P & C Tax Update Knowledge is the Key IASA 86 TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW

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2 P & C Tax Update Knowledge is the Key 306 IASA 86 TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW

3 Speakers DOUG YOUNGREN CPA, JD, Tax Partner Doug is a tax partner in Plante Moran s insurance practice who oversees all aspects of the firm s insurance tax practice. He started his accounting career as an auditor; he has a unique hands-on style that incorporates his knowledge and experience as a CPA as well as an attorney. He has written articles on subjects ranging from offshore captive reinsurance to how a P & C company can convert its capital losses into ordinary losses. He has spoken on numerous occasions including at the Federal Bar Associations Insurance Tax Seminar as well as at the Farm Bureau Insurance Accounting conference. 3

4 Speakers J. Michael Reese, JD/LLM, Tax Manager Mike is a tax manager with Plante Moran focusing primarily on flowthrough entity taxation in the Service industry. His clients include venture capital/private equity funds as well as professional service providers. As part of his duties, he drafts internal guidance with respect to the recently enacted tangible property and repair regulations. 4

5 A Brief Agenda I. Items Specific to P & C Insurance II. SSAP 101: A Refresher III. Tax Sharing Agreements IV. The New Repair Regulations V. Foreign Reporting 5

6 F.W. Services Inc. v. Commissioner Fifth circuit finds that premium payments that were held by an insurer as a deposit against future deductibles that were to be refunded to a business at the end of the term of the policy are not deductible as an insurance premium. The ultimate holding in this case is related to risk shifting since any excess premium would have been refunded and if there had been a need for more, then an additional payment would have been made. 6

7 Punitive Damages Treated as Regular Business Expense Deductible When Paid In State Farm v. Commissioner, the U.S. Court of Appeals for the Seventh Circuit decided to treat a badfaith damage award which was punitive as not a portion of loss reserves. The court held that while the portion of the award for compensatory damages should be included in loss reserves, the punitive portion should not. The court relied heavily on guidance issued by the NAIC. According to that guidance, compensatory damages for bad faith awards are taken into consideration for calculating unpaid loss reserves, not punitive damages. 7

8 Foreign Company Qualifies as a Domestic Insurance Company & Reinsurance Premiums Paid to it Are Deductible Business Expenses In PLR the IRS ruled that a foreign captive insurance company qualified as a domestic insurance company for income tax purposes, and that reinsurance premiums paid to a reinsurance pool are deductible. 1. The insurance is offered to 6 related insured corporations and other entities; 2. To try to achieve risk distribution the Company takes part in a reinsurance pool with 14 other non-related insurers; 3. The company cedes its risks to the pool and then through another reinsurance agreement assumes a quota share back from the pool; 4. The IRS determined that none of the companies is paying for a significant portion of their own risk and therefore there is risk distribution 8

9 TAM Can You Insure Against a Market Decline? The IRS has ruled that a policy of insurance that insures against a market decline is not insurance. The logic of the IRS under this TAM was twofold: 1. The risks under the contract were related to investment risk as opposed to insurance risk. 2. Secondarily, the IRS concluded that the risk was one of a universal nature (a market decline) as opposed to one in a group of large numbers that might fortuitously happen to one insured rather than to all. Therefore they concluded there was no way to have risk distribution. 9

10 Acuity Mutual Insurance Co. v. Commissioner, T.C. Memo Acuity used in-house actuary to compute total loss reserves for pages of analysis 8 separate actuarial methods $660 million Acuity also used an outside consulting actuary to independently review loss reserves each year Narrow range of reasonable reserves $577 million to $661 million Loss reserves within range, so independent actuary signed a statement of actuarial opinion stating so. Acuity filed Annual Statement showing loss reserves of $660 million 10

11 Acuity Mutual Insurance Co. v. Commissioner, T.C. Memo IRS issued notice of deficiency for 2006 stating Acuity s loss reserves were overstated by $96 million. Argued that the annual statement controls only what is includible in the loss reserves, not the amount of reserve itself Tax court relied on Seventh Circuit case law to the effect that the NAIC-approved annual statement is the starting point for computing unpaid losses Court disagreed with IRS s argument, holding that the annual statement should be the source of unpaid losses for federal tax purposes Acuity produced substantial evidence in support of its position that the loss reserves are fair and reasonable IRS did not produce persuasive evidence to the contrary 11

12 Acuity Mutual Insurance Co. v. Commissioner, T.C. Memo What does this case mean? Memorandum decision, precedential value limited However, it demonstrates what documentation and processes are necessary to prevail when the IRS claims unpaid loss reserves are not fair and reasonable Makes it more difficult for the IRS to dispute fair and reasonable loss reserves just because they exceed the amount that the IRS s own actuaries would have determined 12

13 2013 Tax Rate Changes Many changes for 2013 Most at the individual level Top individual rate: 39.6% (up from 35% in 2012) Maximum capital gains rate: 20% (up from 15% in 2012) Medicare contribution tax:.9% on earned income (new for 2013) Net Investment Income tax: 3.8% on net investment income (new for 2013) Top rate cold be as high as 43.4% No change to C corporation income tax rates Graduated scale to maximum 35% corporate rate 13

14 2013 Considerations Compensation structure of key employees In light of.9% Medicare Contribution tax Reasonable compensation issues Depreciation 50% bonus expires December 31, 2013 Section 179 expensing 2013: $2 million qualifying property limit, $500,000 maximum deduction 2014: $200,000 qualifying property limit, $25,000 maximum deduction 14

15 SSAP 101: A Refresher Admissibility Test, Part 1 11.a. Companies can admit DTAs to the extent that they have paid federal income taxes in prior years that can be recovered during a timeframe corresponding with IRS tax loss carryback provisions, not to exceed 3 years P & C Federal carryback period for ordinary items is 2 years Life Federal carryback period for ordinary items is 3 years Federal carryback period for capital items is 3 years Year one of the carryback period is the current period 15

16 Admissibility Test, Part 2 Paragraph 11.b. After the application of paragraph 11.a., companies may admit DTAs expected to be realized within the applicable period, as determined by the Realization Threshold Limitation tables, not to exceed a percentage (as determined by the same Realization Threshold Limitation table) of statutory capital and surplus RBC levels determine the reversal period as well as the capital and surplus limitation percentage Non-RBC filers have their own table to determine admissibility Apply the percentage limitation to current period adjusted capital and surplus, excluding EDP, DTAs, etc. 16

17 Admissibility Test, Part 2 The December 31 RBC ratio is calculated using the end of year ExDTA ACL RBC ratio. Same calculation as the ratio computed in the annual RBC Report. TAC (Total Adjusted Capital) does not include any DTAs of the reporting entity. 17

18 Admissibility Test, Part 2 Interim periods (March 31, June 30, September 30) will use the following for the RBC ratio: Total Adjusted Capital ExDTA for the current quarter as the numerator Authorized Control Level as filed for the most recent calendar year as the denominator 18

19 Admissibility Test, Part 3 Paragraph 11.c. Any remaining DTAs can be admitted to the extent that they can be offset by any DTLs Must consider character (ordinary vs. capital) Must consider reversal patterns of temporary differences 19

20 Tax Loss Contingencies SSAP 101 replaced probable with more likely than not (50%) in SSAP 5R in relation to tax loss contingencies If it is more likely than not that a tax position will not be sustained upon examination, must establish a tax loss contingency Tax loss contingencies are included in the definition of current income taxes under paragraph 3.a. of SSAP 101 (also includes related penalties and interest) 20

21 Tax Loss Contingencies Assumes an examination with full knowledge of all relevant information If loss contingency is more than 50% of the benefit, must record contingency at 100% If the loss contingency relates to a temporary difference, do not record the contingency until an event occurs. Receive a Notice of Proposed Adjustment from the IRS 21

22 Possible Outcomes and the Probability of Occurring Tax Benefit Cumulative To Be Realized Probability Probability $500 10% 10% $400 10% 20% $300 25% 45% $200 10% 55% $100 45% 100% 22

23 P & C Example Multiple Year Carryover Gross Deferred Tax Assets Timing of Temporary Differences Gross DTA Turning in 2013 Turning 2014 Turning in 2015 OTTI $50,000,000 $50,000, LRD 190,000,000 60,000,000 45,000,000 85,000,000 Other 5,000, Total $245,000,000 $110,000,000 $45,000,000 $85,000,000 Temporary Benefits Reversing in One Year $110,000,000 Temporary Benefits Reversing in Two Years $45,000,000 Temporary Benefits Reversing in Three Years $85,000,000 23

24 P & C Example Multiple Year Carryover Without Reversing Without Reversing Without Reversing Temporary Differences With With With $140,000,00 Projected Taxable Income $150,000,000 $150,000,000 $70,000,000 $70,000,000 $140,000,000 0 Reversing Temporary Differences (110,000,000) (45,000,000) (85,000,000) Adjusted Taxable Income 150,000,000 40,000,000 70,000,000 25,000, ,000,000 55,000,000 Regular Tax 52,500,000 14,000,000 24,500,000 8,750,000 49,000,000 19,250,000 Tax Savings if Regular Tax Applied (at 35% Rate) 38,500,000 15,750,000 29,750,000 Taxable Income for AMT 150,000,000 40,000,000 70,000,000 25,000, ,000,000 55,000,000 AMT/ACE Adjustment 280,000, ,000,000 60,000,000 60,000, ,000, ,000,000 Adjusted Taxable AMT 430,000, ,000, ,000,000 85,000, ,000, ,000,000 AMT at 20% 86,000,000 64,000,000 26,000,000 17,000,000 52,000,000 35,000,000 Greater Tax 86,000,000 64,000,000 26,000,000 17,000,000 52,000,000 35,000,000 Actual Tax savings (at 20% Rate) 22,000,000 9,000,000 17,000,000 Reduction in Tax Savings as a Result of AMT (16,500,000) (6,750,000) (12,750,000) 24

25 SSAP 101 Tax Planning Temporary Differences Projected Taxable Income Reversing Temp Differences Without Reversing With $589,215,00 0 $589,215,000 Without Reversing $164,117,64 7 With $164,117,16 7 Without Reversing $328,235,29 4 With $328,235,29 4 (110,000,000 ) (45,000,000) (85,000,000) Adjusted Taxable Income 589,215, ,215, ,117, ,117, ,235, ,235,294 Regular Tax 206,225, ,725,250 57,441,176 41,691, ,882,353 85,132,353 Tax savings if Regular Tax Applied (at 35% Rate) 38,500,000 15,750,000 29,750,000 Taxable Income for AMT 589,215, ,215, ,117, ,117, ,235, ,235,294 AMT/ACE Adjustment Adjusted Taxable AMT 589,215, ,215, ,117, ,117, ,235, ,235,294 AMT at 20% 117,843,000 95,843,000 32,823,529 23,823,529 65,647,059 48,647,059 Greater Tax 206,225, ,725,250 57,441,176 41,691, ,882,353 85,132,353 Tax Savings Before Tax Planning 22,000,000 9,000,000 17,000,000 Tax Savings After Tax Planning $38,500,000 $15,750,000 $29,750,000 25

26 Valuation Allowance Stat and GAAP A valuation allowance is required under GAAP if it is determined that a gross deferred tax asset cannot be realized, in whole or in part. The standard is the more likely than not standard: 1. Based upon all available evidence unless it is more likely than not that a deferred tax asset will be realized a valuation allowance is required. 2. Sources of taxable income that can be used to support a conclusion that a DTA will be realized include: reversals of existing DTLs; carryback capacity under the tax law; projections of future taxable income; income from tax planning strategies. 26

27 Valuation Allowance Stat and GAAP I. For statutory purposes the valuation allowance reduces gross deferred tax assets resulting in adjusted gross deferred tax assets which are then subjected to the admissibility tests; II. In the Q&A to SSAP 101 it is emphasized that the stat valuation allowance is determined on a separate company basis; III. For internal control purposes it is important to note that the four sources of taxable income used to support a conclusion that no valuation allowance is required must be properly documented. 27

28 AMT Impact with NOL carryover Regular Tax Book income 3,000,000 4,000,000 3,760,000 20% of UEP BOY (2,000,000) (5,000,000) (6,000,000) 20% of UEP EOY 5,000,000 6,000,000 5,500,000 LRD BOY (3,000,000) (2,000,000) (3,000,000) LRD EOY 2,000,000 3,000,000 2,850,000 Taxable income B/4 NOL 5,000,000 6,000,000 3,110,000 NOL Carryover (25,000,000) (20,000,000) (14,000,000) Taxable income after NOL AMT Regular taxable income 5,000,000 6,000,000 3,110,000 AMT adjustments 750, , ,000 AMT Taxable income B/4 NOL 5,750,000 6,650,000 3,760,000 AMT NOL Limited to 90% (5,175,000) (5,985,000) (3,384,000) AMT Taxable income 575, , ,000 Times rate 20.00% 20.00% 20.00% AMT Tax 115, ,000 75, Total 323,200

29 Tax Sharing Agreements Three Basic Reasons for the agreements: I. Earnings and profits II. Stock Basis III. To determine how to split the actual liability in $$$ - the only limitation here is really the extent of the tax advisor s imagination 29

30 Tax Sharing Agreements Earnings and profits: 1. Basic Method 1 - Contribution to consolidated taxable income; a. This method is the default method if the company doesn t elect; b. This is really the companies share of taxable income; c. No members separate taxable income is treated as being less than zero under this method; d. No credit given for credits or losses or other tax attributes. 30

31 Tax Sharing Agreements Earnings and profits: 2. Basic Method 2 Separate return tax liability; a. Ratio of all members separate return tax liabilities: b. Intercompany transactions must be taken into account; c. No dividends received deduction for dividends between the members of the consolidated group; d. No members separate tax return liability is treated as being less than zero. 31

32 Tax Sharing Agreements Earnings and profits: 3. Basic Method 3 Allocation of tax increases from consolidation; a. First you allocate the tax liability to each member under basic method 1; b. Any tax increases of a member arising from the consolidation are then apportioned to each other member that has a reduction in tax liability. This is determined by comparing the tax liability calculated under Basic Method 1 with what would have been allocated under basic method Other Basic Methods with the approval of the secretary. 32

33 Tax Sharing Agreements Earnings and profits: 5. Tax attribute absorption methods; a. Wait and see method causes a member who uses the tax attribute of another member to only pay for that usage when the member who originated the tax attribute loses the use of it when it could actually reduce its own liability; b. The percentage method permits the group to allocate to loss and credit members the consolidated tax benefits attributable to the use of their losses and credits without taking into account (as you would in the wait and see method) the ability of a member to absorb these attributes itself. It is also known as the immediate payment method; c. Any other method approved by the secretary. 33

34 Tax Sharing Agreements Stock Basis: For purposes of calculating stock basis there is only one method. The federal income taxes of the group are allocated among the members by applying 1552 and the percentage method of Treas. Reg. Section (d)(3) using 100% as the percentage; There are no other options 34

35 Tax Sharing Agreements Sharing the liability for state law or payment purposes between the member: While there may be advantages to having the same methods for E & P, Stock basis and for sharing actually $$ between the entities it is not required. No reasonable method of sharing the actual dollars paid and shared of taxes as between the entities is off limits. 35

36 Repairs and Maintenance Final regulations issued September, 2013 Simplify and refine some of the temporary regulations and create new safe harbors Move away from facts and circumstances and subjective nature of current standards Taxpayer friendly Effective for years beginning on or after January 1, 2014 Option to apply to 2012 or

37 Basics Code Section 263 Capitalization of amounts paid to acquire, produce, or improve tangible property Code Section 162 Deduction of all ordinary and necessary business expenses, including certain supplies, repairs, maintenance New Regulations General framework for distinguishing capital expenditures vs deductible supply, repair, maintenance costs 37

38 Five Main Areas Materials and Supplies ( ) Repairs and Maintenance ( ) Capital Expenditures (1.263(a)-1) Amounts paid for the acquisition or production of tangible property (1.263(a)-2) Amounts paid for the improvement of tangible property (1.263(a)-3) 38

39 Five Main Changes Revised/simplified de minimis safe harbor for capitalization of amounts paid to acquire or produce property Extension of the safe harbor for routine maintenance to buildings Annual election for buildings that cost $1M or less to deduct up to $10,000 of maintenance costs New annual election to capitalize repair costs that are capitalized on taxpayers books and records Refinement of the criteria for refining betterments and restorations 39

40 De Minimis Capitalization Temporary Regs: Safe harbor to deduct certain tangible property up to aggregate ceiling This approach is allowed for 2012 and 2013 Final Regs: Safe harbor at the invoice or item level $5,000 per invoice or item, if applicable financial statement $500 per invoice or item, if no applicable financial statement 40

41 De Minimis Capitalization Applicable Financial Statement Certified Audited Financial Statement Not a review or compilation Financial Statements required to be submitted to a federal or state agency Includes insurance company Annual Statements In general, entities included in consolidated audited financial statements are eligible for the larger de minimis option 41

42 De Minimis Capitalization Accounting Policy To take advantage of the $5,000 de minimis rule, taxpayers must have written book policies in place at the start of the tax year that specify a per-item dollar amount (up to $5,000) that will be expensed for financial accounting purposes. The policy can set different thresholds for each asset class. Previous Years The IRS has declined to grant transitional relief for taxpayers who would otherwise have been able to apply the de minimis rule under the temporary regulations to their 2012 /2013 tax year. 42

43 De Minimis Capitalization Example: Taxpayer N purchases 50 computers for $400 each. N has applicable financial statements and an accounting policy to expense amounts paid for units of property costing less than $500 Computers are expensed for financial accounting purposes 43

44 Routine Maintenance Cost of certain routine maintenance need not be capitalized Recurring activities More than once during the life of the property Expect to perform to keep property in ordinarily efficient operation condition Final regulations now include buildings and structural components More than once over a 10 year period No need to consider treatment of costs on financial statements 44

45 Safe Harbor for Small Buildings Allows taxpayers to deduct amounts paid for repairs, maintenance, and improvements Gross receipts must be less than $10 million Unadjusted basis must be less than $1 million Deduction can t exceed the lesser of: $10,000 or 2% of the unadjusted basis De minimis rule and routine maintenance count towards the $10,000 45

46 Election to Capitalize Repair and Maintenance Costs Annual election to opt out of expensing repair and maintenance costs Must be capitalized on books and records as well Depreciate expenses 46

47 Improvements Generally: if a unit of property has been improved, the improvement must be capitalized. The UOP is determined to be improved if after it is placed in service, the activity performed on the property exceeds the BAR standard.»betterment»adaptation»restoration 47

48 Unit of Property Group of functionally interdependent components Parts of a machine, the machine is the unit of property Buildings are units of property Major systems are separate units of property HVAC Plumbing Electrical 48

49 Betterments A betterment is an expenditure that: Fixes a material condition or defect that existed prior to the taxpayer s acquisition of the UOP or arose in the production of the UOP Is for a material addition to the UOP (including physical enlargement, expansion or extension) Is reasonably expected to materially increase in capacity, productivity, efficiency, strength, or quality of the UOP or the output 49

50 Adaptation Adapting a unit of property for a new or different use Inconsistent with the taxpayer s intended, ordinary use at time placed in service No major changes with final regulations 50

51 Restorations Repair for casualty loss where a basis adjustment or loss has been taken Return a UOP to ordinary efficient operating condition, if deteriorated and no longer functional for intended use Results in rebuilding the UOP to like new condition at end of class life Final regs permit deduction for amount spent in excess of adjusted basis of the damaged property, provided they would otherwise be considered deductible repair expenses Still required to capitalize amounts paid to restore property that would be capitalized without regard to the casualty loss rule 51

52 Dispositions No final regulations Re-proposed and temporary regulations Changes were substantial enough that the IRS decided it needed to give taxpayers another opportunity to comment Revenue Procedure provides guidance for automatic changes in method of accounting Once final the regs will apply to January 1, 2014 Should apply to 2012 as well 52

53 Dispositions Old rule: If a structural component of a building was retired, can t dispose Continue depreciating old AND new component Proposed & Temporary Regs: Take loss for retirement of structural component Depreciate new component Statistical sampling allowed (see Rev. Proc ) Partial distribution elections 53

54 Transitional Guidance IRS expects that nearly all companies will have a change in their accounting method Transition guidance was issued in early 2014 in Revenue Procedure and How to apply the regulations for years prior to 2014 Change of accounting procedures 54

55 Key Takeaways Ensure written accounting policy is in place by the end of the year to take advantage of de minimis capitalization Certain items are elective Consider reverse tax planning Tight timeline for compliance Be prepared! 55

56 Reporting Foreign Assets Current Requirements Report of Foreign Bank and Financial Accounts (FBAR) Not a tax return Bank Secrecy Act of 1970 Fin Cen Form 114 Filed by United States Persons with a financial interest in or signature authority over a foreign financial account Aggregate value of accounts must exceed $10,000 at any time during a calendar year 56

57 Reporting Foreign Assets Current Requirements Report of Foreign Bank and Financial Accounts (FBAR) Financial Account Bank account Securities account Insurance or annuity policies with cash value Commodities or futures options Mutual or other comingled funds With determinable asset value Foreign Determination Location as opposed to nationality of institution is determinative 57

58 Reporting Foreign Assets Current Requirements Report of Foreign Bank and Financial Accounts (FBAR) Financial Interest U.S. person is owner of record or has legal title Owner or legal title holder defined as: Person acting as agent for U.S. person Corporation with 50% of vote or value owned by U.S. person Partnership with 50% of profits or capital owned by U.S. person Trust U.S. person is grantor and has ownership interest, or Greater than 50% interest in assets of trust, or U.S. person has appointed protector subject to U.S. persons instruction 58

59 Reporting Foreign Assets Current Requirements Report of Foreign Bank and Financial Accounts (FBAR) Signature Authority Authority of an individual to control the disposition of money, funds, or other assets held in financial account by direct communication Authority can be alone or in conjunction with another individual Personal financial managers often have such authority Limited exceptions for public companies/certain banks 59

60 Reporting Foreign Assets Current Requirements Report of Foreign Bank and Financial Accounts (FBAR) FBAR filings Must be received by June 30 Mailbox rule does not apply Potential Penalties Up to 50% of account value for each failure to file Criminal penalties may include prison 60

61 Reporting Foreign Assets Current Requirements Form 8938 Required by IRC Section 6038D Tax form filed with annual income tax return Filed by Specified Individuals with an interest in Specified Foreign Financial Assets 61

62 Reporting Foreign Assets Current Requirements Form 8938 Specified Individuals U.S. citizen or resident alien Nonresident alien spouse electing to be taxed as US resident Individuals not required to file U.S. tax return are NOT required to file 8938 Reporting thresholds Unmarried taxpayers living in U.S. $50,000 on last day of year or $75,000 at any time during year Married filing joint return living in U.S. $100,000 on last day of year or $150,000 at any time during year Unmarried taxpayers living outside U.S. $200,000 on last day of year or $300,000 at any time during year Married filing joint return living outside U.S. $400,000 on last day of year or $600,000 at any time during year 62

63 Reporting Foreign Assets Current Requirements Form 8938 Specified Foreign Financial Asset Financial accounts with a foreign financial institution Stock or securities issued by non-u.s. entity Financial instruments with non-u.s. issuer or counterparty Interest in non-u.s. entity Interest in foreign trust or estate Interest in foreign pension or deferred compensation plan Definition of Interest in Any income, gains, losses, deductions, credits, gross proceeds, or distributions would be reported on annual tax return 63

64 Reporting Foreign Assets Current Requirements Form 8938 Specified Foreign Financial Asset - Exceptions Assets held through US or foreign custody account Foreign custody account must be reported Assets held by non-disregarded entities Interest in entity may be reportable Look through applies to disregarded entities Real estate if not held through foreign entity Foreign social security Assets reported on certain other forms 64

65 Reporting Foreign Assets Current Requirements Form 8938 Form must be filed with income tax return Penalties $10,000 for failure to file timely If IRS provides notice of failure, and report is not filed within 90 days Additional $10,000 for each 30 day period, up to $50,000 maximum 65

66 Reporting Foreign Assets Future Requirements Entity Reporting Periods beginning after December 31, 2011 Specified Domestic Entities Corporation, Partnerships, Trust meeting certain criteria Must be formed or availed of for purposes of holding specified foreign financial assets 66

67 Reporting Foreign Assets Future Requirements Entity Reporting Periods beginning after December 31, 2011 Specified Domestic Entities Corporations and Partnerships Foreign financial assets meeting the $50,000/$75,000 threshold Entity is closely held At least 50% of gross income is passive or 50% of assets generate passive income Or At least 10% of gross income is passive or 10% of assets generate passive income in situation where entity is formed to avoid reporting obligations under 6038D 67

68 Reporting Foreign Assets Future Requirements Entity Reporting Periods beginning after December 31, 2011 Specified Domestic Entities Trusts Foreign financial assets meeting the $50,000/$75,000 threshold Specified person is beneficiary 68

69 Reporting Foreign Assets FBAR and Form 8938 Comparison Thresholds Interest in asset/account Balance reported Filing mechanics Penalties Indirect ownership Entity interests 69

70 Reporting Foreign Assets - FATCA Attempts to prevent tax evasion through foreign entities or financial institutions Potential withholding imposed Applies to Foreign Financial Institutions (FFI) Non-Financial Foreign Entities (NFFE) 70

71 Reporting Foreign Assets - FATCA Foreign Financial Institutions Accepts deposits in the ordinary course of business Holds financial assets for the account of others as a substantial part of its business Is engaged primarily in the business of investing or trading in securities, commodities, or partnerships Exemptions Companies holding subsidiaries engaged in a trade or business Hedging centers of non-financial group Start up companies in non-financial business Non-financial entities in liquidation or bankruptcy 71

72 Thank you for attending Doug Youngren, CPA, JD, Tax Partner J. Michael Reese, JD/LLM, Tax Manage

73 Disclaimer This presentation is part of Plante Moran marketing of professional services, and is not written advice directed at the specific facts and circumstances of any person and/or entity. This written advice is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. 73

74 Please Complete the Session Evaluation Form on the Conference App and Include Your Conference Registration ID# to be Included in a Drawing for a Free Conference Registration for the 2014 Annual Conference! NOTE: Your Conference Registration ID# is Located at the Bottom Left Hand Corner of Your Badge. IASA 86 TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW