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Glen E. Frost

Attorney at Law *
Certified Public Accountant **
Master of Laws in Taxation

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
Every Tax Problem has a Solution
Phone:  (410) 497-5947

Fax:      (888) 235-8405

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04/04/18

Permalink 03:50:32 pm, by admin Email , 628 words   English (US) latin1
Categories: News

IRS Clarifies New Tax Law Did Not Kill Home Equity Interest Deduction

By Mary Lundstedt


According to the February 21, 2018, IRS news release, IR-2018-32, there are still circumstances for which interest on home equity loans is still deductible under the Tax Cuts and Jobs Act of 2017. The IRS has now clarified that "taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled [emphasis added]."


Before the Tax Cuts and Jobs Act of 2017, a taxpayer who itemized deductions, could deduct mortgage interest for the acquisition of a qualified residence in an amount up to $1,000,000, plus an additional $100,000 of home equity debt. "Acquisition debt" is considered a loan used to buy, build or substantially improve the home, leaving any other mortgage debt as "home equity debt."


Under the Tax Cuts and Jobs Act of 2017, the deduction for interest on home equity indebtedness is suspended for tax years beginning after December 31, 2017, and before January 1, 2026. The language of the new tax law left many tax professionals and taxpayers concerned that interest paid on "home equity debt" might no longer be deductible under any circumstances.


The IRS advised that, pursuant to the Tax Cuts and Jobs Act of 2017, the deduction for interest paid on home equity loans and lines of credit is suspended from 2018 until 2026, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. For instance, the new law typically allows an interest deduction when a home equity loan is used to build an addition to an existing home; however, interest on the same loan used to pay a credit card debt for personal expenses is not deductible.


Furthermore, beginning in 2018, taxpayers are only allowed to deduct interest on $750,000 of qualified residence loans. The new lower dollar limit, stated the IRS, applies to "the combined amount used to buy, build or substantially improve the taxpayer’s main home and second home."


The IRS provided the following examples to further illustrate the new law’s impact on the deduction:


Example 1: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.


Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.


Example 3: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. A percentage of the total interest paid is deductible (see Publication 936).


If you have questions regarding a home equity loan and tax implications, please contact Frost & Associates, LLC.

 
Permalink 03:43:13 pm, by admin Email , 513 words   English (US) latin1
Categories: News

End of Offshore Voluntary Disclosure Program Imminent

By Eli S. Noff, Partner and Mary Lundstedt


On March 13, 2018, the IRS issued news release, IR-2018-52, announcing that the Offshore Voluntary Disclosure Program (OVDP) will close on September 28, 2018. The OVDP’s objective has enabled willful US taxpayers with undisclosed foreign assets to become compliant with US tax laws, while simultaneously avoiding substantial statutory civil penalties and virtually eliminating their risk of criminal prosecution. Now, willful US taxpayers with undisclosed foreign financial assets have just over 6 months to use the program.


The news release quotes Acting IRS Commissioner David Kautter as stating, "All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so."


Versions of the program date back to 2009, and the IRS reports that, since the initial launch, over 56,000 taxpayers have voluntarily complied. The IRS calculates that the program has generated a total of $11.1 billion in back taxes, penalties and interest.


The IRS states that "the planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations." Significantly, the end of the program also likely stems from an increased IRS confidence in its ability to unveil the identities of those who have undisclosed foreign assets. Besides the wealth of information available from a number of sources, including tax treaties, the Foreign Account Tax Compliance Act (FATCA), the Foreign Financial Asset Reporting (IRC §6038D), and whistleblower submissions, the IRS assembled its elite international tax enforcement unit in 2017-- dedicated to working and developing significant international tax cases.


The news release provides the following from Don Fort, Chief, IRS Criminal Investigation, "The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics." Fort continued, saying, "Stopping offshore tax noncompliance remains a top priority of the IRS."


While the OVDP is ending, the Streamlined Filing Compliance Procedures program is currently still available to qualifying taxpayers; however, the IRS cautions that it may end this program just as it ended OVDP.


According to the news release, the IRS considers that "the implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to undisclosed foreign financial assets." Noting that "the circumstances of taxpayers with foreign financial assets vary widely," the IRS stated that it will continue to provide the following options for non-compliant taxpayers with respect to those assets:


1. IRS-Criminal Investigation Voluntary Disclosure Program;


2. Streamlined Filing Compliance Procedures;


3. Delinquent FBAR submission procedures; and


4. Delinquent international information return submission procedures.


Remember, a 6-month window remains to submit an offshore voluntary disclosure. Without a voluntary disclosure, willful taxpayers run the increasing risk of IRS detection, substantial penalties (including fraud and foreign information return penalties), and criminal prosecution.


If you have questions regarding international tax issues, contact Frost & Associates, LLC.

Permalink 03:37:37 pm, by admin Email , 317 words   English (US) latin1
Categories: News

States Poised to Allow Payment of Taxes with Cryptocurrency - Are You Ready?

By Mary Lundstedt


As cryptocurrency continues to inspire global awareness and dialogue, the news in the US has mostly focused on its regulation as a commodity; however, very recently, states like Arizona and Georgia are on the brink of recognizing Bitcoin, and its kin, as currency--allowing people to pay their tax bill with it. While neither state has finalized the proposed laws, Arizona’s Senate Bill 1091 was passed on February 8, 2018, and now awaits the consideration of Arizona’s House of Representatives. As it stands in Arizona, the cryptocurrency used to pay the tax bill would be converted to dollars at the prevailing rate.


While the validation of cryptocurrency as a legitimate source of payment of income taxes would profoundly affect its bid for acceptance in the mainstream, paying taxes with cryptocurrency should be carefully considered in light of the tax consequences.


Significantly, in Notice 2014-21, 2014-16 I.R.B. 938, the Internal Revenue Service (IRS) has taken the position that cryptocurrency is property. So, what happens if you pay your taxes with cryptocurrency? You’ve paid your tax bill, and you’ve sold your property. As with any sale of property, it could mean even more taxes.


Consider the following example: State approves cryptocurrency as means to pay tax bill. You acquired cryptocurrency about a year ago for $1,000. You owe $10,000 in taxes. Your cryptocurrency is now worth $10,000. You use this to pay your tax bill. You must now report a gain of $9,000, for which you will have to pay taxes. Let’s hope it’s a long-term capital gain for lower treatment.


Certainly, the potential acceptance by states of cryptocurrency as a legitimate source of payment of income taxes is an encouraging move for validation, but it’s important to remember that gain or loss is possible with each transfer of cryptocurrency. As such, tax basis and holding periods must be tracked--record keeping is essential.


If you have questions regarding cryptocurrency and tax implications, please contact Frost & Associates, LLC.

03/08/18

Permalink 04:16:45 pm, by admin Email , 468 words   English (US) latin1
Categories: News

Owners of Foreign Companies May Need to Act Soon


Written By Peter Palsen • Principal – International Tax BIEGEL WALLER TAX ADVISORY SERVICES


U.S. persons who own 10% or more of the shares of a foreign corporation may need to act quickly on a new rule that can require inclusion of all foreign corporate earnings accumulated after 1986. This one-time tax obligation applies to 2017 tax returns with respect to earnings of calendar-year foreign companies. The good news is that the tax liability resulting from this provision can be paid over eight years (or in certain cases deferred indefinitely). However, in order to take advantage of the payment plan, both a timely election and timely first payment are required.


The tax reform act passed at the end of 2017 made substantial changes to the taxation of earnings of foreign corporations owned by U.S. persons. The framework of international taxation was changed to allow U.S. corporations to avoid the inclusion of income on most foreign corporation earnings beginning in 2018. As a consequence of this change, a transition tax was implemented to create an “all-in” event immediately prior to the conversion to the exempt earnings regime. For most U.S. shareholders, the taxable event occurred on December 31, 2017.


Big-name U.S. companies like Apple announced multi-billion-dollar liabilities for the transition tax. However, the tax applies to all types of U.S. owners - including individuals, limited liability companies, partnerships, and S-corporations (to the extent they have the requisite ownership). These “flow-through” entities and their owners don’t get the benefits of the exemption of foreign corporate earnings - which might suggest they shouldn’t be burdened by the transition tax. However, this is not the case.


At the time this article was written, the IRS was in the process of developing additional guidance to help flow-through entities and their owners understand the procedures necessary to make the payment plan election and first payment. U.S. persons subject to the transition tax should be prepared by collecting the information required to make the calculation of the tax (including the application of different tax rates depending on whether the earnings are retained by the foreign corporation in the form of cash-type assets). In some cases, an election exists to reduce the transition tax liability if the foreign corporation has paid a high rate of foreign tax on the earnings.


This one-time tax is likely to come as a surprise to many taxpayers who take the normal step of putting their return on extension. The biggest surprise could be finding out that the 8-year payment plan is no longer available. For this reason, owners of foreign companies will want to act on the transition tax now.


Frost & Associates, LLC in collaboration with Biegel Waller Tax Advisory Services is well equipped to provide tax advice relating to the new transition tax in addition to providing advice relating to a broad range of international tax issues.

02/14/18

Permalink 11:10:31 am, by admin Email , 301 words   English (US) latin1
Categories: News

IRS Assembles New Crypto Tax Evaders Unit

The US Internal Revenue Service (IRS) has assembled a team of elite criminal agents to investigate whether cryptocurrencies, such as Bitcoin, Ethereum, Litecoin and Ripple, are being used to evade taxes. Chief of the IRS Criminal Investigation Division, Don Fort, revealed in a recent interview the addition of 10 new investigators to the Criminal Investigation Division. “It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion,” he stated. In addition to investigating international tax compliance cases, the team will work with international criminal agencies to investigate unlicensed exchanges.

Bloomberg reports that due to budget cuts the Criminal Investigation Division has lost key staffers over the course of the past 6 years. With the addition of these new staff members the division will be brought back to full strength.

Most foreign countries have the expectation that citizens pay taxes on gains from virtual currency, so it is not surprising that the IRS is taking this aggressive approach. U.S government agencies are already well known for their thorough and far-reaching investigative skills. The Internal Revenue Service recently closed a successful investigation into U.S. assets concealed in Swiss bank accounts.

Companies such as Bitfury are collaborating with law enforcement to monitor blockchain activity and detect suspicious activity. Bitfury’s advisor, Jason Weinstein, a former DOJ investigator, stated: “Having a traceable public ledger of every bitcoin transaction ever conducted allows law enforcement to ‘follow the money’ in a way that would never be possible with cash.”

With its new team of elite investigators, and the rapidly growing range of blockchain tools available to them, users attempting to evade taxes at home or abroad can expect the IRS to track them down.

If you have issues with unreported gains from cryptocurrency, please contact Frost & Associates, LLC today at 410-497-5947.

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* Licensed to practice in Maryland, Florida, and the District of Columbia. May represent taxpayers nationwide in IRS disputes.
** Licensed in Maryland

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
(410) 497-5947
© 2011 Glen E. Frost