Casualty (Theft) Loss: Decrease in Fair Market Value
Taxpayers, who have been defrauded, may be eligible for a tax loss deduction for their fraud damages if the fraud is considered theft under their state’s law (see Gerstell v. Commr. 46 T.C. 161 (1966)).
The IRS has published detailed guidelines for Casualty (Theft) Losses which include: Decrease in Fair Market Value
Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.
The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property’s fair market value immediately before and immediately after the casualty or theft.
FMV of stolen property. The FMV of property immediately after a theft is considered to be zero since you no longer have the property.
Example. Several years ago, you purchased silver dollars at face value for $150. This is your adjusted basis in the property. Your silver dollars were stolen this year. The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Your theft loss is $150.
Recovered stolen property. Recovered stolen property is your property that was stolen and later returned to you. If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property’s adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Use this amount to refigure your total loss for the year in which the loss was deducted.
If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. But report the difference only up to the amount of the loss that reduced your tax. For more information on the amount to report, see Recoveries in IRS Publication 525.
FATCA: Qualified Intermediary Reporting Requirements
Under the 2010 HIRE Act (IRC §1471(c)(1)), a foreign financial institution that is a party to a qualified intermediary agreement with the IRS must report the following information regarding each U.S. account maintained by the institution:
1. The name, address, and TIN of each account holder that is a specified U.S. Person.
2. The name, address and TIN of each substantial U.S. owner of any account holder that is a U.S. owned foreign entity.
3. The account number.
4. The account balance or value as determined at such time and in such manner as the IRS prescribes.
5. The gross receipts and gross withdrawals or payments from the account as determined for such period and in such manner as the IRS prescribes.
A Qualified Intermediary (“QI”) is a foreign financial institution that has entered into a withholding and reporting agreement (QI Agreement) with the IRS (T.R. §1.1441-1(e)(5)(ii)).
For U.S. Taxpayers, the QI must provide the U.S. payor with Form W-9 for each U.S. recipient account holder (the QI is not required to back-up withhold or file Form 1099).
For non-resident withholdings, a QI is a withholding agent subject to reporting rules, and payor for purposes of back-up withholding and Form 1099 information reporting rules.
Under a QI Agreement, a QI may choose not to assume primary responsibility for non-resident withholding. The QI must provide a U.S. withholding agent with Form W-8IMY certifying the status of its unnamed U.S. account holders and is not required to withhold or report the payments on Form 1042-S.
A foreign financial institution that becomes a QI and elects primary withholding responsibility is not required to forward beneficial ownership information regarding its customers to a U.S. financial institution or other withholding agent of U.S. source investment income to establish the customer’s eligibility for an exemption from or reduced rate of, U.S. withholding tax.
Instead, the QI is permitted to establish for itself the eligibility of its customers for an exemption or reduced rate, based on a Form W-8, and information as to residence obtained under the know-your-customer rules to which the QI is subject in its home jurisdiction, as approved by the IRS or as specified in the QI Agreement (Rev. Proc. 2000-12, 2000-1 CB 387).
A QI may treat an account holder as a foreign beneficial owner of an account if the account holder provides a valid Form W-8 or other valid documentary evidence supporting foreign status. The QI cannot reduce the withholding rate if the QI knows the account holder is not the beneficial owner of a payment to the account.
If the foreign account holder is the beneficial owner of a payment, the QI can shield the account holder’s identity from U.S. custodians and the IRS.
If a foreign account holder is a nominee and not the beneficial owner of a payment, the account holder must provide the QI with Form W-IMY for interest and specific information about each beneficial owner to which the payment related.
A QI that receives this information may shield the account holder’s identity from a U.S. custodian, but not from the IRS.
If an account holder is a U.S. Person, the account holder must provide the QI with Form W-9 supporting U.S. status. Absent receipt of Form W-9, the QI must follow the presumption rules in the QI agreement to determine whether non-resident 30% withholding, or 28% back-up withholding, is required. A reduced rate of non-resident withholding may not be applied based on the presumption rules.
Pursuant to the QI agreement presumption rules, U.S. source investment income paid to an off-shore account is presumed paid to an undocumented foreign account holder and is subject to 30% withholding.
Foreign source income and broker proceeds paid to an off-shore account are presumed paid to a U.S. exempt recipient and are exempt form both non-resident and back-up withholding.
A QI must file Form 1042 by March 15th of the year following any calendar year in which the QI acts as a QI.
A QI is not required to file Form 1042-S for amount paid to each separate account holder, but must file a separate Form 1042-S for each type of reporting paid (income that falls within a particular withholding rate or within a particular income, exemption or recipient code).
Swiss court confirms transfer of UBS data to the US
The Swiss Federal Administrative Court has announced that an agreement with the US, allowing Swiss bank UBS to disclose account information of clients suspected by the US Government of tax evasion, is binding.
A Jurist report states that the agreement, approved last month by the Swiss Parliament, allows UBS to turn over information of 4 450 US clients to the US Internal Revenue Service (IRS) and may prevent the US Department of Justice (DOJ) from resuming a lawsuit against UBS in which it had sought the names of 52 000 UBS clients.
The court also announced that they have rejected a challenge to the law by a UBS client who had objected to the data transfer. In announcing its ruling, the court noted the importance of the US-Swiss agreement, saying ‘the economic interests of Switzerland as well as the interests in fulfilling obligations that have been entered into in international law are of major significance and outweigh the individual interests of the complainant in this case’.
The report says that the ruling could potentially affect 100 other appeals from UBS clients, which are currently pending.
FATCA: Foreign Financial Institutions Tax Withholding
Under the new law with respect to each U.S. account (any financial account held by one or more specified U.S. Persons or U.S. owned foreign entities (IRC §1471(d)(1)(A)), the foreign financial institution must provide information about account gross receipts and withdrawals.
U.S.-Source investment income is subject to U.S. information reporting and tax withholding.
Every person engaged in a trade or business in the United States must file with the IRS a Form 1099 information return for payments totaling at least $600 that it makes to a U.S. Person in the course of its trade or business (IRC §6041).
To avoid 28% back-up tax withholding (IRC §3406), a U.S. Person must furnish the payor with Form W-9 establishing that the payee is a U.S. Person (T.R. §32.3406(d)-1 and T.R. §32.3406(h)-3).
The combination of Form 1099 tax reporting and 28% back-up tax withholding is intended to ensure that U.S. Persons pay tax on investment income.
U.S. source income amounts, paid to foreign persons, are exempt from Form 1099 information reporting because they are subject to non-resident withholding rules.
A non-resident investor who seeks withholding tax relief for U.S. source investment income must provide certification on the appropriate IRS Form W-8 to the withholding agent to establish foreign status and eligibility for an exemption or reduced tax rate.
A withholding agent making payments of U.S. source amounts to a foreign person is required to report the payments, including any U.S. tax withheld, to the IRS on Forms 1042 and 1042-S by March 15th of the year following the year that the payment is made (T.R. §1.1461-1(b) and (c)). If the withholding agent withholds more than is required, the payee may file a claim for refund.
A non-financial foreign entity that is a beneficial owner of a withholdable payment must certify that it has no substantial U.S. owners or provide identifying information for each substantial U.S. owner.
FATCA - Penalty for Failure to Report
The minimum amount of penalty for failure to report information or file returns for foreign trusts is increased to $10,000.
If any notice or return required to be filed under IRC §6048 is not filed on or before the due date, or does not include all the information that is required, or includes incorrect information, then the person required to file such notice or return must pay a penalty equal to the greater of :
1. $10,000, or
2. 35% of the gross reportable amount (5% for U.S. Persons treated as owners of the trust) (IRC §6677(a), as amended by the 2010 HIRE Act).
Prior to these revisions, the penalty for failure to provide the required information or file a return with respect to certain foreign trusts was 35% of the gross reportable amount (5% for U.S. Persons treated as owners of the trust).
With the new minimum amount, the IRS will be able to impose a $10,000 penalty even when there is not enough information to determine the gross reportable amount.
The maximum amount of the penalty has changed. The penalty for failure to report information or file a return with respect to certain foreign trusts cannot exceed the gross reportable amount (IRC §6677(a)).
To the extent that the aggregate amount of penalties exceeds the gross reportable amount, the IRS must refund the excess to the Taxpayer (IRC §6677(a), as amended by the 2010 HIRE Act).
Ex-UBS client in NJ pleads guilty in IRS tax case
By Jonathan Stempel, Reuters.com (7/1/30)
A former UBS AG client in New Jersey who once played for the Soviet Union’s national soccer team pleaded guilty on Thursday to concealing $2.6 million he had held in an offshore account from the U.S. Internal Revenue Service.
Click link above for complete story.
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