H. Jacob Lager

Archive for the ‘FATCA’ Category

Mr. Tax Lawyer goes to Washington

In FATCA, IRS regulations, U.S. Tax policies on August 31, 2012 at 9:24 am

I’ll admit it. I’m a mark for Capra films. I cheer for every ulcer Grandpa gives the IRS agent. I cry every Christmas Eve when Clarence gets his wings. And like Mr. Smith, I’ve always wanted to go to Washington and tell ’em what’s what. Sadly, the opportunity rarely arises.

However, a few brave California tax attorneys courageously face the DC humidity every summer to do that which I only dream: tell the IRS and Congress how to better administer taxes. It’s as sexy as it sounds.

This past May, the taxation section of California State Bar sent its annual Washington, DC delegation to our nation’s capital to discuss current tax issues with Treasury officials, congressmen, and other policy-makers. Their reports were just published, which included the following recommendations relating to international tax issues:

Jenna Shih, Esq. and CPA Po Han Chen recommended that regulations be issued clarifying the rules to determine whether a US-owned foreign company may be treated as engaged in the active business of developing its own intellectual property (and therefore escape US taxation on its profits). The authors noted that current case law allows such treatment where the company’s direct employees manage the business, even if independent contractors develop the IP.

Pracitioners Pedro Corona and Enrique Hernandez issued a report suggesting that Mexican pension participants should be exempted from PFIC reporting requirements.

In particular, the authors noted that participation in Mexican retirement funds represents a low-risk of tax evasion because such pensions are not created to allow foreign investment, but are actually part of a mandatory condition of Mexican employment.

Finally, Patrick W. Martin and Liliana Menzie proposed expanding the FATCA definition of “local foreign financial institutions” to ease compliance burdens for foreign banks whose clients are considered “accidental Americans” (i.e. individuals who live in other countries but retain U.S. citizenship).

If you have any interest in preparing a report or a recommendation for next year’s delegation, click here for more information, or contact me and I can put you in touch with one of the organizers.

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International tax law updates: Kansas and FATCA and whistleblowers, oh my!

In FATCA, U.S. Tax policies, Yes you must pay taxes on August 17, 2012 at 7:36 am

Although a “fly-over,” Kansas is indeed an actual state.  On August 15, the Tenth Circuit affirmed the Tax Court’s holdings denying an individual’s arguments that he was a “a citizen of Kansas that earned a living through activities occurring solely under the jurisdiction of Kansas” and therefore not a federal taxpayer; and that he did not receive taxable income.

Hmmmmm . . . This sounds familiar.  This kind of argument, with its hints of facial logic (“Citizen of California?  Makes sense to me!”) are very popular with the tax protest movement and very likely to get a proponent sanctioned.  In dismissing the taxpayer’s claim, the panel also mentioned the following similarly facetious anti-tax arguments:

  • “the authority of the United States is confined to the District of Columbia,”
  • “wages are not income,”
  • “the income tax is voluntary,”
  • “no statutory authority exists for imposing an income tax on individuals,” and
  • “individuals are not required to file tax returns fully reporting their income”

Quick rule of thumb for heavily-promoted tax dodges: if Mitt Romney isn’t doing it, it’s likely not legal. The full opinion can be found here.

More FATCA Forms Released  Yesterday, the IRS released a draft of the anticipated Form W-8IMY meant to accommodate impending FATCA regime. (For a brief recap of what FATCA check out this post.)

Chief among its new additions is a new enhanced “line 4” that features no less than 21 options for an entity to choose from when indicating its FATCA status designation and five extra pages relating to that choice.  Accompanying instructions and regulations have not yet been issued.

This is what we call “tax simplification.”

IRS Hails Whistleblowers  As part of an American Bar Association Section of Taxation webcast, IRS special trial attorney and division counsel John McDougal noted the utility of the Service’s whistleblower program.  According to McDougal, whistleblower data constitutes one of the most important sources of taxpayer information for enforcement efforts.  McDougal noted the IRS has just recently begun to distribute award payments to individuals who have supplied that information.  Because whistleblowers often present information on a particular financial institution or practice, the IRS is able to gain access to information outside the U.S. that is not otherwise easily available.  “It’s an incredibly valuable opportunity for us,” McDougal said.

Rat on your bank, a new “Occupy” strategy?