Chapter 11. International Tax. Rogers v. Comm., (CA Dist Col 4/17/2015)

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1 Chapter 11 International Tax Rogers v. Comm., 11-1 (CA Dist Col 4/17/2015) Appellate Court Affirms: International Flight Attendant's Wages Are Only Partially Excludable

2 The Tax Court has decided several recent cases specifically dealing with the question raised in this case and consistently limiting the Section 911 exclusion to income actually earned in or over foreign countries Notice (4/14/2015) 11-2 Housing Cost Amounts Eligible for Exclusion or Deduction for 2015 Per the IRS

3 Daily Housing Expense Limit IRC: $82.85 Catania, Italy: $83.56 Paris France: $ London, UK $ China: $ Foreign Asset Reporting

4 11-2 IRS FBAR Reference Guide

5 Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties (May 13, 2015) IRS Memo on FBAR penalties 11-2 For most cases involving multiple nonwillful violations, examiners will recommend one penalty for each open year, regardless of the number of unreported foreign financial accounts. In those cases, the penalty for each year will be determined based on the aggregate balance of all unreported foreign financial accounts, and the penalty for each year will be limited to $10,000. **

6 Willful Conduct: Voluntary, intentional violation of a known legal duty Delinquent FBAR Submission Procedures (May 14, 2015) 11-4 IRS Website Guidance

7 Three Options: OVDP 27.5% -- Willful Streamlined Filing Procedures 5% penalty Non-willful FBAR Submission Procedures Streamline Filing Procedures

8 Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, that the failure to report all income, pay all tax and submit all required information returns, was due to non-willful conduct. Delinquent FBAR Submission Procedures

9 Delinquent FBARs should be filed by U.S. persons who: do not need to use either the OVDP or the Streamlined Filing Compliance procedures to file delinquent or amended returns to report and pay addition tax, have not filed the required FBARs, are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about the delinquent FBARs.

10 The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs,

11 [Form 114] offers filers an option to explain a late filing or to select Other and enter up to 750- characters within a text box to provide a further explanation of the late filing or to indicate whether the filing is made in conjunction with an IRS compliance program. Businesses-&-Self-Employed/Report-of- Foreign-Bank-and-Financial-Accounts-FBAR

12 Moore v. U.S. (Moore I) (Dist. Ct. W.D Washington 4/1/2015) Taxpayer Lacked Reasonable Cause Excuse for Failing to File FBARs Mr. Moore filed this lawsuit to contest the IRS's decision to assess the maximum penalty of $10,000 against him four times, once for each year from 2005 through 2008 [$40,000 total]

13 he clung to a baseless, longago-conceived notion that holding a foreign account in a corporate name exempted him from his obligations in the United States. Moore Depo. at (testifying that he did not discuss foreign account with his tax preparer because he thought it was immune from domestic taxes ). Moore II (Dist. Ct. W.D. Washington 7/24/2015) 11-5 FBAR Penalty Assessment OK, but IRS Conduct was Arbitrary and Capricious

14 The IRS's conduct in assessing those FBAR penalties, by contrast, was in several respects arbitrary and capricious. In particular, the IRS disclosed no adequate basis for its decision to assess the penalties until this litigation forced its hand. Even after this litigation began, the IRS refused to disclose the evidence on which it now relies to demonstrate the basis for its decision to impose those penalties. With respect to the 2005 penalty, the IRS broke its own promise not to impose a penalty until Mr. Moore had an opportunity to respond to its "proposed" assessment. (so Judge said no interest or late fees on the FBAR penalties)

15 Chabot, (CA 3 7/17/2015) 11-6 Third Circuit Holds That IRS Can Compel Production Of Foreign Bank Records PMTA (10/3/14) 11-7 Form 8938 Not Filed by Executor of Estate May Extend Statute for Forms 1040, 1041 and 706

16 In the event of a failure to furnish information required under section 6038D [i.e., file Form 8938], section 6501(c)(8) operates to suspend the period of limitations on assessment of any tax with respect to any return, event, or period, to which the undisclosed information relates.

17 11-7 IRS International Practice Units Training Aids

18 For example: Bona Fide Residence Test for Purposes of Qualifying for (PDF, 187KB) IRC 911 Tax Benefits U.S. Persons Residing Abroad Claiming Additional Child (PDF, 175KB) Tax Credit Calculating Foreign Earned Income Exclusion -Self- Employed Individual