The IRS and Altera Corp. Litigate Transfer Pricing Rules for Expenses Related to Employee Stock-Based Compensation

Altera Corp. is a technology company that manufactures semiconductors with a unit of business in the Cayman Islands.  According to court records and Thomson Reuters on July 24, 2012, the IRS argued that Altera should have divided certain expenses related to its employee stock-based compensation between its U.S. parent company and its Cayman Islands unit.  Altera booked the expenses relating to its employee stock-based compensation in the United States where the expenses are deductible for tax purposes.  The current litigation in the U.S. Tax Court involves Continue reading »

Stay Ahead of the Curve on Foreign Account Tax Act (FATCA) Compliance

The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010 as part of the Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147, H.R. 2847).  The purpose of FATCA is to help improve U.S. compliance involving foreign financial assets and offshore accounts.  FATCA affects U.S. taxpayers and foreign financial institutions.  FATCA requires U.S. taxpayers with specified foreign financial assets that exceed certain threshold amounts to report such assets to the IRS on Form 8938 beginning with the 2011 tax filing season.  FATCA also requires foreign financial institutions (“FFIs”) to report Continue reading »

Undisclosed Offshore Financial Account Discovery Broadens

The search for tax evaders is turning into a modern day witch hunt.  Earlier this week, the French authorities raided the homes of UBS employees, and the German authorities raided the homes of Credit Suisse clients.

The German state of North Rhine-Westphalia paid €3.5 million for a CD containing details of approximately 1,000 German clients of the Swiss branch of Coutts, the Royal Bank of Scotland’s private banking division.  In 2010, several German states purchased CDs produced by whistleblowers, though the exact origin of this CD is unknown.

While you may think that this is happening only “over there,” Continue reading »

Affordable Care Act-Required MLR Rebates Have Started to Arrive

As a result of the Affordable Care Act (ACA), some employers that sponsor group health plans have begun receiving Medical Loss Ratio (MLR) rebates from their health insurance carrier(s). Upon receipt of these rebate checks, employers have some decisions to make: Continue reading »

Taxes are Forever

The tenth circuit U.S. Bankruptcy Appellate Panel, in re Richard J. Wogoman, ruled that federal taxes assessed before a return was filed are not dischargeable.  This has serious ramifications for any person with unfiled tax returns, and especially for those who have agreed to, or are looking to solve their problems by agreeing to a substitute for return (SFR).

In general, taxes are discharged in bankruptcy when all of the following conditions are met: Continue reading »

International Tax Series: Be Aware of the Form 8858 Filing Requirement if a U.S. Person Owns a Foreign Disregarded Entity

The Form 8858 is required to be filed if a U.S. person owns 100% of a foreign eligible entity that elects to be classified as a foreign disregarded entity for U.S. federal tax purposes.  A U.S. person that owns 100% of a foreign disregarded entity is required to file the Form 8858 as a Category 1 filer.  A U.S. person must file the Form 8858 as a Category 2 filer if the U.S. person is required to file the Form 5471 with respect to a controlled foreign corporation (CFC) and the CFC is the tax owner of a foreign disregarded entity.  A U.S. person must file the Form 8858 as a Category 3 filer if the U.S. person is required to file the Form 8865 with respect to a controlled foreign partnership that is a tax owner of a foreign disregarded entity.

The income statement of the foreign disregarded entity is required to be reported on the Form 8858 in functional foreign currency and in U.S. dollars.  The balance sheet of the foreign disregarded entity is required to be reported on the Form 8858 in U.S. dollars translated from functional foreign currency in accordance with U.S. GAAP.

Certain transactions between the U.S. person filing the Form 8858 (or certain related parties) and the foreign disregarded entity are required to be reported on Schedule M of the Form 8858.

A $10,000 penalty applies for the failure to timely file the Form 8858 or if the Form 8858 is considered to be incomplete or inaccurate when filed.  The Form 8858 is filed with the U.S. filer’s U.S. federal income tax return.  The $10,000 penalty will apply automatically if the U.S. filer’s U.S. federal income tax return is filed late and the return includes the Form 8858.

For further information, please contact your Aronson tax professional or Alison Dougherty, International Tax Services at 301.231.6290.

This information is provided in the format of an informal blog posting and it cannot be relied upon as written tax advice or as a tax opinion to avoid tax penalties.

Reporting Requirements and Tax Increases Under the Affordable Care Act

Lost in the storm after the Supreme Court’s recent decision on the Affordable Care Act (ACA) is the fact that the Act includes several important provisions that either remain in effect for 2012 or go into effect in 2013 and 2014.  These provisions are outlined below:

• Ongoing disclosure and reporting requirements, including w-2 reporting of the value of individual insurance coverage for 2012
• Medical Loss Ratio (MLR) rebates – some employers who sponsor insured group health plans will begin receiving rebate checks from their carriers in the coming weeks
• Beginning in 2013, an additional 0.9% Medicare payroll tax on high income earners. High income earners are defined as individuals, filing separately, with earned income over $200,000 and joint filers with earned income over $250,000. The additional tax only applies Continue reading »

IRS Provides Guidance Regarding the I.R.C. Section 83(b) Election

On June 25, 2012, the IRS issued Revenue Procedure 2012-29, which provides new guidance regarding the Internal Revenue Code Section 83(b) election.  A taxpayer who receives substantially nonvested property, such as restricted stock in connection with the performance of services, is eligible to make a Section 83(b) election within 30 days of the date when the property is transferred.  The Section 83(b) election allows the taxpayer to include in gross income as compensation for services the fair market value of the property transferred over the amount paid for such property.  The election prevents the taxpayer from being taxed on the appreciation in value of the property in the year when the property becomes substantially vested.

In Rev. Proc. 2012-29, the IRS provides the text of sample language that taxpayers may utilize for a Section 83(b) election.  The IRS also provides some specific examples of the tax results that may occur from making the Section 83(b) election.  Rev. Proc. 2012-29 includes background information and the consequences of making the Section 83(b) election.
See http://www.irs.gov/irb/2012-28 IRB/ar12.html for the text of Rev. Proc. 2012-29.

For further information, please contact your Aronson tax professional or call 301.231.6200.

International Tax Series: Be Aware of the Form 8865 Filing Requirement if a U.S. Person Owns an Interest in a Foreign Partnership

The Form 8865 may need to be filed if a U.S. person owns an interest in a foreign eligible entity that elects to be classified as a foreign partnership for U.S. federal tax purposes.  A U.S. person who owns more than 50% of a foreign partnership is required to file the Form 8865 as a Category 1 filer.  The Form 8865 generally is required to be filed by a Category 2 filer which is a U.S. person who owned, at any time during the tax year, a 10% or greater interest in the foreign partnership while the partnership was controlled by U.S. persons each owning at least 10% interests.  The Form 8865 is required to be filed by Continue reading »

Virginia to Require Electronic Filings and Payments

Effective January 1, 2013, corporations subject to Virginia corporate income tax are required to file and pay taxes electronically for their estimated tax payments as well as their annual income tax returns. Further, all Virginia sales and use tax returns and payments must be filed electronically beginning with the July 2012 return, which is due in August 2012, for monthly filers. For less frequent sales and use tax return filers, Continue reading »