As elections finish and government ensues, they pass and change tax law. Companies make strategic decisions based not only on current tax law but also what they perceive will happen to those laws in the future. Their objective is to pay the least amount of tax as possible, while keeping another eye on the risks of tax based decisions.

Here is the bottom line. If you want money to stay in the United States, make it advantageous to keep it there. And if it isn’t there, follow George W. Bush’s plan, and make it advantageous to bring it here.

Then, if you are really smart, take some prudent positions in the FX market and make some money with the transfer process.

IRS Online Tools Help Taxpayers Choose a Qualified Tax Professional

image of a two businessmen discussing tax formsWASHINGTON — The Internal Revenue Service today reminded taxpayers of options available to them on to get information and tips about selecting qualified tax professionals.

This is the third in a series of 10 IRS tips called the Tax Time Guide (IR-2016-46). These tips are designed to help taxpayers navigate common tax issues as this year’s April 18 deadline approaches.

Taxpayers can use the website that includes a list of consumer tips for selecting a tax professional. There is also a gateway page with links to national nonprofit tax professional groups, which can help provide additional information for taxpayers seeking the right type of qualified help.

“The filing of a federal income tax return represents one of the biggest financial transactions of the year for many Americans, whether they are getting a refund or paying tax due,” IRS Commissioner John Koskinen said. “Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected.”

Over half of the more than 150 million individual returns filed last year were prepared with the help of a paid return preparer.

For example, some taxpayers may want to get help with the provisions of the Affordable Care Act, and tax professionals provide one of several options available. The vast majority of people will only have to check a box on their federal income tax return to indicate they had health coverage, but others have Marketplace coverage with tax credits, have exemptions or need them, or may have to make a payment because they could afford to buy health insurance but chose not to. Tax professionals can help guide taxpayers through what they need to do in these circumstances.

There are some basic tips taxpayers can keep in mind when selecting a tax professional They include:

  • Select an ethical preparer. Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments and Social Security numbers.
  • Make sure the preparer signs the return and includes their Preparer Tax Identification Number (PTIN). All paid preparers are required to have a valid PTIN.
  • Review the tax return and ask questions before signing. Taxpayers are legally responsible for what’s on their tax return, regardless of whether someone else prepared it.
  • Never sign a blank tax return. It’s a clear red flag when a taxpayer is asked to sign a blank tax return. The preparer can put anything they want on the return – even their own bank account number for the tax refund.

Last year the IRS launched a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications on the IRS website to help taxpayers verify credentials and qualifications of tax professionals. The Directory is a searchable, sortable database with the name, city, state and zip code of credentialed return preparers as well as those who have completed the requirements for the IRS Annual Filing Season Program.

The IRS requires anyone who prepares any federal tax return for compensation to obtain a PTIN. All valid PTINs are issued by the IRS. There are nearly 700,000 individuals with valid PTINs. Anyone with a valid PTIN can prepare and sign federal tax returns they prepare.

For more information, see:

Other tips in the Tax Time Guide series are available on

Frivolous Tax Arguments Completes the IRS “Dirty Dozen” List of Tax Scams for the 2016 Filing Season

Tax ScamsThe Internal Revenue Service (IRS) yesterday finished its 2016 “Dirty Dozen” tax scams list by warning taxpayers against using frivolous tax arguments to avoid paying taxes. Every year the IRS puts together its “Dirty Dozen” list of common scams that taxpayers are most likely to currently encounter as they search the internet or as they hire someone to help with their taxes.

Scam #12 – Frivolous Tax Arguments

“The IRS and the courts hear many outlandish arguments from people trying to avoid their legal filing and tax obligations,” said IRS Commissioner John Koskinen. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law.” Examples include claims that taxpayers can refuse to pay taxes on religious grounds or by invoking the First Amendment.

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their legitimate tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.

You’ll End Up Paying More Than You Wanted

The penalty for filing a frivolous tax return is $5,000. The penalty applies to anyone who submits a purported tax return or other specified submission, if any portion of the submission is based on a position the IRS identified as frivolous in Notice 2010-33, 2010-17 I.R.B. 609, or reflects a desire to delay or impede administration of the tax laws.

Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter.

The IRS yesterday updated its official publication of “The Truth about Frivolous Tax Arguments”, which describes and responds to some of the common frivolous tax arguments made by those who oppose compliance with federal tax laws. The cases cited demonstrate how frivolous arguments are treated by the IRS and the courts. The 2016 version includes numerous recently-decided cases that demonstrate that the courts continue to regard such arguments as illegitimate.

2016’s IRS Dirty Dozen Tax Scam List

Here is this year’s complete list of the Dirty Dozen Tax Scams:

  • Identity Theft
  • Phone Scams
  • Phishing
  • Return Preparer Fraud
  • Hiding Money or Income Offshore
  • Inflated Refund Claims
  • Fake Charities
  • Falsely Padding Deductions
  • Excessive Claims for Business Credits
  • Falsifying Income to Claim Tax Credits
  • Abusive Tax Shelters
  • Frivolous Tax Arguments


Hollywood Set Builder Gets Independent Contractor Ability to Schedule C Deductions

Tax Court Movie ProductionThe Tax Court just granted Independent Contractor status to a W-2’d employee. The circumstances are very familiar to all those who have ever worked in Hollywood.

In this case, Jorge Quintanilla was a production worker who worked on approximately 150 commercials shot in Southern California over two tax years. The different productions varied from one day to a month in duration. In addition, the exact job titles varied from assignment to assignment. As is very common with Hollywood productions, producers hired the same payroll company to hire out Mr. Quintanilla and that company gave him a W-2 at the end of the year, showing him to be an employee, with regular employment taxes deducted and paid.

Mr. Quintanilla, when filing his taxes, filed stating that he was an independent contractor and he filed a Schedule C form showing self-employment along with deductions for the expenses that were necessary for him to spend in order for him to fulfill his responsibilities in building sets.

The IRS objected, stating that as an employee, he could only deduct his expenses on Schedule A, with its inherent restrictions, one of which is limiting expenses to the amount that exceeds 2% of Adjusted Gross Income.

The Tax Court looked not at the W-2 versus a 1099 (employee versus independent contractor payer forms) but to the actual relationship between Mr. Quintanilla and his “employers”. The Court considered the following factors in determining whether a worker is an employee or independent contractor:

• The degree of control exercised by the principal over the worker;
• The worker’s investment in his workplace;
• The worker’s opportunity to make a profit or suffer a loss;
• Whether the principal can discharge the worker;
• Whether the work is part of the principal’s regular business;
• The permanency of the relationship;
• The relationship the parties believed they were creating; and
• The provision of employee benefits.

In analyzing the facts, the Tax Court found that even though Mr. Quintanilla received a W-2 for his services, he was in fact an Independent Contractor and could still file a Schedule C that deducted all of his costs associated with performing his duties from the income he received.

NOTE: The “Protecting Americans from Tax Hikes” Act, enacted last month, includes a related provision on motion picture industry employment taxes. New Code Sec. 3512 provides that, for remuneration paid after 2015, motion picture payroll service companies (MPPSCs) that qualify as “motion picture project employers” can be treated as the employer of their film and television production workers for Federal employment tax purposes.

Person Doing TaxesAs a result, all remuneration paid by a motion picture project employer to a worker during a calendar year is subject to a single FICA wage base and a single FUTA wage base, without regard to the worker’s status as a common law employee of multiple clients of the motion picture project employer during the year. This will most likely mean that more and more people who may have been independent contractors before will be considered by production companies as employees as production companies seek to utilize this safe harbor.

Bottom line for these new “employees” in the entertainment industry… Just because you will now get a W-2 does not mean you are not still an Independent Contractor for income tax purposes. Check with your tax adviser. You may still be able to deduct your expenses on Schedule C!

SEC’s Investor Advisory Committee Objects to FASB Materiality Proposals

FASB SEC RULESThe Security and Exchange Commission’s (SEC) Investor Advisory Committee (IAC), in a January 21, 2016 letter to the Financial Accounting Standards Board (FASB), objected to two recent FASB proposals that would give companies more control over what does and does not get disclosed in financial statement footnotes by letting management and auditors determine materiality based on a subjective legal test rather than a mathematical percentage test.

The two proposals were issued in September 2015 as Proposed Amendments to Statement of Financial Accounting Concepts (CON) No. 2015-300, Conceptual Framework for Financial Reporting Chapter 3: Qualitative Characteristics of Useful Financial Information, and Proposed Accounting Standards Update (ASU) No. 2015-310, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material. The proposals call materiality “an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report.” Information is material “if there is a substantial likelihood that the omitted or misstated item would have been viewed by a reasonable resource provider as having significantly altered the total mix of information.”

The IAC’s concerns are that these proposals would give management too much discretion about the information investors get. They are concerned that this test could be used to give even less information than is currently required… and there are many who believe the current standard does not require enough disclosure as it is.

The FASB plans to hold a roundtable that will discuss all of its disclosure projects, including the guidance for footnote disclosures for fair value measurements, pension liabilities, and income taxes in mid-2016.

2015 Tax Preparation Rates Released

Wallace Associates Group today released its 2015 Tax Year (Due April 15, 2016) tax preparation fee schedule. This year’s schedule is the same as last year… meaning no increase, even thought this year introduces significant reporting changes as several key Affordable Health Care bill (Obama Care) impact 2015 tax return forms.

This year’s tax preparation fee schedule can be found here.

IRS Extends Employer/Insurance Company but not Individual Affordable Care Act Reporting Deadlines

Tax Forms Extensions and Due DatesThe IRS has extended the due dates for the 2015 information reporting requirements under the Affordable Care Act for insurance companies, self-insuring employers, and certain other providers of minimum essential coverage. However, no relief from personal reporting was granted, meaning that individuals may have to file their 2015 tax returns based on what information (statements, print-outs, etc.) they might have rather than officially filed and distributed forms.

In question are Form 1095-B and Form 1095-C. These forms contain key information that individuals need to determine their tax liability and/or credit under the Affordable Care Act. Prior to this IRS action, employers and others were required to make these forms available by February 1, 2016. The result would have been that around the end of January most employees would receive both a Form W2, (which they are very familiar with) plus either a Form 1095-B or a Form 1095-C. With this IRS extension, employers and other required entities do not need to make either of these two forms available until March 31, 2016. This means that individuals, unless they file late in the tax season, will have to complete their returns without this key information.

To somewhat protect such individual tax return filers, for 2015 tax year only, they can rely upon other information received from employers, insurance companies and the marketplace in order to determine their eligibility for the premium tax credit/tax penalty when filing their income tax returns. The individuals should keep such documentation (they do not send it in with their tax returns) since, if the information they use varies from the information sent to the IRS base on the forms they receive at the end of March, they may need to prove they reasonably relied on valid sources when preparing their tax returns.

If you have any concerns about your own personal situation, we urge you to seek out competent counsel.

It’s Not Too Late…Three Weeks Left to Make Tax Plans!

There are still three weeks left in 2015 and it’s not too late to reduce the amount of taxes you will owe at the end of the year. While there are still some “extender legislation” issues (last minute congress battles), such as charitable deductions for those age 70 ½ years or more and the above the line deductions for qualified higher education expenses, most everything else is set. Here is a list of things to consider.

  • Nail down losses on investments. Paper losses only look good on paper. If you don’t believe the investment will come back to life, sell and take the loss.
  • Self-employment and payroll issues. Make sure your withholding is correct. Penalties are waiting for those who do not adequately cover the amount they owe.
  • If you are 70 ½ years old, make sure you begin taking required distributions. You don’t want the 50% penalty you’ll pay if you don’t.
  • Make year-end gifts and charitable donations.

Make sure you discuss your situation with your tax planner. Happy Holidays!

The Fifth Amendment Does Not Always Apply

Miranda v. Arizona, 384 U.S. 436 (1966) helped create a generation of citizens that are very well aware of their Fifth Amendment rights against self-incrimination as it became repeated over and over in nearly every crime drama on television and movies. However, as Monday’s Supreme Court ruling continues to affirm, there are exceptions to the rule.

Following a line of reasoning that become a standard with Shapiro v. U.S., (S Ct 1948) 335 U.S. 1, which was further refined in Grosso v. U.S., (S Ct 1968) 21 AFTR 2d 55421 AFTR 2d 554, the Supreme Court has held that the government can compel production of self-incriminating documents so long as a three prong test is met: (1) the reporting or recordkeeping scheme must have an essentially regulatory purpose; (2) a person must customarily keep the records that the scheme requires him to keep; and (3) the records must have public aspects.

On Monday, the Supreme Court continued its support of this exception when it refused to hear an appeal brought by Eli and Renee Chabot, Chabot, (CA 3 7/17/2015) 116 AFTR 2d 2015-5270, cert denied 11/30/2015. The facts show that the IRS made a demand under the provisions of the Bank Secrecy Act for copies of bank statements of accounts the Chabot’s held in an HSBC branch in France. The Chabots refused to produce these statements claiming they had a Fifth Amendment right to not produce documents that could incriminate them as potential participants in illegal activities.

The Third Circuit ruled that the IRS was entitled to demand the documents by ruling that the records were essential to regulatory purposes, that they were required documents, and that they had public aspects. Similar cases in the Second, Fourth, Fifth, seventh, Ninth and Eleventh Circuits have had the same result. (in re Grand Jury Subpoena Dated Feb. 2, 2012, (CA 2 2013) 741 F.3d 339; Under Seal, (CA 4 2013) 112 AFTR 2d 2013-7316112 AFTR 2d 2013-7316; In re Grand Jury Subpoena, (CA 5 2012) 696 F.3d 428; In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, (CA 7 2012) 691 F.3d 903; In re Grand Jury Investigation M.H., (CA 9 2011) 108 AFTR 2d 2011-5880108 AFTR 2d 2011-5880; In re Grand Jury Proceedings, (CA 11 2013) 111 AFTR 2d 2013-794111 AFTR 2d 2013-794)

With the Supreme Court’s Monday ruling, this exception to the Fifth Amendment remains fully in place and enforceable. Basically, if there is a regulatory business purposes of a document, even if it would incriminate you, you will be required to turn it over to the IRS.

IRS Reminds Non-Credentialed Return Preparers of 2016 Limits On Practice

Following up on its June of 2014 announcement, the Internal Revenue Service (IRS) recently reminded non-credentialed tax returns preparers of changes that will take effect January 1, 2016. These rules affect all tax return preparers who are not Enrolled Agents, Certified Public Accountants or Attorneys (Credentialed Preparers). Credentialed Preparers are exempt since they already have annual mandatory Continuing Legal Education requirements from their licensing boards.

The program is designed to ensure that non-credentialed preparers have sufficient knowledge to adequately prepare tax return for others. It requires completion of Continuing Education courses. Those who have not completed the training by December 31, 2015 will lose the ability to assist their customers in the event something is challenged or goes wrong with a return they prepared. Even then, the ability of non-credentialed preparers to represent a customer with problems is limited.

To assist the public in determining whether the person who does their tax return will be able to assist in the future should something go wrong, the IRS will be publishing a listing, known as the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

While we applaud the IRS for protecting the public through this procedure, thus ensuring at least a minimal ability to prepare returns and then protect customers, with other than routine tax situations, we recommend that taxpayers search out qualified Enrolled Agents, Certified Public Accountants or Attorneys to assist them with their taxation needs.These Credentialed Preparers can assist you without restriction.