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Expat Tax Blog

Jan 30

The IRS is Using Data Analysis to Catch Tax Cheats

by julie

IRS Criminal Investigation Division Establishes New Initiatives

In Aug 2017, the IRS announced the creation of two new investigation initiatives:

  • International Tax Enforcement Group
  • Nationally Coordinated Investigations Unit

These will both report directly into the Criminal Investigation division’s executives.

The International Tax Enforcement Group is tasked with investigating international tax enforcement cases. The group will be headquartered in Washington, DC, but will use agents throughout the United States and overseas. The group will focus on taxpayers who haven’t reported all of their global income and overseas assets.

Where does the IRS get their data?

The IRS has their fingers all over the globe. Information sharing with financial institutions have increased the amount of taxpayer data available for the IRS to find those underreporting or misreporting tax information. In addition, the increased use of Big Data is allowing the IRS to find holes that need to get plugged.

For tax purposes, the definition of a US person is any United States citizen, a holder of a Green Card, or a partnership, corporation, or organization that has been established under US law. All US persons must file a variety of income tax forms and information reporting forms, both to the IRS as well as to the Department of the Treasury. Because of these forms, the Internal Revenue Service already has a significant amount of data on US taxpayers.

Recently, the IRS began receiving taxpayer data from overseas financial institutions. This is a requirement of the Foreign Account Tax Compliance Act, or FATCA. As additional countries begin to comply with the IRS’s requests under various tax treaties, more taxpayer data will become available.

Whole Story at TFX.

Jan 25

Tax Reform: Impact on Pass-through businesses (S-Corp, LLC, Partnerships, and Sole Proprietorship)

by julie

One of the biggest changes in the tax reform affects owners of so-called pass-through businesses. Those are sole proprietorships, partnerships, limited liability companies (LLC) and S-corporations.

What are pass-through entities?

Pass-through entities do not pay tax at the corporate level. Instead, the owners pay tax on their respective share of business income through their individual tax returns, under the tax rate applicable to their income bracket. About 95% of US businesses fall into this category.

20% Deduction starting in 2018

Starting from the 2018 tax year, owners of pass-through entities will be allowed to exclude 20% off their earnings from their individual taxable income. The maximum 20% deduction is not universal and has a number of exceptions and limitations.

Firstly, the deduction is capped at half of the company’s total wages reported on W-2 tax forms. Guaranteed payment to partners and compensation to S corporation owners/shareholders do not qualify for counting the wages cap.

Businesses that cannot deduct anything because they do not issue W-2s may still deduct some of the income based on the owner’s investment in the business. The alternative method of capping the deduction takes into account capital investment.

Whole Story at TFX.

Jan 25

An Unwelcome Tax Surprise Could Soon Lurk in Your Paycheck

by julie

In the coming weeks don’t fail to go over your paycheck withholding.

Recently the Treasury Department told about revisions to the 2018 withholding tables to reflect the tax changes Congress enacted in 2017. These changes allow employers to use workers’ W-4 forms already on file to adjust withholding to reflect tax cuts in the new law.

This means that more than 90% of workers will see bigger paychecks as early as next month, according to government estimates.

Many Americans’ W-4 forms haven’t been updated in years.

The upshot is that changes to paychecks may not reflect what a taxpayer will owe for tax year 2018 or the size of future tax refunds.

What You’ll Owe in 2018

According to Treasury officials, the new withholding tables have been adjusted to reflect the larger standard deduction, lower tax rates, and the repeal of the personal exemption.

However, tables couldn’t take into account changes that affect individuals differently: they don’t include the shrinking alternative-minimum tax, the expanded child credit, or the repeal of deductions for state and local taxes.

Officials at Treasury and IRS are now working on a new withholding calculator and revised W-4 form they hope to post in February.

Many agree that taxpayers at high risk of being underwithheld are those with large itemized deductions that have been repealed or limited.

Others at risk of underwithholding include employees having bonuses, stock options, commissions, and the like, because the special withholding rate on them has dropped to 22% from 25%.

Original Story at WSJ.

Jan 22

2017 State Tax Filing Deadlines

by julie

Use the table below to check the due dates for state tax returns and tax extensions. You can also find out how to check on the status of your state tax refund.

State State Return Due Date State Extension Due Date State Return Due Date After Extension
Alabama 04/17/2018 04/17/2016 10/15/2018
Alaska No AK state return due date No AK state extension due date No AK state return due date after extension
Arizona 04/17/2018 04/17/2018 10/15/2018

 

Whole Story at TFX.

Jan 21

Tax Court bars IRS from collecting under FBAR

by julie

In its first decision of 2018, the Tax Court considered whether the six-year statute of limitations in Code Section 6501(e)(1)(A)(ii) applied to a taxpayer who failed to file FBAR, forms from 2006 through 2008. The court held that the IRS could not go back beyond the general 3-year limitations period.

FBAR requirements have been around since the 1970 Bank Secrecy Act, but it wasn’t until the UBS case in 2009 that they were seriously enforced.

The IRS must generally assess a tax within three years of the date a tax return was due, without extensions, or the date the return was actually filed, whichever is later.

Code Section 6038(D), enacted on March 18, 2010, imposes new reporting requirements for certain specified foreign financial assets. Code section 6501€(1)(A)(ii), also enacted on March 10, 2010, provides a six-year period of limitations if the taxpayer omits from gross income amounts attributable to one or more assets with respect to which information is required to be reported under section 6038(D).

Despite the IRS attempt to draw parallels between Code Section 6038(D) and previously enacted statutes, the Tax Court ultimately determined that the statute being used to assess additional taxes from non-compliant taxpayers with foreign accounts could not be used for tax years prior to 2010 because there was no Code Section 6038(D) filing requirement prior to that year.

As a result of this ruling, the taxpayer ended up owing no additional taxes. Additionally, the decision could potentially prevent the IRS from collecting millions of dollars from other taxpayers in similar situations.

Original Story at Accounting TODAY.