International Tax Matters

Just how is the Expatriation Tax Calculated?

Introduction

It has been all over the news lately, wealthy U.S. taxpayers, such as, Eduardo Saverin (a Facebook founder), Denise Rich (songwriter), and another eighteen hundred, or so, have forfeited their U.S. citizenship for U.S. tax reasons.    Federal law provides that some U.S. taxpayers who elect to renounce their U.S. citizenship must pay a so-called federal exit tax or expatriation tax. The computation of this tax is incredibly complex. Only by reviewing the originally enacted expatriation tax in 1966 and the intervening modifications to the expatriation tax law over a four decade period can one begin to understand how to properly compute the so-called “exit tax” regime.

In our International Tax Practice, we have found individuals seeking to learn how the Exit Tax came to be and some of the considerations commonly sought.   This article provides an overview of the federal law governing expatriation tax and the modifications to the law over the past four decades.

The Original Expatriation Tax Provision as Defined by the Foreign Investors Tax Act of 1966

The expatriation tax was introduced to U.S. tax law by the Foreign Investors Tax Act of 1966 (“FITA”). FITA introduced Sections 877, 2107, and 2501 to the Internal Revenue Code.

Section 877 imposed a tax, calculated at higher rates applicable to nonresidents who were not former U.S. citizens or at the rates applicable to U.S. citizens, on the U.S. source income of former citizens who expatriated for a principal purpose of tax avoidance for 10 years following expatriation. In order to correctly determine an individual’s expatriation tax rate, it was necessary to make two calculations known as the “alternative tax” regime.

U.S. source income for purposes of FITA was defined to include gains from the sale of exchange of property (other than stock or debt obligations) located in the U.S. as well as gains from the sale or exchange of stock or debt obligations issued by a domestic corporation or U.S. person. In addition, gains from the sale or exchange of property having a basis determined by reference to such property, in whole or in part was treated as U.S. source income for a 10 year period in order to capture gains from non-U.S. property.

Under Section 2107, added by FITA, if an expatriate subject to the alternative tax regime of Section 877 died within 10 years following expatriation, his or her U.S. estate was assessed the expatriation tax. The expatriation tax was also assessed shares held at the death of the individual comprising a 10 percent or greater direct or indirect interest in a foreign corporation considered to be owned by more than 50 percent by the decedent, directly, indirectly, or constructively, in portion to the foreign corporation’s underlying U.S. situated property. In addition, Section 2501(a)(3) was enacted by FITA. Section 2501(a)(3) provided that the normal gift tax exclusion did not apply for gifts made within 10 year period of expatriation.

For purposes of the expatriation tax, if the IRS was able to establish that it was reasonable to believe that a U.S. citizen expatriated with a principal purpose of tax avoidance, the burden of proof on this matter was placed on the expatriate or his estate to prove otherwise.

Amendments Made to the Expatriation Tax through Health Insurance Portability and Accountability Act of 1996

In 1996, Congress enacted changes to the rules governing expatriation tax through the Health Insurance Portability and Accountability Act (“HIPAA”). Under this act, the category of “covered expatriates” was expanded to include “long-term resident aliens,” defined as “lawful permanent residents” (green card holders) residents for expatriation tax purposes if the individual was a resident in the U.S. in eight of the prior 15 tax years. For purposes of HIPAA, expatriation was considered to have occurred at date stated for citizens under U.S. immigration law (the date of an expatriation act) and for long-term residents under tax residency rules.

HIPPA also introduced the notion of “presumptive tax avoidance purpose” based on a number of economic factors that pertained to the taxpayer seeking to expatriate. A tax avoidance motive was presumed if an individual’s net average U.S. income tax liability in the 5 years preceding expatriation was $100,000 or more (“income tax liability test”) or if his net worth at expatriation exceeded $500,000 (“net worth test”).

In addition, HIPAA significantly enlarged the categories of income considered to be U.S. source income. For example, income and gains derived from former controlled foreign corporations (“CFC”) were considered controlled by an expatriate if held within two years prior to expatriation and were considered to be U.S. source income for tax purposes.

Finally, HIPAA expanded federal tax law to require an expatriating U.S. citizen to provide an information statement, including a statement of net worth, to the Department of State when applying for expatriation.

The Impact of the American Jobs Creation Act of 2004 on the Expatriation Regime

The American Jobs Creation Act of 2004 (AJCA) adopted a number of changes to the tax laws governing expatriation. The AJCA removed the requirement that an individual have a principal tax avoidance purpose and changed the income tax liability test. The income tax liability test threshold was changed to “greater than” $124,000 (indexed annually), the net worth test standard was increased significantly to $2,000,000 (not indexed). In addition, the AJCA added a third test which provided that an expatriate certify that he has fully complied with all U.S. tax requirements for the five years preceding expatriation.

The AJCA also amended the expatriation gift tax rules to add a provision which imposes tax on gifts of a foreign corporation owned by the expatriating taxpayer ten years subsequent to the expatriation period.

In addition, AJCA added Section 7701(n) to the Internal Revenue Code which provides that an individual will continue to be treated as a U.S. citizen or long-term resident until he both gives notice of his expatriation to the Department of Secretary or Department of Homeland Security, and furnishes an information statement. Furthermore, the AJCA increased the information reporting rules requiring that an expatriate file an annual information statement for each of the ten post-expatriation years regardless of whether the expatriate had any U.S. source income for each year at issue. Expatriating taxpayers were now required to Form 8854 advising the Government of his or assets.

Finally, the AJCA added a new residency classification to the expatriation taxing regime. Under this new rule, an individual who has expatriated will suffer U.S. worldwide income tax if he or she is physically present in the U.S. for more than 30 days during any of the ten years preceding expatriation. Typically, a non-resident alien is permitted an average of 121 U.S. days per year without becoming a U.S. tax resident.

The Heroes Earning Assistance and Relief Tax Act of 2008 and the Impact of this act on Expatriation Taxation

Prior to Section 301 of the Heroes Earning Assistance and Relief Tax Act of 2008 (“HEART Act”), expatriates generally were subject to a ten year “alternative tax” regime on U.S. source income as discussed in FITA.

Section 877A replaces the former alternative tax regime on U.S. source income of “covered expatriates” with a mark-to-market tax on gains in excess of $600,000 (indexed for 2012 to $651,000) from a deemed sale of an individual’s worldwide assets on the day prior to the individual’s expatriation date. The term “covered expatriate” includes individuals who renounce or relinquish U.S. nationality or terminate their status as long-term permanent residents (i.e. green card holders for at least eight of the 15 taxable preceding expatriation) and whose average net income tax liability for the five years preceding exceeds $124,000 indexed for inflation (for persons expatriating in 2012, $151,000) 1 or whose net worth at the date of expatriation equals or exceeds $2 million (not indexed).

Under the provision, a covered expatriate can irrevocably elect, on an asset by asset basis, to deter the payment of the mark-to-mark tax attributable to an asset until the due date of the return in which such property is sold or exchanged. In order to make the election, a taxpayer must provide “adequate security” (including a bond conditioned on the payment of tax and interest) and irrevocably waive the benefit of any U.S. tax treaty that would preclude assessment of tax. The election will terminate as to any property not sold or exchanged when a taxpayer dies or when the IRS determines that security is no longer adequate. In addition, certain property, including deferred compensation items, “specified tax deferred accounts,” such as individual retirement accounts and health savings accounts are exempted from the mark-to-market tax.

Expatriation date is defined to mean the date that a citizen relinquishes U.S. nationality or a long-term resident alien ceases to be a lawful permanent resident. A citizen is considered to have relinquished U.S. citizenship at the earliest of the dates: 1) he renounces his nationality before a U.S. diplomatic or consular officer; 2) he provides a statement of voluntary relinquishment to the Department of State; 3) the Department of State issues the individual a Certificate of Loss of Nationality; or 4) a U.S. court cancels a naturalized citizen’s certificate of naturalization.

Finally, for purposes of the mark-to-market taxing regime, all nonrecognition deferrals and extensions of time for the payment of tax are considered terminated the day before expatriation.

The HEART Act added Section 2801 to the Internal Revenue Code. Section 2801 imposes a tax, at the highest applicable gift or estate tax rates on the receipt by a U.S. person of a “covered gift or bequest,” which is defined as a direct or indirect gift or bequest from a “covered expatriate” within the meaning of Internal Revenue Code Section 877A. The tax is assessed on, and intended to be paid by, the recipient of a covered gift or bequest. The succession tax will be reduced by any foreign gift or estate tax paid. The new succession tax does not apply to gifts covered by the annual exclusion of Section 2503(b), currently at $13,000 per done per annum. It also does not apply to gift or bequests entitled to a marital or charitable deduction.

Conclusion

Over the past four decades, the expatriation tax has evolved into an extremely complex taxing regime. In 2009, the Treasury and the Internal Revenue Service (IRS) promulgated Notice 2009-85 to provide limited guidance to determine an expatriating individual’s tax liability. Unfortunately, the Notice fails to provide any meaningful guidance regarding Section 877 and 2801. The failure to provide meaningful guidance in regards to the expatriation tax. This failure only makes determining the proper the expatriate tax more difficult than is necessary which can result in disastrous consequences. This is because the failure to properly compute an expatriation tax may result in a bar of re-entry of former citizens who to the U.S.

In 1996, the so-called “Reed amendment” was enacted as part of the Illegal Immigration Reform and Immigration Responsibility Act. Because of a number of statutory defects, the Reed Act has never been enforced. 2 Even though the statutory language of the Reed amendment may be flawed, The Department of Homeland Security has been working to develop regulations to implement the Reed amendment. If this project is to move forward, former citizens or long-term residents could discover that their re-entry to the U.S. is bared if they fail to fully comply with their expatriation tax obligations. Given the current climate Washington regarding individuals seeking to expatriate from the U.S. for tax purposes, it is not to difficult to imagine regulations being promulgated by the Department of Homeland Security barring ex-citizens from re-entering the U.S. for failing to comply with their expatriation tax obligations. This could disastrous for former citizens with families and economic interests in the U.S.

Given the foreseeable consequences of failing to properly compute an expatriation tax, individuals considering repatriation should consult with a tax attorney to determine how the exit tax will impact them.    We welcome your feedback and questions regarding this article and your tax questions.    You can learn more about our firm at www.moskowitzllp.com or by calling our firm (415) 394-7200. 

  1. Rev. Proc. 2011-52, 2011-45.
  2. The Reed amendment has the following statutory flaws: 1) it is unclear from the language of the statute if it encompasses all acts of expatriation; 2) it is uncertain if the Reed amendment violates the Constitutional Due Process rights of certain former citizens by barring them from reentering into the U.S.


Moskowitz LLP, A Tax Law Firm, Disclaimer:   Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.   Prior results do not guarantee a similar outcome.   Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

Also see, No Easy Exit: The U.S. Expatriation Tax

U.S. Taxation of Fideicomisos under the FATCA Rules

Overview of Fideicomisos

If you own a home or a vacation home in Mexico, chances are that your property is held in a fideicomiso. A fideicomiso is a contractual arrangement that is arguably something in between a trust and a custodial agreement. Under Mexican law, a fideicomiso is a written contract whereby the trustee receives funds or property for the purpose of carrying out a lawful objective.

Fideicomisos are required by the Mexican Government for many U.S. persons for development and acquisition of real property in areas of Mexico where foreign investment is either restricted or limited. In such instances, a transaction may be planned whereby a foreigner may acquire an interest in the fideicomiso itself rather than taking title to the underlying property.

A trustee must be appointed to oversee the fideicomiso. Under Mexican law, the trustee of a fideicomiso is obligated to act in a fiduciary capacity with respect to both the grantor and the beneficiary and must be an approved bank or credit institution. The trustee holds legal title to the property, while beneficial ownership remains vested in the grantor. The grantor retains the sole power to make decisions regarding the sale or transfer of property. Upon the termination of the fideicomiso agreement, the grantor receives legal title except where the grantor is a foreigner and the property held in trust consists of residential real property located in a zone where foreign ownership is prohibited.

Introduction to the Hiring Incentive Restoration Employment Tax and the New Law’s Implications on U.S. Persons that Have an Interest in a Fideicomiso

The Hiring Incentive Restoration Employment (HIRE) Act was signed into law on March 18, 2010. The HIRE Act contains several provisions that change the rules applicable to foreign trusts and their beneficiaries, causing the use of trust property to be treated as a deemed distribution. The HIRE Act broadens the grantor trust rules which treat U.S. settlors of foreign trusts as owners of trust property for federal income tax purposes. The new law was intended to target individuals who utilized foreign trusts to avoid U.S. taxes. However, the HIRE Act has some serious unintended consequences to U.S. Persons or U.S. investors who have an interest in a Mexican fideicomiso.  This article will discuss the U.S. implications tax and reporting to U.S. persons that hold an interest in a fideicomiso.

The Implication of the Grantor Trust Rule to Foreign Trusts with a U.S. Beneficiary

Sections 671 to 679 of the Internal Revenue Code contain the so-called 'grantor trust rules,' which treat certain trust settlors (and sometimes persons other than the settlor) as the owner of a portion or all of a trust's income, deductions and credits for U.S. tax purposes. A trust where the settlor (or other person) is treated as the owner of the trust assets for U.S. tax purposes is referred to as a 'grantor trust.' The grantor trust rules apply to both foreign and domestic trusts, but in different ways.

Under the grantor trust rules, a U.S. person who transfers property to a foreign trust is generally treated for income tax purposes as the owner of that portion of the trust attributable to the transferred property, even if the trust would not have been a grantor trust had it been domestic.  This is the result for any tax year in which any portion of the foreign trust has a U.S. beneficiary. A foreign trust is treated as having a U.S. beneficiary for a tax year unless (i) under the terms of the trust, no part of the trust's income or corpus may be paid or accumulated during the tax year to or for the benefit of a U.S. person, and (ii) if the trust is terminated at any time during the tax year, no part of the income or corpus could be paid to or for the benefit of a U.S. person. The Treasury Regulations under Section 679 of the Internal Revenue Code generally treat a foreign trust as having a U.S. beneficiary if any current, future or contingent beneficiary of the trust is a U.S. person.

Informational Return Filing Requirements of U.S. Persons Having a Financial Interest in a Fideicomisos

Section 6048 of the Internal Revenue Code imposes reporting obligations on foreign trusts and persons creating, making transfers to or receiving distributions from such trusts. For example, a U.S. person who transfers property to a foreign trust must report the transfer to the Internal Revenue Service (IRS), and a U.S. beneficiary who receives a distribution from a foreign trust must report the distribution. Both reports are made on IRS Form 3520 and the failure to file the form in a timely manner results in a penalty generally equal to 35 percent of the gross value of the transfer or distribution per year. In addition, if a U.S. person is treated as the owner of any portion of a foreign trust under the grantor trust rules, the U.S. person is responsible for ensuring that the trust files an annual information return on Form 3520-A and provides information to each U.S. person who is treated as the owner of any portion of the trust, or receives (directly or indirectly) any distribution from the trust.

The Combination of the Grantor Trust Rules and the New HIRE Combine to Produce a Perfect Storm for U.S. Beneficiaries of Fideicomisos

The HIRE Act broadens Section 643(i) of the Internal Revenue Code to provide that any use of foreign trust property after March 18, 2010 by a US grantor, a U.S. beneficiary or any U.S. person related to a U.S. grantor or U.S. beneficiary will be treated as a distribution for federal income tax purposes to such U.S. grantor or U.S. beneficiary of the fair market value of the potential to use the property where it is actually used or not. As discussed above, the recipient of the deemed distribution will be required to file Form 3520 to report the distribution from the foreign trust. Not only will a beneficiary of a fideicomiso have to report the fair market value of the use of the property held in the fideicomiso on a Form 3520, a U.S. person holding an interest in a fideicomiso may have to report the fair market value of the use of the property held in the fideicomiso on his or her federal income tax return, whether it is used or not. This deemed distribution rule will not apply to the extent that the foreign trust is paid fair market value for the use of the property within a reasonable period of time. There is no indication as to what period of time will be considered 'reasonable' and the IRS is likely to provide guidance on this issue.

Conclusion

On June 24, 2011, dated November 17, 2010 and released on June 24, 2011, the IRS Office of the Chief Counsel took the position that as “general information only,” any U.S. person who transfers property to or who has an interest in a Mexican fideicomiso must treat the entity as a foreign trust for purpose of filing Forms 3520 and 3520-A. The new tax laws promulgated by the HIRE Act took elevated this matter. Under the HIRE Act, the United States has moved beyond collecting information on fideicomisos and now seeks to impose tax on a U.S. taxpayer’s interest on a fideicomiso. Clearly, U.S. taxpayers who hold an interest in a fideicomiso must file applicable Form 3520s reporting the fair market value of the use of the property held by the entity. In addition, the new HIRE Act imposes unforeseen federal income tax on U.S. persons who established a fideicomiso or have a beneficial interest in a fideicomiso. Whether the IRS can impose a federal income tax liability against the grantor or beneficiary is unclear, however, please refer to Section C. of our client update regarding foreign trusts for potential tax filing obligations.

Under Article 27 of the Constitution of Mexico, only Mexicans by birth or naturalization or Mexican companies may “acquire direct ownership of lands or waters within a zone of hundred kilometers along the frontiers and of fifty kilometers along the shores of the country.” A fideicomiso is a property-ownership arrangement to comply with Article 27 of the Mexican Constitution under which a Mexican Bank Trust obtains legal title to a piece of real estate within a prohibited zone, and a foreigner, as the beneficiary of the trust, enjoys the beneficial interest in the property, including all the usual rights of ownership.

Section 643(i)(3) of the Internal Revenue Code, as amended by the HIRE Act, provides that the U.S. grantor, or U.S. beneficiary, must report the fair market value rental value of the use of any property placed in a trust. Article 27 of the Mexican Constitution clearly defines a fideicomiso as a trust. Since a fideicomiso is classified as a trust under Mexican law, the IRS will take the position that a U.S. grantor or U.S. beneficiary of a fideicomiso will take the position that the fair market value of the potential use of the property placed in the trust will be taxable on an annual basis, whether it is actually used or not. Currently, U.S. persons who hold an interest in fideicomisos have the use of property that is located in some very expensive and desirable coastal areas. Given the new HIRE Act imposes a duty to recognize a tax liability on the fair market value of the value of real estate placed in a foreign trust, the beneficiaries of fideicomisos may be subject to a very unwelcome new annual federal income tax, unless the person takes effective steps to avoid it.

Unless the grantors or beneficiaries of fideicomisos can distinguish it from a foreign trust, it seems that the realization of a new federal income tax will simply become an enormous cost of having an interest in a fideicomiso. In other words, an argument must be made that a fideicomiso cannot legally be classified as a trust. Given the current state of Mexican law and the wording of most fideicomiso agreements, arguing that a fideicomiso is not tantamount to a trust does seem realistic. Under Mexican law, most fideicomiso agreements will never permit the Mexican property held in the fideicomiso to revert to the U.S. grantor. Fideicomiso agreements are typically limited to a term of years, typically 50 years. Given the very nature of the fact that the usage of the land held by the fideicomiso is limited to a term of years, and title to the property held by the fideicomiso can never pass to the beneficiary or his or her heirs, a compelling position can be taken that a true trust agreement has not been established. Instead, the U.S. person acquiring a property interest in the fideicomiso holds a long term lease on property where foreign ownership is prohibited.

Since the time period which a U.S. person and his or her heirs can enjoy the property is limited by a term of years and title to the property can never revert to the U.S. beneficiary of the fideicomiso, a strong argument can be made that a fideicomiso should not be characterizes as a foreign trust for U.S. tax purposes. Instead, a fideicomiso should be treated as a custodial, nominee arrangement or even a lease agreement in which a U.S. person leases land in Mexico for term of years. And, a Mexican Bank is appointed to hold title to the property at issue.

At this time the rules governing the U.S. taxation of an interest in a Mexican fideicomiso remains in flux. Given the uncertainty in this area, U.S. taxpayers with an interest in a fideicomiso should consider obtaining a private letter ruling to determine the IRS position on the U.S. tax consequences of that particular entity.

Please do not hesitate to contact us to learn more.  

 

Like any Law Firm, we need to add a disclaimer:    Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on your particular situation(s).    Furthermore, in accordance with Treasury Regulation, Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax related matter addressed herein.  

United States and South Korea Coordinate to Combat Monetary & Tax Crimes

To combat money and tax crimes, such as tax evasion and money laundering, the United States and Korean Governments have committed to a simultaneous criminal investigation program, SCIP.  The arrangement allows the respective tax departments; the United States’ Internal Revenue Service (IRS) and South Korea’s National Tax Service (NTS), to share records for the purpose of comparing and verifying data submitted to both agencies by South Korean Americans.

The NTS is concentrating on South Korean businesses and individuals participating in the illegal practices of transferring funds out of country, avoiding taxes and engaging in money laundering, while the IRS is concerned with U.S. taxpayers participating in illegal and legal investing in or holding money/assets in South Korea.  The SCIP requires Foreign Bank Account Holders (FBA) to properly report their assets.  The United States requires the same under its Reporting Requirements.   See 2012 Offshore Voluntary Disclosure Program; One Size Does Not Fit All, Criminal Tax Defense.


Previously, the NTS asked over 2000 individuals to voluntarily report their overseas assets.  As of last June, assets worth over 39 billion won of assets previously not reported.  S. Korea Investigates Cases of Offshore Tax Evasion, January 9, 2011, Lee Ji-yoon, The Korea Herald.   We suspect that many of these individuals may have U.S. connections as well or may have been involved with pooling money with Korean-Americans who will be identified to the IRS because of the reporting.    In December 2011, in light of the SCIP arrangement, the National Congress of South Korea and the NTS, invited Steve Moskowitz of Moskowitz LLP, A Tax Law Firm based out of San Francisco, California to explain how the program will affect South Koreans living and working in the United States and Korean - Americans who have family and assets in South Korea.

Moskowitz with the translation assistance of Shawn Kim, Fortis Law Group, P.C., spent 4 days addressing the Congress and Tax Officials and meeting with local bankers and individuals on specific considerations and avenues for compliance without criminal prosecution and minimizing or eliminating monetary penalties, on matters including, Offshore Disclosure Initiatives (ODI) of the U.S. Department of Justice,  Report of Foreign Bank and Financial Accounts (FBAR), repatriation, exit tax matters, and other currency related regulations which, if previously undetected, are now detectable by both the United States and South Korean Justice Departments.


According to Steve Moskowitz:

The United States government is targeting South Koreans living in the United States, who are suspected of crimes.  [It] has every right to request financial information from the South Korean government regarding Korean-Americans living in the United States.”  He adds, “[Information requested] could include real estate records, bank account information, tax returns and other pertinent information.  Many South Koreans living in the United States are nervous because they may have an inheritance from parents, they operate businesses in the U.S. and Korea, maintain assets in Korea and are unsure about reporting these assets, etc.

We have already seen an increase in monetary and tax crimes charged against individuals and corporations of Korean descent, which have included prison sentences and very large monetary fines.

For example:

Obstruction of Justice charges:

In May 2012, the U.S. Department of Justice filed felony charges in federal district court in Washington D.C., against a citizen and resident of Korea, Kyoungwon Pyo, for providing false documents to the U.S. Government in response to an inquiry.    He was charged with obstruction of justice which carries a maximum penalty of 20 years in federal prison and a criminal fine of $250,000 for individuals.   With the advice and counsel of qualified attorneys, Mr. Pyo pleaded guilty and will serve five months in federal prison.

Tax Evasion:

In January 2012, the U.S. Department of Justice filed felony tax evasion charges in federal district court in Maryland, against Chung K. Choi for felony tax evasion which carries a maximum penalty of 5 years in prison (per offense) and a $100,000 fine (per offense) in addition to remaining liable for the civil penalties, which remain available to the Internal Revenue Service and are substantial in nature.     Mr. Choi, with the advice of an attorney, pled guilty and was sentenced to 18 months in prison, 3 years of supervised release, and ordered to pay $739,253 in restitution.

This case is particularly interesting to note because part of the plea agreement included a sealed information.   Sometimes this means that the defendant agrees to provide additional information about others involved in similar or related conduct.    We will continue to monitor the Court for subsequent indictments of Korean business owners who Choi may have implicated as part of a plea (if in fact, information was required under the terms of the plea).

False Tax Returns

In May 2012, a criminal judgment was issued against Insoo Kim, age 57, of Cupertino, California.   He was charged with false tax returns, failing to collect employment taxes.  Mr. Kim pled guilty to filing false tax returns and was sentenced to two months in prison and 4 months of electronic monitoring.   What is interesting about this case is even though the total tax loss to the government was only $28,451, he still received prison time.   We believe that Mr. Kim’s case was aggravated by the fact that he had hidden bank accounts that the government eventually discovered on their own.

Failure to Withhold Federal Taxes and Failure to Timely Pay:
  -  The Government takes action to prevent her from operating her business
 
On March 20, 2012, the U.S. Attorney’s office filed a civil complaint against Jea-il, Inc, doing business as, NiteCap, owned by Lynn Kim.   The complaint alleges that Ms. Kim filed to withhold and pay employment taxes in the amount of $165,332.   The Internal Revenue Service has added over $65,000 to this amount in monetary penalties and now, through the U.S. Attorney’s office, seeks to stop Ms. Kim from operating her business.     We are not the attorneys in this case but will continue to monitor it and provide you with any relevant updates.

Other articles related to this post:

Immigration & aggravated felony convictions,
Foreign Account Tax Compliance Act (FATCA)

Moskowitz LLP, A Tax Law Firm, Disclaimer:   Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.   Prior results do not guarantee a similar outcome.   Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.