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Welcome to the Worldwide ERC® Mobility LawBlog, where Tax Counsel Pete Scott and Government Relations Adviser Tristan North share breaking tax and legal news, as well as compliance and risk management information of interest to global workforce mobility professionals concerned with U.S. domestic and worldwide assignments. Sign up to receive e-mail alerts so you don't miss an entry, or subscribe to the RSS feed for immediate delivery.

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Mileage Allowances for 2015 Released by IRS
On December 10, 2014, the IRS released its annual optional standard mileage rates that may be used in computing automobile deductions during 2015.  See IR-2104-114,  http://www.irs.gov/uac/Newsroom/New-Standard-Mileage-Rates-Now-Available;-Business-Rate-to-Rise-in-2015, and Notice 2014-79.  The new rates, applicable for auto use after December 31, 2014, are 57.5 cents per mile for business use, 23 cents per mile for medical or moving use, and 14 cents per mile for charitable use.  The business rate is up 1.5 cents from the 56 cents per mile rate that has been in effect since January 1, 2014, while the rate for medical and moving is down a half cent from 23.5 cents.  The charitable rate of 14 cents per mile does not vary from year-to-year because it is fixed by statute. 
 
The rates are based on an annual study of fixed and variable costs of operating an automobile conducted for the IRS by an independent contractor.  The rates for business and moving differ because the rate for business use includes fixed costs such as depreciation, which are not allowed as medical or moving deductions.  Both rates include variable expenses such as fuel.  Taxpayers are also allowed to deduct items such as parking and tolls in addition to the standard mileage rate. 
 
Use of the standard deduction rates is optional; taxpayers are always free to determine their own actual costs of operating a vehicle.  However, such costs must be substantiated through detailed records, while the use of the standard rates avoids any need to substantiate the underlying costs incurred, although taxpayers must still maintain records of the miles driven and the purpose of each trip.  
 
Notice 2014-79 also provides amounts by which taxpayers using the standard business mileage rate must reduce the basis in their automobile for depreciation that is included in the standard mileage rate.  Those amounts are 22 cents per mile for 2011, 23 cents per mile for 2012 and 2013, 22 cents per mile for 2014, and 24 cents per mile for 2015. 
 
Some companies use mileage rates higher than the standard rates to reimburse business travelers or transferees.  In such cases, the excess amounts are treated as taxable wages, and are subject to withholding and payroll taxes.  Amounts up to the standard mileage rates are excluded from the income of the employee.  An employee cannot deduct moving expenses using the business travel rate.  See Adamson v. Commissioner, 32 T.C.M. 484 (1973). 
 
Generally, the rates the IRS announces in November or December remain in effect during the entire following year, regardless of changes in underlying costs.  However, in 2011 the IRS changed the rates in mid year due to a dramatic rise in fuel costs, the third time in six years in which it had done so.  With the current dramatic drop in fuel costs expected to continue during 2015, it is possible IRS will again opt to modify the allowance during the year, this time by reducing it. 

Posted by Peter K. Scott
Worldwide ERC® Urges Congress to Extend Tax Relief for Forgiven Mortgage Debt
As Congress works to extend a group of around 50 expired or expiring tax provisions before adjourning for the year, Worldwide ERC® has written to Congressional leaders urging at least a two year extension of the tax provision that excludes some forgiven mortgage debt from income.
 
In letters dated December 2, 2014, Worldwide ERC® President and CEO Peggy Smith pointed out that the expiration of the provision will negatively impact the mobility of workers and ability of employers to move their workers to where they are needed.  Transferees who need to make a short sale to accept a transfer often will not be able to move if the amount of their mortgage that is written off becomes taxable to them. 
 
Worldwide ERC® joins a number of other organizations such as the National Association of Realtors and the Mortgage Bankers Association in pushing for Congress to extend the provision. 
 
The tax provision has been in the Code since 2007, and has been extended periodically, but expired at the end of 2013.  Under the provision, forgiven mortgage debt up to $2 million on a principal residence is not taxed.
 
The provision is one of some 50 tax breaks that periodically expire.  Both House and Senate have been working during the remaining Congressional session to either extend most of them, or extend some and make others permanent.  Unfortunately, efforts at the latter solution broke down and Congress is currently working on a simple one-year extension through 2014.  Worldwide ERC® believes a longer extension should be enacted, but even the currently contemplated one-year extension would be beneficial.
 
A copy of Worldwide ERC®’s letter is available here.
 
Posted by Peter K. Scott
Inflation Adjustments for 2015 Require Payroll and Gross Up Changes
There are a number of tax and Social Security items that are statutorily required to be adjusted for inflation each year.  Both the Internal Revenue Service and the Social Security Administration generally release the adjusted numbers in late October of the preceding year, and both have done so for 2015. 
 
The new Social Security Wage Base of $118,500 for 2015 was the subject of a LawBlog post on October 27, 2014.  Shortly thereafter, the Internal Revenue Service released its 2015 inflation adjustments, which are discussed below. 
 
On October 30, 2014, the Internal Revenue Service announced inflation adjustments for 2015 to a host of items that are subject to such adjustments.  There are about 40 provisions in the tax code that are adjusted annually for inflation.  For IRS Announcement IR-2014-104, go to
http://www.irs.gov/uac/Newsroom/In-2015,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments.
 
The most commonly utilized inflation-adjusted items are the standard deduction, and the personal exemption.  For 2015, personal and dependent exemptions will be worth $4,000, up $50 from 2014.  The standard deduction will rise to $12,600 for married couples, up $200, and to $6,300 for singles, up $100.  The tax brackets will also be adjusted.  For example, the 15% bracket will now end at $74,900 for married couples filing joint returns, and at $37,450 for singles.  In addition, the high-income brackets imposed by the 2012 “American Taxpayer Relief Act” will be adjusted.  In 2015, the 39.6% tax rate will apply to income exceeding $413,200 for singles and $464,850 for married couples, up from $406,700 and $457,600. 
 
Beginning in 2013, high income individuals also began to lose some of the benefit of itemized deductions at certain income thresholds.  For 2015, the income at which the loss begins is $258,250 for singles, and $309,900 for married couples filing joint returns.
 
The foreign earned income exclusion, which is utilized by many Worldwide ERC® member expats, will rise to $100,800, up from $99,200 in 2014 (and breaking the six-figure mark for the first time).
 
The Alternative Minimum Tax exemption amounts, which were first indexed for inflation by the 2012 law, and which keep many middle-income employees from owing this additional tax, rise to $53,600 for singles, and $83,400 for married couples, up from $$52,800 and $82,100, respectively. 
 
The full list of inflation adjustments is in Rev. Proc. 2014-61, available at http://www.irs.gov/pub/irs-drop/rp-14-61.pdf.
 
Unfortunately, the 3.8% Net Investment Income tax that also came into effect in 2013 begins at Adjusted Gross Income levels that Congress did not make subject to inflation adjustments.  Consequently, the tax will still begin to apply at Adjusted Gross Income of $200,000 for singles and $250,000 for married couples, and as incomes rise more transferees will be subject to the tax.  For a full explanation of the tax, refer to http://www.worldwideerc.org/gov-relations/us-tax-legal-resources/tax-legal-mastersource/Pages/Additional-Medicare-Tax-on-High-Income-Individuals.aspx, in the Worldwide ERC® Tax & Legal MasterSource.  Also beginning in 2013, an additional 0.9% Medicare tax was imposed on “high income” employees making more than $200,000 in wages ($250,000 for married couples), so the employee share of the tax for these taxpayers is 2.35% (the employer share remains at 1.45%).  And like the Net Investment Income tax, Congress also did not index these wage thresholds, so employers should be aware that additional employees will also be subject to this additional tax as wages rise but the thresholds don’t. 
 
Finally, on October 23, 2014, IRS also announced inflation adjustments for pension plans and other retirement vehicles for 2015.  See IR-2014-99, http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015.  After remaining unchanged in 2014, the amount an employee is allowed to contribute to a 401(k) plan in 2015 will rise from $17,500 to $18,000, and a number of other contribution limitations will also rise. 
 
All of these developments will affect gross-up calculations and other payroll calculations for Worldwide ERC® members, who should begin preparing to adjust their systems.

Posted by Peter K. Scott
Social Security Announces Higher Wage Base, and Benefit Increase, for 2015
In Short:
The Social Security Administration announced October 22, 2014, a 1.7% benefit increase for 2015, and an increase from $117,000 to $118,500 in the maximum amount subject to Social Security taxes.
 
The Full Story:
Today’s tax quote: “I want to find out who this FICA guy is and how come he’s taking so much of my money.” Nick Kypreos.
 
The Federal Insurance Contributions Act (FICA) tax (otherwise known as the Social Security tax) is 12.4%, split equally between employer and employee, but unlike the 2.9% Medicare tax is collected on wages only up to a limit, called the “Social Security Contribution and Benefit Base,” or the Social Security wage base. Social Security benefits are adjusted each year for inflation. That adjustment also leads to an increase in the taxable wage base.
 
In an October 22 news release, the Social Security Administration announced a benefit increase of 1.7% for 2015, slightly higher than last year’s increase of 1.5%. At the same time, the SSA also announced that the maximum amount of wages subject to FICA taxes will increase from 117,000 to $118,500. For the SSA Press Release go to http://www.ssa.gov/news/#!/post/10-2014-2.
 
About 10 million workers will pay more taxes as a result of the wage limit increase, and employers will also owe additional taxes for the employer share of FICA for such workers. The 2.9% Medicare tax (1.45% each for worker and employer) is not subject to any wage limit.
 
On October 31, 2013, the Internal Revenue Service announced inflation adjustments for 2014 to a number of items that are subject to such adjustments. There are about 40 provisions in the tax code that are adjusted annually for inflation. For IRS Announcement IR-2013-87, go to http://www.irs.gov/uac/Newsroom/In-2014-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments.
 
This will affect gross-up calculations and other payroll calculations for Worldwide ERC® members.
 
Posted by Peter K. Scott
IRS Simplifies Reporting Requirements for Canadian Retirement Plans
In Short:
Canadians who are working in the United States for long enough to be considered “residents” under U.S. tax law, and U.S. citizens, are taxed on the earnings of Canadian retirement plans unless they make an election to defer tax on the earnings until the earnings are actually distributed.  Elections were previously made on Form 8891, which was required to be filed with the U.S. tax return.  However, in Announcement IR-2014-97, October 6, 2014, http://www.irs.gov/uac/Newsroom/IRS-Simplifies-Procedures-for-Favorable-Tax-Treatment-on-Canadian-Retirement-Plans-and-Annual-Reporting-Requirements, the IRS has eliminated Form 8891 and simplified the required reporting. Companies with Canadian employees in the U.S. should make sure those employees understand the revised requirements, as failure to comply can result in substantial tax liabilities and penalties.
 
The Full Story:
Canadians who are resident workers in the U.S. need to be very careful in dealing with their Canadian retirement plans if they wish to avoid running afoul of the U.S. tax rules.
 
As discussed in detail in a Mobility LawBlog post on March 12, 2012 (available at http://www.worldwideerc.org/Blogs/MobilityLawBlog/Lists/Posts/Post.aspx?List=c020aee5%2D48ad%2D47b2%2D8295%2Da4cf71ba9e34&ID=128) Canada treats Registered Retirement Income Funds (RRIF’s) and Registered Retirement Savings Plans (RRSP’s) the same as IRA’s and 401k plans are treated in the United States.  That is, tax on the earnings is deferred until the earnings are withdrawn or the beneficiary reaches a certain age.  Unfortunately, U.S. tax law does not allow for this deferral for U.S. citizens or residents who maintain RRIF’s or RRSP’s.   Owners of those accounts would be taxed on the earnings without some form of relief.
 
Relief is provided under the United States-Canada Income Tax Convention (“Treaty”).  Under the Treaty, an individual who is a beneficiary of a Canadian retirement plan that is exempt from Canadian income tax may elect to defer U.S. tax on the accrued but undistributed income of the plan until the income is actually distributed. 
 
Since 2004, the required election has been made on Form 8891, which must be filed by any U.S. citizen or resident who is a beneficiary of a Canadian retirement plan.  A separate Form 8891 must be filed for each retirement plan, and attached to the Form 1040 U.S. income tax return.
 
Canadians moving to the United States to work, and who remain in the United States long enough to be considered a “resident,” (ordinarily, more than 183 days during the year), were required to file Form 8891 to report any Canadian retirement plans they still owned, and unless they wanted to pay U.S. tax on the accrued income, had to make the election to defer tax.  Unfortunately, sometimes these workers were not aware of the requirements, and that lack of awareness could create major problems. 
 
If the Form 8891 was not filed, and no election made, the deferred income from the retirement plan should have been reported on the Form 1040, and tax paid.  Failure to do so could lead to an underpayment of tax, interest on the underpayment, and potential penalties for negligence and failure to pay.  Moreover, if the Canadian had been a resident for several years without the required filing and election, IRS could go back and assert tax for at least three of those prior years under the normal statute of limitations on assessment of tax, or six of them if the omission of income was substantial, or all of them if the omission was due to fraud. 
 
Nor was the taxpayer ordinarily permitted to go back and make a retroactive election, unless the taxpayer obtained specific permission to do so from the IRS by filing a private letter ruling request asking for relief under section 301.9100-1(c).  Doing so was difficult, costly, and would not be successful unless done before IRS itself discovered the failure to report and elect. 
 
However, in Rev. Proc. 2014-55, (http://www.irs.gov/pub/irs-drop/rp-14-55.pdf) and the Announcement cited above, the IRS has eliminated the requirement to elect deferral by filing Form 8891.  The form is obsolete as of December 31, 2014.  Rather, any individual who has satisfied the requirements for filing a U.S. tax return for each year the individual was a citizen or resident and who has reported any distributions from a Canadian retirement plan as income but has not reported as income the accrued but undistributed balance in the plan will be considered to have validly elected deferral, regardless of whether Form 8891 was ever filed.  These are referred to as “eligible individuals.” 
 
If a taxpayer does not meet the requirements for an eligible individual, the taxpayer must continue to report and pay tax on accrued but undistributed income of the plan, and can elect not to do so only by seeking the consent of the IRS Commissioner, by way of a private letter ruling, as in the past.
 
Nor is there any relief for U.S. citizens or residents who simply did not file U.S. returns, or failed to report the Canadian plan at all, either by filing Form 8891, or by reporting and paying tax either on the distributed or undistributed income.  And other reporting requirements, discussed below, remain in place.
 
There are two reporting requirements for beneficiaries of Canadian retirement plans, with substantial penalties for failure to comply. 
 
Owners of foreign financial accounts exceeding $10,000 in value during the year must file a Foreign Bank Account Report (FBAR), Form 114 which must be filed electronically with the Treasury Department by June 30 of each year.  Generally, a Canadian RRIF or RRSP worth $10,000 or more would require such a report.  There are substantial penalties even for an inadvertent failure to file the FBAR.  Such accounts also require that a box be checked on Schedule B of Form 1040, revealing that the taxpayer has foreign accounts, even if the accounts do not exceed the $10,000 FBAR reporting threshold.  And, beginning for the 2011 tax year, a new Form 8938 is required to be filed with the U.S. tax return reporting foreign assets whose value exceeded $75,000 at any time during the year, or $50,000 at the end of the year, which is a threshold that many existing Canadian retirement accounts would no doubt exceed. 
 
Consequently, although the procedure for electing to defer tax on undistributed income from Canadian retirement plans has been made considerably simpler, a number of traps remain.  For companies moving a Canadian to the U.S. to work, the U.S. requirements concerning retained Canadian retirement plans simply must be a part of the instruction and planning for that assignment.  The employees should be informed and counseled as to the requirements to make sure that they do not incur costly U.S. tax liabilities and penalties for failing to report the accounts. 
 
Posted by Peter K. Scott
Alabama Proposes to Move W-2 Filing Deadline
In a notice filed September 15, 2014, the state of Alabama is proposing to move the date copies of Form W-2 must be filed with the state from the end of February to the end of January.  See Rule No. 810-3-39-09, at http://www.alabamaadministrativecode.state.al.us/UpdatedMonthly/AAM-SEPT-14/810-3.pdf
This new rule would be effective for 2014 Forms W-2, which would now be due to the state by January 31, 2015. 
 
The proposed change will put Alabama in a very small group of similar states that have departed from the federal rule.  Under federal law, the government copy of the W-2 is not due to the IRS until the end of February each year, although the copy for the employee is due to the employee by January 31.  
 
Other jurisdictions requiring an earlier W-2 filing with the government are the District of Columbia, Kentucky, Pennsylvania, and Wisconsin.
 
The stated reason for the change is to combat refund identity fraud.  With an earlier due date, the Department of Revenue can verify refunds for e-filed returns before issuing the refund.  Refund fraud typically relies upon the fact that both federal and state systems are programmed to issue immediate refunds when returns are filed, with verification of the identity of the filer and entitlement to the claimed refund done after later receipt of the official W-2’s from employers. Scammers include a bogus W-2 with early-filed returns, before the official government copy is received by the IRS or the state.
 
Although the Internal Revenue Service, and some state governments, have put in place systems designed to identify fraudulent refund returns before issuance of the refund (IRS reported preventing some $24.2 billion of such refunds in fiscal 2013), many such refunds escape the filters ($5.2 billion federal in fiscal 2013).  IRS and Treasury do not have the authority to advance the required filing date for the federal copy of the W-2, which is statutorily mandated as the end of February.  Although legislation has been sought to do so, it is not likely to be addressed any time soon.
 
Alabama, however, has the authority to advance the due date by regulation, and is proceeding in that direction.  Comments on the proposal are due by November 5, 2014.
 
States that require the state copy of the W-2 earlier that the federal government and other states do create some additional burden for company payroll processing, which must accommodate the earlier deadline for those states.  However, the significance of the additional burden is not clear, inasmuch as the W-2 process for employees must already be completed by the end of January, and gross-up reconciliation and other such items must be done by then. 
 
Posted by Peter K. Scott
CBO Releases Cost Estimate on Freddie and Fannie Dismantle Bill
In Short:
The CBO has estimated a net savings of $58 billion to the federal government from legislation (S. 1217) passed by the Senate Banking Committee to dismantle Freddie Mac and Fannie Mae and move the secondary mortgage market closer toward privatization. The score by CBO is significant because it bolsters the case of supporters for passage of the legislation. The likelihood Congress will further address S. 1217 this year still remains low.
 
The Full Story:
On September 5, the Congressional Budget Office (CBO) released its score or cost estimate on the Housing Finance Reform and Taxpayer Protection Act (S. 1217). The CBO determined the bill would reduce federal spending by $60 billion between 2015 and 2024 and federal revenue would decrease by $1.5 billion between 2020 and 2024.
 
The Housing Finance Reform and Taxpayer Protection Act would repeal the government sponsored enterprise (GSE) charters for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and establish in their place the Federal Mortgage Insurance Company (FMIC). The FMIC would be an independent federal agency responsible for establishing the standards, oversight and partial guarantee through the Mortgage Insurance Fund of the secondary mortgage market.
 
The Congressional Budget Office in its estimate anticipates the new fees charged by the FMIC on issuers of mortgage-backed securities would be more than the costs of the guarantees as calculated under the Federal Credit Reform Act. Under the bill, Fannie Mae and Freddie Mac would no longer offer guarantees on mortgage-backed securities and private capital would absorb some of any losses prior to payments from the FMIC. The changes and less risk under the FMIC would result in the savings of $60 billion over ten years.
 
CBO also estimates a reduction in revenue to the Federal Housing Finance Agency, the federal regulator overseeing Fannie Mae and Freddie Mac, from no longer assessing fees of the two GSEs to cover administrative costs. This would result in the $1.5 billion over ten years in reduced federal revenue netting a total savings of $58 billion for the bill. CBO also estimated the “fair-value” of the bill that yielded a lower $7 billion net savings to the federal government. Several economists believe “fair-value” to be the more accurate approach to estimating the cost or savings of changes in federal spending. The CBO also noted interest rates would likely increase 10 to 20 basis points.
 
The Senate Banking Committee had approved S. 1217 on May 15 of this year with bipartisan support by a vote of 13 to 9. The bill also has the support of the Obama Administration. Senator Lamar Alexander (R-TN) introduced the bill in June 2013. The Senate Banking Committee held several hearings on the legislation between September and December of last year with an initial mark-up held on April 29 and then approval on May 15. During mark-up of the bill, the legislation was amended with a substitute proposal authored by Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID).
 
The bill faces an uncertain future as several Senate Democrats are concerned about ending the current system and some Senate Republicans believe the federal government would still have too large of a role. While Congress is unlikely to enact S. 1217 this year, the passage of the bill by the Senate Banking Committee is the furthest a proposal to restructure the housing finance system has made it through the legislative process.
 
Efforts to restructure the current system stem from the collapse of the housing finance system and the placement of Fannie Mae and Freddie Mac into receivership in September 2008. The federal government made an infusion of $187.5 billion into Fannie and Freddie Mac. With the improvement in the housing market, Fannie Mae and Freddie Mac have repaid the funds as well as additional returns and thus decreased the pressure on Congress to act. The net savings estimated by CBO from the bill could, however, alter that dynamic.
Mississippi Homestead Exemption Creates Notification Issue
In Short:
The state of Mississippi allows an exemption from property tax up to $300 for “homesteads,” defined in general as property owned by an individual and used as a residence.  Recently, state officials have threatened to impose penalties on relocation management companies (RMCs) that acquire property from a transferee in one year and dispose of it in another without insuring that the existing homestead exemption is removed.  The trigger for these examinations is records of a deed from transferee to RMC in one year, with a deed from RMC to an outside buyer in another, although it would appear that any relocation homesale transaction, even if the deeds are dated in the same year, could create the same problem.  RMCs or Worldwide ERC member companies acquiring homes in Mississippi should consider promptly notifying the County Tax Assessor when they acquire the property.
 
The Full Story:
Mississippi has a very complicated and document-intensive system of granting homestead exemptions.  The exemptions, which cover property taxes on the first $7,500 of assessed value of an eligible property, but are limited to a total of $300, are partially reimbursed to localities by the state government. 
 
Only individual taxpayers resident in Mississippi who are heads of household and who own the property in question are eligible.  In order to qualify for the exemption, the homeowner must file an application between January 1 and April 1 of year for which exemption is sought.  However, the facts necessary to determine eligibility are determined as of January first.  The application is filed with the County Tax Assessor.  Once granted, a roll is maintained of properties receiving the exemption.  The exemption is a year-to-year benefit that apparently does not change during the year.  If events occur during the year that would change eligibility for the exemption, the exemption is removed for the next year.
 
As reported to Worldwide ERC® by Fidelity Residential Solutions, there have been recent cases in which Mississippi authorities have alleged possible homestead exemption fraud when an RMC accepted a deed from a Mississippi transferee dated in one year, and executed a deed to an outside buyer in a subsequent year without informing the County Tax Assessor that ownership had changed so that the homestead exemption could be removed from the property. 
 
Note that this position apparently relies on the deed dates, rather than actual transaction or recording dates.
 
However, it would appear that the same issue could arise any time there is a transaction involving purchase by an RMC and subsequent disposition of the property, regardless of the dates of the deeds or, indeed, whether or not two deeds were used.  The use of two deeds seems only to make the transaction easier for the authorities to identify.  The crux on the matter is that disposition of the property by the homeowner to a non-eligible purchaser should trigger a notification to the Tax Assessor that the property is no longer eligible for a homestead exemption, unless the new owner timely applies for one.  A letter to the Tax Assessor is acceptable.
 
Although the amount of the homestead exemption is relatively small, with penalties and interest the cost could be considerably higher.  Consequently, RMCs or Worldwide ERC® companies acquiring homes in Mississippi would be well advised to adopt a standard practice of notifying the County Tax Assessor when they acquire the property. 
 
Worldwide ERC® appreciates the assistance of Fidelity Residential Solutions in identifying this issue.
 
Posted by Peter K. Scott
Changes to IRS Voluntary Offshore Compliance Program Will Benefit Many
In Short:
 
The Internal Revenue Service has announced significant changes to its programs that encourage taxpayers to voluntarily disclose unreported foreign financial accounts.  The changes liberalize a streamlined disclosure program first provided in 2012 that was criticized as too cumbersome and restrictive.  The changes include eliminating a requirement that the taxpayer have $1,500 or less in unpaid taxes each year, eliminating a required “low risk” questionnaire, and expanding the program to include for the first time U.S. taxpayers who reside in the United States.  The revised program will allow Worldwide ERC® members who inadvertently failed to report overseas accounts to come into compliance without the risk of prosecution or the full range of applicable penalties.
 
The Full Story:
 
It is no secret that the U.S. tax authorities have for several years been aggressively pursuing taxpayers who hold assets overseas and do not report them or pay U.S. tax on income they generate.  New reporting regimes have been implemented to supplement the required Foreign Bank Account Report (FBAR) due each June 30 for foreign financial accounts aggregating over $10,000 during the year, and the FBAR itself has been expanded.  Such accounts must also be reported on Schedule B of the Form 1040, and some taxpayers must also file Form 8938, “Statement of Foreign Financial Assets.”  In addition, this year the Foreign Account Tax Compliance Act (FATCA) goes into effect, under which foreign financial institutions themselves are required to report accounts owned by U.S. taxpayers. 
 
In addition to the reporting requirements, the IRS has vigorously sought information from foreign sources and prosecuted large numbers of U.S. taxpayers revealed to have hidden assets overseas. 
 
As a supplement to all of these initiatives, since 2009 the IRS has provided a series of programs under which taxpayers may come forward to voluntarily disclose unreported assets.  If taxpayers meet the disclosure criteria, and fully disclose, they can avoid criminal prosecution and also limit the amount of civil penalties owed.  Since 2009, the three programs (2009, 2011, and 2012, the latter of which is a permanent program) have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest, and penalties, according to the IRS. 
 
As a part of the 2012 revisions to the disclosure program, the IRS provided a “streamlined” program that was intended to facilitate disclosures by taxpayers who owed relatively small amounts of taxes and whose non-compliance was inadvertent or non-willful.  However, the program was limited to persons residing abroad, and who had $1,500 or less in unpaid tax for each year of their disclosure.  It also required considerable paperwork in completing a “risk” questionnaire that was designed to demonstrate that the taxpayer was a low risk for further non-compliance.  Although some 12,000 taxpayers have taken advantage of the streamlined program, it also drew numerous complaints that it was overly restrictive. 
 
After considering the results of the program, the IRS has relaxed it considerable, and it is well worth consideration by Worldwide ERC® members and their employees who have inadvertently failed to report foreign assets.
 
Of great importance is that for the first time the program is available to taxpayers residing within the U.S. who for some reason failed to adequately report their foreign assets.  The requirement that taxes owed be less than $1,500 per year has been eliminated, as well as the burdensome risk questionnaire.  For taxpayers who reside outside the U.S., all penalties will be waived.  For U.S. residents, penalties will be limited to 5% of the unreported assets. 
 
As a part of the program revision, the IRS released an expanded and revised set of Frequently Asked Questions.  It is available at http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised.  In addition, the IRS released a document explaining the transition to the new program, which may be viewed at http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs
 
As noted, this program is well worth consideration by taxpayers who may have failed to report foreign assets and wish to assure themselves that they will not face substantially greater penalties, or possible prosecution, if their failure is discovered independently by the IRS.
 
Posted by Peter K. Scott
IRS Finalizes Truncation of Tax ID Numbers
In Short:
The Internal Revenue Service has issued final regulations that permit truncation of ID numbers included on payer information returns.  The final regulations expand the concept to include employer EIN numbers, as well as other information returns.  The IRS, supported by the tax preparer community, has been working for some years to permit the “truncation” (shortening) of ID numbers used on tax information returns in order to combat identity theft tax fraud.  It published proposed regulations in January of 2013, expanding a pilot program from 2009, and has now finalized those regulations.  It has also sought legislation to permit truncation of Social Security numbers on Forms W-2. 
 
The Full Story:
As a part of efforts to fight rampant ID theft, IRS has worked for several years to put in place a program that would allow companies filing information returns to “truncate” the social security numbers of individuals on the payee statements (generally, Forms 1099).  “Truncation” refers to the practice of including only the last four digits of a longer number, and is routinely used by credit card companies.  For tax information returns, IRS published proposed regulations in January of 2013 under which a pilot program it had had in place since 2009 would be made permanent.  It has now finalized, and expanded, those proposed regulations. See T.D. 9675, http://www.gpo.gov/fdsys/pkg/FR-2014-07-15/pdf/2014-16464.pdf
 
Under the program, filers of most information returns are permitted (but not required) to truncate the taxpayer’s social security number on the copy of the statement sent to the payee.   (Note that the return sent to the IRS must still contain the full ID number)  For example, the truncation program would apply to real estate reporting forms (Form 1099-S) and to cancellation of debt reporting (Form 1099-C).  The truncated number is referred to as a “TTIN.”  The proposed regulations were allowed to be utilized by payors prior to finalization, but will now be fully effective for 2014 information returns. 
 
The final regulations were also expanded to include additional information returns, and also to include employer identification numbers (EINs).  Moreover, truncation is permitted on electronic as well as paper statements.
 
One remaining problem, however, is that the IRS would need statutory authority to expand the program to Forms W-2, the basic wage statement given to all employees.  The Social Security number is required on that form, and IRS has no authority to allow a shorter version.  A bill was introduced in the House of Representatives last year to allow truncation in wage reporting, but has gone nowhere so far and future action is uncertain.  H.R. 1560 (Garcia, D-FL).  The AICPA, which has long supported truncation, has recommended such legislation to Congress, and reiterated that position in a release on May 1, 2013.
 
Nevertheless, with release of the final regulations, truncation should become the rule rather than the exception in payer copies of information returns, including, as noted, some that are common in the mobility industry.  Worldwide ERC® members issuing such returns will want to take advantage of this new development.
 
Posted by Peter K. Scott
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