Archive | Internal Revenue Service

Corporate Cayman Islands tax shelters rip off U.S. taxpayers

*”Corporations are people, my friend.”
–Mitt Romney, August 11, 2011

Statistic of the day: A single five-story office building is the registered address of more than 18,000 companies.

How is that possible? Well, the building is in the tax haven of the Cayman Islands, and most of those businesses are registered there only for tax purposes.

As Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund explained in a report earlier this year, more than 70% of the Fortune 500 had subsidiaries in tax havens in 2013. The report estimates that multinationals are using these subsidiaries to avoid approximately $90 billion in federal income taxes annually.

US companies reported $129 billion in earnings in the Cayman Islands, Bermuda, and the British Virgin Islands in 2010. “Assuming you believe those figures, the productivity of workers in those countries is amazing,” Floyd Norris, his tongue almost bursting out of his cheek, wrote in The New York Times. “On average, United States companies had profits of $873,611 per person living in those islands.”

Such ridiculous numbers are merely a product of the process by which multinationals can–legally–reduce their U.S. taxes. Currently there is no significant movement on Capitol Hill to close any of the loopholes or change the laws that make these moves possible.

Why do taxpayers think the tax code is rigged in favor of large corporations? Maybe because it is.

IRS penalty on foreign account is more than total $$$ in the account!

Proof once again that the rule requiring U.S. taxpayers to report their foreign bank accounts is being used like a sledgehammer: The IRS has won a court case assessing a 150% penalty–that is not a typo–on the value of a Swiss bank account.

As Bloomberg reports, Coral Gables, Florida, resident Carl Zwerner, 87, was assessed a $2.24 million penalty on the approximately $1.5 million he held in an account with ABN Amro Group, NV.The penalty was for failing to file the Report of Foreign Bank and Financial Accounts. It’s worth noting that the penalty has nothing to do with Zwerner owing any tax on that money. Nope, the penalty is for the simple failure to file a form reporting the assets.

By the way, if you have foreign bank accounts subject to reporting, the deadline for electronically filing your 2013 FinCEN Form 114 (which replaces old friend Form TDF 90-22.1–isn’t this fun??) is June 30.

IRS abandons voters on campaign finance mess

Don’t look to the IRS for potential relief from a tsunami of political advertising during the 2014 off-year elections.

The Service announced in late May that it is pulling back proposed regulations on tax-exempt groups. That means that everyone from the billionaire Koch brothers to tree-hugging lefties will be able to fund ad campaigns through organizations that often aren’t required to disclose where their contributions come from. It also means the IRS probably will not be doing anything to challenge the tax-favored status of nonprofit “educational” groups until after the end of this year.

This is the one place where many people would like to see the IRS doing more, but nooooooo….

IRS getting scammed for $Billions by refund fraudsters

Stories of scammers claiming to be with the IRS and taking advantage of unsuspecting taxpayers appear regularly, including here.

Turns out that the IRS is getting scammed as well.

As this Associated Press story from The Boston Globe reports, the IRS issued $4 billion — yes, billion with a B — in fraudulent tax refunds over the course of a year to criminals who were using other people’s personal information.

In some cases, the IRS’s desire to issue quick refunds plays right into the bad guys’ hands: The AP reports that 655 refunds were sent to ONE address in Lithuania.(Wouldn’t you think somebody might notice that?)

So how do the scammers do this? It all starts with stealing your Social Security number, and then filing a fraudulent tax return that generates a refund — which goes into the thief’s bank account, not yours.

The taxpayer typically doesn’t find out there’s a problem until she tries to electronically file her own tax return and gets a message from the IRS that another tax return using the same Social Security number has already been filed.

In the Pacific Northwest, more than 1,000 employees and volunteers with the Catholic archdioceses of Portland and Seattle may have been victimized, as The Oregonian and the Seattle PI reported.

When someone else successfully files a fraudulent return using your Social Security number, your only recourse is to file your own return on paper and then fill out Form 14039, Identity Theft Affidavit. Then, hopefully, you’ll get your refund and be able to electronically file your return the following year.

Here’s a link to an IRS webpage on Identity Theft, which can also take you to that Theft Affidavit form.

Bitcoin: IRS says, “It’s property, and it’s taxable!”

A lot of people are still trying to figure out just what Bitcoin is, but the IRS has seen enough to decide: It’s a type of property and not a form of currency.

So what, you say? Here’s what: Because, as The New York Times has reported, the IRS is going to treat Bitcoin as property, people who buy and sell it are going to have to calculate the change in value from when they acquired it, and pay tax (or claim losses) on the difference.

That means you could buy Bitcoin, use it to purchase something, and then have to report a “trade” on the change in Bitcoin value between when you bought it and when you used it.

Oh, and if you’re one of those smart guys or gals who can actually electronically “mine” a Bitcoin, you are going to have to report the market value of the Bitcoin as income.