Tax in the News

FATCA or Fiction?

by Joshua on February 22, 2012

A few weeks ago,  Treasury and the IRS released the long awaited proposed regulations on the Foreign Account Tax Compliance Act (FATCA).  FATCA was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act in March 2010.  As a result of its enactment, chapter 4 was added to the Internal Revenue Code.  The proposed regulations are intended to prevent U.S. taxpayers from playing “hide and go seek” with Uncle Sam by holding assets and investments offshore.   Below is a very general discussion of FATCA and describes some of the basic concepts in the proposed regulations by creatively adopting a “fact or fiction” format to this post.

The proposed regulations are really long.

    • FATCA.  Prior to publication in the Federal Register, the proposed regulations amounted to nearly 400 pages.  The guidance took up about 90 pages in the February 15, 2012 edition of the Federal register
    • Bonus: The IRS initially released the proposed regulations without any page numbers.  FATCA.

The proposed regulations impose a 30% withholding tax on certain payments.

  • FATCA.  Under the proposed regulations, a 30% withholding tax is applied to “withholdable payments.” Such payments include payments that are ordinarily subject to withholding tax (e.g. FDAP), including interest, dividends, and rents.  This category of payments also includes gross proceeds from the sale of any property that could produce interest or dividends from sources within the U.S.

The withholding tax applies to all “withholdable payments.”

  • FICTION.  The proposed regulations provide a number of significant exceptions to the withholding regime.  For example, certain “grandfathered obligations” are not subject to FATCA.  An “obligation” for purposes of the proposed regulations is essentially any legal agreement that could produce a withholdable payment.  The grandfather provision applies to obligations outstanding on or before January 1, 2013 and not materially modified thereafter.

A “foreign financial entity” (FFI) can also avoid the 30% withholding if they are a “deemed compliant FFI” or a      “participating FFI.”  Under the first category, certain FFIs are considered to be in compliance with the FATCA rules by meeting certain requirements.  For example a deemed compliant FFI that certifies its status to a withholding agent is a “certified deemed compliant FFI.” (Note: In general, only certain entities are considered to be “deemed-compliant” ). Participating FFIs are required to enter into an agreement with the IRS in order to avoid withholding.  Under the agreement, the participating FFI will be required to obtain certain information about its account holders in order to determine which are U.S. accounts as well as report certain information on those accounts, among other things.

FATCA starts tomorrow.

  • FICTION.  The proposed regulations provide an effective date of January 1, 2014 for withholding of FDAP and other pass-thru payments and a September 30, 2014 effective date for reporting identifying information.

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According to a Tax Foundation article, on January 26th, a federal judge enjoined enforcement of a Colorado law that essentially places the burden of collecting state and local taxes for purchases made on online, on the online retailer. This legislation, which is often referred to as an “Amazon tax,” has been challenged on Constitutional grounds. The article states that Judge Robert E. Blackburn held that “the plaintiff has shown a substantial likelihood that it will succeed in showing that the act and the regulations are discriminatory because, in practical effect, they impose a burden on interstate commerce that is not imposed on in-state commerce.”

Currently, New York, North Carolina, and Rhode Island, have laws that requires retailers that have contracts with “affiliates”-independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business-to collect the state’s sales and use tax. Other states are considering imposing similar Amazon tax laws.

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As a Graduate Tax student, I would wait in line to get my hands on “Tributin” (or “Little Tax”), a new video game planned by the Cuban government to teach kids about fiscal policy and the importance of paying taxes. No details have emerged as to what the game play will be like, but with a name like Tributin, it must be good. According to a phone interview with Reuters, the project director of the game, Dagoberto Marino, said that “It is a fun software to help children learn about fiscal policy, because since they were born in a socialist society with some gratuities, they don’t have all the elements needed to understand taxes.”

MSNBC, Cuba Plans children’s video game to promote taxes.

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Click on the picture below to see if you can find the word tax in the word cloud of President Obama’s 2011 State of the Union. The clouds give greater prominence to words that appear more frequently in the source text according to Wordle.

Wordle: President Obama's 2011 State Of The Union

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‘Tis the [tax] season for new ways to file your tax returns. Last week we told you about a new app that allows you to file various individual and business tax returns on your iPad. Yesterday, TurboTax released a new app that allows a taxpayer to file his or her 1040EZ or state income tax return on an iPhone or Android mobile device. According to the app’s description on iTunes (Apple’s interface for downloading apps to the iPhone), filing a tax return using SnapTax is as easy as 1-2-3. First, you snap a photo of your W-2. Then, you answer a few questions. Finally, you review, pay $14.99, and e-file securely (I heard Ron Popeil saying “Just set it and forget it” as I was typing that last sentence).

For more information on this new app checkout the YouTube video below and see WalletPop’s article.

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According to the Wall Street Journal, the Treasury Department plans to launch a new program that will deliver tax refunds to taxpayers using prepaid debit cards rather than mailing paper checks. The move is another cost-cutting measure by the Department to decrease the number of mailings made to individuals. Approximately 600,000 taxpayers composed of low-to-moderate income earning individuals will be invited to participate in the pilot program by letter (irony). The letter will explain the program and request that the taxpayer enroll in the program by activating a debit card that can receive the deposits.

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Supreme Court Upholds Tax on Medical Residents

by Joshua on January 11, 2011

In an unanimous decision, the Supreme Court upheld the requirement that medical residents pay Social Security taxes. As we noted in our prior posts on this topic, full-time students that work in addition to attending school are generally exempt from paying such taxes. However, in the Court’s opinion written by Chief Justice Roberts, the interpretation by the Internal Revenue Service of the law requiring residents to pay such tax was a reasonable one. The Court did not agree with Mayo Clinic’s argument that like full-time students, medical residents attend lectures and perform lab work in the course of learning and thus should not be responsible for paying the Social Security tax. The stakes in this case range from upwards of $700 Million payable by approximately 100,000 medical residents across the country.

Court Opinion

Wall Street Journal, Tax on Medical Residents Upheld by Court

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iPad is…Tax Return Preparing?

by Joshua on January 10, 2011

Taxsoftware.com announced today that an application that permits a taxpayer to file six of the most often used federal tax returns is now available for purchase for $9.99 for use on Apple’s iPad. According to the press release, the app is the first of its kind.

Further, the app includes unlimited tax preparation and printing. There is an e-filing charge of $4 for an iPad 1040 and a $15 fee for any iPad business return (1041, 1065, 1120, 1120S and 1099-MISC.)

Visit the app’s site here for more information. Finally, by no means does this post mean that I am narrowing the scope of Tax Docket to Apple Products that assist individuals in handling their tax matters (see my previous post Mac App Store Opens Today — With a Useful Estate Planning App?).

Also, if you do get frustrated with the filing of your return or the amount of your refund (or lack thereof) we do not suggest you do what the video below demonstrates.

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In September, we reported that a proposed Romanian witch and fortune teller tax law was rejected by lawmakers in Romania. Well, as of January 1, Romanian witches and fortune tellers will be taxed as part of an initiative to collect more revenue and crack down on tax evasion in a country that is in recession according to the Associated Press. It is speculated that the tax will be difficult to collect because payments to witches and fortune tellers are made in cash and in small amounts. According to the Associated Press, witches and fortune tellers plan to threaten the government with spells and spirits as part of the new law.

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C’Mon Man! — Tax Edition

by Joshua on January 4, 2011

Fountain Soda Drink Tax! C’Mon Man!

See America’s strangest taxes, Huffington Post

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