Law Offices of Givner & Kaye Newsletter | July Issue 


          The number of U.S. citizens and residents with unreported foreign bank accounts is estimated to be in the hundreds of thousands, if not in the millions.  The first Offshore Voluntary Disclosure Program, in 2009, provided a path to compliance in exchange for 20% of the highest bank balance in the prior 8 years. Fifteen thousand taxpayers participated and the IRS collected $3.4 billion in back taxes.  The penalty increased to 25% in the 2011 program, which drew another 15,000 participants and raised another $1.6 billion.  The penalty increased to 27.5% in the 2012 program.  It saw 12,000 disclosures and another $1.5 billion of revenue.


          With still hundreds of thousands (or more) of non-compliant taxpayers out there, the IRS has announced a major modification of the 2012 program effective July 1, 2014.  The penalty is now 50% of the highest bank balance if a foreign financial institution at which the taxpayer has or had an account has been publicly identified by the IRS or if an investigation has been opened as to the taxpayerThe expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States. The changes include:

  • Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
  • Eliminating the required risk questionnaire;
  • Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible U.S. taxpayers residing outside the U.S., all penalties will be waived. For eligible U.S. taxpayers residing in the U.S., the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.


          If you or someone you know needs to get in compliance, please contact us immediately.  Once the foreign financial institution is in communication with the IRS, it is too late: the 50% penalty will apply and criminal sanctions are more likely.


         The IRS will continue getting information from banks for the next decade until it has information on the account of every U.S. taxpayer.  Delay in disclosure is more dangerous as each month passes. 


          Best regards.


                    Bruce Givner

                    Owen Kaye

                    Kathleen Givner

                    Neda Barkhordar

Featured Article: Buying Leveraged Real Estate With Your Retirement Plan

        Most people are unaware that they can buy investment real property in the pension and profit sharing plans sponsored by their business.  (Exception: not if you or a related party occupy the property.  That would be a prohibited transaction, subject to a 15% non-deductible excise tax and the requirement to unwind the transaction.)  For those who are aware that the retirement plan can buy investment real property, most are unaware that the plan can buy the real property using debt.  They are concerned that the use of debt will transform a portion of the income and gain into UBTI - unrelated business taxable income.


          Internal Revenue Code Section 514(c)(9) has existed for decades.  It permits a retirement plan - but not an IRA - to invest in real property using debt without suffering UBTI.  So, assume your retirement plan buys a duplex for $2,000,000 by making a $600,000 downpayment and getting a $1,400,000 non-recourse loan.  Assume the property throws of net income of $100,000 per year.  That income is non-taxable to the retirement plan.  However, if you have to guaranty the loan, that is a prohibited transaction.  If you provide management services to the property, that is also a prohibited transaction.  What if you want to buy one-half of the property and the retirement plan buys the other half?  That is permissible if structured properly.  What if your retirement plan buys 40% of a building, you buy 40% of a building, a stranger buys the other 20% and your business occupies 40% as a tenant?  That is also permissible.  However, it is very tricky so you should not do so without very careful advice. 


          In conclusion, you do not have to have a self-directed IRA to invest in real property.  Your business retirement plan can do so in a more attractive fashion, as long as you get good advice.


       Contact Us today to learn more about buying leveraged real estate with your retirement plan.

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Attorney Spotlight: Bruce & Owen

Bruce Givner and Owen Kaye are now the co-authors of the following chapters in the California Continuing Education of the Bar two volume treatise on California Irrevocable Trusts: Chapter 9 "Dispositive Clauses In Irrevocable Trusts" and Chapter 17, entitled "Qualified Personal Residence Trusts".  They are also now the editors or co-authors of the following Chapters in CEB's three volume treatise California Will Drafting: 21 "Overview of Trust Distributions"; 22 "Trusts for Children"; 30 "Trustee Accounting Powers" (with Howard Sanger); and 31 "Trustee Administrative Powers".   

Tax Tip of the Month

 One of the many overlooked income tax returns is IRS Form 3520.  It is due if you receive a gift or a bequest from outside the U.S. for more than $100,000 during the year or any distribution from a foreign trust.  The penalty for failure to file is the greater of $10,000 or 35% of the amount received.  There is an excuse if you have reasonable cause.  But it is better to be aware and file the return in a timely fashion (the same date as your individual tax return). 


Bruce Givner & Owen Kaye
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Upcoming Thursday Insights Series Seminar:  
IRS Section 1031 Exchanges: The Problem of Drops & Swaps with Bruce Givner 
July 17 2:30pm-4pm
We will review the required elements of a 1031 exchange, the usual problems in practice and the  alleged problem with "drop and swaps." Other holding period issues. Tenancy in common issues. Recent cases and rulings. 
Join us in the office or online via webinar, where you can watch the folks in the room listen to and question Bruce.  
Tax Law Comics: 
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July, 2014

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