Gotcha!

by Bob Williams on Fri 20 Nov 2009 08:00 AM EST  |

IRS Commissioner Doug Shulman reports that nearly 15,000 taxpayers turned themselves in under the service’s amnesty program for people who had failed to report overseas bank accounts on their federal income tax returns. A major inducement was the government’s settlement with Swiss bank UBS, under which the bank promised to hand over information on about 4,500 American account owners. More than 80 percent of the amnesty filings came after the IRS announced that settlement.

So why did more than 12,000 people fess up after they learned that UBS would report fewer than 5,000 of them? The key was that the IRS didn’t reveal the criteria UBS would use to pick accounts. Not knowing whether they were on the UBS list likely induced a lot of people to take advantage of the limited-time deal the IRS offered.

In a November 17 briefing, Shulman spelled out the UBS criteria, which surely exempted lots of accounts. UBS limited its list of accounts to those with balances of at least 250,000 Swiss francs (about $248,000) or annual revenue of at least 100,000 francs (about $99,000). But even for those accounts, owners had to have engaged in “fraud and the like” before the bank ratted them out—and UBS appears to have defined that phrase rather tightly. Hiding ownership through off-shore shell companies or using debit or credit cards to disguise withdrawals got you on the list. Simply owning an account did not. (Read more detail on the UBS criteria in David Hilzenrath’s story in the Washington Post.)

Last month Shulman said that people applying for amnesty reported account balances ranging “from just over $10,000 to over $100 million.” UBS apparently won’t report taxpayers—or should I say non-taxpayers—with accounts toward the lower end of that range. Some, perhaps many, of those who turned themselves in could have continued to hide their overseas assets without fear of being revealed, if only they’d known the UBS rules.

It’s likely that many people took the amnesty option to help them stop doing something they knew was wrong, even if they didn’t think their banks would report them. And others may have felt that UBS was only the first of many foreign banks that the U.S. will force to reveal account owners and decided to get in under the amnesty.

But because neither UBS nor the IRS explained the criteria during the amnesty period, a lot of people must have reported themselves for fear they’d show up on the UBS list.

Good move, IRS.

UBS Targets Come Into Focus

UBS Targets Come Into Focus.   (Nov. 20, 2009, From Journal of Accountancy).

 The IRS has released the selection criteria for identifying holders of accounts with Swiss bank UBS under a U.S. settlement agreement with the Swiss government negotiated in August. Under the agreement, UBS will turn over information concerning approximately 4,450 accounts for investigation. IRS Commissioner Doug Shulman also recently announced that about 14,700 taxpayers had come forward to disclose offshore assets under a reduced penalty program, nearly twice as many as Shulman had estimated on Oct. 15, when the program ended. The August settlement agreement represented a compromise between the two governments over a contested “John Doe” summons in U.S. v. UBS AG, a case filed in the U.S. District Court for the Southern District of Florida. Generally, the selection criteria cover U.S.- domiciled UBS clients who directly or beneficially owned undisclosed custody accounts or banking deposit accounts exceeding 1 million Swiss francs (about $982,000 at current exchange rates) at any time during 2001 through 2008 and about whom the U.S. government has a reasonable suspicion of tax fraud. Any U.S. persons (regardless of domicile) who beneficially owned offshore company accounts of any size during those years and whom the U.S. suspects of committing tax fraud will also be identified under the selection criteria. Where a U.S.-domiciled account owner has submitted false documents or purposely masked his or her identity, the threshold account size for owned undisclosed custody accounts or banking deposit accounts will be reduced to 250,000 Swiss francs. Account holders who have engaged in acts of “continued and serious tax offense,” which include failure to provide a Form W-9 for at least three years, and whose account generated revenue of at least 100,000 Swiss francs per year, will also be identified. Despite the expiration in October of the IRS’ reduced penalty initiative for failure to disclose foreign accounts on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), Shulman urged taxpayers with offshore accounts to continue to come forward under ongoing voluntary disclosure rules that can reduce the likelihood of criminal prosecution. See “Voluntary Disclosure to the IRS: A Viable Option,” JofA, March 08, page 40, and articles at the JofA FBAR Resources page.

Most Businesses May Take Advantage Of Expanded Loss Carryback Option Under New IRS Procedure

IR-2009-105, Nov. 20, 2009

WASHINGTONMost businesses may use losses incurred during the economic downturn to reduce income from prior tax years, under a revenue procedure issued today by the Internal Revenue Service(preview window will display document).

The relief provided under the Worker, Homeownership, and Business Assistance Act of 2009 differs from similar relief issued earlier this year in that the previous relief was limited to small businesses.

The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program. The relief also applies to a loss from operations of a life insurance company.

Taxpayers under the procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year.  This limitation does not apply to the fourth or third preceding year.

The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.

“>Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.

(Also Part I, §§ 172, 6411)

Rev. Proc. 2009-52

SECTION 1. PURPOSE

.01 This revenue procedure provides guidance under § 13 of the Worker,

Homeownership, and Business Assistance Act of 2009, Pub. L. No. 111-92, 123 Stat.

2984 (November 6, 2009) (the Act). Section 13 of the Act amends §§ 172(b)(1)(H) and

810(b) of the Internal Revenue Code to allow taxpayers to elect to carry back an

applicable net operating loss (NOL) for a period of 3, 4, or 5 years, or a loss from

operations for 4 or 5 years, to offset taxable income in those preceding taxable years.

This revenue procedure applies to losses from operations of a life insurance company

under § 810 in the same manner as to NOLs under § 172.

.02 This revenue procedure prescribes when and how to elect under § 172(b)(1)(H)

– 2 –

to carry back an applicable NOL for a period of 3, 4, or 5 years for (1) taxpayers that

have not claimed a deduction for an applicable NOL; (2) taxpayers that previously

claimed a deduction for an applicable NOL; and (3) taxpayers that previously filed an

election under §§ 172(b)(3) or 810(b)(3) to forgo the NOL carryback period.

SECTION 2. BACKGROUND

.01 Section 172(a) allows a deduction equal to the aggregate of the NOL carryovers

and carrybacks to the taxable year. Section 172(b)(1)(A)(i) provides that an NOL for

any taxable year generally must be carried back to each of the 2 years preceding the

taxable year of the NOL. Section 172(b)(3) provides that any taxpayer entitled to a

carryback period under § 172(b)(1) may make an irrevocable election to relinquish the

carryback period for an NOL for any taxable year.

.02 Section 810(b)(1)(A) provides that life insurance companies may carry back an

NOL for any taxable year to each of the 3 years preceding the taxable year of the loss.

Section 810(b)(3) provides that any taxpayer entitled to a carryback period under §

810(b)(1) may make an irrevocable election to relinquish the carryback period for a loss

from operations for any taxable year.

.03 Section 6411(a) provides that a taxpayer may file an application for a tentative

carryback adjustment of the tax for the prior taxable year affected by an NOL carryback

from any taxable year. Section 6411(a) also provides that the application must be filed

on or after the date of filing for the return for the taxable year of the NOL from which the

carryback results and within a period of 12 months after that taxable year or, for any

portion of a business credit carryback attributable to an NOL from a subsequent taxable

year, within a period of 12 months from the end of the subsequent taxable year.

“>Section 6411(b) provides a 90-day period during which the Internal Revenue Service

will make a limited examination of the application to discover omissions and errors of

computation and determine the amount of the decrease in tax attributable to the

carryback. The Service may disallow, without further action, any application that

contains errors of computation that cannot be corrected within the 90-day period or that

contains material omissions. The decrease in tax attributable to the carryback is

applied against unpaid amounts of tax. Any remainder of the decrease is credited or

refunded within the 90-day period.

.04 Section 1211 of the American Recovery and Reinvestment Tax Act of 2009, Div.

B of Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009) (ARRA), amended

§ 172(b)(1)(H) to allow an eligible small business (ESB) to elect to carry back a 2008

applicable NOL for a period of 3, 4, or 5 years (the ARRA election). Unlike the

§ 172(b)(1)(H) election under the Act (referred to in this revenue procedure as the

§ 172(b)(1)(H) election), the ARRA election is applicable only to an NOL attributable to

an ESB. The ARRA election is irrevocable and may be made for only one taxable year.

Rev. Proc. 2009-26, 2009-19 I.R.B. 935 (April 25, 2009), modifying and superseding

Rev. Proc. 2009-19, 2009-14 I.R.B. 747 (March 16, 2009), advises taxpayers how to

make the ARRA election.

.05 Section 172(b)(1)(H)(i), as amended by the Act, permits a taxpayer to elect to

carry back its applicable NOL to 3, 4, or 5 years preceding the taxable year of the

applicable NOL. This election is not limited to an ESB. Section 172(b)(1)(H)(ii)

provides that the term “applicable net operating loss” means the taxpayer’s NOL for a

taxable year ending after December 31, 2007, and beginning before January 1, 2010.

“>.06 Section 172(b)(1)(H)(iii) provides that the election under § 172(b)(1)(H) is

required to be made in a manner prescribed by the Secretary, and must be made by the

due date (including extensions) for filing the return for the taxpayer’s last taxable year

beginning in 2009. The election is irrevocable and, in general, may be made for only

one taxable year. However, § 172(b)(1)(H)(v) allows a taxpayer that made or makes an

ARRA election also to make an election under § 172(b)(1)(H) for another taxable year.

.07 Section 172(b)(1)(H)(iv) limits the amount of an NOL that a taxpayer elects under

§ 172(b)(1)(H)(i) to carry back to the 5 loss to 50 percent of the taxpayer’s taxable income for

the carryback taxable year. The taxable income for the carryback taxable year is computed without regard to the NOL

for the loss year or any taxable year thereafter. The excess of the amount of the loss

over 50 percent of the taxable income, as determined under § 172(b)(2), for the

carryback taxable year is carried to later taxable years. For the carryback of an

alternative tax NOL to the 5

percent limitation is applied separately based on the alternative minimum taxable

income. The § 172(b)(1)(H)(iv) limitation does not apply to an NOL carryback under the

ARRA election.

.08 Section 13(e)(4) of the Act provides that a taxpayer that has elected under §§

172(b)(3) or 810(b)(3) to forgo a carryback for a loss for a taxable year ending before

the date of enactment of the Act (November 6, 2009) may revoke that election before

the due date (including extensions) for filing the return for the taxpayer’s last taxable

year beginning in 2009. An application under § 6411(a) for the applicable NOL is

treated as timely if filed before that due date.

taxable year preceding the taxable year of the taxable year preceding the taxable year of the loss, the 50- 5 -.09 Section 13(c) of the Act amends § 810(b) to allow life insurance companies to elect to carry back an applicable loss from operations for 4 or 5 taxable years. An applicable loss from operations is a loss from operations for a taxable year ending after December 31, 2007, and beginning before January 1, 2010.

.10 Section 13(f) of the Act provides that § 172(b)(1)(H) does not apply to any

taxpayer that received certain benefits (whether or not repaid) under the Emergency

Economic Stabilization Act of 2008, Title I of Div. A of Pub. L. No. 110-343, 122 Stat.

3765 (TARP recipients), or to members of the taxpayer’s affiliated group.

SECTION 3. SCOPE

Except as provided in § 13(f) of the Act, this revenue procedure applies to taxpayers

that incurred an applicable NOL or an applicable loss from operations for a taxable year

ending after December 31, 2007, and beginning before January 1, 2010.

SECTION 4. APPLICATION

.01 Time and manner of making the election under § 172(b)(1)(H).

(1) In general. A taxpayer within the scope of this revenue procedure may make

the election under § 172(b)(1)(H) or § 810(b)(4) by following the procedure described in

either section 4.01(3) or section 4.01(4) of this revenue procedure. The procedures

under this revenue procedure that apply to NOLs and the election under § 172(b)(1)(H)

also apply to a loss from operations of a life insurance company and the election under

§ 810(b)(4).

(2) Affiliated groups. For purposes of this revenue procedure, “taxpayer”

includes an affiliated group filing a consolidated return, “applicable NOL” includes a

consolidated net operating loss (CNOL), and the common parent of the group makes

“>the § 172(b)(1)(H) election. See § 1.1502-21(b); § 1.1502-77(a). However, nothing in this

revenue procedure permits a consolidated return group to otherwise make or revoke a

carryback waiver election for the CNOL attributable to a member acquired from another group,

described in § 1.1502-21(b)(3)(ii)(B). The conditions under which

this election may be permitted will be the subject of separate guidance.

(3) Electing on a federal income tax return for the taxable year of the applicable

NOL.

(a) What to file. A taxpayer may make the election under § 172(b)(1)(H) by

attaching a statement to the taxpayer’s federal income tax return for the taxable year in

which the applicable NOL arises. A taxpayer that filed its federal income tax return for

the taxable year of the applicable NOL may make the election by attaching a statement

to an amended return for the taxable year of the applicable NOL. The election

statement must state that the taxpayer is electing to apply § 172(b)(1)(H) or § 810(b)(4)

under Rev. Proc. 2009-52, and that the taxpayer is not a TARP recipient nor, in 2008 or

2009, an affiliate of a TARP recipient. The statement must specify the length of the

NOL carryback period the taxpayer elects (3, 4, or 5 years).

(b) When to file. A taxpayer must file the election statement with the

taxpayer’s original or amended federal income tax return for the taxable year of the

applicable NOL on or before the due date (including extensions) for filing the return for

the taxpayer’s last taxable year beginning in 2009.

(c) Carryback applications or refund claims. A taxpayer that makes the §

172(b)(1)(H) election under this section 4.01(3) must attach a copy of the election

statement to the taxpayer’s claim for tentative carryback adjustment (Form 1045,

Application for Tentative Refund; or Form 1139, Corporation Application for Tentative

Refund) or amended return applying the applicable NOL to the carryback year. The due

date for timely filing a claim for tentative carryback adjustment on Form 1045 or 1139 for

a taxpayer that makes the § 172(b)(1)(H) election is extended to the due date (including

extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009.

(4) Electing on an appropriate form. In lieu of the procedures described in section

4.01(3) of this revenue procedure, a taxpayer may make the § 172(b)(1)(H) election on

an appropriate form under this section 4.01(4).

(a) What to file.

(i) A taxpayer may make the § 172(b)(1)(H) election by attaching an

election statement to the appropriate form the taxpayer files applying the NOL carryback

period the taxpayer elects. The election statement must state that the taxpayer is

electing to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the

taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient.

The statement must specify the length of the NOL carryback period the taxpayer elects

(3, 4, or 5 years). The appropriate form is–

(A) For corporations, Form 1139 or Form 1120X, Amended U.S.

Corporation Income Tax Return;

(B) For individuals, Form 1045 or Form 1040X, Amended U.S. Individual

Income Tax Return;

(C) For estates or trusts, Form 1045 or amended Form 1041, U.S.

Income Tax Return for Estates and Trusts.

(D) For tax exempt organizations with unrelated business income, Form

1139 or amended Form 990-T, Exempt Organization Business Income Tax Return (and

proxy tax under section 6033(e)).

(b) When to file. When using an appropriate form to make the election under

this paragraph 4.01(4), the taxpayer must file the form on or before the due date

(including extensions) for filing the return for the taxpayer’s last taxable year beginning

in 2009. The taxpayer’s time for claiming a tentative carryback adjustment on Form

1045 or 1139 also is extended to this date.

.02 Taxpayers that previously filed a carryback application or claim.

(1) In general. A taxpayer that previously filed an application for a tentative

carryback adjustment (whether or not the Service has acted upon the application) or an

amended return (except to the extent that the application or claim was for an applicable

NOL for which an ESB made an ARRA election) may make the election under

§ 172(b)(1)(H) by following the procedures under section 4.01(3) or (4) of this revenue

procedure. The taxpayer’s election statement must state that the election amends a

previous carryback application or claim.

(2) Additional rules. A taxpayer’s amendment of a carryback application or claim

also applies to a carryback of any alternative tax NOL for the same taxable year. In the

case of an amended application for a tentative carryback adjustment, the 90-day period

described in § 6411(b) begins on the date the taxpayer files the amended application.

.03 Revocation of the election to waive NOL carryback period. A taxpayer within the

scope of this revenue procedure that previously elected under § 172(b)(3) or § 810(b)(3)

to forgo the carryback period for an applicable NOL for a taxable year ending before

November 6, 2009, may revoke that election and make the election under §

172(b)(1)(H). Any revocation of the election to forgo the NOL carryback period also will

apply to a carryback of any alternative tax NOL for the same taxable year. The

taxpayer may make the revocation and the election by following the procedures under

section 4.01(3) or (4) of this revenue procedure. The election statement must state that

the taxpayer is revoking an NOL (or loss from operations) carryback waiver and electing

to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the taxpayer

is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The

statement must specify the length of the NOL carryback period the taxpayer elects (3, 4,

or 5 years). The taxpayer must file the revocation and the election under § 172(b)(1)(H)

before the due date (including extensions) for filing the return for the taxpayer’s last

taxable year beginning in 2009.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for NOLs arising in taxable years ending after

December 31, 2007.

SECTION 6. PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed

and approved by the Office of Management and Budget in accordance with the

Paperwork Reduction Act (44 U.S.C. 3507) under the following control numbers: 1545-

0074 Form 1040 (U.S. Individual Income Tax Return) and Form 1040X (Amended U.S.

Individual Income Tax Return); 1545-0123 Form 1120 (U.S. Corporation Income Tax

Return); 1545-0132 Form 1120X (Amended U.S. Corporation Income Tax Return);

1545-0128 Form 1120-L (U.S. Life Insurance Company Income Tax Return); 1545-0092

Form 1041 (U.S. Income Tax Return for Estates and Trusts); 1545-0687 Form 990-T

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(Exempt Organization Business Income Tax Return (and proxy tax under section

6033(e))); 1545-0098 Form 1045 (Application for Tentative Refund); 1545-0582 Form

1139 (Corporation Application for Tentative Refund). For further information, please

refer to the Paperwork Reduction Act statements accompanying these forms.

DRAFTING INFORMATION

The principal authors of this revenue procedure are Seoyeon Park and Forest Boone

of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further

information regarding this notice, contact Ms. Park or Mr. Boone at (202) 622-4960 (not

a toll-free call).

Stimulus surprise: 15 million may owe IRS

Treasury report estimates many may be getting paid more of the Making Work Pay credit than they should. Their refunds may be cut or they’ll have to cough up the overpaid amount.

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: November 17, 2009: 9:45 AM ET

The recovery from the Great Recession has likely started. But many economists are worried about falling into another downturn. Here’s what has them concerned.

NEW YORK (CNNMoney.com) — Nothing with taxes is ever simple, even when you’re getting a tax break.

An estimated 15.4 million tax filers may be getting paid more of the Making Work Pay credit than they should, according to a report from a Treasury Department inspector general publicly released Monday.

And that means they either will get less of a refund than they expected, or will actually owe money to the IRS on their 2009 taxes.

The IRS said in a written response to the report that the agency believes far fewer people than the inspector general estimates would be affected, and that the majority who might be would see less of a refund but would not have an out-of-pocket tax liability come April 15.

The taxpayers most vulnerable are those in two-earner couples; those who have dependents who earn wages; single or married filers who have more than one job at the same time; and filers who get pension payments or have a job and receive Social Security benefits.

The Making Work Pay credit, created as part of the stimulus legislation enacted in February, is equal to 6.2% of earnings up to $400 per person (or up to $800 per couples who file jointly). The full credit is paid to people making $75,000 or less ($150,000 per couple per household). A partial credit would be paid to those making above those amounts but no more than $95,000 ($190,000 for couples per household).

Bailout Tracker: Understand the rescues

For most who qualify, the 2009 credit is being paid in advance incrementally through their paychecks. And it’s been automatic – meaning employers, based on what they know of a worker’s income and using IRS withholding tables, automatically reduce the amount of taxes withheld from a worker’s paycheck.

But an employer doesn’t know the income of the worker’s spouse or whether the worker is claiming a dependent who also is earning money, or whether the worker has income from other jobs.

So, for instance, two spouses might be receiving the full credit at their jobs when their joint income only qualifies them for a partial credit or none at all. Another scenario: A single person with more than one job might be receiving the full credit at each of his jobs, when in fact he’s only entitled to $400 total.

You get the picture.

Such taxpayers could have increased their withholding to account for the possibility that they might receive more of the credit than they should. Indeed, when the credit was first passed, the IRS put out statements and created a calculator to help taxpayers in such situations figure out how much tax they should have withheld. But that doesn’t mean that everyone did.

Those who have had too little tax withheld this year will either face a reduced refund or owe money to the IRS. The money primarily would be the amount of the credit overpaid to them. But a much smaller group might also owe a penalty if they were significantly under withheld.

“More than 1.2 million taxpayers included in these groups may be subject to: 1) paying back some or all of the Making Work Pay Credit and 2) being assessed the estimated tax penalty or an increased estimated tax penalty as a direct result of the Making Work Pay Credit,” the inspector general’s report said.

The good news is that the IRS is likely to waive penalties for filers who may have to pay an estimated tax penalty or who would see their estimated penalty increased as a result of the Making Work Pay credit, according to the report.

The inspector general’s report also recommended that the IRS embark on an expanded effort to publicize this issue more and specifically target the message to those tax filers most likely to be affected.

First Published: November 17, 2009: 3:55 AM ET

 

Swiss no longer shielding biggest U.S. tax dodgers

Swiss no longer shielding biggest U.S. tax dodgers IRS divulges criteria for requesting UBS account disclosures UBS has admitted that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts. ( By David S. Hilzenrath Washington Post Staff Writer Wednesday, November 18, 2009

If your secret Swiss bank account was small enough, you can breathe easier: A landmark deal between the United States and Switzerland to expose American tax dodgers does not call for the Swiss to blow your cover. But if you exceeded certain thresholds and failed to disclose the account to the Internal Revenue Service, don’t count on Switzerland’s legendary tradition of bank secrecy to protect you any longer. Your account details may be on their way to U.S. tax collectors and federal prosecutors. That is the upshot of a previously confidential annex to a settlement reached in August by the IRS with the Swiss government and Swiss banking giant UBS.

 The IRS revealed Tuesday that Swiss authorities did not have to spill the beans on Americans who had less than $248,200 (250,000 Swiss francs) in their accounts or received less than $99,280 (100,000 Swiss francs) in annual revenue from them. Before the showdown over UBS, Swiss law generally shielded depositors whose only offense was failing to disclose assets and income on tax forms. To jeopardize their entitlement to secrecy, bank clients had to engage in more overt acts of concealment, described as “fraud and the like.”

According to the newly unveiled annex, however, the Swiss appear to have stretched the definition of that kind of subterfuge. Under the annex, Switzerland defined “fraud and the like” to include failure to provide a W-9 disclosure form for three years if the account met two measures: having more than $992,802 (1 million Swiss francs) at any time from 2001 through 2008, and generating average annual revenue of more than 100,000 Swiss francs over three years. The agreement also covers accounts of at least 250,000 Swiss francs if the American depositors used an off-shore shell company to hide ownership of the funds and if they engaged in a “scheme of lies.” That could include using calling cards to disguise trading orders, and using debit cards, credit cards or loans to mask withdrawals from the Swiss accounts.

Under the sometimes fuzzy terms of the international agreement, the Swiss have not explicitly promised to turn over the account information, only to “process” a U.S. request. Nonetheless, the U.S. government has made clear that, once the Swiss review runs its course, it expects to get details on about 4,450 accounts.

“Switzerland is no longer a place where Americans can freely think that their account information will be forever protected,” said Scott D. Michel of the law firm Caplin & Drysdale, which represents UBS clients. The Swiss government said it has 40 people processing the disclosure requests. UBS admitted early this year that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts. The bank surreptitiously recruited wealthy Americans as clients and then helped some of them set up shell companies to obscure their connection to the accounts.

To avoid a potentially ruinous criminal prosecution, UBS agreed to pay the U.S. government $780 million. Then, the U.S. government stepped up a civil action against UBS, asking a federal court to force the bank to disclose the holders of 52,000 accounts. Through the deal struck in August, the two governments chose accommodation over confrontation, with face-saving measures for both sides. The U.S. government has accepted the possibility that some people who used UBS to evade taxes will get away with it.

Details as to which accounts the two governments would target for disclosure under the agreement were withheld until Tuesday to keep depositors guessing about their risk of being exposed — and to keep them under pressure to confess in return for an IRS offer of leniency. The offer, originally set to expire in September, was extended to mid-October. As the deadline loomed, a crush of depositors filed voluntary disclosures.

All told, more than 14,700 people turned themselves in under the IRS leniency program, more than 12,000 of them after the deal with Switzerland was announced, IRS Commissioner Douglas Shulman said in a briefing Tuesday. Those figures went beyond UBS clients to include people with accounts at other banks and in other countries; Shulman did not provide a subtotal for UBS. It was not immediately clear how much money the government stands to recoup from taxpayers who turned themselves in or face exposure under the UBS settlement.

“We are talking about billions of dollars coming into the U.S. Treasury,” Shulman said. On Capitol Hill, the deal came under sharp criticism from Sen. Carl M. Levin (D-Mich.), who leads the Senate Homeland Security and Governmental Affairs Committee’s permanent subcommittee on investigations. “[T]he tortured wording and the many limitations in this annex shows the Swiss government trying to preserve as much bank secrecy as it can for the future, while pushing to conceal the names of tens of thousands of suspected U.S. tax cheats,” he said in a statement. “It is disappointing that the U.S. government went along.”

Swiss Release Criteria for Handing Over UBS Accounts to IRS

 By Dylan Griffiths and Klaus Wille Nov. 17 (Bloomberg) —

Switzerland said it will turn over details of UBS AG accounts held by U.S. residents who had more than 1 million Swiss francs ($985,000) in undeclared assets to the Internal Revenue Service, as the government released a list of criteria used to screen bank clients for tax fraud. Other benchmarks include U.S. citizens who were beneficiaries of “offshore company accounts,” according to a statement distributed by the Swiss Justice Ministry in Bern today. In both cases, the review period is between 2001 and 2008 and there has to be a suspicion of “tax fraud and the like.” Switzerland agreed in August to hand over data on about 4,450 UBS accounts to the U.S. to settle a lawsuit related to suspected tax evasion. Swiss authorities withheld details of how the accounts were selected for 90 days so the information didn’t interfere with the IRS’s voluntary disclosure program. The criteria will be used as a template by the U.S. to pursue banks and tax evaders in other financial centers, lawyers say. “This is a mega-trend, and the IRS is going global,” William Sharp, a lawyer at Sharp Kemm, PA in Tampa, Florida, said before the criteria were released. “The days of bank secrecy are over.” The IRS plans to hire 800 people in the next year and increase staff in eight overseas offices, including Hong Kong, Commissioner Douglas Shulman said Oct. 14. The agency will also open offices in Beijing, Sydney and Panama City. ‘Tax Fraud’ U.S. prosecutors are already trying to determine what role financial professionals in Hong Kong play in tax evasion, people familiar with the matter said last week. UBS will give account information to a Swiss government task force, which will decide what it can relay to the IRS without violating Swiss law. The entire process is expected to take about a year. UBS used a list of criteria released today to determine whether account holders committed “tax fraud and the like.” Those criteria included the submission of documents to conceal assets and income that wasn’t fully declared, according to the Swiss government. In cases where tax fraud or the like is proven, details of accounts with at least 250,000 francs can be disclosed to the U.S. authorities. The IRS may hope the publication of the Swiss criteria will persuade more people to disclose their accounts as the U.S. is joined in its search for undeclared money by authorities in the U.K., France and Italy, said Stephanie Jarrett, a partner at Baker & McKenzie in Geneva. ‘Harder and Harder’ “There are still a lot of people out there who want to sort things out,” Jarrett said before the criteria were released. “It’s going to get harder and harder for people who are undeclared.” Under the IRS’s voluntary disclosure program, taxpayers must pay any tax owed, plus interest and a 20 percent penalty on the highest balance during the preceding six years. In return, they avoid possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties. About 7,500 Americans with undeclared assets overseas disclosed those holdings to the IRS by the Oct. 15 deadline, according to the U.S. Justice Department. The U.S. sued UBS on Feb. 19 to force disclosure of additional client details. That came a day after the bank agreed to provide the names of 250 account holders and pay $780 million to avoid prosecution for helping wealthy Americans evade taxes. Since the February settlement, prosecutors have won guilty pleas from six UBS clients who described a web of bankers, lawyers and advisers who helped conceal income and assets. All six hid money in shell companies outside Switzerland. The revenue services of the U.K., Australia and other countries have also asked for information on UBS’s cross-border wealth management businesses, the bank said in its third-quarter earnings report on Nov. 3. Zurich-based UBS said it’s cooperating with these requests “within the limits of financial privacy obligations under Swiss law.” To contact the reporter on this story: Dylan Griffiths in Geneva at dgriffiths1@bloomberg.net; Klaus Wille in Zurich at kwille@bloomberg

Tax Credits for All

by Bob Williams on Thu 05 Nov 2009 02:37 PM EST  |  

Contrary to all the advice TaxVox offered, the Senate last night voted to extend the Homebuyer’s Tax Credit for seven months and expand it to include many people who already own homes. The House will likely follow suit today.

I have clearly misread the mood of Congress and the country. And I should have known better. Ever since the Tax Reform Act of 1986, Congress has larded the revenue code with credits and deductions to encourage retirement saving, college attendance, homeownership, and healthcare. This year’s stimulus bill created new tax benefits to boost demand for housing and autos, and President Obama’s 2010 budget would expand tax credits for retirement savings. And just this past Tuesday, voters resoundingly chose two new governors who promised to cut taxes to encourage economic development.

Now that I understand the thinking of Congress and the country, may I suggest a few new tax credits that will help the economy recover from its recent doldrums? Any member of Congress may freely adopt one or more, preferably without attribution.

New Stock Buyers Tax Credit: Despite its recent rebound from last year’s lows, the Dow Jones Industrial Average remains 30 percent below its high just over two years ago. The credit would go to new stock buyers (defined as people who have owned less than $100,000 of common stock during the past six months) and equal 25 percent of up to $50,000 of the cost of stock purchased between now and October 1, 2010 (the third anniversary of the Dow’s record high). No income limits would apply but college students on scholarships could not claim the credit. Nor would the credit have any age restrictions although children could claim the credit only if they can count to twenty with shoes on.

Real Books Tax Credit: The sale of real books is plummeting, as former buyers shift to electronic books or borrow paper copies from the library in an effort to cut costs in the slow economy. And bricks-and-mortar bookstores have suffered further from price-cutting by on-line booksellers. A refundable tax credit equal to the full suggested retail price of eight books per eligible taxpayer purchased from retail bookshops with average annual sales over the past six years of no more than 500 copies of the year’s top 25 fiction best sellers would generate a rapid increase in demand for struggling booksellers. Qualifying purchases would have to occur on weekdays between now and the conclusion of the 2010 National Reading Week next May. People whose libraries contain more than 125 books published since 2001 could not claim the credit.

Santa Claus Tax Credit: Retailers predict desultory holiday sales this year. The Santa Claus credit would pump up purchases by reducing the after-tax cost of gifts purchased and given by the end of 2009. The non-returnable credit would equal half the cost of any gift bought in person by people using handwritten letters to Santa from children under age 15 who live with relatives at least nine months during 2009 and still believe in Santa, the tooth fairy, and the Easter bunny. Alternative credits would benefit people who celebrate Hanukkah, Kwanza, or the winter solstice.

My list of possible tax credits is hardly exhaustive but it clearly addresses the mood of Congress and the country: no foundering market should lack its own personal tax stimulus.

 

The Lowdown on Home-Buyer Tax Credits

Wall Street Journal November 12, 2009

By LAURA SAUNDERS

Last week, President Barack Obama signed a law that extends through next spring a temporary tax credit of up to $8,000 for some first-time home buyers, which was due to expire Nov. 30. The law also adds a new tax credit of up to $6,500 for certain repeat home buyers. The package, which the government estimates will cost a total of $11 billion, is intended to help spur housing sales, a critical part of the economy. Here are some answers to common questions about the new rules. Q: What has stayed the same in the new law? 1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. “First-time” means people, including both partners of a married couple, who haven’t owned a principal residence for three years before the purchase. 2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years. 3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn’t pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service. 4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns. 5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren. Q: What has changed? Several important features took effect as of Nov. 6: 1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected. 2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000. 3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one. 4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income. 5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else’s return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form. 6) People taking the tax credit, as under the old law, aren’t allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse’s lineal relatives.

Q: If I bought a house last spring or summer, can I get a tax credit? You qualify if you are a first-time buyer and meet the other requirements, but not if you are a repeat buyer. The new credit for repeat buyers applies only to purchases made after Nov. 6.

Q: What is the definition of “principal residence”? If you own more than one home, your principal residence is usually the one where you spend most of your time. In determining residence the IRS may also consider where your family lives and your mailing address for bills and correspondence, among other factors.

Q: Can a principal residence be something besides a conventional house? Yes. A principal residence may also be a condominium, co-op apartment, attached or semi-attached townhouse, or even—if it has eating, sleeping and toilet facilities—a boat, motor home or trailer. Manufactured homes qualify in some states.

Q: Does the person who claims the credit have to use the home as a principal residence? Yes.

Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit? This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.

Q: How may the credits be allocated among two or more unmarried buyers? This also is unclear. But if the IRS adopts the rules that applied to the previous tax credit, which are detailed in IRS Notice 2009-12, there is room for planning. The notice says that taxpayers may use “any reasonable manner” to allocate the credit. It even provides an example in which two unmarried buyers allocate the credit to the lower earner in order to qualify for it.

Q: I need the credit refund to help make the down payment. What can I do? There’s no rushing the IRS. But one option is to adjust your current withholding from your paychecks to reflect the fact that you will be taking the credit later. But be careful: If you don’t make the purchase, then you may owe interest and penalties. Consult a tax adviser.

Q: Is it possible to qualify for a credit if I am building a home on a lot I already own? Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.

Q: May I take a credit if I am building a large addition to my home? No; these credits apply only to the purchase of a home.

Q: Are there special rules for the military? Yes. In general, members of the military and foreign service and intelligence communities who are serving overseas on “official extended duty” for at least 90 days during 2009 and the first four months of 2010 have an extra year to take advantage of these credits. Consult a tax adviser who specializes in this area.

Q: Where can I get more information? Go to federalhousingtaxcredit.com, a Web site sponsored by the National Association of Home Builders. You can also look for links from the IRS’s home page, http://www.irs.gov, or search for Homebuyer Credit. Another option is to consult a professional tax adviser. Write to Laura Saunders at laura.saunders@wsj.com

Rangel Bill Clamps Down on Unreported Foreign Income

Washington, D.C. (November 9, 2009)

By Ken Rankin

Tax accountants who help U.S. taxpayers hide their income in foreign banks are in the crosshairs of a new push by Congress and the Obama administration to crack down on offshore tax haven cheats.

Legislation introduced by House Ways and Means Committee Chairman Charlie Rangel, D-N.Y., and Rep. Richard E. Neal, D-Mass., calls for tightening the screws on Americans and others who use foreign banks to avoid U.S. taxes.

 The bill, dubbed the Foreign Account Tax Compliance Act of 2009, would impose heavy new penalties on U.S. taxpayers who fail to properly report income held in banks abroad. But tax accountants and other financial advisors who assist U.S. individuals in forming or acquiring foreign entities would themselves be subject to new reporting requirements under the bill.

The legislation would also put new pressure on foreign financial institutions to report the identities of all U.S. accountholders to the Internal Revenue Service. Taxpayers who deposit funds in offshore banks that refuse to enter into such reporting agreements with the IRS would be subject to a stiff new U.S. withholding tax on deposits of U.S.-source income or gross proceeds from the sale of certain assets producing U.S.-source income.

The bill drew a solid thumbs-up from Obama administration officials during recent hearings before Neal’s Ways and Means Subcommittee on Select Revenue Measures.

Testifying before that panel, Deputy Assistant Treasury Secretary Stephen E. Shay called the proposal “an important step toward reducing the amount of taxes lost through illegal use of hidden accounts” in offshore tax havens.

“For those taxpayers who persist in attempting to evade taxes through offshore accounts, the bill’s new enforcement tools would greatly assist the IRS in identifying those taxpayers and collecting the taxes they owe,” he told Congress.

IRS Chief Counsel William J. Wilkins echoed Shay’s endorsement of the legislation, testifying that the bill meshes neatly with his agency’s ongoing campaign to convince taxpayers to “voluntarily” disclose and pay tax on offshore income.

So far this strategy is “already producing results [as] over 7,500 people came forward under its special offshore voluntary compliance program that ended in mid-October,” he told the subcommittee.

The next step, he said, will be for IRS to begin “mining the voluntary disclosure information from people who have come forward” to identify accountants and other professionals who enabled taxpayers to evade U.S. taxes abroad.

“We will be scouring this information to identify financial institutions, advisors and others who promoted or otherwise helped U.S. taxpayers hide assets and income offshore and skirt their tax responsibilities at home,” he told Congress.

President Signs Unemployment Bill With Tax Items

Nov. 5, 2009

On Friday, President Obama signed into law a bill that includes changes to the first-time homebuyer credit, increased NOL carrybacks for small businesses, and mandatory e-filing for most tax return preparers. The bill cleared Congress on Thursday.

The Senate had unanimously agreed to the bill, the Worker, Homeownership, and Business Assistance Act of 2009 (HR 3548), on Wednesday after adding the handful of tax provisions to the bill’s original provision on unemployment compensation. The House of Representatives passed the bill without further changes Thursday.

 First-Time Homebuyer Credit

The bill extends and modifies the IRC § 36 homebuyer credit, which was first introduced by the Housing Assistance Tax Act of 2008. The credit had been scheduled to expire Dec. 1. Under the bill, it is extended to May 1, 2010, and is modified so that taxpayers do not have to close on the house by that date, but merely have to enter into a binding contract by that date. To be eligible for the credit, taxpayers who have entered into a binding contract to purchase an eligible principal residence by May 1, 2010, must close before July 1, 2010.

In another major change, the credit is also modified to apply not just to first-time homebuyers. Under the bill, taxpayers who have owned and lived in their old house for any five consecutive years within the preceding eight years will be treated for purposes of the credit as first-time homebuyers. However, instead of the full $8,000 credit, such long-term residents would be eligible for only a $6,500 credit.

The bill increases the income limitations for credit eligibility to $125,000 for individuals (and $225,000 for couples). It also introduces a purchase price limit: No first-time homebuyer credit will be allowed for the purchase of any residence if the purchase price is more than $800,000.

The bill also extends the benefits of the credit to members of the military or Foreign Service on extended duty outside the United States and waives the recapture rule for those individuals.

Apparently reacting to reports that some taxpayers had been titling residences in their children’s names to qualify for the credit, the bill sets a minimum age of 18 to qualify for the credit.

NOL Carrybacks

The American Recovery and Reinvestment Act allowed qualified small businesses (those with less than $15 million in annual gross receipts) to carry back a 2008 net operating loss (NOL) for up to five years. The bill extends that treatment to 2009 NOLs, although it limits the amount of loss than can be carried back to the fifth year. It also allows all businesses to take the five-year carryback, except those that received TARP assistance.

Mandatory E-Filing

The bill also would mandate e-filing by almost all return preparers. Section 17 of the bill requires any return preparer who filed more than 10 individual income tax returns per year to e-file those returns. This requirement will go into effect in 2011.

Other Tax Provisions

The bill increases the penalty for failure to file partnership or S corporation returns (IRC §§ 6698 and 6699) from $89 to $195.

The bill also extends the 0.2% FUTA surtax in IRC § 3301 through the first six months of 2011 (the surtax had been scheduled to expire at the end of this year).