The United States, Australia and the United Kingdom have joined forces to put an end to offshore tax evasion and avoidance schemes with a plan to share information involving a variety of entities holding offshore assets. The Internal Revenue Service (IRS), Australian Tax Office and HM Revenue & Customs, respectively, have uncovered revealing tax information about various companies and trusts located in different jurisdictions including, but not limited to, Singapore, Cayman Islands, Cook Islands and the British Virgin Islands.  The established entities may be perfectly legal or may involve tax avoidance, evasion or other serious offences by taxpayers, which is the bulk of the investigation.

 The three tax administrations have researched and scrutinized a multitude of data sources to discover relevant tax information and assist one another in identifying non-compliance with tax laws. They have developed a plan for sharing the data that identifies the specific owners of these entities who conceal wealth, along with the financial advisors who promoted and assisted in establishing the companies and trusts.

The three powerful nations will work together to bring down those people trying to evade taxes illegally with criminal penalties. The joint effort will allow each country to access this information and effectively enforce any law and tax agreements that may have been broken. Although it is not illegal to have offshore assets through various entities, it is illegal to avoid or evade tax liabilities on income made through those offshore assets. Furthermore, those advisors that recommended that their clients avoid or evade tax liability or not disclose appropriate information may be subject to civil or criminal actions.

The IRS is encouraging any U.S. taxpayers holding assets through offshore entities that have been non-compliant with the tax laws to seek professional guidance and participate in the IRS Offshore Voluntary Disclosure Program, if appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution.

A tax advocacy group states that Facebook, which made $1 billion in U.S. profit before taxes last year, will pay no income tax for 2012. Many tax experts say that it is possible that it can be true and if it is true it is also perfectly legal. At issue is a generous tax deduction from stock options that Facebook had issued to its employees.

 

Stock options are like regular cash salaries and are tax deductible for companies. These deductions can be used by the companies in order to offset their profits, as well as apply those losses to previous years. The aforementioned is how a company is able to be eligible for a refund in a year when it made money.

 

Advocacy group, Citizens for Tax Justice, says that Facebook will receive a tax refund of approximately $430 million as a result of the aforementioned options. In an email, Facebook states that it believes “in paying our fair share, and we do pay our fair share.”

 

According to independent tax experts, Citizens for Tax Justice is not exactly wrong, but the group is not telling the entire story. They say that CTJ is combining tax law and corporate accounting policies, which have their own sets of rules. Stan Pollock, a San Francisco CPA that specializes in stock option planning, said, “CTJ is talking about apples and oranges…by mixing up two sets of rules, it’s easy to give misleading information.”

 

For example, a company could properly follow accounting rules that show the income impact of issuing stock options. However, the IRS requires a complete set of different rules for computing the tax bill. The fact is that some companies can be quite profitable on an accounting basis but not be profitable at all for tax purposes and both are right under the different rules.

 

Another IRS expert noted that even if Facebook does receive an income tax refund, it does not mean that the tax revenue is completely lost. Employees with stock options usually pay higher rates than a corporation would pay. However, stock option tax deductions continue to remain controversial, especially for newly public companies such as Facebook.

A federal tax court judge ruled that the Bank of New York Mellon improperly claimed foreign tax credits through a deal that were arranged by Barclays. Upon the ruling, BNY Mellon stated that it would take a charge of $850 million but would also appeal the case. This case was the subject of an investigation of tax deals in 2011 by the Financial Times and ProPublica.

 

The ruling was a triumph for the IRS, which had challenged six banks in the U.S. over some $2 billion of such deals, called Stars (Structured Trust Advantage Repackaged Securities). Though Barclays arranged deals for all of the banks, it is not a part to any of the cases.

 

The cross-border deals took advantage of different countries’ tax rates and rules, which allowed American financial firms to minimize their total tax payments.

 

The court stated that, “The STARS transaction was a complicated scheme centered around arbitrating domestic and foreign tax law inconsistencies” and involved “Pre-arranged circular cash flows,” which had no economic benefit other than lowering taxes. The court further said, “We conclude that Congress did not intend to provide foreign tax credits for transactions such as STARS.”

 

Reuven Avi-Yonah, a leading tax expert, who heads the international tax program at the University of Michigan Law School, stated that the decision is the “right result.” He further added that, “It is clearly good that this latest attempt in a tax arbitrage failed.”

 

Professor Avi-Jonah added a note of caution of what may occur on appeal. He cited two cases that were decided in 2001, where federal appellate judges overturned opinions, which had favored the IRS in cases that involved foreign, tax credits and arbitrated transactions. The STARS deals that are being challenged by the IRS took place between 1999 and 2006. One of the cases has settled and one was being appealed within the IRS administratively, while the others remain in litigation in various federal courts. 

There are many strategies that go into tax planning, especially having your tax attorney go over your estate planning. You should pay close attention to certain strategies that you could take advantage of when you are having your tax attorney go over your estate planning in order to achieve your goals.

One of the first things that you can do is take advantage of the annual gift tax exclusion. Many people underestimate the tax-serving power of the annual gift tax exclusion and you should not be one of them. For 2013, the exclusion is $14,000 per recipient, which is $28,000 if you split gifts with your spouse. For example, if you happen to give away the maximum amount to five people every year for ten years then you will have transferred $1.4 million tax-free without using any of your lifetime gift exemptions. Unlike lifetime exemption gifts, annual exclusion gifts are can be more effective as they do not reduce the amount of money that you can transfer tax-free at death under your estate tax exemption. Gifting also is able to remove future appreciation from your taxable estate.

If you own an insurance policy on your life then you need to be aware that there is a substantial portion that the proceeds will be lost to estate taxes. It will depend on the estate tax exemption for the exact amount as well as the estate tax rates that apply. Proceeds won’t be included in your taxable estate if you don’t own the policy. A strategy for keeping life insurance out of your estate is to set up an irrevocable life insurance trust (ILIT) to buy and to hold the policy. However, if you already own your own life insurance policy then you can actually have the policy transferred to an ILIT. Be sure that you are aware of the three-year rule. It provides that certain assets, which include life insurance, which is transferred within three years, are pulled back into your estate and taxed after your tax.

Another thing that you can do is to place your assets in a credit shelter trust. Though designating your spouse to be your sole beneficiary sounds like a good idea, it can waste your estate tax exemption. By placing assets in a credit shelter trust, you can preserve your exemption and reduce or even eliminate estate taxes.

There are many times and situations that people don’t consider hiring a tax lawyer upon receiving an unexpected letter from the IRS, especially if the IRS is saying that you owe them money in backed taxes. There are two things that you can do when you find yourself being audited by the IRS, which is ignoring the situation or you can attempt to resolve your issues and heavily consider hiring a tax lawyer. If the debt is small then you can just pay the money that you owe and go about your business. However, if there is a substantial amount of money that the IRS is claiming that you owe then that is the moment when hiring a tax lawyer will be the best option for all of your tax issues.

The majority of businesses, either big or small, have encountered IRS problems and you should not be on your own trying to present your case to the IRS when it comes to owing a substantial amount of money. Often times people have attempted to represent themselves at an audit hearing without the help of an attorney and has suffered the consequences. It is often said that a person who is his own attorney has a fool for a client and you shouldn’t be that fool. You may say something that the IRS can later hold against you, which is something you would not want to happen.

By hiring a tax lawyer instead of having a Certified Public Accountant handle your situation with the IRS is a much better strategy. Most people are not aware that if subpoenaed by the Court, your CPA can testify against as they are under oath. A tax lawyer will never release any kind of incriminating tax evidence against you as you are protected by the attorney/client privilege. Taking advantage of the attorney/client privilege will help you avoid paying high penalties and it will also help you come to an agreement with the IRS over how much money you can pay. Hiring an tax lawyer is the best decision that you can make.

More than 300 people informed Uncle Sam about all the big-time tax cheaters last year. This included people who owed more than $2 million after all the penalties and interests were added on.

The way it works is that Section 7623(b) of the Internal Revenue Code requires that the IRS pay out awards if information that is provided by an individual provides a substantial contribution to the collection of tax, penalties, interest and other amounts when the amounts that are in dispute are more than $2,000,000. The range of the awards is based on the percentages of the collected proceeds and a Whistleblower Office within the IRS was established in order to administer those awards.

The percentages typically range from 15-30% - therefore, the minimum award would be $300,000. However, it often takes a long time to receive it due to the audits, investigations and the multiple opportunities to appeal. This can make the process of receiving the award take up to seven years. On average, an appeal takes about eight months and the longest recorded took almost three years.

The program was revamped in 2006 and the IRS is just now paying the first awards since its reintroduction. As of now, only five claims have been paid under the revised law. But, patience pays off as over $8 million was paid out to whistleblowers in 2011. Last year, $125 million was paid out to whistleblowers and the program brought in $592.5 million. This is a lot more than the $48 million that was collected in 2011 alone.

In the majority of cases, taxpayer privacy laws do prevent the IRS from disclosing individual award amounts. However, it is important to note that the footnote states that, “One claim paid in FY 2012 was accompanied by a limited privacy waiver that permits the IRS to confirm that, on August 27, 2012, the IRS paid an award of $104 million to a whistleblower.” Though the IRS did not name the whistleblower, the press reported that he name is Bradley Birkenfield, a former employee of UBS, the largest Swiss bank. He was sentenced to 40 months in prison for helping people evade taxes in 2009.

If you are to be a whistleblower for the IRS, you need to be aware that the IRS does not currently provide whistleblower protection. Whistleblowers who tattle on their employers may get fired of “face threats of physical harm or damage to economic interests.”

Congress has its eye on the charitable tax deduction as a “loophole”. First, it needs to look into the changing ways that Americans give then act to safeguard charity in all its forms. A House panel on taxation held a serious hearing on the cost of love, especially the cost of tax deduction for charitable giving.

If there is something that both political parties can agree on is tax reform. The tax break for financial generosity is the most debated topic, only second to the mortgage-interest tax break.

The U.S. is one of the leading nations for private giving and it cherishes this tax “loophole”, as some critics will put it. The United States has over one million charities with approximately $1.5 trillion in yearly revenues. There are more than 38 million Americans that use the tax deduction. An estimated $40 million would be added to the federal budget if the tax deduction were not available.

There are billions of dollars that are given away in many ways that Uncle Same never sees and are not usually tax deductible. A point that is being made by Congress is the way that giving itself is changing in America and is also rethinking how to treat the monied act of altruism. For example, crowdfunding, the small-scale investments made to start-ups via the Internet are a trend that is not used only for profit enterprises. There are non-profit social entrepreneurs that are approaching strangers via Internet in ways that can bring changes in society.

One of the most interesting trends in giving is amount the young wealth. A survey shows that the younger wealthy individuals reject the “checkbook philanthropy” for a more engaged style. These individuals are more attuned to their own personal values and consult their peers on more ways to give. They are also a lot more accepting of risk in their giving.

Inheritance money is a difficult subject to discuss, as there is no simple “yes” or “no” answer.
It is worth nothing that estate taxes are a lot more different from inheritance taxes, as inheritance taxes are a state tax issue. Estate taxes, however, are a federal tax issue.  There are many ways to receive inheritance money and the most common way is through a Last Will and Testament when it is submitted to probate court. Probate is the process that is used to determine the validity of the person’s Will and it is also to ensure that all the appropriate probate laws are followed accordingly.

The average probate process takes approximately three years to complete. However, if there are people that contest the Will that is left behind then probate assets can be tied up for years. Before anyone is to receive inheritance money, all credit debtors must be paid off.

If you receive an inheritance and the person you have received it from is your spouse then you do not need to pay taxes, as there is no inheritance involved if you are inheriting your spouse’s property. If you are a direct descendant of the person you are inheriting from then you will need to pay taxes.

For example, if you are a child or grandchild of the deceased individual then you will need to pay a small amount of inheritance tax but with large exemptions. If you are a sibling or an in-law then you are required to pay between five and ten percent inheritance tax. If you are a distant relative of the deceased person then you will be required to pay between ten and twenty percent inheritance tax.

It is important to note that each state has a different inheritance tax rate. There are many states that do no charge inheritance taxes. In order to avoid paying inheritance taxes, you can gift your children in payment installations while you are still alive. The gifts will need to be less than $10,000 in order to avoid a gift levy by the IRS. Inheritance tax is considered to be parallel to double indemnity.

If you happen to live outside of the United States then you may be able to claim a foreign income tax exemption. As the global economy continues to integrate workers and companies, you may find yourself working and living abroad. This is a bit of a problem, from a tax point of view, since the IRS demands that you pay taxes on all of your income no matter where it is earned. If you are also paying taxes in the country that you are working then you know that paying taxes in two countries can be overwhelming. However, there is a solution to this problem.

The IRS is able to allow you to claim a foreign income tax exemption of up to $87,600 as of 2008. The amount is then adjusted for inflation for each following year. You may also be able to deducted from your housing as well. You must be living and earning income abroad in order to qualify for the aforementioned exclusions and deductions. You need to claim residency in the foreign country for the entire tax year or you need to be present in that country for 330 days out of 12 consecutive months. By meeting these requirements you will be able to save a lot of money on your taxes. Remember that you must always file a tax return with the IRS even if you do not owe any money due to the exclusion.

There may be certain situation in which you may be able to claim the exclusion and deduction if the United States and the country where you reside in have a tax treaty covering the issue. In order to promote trade, there have been many countries that entered into tax treaties in order to address double taxation issues that would otherwise make it financially impossible for trade to occur.

It is much more common now for U.S. residents to live and work abroad than it ever was before. In order to avoid any unfortunate tax consequences, make sure that you understand the foreign income tax exemption.

The 1031 tax exchange is a great method for deferring the tax consequences of the sale of investment property. If you happen to own rental properties then a 1031 tax exchange should be an integral part of your tax strategy. Whenever a 1031 tax exchange is mentioned, it is in reference to the 1031 section of the tax code and the deferment of capital gains taxes. Basically, it is when you exchange the property for a similar property. It is important to note that the 1031 tax exchange only works with investment property and not with your personal residence. It is possible for you to use the revenues gained from one property to buy multiple properties. However, if you gain revenues from the sale of rental duplexes you cannot buy a ranch. It is best that you always consult with a tax attorney in order to assist you with the 1031 tax exchange.

A 1031 tax exchange does not work like a traditional real estate transaction as it requires the use of a third party known as a qualified intermediary. This intermediary acts like an escrow company to the extent of taking care of the monetary transactions. Upon selling the property, the proceeds are directly transferred to the qualified intermediary, who in turn, uses it to make the new purchase. Any funds that are not used will be subject to the capital gains taxes.

It is also important to keep in mind that the 1031 tax exchanges From the time that you sell the property you have up to 45 days to find new properties and provide the intermediary with a written notice. The IRS is very strict when it comes to these rules, therefore it is very important that you have everything in order. Once the properties have been identified you will have 180 days to close from the date of the original sale. Again, the IRS is not lenient when it comes to this deadline. By using a tax attorney or a real estate attorney is highly advisable when it comes to a 1031 tax exchange.