Elizabeth's Legal Blog

IRS Offers Tax Amnesty-- BUT CAUTION

As I have warned--having an offshore account, company, or trust is not illegal, but hiding it from the IRS is illegal.  So, if you are one a the many that thought you could cheat the IRS, now may be the time to come clean.

On March 26, 2009 the IRS announced a program that allows U.S. taxpayers with foreign accounts the opportunity to reduce their exposure to civil penalties, and in many cases, to eliminate the possibility of criminal prosecution if they failed to report income earned offshore or failed to file the yearly treasury form, the Report of Foreign Bank and Financial Account (FBAR.)  Here is how the program works.  First the taxpayer makes a voluntary disclosure to the IRS, and there is a preliminary investigation to determine if the taxpayer is eligible for the program.  If eligible, the voluntary disclosure request is sent to the Philadelphia Offshore Identification Unit (POIU) for civil processing.  The POIU is authorized to enter into closing agreements regarding offshore issues in the following manner:

·         The POIU will access all tax and interest going back 6 years;

·         Taxpayer will be allowed to amend prior returns, including the FBAR;

·         In lieu of all other penalties, including FBAR penalties, they POIU will access a penalty equal to 20% of the amount in the foreign bank account/entities in the year of the highest aggregate account/asset value; or

·         If the taxpayer did not open the account or cause the account to be opened or form the entities, and there has no been activity (deposits or withdrawals) in the account during the period the taxpayer controlled the account/entity, and all applicable U.S. taxes have been paid on the funds in the account/entity and only the earnings have escaped U.S. taxation, the POIU will access a 5% penalty rather than the 20% penalty .

This may be a great deal for some taxpayers.  BUT PROCEED WITH CAUTION—participating in this program will eliminate some other avenues of negotiation, and it may be more cost effective to proceed in a different manner, especially if the taxpayer was not involved in establishing the account/entity.  Also consider the fact that an account that may have been worth $100,000 three years ago is now worth half the amount, yet the penalty will be accessed at the highest value.  As always, seek professional advice from a tax attorney before making a move.  Call us for a complimentary consultation. 

Finally- Uncle Sam is Giving Us A Break

 

Great news!  A few weeks ago, President Bush signed into law a bill that suspends the rules that require retirement account holders and their beneficiaries to take minimum annual withdrawals. The legislation-called the Worker, Retiree, and Employer Recovery Act of 2008 applies to required minimum distributions (RMDs) for IRAs, 401(k)s, 403(b)s, and similar plans, and only to 2009 withdrawals.  Despite the fact that the law applies only in 2009, this is a great opportunity for retirees forced to take RMDs to suspend the distribution until 2010.

The laws that govern retirement plans are complex, and the new legislation is just as confusing. To review the basics, individuals that contribute to a tax-deferred retirement account, such as traditional IRAs and 401(k)s, do not pay income tax until they pull the money out of the plan.  This allows  individuals to save more for retirement  because tax is deferred and the funds grow in a tax free environment.  Individuals can contribute and are not required to take distributions until the age of 70 1/2-- commonly referred to as a RMD. 

What impact will the new law have?

The new law will suspend RMDs in 2009.  So, if retirees do not need to tap into their retirement plan to maintain their lifestyle, they can allow the funds to grow for an additional year before taking the distribution.  This will defer the tax owed, and will allow the retirement account to rebuild if the market rebounds this year.

What if you turned 70 1/2 in 2008?

If you turned 70 1/2 in 2008 and were going to wait until April 1, 2009 before making your first RMD, as allowed the first year, you must still make the RMD.  The law only suspends the 2009 distribution.

What if you turned 70 1/2 in 2009?

If you will turn 70 1/2 in 2009, no need to take your first distribution until December 31, 2010.  The law is complex in explaining this scenario, but just know that while the government will consider this your second distribution, it will be your first withdrawal. 

In sum, if you don’t need to take your RMD--Don’t!  Anytime you can defer taxes, you should.  Letting your money grow in a tax free environment allows it to compound at a higher rate and hopefully the market will rebound during the interim as well.

New Business Venture? Consider Tax Ramifications....

Don't let taxes just happen to you!  I meet with a lot of very successful business men and women on a daily basis, and  they all have one thing in common: they are always working on the next business venture.  Many times I hear about the deal after it is done or in the works, but many times clients do not approach me before the transaction is in motion.   Successful individuals are usually on the offense, but I am here to make sure they have a great defense as well.  In short, I make sure they are properly situated in case of lawsuit, and I also help them strategize from  a tax perspective.   Taxes should be paid, but why pay more than required?  Let me be clear, I am not talking about evading taxes, this is a crime.  Instead, I recommend sound tax planning.

For example, today I met with two clients of mine that are moving faster than even their own book keeper can keep track.  In passing they mentioned they are purchasing a substantial piece of real estate.  "Wait a minute, what are going to do with this property?" I asked.  They proceeded to tell me they were going to develop, subdivide it and sell it for a profit.  After  a few more questions, I realized there were some substantial tax ramifications that could be reduced if the deal was structured properly.  

In short, my clients are free to focus their energy in turning a profit, and they will have more capital for future ventures because of tax planning.  Don't wait for a surprise tax bill-- plan ahead.   If you would like to talk to me more about tax planning, I would love to hear from you.  Let's talk taxes!

Hello...

Hello!

My name is Elizabeth Zagajeski, and I am an attorney with the Law Offices of Gary L. Fales and Associates.  Our firm practices in estate planning, asset protection, Medicaid and probate.  I focus my practice to estate planning and asset protection. 

I am going to share something with you that will expose how geeky I am.  I love tax law.  I have this passion with tax law not only because the tax code is complex and intriguing but because tax is relevant in every situation concerning estate planning and asset protection.  I believe that in order to properly advise my clients I must consider any potential tax consequences.  Because of this commitment, I often meet with my client's CPA and coordinate my planning with their current tax situation.  When the CPA and the Attorney are a team, my clients are best served.  And, like I said, I love dealing with tax issues and sharing favorite IRS code sections with CPA's.

I have another professional passion, and that is International Law and Tax, but I will share more about that in future posts.  At this point, let me tell you about me on a personal level.  I am married to a wonderful man, Michael, and I have four children, Ashley, Shelby, Michael, and Julia.  I enjoy spending time with my family.  We are an outdoors family, so on the weekends you can spot us hiking at Mt. Charleston, or hanging out on Manhattan Beach-- a family favorite.

I would love to get you know better---if you would like to meet me or have any questions, feel free to contact me!