Owe tax to IRS? Your passport may have been revoked!

Joe just received a shocking notice from IRS (CP508C) informing him that his passport is being revoked when he was about to embark on a business meeting overseas.
Joe reaches out to his CPA for help. Can he do anything to avoid the revocation of passport?

CPA explained that IRS notified the U.S. State Department about his seriously delinquent federal tax debt (SDTD) and as a result, is revoking his current passport. Joe has limited options. He needs to request an installment agreement or pay off the tax debt. Both solutions seemed overwhelming to Joe.

Joe enters in to installment program with IRS based on the CPA’s advice. CPA with the help of Taxpayer Advocate Service, was able to resolve the issue. Joe received CP508R notice from IRS notifying him that the certification of tax debt was reversed. Fortunately in this case, Joe was able to get his passport reinstated only with the timely help of his CPA – just in time for his travel plans.

If you owe greater than $50,000 to IRS, be careful! IRS may have revoked your passport and you may not be able to travel. There are different options available for different situations based on facts and circumstances. We at CPA Global Tax are happy to assist.

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Are you double dipping on your charitable contributions? IRS says no more!

The Arizona taxpayers (like taxpayers residing in many other states) have had the benefit of being able to make a charitable contribution to a qualified charity and take that amount not only as a tax credit against their Arizona taxes and get a dollar for dollar back on their tax return, but have also been able to take a federal tax deduction to save federal taxes. However, that could possibly change soon.
You can no longer double-dip, says the IRS!

On Thursday, August 23rd, the IRS issued proposed regulations that could affect your ability to utilize your state dollar-for-dollar tax credit as a federal deduction if you itemize.

Your State dollar-for-dollar tax credit contribution may need to be made by Monday, August 27, 2018 if you are planning to utilize it for a 2018 Federal deduction.

This is just a proposed regulation at this time but will be the final in all likelihood as IRS has been targeting the change for a long time. It states only tax credit contributions made after August 27, 2018 will be affected by these regulations.

To recap, Arizona has five principal tax credit opportunities:

* Public School donation
* Private School donation
* Donation to Military Family Relief Fund
* Donations to Qualifying Foster Care Charitable Organizations
* Donations to Qualifying Charitable Organizations

For those of you that aren’t familiar with all the different deduction opportunities for the Arizona credit, information can be found on Department of Revenue’s information regarding tax credits: https://azdor.gov/tax-credits.

As a reminder, contributions made to a charitable organization overseas are generally not deductible unless a tax treaty provides for the deduction.

Payments to foreign persons and 1042 – Don’t miss the March 15 deadline

IR 2017-43

The Internal Revenue Service today reminded non-U.S. citizens who may have taxable income, such as international students and scholars who may be working or receiving scholarship funds, that they may have special requirements to file a U.S. tax return.

The IRS also reminded withholding agents — such as payroll professionals or universities — that accurately filed Forms 1042-S help speed any refunds due to their non-U.S. citizen taxpayers. Errors on forms or returns could result in some refunds being delayed.

What Non-U.S. Citizen Taxpayers Must Do

The Internal Revenue Code generally requires non-U.S. citizens, whom the code defines as either resident or non-resident aliens, who are engaged in a trade or business within the U.S. to file tax returns. Non-resident aliens such as foreign students, teachers or trainees temporarily in the United States on F, J, M or Q visas are considered engaged in a trade or business.

Most individuals in F-1, J-1, M-1, Q-1 and Q-2 non-immigrant status are eligible to be employed in the U.S. and are eligible to apply for a Social Security number if they are actually employed in the United States. Those not eligible for an SSN but who have a tax filing requirement may request an Individual Taxpayer Identification Number from the IRS.

The non-U.S. citizen’s name must be reported exactly as it appears on the official documentation provided to the withholding agent (such as a Social Security Administration card or some other form of official governmental documentation).

Filing a Form 1040-NR or 1040NR-EZ is required by non-U.S. citizens who have a taxable event such as:

A taxable scholarship or fellowship, as described in Chapter 1 of Publication 970, Tax Benefits for Education;

  • Income partially or totally exempt from tax under the terms of a tax treaty; and/or
  • Any other income, which is taxable under the Internal Revenue Code.

Non-U.S. citizens also must attach one copy (generally Copy B) for each Form 1042-S received to their tax returns. Non-U.S. citizens should review the Form 1042-S to ensure it accurately reflects their name and income. If the form does not contain accurate information, they must contact the withholding agent for an amended Form 1042-S.

What Withholding Agents Must Do

Generally, non-U.S. citizens who have taxable income also may have withholding of taxes by the source of their income. Withholding agents are required to complete Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

Withholding agents must provide five copies of the Form 1042-S. Copy A should go to the IRS; Copies B, C and D to the recipient of the income; and copy E should be retained by the withholding agent. All information, including the name of the taxpayer, must match exactly on all copies of Form 1042-S.

If withholding agents create a substitute Form 1042-S, all five copies must be in the same physical format. The size, shape and format of any substitute form must adhere to the rules of Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. The official Form 1042-S is the standard for substitute forms.

A common error is to have a Form 1042-S listing two or more recipients in box 13a. The 2016 instructions to Form 1042-S have been updated to clarify that in the case of joint owners, Form 1042-S can only list one of the owners in box 13a.

Withholding agents should review Fact Sheet 2017-03, where they can find the latest changes to Form 1042-S instructions and common errors that delay processing of tax returns.

BEPS and Planet Mars

NASA recently announced that your name can be put on the planet Mars. This is incredibly great news for the people with good fortunes who are thrilled by the opportunity to gain their foothold in the universe and enhance their fame. However, in another space mission, scientists are attempting to find out if any life exists in other planets.

Think about it. If they indeed were able to find the life on Mars and if the inhabitants there happen to be much more advanced than the humans on earth, they are likely to have a tax law that can tax such inbound activities. Beware and think before you make that tempting decision. 

Putting your name on a planet may have its other side. If “cross planet” law applies and absence a tax treaty (we are not aware about any as of today), just by putting your name can create economic “nexus” and a Permanent Establishment in Mars. If BEPS – Base Erosion and Profit Shifting – laws are much more advanced than our planet earth, you may receive a tax bill from Martian tax authority as soon as your name appears there.

Not enough information is available at this stage if IRS has signed any information exchange pact under FATCA with Mars or whether the tax agencies around the globe are secretly using the “trick” to disclose your name to Martian government!

It will certainly be to your advantage to consult a “cross planet” tax advisor who can keep you out of any trouble. Watch out and do not fall in the trap – think before you leap!!

Expatriates and new Trade Law

New trade laws were recently enacted after President Obama signed them into law recently.

One of the provisions is affecting child tax credit claimed by certain expatriates. Under the provisions of new law, expatriates claiming foreign earned income exclusion under IRC 911 will no longer be entitled to claim refundable child tax credit. The change is effective from the tax years beginning after December 31, 2014.

Pertinent to note here that IRC 911 exclusion limit for 2015 tax year is $100,800.

Flying over international waters and in U.S.? Flight attendant denied exclusion

Recently in Rogers case, the DC court affirmed the Tax Court’s decision that a flight attendant who performed some duties in and over the U.S. and international waters could not exclude all of her wages under IRC 911 as foreign earned income.

The taxpayer worked as an international flight attendant based in Hong Kong. She performed in-flight duties and some pre-departure and post-arrival work and was generally paid according to her flight time. She received vacation time and benefits, and could receive guarantee pay for work that she would have performed on flights that were canceled. When she received guarantee pay, she was required to remain in Hong Kong awaiting reassignment to another flight. The airline provided the taxpayer with an apportionment of her estimated duty time between minutes spent in or over foreign countries, in or over the U.S., and over international waters. The taxpayer and her husband filed a joint return and excluded all of the taxpayer’s earnings as foreign earned income under IRC 911.

IRS and later Tax Court disallowed the foreign earned income exclusion for the portion of income allocated to her time within U.S. and allowed exclusion only for the flight time that the taxpayer was outside the U.S.

Foreign earned income exclusion is claimed on Form 2555 and the taxpayer must meet either bona fide residence test or physical presence test. There are several exceptions and rules as well as planning opportunities. CPA Global Tax professionals can help you navigate this.

Important News from IRS

American Opportunity Tax Credit not available to students on F1 visas

The American Opportunity Tax Credit is available to help eligible students and their parents offset the cost of higher education by reducing the amount of the federal income tax they owe. If they don’t owe tax, the AOTC could result in a refund.

If a student is in the United States on an F1 Student Visa, the student would generally be considered a nonresident alien for federal tax purposes. A student who is a nonresident alien for any part of the tax year is not eligible and cannot claim the AOTC unless the student elects to be treated as a resident alien for federal tax purposes.

To learn more about resident and nonresident alien status and restrictions on claiming the education credits, read American Opportunity Tax Credit – Information for Foreign Students.

Now you can find your Social Security 1099 or 1042S online

If you receive Social Security benefits but did not receive or misplaced either form SSA-1099 or SSA-1042S, you may now view, print or replace the form online by creating a Social Security account.

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Form 3115 not mandatory for small taxpayers IRS says in IR-2015-29

The Internal Revenue Service today made it easier for small business owners to comply with the final tangible property regulations.

Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season. The new procedure allows small businesses to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after Jan. 1, 2014.

Also, the IRS is waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.

“We are pleased to be able to offer this relief to small business owners and their tax preparers in time for them to take advantage of it on their 2014 return,” said IRS Commissioner John Koskinen. “We carefully reviewed the comments we received and especially appreciate the valuable feedback provided by the professional tax community on this issue.”