FBAR: Foreign Land and Artwork
On 6/24/09, the IRS updated their Voluntary Disclosure FAQ clarifying the FBAR reporting requirements for foreign land and artwork owned in the taxpayer’s own name.
In FAQ #37, the IRS confirmed that the FBAR filing for foreign land and artwork owned in the taxpayer’s own name, is due once the asset becomes income-producing (i.e., yields current income, or gain from the sale).
If the foreign land/artwork is held in an entity, the taxpayer is required to file tax information returns (Trust: Form 3520) (Corporation: Form 5471).
Re: FAQ 20 A taxpayer owns valuable land and artwork located in a foreign jurisdiction. This property produces no income and there were no reporting requirements regarding this property. Must the taxpayer report the land and artwork and pay a 20 percent penalty?
FAQ 20 relates to income producing property for which no income was reported. Under those circumstances, no distinction is made between assets held directly and assets held through an entity in computing the 20 percent offshore penalty. However, if the taxpayer owns nonincome producing property in the taxpayer’s own name, there has been no U.S. taxable event and no reporting obligation to disclose. The taxpayer will be required to report any current income from the property or gain from its sale or other disposition at such time in the future as the income is realized. Because there has as yet been no tax noncompliance, the 20 percent offshore penalty would not apply to those assets. If the foreign assets were held in the name of an entity such as a trust or corporation, there would have been an information return filing obligation that may need to be disclosed.
Casualty (Theft) Loss: Predatory Lending
Beverly Hills, CA (PRWEB) December 7, 2009 — In 2009, the proliferation of foreclosures and litigation over bank consumer and commercial loans mandates review of the casualty (theft) loss rules.
In a recent case filed in California, trial attorney, Sanford Passman, filed a cross-complaint against a bank for predatory lending. The claim was based on the bank’s failure to adequately inspect equipment for which they made a secured collateralized loan. Effectively, the bank made a significant loan to a doctor for medical equipment (purchased under an existing lease) without verifying the value of the equipment. Within several years of the loan, the equipment malfunctioned, became non operational and obsolete and was unusable. The lender then sought to foreclose on the doctor’s entire medical practice.
The Plaintiff filed a Motion for Writ of Attachment, at which time Sanford Passman was able to effect a settlement on behalf of his client, which enabled the client to declare a significant casualty (theft) loss for losses regarding the acquisition of the equipment.
For clients who may have used third party funds (i.e., bank funds) to make acquisitions of property (either real property or personal property) and to the extent that the value of the collateral pledged for the loan or loans is less than the outstanding balance of said loans, then the borrower is in a default situation facing litigation, and consideration should be given by the borrower as to whether or not a cross-complaint should be initiated against the lender, based on predatory lending practices, which could allow the borrower significant tax benefits by way of the aforesaid casualty (theft) loss.
Under the case of Gerstell v. Commissioner 46 TC 161 (1966) theft is determined under state law. If the state in which the Taxpayer resides includes fraud as a form of “theft” (i.e., the fraudulent misappropriation of one’s personal property), Taxpayer may be entitled to an ordinary loss deduction for casualty (theft) loss. The tax loss is the difference between the fair market value of the asset (purchased under the loan) and Taxpayer’s obligation for the loan made.
Court of record for case cited: Superior Court of the State of California, County of Los Angeles, Northwest District. Case # LCO86056.
For litigation questions please contact Sanford M. Passman, Esq. at: Sanford M. Passman, Esq., 6303 Wilshire Boulevard, Suite 207, Los Angeles, CA 90048, Tel: (323) 852-1883.
For tax questions please contact Gary S. Wolfe, Esq., at Gary S. Wolfe, A Professional Law Corporation, 9100 Wilshire Blvd., Suite 505 East, Beverly Hills, CA 90212, Tel: (310) 274-3116, Web: http://gswlaw.com
FBAR: Foreign Accounts with Multiple Signatories
On 6/24/09, the IRS updated their Voluntary Disclosure FAQ clarifying the FBAR reporting requirements for foreign accounts with multiple signatories:
If parents have a jointly owned foreign account on which they have made their children signatories, the children have an FBAR filing requirement but no income. Should the children just file delinquent FBARs as described by FAQ 9 and have the parents submit a voluntary disclosure? Will both parents be penalized 20 percent each? Will each have a 20 percent penalty on 50 percent of the balance?
Only one 20 percent offshore penalty will be applied with respect to voluntary disclosures relating to the same account. In the example, the parents will be jointly required to pay a single 20 percent penalty on the account. This can be through one parent paying the total penalty or through each paying a portion, at the taxpayers’ option. For those signatories with no ownership interest in the account, such as the children in these facts, they may file delinquent FBARs with no penalty as described in FAQs 9 and 41. However, any joint account owner who does not make a voluntary disclosure may be examined and subject to all appropriate penalties.
If there are multiple individuals with signature authority over a trust account, does everyone involved need to file delinquent FBARs? If so, could everyone be subject to a 20 percent offshore penalty?
Only one 20 percent offshore penalty will be applied with respect to voluntary disclosures relating to the same account. The penalty may be allocated among the taxpayers making the disclosures in any way they choose. The reporting requirements for filing an FBAR, however, do not change. Therefore, every individual who is required to file an FBAR must file one.
Tax Informants Are On The Loose
By Janet Novack and William P. Barrett, Forbes.com
For 24 years Vincent A. Spondello toiled away as an accountant for a group of related companies known as Monex, a large Newport Beach, Calif. precious metals dealer. A trusted employee, he prepared tax returns and was given such tasks as overseeing the destruction of old corporate documents. It turns out that some records that were supposedly destroyed he took home instead.
In May Spondello sent 25 boxes of original Monex papers to the Internal Revenue Service–documents that could buttress the IRS’ claim that Monex’s owners fraudulently moved around assets to avoid a $378 million tax bill. He made his document drop after hiring lawyers and filing a claim for a whistleblower reward that could total $57 million or more. Monex denies it owes anything, has fired Spondello and is demanding back its documents.
“He’s a good guy,” says Spondello lawyer Robert D. Coviello. “But he is a rat.”
Pay attention. There are Vincent Spondellos taking notes, taking names and taking documents across America, and beyond.
For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million–only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.
The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants “often provide extensive documentation to support their claims,” the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged.
The slow-moving IRS has yet to pay any bounties under the new scheme, which the Inspector General report said still had “deficiencies” in its execution. But the government itself is already reaping big rewards.
In June 2007 Bradley C. Birkenfeld–motivated in large part, he now acknowledges, by the new reward law–came to U.S. officials with documents in hand and laid out how his former employer, UBS AG, helped wealthy Americans hide money offshore. So far the investigation he triggered has produced a $780 million payment to the U.S. government from UBS, Switzerland’s largest bank; an unprecedented agreement by the Swiss to finger 4,450 U.S. taxpayers with secret UBS accounts; and criminal investigations of more than 150 American UBS clients. That, in turn, helped pressure 14,700 taxpayers to make “voluntary” disclosures of previously undisclosed offshore kitties during a special program earlier this year, yielding extra billions in tax for the Treasury. “The entire game has changed on international tax evasion,” crows IRS Commissioner Douglas Shulman.
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