An IRS official told us that the tax returns that were identified as part of a quiet disclosure will be examined and that cases already examined had penalties assessed. Because they were quiet disclosures, the official said the taxpayers did not receive the reduced offshore penalty.
Monday, April 29, 2013
Sunday, April 28, 2013
Friday, April 26, 2013
Foreign asset protection trusts are often established by U.S. persons to shield their assets from creditors. Typically, assets transferred to the trust can be paid to or applied for the benefit of the U.S. grantor(s) and their family members only in the discretion of the trustee. The trustee is typically a trust company situated in the foreign jurisdiction. So that the grantor has some measure of control over the situation, the grantor typically has power to remove and replace the trustee. Thus, if the trustee is uncooperative, the grantor has the ability to try to find and install a more cooperative one.
In a recent South Florida case, the U.S. government is a creditor of a deceased husband and his wife. The wife is a discretionary beneficiary of non-U.S. trusts, and she has the power to change trustees. The IRS has a lien on the trust assets – however, since the assets are situated outside of the U.S. with a non-U.S. trustee, the U.S. courts have no jurisdiction over the foreign trustee.
The bad planning in this situation is that the wife has the power to appoint a trustee situated anywhere in the world (including in the U.S.). Thus, the court is now ordering her to exercise that power to remove the current trustee and replace it with a U.S. trustee. Once that is done, the trustee will be within the jurisdictional reach of the court, and the assets of the trust will be reachable.
A better plan would have been to limit replacement trustees to those situated in the jurisdiction of the trust, or at least to jurisdictions outside of the U.S. Further, taxpayers should not engage in transfers that put assets beyond the reach of the IRS – such activities can result in criminal liability.
U.S. v. Grant, 2013 WL 1729380 (S.D.Fla., April 22, 2013)
Monday, April 22, 2013
Wednesday, April 17, 2013
Last week, the ACLU created a stir when it suggested that the IRS may be reading taxpayers’ emails without obtaining a search warrant. Read more about that from the ACLU here. At least at some point in time in the past, according to the IRS’ 2009 “Search Warrant Handbook,” the IRS believed that the Fourth Amendment protections against unreasonable searches and seizures did not apply to email messages stored on a server.
Under the federal Electronic Communications Privacy Act, email stored on an email provider’s server can be obtained without a warrant if it has been on the server for more than 180 days or has been opened. However, the Sixth Circuit Court of Appeals in U.S. v. Warshak in 2010 requires a probable cause warrant before compelling email providers to turn over messages.
However, the head of the IRS told a Senate finance committee yesterday (April 16) that the agency does require a warrant before requesting emails from an internet provider. However, the ACLU still indicates there are open questions, such as whether the IRS only seeks a warrant for emails under 180 days old, whether it acts differently when it is in jurisdictions outside of those in the Sixth Circuit Court of Appeals, and whether it seeks a warrant for other electronic communications such as text messages and private massages on social media sites such as Facebook and Twitter.
Sunday, April 14, 2013
PART-TIME LANDLORDS THAT WORK FULL TIME WILL HAVE A HARD TIME QUALIFYING AS REAL ESTATE PROFESSIONALS
Thursday, April 11, 2013
Wednesday, April 10, 2013
If a taxpayer owns appreciated property and transferors it to another, and that successor owner sells the property, the gain from the sale is reportable by the successor owner, not the donor. However, if the gift occurs too close to the sale date, the assignment of income doctrine will attribute the gain back the transferor. A recent cases demonstrates what “too close” means.
In the case, the transferred assets were member interests in LLCs that owned stock in a closely held corporation. In early 2000, the stockholders of the company retained an investment banking firm to sell the business. On November 16, 2000, Agilent Technologies made a bid to purchase all of the stock. On November 21, 2000, the board of directors of the corporation agreed to the offer, subject to certain conditions. On November 24, 2000, the board gave its final approval. A formal Agreement and Plan of Merger was entered into on that day. Trading in the stock was restricted by those agreements, pending closing. Also on November 24, 2000, the owners of the LLC sold their shares to 3 Cayman Island corporations in exchange for annuities. Presumably, based on rules in effect in 2000, it was intended that the gains from sale would be taxed on a deferred basis (but this is not certain). The sale of shares to Agilent was publicly announced on November 27, and the Agilent sale closed on January 8, 2001.
The transfers of the LLC interests occurred too late to avoid the assignment of income doctrine, ruled the District Court of the Virgin Islands. Thus, the gains from the sale of the stock of the closely held company to Agilent were taxable to the original LLC owners.
The court relied heavily on Ferguson v. Comm'r, 174 F.3d 997, 1003 [83 AFTR 2d 99-1775] (9th Cir. 1999). In that case, a transfer occurred too late to shift the incidence of taxation when the subsequent sale was “practically certain to proceed” and not a remote hypothetical possibility, and it was “quite unlikely” that the anticipated sale would not occur. In this case, all sale approvals had been obtained, and the owners were contractually bound to sell. Thus there was “no real risk” that the sale transaction would not occur.
Gail Vento LLC v. U.S., 111 AFTR 2d 2013-XXXX, (DC VI), 03/28/2013Follow @RubinOnTax Tweet