How long should you keep tax records? IRS.gov has some great traps to fall into

How long should you keep tax records? IRS.gov has some great traps to fall into

How long should you keep your tax records? The IRS website has a page that claims to answer this question: https://ift.tt/29AWo1g But how accurate is this information? Are there things the IRS forgets to mention? Is there advice the IRS gives that could lead to disaster? Watch this video to the end to find out things that perhaps the IRS doesn’t want you to know. For most people they can get rid of their tax records after three years. Why? In most cases, the IRS is really only allowed to audit the last three years. For instance, right now it is 2018. In 2018, 99% of the examinations the IRS commences are for tax years 2015-2017. But many of you might have heard about the rule that says you need to retain your records for 7 years. So where did that number come from? the answer is that the IRS has a few exceptions to its three-year look-back period. If you understate your income by more than 25%, the IRS can go back an additional 3 years for a total of 6 years. But that’s sort of an interesting paradox. How does the IRS know you understated your income by 25%? Wouldn’t an auditor have to conduct an examination to know that you did that? And this is why we see so few audits that get opened for six years. The IRS needs to have some credible information you understated your income by 25% through some verifiable source before that audit begins. What’s the most common way this happens? Taxpayers and their representatives don’t organize their files correctly when under audit and just dump too much data on an auditors desk which includes information on years outside the 3-year period the auditor was examining. The Fraud exception Another exception is if you file a fraudulent return, the IRS can examine and assess indefinitely. So the IRS advises you to keep your tax records indefinitely if you file a fraudulent return. Which I suppose makes sense from the IRS’s perspective. But let me tell you a story that demonstrates how this advice helps the government, not taxpayers. Real Estate and property The IRS correctly advises that if you have property you should hang on to all your records for as long as you own the property plus the typical three years thereafter. Yet, we encountered a case where this rule would have resulted in a $40,000 tax bill to a client had he followed the IRS’s advice. Some big misses - FBAR recordkeeping The Report of Foreign Bank Accounts, or FBAR, is a US Treasury form that is administered by the IRS. For decades the form was ignored by the IRS. This however was changed in 2009, when the IRS realized it could use the threat of ruinous FBAR penalties — up to 50% of account value — to cajole people into the first Offshore Voluntary Disclosure Initiative. So there is a failure to file penalty for FBARs, yet there is also a penalty for failing to keep records. You must keep records on all foreign bank accounts for 5 years. The fact that this information is missing on irs.gov is understandable — the IRS has a lot on its plate. But it is also unforgivable. Because the IRS is rather obstinate about finding that someone had reasonable cause and is entitled to an FBAR penalty waiver. It is unforgivable as the IRS is fine taking 50% of someones assets for this FBAR record-keeping oversight. But it is the same exact oversight that IRS.gov makes. It fails to mention the 5 year record retention requirement on this record retention web page. So why are we holding taxpayers to a higher standard of care than the IRS? What about if you were audited? The IRS does not mention this, as this advice would probably help you, not them. If you are ever audited, you might want to hang on to those audit records forever. Why? Because you may be audited later and you may be raising a claim that the IRS was previously OK with or due to their bad advice helped contribute to. The foreign assets and income trap Speaking of Form 5471, which is a type of foreign informational return for US shareholders of a foreign corporation to file. Well there are a litany of other foreign informational returns. And they all have the same problem. These other forms include: Forms 926 Form 3520 Form 3520-A, Form 5472 Form 8621 Form 8858 Form 8865 Form 8938 The problem is this. If the IRS deems you to have filed a substantially incomplete foreign informational return, the IRS can open your entire tax return, no matter how old it is to a complete and full examination. So in fact, the IRS’s entire web page dedicated to record retention become wholly obsolete if foreign informational returns are involved. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/M6NOA67V06Q IRS Medic

Saving US Citizenship Act: Expats should have to renounce because of the IRS

Saving US Citizenship Act: Expats should have to renounce because of the IRS

FATCA & Citizenship-Based Taxation makes US lives impossible overseas. Joining us today is Mark, a US expat in Switzerland who is on the cusp of renouncing US citizenship. He's got a great story -- US expats aren't "others," they could be any US citizen who took a temporary assignment at work -- because that's Mark's story: How a temporary overseas assignment can lead you you and your entire family US citizenship. Anne was born in Oklahoma, Mark was born in Texas. The two met in Louisiana and they married in 1985. They had a son in 1988. Mark was a star employee and was offered a temporary relocation to Geneva Switzerland in 1999 when his company consolidated operations. They had a daughter in 2000. The dot com bubble saw all of Mark friends in the US lose their job. So what supposed to be a temporary, stated to look more permanent — they had a great life in Switzerland, meanwhile had they stayed in the US, things would have been a lot worse for them. In 2006, they realize that the US tax laws are a bit terrible to comply with. They thought about going back to the US, but Mark had no prospects, so they kept living a great life. And the hopes of going back to the US were further dashed by the economic collapse in 2008 - there were no positions to be had in the US. Also, the two realized that their children have only known Switzerland. Moving back to the US would not be easy. However, as Democrats, the two were optimistic that a new president, Barack Obama would impose a better tax treatment for expatriates. However, these hopes were dashed after a a Democrats Abroad meeting in 2010, which we chaired by future vice-presidential nominee, Tim Kaine. A fellow attendee brought up what was then just a proposed law, the Foreign Account Tax Compliance Act (FATCA) and that it posed a huge danger for expats. The FATCA discussion was tabled for healthcare reform talk much to the chagrin of the audience. Why was FATCA necessary? What would FATCA do? Would it be as bad as this one attendee claimed? These questions would be answered in 2013 when their Swiss bank quarantined their accounts because they are US persons. They allowed their mortgage and checking account to be active, but nothing else. In 2014, Mark was offered a relocation to Germany but declined. One reason is that they would realize a gain on their home they would not be able pay the taxes on, and second they fully realized that their children were more Swiss, than American. They were fully integrated in Geneva. This is their life. In 2015, Mark tried self-employment, but he found as an American, he was not wanted. He overhead HR professionals remark that Americans are more trouble than they are worth thank to FATCA. the stress the FATCA was causing was intense. He developed stenosis of the esophagus from the inescapable stress In 2016, his son facing extreme humiliation as he was US person who is shut out of the banking system. His son wanted to renounce. Mark convinced his son to wait out until the tax reform package was signed. After seeing the true territorial system was not passed Mark’s entire family renounced US citizenship by 2018. Joining Mark and Attorney Parent is Keith Redmond, and John Richardson. Keith and John have been instrumental working on reform and give their key insights to the process and landscape. Keith announced that the new Territorial Tax For Individuals bill will be call the Saving US Citizenship Act - which is a brilliant and accurate name. Parent & Parent LLP 144 South Main Street. Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f Keith What is going in in Europe TTFI news Saving US Citizenship bill https://youtu.be/5Tns2dfWUnw IRS Medic

Expat Ryan Socash v. the IRS - How FATCA Repeal gained another powerful advocate

Expat Ryan Socash v. the IRS - How FATCA Repeal gained another powerful advocate

You don't have to be a US expat as YouTube famous as Ryan Socash to have an issue with the IRS. In this video, tax attorney Anthony Parent interviews Ryan one-on-one to learn how Ryan discovered he had a huge problem and the reasons why he decided to disclose to the IRS with the Streamlined disclosure program. Ryan Socash was born in America, but found his home belonged in Poland. There, he has been overseeing a growing media empire, including his own personal YouTube channel, Kult America, https://www.youtube.com/KultAmerica/ Ryan describes how he felt when he learned about the Foreign Account Tax Compliance Act (FATCA) when he received his first FATCA letter from a Polish bank. FATCA lead him to research to discover the odd way the US taxes its citizens who are tax residents of other countries. FATCA led him to discover the host of scary international tax problems including: - Unfiled FBARs - Missing Form 8938 - Missing Form 5471 While many US expats have decided to stay out of the US tax system and avoid coming clean at all, that was simply not an option for Ryan as his personal belief system won't allow him to not follow a law he is aware of. But with that said, now Ryan is a a full-blown repeal FATCA advocate and is helping to see that this awful law that makes life difficult is repealed. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/9g3Qlqdt_Dk IRS Medic

Territorial Tax for Individuals (TTFI) update/live event August 16, 2018

Territorial Tax for Individuals (TTFI) update/live event August 16, 2018

Are you in Toronto August 16th? Don't miss this important AmCham event with Solomon Yue of Republicans Overseas. You can add your input on how you think tax reform should treat US persons who don't live in the US. Link here: https://ift.tt/2OBC57M Joining Tax Attorney Anthony Parent of Parent & Parent LLP is John Richardson of citizenshipsolutions.ca and Keith Redmond, Global advocate for the Americans overseas. In this podcast we discuss the differences between Citizenship Based Taxation (CBT)/Universal Tax Jurisdiction and a territorial system. We explain how tax reform created a territorial system for corporations, but not for individuals and our work that change that. Thanks to the great work a tireless advocates, Representative George Holding (R-SC) will introduce a stand-alone TTFI bill we hope in late August early September 2018. Should this pass, this would be a monumental achievement. The taxing jurisdiction of the United States has not been changed since Tait v Cook, a 1924 US Supreme Court case. To get engaged and help the cause, join American Expatriate 2.0 on facebook or now on Linked in: https://ift.tt/2nAbZ9Q for updates: https://ift.tt/2OBC6bQ https://ift.tt/2vDQV6L Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/Y8laRRtc000 IRS Medic

I haven't filed taxes in 30 years! (It's not as fun as you think)

I haven't filed taxes in 30 years! (It's not as fun as you think)

As a tax attorney, it is common for me to encounter people who didn’t do things correctly. And I recall this one time, I met a stone mason from Norwalk, Connecticut who confided with me that he hadn’t filed taxes since the Reagan administration. How can this happen? How can someone not file taxes in 3 years, 5 years, 10 years, 20 years and in this case, 30 years? The answer is easy. You’ll do it tomorrow. And after you’ve had about 10958 tomorrows that adds up to 30 years. Procrastination is incredibly easy to achieve, but sort of difficult to live with. Will you go to prison for years of unfiled tax returns? Anytime you are breaking federal law, you are really increasing your chances of prosecution. The US Department of Justice will prosecute those with unfiled returns, but the chances are that they won’t, unless you are doing something else or you are just too big of a fish to ignore. Now a big fish isn’t necessarily that big of a fish. For the IRS, a press release is what they want. If you’ve made $100,000 for the last 10 years, and are unfiled, you are definitely getting into the area of a big fish — the IRS can truthfully say in a press release, you did not report over a million dollars of income. And for the average juror and the public at large, there is little difference between a million and a billion. Of course there’s a huge difference, a million is a thousand thousands, and a billion is a thousand millions. Regardless, the perception can be that you’ve been living the high life, all while not paying taxes nearly everyone else is paying. But even if you do come under investigation, there is always something you can do to protect yourself. File your returns ASAP! I don’t understand this paralysis that comes over people once they are under criminal investigation. These should be the people working the hardest and quickest to get a problem behind them. But instead they are often advised to “sit back” and “wait” to see what happens. Well I am pretty sure I know what could happen if you don’t fix a huge problem that you know that you can be indicted for. Hint: It rhymes with indictment. Wait. No. The word is indictment. Why you SHOULD NOT File ALL Your Unfiled IRS Tax Returns. How many years should I go back? You will see different answers to this question. Because here is the inherent tension. Filing fewer returns could create criminal or audit exposure, filing too many can slow down resolution and you can wind up paying more than you should have. Some will give blanket rules, filing three, six, ten, or even back to the beginning. We look at each case one at a time. While the IRS’s policy is six years back, there are times when following this rule can create more problems than it solves. We’ve done more, we’ve done less. This is really an area where getting a professional opinion could save you a lot of money and headache. Refunds rule benefit the IRS If you don’t file a return, the IRS could assess you for those taxes at any time in the future. Our stone mason with that 1985 return? The IRS could file a SFR for him today! And would add in penalties and interest. However, if you are owed a refund, you have a limited amount of time file a return to claim that refund. The general rule is that you must file your refund claim three years from when the return was due - extensions count, or two years since a payment that you seek a refund on. If you are a day late, you will likely be completely frustrated from claiming a refund. The US government will keep your money even though they know you can prove you are owed that money. 100%. The IRS can assess forever, but when you are owed money, you have a small window of opportunity. Does this sound fair? Tax attorneys for tax problems Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/7ckPfYcjFnM IRS Medic

GILTI income - Freqeuntly asked questions and answers

GILTI income - Freqeuntly asked questions and answers

GILTI stands for Global Intangible Low-Taxed Income, and it is just awful. https://ift.tt/2MaYGHr GILTI was created in Section 951A of the US tax code by the 2017 Tax Reform. It involves incredibly complicated calculations and huge additional compliance burdens starting for tax year 2018, and for certain types of shareholders in foreign corporations, can dramatically increase taxes. Why was GILTI passed? Wasn’t tax reform supposed to make taxes simpler? Tax Reform was sold as a simplification of the US tax code. And for US taxpayers with simpler returns, their tax filings did become simpler. However, for those with interests in corporations overseas, compliance got more complicated. The purpose of the law was to discourage something called “base erosion.” Base erosion is basically profit shifting from something that is US taxable to something that is not taxable by the US. IRS GILTI changes the definition of what your tax base is, making it larger, thus subject to immediate taxes, as opposed to being able to defer taxes until a later date. Wasn’t tax reform supposed to create a territorial tax system? A quasi and limited territorial tax jurisdiction was created by Tax Reform. Certain active businesses are able to take advantage of this partial territorial tax system. For other businesses who have passive income or are structured differently can be negatively impacted by this very unhelpful portion of tax reform. The IRS has been real serious about another type of base erosion method, claimed abusive transfer price manipulation for years. In a way, GILTI is an expansion. https://ift.tt/2y8cco9 Who is affected by GILTI? US Shareholders in foreign corporation that have a lot of a passive income will be hit the hardest. For instance, if your a company has a lot of income from patent royalties that used to be US-tax deferrable, GILTI could affect you significantly. What are the GILTI tax rates? GILTI creates no additional tax rates. What it does is expand the definition of what is taxable. Controlled foreign corporation shareholders, or CFC for short, must now include with their currently taxable Subpart F income their share of the CFC’s deemed intangible income return for the tax year. Now — beware tax reform expanded CFC definition — there is possible CFC status anytime there is a U.S. shareholder of a foreign corporation anywhere in the group. The new law ends prior deferral treatment and subjects “U.S. shareholders” of CFCs, defined as U.S. persons owning at least 10% of the vote or value of a specified foreign corporation, to current tax on any income more than 10% of the CFC’s qualified business asset investment (QBAI). What this means is that GILTI will hit tech companies, service providers and firms with a high degree of intangible assets particularly hard. Are there ways to lower GILTI taxes? Most likely. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/n1cN9SSbs34 IRS Medic