Top 13 things US expat tax services get wrong when preparing returns

Top 13 things US expat tax services get wrong when preparing returns

http://bit.ly/2HEErEn http://bit.ly/2SduJNg We have reviewed thousands of expat tax returns prepared by hundreds of different tax preparation companies, CPAs and accountants. We reviewed thousands of returns taxpayers prepared themselves using software such as TurboTax. One of the reasons why our law firm advocates so strongly for a reform international taxation is that the tax industry and taxpayers alike are simply unable to keep up with the intense demands the IRS foists upon US expats. Don’t believe me? Well this is our top 13 list of what most tax preparers and taxpayers get wrong about filing US income tax returns for US expatriates. #1 Do you have a foreign retirement or pension plan? If you weren’t asked about who contributed more, your employer or yourself, you might have a big problem on your hands. If your preparer just reported the income and did not analyze whether a 3520 and/or Form 3520-A was required, you could huge penalty exposure. #2 Do you have foreign real estate? Under the tax reform of 2017, real estate taxes are not deductible on Schedule A. You need to find another place to deduct these expenses, or you will lose the deduction. #3 Foreign commercial property depreciation.The first mistake is that tax preparers will oftwn use the depreciation schedule of the country in wich the property is located. This is completely wrong. #4 Foreign tax credit (FTC) v. Foreign earned income exclusion (FEIE) analysis. The FEIE is often much better than the FTC for Americans living overseas. The reason is that tax credits must be separates by type of income to see what they can be offset against. #5 Tax Treaties are improperly understood. All the time. If you they don’t know what a savings clause is, the chances are that your tax professional is doing it all wrong. #6. Having a non-qualified foreign life insurance policy and not calculating the growth using 7702(g) computations. #7. Not using Form 720 for excise taxes due for premium paid to foreign life insurance or annuities. #8 Did you have to get a foreign corporation so you could buy a home? Have you filed Form 5471 for all years you owned this or any other shares in a foreign corporation? If not, you might have a very large problem. Form 5471 penalties are $10,000 per year and can be assessed for since indefinitely if unfiled or not filed properly. #9 Were you advised on using a disregarded entity election (“check the box”) on IRS Form 8858 to make your tax filings simpler? #10 Did you engage business with another person overseas? You might have a foreign partnership. Foreign partnerships, too, can have very complicated form requirement, Form 8865, which also has intense penalties if not filed or not filed correctly. #11 Do you have mutual funds overseas? Have you been made aware of Form 8621? And election options? #12 FBAR filing. While technically something that does not get placed on a tax return, it is a yearly requirement for many US expats. The confusion is that many tax preparers think it only applies to (1) bank accounts that (2) that go over $10,000. This is not true at all. The FBAR applies to many thing aside from bank accounts. For instance, a foreign pension is not a bank account, yet if it has a present value, it may really be something you need to put on a FBAR. Also, the $10,000 is the key figured for when we add up all of your accounts. If the sum of all your accounts goes over $10,000 then an FBAR is likely required. #13 Conversions to GAAP. The IRS requires all tax returns to be filed according to GAAP, otherwise known as Generally Accepted Accounting Principals. Yet, the US is the only country in the world to use GAAP. So are there any income statements or balance sheets that your tax preparer used that are not compliant with GAAP? Then your tax preparer could be setting up for massive penalties bomb — foreign informational returns like From 3520, Form 926, Form 3520-A, Form 5471, Form 8865 can be hit with penalties of $10,000 each per year, all because you use the wrong accounting method. Can you think of anything you were given some bad advice about? We’d like to know. Living overseas shouldn’t be an anxiety filled melodrama, so if you would like us to take a look at your situation, please contact us info@irsmedic.com give us a ring at 888-477-4258. We’ve helped thousands of Americans overseas remove their IRS worries, we’d like to do the same for you. Like and share if you found this video helpful and be sure you have subscribed if you have not done so already. This is Anthony Parent of Parent & Parent LLP and I thank you for watching. https://youtu.be/cNxULFipPlI IRS Medic

The Rosetta Stone says what? TAX HISTORY SPECIAL

The Rosetta Stone says what? TAX HISTORY SPECIAL

http://bit.ly/2MFSetg Most of us know what the Rosetta Stone is. No, I am not talking about the popular language software, but rather, its namesake. Most of us know that the Rosetta Stone is a massive rock that has three different languages chiseled into it, all telling the same exact message. And because one of those languages was Greek, the Rosetta Stone provides a near perfect translation guide for both of the other languages - Egyptian hieroglyphics and Egyptian demotic script. I think we all can agree that the Rosetta Stone is one of the most important archeological finds of all time. Yet it seems to me is that everyone knows what the Rosetta Stone is, but no one knows what the Rosetta stone says. The Rosetta Stone is a tax amnesty. It is a tax amnesty written in three scripts because when it was written, there were three scripts being used in Egypt. Hieroglyphics, which were used in official or religious documents. Demotic script was the everyday script of Egyptians. And the third was Greek, as Greeks were ruling Egypt since Alexander the Great took over Egypt in 332 BC. So why was this tax amnesty written in stone? In three languages? Because King Ptomely, the ruler who declared the amnesty must have meant it. Egypt was in ruins by aggressive and out of control tax collections. People stopped engaging in commerce because the tax consequences were ruinous. Yet King Ptolemy knew that if he wrote the tax amnesty in papyrus, his tax collectors would probably pretend they never received it. And he knew that if he wrote it in one language, that would the the one language the tax collectors would claim not to know. Rather, this tax amnesty was so important to Egypt that it had to be permanently inscribed in all three languages. Oh yeah, by being written in stone, it was fairly impossible to destroy. Rulers that want to help their citizens vs those who don’t Tax Amnesties are obvious, rooted in logic, and easy to understand - especially when a country’s existence is on the line. Tax laws are unobtrusive and make sense when governments are good. Whereas tax laws that benefit the ruling class tend to be the opposite. I think of Roman emperor Caligula. He wrote his tax code so small and posted it so high, that no one had any actual knowledge of the law. So if Caligula ever had a beef with someone, he knew he could hoist them up on tax evasion charges. So my question for you is, do you find the current US tax system more like King Ptolemy’s open and notorious Rosetta Stone tax amnesty, or is it more like Caligula’s impossible fine print? Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/0zjPvtrq-rs IRS Medic

How to keep your Non-Profit 501(c)(3) tax-exempt status

How to keep your Non-Profit 501(c)(3) tax-exempt status

Don't be fooled. It can be easier to get non-profit status than to keep it. And if you lose it, bad things can happen. Full article: http://bit.ly/2HvUaWl What a Form 990 tax-exempt return and variant forms are used for The IRS and non-profit organizations use Form 990 and related forms in various ways including: IRS — Get information about tax-exempt organizations. IRS — Educate non-profits about tax law requirements to maintain 501(c)(3) status. IRS — Promote compliance with IRS rules to remain tax-exempt. Non-profits — Share information with the public about the organization and programs. State gov. — Complete charitable and regulatory oversight of non-profits. State gov. — Manage state income tax filing requirements for state income tax-exempt organizations. Key information for filling in a Form 990-N tax-exempt return Form 990-N, also known as an e-postcard can only be filed online with the IRS, there is no paper version of the form. You will need the following information to fill in and file a 990-N: Employer identification number (EIN). Legal name of the non-profit and mailing address. Any other names the organization uses. Name and address of a principal officer. Web site address. Confirmation that the organization’s annual gross receipts are $50,000 or less. If applicable, a statement that the organization has terminated or is terminating. That’s it — nice and simple. Key information for filling in a Form 990-EZ tax-exempt return The EZ (easy) version of Form 990 is more complex than the 990-N, but not as detailed as the full 990. Here are the key areas you’ll need to provide information on, in addition to what you’d provide in a 990-N. Summary of grants, contributions, membership dues, investment returns received, and other income. Summary of operational expenses and money spent on running the organization and charitable activities. Summary of gross and net income, profit, or loss and total revenue. Benefits and salaries paid to various parties and employees. Summary of types of assets, their value, and changes in asset value over the year. What the non-profit has accomplished in its three largest programs. Officers, directors, trustees, and key employees with compensation and benefits. Other miscellaneous information and schedules. Key information for filling in a Form 990 tax-exempt return Finally, we have the full Form 990. Here’s the information you’ll need to provide, in addition to that shown under Form 990-N and Form 990-EZ above. Checklist of required schedules that must also be filed. Statements regarding other IRS filings and tax compliance. Details of governing body and management. Policies and disclosures. Complete statement of revenue — how much the non-profit earned from various sources. Complete statement of expenses — how much the non-profit spent on various activities. Balance sheet — current financial position. Reconciliation of net assets. Financial statements and reporting declarations. You will also have to fill in and file additional schedules, depending on the nature, activites, and other factors of your non-profit, foundation, or charity. 990 is a long and complex form, so be sure to get some expert advice when you’re filling it in. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/KlrT1nHY15U IRS Medic

What is IRS Form 5472 and why is it such a big deal?

What is IRS Form 5472 and why is it such a big deal?

NOTE: Form 5472 now also applies to foreign-owned single-member LLC and not just foreign-owned US corporations! links: Full article on IRSMedic.com: http://bit.ly/2Rzw3ug IRS.gov Form 5472 filing information: http://bit.ly/2CuSc2q What is IRS Form 5472? IRS Form 5472 is the information return of a 25% Foreign-owned U.S. Corporation or a Foreign Corporation Engaged a U.S. Trade of Business. The form is both difficult to file and consequential if not done correctly. The IRS has kept up its enforcement campaign and additionally, the Tax Cuts and Jobs Act of 2017 (TCJA) made some rather significant changes to both the penalties and who is required to file a Form 5472. In this article, we will discuss what hasn’t changed, and what we consider the most important things that have changed. π What is the purpose of Form 5472? We could ask the IRS. But they’ll just say something that is true, yet unintelligible like: Use Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic-related party. π So what is really the purpose of Form 5472? It’s like this. If your US corporation has foreign owners and is 25% or more foreign owned, do you not see how it is possible to pull shenanigans and claim that what was revenue of the US corporation was really revenue of a related foreign company, thus reducing US taxes? And also do you see how someone could claim that expenses of the foreign corporation were actually the expenses of the US corporation, which also works to lower US taxes? π So the underlying purpose of the Form 5472 is to give the IRS insight into whether or not you are playing shenanigans with a foreign corporation or person — a foreign corporation or person that the IRS can not normally examine or audit. π I am a Green Card holder. Do I have to file a Form 5472? A Form 5472 is only required when you have foreign ownership. A Green Card, or resident status, means that you are not considered to be foreign person. A foreign person, according to to the IRS’s instructions, is: Someone who is not a citizen or resident of the US Someone who is a citizen or resident of the US possession, but not a citizen of the US. A foreign partnership association, company or corporations that is not created or organized in the United States A foreign estate or trust described in IRC section 7701(a)(31) Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engage in the consumer of a commercial activity as defined in IRC section 892. Alert: A foreign person is not any foreign person who connects to the failing of a joint income tax return. π What is a reportable transaction? In the most basic sense, a reportable transaction is a type of transaction that the IRS considers to be an indication that shenanigans may be afoot. A Form 5472 is where a foreign-owned US company lists all its reportable transactions, unless there is an exception. π What are some exceptions to the Form 5472 filing requirement? The US corporation had no reportable transactions The person who controls the US corporation already filed a Form 5471 showing all reportable transactions that should appear on Form 5472 have already appeared on Schedule M for Form 5471. A related corporation qualifies a a foreign sales corporation and field a Form 1120-FSC The foreign corporation does not have a permanent establishment under an applicable tax treaty and a proper Form 8833 was filed. Its income is exempt from income taxation under IRS code 883 because it is exempted transportation and telecommunications satellite income that is taxed at 4% under IRC 887. Neither the corporation or related party re considered to be US persons under IRC 7701(a)(3) π Who has to file a Form 5472, the foreign shareholder? No. Unlike Form 5471 which is a shareholder requirement, Form 5472 filing is a requirement of the corporation. Penalties for not filing won’t be assessed to the non-US person, but rather the US corporation. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269=6699 info@irsmedic.com https://youtu.be/ufs3hwBKb4E IRS Medic

IRS Revenue Officers: What do to when they come knocking

IRS Revenue Officers: What do to when they come knocking

Here;s the video accompaniment to one of our most popular articles: http://bit.ly/2M9OBLP First thing A Revenue Officer is not a Revenue Agent. There is a distinction between an IRS Revenue Officer and an IRS Revenue Agent. A Revenue Officer is employed by an IRS field collection office. Their job is to collect money. A Revenue Agent, on the other hand, is someone who is employed by the IRS to audit taxpayers. While they may send you something called a deficiency notice, the person who increases your taxes through an audit will not be the person who will be attempting to collect the taxes from you. After the IRS assesses the tax and you don't pay, a series of notices will be sent out. If your tax due is low, you may never get assigned a revenue officer. Number two. A Revenue Officer does not carry a gun. I think I would carry a gun. People can be kind of crazy. Third, a Revenue Officer's badge is a plastic card usually attached to a lanyard If someone flashes a gold badge and says they are from the IRS. That's not a Revenue Officer. That is an agent from the IRS Criminal Investigation Division (CID). My advice would to remain silent expect to contact your lawyer. Oh yeah, they do carry a gun.   Forth, a Revenue Officer can not arrest you. If someone brags about how they stopped a revenue officer from arresting you, you don’t have to listen to too much of whatever that person is saying. A revenue officer has no arresting ability. The only thing a revenue officer can do is refer you to CID. Yet CID only accepts a fraction of those cases referred.   Fifth - A Revenue Officer does not need a financial background for the job All that is required for a Revenue Officer position is a four-year degree. A Revenue Officer can have a bachelor of Fine Arts and be qualified for the job. This is why Revenue Officers initially engage in months of training of training on an on-going basis. The IRS has a lot of money and time invested in their best Revenue Officers.     Sixth. A Revenue Officer isn't graded on how much money they collect A Revenue Officer does not get promoted for bringing in the most money. Rather, it's how many cases they successfully remove from their "inventory" of collections matters. A Revenue Officer would rather you enter into a "collection alternative" like an offer in compromise to pay far less than for you to sandbag them for years.  Seventh. A Revenue Officer's powers are sort of limited The IRS's use of seizures of homes and personal assets is way down. The reason is that the Revenue and Reform Act of 1998 made it very difficult to do so. So, what can a Revenue Officer do? Levy any accounts receivable. Lien property. Levy retirement funds. Levy wages and bank accounts. Subpoena documents. Yet if a taxpayer is dedicated to running up new liabilities and trying to hide their personal affairs, this delays and frustrates the IRS. You could get the IRS to close out your case, or your obfuscation could earn a lot of federal attention. If someone at the IRS really wants to make an example out of, they can.   Eighth. A Revenue Officer MUST attempt initial contact in person. The Internal Revenue Manual requires that every Revenue Officer make first contact with a taxpayer in person.   You may not have been home the first time they showed up, so if you are wondering why someone from the IRS left a card for you at your home or on your car, don't ignore it. They will continue to attempt to contact you.   Ninth. Many Revenue Officers are friendly and reasonable. So too of taxpayers. And that's a problem. This can be a bad thing! As stated above, a Revenue Officer just wants to close the case, and many taxpayers just want to get the matter behind them. So both parties, anxious to close the matter, agree to a "collection alternative." The only problem is, in their haste to reach an agreement, neither one looked to see if the agreement is reasonable. Optimism and lack of information about alternatives cause taxpayers to enter into repayment agreements that are not realistic.  Ten. There’s not enough revenue officer and that could be a bad thing The IRS is about at half the effective strength they were 10 years ago. And you might think this is a good thing. And it can be a good thing - we’ve gotten deals we would not have gotten 10 years ago. But this is the problem. Cases are stacked up awaiting to be assigned revenue officers. The problem is that you are likely only going to add to your problem. By laying low, you aren’t able to take advantage of the great deals. Yet the IRS isn’t going away. And they tend to pop up right at the worst time. Taking the initiative when they IRS is overwhelmed could be the best strategy. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/M7ZqeR49l5Y IRS Medic

US taxation of foreign pensions, retirement plans, and social security-type benefits

US taxation of foreign pensions, retirement plans, and social security-type benefits

Link to Strafford Webinar event: http://bit.ly/2SSpUWV http://bit.ly/2AHCKQq Subscribe and comment below for a chance to win free admission! Attorney Robert Hanson, Sean O’Connor and I are offering much more extensive training for CLE/CPE credit with our friends at Strafford Publishing. We will be live on Tuesday January 22nd, 2019, but you will be able to watch on replay. The cost is $177 USD, but we are giving away three free passes. To enter to win, simply subscribe to this channel and leave a comment below telling us you want in. On January 18, 2019, we will be selecting 3 winners who can attend this training for free. Good luck! So now, how do we figure out if your foreign pension is taxable and also, if it is reportable. This is how we start our analysis The first inquiry is if your foreign retirement it a defined benefit plan or a defined contribution. With a defined benefit retirement plan you don’t have an account, do you? So can’t have an account value either right?? So we really shouldn’t see any requirements for foreign reporting forms like a Form 8938 and an FBAR as there are no numbers to put in. If we are dealing with a defined benefit retirement plan, typically our work is much easier and the consequences for getting something wrong are much less severe. No if you do have a defined benefit plan, contributions into that plan are usually treated as income. Yet, unlike earned income, this income can typically not be excluded by the foreign income exclusion. However, foreign tax credits may still be available. So if we don’t have a undefined benefit plan it must be a defined contribution plan. If so, the next question we ask is who funded most of it? The reason why is the IRS treats pension plans that are over 50% funded by the employee as foreign grantor trusts. The problem with this is that foreign grantor trusts can be very time consuming and expensive to properly report. A form 3520-A is likely required each year, and the penalty for not filing or filing incorrectly can be $10,000 per form per year. Additionally there could also be a Form 3520 requirement, where penalties can be even steeper. Yet there is an exception that might apply. The 402(b) exception. The problem is that the default position of the IRS is to reject 402(b) for everything BUT some Australian Superannuations and Singaporean CPFs. The reasoning is more baffling than you could imagine and we will get into that during our full presentation with Strafford. However, it is possible to get 402(b) treatment if your plan is something other than an Australian superannuation fund of Singaporean CPF. And this can save you thousands in tax prep fee alone each year! So when are you going to be taxed? For grantor trusts, you are taxed on the contribution and the growth, but not the distributions. For employee trusts, you are taxed on both the contributions and the distributions, that is, in an employee trust you often are allowed to defer taxes. Employer contributions to retirement plans are not excluded to the the FIE, but they are tax creditable. However, in many jurisdictions, there are no credits to apply. So what questions do you have? Pleas leave them below and please, if you feel you need more detailed training join us live with Strafford on January 22, 2019. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://youtu.be/jsRJVe3048g IRS Medic

GILTI - Global Intangible Low-Tax Income EXPLAINED: An intro

GILTI - Global Intangible Low-Tax Income EXPLAINED: An intro

More on what GILTI is: http://bit.ly/2F51o1o How to avoid GILTI: http://bit.ly/2F513e4 What is GILTI really? We will be getting into the specifics of what GILTI is, but first, we need to understand what its purpose was as that will help us figure out situations in which we should expect to see GILTI liabilities pop up. In 1962 Subpart F was passed to treat passive income overseas harshly. Subpart F is a vile nasty piece of work. But I guess Congress really liked it. Someone then got the idea that if Subpart F could be so effective in ruining most offshore tax planning, well then could we create some sort of taxing regime to hammer active income earned overseas? The answer is yes and GILTI is its name. The purpose of GILTI is to hammer active income of foreign businesses that are controlled by US shareholders. GILTI can hammer them so hard, that for some people, having their income taxed as Subpart F could even be better than GILTI! Oh and by the way, Tax Reform also expanded the definition of what it means for a shareholder to be subject to not just controlled foreign corporation rules that is CFC rules in addition to GILTI regime. Be sure to subscribe as these are these the topics we will be covering in future videos. How to avoid GILTI How to calculate GILTI GILTI vs Subpart F GILTI regualtions GILTI v transition tax GILTI & NIIT GILTI & BEAT GILTI & Intellectual property GILTI & Tangible property GILTI and Section 250 deductions GILTI and foreign partnerships GILTI does not just affect huge corporations overseas, but small and medium sized businesses, and it can even affect someone who is self-employed. Now for some people with income earned abroad, GILTI won’t affect them all that much. But, it could take some real meaningful research and analysis to properly answer that question. For our larger clients, the cost may not be all that noticeable, but I can tell you that for our clients who are working hard to create something for themselves, this amount of research is pushing many beyond their breaking point, forcing them to make a decision they wish they didn’t have to. Just getting a GILTI analysis can cost more than what a taxpayer’s tax bill is. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com How to mitigate GILTI: http://bit.ly/2F513e4 How to https://youtu.be/AB4ixELMEmE IRS Medic