1. IRS Pursues Gift Tax Cheats
Maurice M. Glazer
A new district court case could lead to more IRS snooping into gift taxes. The Court ordered the state of California to disclose to the IRS the names of individuals who have transferred real estate for little or no money to family members. The IRS intends to use the info to check whether form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return was properly filed. It estimates that more than half of these groups go unreported.
If the value of a gift exceeds $13,000, it should be reported on Form 709, even if there’s no gift tax liability.

2. Follow the Electronic Trail
Maurice M. Glazer
The IRS is ‘getting smarter’ in its old age. It is using a new technologically based audit technique for businesses with electronic records. Essentially, the IRS has authorized its agents to access metadata that can indicate how and when a company’s records were created and if any revisions have been made. The information, especially as it relates to changes in the records and the nature of those modifications, could help IRS examiners uncover fraud.
Reductions of taxable income or increased deductions without any collaborating evidence will look suspicious.

3. F.A.Q.
Q: Can one invest in foreign real estate in a retirement plan? (Separate article on Purchasing Real Estate in a Self Directed I.R.A., or Qualified Pension Plan)
A: Yes, with restrictions and potential current tax liability. The IRS is looking for fraud in Self-Directed IRAs so no self dealing. It must be an investment asset. Form 5471 or 8938 should be filed.

4. Prohibited Transactions
Maurice M. Glazer
The list of prohibited transactions is a long one. It includes the following:
Borrowing funds from the IRA
Selling property to the IRA
Using the IRA as security for a loan
Buying personal property with IRA funds
Receiving unreasonable compensation for managing IRA funds

5. Prohibited Transactions
Maurice M. Glazer
The tax law gives IRA owners lots of leeway investments, but investing in collectibles is strictly prohibited.
Artwork, rugs, antiques, precious metals, gems, coins and stamps, rare alcoholic beverages and certain other types of tangible personal property.
There is a limited exception to this rule for certain U.S. Treasury gold and silver coins.

6. Penalties on Prohibited Items
Maurice M. Glazer
When a prohibited transaction occurs, the IRA owner is treated as having withdrawn the entire balance of his or her account. Therefore, if you violate the rules, the distribution will be fully taxed at ordinary income rates up to the top 35%.
To add insult to injury, you’ll be hit with a 10% penalty tax on the value of the IRA if you’re under the age 59 ½ at the time of the prohibited transaction.
Usually, an IRA custodian won’t go along with a prohibited transaction if it’s aware of it. But you can’t rely on the custodian to police the situation.

7. Due Dates Please note the due dates for foreign reporting which are:
3520 & 3520A for the foreign trusts are due 03/15/12 sent to Ogden, UT, but 3520 can be extended with form 7004 until 09/15/12.
5471 for foreign ownership of a corporation are due with the 1040 tax return, including extensions.
FBAR, or form are due by 06/30/12 (no extensions) and are sent to Detroit, MI.

8. Procedures If You Have Not Filed
The taxpayer should file voluntary foreign reporting forms and amended returns if necessary, at least 3 years back on a voluntary “quiet” disclosure basis.
The taxpayers should of course file all relevant reports on a timely basis going forward.
If you have foreign accounts, in addition to the technical reporting data, you need to ask three questions:
Did you report the foreign income earned on your tax return?
Has the IRS contacted you regarding the filing requirements?
Are you under civil or criminal investigation (depending on the answer GFN will determine if legal assistance will be required).

9. Third Offshore Amnesty Program
The overall penalty structure for the new program is the same for 2012, except for taxpayers in the highest penalty category.
For the new program, the penalty framework requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25% in the 2011 program. Some taxpayers will be eligible for 5% or 12.5% penalties; these remain the same in the new program as in 2011.
Participants must file all original and amended tax returns and include payments for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

10. THE IRS HAD ANNOUNCED A SECOND VOLUNTARY DISCLOSURE INITIATIVE EXTENDED THROUGH SEPTEMBER 9, 2011
TAXPAYERS WITH UNDISCLOSED FOREIGN ACCOUNTS WILL HAVE TO PAY A PENALTY OF 25% OF THE AMOUNT IN THE FOREIGN BANK ACCOUNTS IN THE YEAR WITH THE HIGHEST AGGREGATE ACCOUNT BALANCE COVERING 2003 TO 2010.
TAXPAYERS ALSO HAD TO PAY THE BACK TAXES, PENALTIES AND INTEREST FOR UP TO EIGHT YEARS PLUS ANY PENALTIES ON UNREPORTED INCOME.
TAXPAYERS HAD TO FILE ALL ORIGINAL AND AMENDED TAX RETURENS AND PAY ALL TAXES, INTEREST AND PENALTIES BY SEPTEMBER 9, (STILL IN IRS REVIEW)
FOR ACCOUNT UNDER $75,000 IN ANY YEAR WOULD PAY A REDUCED 12.5% PENALTY.
THE IRS IS GETTING VERY SERIOUS ABOUT THIS AND PENALTIES AND CRIMINAL PROSECUTION WILL BE IN STORE FOR INDIVIDUALS WHO DO NOT COME FORWARD. HOWEVER, THERE IS A THIRD AMNESTY WITH HIGHER PENALTIES.
PLEASE CONTACT MYSELF AT OR CALL ME AT TO DISCUSS GETTING YOU CAUGHT UP.

11. New Reporting Requirements
For tax years beginning after March 18, 2010, certain individuals must file new form 8938 to report the ownership of specified foreign financial assets if the total value of those assets exceeds an applicable threshold amount (the “reporting threshold”).
The reporting threshold varies depending on whether an individual lives in the United States or files a joint income tax return with his or her spouse.
Specified foreign financial assets generally include the following assets:
Any financial account maintained by a foreign financial institution.
To the extent held for investment and not held in a financial account 1) Any stock or securities issued by someone that is not a U.S. person, 2) Any interest in a foreign entity, 3) And any financial instrument or contract with an issuer or counterparty that is not a U.S. person.

12. An annual return includes the following returns.
NOTE: Filing Form 8938 does not relieve you of the requirement to file Form TD F , Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to file Form TD F
When and How To File
Attach Form 8938 to your annual return and file by the due date (including extensions) for that return.
An annual return includes the following returns.
Form 1040
Form 1120
Form 1065
Form 1041
Form 1120-S
Form 1040NR

13. Assets Reported on Another Form
In determining if you satisfy the reporting threshold that applies to you, include the value of all specified foreign financial assets, even if they are reported on another form.

14. Specified Foreign Financial Assets
Specified foreign financial assets include the following assets:
Financial accounts maintained by a foreign institution
The following foreign financial assets if they are held for investment and not held in an account maintained by a financial institution
Stock or securities issued by someone that is not a U.S. person
Any interest in a foreign entity
Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person

15. Other Specified Foreign Financial Assets
Examples of other specified foreign financial assets include the following, if they are held for investment and held in a financial account:
Stock issued by a foreign corporation
A capital or profits interest in a foreign partnership
A note, bond, debenture, or other form of indebtedness issued by a foreign person
An interest in a foreign trust or foreign estate
An interest rate swap, currency swap, basis swap, interest rate swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty
An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer

16. Maurice M. Glazer – Chief Executive Officer
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