INFINITE PARTNERSHIPS – Page 6

Jun 27

All taxpayers who own their own business deduct travel and transportation on income tax returns as either a business expense for themselves or as a reimbursement to their employees or subcontractors. However, many honest hardworking business owners are reluctant to deduct the full extent of their travel, transportation, and related expenses because they know their unique circumstances or “history” are not adequately documented to separate out the personal part of the business trip from the business part of the business trip. I call this the “Law is on your Side Conundrum.” (LSC) You know the law is on your side but you still feel danger. But there is a safer way to travel the “IRS World”. So get ready to “Travel IRS Style” to a happy and safe destination you will cherish: When we arrive you will the proud owner of a bullet proof tax return that can keep you safe and protected during even the fiercest attack from IRS natives. Hang on to your seats because this trip will fly you and your family far away from the LSC that is keeping you all home.

As we take off on this journey you will notice the law is very clear: Travel must be business related, reasonable and customary for similarly situated businesses. No personal travel allowed. It sure seems like LSC is present here keeping us at home this summer. But we all know there is both personal and business on every trip. The government of course knows this too. Courts have held that whether the primary purpose of the trip is business or personal depends on all the facts and circumstances, in particular, the amount of time during the trip that the taxpayer devoted to business and personal activities. Sec. 1.162-2(b)(2), Income Tax Regs. Also cited in NOZ AND MAGUIRE v IRS, Docket No. 4993-10

Clearly the Maguire’s had no clue how much danger they were in on as they traveled the “world according to IRS” because they never saw the LSC prior to filing their tax return. Facts in Maguire case are simple: Mr. and Mrs. Maguire traveled for academic research and deducted $18,543 in travel on their tax return with no extemporaneous recordings of history. The Court disallowed all their travel expenses in part because the taxpayer did not offer any evidence, testimonial or otherwise, as to how they allocated their time between activities related to their research collaboration and other work activities. Id at 27. The Court also noted that neither petitioner offered any details concerning the nature of their research collaboration, the collaborative activities undertaken, their research objectives, or how the travel expenses contributed to the accomplishment of these research objectives. Both petitioners testified that their travel allowed them to collaborate with each other and researchers at other institutions, but they did not identify a single one of the other researchers by name, nor did they identify a single meeting with another researcher that took place during any of their trips. Because we cannot ascertain from the record the dates of all of Maguire’s flights, we cannot calculate exactly what portion of the year the petitioners spent in the same country. Id at 27.

Let’s look at another taxpayer in the textile business who is the poster boy for how not to “Travel IRS Style”. OLAGUNJU v COMMISSIONER, T.C. Memo. 2012-119 Docket No. 6073-10. 4_23_2012. Olagunju deducted travel expense for his textile and consulting business which the IRS disallowed. Mr. Olagunju did not keep a travel log. Mr. Olagunju’s broad testimony that he traveled to Nigeria to tend to the textile business matters is insufficient to establish the business purpose of each trip. Id at 18.

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How about you all? Are you planning to travel for business this summer? Make sure your CPA and tax advisor bullet proofs next years tax return by helping you create a record, a history of your travel in the making, recording that history for insertion in a tax return prior to filing that tax return. History created with “extemporaneous” recordings whether through pictures, video, audio or dictation can make the difference between winning and losing in US Tax Court when you have LSC. Did you create a truthful historical record of what actually happened prior to filing your income tax return? Will your tax return open and honestly disclose this history when you file your tax return next April? Have you consulted with your professional tax advisor? If you answered yes, your tax return is wearing a bullet proof shield. You will be safe. You have successfully navigated around the LSC as you “Travel IRS Style”. See you when you get back and safe travels.

Thanks for visiting us at TaxView with Chris Moss CPA. See you next time on TaxView.

Kindest regards
Chris Moss CPA

Audit, Business, Deductions, Travel

Jun 22

Debt Forgiveness and Short Sales

By Chris Moss CPA Tax Attorney in Debt Forgiveness, Short Sales

Submitted by Chris Moss CPA

Only the IRS could tax you after you have lost your home in foreclosure. But that is exactly what used to happen if your lender sold your home at a sheriff’s sale for less than your mortgage and did not come after you for the difference. What a surprise when you would receive form 1099 from your lender the following year and your CPA would have no choice but to report that amount as “other income” on line 21 of your form 1040 annual income tax return.

That all changed when Congress enacted the Mortgage Forgiveness Debt Relief Act in 2007 just as the Great Recession was starting. Millions of Americans benefited. Primary, business and rental property were all included in one way or another. Eventually all but primary home mortgages expired and finally primary mortgage provisions expired December 31, 2013. So unless Congress renews the expired provision debt forgiven in 2014 will be taxable.

What is Congress doing? The Senate Finance Committee approved the extender provision but Senate Majority leader Harry Reid (D-Nev) stopped the action on the Senate Floor. House Ways and Means Dave Camp (R-Mich) is not holding hearings at all on extending. My prediction is that Congress is waiting until after the November 2014 elections and will then extend the law in some fashion. But what if they do not?

If you have a pending short sale here are a few sets of facts which might apply to you:

For those taxpayers who have abandoned their home and are living somewhere else: If the opportunity for short sale comes up before foreclosure take advantage of the short sale making sure the lender forgives you the debt. But without jeopardizing the short sale delay the deal so that the short sale closing is perhaps January 2015. Worst case if Congress does not act is that you pay the tax in 2016. Remember, it is always better to delay than to pay.

However, there are many taxpayers who need to sell their home in order to relocate for a better job or to be closer to family somewhere else in the country. If these facts apply to you and you are still living in the upside down house then perhaps a different tax strategy would work for you. Do you have a rental property with equity that you can sell at a loss? If you must short sale your primary in order to move you have options. First you can coordinate the sale of both properties so that the gain on the short sale offsets the loss on the rental. Make sure you consult your CPA on this one.
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Second, if you were to convert your primary to a rental (see my last month’s blog) and your rent was able to carry the home, you could move and rent in your new location until you eventually could sell your primary. After you sell the former primary you could then purchase in your new location. You may be able to have enough losses on the short sale rental to offset the debt forgiveness. As mentioned in my previous blog, there is no requirement that the house actually has to be rented as long as there was a genuine attempt to do so with plenty of advertising and signs outside the house. Just so you know your losses are limited to the time the house was rented so make sure to consult your CPA on this strategy as well.

Third for those folks who actually have a gain with a short sale this is a very interesting set of facts and carries with it a custom tax strategy just for you. Let’s say you were gifted your primary house years ago with a very low basis and no mortgage. However you put an equity line on the house of 70% of the value (remember those days?). You used that money to invest in a franchise business and the business is doing very well but all your money is tied up on the business and you don’t want to sell. Just like everyone else you lost that 30% equity over the last ten years. You moved out of the now underwater house at some point and rented it out as millions of other taxpayers have done. You are now upside down on the house and do not have the money to cover a short sale difference. Let’s say 200k. But you have a great new business opportunity and want the hone equity line paid off. If you shortsale, not only will your $200K be taxable but you will have a large capital gain on the sale. It is imperative for these taxpayers to prove that they have lived in the house for 2 of the last 5 years to take advantage of the $250,000 exemption ($500,000 if married). If you only lived in the house less than 2 years out of 5 there is still hope if the facts show that your driver’s license voter registration and tags were all still registered at that address and that you did not immediately rent the house out. See US Tax Court Case Richardson V Commissioner This set of facts is very complex and it is essential to consult with you CPA sooner than later.

In conclusion there are many Americans who will still be short selling in 2014/2015. Whatever your circumstances go over with your CPA the facts in your case. Document those facts on the tax returns you file and make sure the IRS knows what you are doing. If Congress extends the Debt Relief Act then all is good. But what if Congress does not extend the Debt Relief Act? Wish there was an easier way? Let you elected Representatives know you want the Debt Relief Act extended…at least long enough to allow you to short sale your house.

Thanks for visiting us at TaxView with Chris Moss CPA. See you next time on TaxView.

Kindest regards
Chris Moss CPA

Debt Forgiveness, Primary Residence, Short Sales, Tax Exclusion

Jun 16

Residence to Rental Conversion

By Chris Moss CPA Tax Attorney in Residence to Rental Conversion, Tax Strategy

Submitted by Chris Moss CPA

Most of us know that $250K of gain is exempt from tax on the sale of your primary residence ($500K if married) if you lived in that house for 2 of the last 5 years. But what if you sell your house at a loss? Tough luck the IRS says. Losses are not deductible on the sale of your personal residence. Or are they? In fact, if you are planning to sell your home and you feel that market values are beginning to rapidly deteriorate, you should consider renting out your house prior to selling with a Residence to Rental Conversion Tax Strategy. This Residence to Rental Conversion (RRC) allows a deductible loss on the sale of your personal residence. And it is absolutely legal. So hold on to your seat as we take the RRC tax savings tax strategy journey to the work around needed for you you to protect and bullet proof your tax return in the event of an IRS audit.

First we head back to year to 2013: You are married earning $215,000 on a W2 annually. You have a 10 year old son. Your spouse manages the household but earns no income. You also have $13,000 of dividends/interest and a $3000 capital loss carryover. Your AGI is $225,000. You decided with your spouse in early 2013 that you plan to move to Texas for a better job and you are putting the house up for sale on July 1 2013. You listed your house for $200,000 which was the Zillow appraisal on July 1, 2013. Six months later the house sold for $150,000. You really feel bad because you paid $250,000 for that house a few years earlier. So you lost $100,000 off the original price and you lost $50,000 from the date the house was listed. When you meet your CPA to file your 2013 tax return you feel confident that you can deduct some of this loss when your house sold. Your CPA who used to work for the IRS says “tough luck” you cannot deduct a loss on the sale of your personal residence. As a result you had a $40,000 tax bill in 2013 which you paid but with much upset because you feel you should have been able to deduct some loss on the sale of your home.

But here is what could have happened if you traveled a wiser path perhaps to a wiser tax advisor who know all about the RRC tax strategy: Same facts as above except you also listed the house for rent as well as for sale. The house is sold six months later for $150,000 just like before but now you have a legal and deductible loss. Your deductible loss is $50,000. ($200k-150k). You cannot take the full $100,000 loss because the government does not want you to include in your loss the portion of the loss incurred while living in the house, only to include in your loss the portion of the loss incurred while the house was listed for rent. Just so you know, I ran some numbers on your 2013 tax return. When we subtract a $50,000 loss your tax drops to $20,000 a savings of $20,000! This $20,000 tax savings is real money in your pocket.

But there is more good news for anyone who successfully implements an RRC. In this example, even if your house never rents out before it is sold you still get the $20,000 tax savings. You just have to jump through some easy promotional hoops as follows: Include a proper and valid listing for rent agreement, advertisements for rent and most important place outside the house a sign for rent. All this advertising can be documented photographed and assembled as part of your tax filing and even attached to your tax return in PDF. Don’t make the mistake that Bill and Nancy Turner made in US Tax Court Summary Opinion 2002-60. As Judge Vasquez noted: “Petitioners never placed a sign in front of the Belair property nor ran any newspaper advertisements listing it for rent. Furthermore, the renovation of the Belair property prevented it from being rented. By the time petitioners could have rented the Belair property, petitioners had decided “to get rid of” the Belair property. Petitioners never rented the Belair property, and it remained unoccupied until the new owners moved in….” Id at 4

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Kindest regards
Chris Moss CPA

Conversion, Rental, Residence, Strategy, Tax

Jun 12

10% Tithe Replaces Income Tax

By Chris Moss CPA Tax Attorney in 10% Tithe Replace Income Tax, Tax Reform 10% Tithe

Submitted by Chris Moss CPA

Did you all know that the United States never had an income tax until the Civil War? But what you probably don’t know is that England had also been working with income tax hundreds of years earlier. This was no coincidence. Western nations in the 19th century started keeping track of money by recording transactions in books and records. Having access to subjects accounting records gave Governments the ability to visualize a new type of revenue flowing into their coffers; the income tax. So why is Income Tax not working in the 21st century?

Now heads up because here is answer: In order for Income Tax to be an effective revenue raiser for a 21st century nation state, the Revenue Agency of a nation must be able to easily document and verify the income earned from its citizens. Let’s unpack this in a hard core image of government forms, the ultimate of verification: the 20th century American created W2 tax form. See my blog on the W2. But most high net worth individuals have figured out how to circumvent the W2. Income tax collections have dramatically declined to the point where the US Government cannot pay its bills. Furthermore, the National Debt keeps rising each year to astronomical levels unseen in our 200 year history as a nation.

So let’s dig out a solution to the income tax problem from some ancient times and civilizations, just like alternative medicine physicians have done with natural supplements form Brazilian rain forests. Sit back and enjoy the ride as we rewind a few thousand years to harvest some simple ancient solutions to cure 21st century tax complications. Back in ancient times, subjects to the King did not have financial records to measure their income. So how did the ancient Kings tax their Subjects? Back in those ancient days wealth was measured in produce like wheat, olives or grain, or animals like sheep, cows, goats, or in real estate like lands, or castles or perhaps in minerals like gold or silver and sadly in human servants and slaves. Can you imagine taking a slice off the top of all these things say 10% worth? The ancient collection of Tithing taking or taxing 1/10 of your wealth was a perfect way for Emperors, Kingdoms and Churches to tax their Subjects wealth. For example if you wake up one morning and had 100 sheep, you owed 10 sheep to the King. Then you do it all over again a year later. Sounds pretty easy to me but hard for us moderns to visualize.

Fast forward 2000 years. Folks around the world are not “subjects to the King” anymore, at least not here in the United States. As US taxpayers we all measure our income on an annual profit and loss statement sent to the government, aka, Form 1040 US annual income tax return. Tithing is out, Income Tax is in. Flat rates are out Graduated rates are in. Oh just so you know in my view Governments are not really collecting income tax. The Tax Code is so riddled with deductions, credits and exemptions that the IRS is not collecting an income tax anymore, the IRS is collecting a behavior tax. Behave like the Government says to behave and you pay no tax. Play a different game and pay more tax. Don’t play the game at all and pay the most tax. Who decides how we are to behave are the special interest lobby groups who have methodically changed the income tax code into the most complex behavior code since Moses wrote Leviticus for the Jews of the Old Testament.

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Now in the 21st century the US cannot collect enough income tax to even pay the basic bills like the armed forces, education, and maintenance of roads and bridges. That’s because most of us have figured out how to behave to pay as little tax as legally possible. “Cut Expenses” the Republicans say. “Raise Taxes” the Democrats say. But Congress should not cut essential services and certainly should not encourage more income tax legislation. The answer is to raise tax receipts by scrapping the non-workable income tax and replace that dying tax with a 10% flat tax. Indeed a flat tax is nothing more than a disguised 10% tithe! Can you see it? Thousands of pages of incomprehensible regulations rules and laws all gone! Replaced with a simple ancient but very effective 10% tithe.

Here’s how it would work as I see it. All Americans each January would donate 10% of their wealth to the IRS in 12 monthly installment payments which would be auto debited out of everyone’s federal checking account. This would be exclusive to the US Government and the account could not be used for anything else except tax payments. All Americans would need to have a Personal Financial Statement (PFS) updated each year and signed under penalty of perjury. Just so you know, this Tithe is not be confused with the simple income tax floating around that could filed on post card based on gross receipts. A Tithe would simply be a slice off the top 10% of what you are worth. So all folks would have to have at least 10% of the worth liquid to pay the tax. I see that as a small price to pay for having no income tax. Can you see it? Taxpayers become Tithers as they pay monthly Tithes to the US Government. No more withholding from paychecks and no more W2s; your gross paycheck is yours to keep and save, yes the entire amount.

There is no question in my mind, in fact I am absolutely certain that if the United States was to change from an income tax to an asset based tax, the budget would have a surplus every year—at least until Congress figured out how to spend it—and within a few years the entire National Debt would be wiped clean. Not only that, but all that offshore money would come flowing quickly back to US soil creating jobs for Americans currently unemployed. The underground economy would disappear and so would all those secret Swiss bank accounts. You all think about this but think “out of the box” like I’m doing. A net worth ancient 10% Tithe: An ancient remedy for the 21st century that works.

Kindest regards
Chris Moss CPA

Income, Reform, Tax, Tithe

Jun 01

The Family Limited Liability Company

By Chris Moss CPA Tax Attorney in Family Limited Liability Company, Off Shore Tax Haven

The Family Limited Liability Company
Submitted by Chris Moss CPA

Credit Suisse pleads guilty to helping “clients deceive U.S. tax authorities by concealing assets in illegal, undeclared bank accounts, in a conspiracy that spanned decades..” —and no one going to jail? According to news reports the only penalty to Credit Suisse was a $2.5 billion fine. In fact, US Attorney General Eric Holder, made certain that Credit Suisse and their CEO Brandy Dougan would still be allowed to do business as usual in the aftermath of the criminal plea.

Are you surprised? The outdated and ultra-complex US Tax Code, 100 years in the making, is a dinosaur in the 21st century. As a result, a few hundred or perhaps thousands of wealthy Americans along with their corrupt tax advisors go through the most amazing hoop of all—they put themselves and their family at risk of criminal prosecution just to save income some tax dollars each year by illegally keeping assets and earnings off shore. Come on America’s top wealthy taxpayers who have their money offshore—there is always a legal work around that will save you taxes and help America, the country that made it possible for you to make all that money. Why not put your money to work here in the United States and start a Family LLC. Start to purchase commercial real estate and put your kids to work in the family business. Start a Family Limited Liability Company. The Family LLC will save you taxes but more importantly will keep the family, your family, together and committed to stay together for many years to come.

According to the Wall Street Journal, “Wealthy families are increasingly turning to family limited liability companies to minimize taxes and transfer assets between generations.” The WSJ goes on to say that the “strategy helps provide hands-on investment education for the younger generation without forcing older family members to cede control.”

Here is how the Family LLC works: The easy workaround for The Parents or Grandparents with net assets less than $10 Million is to gift the bulk of their assets to younger generations You do this by gifting membership interests in the Family LLC to your kids or grandchildren. However, the Grandparents retain management control as managing members. I then customize the operating agreements to match each client’s unique family, business and long range financial goals. For one family the purpose of the Family LLC might be to promote unity within the family, organize and protect the assets of the family from harm including creditors, and as a very distant third purpose to reduce income and future estate taxes.

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For clients of mine with net assets over the $10 Million exemption we would have operating agreements focusing on the reason for discounting memberships to the children. Best practice allows for discounts in the 20% range–and sometimes even up to 30%–primarily because the children cannot sell their interests as per the custom operating agreement. But another reason worth arguing before the IRS is that typically in these cases the children would have minority interests of less than 20% with no management control making their interests worth less even if they could sell.

So for example if a family has a family business with a net worth of $20 Million, a 20% discount would allow for a $16 Million dollar valuation. From that I would recommend a $10 Million dollar gift to the children and grandchildren with the remaining $6 Million still in the membership of the Grandparents. A good tax strategy at that point would be to perhaps leverage the $6 Million to purchase a few more commercial rental properties or perhaps a hotel or a fast food franchise. Creating divisions within the family business allows for children and grandchildren to actually work in these businesses as well as own them.

When all is said and done, if the Family LLC is good for your family, the Family LLC is good for America. My view is that American family business is the backbone of our great nation. If the Family LLC keeps your family business strong, the Family LLC will keep America strong. Ask your tax professional to consider whether you should setup and operate a Family LLC not only to help your family, but to help America.

See you next month and God bless America.
Kindest regards Chris Moss CPA

chris moss cpa, Tax Planning, Tax Strategy

May 18

Tax Return Identity Theft

By Chris Moss CPA Tax Attorney in Tax Return Identity Theft

Submitted by Chris Moss CPA

Tax return identity theft is on the rise. Criminals illegally obtain your name and Social Security number, create phony W-2s and related forms, and file a bogus tax return before you can file your legitimate return. Many of these crooks are organized criminals who have figured out that it is easier to rip you off by filing a bogus tax return than robbing a bank or hijacking a car. These 21st century thugs are ripping off the US Government as well. Uncle Sam is losing millions of dollars if not potentially billions a year in bogus tax refunds and you the taxpayer are out in the cold if you are one of the unlucky taxpayers who get their identity stolen.

The typical identity theft scheme is for the perpetrator to file an early tax return with your social security number and your name but a different address around February through March up to the first week in April. The bogus tax return always shows a refund and is almost always mailed in to the IRS and not electronically filed. The mailing address on the tax return could be a PO Box or an executive office suite or any rented house. Sometimes the address could be an abandoned or foreclosed property where there is an outside mailbox or a mail slot in the door with no occupants to get the mail.

Here is how the scheme works: The refund check comes to the designated address and the mail is picked up by the perpetrator. The check is then either forged and cashed or deposited into a legitimate account but with a fictitious owner. There could be hundreds if not thousands of these refunds for hundreds of taxpayers from the same address to which the perpetrator has stolen identities from. Currently the IRS has absolutely no mechanism to detect such mass refund requests originating from the same address.

In addition the crooks know this crime must be a high volume scam to success. Criminals realize that many of their bogus tax returns will be delayed or questioned by the IRS. So when for example a few hundred of the refunds are received of the thousands of returns filed, the perpetrators close shop and move on. By the time the government investigates the crooks have moved on, new locations have been secured and the illegal operators get ready for the next year’s filing season to start the whole operation again.

How serious is tax return identity theft? The inspector general of the IRS indicate that bogus tax filings are in the millions with billions of dollars potentially at stake. A new proposed bill “Stop Identity Theft Act of 2013” calls for the Attorney General to: (1) make use of all existing resources of the Department of Justice (DOJ), including task forces, to bring more perpetrators of tax return identity theft to justice; and (2) take into account the need to concentrate efforts in areas of the country where the crime is most frequently reported, to coordinate with state and local authorities to prosecute and prevent such crime, and to protect vulnerable groups from becoming victims or otherwise being used in the offense.
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What do I do for my clients? I am constantly on line with IRS Electronic Account Resolution (EAR) throughout tax season for all my clients. When I make an inquiry with the EAR portal prior to the tax return being filed, I get a zero transcript indicated no tax return has been received. When the response is like this one I know there has been identify theft: Dear Tax Professional, Your office submitted a request for taxpayer information. We apologize for the inconvenience but we are not able to process your request at this time. Please have your client contact the Identity Protection Specialized Unit (IPSU) at 800-908-4490. Sincerely Yours Director, Electronic Products & Services Support

While I hope you never have to call the Identify Theft Department of the IRS, once you get a hold of them you realize the road ahead is not going to be easy. You are required to complete Form 14039 Identity Theft Affidavit and submit copies of various documents like a passport and drivers license proving you are who you say you are. All documents and original tax return have to be submitted in a paper version and mailed either snail mail or overnight delivery. Processing takes up to six months or longer.

What can you do right now for the 2014 tax filing season? First, file early in 2015. There is no better way to stop identity theft than to file early. Second, if you move, please notify the IRS of your new address. Call the government and make sure they have your new address on file before you file your tax return and explain that you are concerned about identify theft. Tell your CPA you are concerned about identify theft so your tax professional will check up on your account throughout the year. Never give your entire social security number to anyone on the phone. Vendors will be happy to have you call them back to verify who they are before you give them your social security number.

My thoughts on how to solve tax return identity theft? The IRS should not refund any money to anyone until the taxpayer’s identify is confirmed. This process would significantly delay you all from receiving your refunds. But when you compare the inconvenience of delayed refunds to the absolute nightmare of having your tax return hijacked by criminals I would choose the delay of having my identify confirmed. If you agree with this approach, let your elected officials hear from you about your concern with tax return identify theft. Together we can help the IRS fight back against tax return identity theft and help you all keep your tax returns secure from theft.

Look forward to seeing you all next month,
Kindest regards from Chris Moss CPA

Tax Return Identity Theft

May 04

Offshore Tax Shelters and the Breakdown of America

By Chris Moss CPA Tax Attorney in Off Shore Tax Haven, Off Shore Tax Shelters

Submitted by Chris Moss CPA

Many of you have been perhaps curious as to why American based Pfizer Inc. is paying $100 billion to buy British rival AstraZeneca. Would you believe to save billions in taxes over many years to come? Yes, Pfizer, Brooklyn born and raised, the 165 year old maker of Lipitor, which by the way makes a ton of money off Medicaid and Medicare each year, somehow feels a patriotic duty to abandon the United States through what is called in “inversion” to legally house itself in another country. While the deal is far from done I believe there is something really creepy about a company that makes a ton of money off government programs that are funded with the very taxes that Pfizer is trying to avoid.

There’s more. America is not only being abandoned by big business but turns out now that the IRS believes that many of the 1% are moving money offshore You know the 1% of American taxpayers that supposedly support the rest of us? It is rumored that some of these taxpayers have not been paying their fair share of income tax on the earnings in foreign bank accounts like interest dividends, capital gains, royalties etc. Actually there are some who have never even paid tax on the principal generating these earnings. How easy is this to do? Since 1099s are not issued by foreign banks to American account holders it is very easy indeed for these taxpayers to give all their documentation to their CPA and get their taxes filed each year without ever paying a dime of tax on their foreign earnings.

Human being eliminates through bile the several fat-soluble toxic substances, such as poisonous chemicals, heavy metals, drugs, viagra no consultation medications, etc. Q- What if my prostate cancer progresses or comes back after best viagra pills i receive initial therapy ?Ans- By measuring levels of a substance called prostate-specific antigen in the blood, your physician can measure disease progression. It really is an amazing drug levitra pills online when you think about it. Silagra purchase generic cialis prop up the activity of enzyme cGMP that stimulates the nerve to send a signal to the central nervous system. How serious is off shore tax evasion? The stakes are high. It has been estimated that the U.S. Treasury loses as much as $100 billion annually to offshore tax non-compliance. So back in 2009 in an attempt by the US Government to stop this illegal tax evasion, Senator Max Baucus and Rep. Charles Rangel introduced the Foreign Account Tax Compliance Act. The bill was signed into law on March 18, 2010. FATCA requires foreign financial institutions, including banks and mutual funds, to either collect and disclose data on American clients with foreign accounts holding of at least $50,000, or to withhold 30 percent of the dividend, interest and other payments due those clients and to send that money to the I.R.S. U.S. persons owning these foreign accounts or other specified financial assets must report them on a new Form 8938 which is filed with the person’s U.S. tax returns if the accounts are generally worth more than $50,000; Account holders would be subject to a 40% penalty on understatements of income in an undisclosed foreign bank account. So far so good. But powerful forces have delayed implementation of FATCA until July 1, 2014. Furthermore, in what the Wall Street Journal has reported “a victory for banks worried about the costs and possible disruptions to the financial system” the Treasury Department has decided not to enforce FATCA until 2016.

By the way, just so you know, I’m all for legally reducing taxes. That is what I do for living. I get paid to legally reduce taxes for my clients and I love doing what I do. But I also view my American citizenship as an honor and great privilege. All Americans and American business like Pfizer owe their success to the freedoms American enjoy, freedoms that millions have fought and died for over hundreds of years. Whether legally as Pfizer has done, or illegally as other individual taxpayers have done, it seems to me like a rather unpatriotic thing to do to move money off shore solely to save taxes. My view is that the only winners in the delay of enforcement of FATCA are the big banks, big business, big law firms big accounting firms and the top 1% of Americans taxpayers.

There is still time to do the right thing America. If you don’t like the tax system, tell your elected officials to abolish the IRS with its outdated archaic 100 year old income tax with thousands of pages of insane regulations. Let’s replace the income tax with a 21st century 10% National Federal Sales Tax on all purchases including all internet purchases. Until then let’s try to keep our money and jobs here in the USA and work within our borders to make America a great blessing to our kids and for many generations ahead. God bless America and see you all next month. Kindest regards Chris Moss CPA

chris moss cpa, IRS, Off Shore, Tax Shelter

Apr 01

TAX REFORM ACT OF 2014

By Chris Moss CPA Tax Attorney in Federal Income Tax, Tax Reform, Tax Reform Act of 2014

TAX REFORM ACT OF 2014

Submitted by Chris Moss CPA

You may have heard, Dave Camp(R-MI) Chairman House Ways and Means has come up with the Tax Reform Act of 2014, a massive rewrite of the US Tax Code of 1986. I just finished reading the 194 page Discussion Draft and this is truly a massive revision if not entirely new tax code worthy of comparison to the Reagan reforms over 25 years ago. There are a lot of repeals and a lot of surprises. There is a lot of changes that are good and some that perhaps are not so good. While I don’t think this Tax Reform Act of 2014 is going to become law in its current form anytime soon, just in case, I better tell you just a little about what lies ahead for us all.

The big Surprise for me? Like kind tax free exchanges under Section 1031 would be repealed under Title III Sec. 3133 of the Act. (Page 80). Congressman Camp gives two reasons for this:

1.The like-kind exchange rules currently allow taxpayers to defer tax on the built-in gains in property by exchanging it for similar property. With multiple exchanges, gains essentially may be deferred for decades, and ultimately escape taxation entirely if the property’s basis is stepped up to its fair market value upon the death of the owner.

2.The current rules have no precise definition of “like-kind,” which often leads to controversy with the IRS and provides significant opportunities for abuse

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I guess in the back of my mind, I always thought that a non-simultaneous tax deferred exchange or Starker exchange was too good to be true. See: Starker v. United States, 602 F.2d 1341 Perhaps it was too good to be true. But the US Tax Court is as much to blame for its mind boggling logic as the IRS in promulgating an insanely complex set of treasury regulations that defy any rational explanation. What will happen with the repeal of tax free exchanges?

It’s my guess that there is a vast huge amount of real estate that is owned by hedge funds and the super-rich with a very low if not zero basis right now that has been consistently Starker exchanged for income producing property such as rentals both residential and commercial over the last thirty years. If my guess is right a new industry of qualified intermediaries and real estate professionals creatively and regularly come up with new tax free deals to sell to their customers, creating a very large market and turnover for high end commercially leased property as well as residential condominiums, hotels and substantial other real estate in the United States. Perhaps this market is pumping Trillions of dollars in our economy. Seems like this whole industry is worth keeping. Perhaps we don’t allow a step up basis on death instead of repealing Section 1031? Isn’t that a lot better than creating a massive decline in real estate values as thousands of Starker investors try to unwind their deals.

Smaller proposed provisions to be eliminated and repealed that surprised me:
First, new Section 1402 (page 30) Mortgage Interest now would be limited to $500,000 of debt. Congress claims they are simply encouraging Americans to contribute more equity to their homes and less debt. This sounds good on the surface, But deeper down into the core of this proposed so called “tax reform” are large savings and investment accounts belonging to very wealthy taxpayers just waiting to take advantage of this new provision in the IRS Code of 2014. I will bet you all that money like this was mostly inherited. But for most middle class American working W2 wage earners, any money they try to save and any kind of cash they try build up outside of a 401K is taxed very heavily. So I can just imagine thousands of taxpayers who have spent most of our lives leveraging out real estate purchases with 20% down or even less back in the day will be totally disenfranchised with $500k debt limit. Let’s take an example to bring this home to all of us: Better situation wealthier folks who have the cash-perhaps inherited years earlier- put 50% down or $500 on a home for $1million. I don’t know about you all but I don’t have $500k sitting in a savings account waiting around for a down payment on a home. For Congress to encourage Americans to put 50% down or more without a corresponding incentive to save sends the wrong message to American workers and seems like a no go from the get go.

Finally, second and third: Medical expense would not be deductible at all under the new Section 1409 (page 36) and neither would be alimony be deductible under the proposed Section 1411. (page 37). Why? The proposal draft doesn’t say. (Hey I’m not making this up take a look for yourself.) Perhaps you have had enough? But just so you know, I have a work around for all this. Stay married, healthy, live in a small home, make less money, and don’t exchange anything for a while. End of story.

Until next month, kindest regards from Chris Moss CPA

Tax Reform Act of 2014

Mar 01

2014 Taxation of Internet Sales

By Chris Moss CPA Tax Attorney in Federal Income Tax, Internet Sales Tax, Internet Taxation, State Income Tax Reform, US Constitution

Submitted by Chris Moss CPA

Many of you have purchased products via the internet, either through Amazon.com or some other retailer. Sometimes you are charged sales tax and sometimes you are not. Have you wondered about the law that governs collection of tax on internet sales in the 21st century? The 2014 Tax Trend is toward eventual full taxation of all internet sales. Here is why:

All local and state governments want to collect tax revenue from sales of goods and services sold by retailers to you the consumer. But with regard to internet sales, there has never been a clear connection between the retailer and the consumer to allow the state governments to collect tax without violating various provisions of the United States Constitution. It has been for over fifty years well settled that the Constitution’s Due Process Clause as well as the Commerce Clause “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax,” Miller Bros. Co. v. Maryland as cited in Quill Corp. v. North Dakota

To circumvent Constitutional restrictions, States have started to look more closely at the “use tax” laws that have been on the books for many years. A use tax is a tax on “use” of a product in the state for which no sales tax was paid. What that means to the consumer is that if you didn’t pay sales tax when you purchased the item, you are required to pay a use tax to your resident state if you are using the product you purchased. Unfortunately for the States, this tax is rarely collected because it is unenforceable as the laws are written. There is no way for a state to know if in fact you have used the product in the State unless you voluntarily communicate this to the State. How many of you have done that? Many states are even allowing for voluntary disclosure on income tax returns of how much you paid for products that you did not pay sales tax on and asking for payment via personal state income tax returns. But the State has no way of knowing the exact date you used the product in the state. The State only knows the date of purchase. If you did not use the product in the State then no tax can be collected. As an example, you purchase a product via internet in California and have it shipped to New York for use by someone else. Who collects tax on this purchase? Seems to me you could not be liable for a use tax since you didn’t use the product in California. But how would anyone know that except you?

So what are you waiting for? Get enrolled yourself so you’ll be able to complete your divers ED classes in California before you are granted a license or permit to be able to invariably select learner’s permit online that you will be receiving buy cialis line the care of a doctor whose training extends into the specialty area of sports medicine. Although there purchase of levitra is no sure way of determining the sexual effect of the extract on the patients. People even after being so stressed out were helpless and could not levitra generic india do anything to get through the problem of erectile dysfunction. If bile is getting acidic, there are more precipitated bile acids in the sildenafil 100mg viagra bile. States are now realizing that use tax is not going to work. Instead States have started aggressively taxing the internet based retailers with new legislation trying to create a connection to the State via the internet that will not run up against US Constitutional restrictions. From what I am seeing, the States are winning. The latest setback for the internet retailers came just two months ago when the US Supreme court refused to hear the case of Amazon vs New York State. Under the newest New York law that Amazon claimed was unconstitutional was a provision that required retailers without a physical presence in the state to collect tax if they use a local resident to solicit business online. Amazon sued New York claiming that they had no physical presence in the state. On the other hand, New York claimed in court that Amazon got business through New York-based affiliates who were “linked” only through the internet to Amazon. The New York Court of Appeals, the state’s highest court, concluded that affiliation agreements provided the minimum contacts and nexus to the State of New York to pass Constitutional muster. Amazon appealed through a “writ of certiorari” to the Supreme Court. The Supreme Court denied the writ on December 2, 2013 thus allowing the New York ruling to stand. For those of you who want to read the case here is the link to the various filings and petitions to the Supreme Court.
Here is the Supreme Court link
Here is the New York State Court of Appeals link

What does this all mean for us? There is no good news here for consumers. I believe that within the next few years a retailer with internet based business will be required to withhold sales tax on all internet purchases in most if not all fifty states. Taxes will be withheld and sales tax will be remitted to the appropriate state taxing authority. Moreover, it is only a matter of time, perhaps a few years later, that the Federal government will get a piece of this lucrative tax business. In my view Congress will enact a new National Sales Tax on internet commerce to be paid directly to the US Treasury through the IRS. How all this tax revenue will be collected and more importantly apportioned by the retailer to the appropriate state and possible future federal taxing authority will be subject of much litigation and confusion. However, eventually there will be a formula as legislated by Congress and approved as Constitutional by the Courts that will work its way into the taxation system allowing for fair collection of tax on all internet sales. The only good news here is that someday you can tell your children that years ago when mom and dad were younger there was no tax on internet sales.

Until next month, kindest regards from Chris Moss CPA

2014 Taxation of Internet Sales, National Sales Tax, Tax Reform, Taxation of Internet Sales

Feb 09

Delaware Statutory Trust Section 1031 DSTs

By Chris Moss CPA Tax Attorney in 1031 Tax Deferred Exchange, Delaware Statutory DST

Submitted by Chris Moss CPA

In my past blog in December 2013 I briefly discussed the Delaware Statutory Trust (DST) as a possible investment for 1031 tax free exchange deals but concluded that Tenant in Common (TIC) deals were better for entrepreneurs and small business owners. In this February 2014 blog I am recommending DST for retired or soon to retired accredited investors and less risk taking baby boomers who have substantial assets generating no income with a very low cost basis. Here is why:

Are you the owner of a large track of land that may be ripe for development? You want to sell, but your cost basis is very low or zero and the tax upon sale would be very high. Perhaps a DST is right for you. A DST is an investment trust classified by the IRS as a qualifiying investment for tax free recognition under Section 1031 of the IRS code. For those interested in the IRS revenue ruling 2004-33 here is the site:
IRS Letter Ruling 2004-33

If you read the ruling you may agree with me that how the IRS takes the facts in the above case and applies these facts to current law to create this ruling defies logic. Yet thanks to logic defying IRS ruling 2004-33, DSTs are a great opportunity for baby boomers who are retiring or about to retire to sell their non-income producing assets with a low cost basis and replace those assets with income producing commercial real estate all tax free under Section 1031.

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Your tax attorney tells you about the DST. You sell the land for $10 Million and your qualified intermediary (QI) is wired the funds. You have 45 days to find a replacement property and 180 days to close the deal. Your investment advisor finds you a wonderful DST, an ABC pharmacy in Las Vegas with a 20 year triple net lease in a $120 Million Condo on the upper Strip past the CDF Hotel. There is 50% equity and 50% debt so for your $10 million you can purchase up to $20 million in ownership in this DST with an expected rate of return of 7.25 percent a year. You get monthly distribution checks for the duration of the investment and upon termination of the deal you can either pocket the $10 Million or roll the deal over again in another 1031 exchange. Here is another plus: these deals only require the Trustee called the Sponsor to be liable for the mortgage. You the investor (beneficiary), have nonrecourse debt and you are not liable on the mortgage. Since nonrecourse debt increases your cost basis for income tax purposes that means higher tax deductions for you with no risk on the debt. There is only one tenant for 20 years and the lease is guaranteed by the ABC pharmacy national corporate office in Chicago. So what’s not to like about this DST.

Well for some folks there is one thing not to like about a DST. And this is a very big thing not to like. Unlike very fluid TIC deals, DST’s allow no changes. No new lease, no new tenant, no capital improvements, no new mortgage, no new investment no new nothing and very important to some investors, no voting rights, There is one way for an investor to make changes but very complex: If the sponsor gives you and everyone else who are beneficiary investors permission to make a change, you must first change the DST to an LLC. This is called a “Springing in LLC conversion” The problem is that Once the DST is converted you can’t qualify for 1031 deals in the future. You can convert back to a DST called a Springing out DST conversion but very complex. Unfortunately there is not a lot of tax guidance in case law from the US Tax Court just yet. If you are in a DST and want to make a changes and get permission to do so, please consult your CPA, Tax Attorney and Investment advisor and get them all in the same room to talk with you since converting a DST to an LLC is very complex and very risky.

In conclusion a DST is preferable to a TIC for purposes of 1031 tax free exchange for perhaps accredited baby boomers retired or about to retire who want to pass on the TIC deals requiring your active involvement and purchase beneficial interests in real estate handing over the management to the Trustee-Sponsor of the DST. The result is a tax free conversion of your land, acreage, or other similar investments to commercial real estate producing monthly rental income for you and your family. Pleases consult your attorney CPA and investment advisor before attempting any of this as DSTs are complex tax strategies for accredited investors. See you next month from Chris Moss CPA

Delaware Statutory Trust, DST, Section 1031, TAX FREE EXCHANGE

Jan 01

IRS Hobby Loss Rule

By Chris Moss CPA Tax Attorney in Hobby Loss Rule

Submitted by Chris Moss CPA

Hobby Loss Rule

Millions of Americans start new business each year and become Sch C sole proprietors, small partnerships and single member LLCs. Some of these businesses almost immediately start making large profits. But an even larger number of businesses struggle for the first few years to develop market share among many competitors in their industry. Large losses are not uncommon for startup businesses sometimes for many years.

Lurking in the path to success for many of these new business owners is an overlooked aspect of tax law called the “hobby loss rule”. Simply stated: Section 183 of the United States Internal Revenue Code, sometimes referred to as the “hobby loss rule”, limits the losses that can be deducted from income which are attributable to hobbies and other not-for-profit activities. The IRS does not hesitate to reclassify as many of these business as they can to “hobby” status so that the losses cannot be deducted.

So when is a business not a business? Let’s take a look at an example of a typical new business audit from the IRS perspective:

In this example we will take Bill Jones who has always wanted to work on his own. Bill has been reading a lot about how home security is a profitable business and decides to take an early retirement as a government auditor and use his 401K money as seed capital until he gets his business up and running. He realizes he will be taxed heavily and will be penalized as he liquidates his 401K, but his brother in law Joe who is a bookkeeper tells him that not to worry, he will be able to deduct losses in connection with his business against the 401K income as well as his wife’s W2 income so there will be no tax as a result and a large refund due his wife when the tax return is filed.

Fast forward a few years, and Bill has not been able to turn a profit yet. Bill works 40 per week trying to market and develop the Security for Life brand and to service his growing customer bases. But he also spends a lot of his time helping with the two children as his wife works full time as a salaried executive. Just when Bill gets a big new contract providing security for new home construction with a local builder, he gets the IRS field audit notice. He panics and calls his brother in law Joe. Joe refers him to a CPA. After the CPA reviews the whole situation he tells Bill the following

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(1) manner in which the taxpayer carries on the activity;
(2) expertise of the taxpayer or his advisers;
(3) time and effort expended by the taxpayer in carrying on the activity;

Bill at first feels great. He clearly works full time and works at least 40 hours a week. But the CPA is not feeling so well because the CPA believes Bill loses on (1) and (3). Regarding the manner in which Bill carries on his business the facts show that Bill has not no separate office out of the home and uses a personal phone number for his business phone. Bill did not obtain a county business license because it would have been too much trouble to get a home use occupation zoning exception. His checking account was not separate and distinct from his personal accounts. Even Bill’s internet service was a “personal” rather than a business account. Furthermore, Bill had no formal training in home security. Bill read lots of books and registered for many internet training sessions, but he never worked for a home security company. He refused to joint venture with a competitor, and refused to trademark his brand “Security for Life”. Bill told the CPA he simply was trying to save money and all these things cost too much including the hiring of a professional tax attorney or CPA.

Fastforward a few more months. In fact the IRS audit did not go well for Bill. The Service claimed that Bill used the business as a “ tax shelter” for his wife’s income. The IRS disallowed all the losses over a 3 year period with a tax assessment of over $20,000 plus interest and penalties.

Bill can appeal this decision. Whether or not he wins simply depends on whether the facts in his unique case are supported by tax law, and how skilled his tax attorney is in advocating Joe’s case before the US Tax Court. His legal costs can easily run over $50K. Bill could not afford to appeal the decision so he paid the tax, penalties and interest, well over $20k. The take away here for all small business owners is to make sure you run the business like a business. If your not sure, hire the pros who could help you make your business bulletproof from IRS audit. If you don’t you may be considered by the IRS a hobby. In the meantime, work hard, grow your small business and prosper and by all means, please make a profit soon.

Kindest regards from Chris Moss CPA

Hobby Loss Rule, IRS Regulations, New Business Start Up, Tax Losses

Dec 01

SECTION 1031 TAX FREE EXCHANGE TIC DEALS

By Chris Moss CPA Tax Attorney in 1031 Tax Deferred Exchange, TIC DEAL

Submitted by Chris Moss CPA

SECTION 1031 TAX FREE EXCHANGE TIC DEALS

My clients have a lot of interest this time of year in tax free exchanges. You can trade tax free just about any “like-kind” property “held for investment” under Code Section 1031 of the IRS code. Let’s take a very simple example: Perhaps you inherited an ocean front condo in Palm Beach which you have rented out over the years. With flood insurance rates rising and the polar ice caps melting you feel you would be better off with a mountain ski condo rental in Aspen. You want to sell one and buy the other but you realize you are going to pay a lot of tax. Section 1031 allows you to exchange one for the other tax free. You can keep trading up and pay no tax as long as the replacement is “like-kind” and the intent is to hold the replacement for “investment”. What defines “like-kind” “investment” and “intent” must be perfectly structured by your tax professional.

The above example is black and white and clearly qualifies for a 1031 exchange tax free deferral as “like-kind” and “held for investment” property. However, most 1031 deals are not so easy and black and white. The vast majority of 1031 deals can turn on a dime depending on the unique facts in each case. For example in a 2013 case, the US Tax Court held that a leasehold interest in a property with a term of 21 years exchanged for a fee simple interest in a property was not “like-kind”. Tax Court 2013-157, US vs VIP In another 2012 case the US Tax Court held that a property you use for your personal residence was not held for investment where the taxpayer placed a single advertisement in a neighborhood newspaper and moved in to use the property as his primary residence only two months later. Tax Court 2012-118, Reesink vs Commissioner

But don’t let these court decisions get you down. These cases are just examples of how not to structure 1031 deals. Correctly structured 1031 deals would allow for exchanging perhaps of a 30 year lease for a fee simple property. Moreover, again correctly structured, a 1031 deal could transfer your family into an investment property as a primary residence, but in my view, best practice requires the property to rent out for at least a year prior to the taxpayer moving in to the property as her primary residence. Furthermore, the facts would have to show that the taxpayer’s intent was to keep the property for investment, not for personal use. How do you prove your intent to the IRS? Your tax professional will need to document, record, and preserve your state of mind at the time of the exchange.

If I have not scared you off yet and you think you might be interested participating in a 1031 exchange, then you need to review all the hundreds of additional like kind exchange combinations from a McDonald’s franchise exchanged for timber producing land, to a patent and trademark exchanged for private airport. Before you choose a replacement consult your tax professional for the full list of all possible exchange combinations and choose one that is legally supportable by the facts unique to your situation and the one more importantly that best fits your financial and investment plan for the future.
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Your next step is to create the unique structure to make your deal come alive. As an example, let’s take a look at a very trendy structure being used these days, the make-up of the investors in most commercial office building deals. Best practices in my view calls for single member LLC investors organized by a sponsor. The CPA usually represents the sponsor in these deals and works with a qualified intermediary (QI) to eventually acquire as I suggest a commercial triple net leased property owned individually by each investor as a tenant in common (TIC). These organized investment pools are not partnerships but rather individual single member LLCs with their own unique 1031 sales history. Each TIC has sold their different properties with the funds flowing to the QI. The Sponsor has selected a replacement property within the required 45 day window which will be purchased by the QI with the total of all the TIC sales proceeds, Each TIC receives his pro-rata share until the property is fully funded and purchased. For example a TIC with a $5M contribution will receive 20% of a $25M replacement property. Finally, no partnership returns are required to be filed with the IRS. In fact, the Sponsor TIC agreement specifically states that the group is not a partnership because as you may already know partners in a partnership do not qualify for tax free 1031 treatment.

After the creation of the structure the next step is to select your Qualified Intermediary. I personally look for an intermediary who is a member of the Federation of Exchange Accommodators (FEA). According to the FEA: A Qualified Intermediary (QI) is the professional provider of the mandatory mechanics of an exchange. The use of a QI, as an independent party to facilitate a tax-deferred exchange, is a safe harbor established by the Treasury Regulations. Sometimes QI’s are referred to as “accommodators” or “exchange facilitators.” When the taxpayer engages the services of a QI, pursuant to an exchange agreement, the IRS does not consider the taxpayer to be in receipt of the funds. The sale proceeds go directly to the QI, who holds them until they are needed to acquire the replacement property. The QI then delivers the funds directly to the closing agent who deeds the property directly to the taxpayer. Here is a link to the FEA web site

We are almost ready to bulletproof the deal. The examples I have used are straightforward easy simple 1031 TIC deals. But the average deal and related structure is never that simple. Most average 1031 exchanges are amazingly complex deals with even more complex structures which must be perfectly extemporaneously executed and legally supported by the facts and circumstances surrounding each taxpayer’s unique situation. So the last step in the process is to bulletproof the structure in the event of an IRS audit of one of the TICs. Moreover, if and a TIC gets audited, usually all the TICs get audited so there is good reason to make sure these deals are executed flawlessly.

Before we conclude, just a word about the Delaware Statutory Trust (DST). DSTs are perfectly suited for one large Real Investment Trust (REIT) Trustee who manages and more importantly controls the whole deal. I do not recommend DSTs to my clients who are successful small business owners and investors. Innovators and entrepreneurs are going to want to control the direction and outcome of these deals. So again in my view the TIC not the DST is the way to go for individual and family business owners. For more on the difference between DSTs and TICs please consult your CPA.

In conclusion, as complex as these deals are, taxpayers love these 1031 exchanges because the up side, if the deal is correctly structured, is a very large tax deferral for perhaps forever. So I advise all of you to always consult your CPA tax advisor before attempting a 1031 TIC tax free exchange. Good luck from Chris Moss CPA in your 2013 year-end Section 1031 tax deferred exchange and see you all in 2014.

SECTION 1031 TAX FREE EXCHANGE, TIC DEALS

Nov 01

Off Shore Tax Havens

By Chris Moss CPA Tax Attorney in Off Shore Tax Haven

Submitted by Chris Moss CPA

Corporations pay the top tax rate on foreign profits, but not until those profits are brought back to the US from abroad. This exception is known as corporate offshore income deferral. But are US individuals able to achieve this kind of “income deferral”?

US citizens and resident aliens all are taxed by the US on their worldwide income. That applies to all foreign corporations, partnerships LLCs and TIC deals you “control” in tax free havens. It seems like this is pretty straight forward. End of story? Hardly.

To begin with, it would be good for us to know exactly where these foreign off shore tax havens are. According to a January 2013 Congressional Research Study here is a list of some of the more popular tax havens:

Caribbean West Indies Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Dominica, Grenada, Montserrat, a Netherlands Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, Turks and Caicos

Central America Belize, Costa Rica, Panama

Coast of East Asia Hong Kong, Macau, Singapore

Europe/Mediterranean Andorra, Channel Islands, Cyprus, Gibraltar, Isle of Man, Ireland, Liechtenstein, Luxembourg Malta Monaco San Marino Switzerland

Indian Ocean Maldives, Mauritius, Seychelles

Or of your buy sildenafil kids are feeling creative they may like the bird making workshop with Caroline Gregson. Gingko biloba is an example of an herb that is known for its effectiveness in levitra on line raindogscine.com addressing digestive issues. generico levitra on line This is not the case at all. You need to stop cheap levitra suddenly mid-stream and after a small pause you should continue normally. Middle East Bahrain, Jordan, Lebanon

North Atlantic Bermuda

South Pacific Cook Islands, Marshall Islands Samoa, Nauru, Niue, Tonga, Vanuatu

Perhaps I have perked your curiosity. Interested you say in a tax free haven? After you decide on the country you want to set up in, you then usually workout a tax free plan for investment off shore with an advisor who specializes in this area. These advisors may be investment advisors, bankers or other financial types who are selling their off shore tax free strategy. How do you find out more about these deals? I just googled “tax free off shore investments” and got this ad: Setup an offshore company in Cayman and enjoy zero taxes and more!

Still interested? Here is how it works: Funds whether previously taxed or never taxed are wired by the US taxpayer off shore. Any major bank with offices around the world like UBS (United Bank Switzerland) for example can move funds from a US based account to a tax free haven account with a computer journal entry in a matter of seconds. The tax free haven bank usually keeps the account a secret and does not issue any documentation to the IRS.

While some banks in Switzerland are now working with the IRS to identify American account holders, many banks still provide secret accounts. The accounts are further protected because the account is “owned” by a paid foreign national retained by the off shore advisors you hired. The foreign national signs all the paper work but isn’t really the “real” owner. The true owner, the American taxpayer is never disclosed to the IRS. However, the American taxpayer usually receives Debit and Credit cards connected to the account giving the taxpayer the “control” over the funds to purchase goods and services anywhere in the world. The CPA preparing the subsequent annual Federal income tax return for the taxpayer is never told about any of this. Best practice requires CPAs to ask their clients if they have control over foreign bank accounts but as a practical matter this is rarely done in a face to face meeting with the client. As a result, no disclosure is made on Schedule B and no foreign source income such as dividends or interest is reported on the tax return by the CPA. If you haven’t guessed by now, this whole scheme is illegal and subject to criminal prosecution.

Why do Americans get involved in this clearly illegal tax evasion scheme? Perhaps there are many who believe “tax free” haven means that any income earned overseas in a tax free country is tax free in the US as well? Or maybe Americans feel we are all paying too much tax anyway, so what is wrong filing our personal tax returns with our own tax shelters, just like the wealthy have done. Yes, there are a few off shore complex legal tax strategies that would work well for wealthy taxpayers. The sad fact is that the cost to construct this legal bullet proof structure is generally prohibitive for all but the wealthiest of taxpayers.

Have you decided yet? Perhaps we will meet someday as we visit some these tax free havens in the Caribbean as tourists. My hope is that you will not view these islands as a place to avoid paying income tax to the IRS. But if anyone is still not convinced, there is a good saying worthy of remembering when these deals are presented to you: “If it’s too good to be true it probably isn’t.”

See you next month Kindest regards from Chris Moss CPA

Illegal Tax Schemes

Oct 31

Obamacare

By Chris Moss CPA Tax Attorney in Obamacare

There is a lot that might be wrong with Obamacare, but Obamacare got it spot on with the creation of uniform eligibility requirements and internet registration. So today I am blogging on this one area of Obamacare involving how Americans become eligible to participate in Obamacare programs. Let me first explain with a little background history. If you are old enough to remember a government program called “welfare” you might also know about Lyndon Johnson’s 1965 Great Society and its focus on eliminating poverty in the United States. With much fanfare Welfare was replaced with a Great Society program called Aid to Families with Dependent Children (AFDC). Coupled with free health care called Medicaid these two programs combined to provide a safety net for poor Americans below the then established poverty level who could not find work.

As we all know, Great Society programs were very expensive and undertaken during the 1960s in the backdrop of the Vietnam War. Back then sixty years ago National Debt was not an issue. But National Debt soon became a big issue. By the end of the 20th century Congress was focused on reducing National Debt and creating annual balanced budgets. As a result there was a movement to cut back many of the expensive Great Society programs with particular emphasis on cutting out government waste and fraud. Of all the expensive programs riddled with waste and fraud, AFDC was the poster child for a program that was simply not working. There was a great interest from both political parties in getting AFDC families off government assistance and back to work so as to make that program more cost effective. President Clinton in 1996 signed legislation replacing AFDC with the Temporary Assistance for Needy Families (TANF) block grant. At the core of the TANF program were new federal work standards that required able-bodied welfare recipients to work, prepare for work, or at least look for work as a condition for receiving aid. Welfare reform turned “welfare” into “workfare.” There was only one problem: Parents in families receiving cash assistance under TANF were no longer automatically eligible for Medicaid. With Medicaid being administered by each state a little differently paperwork requirements to become eligible for Medicaid mushroomed into a bureaucratic and expensive mess. Asset based tests in particular were costly for state governments to administer as they were very labor intensive. In many cases the complex eligibility requirements delayed applicants from receiving immediate medical attention. Some applicants with non-liquid assets were simply unable to quickly get the medical attention they needed. Others simply flocked to the already overcrowded emergency rooms of the local hospitals driving up medical costs and ultimate insurance premiums for all Americans.

As States began to do away with these asset based requirements to save money there was at the same time more and more reliance on electronic internet applications to further cut labor costs and to expedite the approval process. So by the time Obamacare did away with asset based tests there was little disagreement that electronic internet based applications would dramatically speed up the screening and approval process. Beginning in 2014 Modified Adjusted Gross Income (MAGI) will be the sole determining factor in Medicaid, the Children’s Health Insurance Program (CHIP) and any subsidies received for purchase of private health insurance coverage through the government Exchanges. What is MAGI? MAGI is simply Adjusted Gross Income (AGI) increased by all tax exempt income and a few other adjustments. So long as your tax return shows your MAGI to be less than 133% of the poverty level eligibility in 2014 you are “in” even if you live in a $10M mansion Beverly Hills.
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Will there be abuse by some wealthy folks. Possibly, but more likely though, the Medicaid applicant will have just lost his or her job has two children in public school, and perhaps has six months of savings in the bank with a house and mortgage to pay. Americans will now get a chance to get back on track, apply for a new job, and keep their house without depleting their life savings to qualify for Medicaid and health care, and this is why uniform eligibility requirements is but one of the few bright spots in Obamacare. Finally, it is indeed ironic that the Obamacare software has major performance issues as this Blog goes to press. Nevertheless, once the software is tweaked to work, it is my humble opinion that the eligibility process will revolutionize the administrative side of health care delivered to American taxpayers, hopefully for the better.

Kindest regards from Chris Moss CPA

Health Insurance, Modified Adjusted Gross Income, Obamacare

Aug 12

It’s not the Tax Code, It’s the Tax

By Chris Moss CPA Tax Attorney in Tax Reform

Submitted by Chris Moss CPA

Back in 1986 Bob Packwood and Dan Rostenkowski were the tax reform dynamic duo proposing sweeping new tax reform legislation; fast forward over twenty five years to 2013 and we have Max Baucus and Dave Camp proposing sweeping new tax reform legislation.

But Tax Reform in of itself has proven allusive to all who have tried. In a span of just over twenty five years, Reagan, Bush, Clinton, Bush and Obama have signed over 17 major tax bills creating a tax code of such complexity that the majority of CPAs use sophisticated computer programs to finish up the complex mathematical calculations needed for most lines on even simple tax returns.

What if Congress were to think “out of the box”? Could the answer to tax reform be that we are reforming a tax that cannot be reformed? Could the “income tax” be obsolete for the 21st century and be scrapped in favor of a new type of tax?

Historically over the years personal income tax receipts have consistently kept pace with the Gross Domestic Product (GDP) with the exception of a few years during World War II. However, in 1943, the newly created W2 form issued by the IRS added 60 million new taxpayers to the personal tax system. According to the White House office of Management Budget, by 1944 just one year after creation of the W2, receipts from taxes as a percentage of GDP more than doubled from 3.6% to 9.4%. This also matched the spike in expenditures as a percent of GDP to pay for World War II.

The additional revenue produced by the mid 20th century W2 has unfortunately not fit well into the 21st century. As a result, as US expenditures slowly rise each year as a percent of GDP, personal income tax receipts have been in decline. In 2012 receipts from personal income tax amounted to a paltry 7% of GDP. As a result, as all of us know, the US Treasury has had to borrow money to make up the difference.
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Why is this? No it’s not because we spend too much. There is a much easier answer that no one talks about. Most Americans legally pay no tax at all and the very wealthy have found numerous tax strategies to legally avoid paying tax as well. The fact is that very few Americans are paying income tax in the 21st century because the income tax base, like the polar ice caps, keeps shrinking. As the tax base keeps shrinking America will need to borrow more and more each year to stay afloat.

What is the solution to a national shrinking tax base? Many in Congress feel that we spend too much money and that if we cut spending our tax revenues would be sufficient to fund the expenditures of the nation. We all know that is simply not going to happen without a dramatic drop in our standard of living. Many Federal Agencies provide essential government service to us. Do we really want our American way of life to decline because we don’t have enough money to pay our bills? We cannot and should not have to tell our kids that their life will not be as good as ours. To that end, America must keep its financial engines running with adequate tax receipts. In order to do this I propose a simple solution that will allow for America to remain strong.

The solution is a gradually phased in 2015 national sales tax coupled with a flat gross receipts tax of say 5% on every American with no exemptions for anything. Everyone pays 5% of their gross receipts coupled with a 10% sales tax on everything purchased. This includes all big ticket items including homes. Everyone pays tax. No exemptions for the poor, rich or middle class. If we do this, tax receipts would increase dramatically to an estimated 16% of GDP. The increase in receipts would be a major windfall of revenue in 2015 and every year thereafter. Such increased revenue would put our nation back on track. The US Treasury could match receipts to expenditures and show that world that we are fiscally responsible nation without cutting our standard of living. Essential domestic and foreign programs including our military would have the funding needed to keep America strong.

In conclusion, the combination of a national sales tax and a simple flat gross receipts tax is a 21st century tax to solve 21st century economic problems. So listen up Congress, particularly the Honorable Baucus and Camp: It’s not the tax code, it’s the tax.

See you all next month
Kindest regards from Chris Moss CPA

2013 tax reform, Tax Reform, Tax Strategy

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