Posted on February 20, 2018 in Taxation Law

In a recent blog, we discussed how U.S. taxpayers can become compliant with the IRS’s requirements for reporting foreign financial assets through the Offshore Voluntary Disclosure Program (OVDP). While the OVDP provides people with the ability to address outstanding offshore tax issues, it applies to people who have willfully failed to disclose foreign assets, and meeting its requirements can result in significant expenses but also can avoid significant penalties. For people whose failure to disclose offshore assets was non-willful, another option is available: streamlined compliance.

Eligibility for Streamlined Compliance

Streamlined compliance is available for individual U.S. taxpayers, and it consists of two programs: the Streamlined Foreign Offshore Procedures (for U.S. citizens or lawful permanent residents who lived outside of the United States for at least 330 days in one of the three previous years) and the Streamlined Domestic Offshore Procedures (for U.S. taxpayers who do not meet the non-residency requirement).

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 Posted on February 13, 2018 in Taxation Law

Under the Internal Revenue Code, taxpayers are required to include all income on their tax return, including interest accrued on funds held offshore.

Under the Foreign Account Tax Compliance Act (FATCA), taxpayers in the United States are required to report financial assets that are held in foreign countries to the IRS. Failure to report their income or these assets can result in both civil and criminal penalties for offshore tax evasion.

To help people and organizations who own offshore funds or assets become compliant, the IRS provides two resolutions: the Offshore Voluntary Disclosure Program (OVDP) and streamlined compliance. In this blog, we examine the requirements and procedures of the OVDP.

OVDP Requirements

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 Posted on February 06, 2018 in Tax Audits

In recent months, much of the discussion surrounding tax laws in the United States has focused on the changes made by the Tax Cuts and Jobs Act of 2017. Yet while individuals and businesses should understand how they will be affected by tax reform, they should additionally be aware of recent new rules that govern tax audits.

The Centralized Partnership Audit Regime

Under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the Internal Revenue Service (IRS) had certain rules for assessing and collecting taxes for partnerships. Audits of large partnerships, such as hedge funds or private equity firms, required individual audits of every partner. The Bipartisan Budget Act of 2015 (BBA) established a new, centralized audit regime, allowing the IRS to audit partnerships as a whole. This new regime will apply to partnership tax years beginning after December 31, 2017.

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 Posted on January 24, 2018 in Taxation Law

Following the passage of the Tax Cuts and Jobs Act of 2017, financial experts across the United States have been working to understand the full impact of this historic legislation. Much of the discussion surrounding the tax reform bill has focused on how its changes to tax law will affect large corporations (which have seen a reduction in the corporate tax rate from 35 percent to 21 percent). However, the growing portion of the country’s population that participates in the gig economy should also understand how it will be affected.

Taxes for Independent Contractors

Surveys have shown that there are 57 million people in the United States who currently perform freelance work either full-time or part-time, including people who earn an income in the gig economy (also known as the sharing economy), such as drivers for Uber or Lyft or people who rent their property through Airbnb. As independent contractors, these freelancers may be able to take advantage of new tax deductions.

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 Posted on January 17, 2018 in Taxation Law

The United States Congress passed a major tax reform bill in December 2017, and lawmakers stated that one of their top priorities was to help grow the country’s economy by alleviating the tax burden on small businesses. While the full effect of the Tax Cuts and Jobs Act of 2017 has yet to be felt, the reform bill contained a number of provisions that will affect the taxes which small businesses pay. Therefore, small business owners should take steps to understand how to make the most of these changes.

Tax Deductions for Pass-Through Businesses

Pass-through companies, in which income is taxed at the rate of the individual business owner rather than through the corporate tax structure, account for 95 percent of businesses in the United States and include sole proprietorships, partnerships, and S corporations. Under the new tax law, pass-through businesses can take a 20 percent deduction on their taxable income, providing them with some financial relief and allowing them to reinvest these tax savings to grow their business. The deduction is subject to several limitations based on the type of business, its financial condition, and the taxpayer’s income.

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 Posted on January 10, 2018 in Taxation Law

In December 2017, Congress passed a tax bill that represented the most significant reform to the U.S. tax code in the last 30 years. The Tax Cuts and Jobs Act of 2017 made a large number of sweeping changes to tax law in the United States, affecting nearly everyone in the country, from individual taxpayers to large corporations. While many of the effects of this new law are still being worked out, one change that businesses should be aware of is how net operating losses (NOLs) will be handled going forward.

NOLs, Carryback, and Carryforward

In the past, businesses that reported a net operating loss (that is, the business’s expenses were greater than its revenues) in a tax year were able to use this amount to offset taxable income in other tax years. They would be able to carry the amount back to the two preceding years and receive an immediate refund for taxes paid or carry the amount forward up to 20 years to reduce the amount of taxable income in those years. This allowed businesses to help avoid some of the consequences of taxing their income on an annual basis and effectively pay taxes on an average income over multiple years.

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 Posted on December 22, 2017 in Taxation Law

With the prevalence of smartphones and personal computers in modern American society, people have more opportunities than ever to earn an extra income. In the sharing economy (also known as the gig economy), money can be made by driving individuals in cars, renting out homes or rooms for short periods, making and selling products, or performing tasks for people.

While there are great benefits from supplementing one’s income in this manner, these individuals may not be aware of how this additional income affects the taxes they pay. Consider the following aspects of tax law of which people in the sharing economy should be aware:

1. Taxable income - All income is generally taxable, whether it is paid by an employer, earned in a “side business,” or received as a cash payment. Since sharing economy companies often treat workers as independent contractors rather than employees, the worker is usually responsible for paying taxes on his or her earnings.

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 Posted on December 19, 2017 in Taxation Law

In 2016, the release of the “Panama Papers” sent shockwaves through the financial world, exposing the methods that many wealthy individuals and corporations use to avoid paying taxes. This issue has received additional scrutiny recently due to the release of new documents, known as the “Paradise Papers,” which have revealed more details about how trillions of dollars are transferred through offshore tax havens.

The Paradise Papers include more than 13 million documents, most of them related to Appleby, a company with headquarters in Bermuda that helps its clients pay less taxes by moving money into offshore accounts. The financial dealings of a number of prominent people and entities were brought to light by this release, including companies like Apple and Facebook, celebrities like Madonna and Bono, and public figures like Queen Elizabeth II and U.S. Commerce Secretary Wilbur Ross.

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 Posted on December 07, 2017 in Taxation Law

For anyone who earns an income, operates a business, or makes a financial transaction in the United States and the state of California, taxes are an unfortunate reality. Nobody likes paying taxes, but they are a necessary part of modern life and allow our government to continue operating.

Collecting taxes is a complicated matter, especially when it involves large companies and organizations with complex financial assets. In recent years, the governmental departments that collect taxes have begun working to operate more efficiently by focusing their efforts on identifying and addressing specific tax issues. These tax compliance campaigns have been conducted by the Internal Revenue Service (IRS), the California Board of Equalization, and the California Employment Development Department.

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 Posted on November 28, 2017 in Taxation Law

Purchasing a business can be an exciting venture, allowing a person or company to expand his or her assets and add additional sources of income. However, business owners should be aware of the tax issues that can arise when buying a business, including whether they will be responsible for the business’s tax liability.

Successor Liability

If a business owes taxes, interest, or penalties at the time of its sale, the purchaser of the business may be held liable for these amounts. This is known as successor liability, and the California State Board of Equalization (BOE) may enforce this liability through a state sales tax audit within three years of the purchase of the business. A state sales tax refund claim may also trigger the enforcement of a tax liability.

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