New IRS rules demand more info on foreign holdings (Form 8938)

Happy Life wrote:New IRS rules demand more info on foreign holdings


Patrick Temple West
Reuters US Online Report Politics News

Dec 19, 2011 14:26 EST

(Reuters)
- Hundreds of thousands of U.S. taxpayers must reveal for the first
time detailed information about foreign stock holdings, pensions and
life insurance policies, under new U.S. Internal Revenue Service rules
detailed on Monday.


The new requirements may present legal risks for U.S. taxpayers
living in countries with broad or vague privacy laws, said international
tax experts.
Designed by Congress to snare tax dodgers with funds
stashed abroad, the new rules are also likely to hit unsuspecting
immigrants and first-generation Americans. Even tax preparers may be
caught off guard.
"The days of the secret, offshore trust are over," said Richard Luthmann, a lawyer in New York who said he is working with clients from India and Canada on tax disclosure.
The rules are "really hitting a lot of unsophisticated persons with international ties," he said.
TheIRS on Monday published nine pages of instructions for filling out a
new form that taxpayers must file with 2011 tax returns due on April 15,
2012. The exact number of taxpayers affected is unclear, but is in the
hundreds of thousands.
The new form applies to U.S. taxpayers living in the United States with at least $50,000 in assets abroad as of December 31, and to Americans living abroad with at least $200,000 in assets.
Taxpayers who duck the new reporting requirement could face up to $50,000 in penalties.
U.S.
taxpayers have always had to pay tax on foreign income. The new
requirements are likely to expose income that in the past has been
hidden from IRS view, intentionally or not.
'VIRGIN TERRITORY'
The IRS is "out in virgin territory" with these regulations, said Charles Bruce, an attorney with the Bonnard Lawson International Law Firm.
"The degree of complexity is extraordinary for a form aimed at individuals.
Few people will be able to fill out this form without hiring a return
preparer or making a lot of mistakes."
The new disclosure rules are part of 2010's Foreign Account Tax Compliance Act, or FATCA.
Under the new rules, taxpayers must disclose foreign stock and bond holdings;
foreign pensions that start to pay out when the taxpayer reaches
retirement age; and hedge fund and private equity accounts. Foreign
assets held by a U.S. institution, like shares of a foreign company
managed by a U.S. mutual fund, are not subject to the reporting
requirements.
Foreign real estate is also exempt, though taxpayers owning foreign property through a company or a trust must disclose.
Individual reporting requirements will be followed in 2013 by requirements for
financial institutions to release account holder information to the IRS.
With the two data streams, IRS will be able to cross reference
information, said Stanley Ruchelman, a tax-planning lawyer in New York.
The IRS "expects to receive the same information from two difference
sources" to "ensure that each one is reporting correctly," he said.
HARSH RECEPTION
FATCA is getting a harsh reception abroad.
Canadian Finance Minister Jim Flaherty,
in a September letter to U.S. and Canadian media outlets, said the
FATCA requirements "would turn Canadian banks into extensions of the IRS
and would raise significant privacy concerns for Canadians."
Foreign banks may decide to drop U.S. customers rather than submit information to the IRS, experts said.
FATCA's
individual reporting requirements may be problematic for some U.S.
expatriates. Revealing too much information about business associates
could break the law in some countries, but that does not mean the IRS
will let expatriates off the hook.
"You've got to face this issue
of, do I face the U.S. penalty or do I face a criminal sanction in the
country where I live? That's pretty harsh," said Laurie Hatten-Boyd, a principal with the Big Four accounting firm KPMG LLP.
Such
a scenario could arise, she said, with a swap where the counterparty is
a foreign entity. The new IRS form demands disclosure of a swap
counterparty's name and mailing address.
(Reporting By Patrick Temple West in Washington; Editing by Steve Orlofsky)




Source:

Reuters US Online Report Politics News

roadglide wrote:Here are a few supreme
court rulings concerning the Tax Laws.

House Congressional
Record, 27 March 1943, page 2580, “The income tax is,
therefore, NOT a tax on income as such. It is an excise tax with
respect to certain activities and privileges, which is measured by
referring to the income which they produce. The income is NOT the
subject of the tax: it is the basis for determining the amount of the
tax”.


The United States Courts
have ruled:

“The
revenue laws are a code or system in regulation of tax assessment and
collection. They relate to taxpayers, and NOT to non-taxpayers. The
latter are without their scope. No procedure is prescribed for
NON-TAXPAYERS, and no attempt is made to annul any of their rights
and remedies in due course of law. With them Congress does not
assume to deal, and they are neither of the subject nor of the object
of the revenue laws”.

Long
v. Rasmussen, 281 F. 236, at 238. (1922), Economy Plumbing and
Heating v. U.S. 470 F. 2d 585, at 589. (1972)

The United States Supreme
Court said:

“A state may NOT impose
a charge for the enjoyment of a right granted by the Federal
Constitution”. Murdock v. Pennsylvania, 319 U.S. 105, at page
113. (1943)

The Courts also said:“The individual, unlike
the corporation, CANNOT be taxed for the mere privilege of existing.
The corporation is an artificial entity which owes its existence and
charter powers to the state; BUT the individual’s rights to live
and own property are natural rights for the enjoyment of which an
excise CANNOT be imposed”.Redfield v. Fisher,
292 P. 813, at page 819. (Oregon 1930)

The Courts also said:“Since the right to
receive income or earnings is a right belonging to every person, this
right CANNOT be taxed as a privilege”.
Jack Cole Co. v.
MacFarland, 337 S.W. 2d 453, 455-456. (Tenn 1960)


Find out how your name became "Taxpayer" instead of the the name you were given, and what you can do about it. http://howyoubecomeliable.com

Just
like anything else involving the federal tax code, the matter of Terms
of Art is a determining factor of the subject of capital gains, just as
for the earnings you make from your work. I had intended to cover the
subject of capital gains in a separate paper, but since you ask about it
here, I’ll do that here and now.

IRS and the income tax industry
would have you believe that if you have a property of some sort—whether
it’s real estate or not—and sell it at a profit, you must pay a tax on
the gain involved. If you sell that property at a loss, then you must
consider whether it’s a short-term loss or a long-term loss to determine
how the loss may be deducted from earnings. Etc. Etc. CPA’s love it,
because then they can show off how knowledgeable they are about tax
deductions.

In actuality, the first thing to be determined is
whether the property involved is subject to the capital gains law in the
first place. Chances are good that the capital gains provision in the
tax code does not apply to your stock shares because they are outside
the purview of the tax code in the first place.

Always remember
that the Constitution prohibits any direct tax unless it is apportioned
by population through the 50 States. Indirect taxes are allowed, as an
impost, a duty, or an excise. However, any of those must have some sort
of nexus to the federal government in order to be subject to taxation.

There
are several sections of the tax code that deal with various aspects of
capital gains. Each of them includes Terms of Art. The general rules for
determining capital gains are to be found in Section 1222 of the code.
So, that’s the first place to look.

There we see that capital
gains concern the “sale or exchange of a capital asset.” Therefore,
unless what is sold or exchanged is a capital asset, as defined in the
tax code, the gain or loss is not subject to capital gain levies.

So
next we must check the definition for “capital asset” to see if your
stock shares fit the bill. We find the definition in Section 1221(a).
Its wording includes other terms of art that we must also check out.
Here’s how it reads:

“For purposes of this subtitle [income
taxes], the term “capital asset” means property held by the taxpayer
(whether or not connected with his trade or business), but does NOT [my
emphasis] include
(1) stock in trade of the taxpayer or other
property of a kind which would properly be included in the inventory of
the taxpayer…or property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business.
(2)
property, used in his trade or business, of a character which is subject
to the allowance for depreciation provided in Section 167, or real
property used in his trade or business.

The term “trade or
business” is of particular distinction in any reference to capital
gains. But there’s another term that takes precedence: “taxpayer.”

We
must ask ourselves why the code writers thought it necessary to repeat
the term “taxpayer” four times in the section defining a capital asset.
“Taxpayer” is defined in Section 7701(a)(14) as “any person subject to
any internal revenue tax.”

Using a bit of logic, we can conclude
that if there are “taxpayers,” there must also be “non-taxpayers.” In
other words, the code sections concerning capital gains are for taxpayers
only. That would be any entity with earnings derived from some sort of
connection to the federal government. If you are one of those, then the
other terms of art in there come into play.

When you read Section
1221 in its entirety, you can become bamboozled by its verbosity and
cross references. It’s a difficult read because the tax code writers
didn’t much give a dang if what they wrote is immediately
comprehensible. Their primary chore is not clarity, but to keep the tax
law Constitutional—which it is. However, their meaning becomes clear
when you apply the tax code’s definitions of the terms of art.

What
Section 1221 amounts to is this: If you are not a taxpayer, then a
property such as stock or real estate or article of personal property,
is not a capital asset and therefore not subject to any federal
taxation. The sale or exchange of any such property is a “Nonrecognition
Transaction;” i.e., it falls outside the boundary of the tax code.

Section
7701(a)(45) defines “Nonrecognition Transaction” as the “disposition of
property in transaction in which gain or loss is not recognized in
whole or in part for purposes of Subtitle A.” Subtitle A is the part of
the tax code that deals with the income tax.

Just to be clear
about the meaning of “taxpayer” in the tax code, it refers to anyone who
is obligated for an internal revenue tax, such as “income” taxes and
certain other specific excises. I couldn’t find a Supreme Court ruling
about it, but a federal judge’s ruling in Montana in 1922 still stands
and serves to further clarify the term for us:

“The revenue laws
are a code or system in regulation of tax assessment and collection.
They relate to taxpayers, and not to non-taxpayers. The latter are
without their scope.
No procedure is prescribed for non-taxpayers,
and no attempt is made to annul any of their rights and remedies in due
course of law. With them Congress does not assume to deal, and they are
neither of the subject nor of the object of the revenue laws….”

Long v. Rasmussen, Collector of Internal Revenue, et al.
--District Court, D. Montana (281 F. 236 [1922])

Happy Life wrote:New IRS rules demand more info on foreign holdings


Patrick Temple West
Reuters US Online Report Politics News

Dec 19, 2011 14:26 EST

(Reuters)
- Hundreds of thousands of U.S. taxpayers must reveal for the first
time detailed information about foreign stock holdings, pensions and
life insurance policies, under new U.S. Internal Revenue Service rules
detailed on Monday.


The new requirements may present legal risks for U.S. taxpayers
living in countries with broad or vague privacy laws, said international
tax experts.
Designed by Congress to snare tax dodgers with funds
stashed abroad, the new rules are also likely to hit unsuspecting
immigrants and first-generation Americans. Even tax preparers may be
caught off guard.
"The days of the secret, offshore trust are over," said Richard Luthmann, a lawyer in New York who said he is working with clients from India and Canada on tax disclosure.
The rules are "really hitting a lot of unsophisticated persons with international ties," he said.
TheIRS on Monday published nine pages of instructions for filling out a
new form that taxpayers must file with 2011 tax returns due on April 15,
2012. The exact number of taxpayers affected is unclear, but is in the
hundreds of thousands.
The new form applies to U.S. taxpayers living in the United States with at least $50,000 in assets abroad as of December 31, and to Americans living abroad with at least $200,000 in assets.
Taxpayers who duck the new reporting requirement could face up to $50,000 in penalties.
U.S.
taxpayers have always had to pay tax on foreign income. The new
requirements are likely to expose income that in the past has been
hidden from IRS view, intentionally or not.
'VIRGIN TERRITORY'
The IRS is "out in virgin territory" with these regulations, said Charles Bruce, an attorney with the Bonnard Lawson International Law Firm.
"The degree of complexity is extraordinary for a form aimed at individuals.
Few people will be able to fill out this form without hiring a return
preparer or making a lot of mistakes."
The new disclosure rules are part of 2010's Foreign Account Tax Compliance Act, or FATCA.
Under the new rules, taxpayers must disclose foreign stock and bond holdings;
foreign pensions that start to pay out when the taxpayer reaches
retirement age; and hedge fund and private equity accounts. Foreign
assets held by a U.S. institution, like shares of a foreign company
managed by a U.S. mutual fund, are not subject to the reporting
requirements.
Foreign real estate is also exempt, though taxpayers owning foreign property through a company or a trust must disclose.
Individual reporting requirements will be followed in 2013 by requirements for
financial institutions to release account holder information to the IRS.
With the two data streams, IRS will be able to cross reference
information, said Stanley Ruchelman, a tax-planning lawyer in New York.
The IRS "expects to receive the same information from two difference
sources" to "ensure that each one is reporting correctly," he said.
HARSH RECEPTION
FATCA is getting a harsh reception abroad.
Canadian Finance Minister Jim Flaherty,
in a September letter to U.S. and Canadian media outlets, said the
FATCA requirements "would turn Canadian banks into extensions of the IRS
and would raise significant privacy concerns for Canadians."
Foreign banks may decide to drop U.S. customers rather than submit information to the IRS, experts said.
FATCA's
individual reporting requirements may be problematic for some U.S.
expatriates. Revealing too much information about business associates
could break the law in some countries, but that does not mean the IRS
will let expatriates off the hook.
"You've got to face this issue
of, do I face the U.S. penalty or do I face a criminal sanction in the
country where I live? That's pretty harsh," said Laurie Hatten-Boyd, a principal with the Big Four accounting firm KPMG LLP.
Such
a scenario could arise, she said, with a swap where the counterparty is
a foreign entity. The new IRS form demands disclosure of a swap
counterparty's name and mailing address.
(Reporting By Patrick Temple West in Washington; Editing by Steve Orlofsky)




Source:

Reuters US Online Report Politics News