Foreign-Profit Tax Break Is Outlined

[FaGal]

January 14, 2005
Foreign-Profit Tax Break Is Outlined
By EDMUND L. ANDREWS (NYTIMES)

WASHINGTON, Jan. 13 - The Bush administration outlined rules on Thursday for a huge one-time tax break for companies that reinvest their overseas profits back into the United States.

The tax break, which was part of last year's corporate tax bill, would allow companies to pay a fraction of the normal tax rate on hundreds of billions of dollars in foreign profits if they pledge to invest the funds in activities that may create jobs at home.

In a setback for many of the biggest potential beneficiaries, the Treasury Department said companies could not use their windfalls for repurchases of stock or increases in shareholder dividends.

Investors reacted with disappointment to the new rules. Stocks of companies that pushed hard for the tax break - Eli Lilly, Hewlett-Packard, Merck, Oracle and Pfizer - all declined slightly after the rules were announced.

The rules would help companies finance some activities that do little to directly increase employment, and a few - like corporate acquisitions - that might lead to job cuts.

The Treasury Department said that the tax break could be used to finance advertising and marketing, even if a company did not plan to increase its advertising.

The administration said companies could also use their foreign profits to pay for corporate acquisitions, redeem old debt and spend on the general purpose of "financial stabilization."

As adopted by Congress last year, the new law would give companies a one-time opportunity this year to bring a total of as much as $500 billion in foreign profits into the United States and pay a tax rate of 5.25 percent, instead of the standard corporate tax rate of 35 percent.

Globe-spanning companies like Hewlett-Packard and Eli Lilly have for years deferred their United States taxes on foreign earnings.

Under traditional tax law, the companies would be required to pay the full tax rate as soon as they brought the money back into the country.

The one-time tax break would let companies take advantage of the lower rate if they put forward a plan to reinvest their profits in ways that enhance employment in the United States.

The law itself was quite broad, explicitly allowing companies to allocate their money for "financial stabilization," corporate acquisitions and research and development.

The Treasury Department, which opposed the provision during the debate in Congress, gave companies even more latitude.

Under the "guidance" published by the Internal Revenue Service on Thursday, companies do not face a specific deadline for actually reinvesting the money and merely have to do so within "a reasonable time."

Nor do companies have to invest more money on hiring or new equipment, or even advertising, than they did the year before. Companies would be able to apply the tax break to investments that they had already planned before their new "domestic reinvestment plan," and even to investments that they had already budgeted and planned to finance with other sources of money.

"The Treasury Department and the I.R.S. do not intend to provide a template for a domestic reinvestment plan," the administration said in its set of guidelines, which totals 39 pages.

Despite the unenthusiastic response from investors to the new rules, the tax break could provide a huge windfall to many technology and pharmaceutical companies that have earned billions of dollars in low-tax countries like Ireland.

Oracle, the business-software company, has estimated that its tax break on foreign profits could be as much as $650 million.

Oracle is hoping to use much of that money to shore up its balance sheet after buying PeopleSoft last year for $10.4 billion.

Many American multinational corporations have deferred taxes on foreign profits. Hewlett-Packard, which wants to strengthen its balance sheet after buying Compaq, has more than $14 billion in untaxed foreign profits. Merck, the pharmaceutical giant, had $15 billion as of 2003. Johnson & Johnson had $12.3 billion.

Wall Street analysts are divided about whether the tax break will actually achieve its intended purpose of attracting a rush of new investment in the United States.

Anne Swope, a tax and foreign exchange analyst at J. P. Morgan, estimated that American companies had stockpiled more than $500 billion in overseas profits.

"We feel confident that $300 billion of that will be repatriated," Ms. Swope said. "The changes in tax law in 1986 made it extremely difficult for companies to repatriate earnings. This is an opportunity to provide temporary relief."

But Jan Hatzius, a senior economist at Goldman Sachs, predicted that the economic impact would be modest because companies have many ways to use their foreign profits without technically bringing them back into the country.

"If companies want to access their foreign assets, it's easy to do," said Mr. Hatzius. "All they have to do is borrow against them."

[FaGal]

January 13, 2005
Treasury Offers Companies Tax - Break Guide
By THE ASSOCIATED PRESS

Filed at 6:00 p.m. ET

WASHINGTON (AP) -- Companies thinking about using a new, temporary tax break to cut their tax bills on profits earned abroad can now turn to Treasury Department guidelines that explain how to use the profits brought home.

A law passed last fall gives companies a one-year window to reduce the tax rate on money earned in foreign countries and brought back into the United States from as much as 35 percent to 5.25 percent if the money is reinvested at home.

Companies must create a reinvestment plan to qualify for the tax break, a process detailed in the guidelines released Thursday. The Treasury Department said that some qualified uses include hiring and training workers, making capital investments, research and development, financial stabilization and advertising and marketing.

Companies cannot use the money for executive compensation, paying dividends to shareholders, buying back stock or paying taxes, among other things.

Margie Rollinson, an international tax expert at Ernst & Young, said companies will be happy to see they can use some money to pay off debts as part of a financial stabilization program.

``There will be lots of people who are disappointed that stock buybacks are not included,'' she said.

The Treasury Department did not say whether companies can use money brought back to the United States to pay legal settlements. Some congressional tax-writers have objected to that idea.

Tom Stout, a director in the legislative and regulatory services practice of KPMG, noted the rules do not put a time limit on when the money must be reinvested.

The guidelines do not explain whether companies would run into trouble by using money brought back into the United States to cover already planned expenditures, freeing other funds for uses not permitted under the new law.

[FaGal]

FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

January 13, 2005
JS-2195

Treasury and IRS Announce Guidance on Repatriation
of Foreign Earnings Under the American Jobs Creation Act

WSHINGTON DC – The Treasury Department and IRS today announced the first in a series of notices that will provide guidance for U.S. companies planning to repatriate earnings from overseas subsidiaries subject to the temporary reduced tax rate available under the American Jobs Creation Act (AJCA).

Internal Revenue Code Section 965, enacted as part of the AJCA in October 2004, allows U.S. companies to repatriate earnings from their foreign subsidiaries at a reduced tax rate. Section 965 provides that U.S. companies may elect, for one taxable year, an 85% dividends received deduction for eligible dividends from their foreign subsidiaries.

Section 965 contains several limitations on the repatriated dividends that are eligible for the reduced tax rate. One key requirement is that the repatriated funds must be invested by the company in the United States pursuant to a domestic reinvestment plan approved by company management before the funds are repatriated.

Today's notice provides detailed guidance regarding the parameters for a domestic reinvestment plan and the kinds of investments in the United States for which repatriated funds may be used under this provision. The notice also provides guidance on the requirement that the repatriation be in the form of a cash dividend. In addition, the notice provides guidance on electing application of the provision and on required information reporting regarding repatriated dividends and associated U.S. investments, and provides a safe harbor mechanism for taxpayers to use in establishing that the domestic reinvestment plan requirement is satisfied.

"Given the importance of the new repatriation provision to U.S. companies, coupled with the immediate effective date of the provision and its temporary nature, issuance of prompt guidance was a major priority," said Eric Solomon, Treasury's Acting Deputy Assistant Secretary for Tax Policy. "In today's notice we focused on addressing the most urgent questions, particularly the required U.S. investment of the repatriated earnings."

"This guidance will allow taxpayers to be able to comply with the new provision regarding the repatriation of earnings while at the same time giving the IRS examination function the necessary roadmap to ensure compliance with the new rules," said IRS Chief Counsel Don Korb.

http://www.treasury.gov/press/releas...icen200510.pdf
http://www.treasury.gov/press/releas...sheetfinal.pdf

In pratica è uno scudo fiscale in salsa bush

[FaGal]

The Joint Committee on Taxation yesterday released Estimates Of Federal Tax Expenditures For Fiscal Years 2005-2009 (JCS-1-05).

Tax expenditures are "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption or deduction from gross income or which provide a special credit, a preferential rate of tax or a deferral of tax liability." The five largest tax expenditures provide $2.1 trillion of tax benefits:

+ $597 billion: pensions
+ $493 billion: employer-provided health insurance
+ $434 billion: home mortgage interest
+ $356 billion: reduced tax rates on dividends and capital gains
+ $203 billion: child tax credit

http://www.house.gov/jct/s-1-05.pdf

[FaGal]

Tax Preparer Fraud


FS-2005-8, January 2005

Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.

In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.

While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

Helpful Hints When Choosing a Return Preparer

*
Avoid tax preparers who claim they can obtain larger refunds than other preparers
*
Avoid preparers who base their fee on a percentage of the amount of the refund.
*
Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
*
Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
*
Review your return before you sign it and ask questions on entries you don't understand.
*
No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
*
Find out the person’s credentials. Is he or she an Accredited Tax Preparer, Enrolled Agent, Certified Public Accountant (CPA), Licensed Public Account or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits.
*
Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
*
Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

IRS cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Check it out with a trusted tax professional or the IRS before getting involved.

Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.

Criminal Investigation Statistical Information




FY 2002


FY 2003


FY 2004

Investigations Initiated


254


229


206

Prosecution Recommendations


89


169


167

Indictments/Information


61


109


121

Convictions


64


67


117

Incarceration Rate*


86.8%


83.7%


84.4%

Avg. Months to Serve


23


19


19

*Incarceration may include prison time, home confinement, electronic monitoring, or a combination.

Criminal and Civil Legal Actions

The following case summaries are excerpts from public record documents on file in the court records in the judicial district in which the legal actions were filed.

Tax Preparer Sentenced to 33 Months
On Dec. 16, 2004, in Hartford, Conn., Patrick A. Triumph, a self-employed tax return preparer, was sentenced to 33 months in prison to be followed by three years supervised release. In July 2004, Triumph was indicted on 38 counts of aiding and abetting in the preparation of false tax returns, one count of interfering with the administration of IRS laws and one count of knowingly and willfully failing to appear in court when required. Triumph was found guilty by jury on Sept. 20, 2004, on 10 counts of aiding and abetting in the preparation of false tax returns.

Court Bars South Florida Man From Selling Bogus Trusts and Preparing Federal Tax Returns for Others
On Dec. 3, 2004, in Ft. Lauderdale, Fla., Louis Ratfield of Lake Worth, Fla., was permanently barred by a federal court from preparing federal income tax returns for others and from representing customers before the IRS. Ratfield also was barred from selling a fraudulent tax scheme involving sham trusts. According to papers filed in the case, Ratfield told customers they could use his trusts to get “tax deductions for the expenses incurred in being alive.”

Court Bars Ohio Men’s Fraudulent Tax Schemes
On Nov. 8, 2004, in Akron, Ohio, James L. Binge and Terrence A. Bentivegna were permanently barred by a federal court from preparing income tax returns for customers and from representing customers before the IRS. The court found that the two Canton-area men prepared income tax returns that hid customers’ income and claimed improper deductions. They also sold sham trusts and falsely advised customers that they need not report income earned within the United States. Binge and Bentivegna were also barred from selling or promoting tax fraud schemes.

Sacramento Tax Preparer Sentenced to 21 Months in Prison for False Tax Return Scheme
On Nov. 4, 2004, in Sacramento, Calif., Brent Daniel Shaw was sentenced to 21 months in prison in connection with his participation in a scheme involving the filing of false returns with both the California Franchise Tax Board (FTB) and the Internal Revenue Service (IRS). Shaw pleaded guilty to mail fraud, aiding and assisting in the preparation of a false income tax return and forging endorsements on treasury checks. Shaw admitted that he would provide his tax return clients with a correct copy of their state and federal income tax returns, and then would alter the returns prior to actually sending them in to the FTB and the IRS. The returns Shaw submitted without the knowledge and consent of his clients included bogus deductions to reduce the taxpayers’ state and federal tax liability, which in turn caused the issuance of larger refunds than were actually due. Upon receipt of falsely inflated refund checks, which Shaw directed the IRS and FTB to mail directly back to him, Shaw would forge his clients’ signatures and personally deposit or cash the refund checks. Shaw then issued new checks to his clients for the amount of the refund they were led to believe they were getting. Shaw improperly kept the difference between the correct refund amount and the fraudulent and inflated refund amount.

Irving, Texas, Tax Preparer Sentenced
On Oct. 21, 2004 in Irving, Texas, Leanne Denice Shrout was sentenced to 36 months in prison following her guilty plea in May 2004. Shrout, who operated Executive Financial Consultants, pleaded guilty to three counts of aiding and assisting in the preparation and presentation of a false and fraudulent tax return.

Shrout was a trained tax return preparer however, she would inaccurately and falsely advise and counsel her clients that the following things were deductible on the Schedule A form: personal clothing worn to work; personal hygiene items; vitamins; gym fees; haircuts; manicures and pedicures; mileage to and from work; and money spent at restaurants. Shrout also admitted she prepared amended tax returns for clients using basically the same methodology and claiming the taxpayer was owed more. She admitted to preparing at least 788 false tax returns or false amended tax returns approximately beginning in 1999 and continuing through June 2002.

Court Stops Fraudulent Tax-Return Preparer
On Oct. 19, 2004, in Norfolk, Va., Ronald M. Green was permanently barred by a federal court from preparing federal income tax returns for others and representing people before the IRS. The court found that Green had prepared fraudulent tax returns for customers in Virginia, Maryland, Pennsylvania, New York, South Carolina, Alabama, Texas, Arizona and California.

Hamden Tax Preparer Sentenced to Four-Year Federal Prison Term
On Oct. 13, 2004, in New Haven, Conn., John K. Cannon was sentenced to 48 months in prison followed by one year of supervised release for assisting clients of his tax preparation business with filing materially false federal income tax returns and for failing to file his own federal income tax return for the 2001 calendar year. Cannon was also ordered to pay all back taxes with any penalties and interest and accepted a permanent injunction that will bar him from engaging in the business of preparing income tax returns or from further acting as an income tax preparer in the future. Cannon, who had been self-employed as a tax preparer for approximately 40 years, admitted that between 1999 and 2001, he willfully prepared hundreds of federal income tax returns in which he falsely represented that his clients were lawfully entitled to claim itemized deductions, business expenses, rental expenses and other deductions to which they were not entitled. Cannon also acknowledged that he intentionally sought to interfere with the Internal Revenue Service's ability to investigate and audit his preparation of those returns and that as a result of his actions he deprived the IRS of nearly $1 million in tax revenue. Cannon further admitted that he willfully failed to file his own income tax return for the calendar year 2001, as required by law, despite earning more than $250,000 from his tax preparation business that year.

Where Do You Report Suspected Tax Fraud Activity?

If you suspect tax fraud or know of an abusive return preparer, you should report this activity to your nearest IRS office. This information can be communicated in writing or by phone. You can contact the IRS by phone at 1-800-829-0433.
http://www.irs.gov/newsroom/article/...134094,00.html