Foreign Account Tax Compliance Act Summary

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Reporting by U.S. Taxpayers Holding Foreign Financial Assets

FATCA requires certain U.S. taxpayers holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return.  Reporting applies for assets held in taxable years beginning after March 18, 2010. For most taxpayers this will be the 2011 tax return they file during the 2012 tax filing season.  Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).  Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

Reporting by Foreign Financial Institutions

FATCA will also require foreign financial institutions (“FFIs”) to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To properly comply with these new reporting requirements, an FFI will have to enter into a special agreement with the IRS by June 30, 2013. Under this agreement a “participating” FFI will be obligated to:

(1) undertake certain identification and due diligence procedures with respect to its accountholders;
(2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership; and
(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

Notice 2011-53 provides the phased-in timeline of key FATCA implementation dates for FFIs. It is important to note that many details of the new reporting and withholding requirements pertaining to FFIs must be developed through Treasury regulations that are expected to be proposed by December 31, 2011.

One tax break lost means opportunity for other

U.S. firms enjoyed having their home office in Puerto Rico for years. The tax breaks for doing this have now gone away. How do the companies react to this loss? They simply shift their home office location to the Cayman Islands. Problem solved. This was assuredly not the intent of the law changes, but there are many instances where the ripple effect of new laws is not fully thought out or realized until it is too late. These offshore tax deferred earnings total at least $1.38 trillion according to a report from J.P. Morgan Chase.

Companies legally move profits offshore using the system of allocating income between units in different countries. This lets the corporations profit from a product that has earning in the Cayman Islands even though it was made in Puerto Rico and sold in the states. The profit shifting costs the U.S. government an estimated $90 billion a year. Read more at http://www.washingtonpost.com/business/2011/12/20/gIQAJ8o9DP_story.html

IRS Identity Protection PIN

Later this month, the IRS  will be sending letters out to approximately 250,000 taxpayers that  contains their 6-digit “Identity Protection PIN.” Taxpayers will  receive this letter because they have informed the IRS that they were  the victims of identity theft which the IRS has confirmed after  reviewing documentation provided by the taxpayer.

The Identity Protection  PIN must be entered on the affected taxpayer’s Federal return in  order to avoid a delay in processing the return and receipt of their  refund.

If you learn that one of  your customers has been a victim of identity theft, you should ask  them if they received a letter from the IRS. If they have, ask them  to bring it with them when they come in to have their 2011 Federal  return prepared.

Things to know about the  Identity Protection PIN:

• If the taxpayer  received an Identity Protection PIN and it is not entered on their  return, the IRS will reject the return if it is filed  electronically.
• The Identity  Protection PIN received by the taxpayer this month is only valid for  use on their TY 2011 return.
• For an affected  taxpayer, if the Identity Protection PIN is entered incorrectly, the  processing of their return will be delayed.
• If the taxpayer  misplaces their letter and cannot remember their Identity Protection  PIN, they cannot obtain a new one from the IRS. In this case, they  will have to file their return on paper and the processing of their  return will be delayed while the IRS validates that the return filed  is the taxpayer’s.
• If both the taxpayer  and spouse receive an Identity Protection PIN, only the taxpayer’s  should be entered on the return.
• When the Identity  Protection PIN is entered in the CrossLink program, the PIN will be  transmitted to the IRS as part of Form 1040. It will also print on  Form 1040 in the area designated for this purpose in the signature  area of Form 1040.
• An affected taxpayer  will receive a unique 6-digit PIN each year for 3 years following  verification by the IRS.
• The Identity  Protection PIN should not be confused with the 5-digit  taxpayer/spouse electronic self-select PIN.

Read more about the IRS  Identity Protection PIN program.

If one of your customers  informs you that they have been a victim of identity theft and they  have not contacted the IRS you should do one of the following:

• See the IRS  Identity Theft website.This  site contains information such as what documents the IRS requires the  taxpayer to submit for the IRS to validate their claim, where to send  the information, and how the taxpayer can contact the IRS Identity  Protection unit; or
• Have the taxpayer  contact the IRS Identity Protection Unit at 1-800-908-4490. Their  hours of operation are Monday – Friday 8:00 am – 8:00 pm your  local time.

A visit to the Department of the Treasury

The Department of Treasury has many bureaus. One of which is the IRS. Since I do a lot of work regarding taxes I thought it best to pay them a visit and get a history lesson at the same time. In order to get a tour you must contact you congressional representative. They are only conducted on Saturdays.  The entrance is very close to the White House at the south side of the Treasury building. The first thing you realize is that is was built in different sections over many years. There is a tremendous amount of history with many notable events occurring there. After Lincoln was shot, it housed a temporary work space for the next in line who pardoned the southern troops and put a $100,000 bounty on the southern leader as they thought he had something to do with the assassination. The picture in this article is that of a wall leading to a “burglar proof” vault. It was lost to history for a while as a plaster wall was placed in front of it. Only during renovations was it discovered. There were ball bearings in the wall to make it difficult for burglars to drill through the walls which was how they entered vaults during that time. Most of the ornate carvings are that of farming goods as the country was mostly agricultural at the time.

You will find out many interesting things that are tied to the Treasury Department such as a former employee was the deciding supreme court member who decided that slaves were still property in the North and should be returned to the South. He was the one who probably had the most to do with the breaking out of the Civil War when it occurred. The same person that later swore in Abraham Lincoln. You will see actual couches that are also in the paintings from 1870s. The restoration efforts are truly amazing. Among all of this history you realize that it is still a working office building that is used daily. Alexander Hamilton was the first Secretary of the Treasury and he served from 1789 to 1795. He was later killed in a dual in 1804. At the time government employees did not get paid very much at all and he was not independently wealthy so he simply could not afford to continue his work there at the time.

Notable events include that the old Treasury building was burned down in 1814 by the British. They rebuilt it on the same spot only to watch it burn in a fire in 1833. Many may not realize this, but the reason Washington DC became the capital was because of an agreement through the Treasury Department to pay off the Civil War debt. Many states already paid their dept so an agreement was put in place for those states to help the ones who were less fiscally responsible (mostly the northern states at the time). In exchange for paying more debt of the north, the capital was moved south. After shooting Lincoln, Booth got one of his spurs caught on a flag casing him to land badly on the stage injuring him during his escape. The flag was a Department of Treasury flag.

After your tour I would suggest going to the Old Ebbitt Grill for a bite to eat at 675 15th Street, NW. It is the oldest pub in DC as they were founded in 1856. Many historical figures of past and present have eaten there many times. The menu is fantastic. Enjoy!

For more information visit:

http://www.treasury.gov/about/history/Pages/The-Treasury-Building.aspx

Using ESBT and QSST Elections to Avoid S Status Termination

Thee formation and funding of trusts has become commonplace in the last ten years for many individuals doing estate planning. They place certain assets in the trusts to ensure the assets pass to their heirs without going through probate. One of the assets many individuals have been placing in these inter vivos trusts is S corporation stock.

The owner of the S corporation stock in the case of a grantor trust is the grantor, thus the S election is preserved. Grantor trusts that become irrevocable and testamentary trusts fall under the same rules as an estate. These trusts can only be shareholders for two years. If these trusts continue to hold the stock for greater than two years, the S election terminates. The ESBT and QSST are both allowed to hold the shares of the S corporation beyond the two-year period. A trust must make an election to become an ESBT or QSST within two months and fifteen days

of becoming a shareholder. If an election is not made, the S election will be terminated with two years of the trust receiving the stock. There have been dozens of private letter rulings issued in 2010 regarding the election to become an ESBT or QSST. The letter rulings resulted from the inadvertent termination of the S status due to the omission of the election by the trustee, executor or trust beneficiary. This situation could have been avoided had these individuals been on the same page and communicated the duties required to maintain the S status.

Making the ESBT election has advantages and disadvantages. The trust making the election is permitted to have successor beneficiaries. It can distribute income to multiple beneficiaries while still preserving S status. However, the trust is required to pay tax on the income related to the S

corporation stock at the highest individual tax rates. For 2010, ordinary income would be taxed at 35 percent, long-term capital gains taxed at 15 percent, etc. The trust is not allowed the income distribution deduction; thus the beneficiary recognizes no income from the S corporation. The election is made by sending an election statement to the IRS service center where the S corporation files its return. The election can be made when the S election is made or separately after the Form 2553 is fi led. If the trust holds the stock of more than one S corporation, it may be required to send a copy of the election to several different centers.

The pass-through income from the S corporation is treated the same as under the grantor trust

rules; the income beneficiary reports the income directly on their own tax return. Distributions from the S corporation must be distributed from the trust to the beneficiary. If the trust owns other income producing assets, this income must be distributed annually. If the trust becomes a shareholder after the S election has been made, the election is made by sending an election statement to the IRS service center where the S corporation files its return. The election can be made when the S election is made by filling out Part III of Form 2553.

Source: Exerpt of article from Kevin Brown, EA; NATP TAXPRO Monthly, August 2011

Cell Phones for Soldiers

We are a drop off site for Cell Phones for Soldiers. If the office is closed, please put items in door slot to left of office in parking lot. Thank you.

Cell Phones for Soldiers Mission:

Cell Phones for Soldiers is a non-profit organization dedicated to providing deployed and returning troops cost-free methods to communicate with family while serving in the United States military.

Cell Phones for Soldiers Fast Facts:

Since 2004, Cell Phones for Soldiers…

• Raised more than $7 million and provided more than 114 million minutes of free talk time
• Mails approximately 12,000 calling cards each week
• Recycled more than 8.3 million cell phones, reducing the impact on landfills
• Anticipates the launch of a new program, Helping Heroes Home, to provide returning troops with 30-days of free phone service following deployment.
• Has remained a family-run, non-profit organization operated almost exclusively by Bob, Gail, Brittany, Robbie and Courtney Bergquist.

History

Since its inception in 2004, Cell Phones for Soldiers has worked to keep military families connected by providing FREE communication tools to those serving overseas in the United States military. In seven years, the registered 501(c)(3) has provided troops with more than 2 million pre-paid calling cards, equating to 114 million minutes of FREE talk time.

Cell Phones for Soldiers hopes to continue its mission to provide troops with FREE calls home through generous monetary contributions and the recycling of used mobile phones. Used mobile phones from all service providers are accepted. Each $5 contribution, or donated device valued at $5, will provide troops with 2.5 hours of FREE talk time.

Cell Phones for Soldiers was founded by Robbie and Brittany Bergquist of Norwell, Mass., at the ages of 12 and 13. The organization has raised more than $7 million in donations and collected more than 8.3 million cellular devices.

“Cell Phones for Soldiers started as a small way to show our family’s appreciation for the men and women who have sacrificed the day-to-day contact with their own families to serve in the U.S. armed forces,” says the teens’ father, Bob Bergquist. “Over the past few years, we have been overwhelmed by the generosity of others. But, we have also seen the need to support our troops continue to grow as more troops are sent overseas for longer assignments.”

Through increased fundraising efforts, the Bergquist family hopes to raise additional funds to support new programs such as providing phones with prepaid service to allow soldiers abroad to talk to their families on a regular basis.

To find out more visit cellphonesforsoldiers.com

The Better Business Bureau

BBB Accreditation Standards

BBB Code of Business Practices

The BBB Code of Business Practices represents sound advertising, selling and customer service practices that enhance customer trust and confidence in business. The Code is built on the BBB Standards for Trust, eight principles that summarize important elements of creating and maintaining trust in business.

This Code also represents standards for business accreditation by the BBB. Businesses based in the United States and Canada that meet these standards and complete application procedures will be accredited by the BBB.

To be accredited by BBB a business or organization affirms that it meets and will abide by the following standards:

1. Build Trust
   Establish and maintain a positive track record in the marketplace.  An accredited business or organization agrees to:
    
   • Have been operational (actively selling products or services) in any BBB service area for at least the most recent 12 months, unless the principal(s) previously operated a similar business with an eligible record (one that qualifies for BBB accreditation).
   • Fulfill all licensing and bonding requirements of applicable jurisdictions; provide all license and bonding information upon application for BBB accreditation; and provide periodic updates upon request of the BBB.
   • Be free from government action that demonstrates a significant failure to support the BBB ethical principles in marketplace transactions (this requires a determination by the BBB as to the nature of any violation, whether it was caused or condoned by management, and actions taken to resolve underlying issues that led to the government action).
   • Be free from an unsatisfactory rating and maintain the minimum grade requirement at the accrediting BBB and the BBB where it is headquartered, if different.
   • In its relationship with the BBB:
     • meet all applicable standards within this Code of Business Practices
     • cooperate with the BBB’s activities and efforts to promote voluntary self-regulation within the business’ industry
     • honor any settlements, agreements or decisions reached as an outcome of a BBB dispute resolution process
     • complete the required application and pay all monetary obligations to the BBB in a timely manner
2. Advertise Honestly
   Adhere to established standards of advertising and selling.  
   An accredited business or organization agrees to: 
   • Follow federal, state/provincial and local advertising laws.
   • Abide by the BBB Code of Advertising. Supply, upon request, substantiation for advertising and selling claims. Correct advertising and selling practices, when recommended by the BBB.
   • Adhere to applicable BBB industry codes of advertising.
   • Cooperate with the BBB self-regulatory programs for the resolution of advertising disputes.
   • Use the BBB name and logos in accordance with BBB policy.
   • Avoid misleading customers by creating the false impression of sponsorship, endorsement, popularity, trustworthiness, product quality or business size through the misuse of logos, trustmarks, pictures, testimonials, or other means.
3. Tell the Truth
   Honestly represent products and services, including clear and adequate disclosures of all material terms.  
   An accredited business or organization agrees to: 
   • Make known all material facts in both written and verbal representations, remembering that misrepresentation may result not only from direct statements but by omitting or obscuring relevant facts.
   • Ensure that any written materials are readily available, clear, accurate and complete.
4. Be Transparent
   Openly identify the nature, location, and ownership of the business, and clearly disclose all policies, guarantees and procedures that bear on a customer’s decision to buy.  
   An accredited business or organization agrees to: 
   • Upon request, provide the BBB with all information required to evaluate compliance with the BBB standards. This may include, but is not limited to business name, address and contact information; names and background of principals; business and banking references; licensing and/or professional accreditation; and a complete description of the nature of the business.
   • Clearly disclose to customers:
     • direct and effective means to contact the business
     • terms of any written contract
     • any guarantees or warranties accompanying a product
     • any restrictions or limitations imposed (e.g. limited supply, maximum number available per customer)
     • the business’ return/refund policy
     • any recurring commitment into which the customer may be entering, including information on how future billing will occur
     • total cost of the transaction, including tax, shipping and handling, and other related charges
   • If selling products or providing services on Web sites or via other electronic means:
     • provide any required product labeling information
     • disclose the nature and terms of shipping, including any known delays or shortages of stock
     • provide an opportunity to review and confirm the transaction before the sale is completed
     • provide a receipt summarizing the transaction after the purchase
5. Honor Promises
   Abide by all written agreements and verbal representations.  
   An accredited business or organization agrees to: 
   • Fulfill contracts signed and agreements reached.
   • Honor representations by correcting mistakes as quickly as possible.
6. Be Responsive
   Address marketplace disputes quickly, professionally, and in good faith.  
   An accredited business or organization agrees to: 
   • Promptly respond to all complaints forwarded by the BBB by:
     • Resolving the complaint directly with the complainant and notifying BBB, or
     • Providing the BBB with a response that the BBB determines:
       • is professional,
       • addresses all of the issues raised by the complainant,
       • includes appropriate evidence and documents supporting the business’ position, and
       • explains why any relief sought by the complainant cannot or should not be granted.
   • Make a good faith effort to resolve disputes, which includes mediation if requested by the BBB. Other dispute resolution options, including arbitration, may be recommended by the BBB when other efforts to resolve a dispute have failed. The BBB may consider a business’ willingness to participate in recommended dispute resolution options in determining compliance with these standards.
   • Comply with any settlements, agreements or decisions reached as an outcome of a BBB dispute resolution process.
   • Cooperate with BBB in efforts to eliminate the underlying cause of patterns of customer complaints that are identified by the BBB.
7. Safeguard Privacy
   Protect any data collected against mishandling and fraud, collect personal information only as needed, and respect the preferences of customers regarding the use of their information.  
   An accredited business or organization agrees to: 
   • Respect Privacy
     Businesses conducting e-commerce agree to disclose on their Web site the following: 
     • what information they collect,
     • with whom it is shared,
     • how it can be corrected,
     • how it is secured,
     • how policy changes will be communicated, and;
     • how to address concerns over misuse of personal data.
   • Secure Sensitive Data
     Businesses that collect sensitive data online (credit card, bank account numbers, Social Security number, salary or other personal financial information, medical history or records, etc.) will ensure that it is transmitted via secure means.
     Businesses will make best efforts to comply with industry standards for the protection and proper disposal of all sensitive data, both online and offline.
   • Honor Customer Preferences
     Businesses agree to respect customer preferences regarding contact by telephone, fax and e-mail, and agree to remedy the underlying cause of any failure to do so.
8. Embody Integrity
   Approach all business dealings, marketplace transactions and commitments with integrity.  
   An accredited business or organization agrees to: 
   • Avoid involvement, by the business or its principals, in activities that in the opinion of the BBB reflect unfavorably on, or otherwise adversely affect the public image of the BBB or its accredited businesses.

Find out more at bbb.org

naea

About NAEA

The National Association of Enrolled Agents (NAEA) is a national association of over 11,000 independent, licensed tax professionals called Enrolled Agents (EA). The association is dedicated to helping its members maintain the highest level of knowledge, skills and professionalism in all areas of taxation, so that their members may most effectively represent the needs of their clients.

Members of NAEA are required to complete a minimum of 30 hours of continuing professional education each year in the interpretation, application and administration of federal and state tax laws in order to maintain membership in the organization. This requirement surpasses the IRS required minimum of 16 hours per year.

NAEA’s Mission

• Foster the professionalism and growth of its Members;
• Be an advocate of taxpayer rights;
• Protect the interests of its Members; and
• Enhance the role of the Enrolled Agent among government agencies, other professions and the public at large.

 Find out more at naea.org or look at Enrolled Agent Brochure

NATP

NATP is the largest organization dedicated 100% to tax professionals and their success. We exist to boost their expertise and credibility through unmatched tax education, industry-leading federal tax research, up-to-the minute tax code insights and services and supplies to support your business. Our members know that through their service to taxpayers, they are putting more good into the world. Find out more at natptax.com

What is an Enrolled Agent

What is an Enrolled Agent (EA)?

An enrolled agent is a person who has earned the privilege of representing taxpayers before any office of the Internal Revenue Service. An enrolled agent can negotiate with the IRS during examinations and appeals, and act in place of a taxpayer signing consents and executing agreements on their behalf. An enrolled agent is the only professional granted a right to practice directly from the U.S. government. Attorneys and certified public accountants (CPA) have state licenses, which limits their practice only to the states where they are licensed. Unlike a CPA or Attorney, an enrolled agent holds a federal license and has the right to represent any taxpayer in any state regarding federal tax matters. An enrolled agent is considered a tax specialist, which sets them apart from attorneys or CPA’s who do not always specialize in taxes. The practice of enrolled agents before the IRS is not limited and they may represent taxpayers before the IRS, performing the same tasks as an Attorney or CPA. The capabilities of an enrolled agent extend beyond just preparing returns to areas such as representing clients in cases involving audits, collections, and appeals.

An enrolled agent (EA) is a federally licensed tax practitioner who has proven technical expertise in the field of taxation. Enrolled agents are empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS) for audits, collections, and appeals. Only EAs, attorneys, and certified public accountants (CPAs) may represent taxpayers before IRS.

How can an EA help me?

Enrolled agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. The expertise of EAs in the continuously changing field of taxation enables them to effectively represent taxpayers audited by the IRS.

Privilege and the Enrolled Agent

The IRS Restructuring and Reform Act of 1998 allow federally authorized practitioners (those bound by U.S. Department of the Treasury Circular 230 regulations) a limited client privilege. This privilege allows confidentiality between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege.

Are enrolled agents required to take continuing professional education?

In addition to the stringent testing and application process, the IRS requires enrolled agents to complete 72 hours of continuing professional education, reported every three years, to maintain their EA status. NAEA members are obligated to complete 90 hours per three-year reporting period. Because of the knowledge necessary to become an EA and the requirements to maintain the license, there are only about 40,000 practicing EAs.

What are the differences between enrolled agents and other tax professionals?

Only EAs are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in taxation. EAs are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by the states).

Are enrolled agents bound by standards?

Enrolled agents are required to abide by the provisions of U.S. Department of the Treasury Circular 230, which provides the regulations governing the practice of EAs before the IRS. National Association of Enrolled Agents (NAEA) members also are bound by the NAEA Code of Ethics and Rules of Professional Conduct.

Why should I choose an enrolled agent who is a member of the National Association of Enrolled Agents?

The principal mission of the National Association of Enrolled Agents and its members is qualified, accurate, and ethical representation of the financial positions of taxpayers before governmental agencies. Members of NAEA must fulfill continuing professional education requirements that exceed the IRS required minimum. NAEA members comprise a strong network of experienced, well-trained tax professionals who effectively represent their clients and work to make the tax code fair and reasonably enforced.

EA is the professional designation for an Enrolled Agent.  After the Civil War, many citizens had problems settling claims with the government for horses and other property confiscated for use in the war effort.  After many petitions and much pleading, Congress in 1884 endowed Enrolled Agents with the power of advocacy to prepare claims against the government and to seek equitable justice for the citizenry.  For many years, the purpose of the Enrolled Agent was to act in this capacity.

In 1913, when the income tax was passed, the job of the Enrolled Agent was expanded to include claims for monetary relief for citizens whose taxes had become inequitable.  As the income tax, estate, gift and other sources of tax collections became more complex, the role of the Enrolled Agent increased to include the preparation of the many tax forms that were required.  Additionally, as audits became more prevalent, their role evolved into taxpayer advocacy, negotiating with the Internal Revenue Service on behalf of their clients.