December 27, 2012 – New Minimum Wage for 2013 and Reporting Foreign Investments
NEW MINIMUM WAGE FOR 2013 – GIVE YOURSELF A RAISE TO AT LEAST $7.79 AN HOUR
REPORTING FOREIGN INVESTMENTS- EVERYTHING YOU NEED TO KNOW, AND WE HOPE IT’S NOT TO LATE
We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer please email Janine Ruggiero at Janine@gassmanpa.com
This report and other Thursday Reports can be found on our website
NEW MINIMUM WAGE AS OF 2013: RAISE YOUR SALARY
IF IT ISN’T $7.79 PER HOUR
Effective January 1, 2013, Florida’s minimum wage rises to $7.79 per hour. This is a 1.5% ($0.12) change from 2012. The minimum wage for tipped employees rises as well to $4.77 per hour plus tips on January 1, 2013.
IRS REPORTING REQUIREMENTS FOR TAXPAYERS WITH FOREIGN FINANCIAL ACCOUNTS
The IRS is now using social networking technology with the help of foreign financial institutions to report the financial information of those who own foreign bank accounts. Those who are found to own a foreign account and who have not reported it on their tax return will be slapped with high penalties including tax evasion and fraud. If your client owns a foreign bank account or other foreign assets, like a Limited Liability Company, it is important to know the IRS’s requirements for reporting them on your tax return next year.
There are two separate IRS forms that you may be required to file if you own financial assets in a foreign country.
First, Form TD F 90-22.1 (a.k.a. the FBAR) must be filed if you own a foreign bank account or brokerage account. The reporting instructions define financial accounts to include a securities, brokerage, savings, checking, or deposit account. It also includes commodity futures or options accounts, an insurance policy with cash value, an annuity policy, and shares in a mutual fund or other pooled fund. This list is not exclusive. United States citizens MUST file a FBAR form if:
1. You have a financial interest in or signature authority over at least one financial account located outside of the U.S.
2. The total value of ALL foreign financial accounts you own or have an interest in is more than $10,000.00 at any time during the tax year.
You may even have to report an account which produces no taxable income. There are numerous exceptions for certain persons or different types of bank accounts (for instance, you are not required to report a foreign financial account that is held in an IRA). See Form TD F 90-22.1 General Instructions. See 31 C.F.R. § 1010.350.
Second, a taxpayer must file Form 8938, along with their income tax Form 1040, to report “specified foreign financial assets.” This Form is required by the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010.
A “specified foreign financial asset” is defined in temporary IRS regulation 26 C.F.R. § 1.6038D-3T. These assets include any foreign bank account, stock and securities issued by a non-U.S. entity or person, a financial instrument or contract that was not issued by a U.S. person, and any interest in a foreign entity.
The IRS has published a comparison chart (below) of both forms, detailing what assets are required to be reported, and what assets are not. For instance, the IRS specifically outlines that a taxpayer is NOT required to report foreign real estate that is held directly on either of these forms. However, real estate that is held in a foreign entity must be reported on Form 8938, along with ANY interest in a foreign entity. See 26 C.F.R. §1.6038D-3T(b)(1)(iii).
Click here for a chart of types of foreign assets and whether they are reportable
The Trick: Tax preparers have a duty to ask their clients the right questions in order to honestly and accurately respond to the questions concerning foreign accounts on their tax returns.
Whether or not an asset needs to be reported on either the FBAR or Form 8938 depends on how the asset is being held. Several of the assets that the IRS tells us do not have to be reported on an annual tax return contain the caveat that they do not have to be reported if held directly. Therefore, some assets may have to be reported if they are held in bank accounts, annuities, trusts, and “entities” like corporations.
For instance, the IRS in its Q&A released February 29, 2012 states:
3. Does foreign real estate need to be reported on Form 8938?
Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938. For example, a personal residence or a rental property does not have to be reported.
If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you. The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.”
The Trap: According to the IRS, failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty of up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
The U.S. Dept. of the Treasury has been in the process of entering into agreements with foreign governments to ensure that Americans who own assets abroad are actually reporting them to the IRS.
In order to comply with FATCA, a foreign financial institution will have to enter into an agreement with the IRS by June of 2013. The “participating” financial institutions will then be required to provide information to the IRS annually about their U.S. accountholders and entities with significant U.S. ownership. They will also be required to withhold and pay to the IRS 30% of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. Owners.
Therefore, if a U.S. person’s income moves from a participating institution to a non-participating one, that bank will have to withhold 30%.
The Treasury has already signed an agreement with the United Kingdom, where the financial institutions will report to the government, which will then report to the IRS. It is in negotiations to complete agreements with other countries including Switzerland and Japan. This past November the Treasury reported that they are “actively engaged in dialogue” with the Cayman Islands among others, and exploring agreements with Luxembourg, Bermuda, the British Virgin Islands, and Russia.
The Director of the Swiss Institute of Banking and Finance has commented that FATCA is expensive for Swiss banks to implement, which may cause some institutions to drop American clients completely, or perhaps they will just make American clients absorb the additional costs. There has been significant speculation that China will choose not to comply with FATCA at all. The success of compliance remains to be seen.
January’s AFRs Released – An Updated Three Month Chart
Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the three. Please click HERE for the chart.
APPLICABLE FEDERAL RATES
To view a chart of this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3 please click here.
The 7520 Rate for December is 1.2% and for November was 1.0%.
SEMINARS AND WEBINARS
IT IS BETTER TO RE-GIFT THAN TO NOT GIFT AT ALL!
GET YOUR DESIGNATED DRIVER FOR NEW YEARS EVE!
SEE OUR WEBINAR WITH TAX CONTROVERSY LAWYER, BOB PANOFF AT OUR WEB SITE.
FREE WEBINARS OF INTEREST:
MONDAY, January 7, 2012, 12:30 p.m.
Please join us for Lunch Talk, a free monthly webinar series sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman, Esq. This month’s topic is the first part of a two part series with Shannon Waller from Strategic Coach. The topic for the two part series is Accelerating Law Office Teamwork with Interesting Tools You Can Use Immediately. To register for the webinar please visit the www.clearwaterbar.org.
TUESDAY, January 8, 2013, 5:00 – 5:30 pm
How to Land That First Job After College or Graduate School – What the Placement Office Hasn’t Told You. Recent college and graduate school graduates are having a difficult time finding their first professional job and are unaware of many proven techniques to help them find their first position. Job consultant Darry Griffis has an excellent track record in this area and will be sharing ten important techniques that your children or the children of your clients need to know to help find their first professional position.
THURSDAY, January 24, 2013, 4:00 – 4:50 p.m.
Please join us for the 444 Show. A monthly CLE webinar for professionals sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman. This month’s topic is Real Estate Tax Laws PALS & WOWS with Rick Buschart and Mike O’Leary.
MONDAY, FEBRUARY 4, 2012, 12:30 -1:00 p.m.
Please join us for Lunch Talk, a free monthly webinar series sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman. This month’s topic is the second part of the two part series with Shannon Waller on Accelerating Law Office Teamwork with Interesting Tools You Can Use Immediately. To register for the webinar please visit www.clearwaterbar.org
FRIDAY, JANUARY 18, 2013
Florida Bar Seminar Save the date for a three day weekend in Ft. Lauderdale! The Florida Bar Continuing Legal Education Committee, the Health Law Section and the Tax Law Section present Representing the Physician 2013: Practical Considerations for Effectively Guiding Physicians and Their Practices. The seminar will be held at the Sheraton in Ft. Lauderdale, Florida. Speakers include Lester J. Perling, Esq., on the topic of Federal and Florida Health Law: Hypothetical Situations that Are Often Overlooked by Physicians and Alan S. Gassman on the topic of It is Not Just Health and Tax Laws: Charting Florida Waters When Designing Physician and Medical Group Arrangements. Laws you Knew or Wish you Knew.
WEDNESDAY, FEBRUARY 13, 2013 15th Annual All Children’s Hospital Estate, Tax, Legal and Financial Planning Seminar.
All Children’s Hospital Foundation is hosting the Estate, Tax, Legal and Financial Planning Seminar at the All Children’s Hospital Education Conference Center in St. Petersburg. Programs and presenters include Samuel A. Donaldson on the topic of Federal Tax Update, Jonathan Blattmachr on Myths & Realities of Charitable Trusts and Some Really Cool Generation Skipping Tax Ideas, Investments in Trusts: Charting a Prudent Course by Tami Foley Conetta, and Alan S. Gassman on the topic of Avoiding Disaster in the Sunshine State – Tricks, Traps, and Nuances That Make Florida Planning Interesting and Unique.
Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. He has co-authored several handbooks that have been featured in Bloomberg BNA Tax & Accounting, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters and the Florida Bar Journal. is also the author of the Federal Income Taxation of the Business Entity Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition Mr. Denicolo received his B.A. and B.S. degrees from Florida State University, his J.D. from Stetson University College of Law and his LL.M. (Estate Planning) from the University of Miami. His email address is Christopher@gassmanpa.com.
Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-authored several handbooks that have been published in BNA Tax & Accounting, Estate Planning, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters, Estate Planning magazine, and Practial Tax Strategies. Mr. Crotty is also the author of the Limited Liability Company Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition. He, Alan Gassman and Christopher Denicolo are the co-authors of the BNA book Estate Tax Planning in 2011 & 2012. His email address is Ken@gassmanpa.com.
Thank you to our law clerks that assisted us in preparing this report:
Kacie Hohnadell is a third-year law student at Stetson University College of Law and is considering pursuing an LL.M. in taxation upon graduation. Kacie is also the Executive Editor of Stetson Law Review and is actively involved in Stetson’s chapter of the Student Animal Legal Defense Fund. In 2010, she received her B.A. from the University of Central Florida in Advertising and Public Relations with a minor in Marketing, and moved to St. Petersburg shortly after graduation to pursue her Juris Doctor. Her email address is Kacie@gassmanpa.com.
Alexandra Fugate earned her B.A. in English from the University of Florida in 2008, and J.D. from Stetson University College of Law in 2012. She has been a Guardian ad Litem for the past two years, a judicial intern for the Twelfth Circuit in Bradenton, and was recently admitted to the Florida Bar. She wants to pursue a career in business, employment, and labor law. Her email is Alexandra@gassmanpa.com .
Eric Moody is a third-year law student, scheduled to graduate in December 2012, at Stetson University College of Law and is considering pursuing an LLM in estate planning upon graduation. Eric is also an Articles and Symposia Editor for Stetson Law Review. In 2009, Eric received a B.S. in Business Management from the University of South Florida. Eric’s email address is Eric@gassmanpa.com.