Monday, January 27, 2014

Spaghetti Taxes

Let's say you were advised to set up an International Business Corporation (IBC) in, say, Nevis which owns an S.A. in Chile and a Limitada in Spain.  Add any number of other incestuous, interlocking companies to get a complicated picture. Kinda' like a bowl of spaghetti in appearance.  Lots of people do this to avoid taxes in the United States.  The problem is, it doesn't work, at least not legally.  Instead of me explaining all the ins and outs of what would be called a Controlled Foreign Corporation have a look at this web site which explains things really well.

Introduction to Controlled Foreign Corporations | Family Office ... Wed, 17 Oct 2012 22:12:48 GMT

Investors in what Congress calls Controlled Foreign Corporations are not permitted to indefinitely defer or avoid US taxation. Such corporations are treated as pass-through to US Shareholders.

Read more ...

One more complication would be if the income from a CFC is passive (which has its own definitions in tax law) which leads to several complications not the least of which is taxation on undistributed income.

On top of that, there are special form that have to be filed like Forms 5471 and 8865 for CFCs and Limitadas that are treated as partnerships.  Failure to file EACH FORM can result in a $ 10,000 penalty...per occurrence.  

It isn't easy to avoid all this either.  If you set up family members as owners to divide responsiblity, you still are in control per the IRS using 'constructive ownership' rules.

Therefore, maybe you should make a different plan.  There are options and maybe I'll mention one or two in a future post.  If you're in hurry, send me an email and we'll talk.

Monday, January 20, 2014

Service with a Smile!

Who says the IRS isn't helpful?  Well, look at this.  The IRS will allow individuals to file for themselves BEFORE the January 31 official opening of the tax year with Free File!  um..YAY?!

IRS releases Free File to help taxpayers get jump on filing returns - Sun, 19 Jan 2014 14:34:46 GMT

New York Daily NewsIRS releases Free File to help taxpayers get jump on filing returnsMLive.comGRAND RAPIDS, MI -- While the tax season doesn't officially begin until the end of the month, Internal Revenue Service says its Free File brand-name softwa ...

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This is to let you know so you can file sooner than usual if you don't need help.  Supposedly it started on the 17th of January.  Well, no time to lose!  

If, however, you are one of those who does need help, feel free to contact me at