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HIRE Act Imposes New Foreign Tax Compliance Requirements

The Hiring Incentives to Restore Employment (HIRE) Act imposes additional reporting and disclosure requirements for taxpayers with any interest in a “specified foreign financial asset” if the aggregate value of all such assets exceeds $50,000. These reporting requirements apply to any domestic entity which holds “specified foreign financial assets” directly or indirectly, as if the entity were an individual taxpayer.  The reporting provision applies to tax years beginning after March 18, 2010.

For purposes of the additional reporting and disclosure requirements, a specified foreign financial asset is:

  • any financial account maintained by a foreign financial institution;
  • any of the following assets which are not held in an account maintained by a financial institution:
    • any stock or security issued by a person other than a U.S. person;
    • any financial instrument or contract held for investment that has an issuer or countertparty which is other than a U.S.person; and
    • any interest in a foreign entity.

The required information varies depending on the type of specified foreign financial asset. Therefore, taxpayers with an interest in:

  • foreign bank accounts must provide the name and address of the financial institution where the account is maintained, and the account number;
  • foreign-issued stocks and securities must provide the name and address of the issuer, and all pertinent information that allows the class or issue of such stock or security to be identified; and
  • foreign instruments, contracts, or entities must provide the names and addresses of all foreign issuers and counterparties, the maximum value of the asset during the tax year, and all pertinent information required to identify the foreign asset.

The HIRE Act also requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to a foreign financial institution if the foreign financial institution does not meet certain requirements. There are exceptions and special rules in situations where there is an agreement in effect between the financial institution and the Secretary of the Treasury.

A withholding agent includes any person, in whatever capacity, having the control, receipt, custody, disposal, or payment of any payment of interest (including OID), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodic gains, profits, and income from sources within the United States.

A foreign financial institution may make an election and report as if the foreign financial institution were a U.S. person. The withholding payments provision generally applies to payments made after December 31, 2012.

The penalty for failing to disclose the required information in a timely manner is $10,000. If the failure to disclose continues for more than 90 days after the IRS notifies the taxpayer of a failure to report, the taxpayer must pay an additional $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. The maximum penalty is $50,000. However, no penalty is imposed if the failure to disclose is due to reasonable cause, and not due to willful neglect. In addition, the penalties have increased from 20 percent to 40 percent for any portion of an underpayment attributable to understatement.

Uncertainty Surrounds Adoption of Global Accounting Rules

A leading board member for the International Accounting Standards Board recently indicated that there is much uncertainty as to whether the US will adopt global accounting rules, which could jeopardize the IASB as a whole.

During the recent IASB trustee meeting, Padio Schioppa stated, “The aspiration of having global standards depends very much on the adoption of global standards by the United States and this is highly uncertain and may still give us a big disappointment in a year or so from now.”

The Financial Accounting Standards Board (FASB) is working to sync their accounting rules with those set forth by the IASB.  However, the two groups are struggling to come to an agreement on some of the key concepts their differing financial reporting guidelines.

Additionally, the SEC is considering the impact of adopting international standards and many US corporations object to the change due to the high cost of adopting a new set of standards and procedures.

For more information on International Financial Reporting Standards or other international accounting matters, contactTom Breedlove.

HIRE Act offers Employers Potential Savings

Important Tax Savings Opportunity Reminder:

The HIRE Act exempts employers from paying their 6.2-percent share of the Social Security payroll tax for the remainder of 2010 for eligible new hires, and provides a $1,000 tax credit to employers if they retain eligible workers for 52 weeks.

Senate Poised to Pass Enhanced Small Business Tax Bill

The Senate is getting ready to pass a small business tax bill. One of the revenue raisers is the following: The Senate bill would require qualified taxpayers who receive rental income from real property to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. The Senate bill would substantially increase the penalties for failing to timely file all types of information returns with the IRS.

The other concerns re-registration for eveyone that has a PTIN: The proposed $50 PTIN user fee is part of the agency’s return preparer oversight initiative. All paid tax return preparers must register with the IRS, pay a registration fee and obtain a PTIN. Practitioners who already have a PTIN must nonetheless sign-up under the new registration process. The target date for an online registration system is September 1, 2010.

Also, The IRS has announced a voluntary compliance program (VCP) for mid-size exempt organizations to file delinquent Forms 990-EZ, Short Form Return of Organization Exempt from Income Tax, and preserve their exempt status. At the same time, very small exempt organizations may take advantage of an extended filing deadline, October 15, 2010, for Form 990-N, Electronic Notice (ePostcard) to avoid automatic revocation of exempt status.

Georgia Passes Unlimited Retirement Exclusion

On May 12, 2010, Georgia Governor Sonny Perdue signed House Bill 1055 into law.  This bill includes a provision to increase the amount of retirement income which is not subject to Georgia income tax.  Under prior law, taxpayers who were at least 62 years old or disabled were allowed to exclude up to $35,000 of retirement income from their taxable income.  Retirement income includes interest, dividend, rent and royalty income, capital gains, pensions, annuities, other unearned income, and up to $4,000 of earned income.

 

Under the new law, the retirement income exclusion for tax years 2012 through 2015 will increase according to the schedule below for taxpayers who are age 65 or older.

  • 2012 – $65,000 exclusion
  • 2013 – $100,000 exclusion
  • 2014 – $150,000 exclusion
  • 2015 – $200,000 exclusion

Beginning in 2016, the new law allows an UNLIMITED exclusion of all retirement income for taxpayers who are age 65 or older.  The retirement exclusion for taxpayers who are age 62 to 64 will remain at $35,000.

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