In general, estate tax returns for U.S. residents are due nine months after the date of the decedent’s death.  in order to obtain a six-month extension in to file Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) , an extension, known as Form 4768 (Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes) must be filed within nine months of the date of the decedent’s  death.

Nevertheless, the IRS, in Notice 2012-21 (February 17, 2012), grants an extension of time to file Form 4768 (Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes) and Form 706 solely to elect portability of a deceased spousal unused exclusion amount.   Notice 2012-21 addresses the estate of a decedent (1) whose date of death is after December 31, 2010, and before July 1, 2011;(2) who is survived by a spouse; and (3) whose gross estate does not exceed the $5,000,000 basic exclusion amount for 2011. That estate may file an extension and estate tax return no later than 15 months after the date of the decedent’s death.

On June 2, 2011, in revised Notice 2011-1, the Financial Crimes Enforcement Network (“FinCEN”) extended the due date for filing a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) to June 30, 2012, for employees or officers of certain regulated banks, financial institutions, and other entities, if the employees or officers had signature or other authority over, but no financial interest in, a foreign financial account of the entity.  This extension also applied to officers or employees of an entity that is more than 50 percent owned by certain regulated banks, financial institutions, and other entities, if the employees or officers have signature or other authority over, but no financial interest in, a foreign financial account of the parent entity.

On June 17, 2011, in Notice 2011-2, FinCEN extended the due date for filing an FBAR to June 30, 2012, for officers or employees of an investment advisor registered with the Securities and Exchange Commission, if the officers or employees have signature or other authority over, but no financial interest in, the foreign financial accounts of persons that are not registered investment companies.

On February 14, 2012, in Notice 2012-2, FinCEN further extended the filing due date to June 30, 2013, for the above-mentioned individuals who were previously granted extensions under revised Notice 2011-1 and Notice 2011-2.

The Department of Justice announced that on February 2, 2012, Wegelin & Co., a Swiss bank, was indicted for conspiring with U.S. taxpayers and others to conceal from the IRS more than $1.2 billion in secret accounts.  The Department of Justice alleges that the conspiracies occurred from 2002 through 2011.

Among other things, the Department of Justice alleges that in 2008 and 2009, after UBS ceased servicing undeclared accounts for U.S. taxpayers, Wegelin, sought to acquire those U.S. taxpayers as clients.  In order to do so, they opened and serviced accounts for U.S. taxpayers.

A Florida Department of Revenue Administrative Law Judge, in DOR 2012-001-FOF, ruled a sales tax assessment of a convenience store was accurate because the convenience store neglected to maintain or produce register tapes that would establish a lower amount of sales tax due for the time periods at issue.   The Department of Revenue, using other records available, assessed a higher amount of tax than the convenience store argued it owed.

See also Florida DOR: Convenience Store’s Sales Tax Assessment Accurate, 2012 STT 9-12, January 13, 2012.

On January 9, 2012, the IRS announced the reopening of the Offshore Voluntary Disclosure program (the “OVDI”).  The voluntary disclosure process has provided people hiding offshore accounts a higher likelihood criminal amnesty, reduction of civil penalties, and peace of mind in exchange for becoming compliant with tax law.  The IRS says that the OVDI will be open for an indefinite period until otherwise announced.

For several years, the IRS has invested significant resources in eliminating tax evasion.  IRS Commissioner Dough Shulman noted that taxpayers “need to come in and get right with us [the IRS] before we [the IRS] find you.”  He further asserted that the IRS is “following more leads and the risk for people who do not come in continues to increase.”

In ILM 201146017, the IRS Office of Chief Counsel asserted that in many situations, the IRS may summon a taxpayer’s electronic data files to obtain metadata.

See also Sapirie, Marie, “The IRS Wants Your Metadata — Now What?,” 2011 TNT 233-4, November 29, 2011.

U.S. citizens and dual citizens residing outside the U.S. are usually required to file income tax returns  and may be required to file form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) ( “FBAR”).   Over the past few years, the U.S. government has been aggressive in pursuing those taxpayers who neglected their obligations to file these documents.  Many taxpayers, however, were unaware of their obligations to file income tax returns and FBARs.  They became very nervous about the consequence of their failure to file.  The IRS, in FS-2011-13 (December 2011), provides a summary of requirements for filing income tax returns and FBARs.  FS-2011-13  also announces that the IRS will not impose penalties in all cases.  Thus, the info in FS-2011-13 should provide some, though maybe not complete, peace of mind to international U.S. taxpayers.

The IRS will not impose  failure to file or failure to pay penalties on taxpayers who owe no US. tax.  In addition, if the IRS determines that a failure to file an FBAR was due to reasonable cause, it will not impose an FBAR penalty.

The IRS, in Rev. Rul. 2011-32, announced that interest rates would remain the same for the first quarter of 2012.  For the first quarter, interest rates are as follows: 1) 3% for overpayments (2% for a corporation);  2) 3% for underpayments; 3) 5% for large corporate underpayments; and 4) .5% for corporate overpayments exceeding $10,000.

See also IR-2011-112.

In Braverman Sachs Group Newsletter, Market Report / Fall 2011

A. Introduction

My article in the May 2011 Newsletter provided an overview of the U.S.’s income tax jurisdiction over the foreign investor. In that article, I mentioned that the U.S. may tax a U.S. Person on his worldwide income. Nevertheless, the U.S. generally will tax the foreign investor, a nonresident alien (an individual who is neither a U.S. Citizen nor U.S. Resident), only on certain of his U.S. source income. One type of U.S. source income is income upon disposition of a U.S. Real Property Interest (“USRPI”). This article will address the U.S. income tax consequences of a disposition of an individual foreign investor’s USRPI. Note that it neither addresses any other taxes, nor does it address the effects of treaties or foreign laws, which may affect the foreign investor’s tax liability either in the U.S. or in another country.

B. What is a USRPI?

A USRPI is either:
1) A direct interest in real property that is located in the U.S. or the Virgin Islands; or
2) An interest (other than an interest solely as a creditor) in a U.S. corporation that is characterized as a U.S. Real Property Holding Corporation (“USRPHC”).

A USRPHC is any corporation in which the fair market value of its USRPIs equals or exceeds the sum of the fair market value of (i) its interests in real property located outside the United States plus (ii) any of the corporation’s assets used or held for use in a trade or business.

C. Taxation of U.S. Source Capital Gains

In general, the U.S. does not tax the foreign investor’s capital gain on the disposition of U.S. property unless the capital gain is effectively connected with the foreign investor’s U.S. trade or business (“ECI”). Capital gain that is ECI is taxed at U.S. individual income tax rates.

D. Taxation of Capital Gains from a USRPI

The capital gain from a USRPI is treated as ECI, and thus it is taxed at U.S. individual income tax rates. In general, the person to whom the foreign investor is selling or exchanging the USRPI must deduct and withhold 10 percent of the amount realized on the disposition of the USRPI. He also must report the transfer to the Internal Revenue Service.

* This article provides legal and tax information, but neither tax nor legal advice. I encourage the foreign investor to discuss his specific issues with Florida attorneys and accountants and with attorneys and accountants in any other jurisdiction to which the foreign investor is connected.
** To ensure compliance with requirements imposed by the IRS under Circular 230, Rumbak Law, P.A., informs you that any U.S. federal tax advice contained in this document, if any, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein.
Neil Rumbak and Rumbak Law, P.A., are not affiliated with Better Homes and Gardens Real Estate.

During college, I did not know a thing about tax law and I never would have imagined that I’d become a tax lawyer.  Instead, I focused my studies on liberal arts and social sciences.  Those studies helped me develop a keen interest in sociological issues.  I development an awareness of social problems, including racism, sexism, and homophobia.  Even though the pursuit of a law degree and an LL.M. in Taxation did not allow me as many opportunities to stay aware of the latest sociological developments, I maintained an interest in social issues.  Thus, throughout my legal and tax studies and first few years of legal practice, I loved examining tax decisions that addressed social issues.  Last week, an IRS acquiescence gave me the opportunity to do so.  The IRS acquiesced to O’Donnabhain, in which the U.S. Tax Court held that sex reassignment surgery and hormone therapy for gender identity disorder are deductible medical expenses pursuant to § 213 of the Internal Revenue Code.

At issue in this case was whether hormone therapy and sex reassignment surgery constitute medical care.  § 213 allows a deduction for expenses for medical care if the taxpayer is not compensated for them by insurance or otherwise.  Under § 213(d)(1)(A), medical care includes treatment for a disease.  § 213(d)(9)(B) excludes from the definition of “medical care” any procedure that is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

The IRS initially held that expenses toward sex reassignment surgery and hormone therapy  were not deductible.   The Tax Court disagreed.  It opined that gender identity disorder is a disease and that sex reassignment surgery and hormone therapy treat the disease.  Thus, it held that expenses for sex reassignment surgery and hormone therapy are deductible.  The IRS now abandons its original position.

Another issue that O’Donnabhain addresses is the deductibility, or lack thereof, of cosmetic surgery.  It specifically addresses under which circumstances breast augmentation surgery is tax deductible.