The Achieving a Better Life Experience (ABLE) Act of 2014 created a tax-advantaged savings account for people who have a qualifying disability (or are blind) before age 26. Modeled after the well-known Section 529 college savings plan, ABLE accounts offer many benefits. But it’s important to understand their limitations.
Tax and funding benefits
Like Section 529 plans, state-sponsored ABLE accounts allow parents and other family and friends to make substantial cash contributions. Contributions aren’t tax deductible, but accounts can grow tax-free, and earnings may be withdrawn free of federal income tax if they’re used to pay qualified expenses. ABLE accounts can be established under any state ABLE program, regardless of where you or the disabled account beneficiary live.
In the case of a Section 529 plan, qualified expenses include college tuition, room and board, and certain other higher education expenses. For ABLE accounts, “qualified disability expenses” include a broad range of costs, such as health care, education, housing, transportation, employment training, assistive technology, personal support services, financial management, legal expenses, and funeral and burial expenses.
An ABLE account generally won’t jeopardize the beneficiary’s eligibility for means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI). To qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.”
Assets in an ABLE account aren’t counted, with two exceptions: 1) Distributions used for housing expenses count, and 2) if the account balance exceeds $100,000, the beneficiary’s eligibility for SSI is suspended so long as the excess amount remains in the account.
ABLE accounts offer some attractive benefits, but they’re far less generous than those offered by Sec. 529 plans. Maximum contributions to 529 plans vary from state to state, but they often reach as high as $350,000 or more. The same maximum contribution limits generally apply to ABLE accounts, but practically speaking they’re limited to $100,000, given the impact on SSI benefits.
Like a 529 plan, an ABLE account allows investment changes only twice a year. But ABLE accounts also impose an annual limit on contributions equal to the annual gift tax exclusion (currently $14,000). There’s no annual limit on contributions to Sec. 529 plans.
ABLE accounts have other limitations and disadvantages as well. Unlike a Sec. 529 plan, an ABLE account doesn’t allow the person who sets up the account to be the owner. Rather, the account’s beneficiary is the owner.
However, a person with signature authority — such as a parent, legal guardian or power of attorney holder — can manage the account if the beneficiary is a minor or otherwise unable to manage the account. Nevertheless, contributions are irrevocable and the account’s funders may not make withdrawals. The beneficiary can be changed to another disabled individual who’s a family member of the designated beneficiary.
Finally, be aware that, when an ABLE account beneficiary dies, the state may claim reimbursement of its net Medicaid expenditures from any remaining balance.
If you have a child or relative with a disability in existence before age 26, it’s worth exploring the feasibility of an ABLE account. Please contact our firm for more details.
Like many people, you probably feel a great sense of relief wash over you after your tax return is completed and filed. Unfortunately, even professionally prepared and accurate returns may sometimes be subject to an IRS audit.
The good news? Chances are slim that it will actually happen. Only a small percentage of returns go through the full audit process. Still, you’re better off informed than taken completely by surprise should your number come up.
A variety of red flags can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return. This is often the employer’s mistake or occurs following a merger or acquisition.
In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things may increase the likelihood of an audit, such as:
Bear in mind, though, that no single item will cause an audit. And, as mentioned, a relatively low percentage of returns are examined. This is particularly true as the IRS grapples with its own budget issues.
Finally, some returns are randomly chosen as part of the IRS’s National Research Program. Through this program, the agency studies returns to improve and update its audit selection techniques.
If you receive an audit notice, the first rule is: Don’t panic! Most are correspondence audits completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate.
Read the notice through carefully. The pages should indicate the items to be examined, as well as a deadline for responding. A timely response is important because it conveys that you’re organized and, thus, less likely to overlook important details. It also indicates that you didn’t need to spend extra time pulling together a story.
Your response (and ours)
Should an IRS notice appear in your mail, please contact our office. We can fully explain what the agency is looking for and help you prepare your response. If the IRS requests an in-person interview regarding the audit, we can accompany you — or even appear in your place if you provide authorization.
For those fortunate enough to be able to select a location in which to live after they retire, there are a number of factors to consider: warmer weather, nearness to friends and family -- and taxes. Not only do taxes partially determine the best places to stretch a fixed retirement income, they impact the size of the estate that retirees will be able to pass to their heirs.
The taxability of retirement benefits varies widely from state to state, according to Rocky Mengle, senior state tax analyst at Wolters Kluwer Tax & Accounting.
Currently, seven states do not tax individual income, retirement or otherwise, he indicated: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states – New Hampshire and Tennessee -- impose income taxes only on dividends and interest, at a 5 percent flat rate for both states. In the other 41 states and the District of Columbia, tax treatment of retirement benefits varies widely. For example, some states exempt all pension income or all Social Security income, while other states provide only partial exemption or credits, and some states tax all retirement income.
“The general trend of the last several years across all states is to be more taxpayer friendly when it comes to retirees, particularly with regard to military and government retirement income,” Mengle observed. “Military pensions may be exempted completely, or if they already have a partial exemption in place, the state might sweeten it a bit and make it a little better for the retiree,” said Mengle.
For example, military retirement pay is now deductible in Minnesota, beginning with the 2016 tax year. A new deduction for military retirement income is allowed in South Carolina, to be phased in over several years.
While some states tax pension benefits, only 13 states impose tax on Social Security income. “Most states exempt Social Security,” he said. “There are some states that might have an age or income restriction of some sort, but the majority of states have a complete exemption from Social Security. It’s a little more mixed when you consider other types of retirement income, such as pension income and 401(k)s. The majority of states have a complete or partial exemption, but they are more likely to give a partial exemption based on income levels, or reaching a certain age.”
For retirees shopping around for states to move to in their retirement years, the type of income a retiree expects is a key consideration, according to Mengle: “For example, if the bulk of a retiree’s income will be Social Security benefits, then North Carolina would be very tax-friendly. On the other hand, if the bulk is from a private pension plan, North Carolina would not be so friendly because an individual taxpayer’s pension income is generally taxable there.”
”Most states with income tax do impose tax on rental income, but two states – New Hampshire and Tennessee – do not,” said Mengle. “They tax only dividends and interest, so a retiree with rental income might be better off in those states than retirees that are heavily invested in the stock market.”
Of course, state income taxes on retirement benefits are not the only taxes to consider, Mengle said. “Sales taxes at the state and local levels and property taxes can make a difference in a retiree’s overall tax liability,” he observed.
In fact, the Census Bureau has just announced that property taxes paid by Americans for fiscal year 2016 rose by 3.2 percent from the 2015 fiscal year, to an all-time high of $540,701,000,000.
And for retirees with significant wealth to pass to their heirs, state estate taxes must be considered. While some states, such as Delaware and Hawaii, follow the federal exclusion amount ($5,450,000 in 2016 and $5,490,000 in 2017), others do not, according to a Wolters Kluwer review.
Some states, such as Arizona, Kansas and Oklahoma, no longer impose an estate tax, while others, including California and Florida, technically still have such a tax on their books. However, they collect no revenue since their tax is based on the now-repealed federal credit for state death taxes.
Roger Russell is senior editor for tax with Accounting Today, and a tax attorney and a legal and accounting journalist.
By Ben Steverman
This tax season, millions of Americans are supposed to pay a penalty if they don’t have health insurance. At least, that’s what the Affordable Care Act requires. As the April filing deadline approaches, however, Americans have reasons to think they might get away with not paying what they owe.
After President Donald Trump took office, the Internal Revenue Service changed the way it handled the health coverage question on tax returns. Initially this tax season, the agency was automatically rejecting "silent" tax returns—those that didn't indicate whether the taxpayer had insurance coverage. The IRS reversed course a few weeks after Trump, on his first day in office, ordered agencies to ease the burdens of complying with the ACA. The unsuccessful Congressional effort to repeal and replace the ACA only added to the confusion.
The reversal has prompted a debate among accountants and other tax preparers on what to tell clients to do about their Obamacare penalties, also known as "shared responsibility payments." The penalty starts at $695 per adult without coverage.
Emily Wallace, 55, wasn't sure how to handle the $962 she owed for not having insurance. "I'm one of those fiftysomethings that the ACA really hurt financially," she said. The resident of Greenwood, S.C., goes without insurance because it would cost more than $7,000 a year to sign up for her husband's workplace policy and about $9,600 to buy a policy on the Obamacare exchange. She doesn't qualify for subsidies because of her husband's income, which also boosts the penalty she owes for not having insurance.
"It seems to me more wise to pay the penalty and save as much as we can for routine doctor visits," she said.
There are risks to filing a so-called "silent return" and skipping the penalty. "Legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe," the IRS said in a statement. The agency added that "taxpayers may receive follow-up questions and correspondence at a future date."
Some tax preparers will refuse to help clients file silent returns. Enrolled agents—accountants, lawyers, and other tax experts who are certified by the IRS and required to meet certain ethical and legal responsibilities—are the most likely to balk. The National Association of Enrolled Agents told its members that they "should continue to help taxpayers comply to the full extent of the law."
Not all tax preparers agree. Nina Tross, an enrolled agent who is also executive director of the National Society of Tax Professionals, said she warns her clients about the possible consequences of disobeying the ACA. But she lets them file a silent return if they want.
"They can make the choice," Tross said. And many are choosing to try to avoid their Obamacare penalty, she said. "They're rolling the dice on this, and the IRS is letting them."
The largest U.S. tax preparation companies, TurboTax, owned by Intuit Inc., and H&R Block Inc., are both letting customers file silent returns—while warning them of the possible consequences. A silent return may "increase the risk of an IRS notice or audit," H&R Block spokesman Gene King said. Tax preparers also point out there are other, legal ways to avoid the penalty, through multiple exemptions based on financial hardship and other criteria.
It's impossible to tell if the IRS will aggressively track down those missing payments. The agency could inundate silent filers with thousands of follow-up notices, requesting more information on their health insurance status. The IRS can easily check the veracity of the responses: By later this year, the agency will have collected and processed millions of health coverage records , giving it a good idea as to whether you owe a penalty or not.
Taxpayers can always refuse to pay Obamacare penalties. The IRS isn't allowed to collect on the health coverage penalty the same way it collects other tax debts. That means the agency can't garnish your wages if you fail to pay the penalty. The agency can, however, deduct the penalties you owe from future tax refunds.
Politics could be a key factor in how the IRS enforces the individual mandate this year.
On Friday, Trump said his predecessor’s health law was "imploding and soon will explode and it's not going to be pretty." If the Trump administration wants to further undermine Obamacare and its insurance markets, loosening enforcement of ACA penalties is one of several options.
On the other hand, Republican efforts to re-write the ACA seem to have failed for now. The GOP overhaul of Obamacare would have eliminated the individual mandate entirely, erasing the obligation to pay penalties retroactively to the beginning of the 2016 tax year. After canceling a vote on the bill on Friday, however, House Speaker Paul Ryan said, “we’re going to be living with Obamacare for the foreseeable future.”
Before paying her penalty, Wallace wanted to wait and see what Congress would do. Then, earlier this month, she and her husband got word that someone else had filed a fraudulent return on their behalf. That forced them to file their taxes and pay the penalty. If Congress ends up eliminating the penalty, they figured, they could file an amended return and get the money back.
That's looking unlikely now, to Wallace's disgust and disappointment. "I'm more concerned about Washington's inability to solve the problem than I am about the $962 I have to pay for the penalty," she said.
By Michael Cohn
A new report from the Government Accountability Office questions the usefulness of services such as identity monitoring, credit monitoring and identity theft insurance, particularly when it comes to safeguarding against tax refund fraud.
The GAO acknowledged that identity theft services offer some benefits but cautioned about limitations. Credit-monitoring services, for example, can help detect when an unauthorized account has been opened in someone's name by alerting users, but such services don't prevent fraud or address fraud occurring on an existing account, including misuse of a stolen credit card number. Consumers also have some low- or no-cost alternatives to credit monitoring, the GAO pointed out, such as asking the major credit bureaus for a free annual credit report or for a credit freeze, which can restrict access to the consumer's credit report.
Identity-monitoring services are supposed to alert consumers to misuse of their personal information by monitoring sources such as public records and illicit websites, but the GAO said their effectiveness in mitigating identity theft is unclear. The services scan these sources for a consumer's personal information, such as names, addresses, and e-mail addresses, along with their credit card, Social Security, driver’s license, passport and medical insurance numbers. The services promise to alert consumers when they detect new or inaccurate information about them or detect their personal information in an inappropriate place, such as a black-market website. However, the GAO could not find any studies or data assessing the effectiveness of identity monitoring. One provider told the GAO that monitoring could be evaluated using information on the number of “hits” their service detects on sources such as black-market websites, but acknowledged the information could be difficult to interpret because many of the hits are not the result of fraud.
Identity restoration services try to remediate the effects of identity theft, but the GAO pointed out that the level of service can vary. Some providers provide more hands-on assistance, interacting with creditors on the consumer's behalf, but others only offer self-help information, which is of more limited value and basically puts the onus on consumers to do the work.
Identity theft insurance covers some expenses related to the process of remediating identity theft, but this type of insurance typically excludes direct financial losses. In addition, the GAO found the number and dollar amount of claims has been low.
The GAO noted that such services also usually don't address some types of threats, such as medical identity or tax refund fraud, along with debit or check card fraud. Some consumer groups argue that identity monitoring can provide a false sense of security to consumers who don't understand the limitations.
In terms of tax refund fraud related to identity theft, the IRS estimated it paid at least $2.2 billion in fraudulent calendar year 2015 refunds, and it prevented at least $12.3 billion more from going to fraudsters. No identity theft service expressly addresses identity theft refund fraud, according to the GAO's review of these services and interviews with providers, consumer groups and federal agencies. Third-party monitoring isn't feasible for tax refund fraud because the IRS generally can't share taxpayer information with outside companies. Thus, it's unlikely there will be a direct-to-consumer product built around preventing identity theft refund fraud, according to a Federal Trade Commission staff member with whom the GAO spoke.
The IRS recommends consumers can protect themselves against identity theft by taking standard commonsense measures to protect their Social Security number and other personally identifiable information (such as not carrying documents with their Social Security number and only providing the number when it's required). In addition, IRS can issue victims of identity theft refund fraud an Identity Protection Personal Identification Number to prevent future fraud.
However, the IRS suffered a data breach with its IP PIN service in 2015, and the Treasury Inspector General for Tax Administration issued a critical report this week about the IRS's response (see IRS ignored recommendation to deactivate hacked IP PIN program).
While no identity theft services try to detect or prevent identity theft refund fraud, one provider told the GAO its service predicts a consumer's risk for becoming victims of tax refund fraud and offers education on the steps they can take to detect or prevent it, such as filing their tax return early. Other providers claim their identity restoration services can provide guidance to consumers who become victims of identity theft refund fraud.
The GAO recommended Congress should consider allowing government agencies to determine the appropriate coverage level for identity theft insurance that's offered after data breaches. The Office of Management and Budget should also analyze the effectiveness of identity theft services compared to alternatives, the report suggested, and it should explore options to address duplication in how federal agencies provide such services.
Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.
By Jan-Henrik Förster and Joost Akkermans
Credit Suisse Group AG, the second-largest Swiss wealth manager, faces a sweeping tax evasion and money laundering investigation spanning five countries and potentially involving thousands of account holders.
Investigators in the Netherlands arrested two people—seizing a gold bar, paintings and jewelry—and are probing dozens more suspected of concealing millions of euros in Swiss accounts, the Fiscal Information and Investigation Service said Friday. Criminal investigations are also underway in Australia, Germany, the U.K. and France and the roles of bank employees are part of the inquiries.
The probes represent the latest challenge for Chief Executive Officer Tidjane Thiam as he reshapes Credit Suisse to focus on wealth management and weighs options to increase capital depleted by fines for past misbehavior. The bank said its offices in London, Paris and Amsterdam were searched on Thursday by authorities in connection with client tax matters, and that it’s cooperating with the authorities.
“The sheer volume of data and its international scope makes this an exceptional case,” said Thierry Boitelle, a lawyer with Bonnard Lawson in Geneva.
Credit Suisse fell as much as 1.8 percent in Swiss trading, and was down 1.3 percent to 14.89 francs by 5:07 p.m. The stock was the worst performer in the Bloomberg Europe Banks Index.
The tip that triggered the year-long investigation came from one or more informers to a team in the FIOD, the criminal investigation service of the Dutch Tax and Customs Administration, said Wietske Visser, a FIOD spokeswoman.
The five countries coordinated their actions through the European Union’s Judicial Cooperation Unit, which said in a statement that further actions are likely in the next few weeks. The raids were done without informing authorities in Switzerland, that country’s attorney general’s office said in a statement. The Swiss aren’t conducting a criminal probe into the matter, a spokeswoman said.
In a statement Friday from Zurich, the bank said it has “implemented Dutch and French voluntary tax disclosure programs and exited non-compliant clients,” and has applied a withholding tax agreement with the U.K. since 2013.
Simone Meier, a spokeswoman for Credit Suisse, declined to comment.
Thiam had been looking to shake off the negative publicity from a series of tax evasion scandals that plagued his predecessor. Credit Suisse was fined $2.6 billion in 2014 after admitting it helped Americans cheat on their tax obligations, and conducting what then-U.S. Attorney-General Eric Holder called a “shamefully inadequate internal inquiry” into the wrongdoing.
In Europe, Credit Suisse agreed in October to pay about 109.5 million euros ($117 million) to Italian authorities to resolve a probe into the bank’s use of insurance policies allegedly designed to help clients evade taxes, five years after paying 150 million euros to settle a tax evasion dispute with the German government.
Thiam, who took over the top job less than two years ago, has pledged to focus on wealth management, and has had to deal with fresh scandals and fines unrelated to tax evasion. Credit Suisse has had to defend its role in allegations of criminal fraud and negligence to the detriment of Russian and Turkish clients by former employees of its wealth management unit. The bank also agreed in December to pay a $2.48 billion civil penalty to resolve a U.S. investigation into its mortgage-backed business.
“The impact for the bank is very hard to assess right now, but generally I’d say it’s a setback for every private bank when you are being investigated,” said Chirantan Barua, an analyst at Sanford C. Bernstein & Co. in London. “The pressure on offshore private banking will be relentless over coming years.”
Credit Suisse isn’t alone. Eighty Swiss banks have entered into non-prosecution agreements with the Department of Justice in return for disclosing details on how tax evasion by their banking clients worked. UBS Group AG, Switzerland’s largest bank, turned over client names and paid $780 million in 2009 to settle its own dispute over tax evasion with the U.S. government.
The fresh investigations come as Credit Suisse begins implementing a new global standard for the automated exchange of information for its European locations. About 100 countries, or jurisdictions, including Switzerland, have agreed to collect data from banks to share annually with other tax authorities, making it harder for tax dodgers and money launderers to hide money with private banks.
The Netherlands has shared information about 55,000 people with accounts at a Swiss bank with authorities outside the country, spokeswoman Marieke van der Molen at the Dutch public prosecutor’s office said. Information about a further 3,800 Dutch people was also received, and in the Netherlands there are "dozens of suspects," she said.
“The investigation has brought to light several thousand bank accounts opened in Switzerland that weren’t declared by their owners to French tax services,” The French financial prosecutor said in a statement.
The U.K. tax authority is investigating “senior employees” at a global financial institution, it said in a statement. Australia’s Serious Financial Crime Taskforce said it had identified 346 of its citizens “with links to Swiss banking relationship managers alleged to have actively promoted and facilitated tax evasion schemes.”
“The international reach of this investigation sends a clear message that there is no hiding place for those seeking to evade tax,” the U.K. authority said in its statement.
- With assistance from Hugo Miller, Franz Wild, Giles Broom and Christian Baumgaertel
By Suzanne Woolley
Tax season is hog heaven for cybercriminals. The thought of all that personal data just sitting around, unmolested in tax documents, inspires a torrent of creepy scammer creativity. Then the warnings tumble in: We’re warned about attempts to steal taxpayer data in e-mails from the IRS; our companies assign us courses on how to identify phishing emails; we read about the latest victims in the news.
What we don’t see is how taxpayers' tax data is bought and sold, and what scammers charge other scammers for that data. The Krebs on Security blog provided a glimpse earlier this year, when founder Brian Krebs came across something he hadn’t seen before on the Dark Web: Bulk sales of W-2 forms. A scammer had phished a tax preparation firm, Krebs discovered, and was offering for sale 3,600 Florida W-2s in this cyber netherworld which, while connected to the everyday web, requires special software or authorization to access.
Another window into that world comes in a new report from IBM’s commercial security research team, Cybercrime Riding Tax Season Tides. The company has skin in the game — it sells services to protect companies from cybercrime — which means it’s also in a good position to see what’s going on in scamland.
To get a sense of the rise in potentially malicious tax spam emails, IBM’s security research group — the IBM X-Force — checked its spam traps for specific, common tax-themed spam. IBM’s traps capture 20 million new spam samples per day, according to the company. The group found an increase of more than 6,000 percent in the number of common tax scam emails trapped by its system from December 2016 to February 2017. A more general search on “tax” spam found an increase of 1,400 percent over that period. It’s like bears heading for the river as the salmon move upstream.
The fruits of all the successful phishing attempts wind up on the Dark Web. These offers can look run of the mill, complete with star ratings for sellers. Here is a screenshot showing sellers and their illegal wares, such as W-2s, taken from IBM’s report:
One vendor noted on his sale of W-2s that it “comes with 2015 data to fully complete the return.” The IRS requires the prior year’s adjusted gross income (AGI) on a return, so that costs a would-be scammer extra. One vendor IBM found was selling W-2 and 1040 returns as a package for $30 worth of bitcoin; if someone wanted AGI information, that was $20 more. Another cybercriminal had a bulk offer that promised data that was “fresh” for the 2016 season, and included W-2 data, date of birth, and the AGI figure. That was $50 in bitcoin per record.
An individual’s tax data is far more valuable than their credit card data. Stolen credit card data might sell for $1 or be given away to establish credibility on the Dark Web, said Limor Kessem, executive security adviser of IBM Security. Credit card accounts can be closed or frozen, and thus have a short criminal-shelf life.
“Tax filing information is probably the most premium type of record criminals can buy on the underground,” said Kessem, who has been tracking this world for eight years. “It goes for $40 or $50, and unlike credit cards, never expires. People can try and get loans in someone’s name, make fake IDs in people’s names, get credit.” And of course, the top target is filing a tax return in someone's name and getting the refund.
The Dark Web has its own selling language. “Fullz” means complete information on an individual, including, according to the IBM report, “payment card information, address and contact details, and other additional pieces of personally identifiable information, such as Social Security number, a driver’s license number, and any other information sold along with the set.”
A Fullz file of data is labeled “superior” if it also contains W-2 and W-9 info. That sells for $40 in bitcoin per record. See the lingo in action in the screen shot below. (IBM blacked out identifying information.)
Would-be fraudsters browsing these sites are offered tutorials advertised with smiley little tax returns with arms and legs. These crime lessons are a longtime staple on the Dark Web, used as a way to build credibility with the community and get invited into other forums, said Kessem.
Such honor among thieves would be almost heartening if the damage wreaked on everyday taxpayers wasn’t so heinous. With phishing attacks on the rise, a consumer’s best defense is a good offense. One of the simplest, when it comes to tax refund fraud: File your taxes early to beat would-be scammers to the punch.
Phishing emails are designed to tempt or panic people. Reminding yourself that the IRS will not send e-mails about your income tax return gives you the upper hand. No matter how enticing—or scary—the supposed offer or threat is in the supposed IRS letter, which will try to entice you into clicking on a link, or opening a file, resist, and forward the phishing attempt to the IRS at firstname.lastname@example.org.
Consider it a small step in an ongoing war.
The failure to repeal and replace the Affordable Care Act may have changed the shape of tax reform, according to Marc Gerson, a former majority tax counsel to the House Ways & Means Committee, and current member and Tax Department vice chair at law firm Miller & Chevalier.
“The immediate reaction when the health care bill failed was to push it aside and get on to tax reform, but over the weekend [President Trump] suggested that the administration will revisit health care first,” Gerson said. “That takes time and focus away from tax reform, and may change the dynamic of tax reform.”
Prior to the failure of ACA repeal, the focus was on the House Republican Blueprint, Gerson explained. “Now, the administration is thinking of taking more of a leadership role,” he said. “The failure of the health care bill has caused some uncertainty in the tax reform space.”
The timing of the two efforts is still uncertain, according to Gerson. “The president’s comments over the weekend suggest that they will still try to do health care first. Even if they decide they can’t, we still might see some health care elements in the tax reform package. So it’s really changed the dynamic.”
Initially, it was felt that any reform proposals had to be enacted by the August congressional recess. However, Treasury Secretary Steven Mnuchin recently indicated in an interview with The Financial Times that the August timetable may be unrealistic – though he maintained that Congress would still be able to pass something by the end of the year.
Gerson agreed. “The pressure point in timing will be by the end of the year,” he said. “With midterm elections coming in 2018, it will be a lot harder to get done when the calendar changes.”
“There is a lot of enthusiasm for tax reform this year, but healthcare adds a lot of uncertainty with the timing and the process,” he added.
Citing a recent survey of business leaders by Miller & Chevalier and the National Foreign Trade Council, Gerson noted that for the first time since the survey began 11 years ago, there is significant optimism for comprehensive tax reform from leading tax executives at U.S. and foreign-based companies, with 84 percent of respondents believing it will happen this year or next.
“Nevertheless, our respondents are still uncertain as to the net impact of a comprehensive tax reform package on their businesses in light of the significant revenue-raising provisions, such as the border adjustment tax, that are being considered,” he said. “A lot of the survey was on the assumption that ACA repeal would be done separately, and there would be a stand-alone tax reform bill.”
The most important measure tax executives say they are watching with respect to reform is the border adjustment proposal in the Blueprint, followed closely by an insufficient reduction in the statutory rate and limits on interest deductibility, according to the survey.
Another survey, this one by Top 100 Firm Friedman LLP, found mixed reactions among many business leaders toward the border tax proposals in the House Blueprint; specifically, they question whether the policies will ultimately produce the intended net benefits to the U.S. economy, with 24 percent saying they would export more, and 28 percent saying they would use locally sourced goods. Nearly a third – 32 percent – said that they would take actions that could be detrimental to the economy, such as passing higher costs to consumers or reducing their business in the U.S. market. An additional 9 percent thought their businesses would face a shortage of imported goods needed for business.
“The border adjustment proposal is probably the largest revenue raiser in the Blueprint,” Gerson noted. “It’s an underpinning of the entire package, so if it came out there would have to be different revenue offsets, or potential increases in the targeted tax rates.”
Roger Russell is senior editor for tax with Accounting Today, and a tax attorney and a legal and accounting journalist.
By Peter Coy
Undeterred by his last failure, President Donald Trump is pressing again to repeal and replace the Affordable Care Act. One big reason is that he believes getting rid of Obamacare would make it easier to finance the big tax cuts he's promised. “We will save perhaps $900 billion," Trump told Fox Business in an interview that aired Wednesday. "That's all going back into the taxes."
But the nonpartisan Committee for a Responsible Budget, which opposes big budget deficits, believes Trump's legislative strategy is based on a misconception. The last version of the American Health Care Act created only about $150 billion in real savings over 10 years, not $900 billion, according to the group. What's more, the law requires that any savings must go toward deficit reduction, not tax cuts.
Trump is far from the only person who has said that repealing Obamacare would make it easier to pass bigger tax cuts. It's a common theme in congressional circles as well as in news stories and commentary. But that doesn't mean it's correct.
"This is something that got said, and then it was just repeated," says Marc Goldwein, senior policy director and senior vice president at the Committee for a Responsible Federal Budget (CRFB). The confusion is over budgetary baselines—the starting points for considering changes in taxes and spending. "Baselines are legitimately one of the most confusing things we do in budgeting, and most people don’t understand them," Goldwein says.
The $900 billion in savings that Trump asserted in the Fox Business interview is way off. It appears to count spending cuts without considering that repeal of Obamacare would also reduce revenue by eliminating various taxes and fees. If the Affordable Care Act were replaced with the American Health Care Act, spending would fall by $1.15 trillion over a decade while cutting revenue by $1 trillion—a net first-decade savings of $150 billion, according to the last official score by the arbiter of such matters, the Congressional Budget Office.
Even that $150 billion cannot be applied toward tax cuts. Under the "pay-go" rules that Congress has imposed on itself, Goldwein says savings from this piece of legislation can't be banked to pay for another piece of legislation. Commentators and politicians have said that replacing Obamacare would have lowered the revenue baseline in the budget, but that's irrelevant.
"The cost of a tax plan is the change in revenue from the baseline—no matter what that baseline is," the CRFB said in late March in a blog post that laid out the budget math. In other words, any tax cut that Trump seeks will be evaluated on its own, based on how much it reduces revenue, without regard to whatever other changes have already been made in the budget.
The political reality is that Congress can break its own rules. So if Trump does manage to get through a health-care law that cuts the deficit, Congress could decide to cut taxes by an equal (or greater) amount. But that would be outside the formal procedures, says Goldwein, and in any case would have nothing to do with the much-discussed reduction in the revenue baseline.
If the Republican-controlled Congress wants to pass big tax cuts in the coming fiscal year, the easiest way to do it while complying with most of its own rules is to set a very low target for how much revenue it expects to receive. Lower targets are, of course, easier to hit. The revenue target is set in the annual budget resolution. Obamacare, which is still on the books, includes several taxes that haven't gone into effect yet. Congress could declare that those taxes are on "permanent hiatus," says the CRFB, and that would allow Congress to cut taxes by $260 billion over the next decade while still claiming to be revenue-neutral. The declared savings are fungible: Congress could either really kill the Obamacare taxes, or let them take effect and cut some other taxes.
The CRFB is not in favor of such a move. "Full disclosure," the group wrote last month. "We hate even writing this because we think the use of the gimmick would be terrible fiscal and economic policy."
By Daniel Hood
When most clients complain about their taxes, the most you can do is offer a sympathetic ear – but for the very few who are willing to do something radical about their tax situation -- like giving up their U.S. citizenship -- one expert has compiled a list of the five best countries for Americans to seek relief.
International investor and tax expert Lief Simon and the editors of Live and Invest Overeas, a resource on investment, real estate, retirement and living overseas, chose the countries based on the opportunities they offer for Americans to pay less tax, protect their assets, open bank accounts, get second passports, and do business in general, among other things.
Here are the five top picks, all of which are in Central or South America, or the Caribbean.
Panama. Panama only taxes income earned in the country, so it should be possible to live there and operate a business tax-free. The experts, noted, however, that Americans should only use Panama corporations for active businesses, not passive investments. It’s relatively easy to establish residency in the country, and it has more than 75 banks – though they are under increasing scrutiny from U.S. regulators, and a very sensitive about money laundering.
The Dominican Republic. The D.R. has a fast-track program for citizenship that lets you apply after just six months of residency. It has a much more limited universe of banks and banking services than Panama, but Live and Invest Overseas says that they are more open to working with Americans, and will lend to foreigners for real estate purchases.
Uruguay. Like Panama, this South American country only taxes income earned there, and it offers a “competitive” residency and second citizenship option, while its banks offer unusual currency options. Another plus, according to the experts? “It remains off most everyone’s radar.”
St. Kitts & and Nevis: An economic citizenship program in the first of these two federated Caribbean islands means you could have a second passport in as little as six months – though it costs a minimum of $250,000. Nevis, meanwhile, offers a number of offshore entities that are useful for asset protection. Finally, like Panama and Uruguay, it’s a tax-efficient place to hold investments, since the islands only tax income earned there.
The Caymans: Perhaps best-known for their more than 200 banks, these islands are a great place for offshore financial investments – though Live and Invest Overseas warns that Americans may have to jump through some extra hoops to operate there, since Cayman banks and brokerage houses won’t deal directly with Americans “thanks to SEC regulations and restrictions.”
Daniel Hood is editor-in-chief of Accounting Today and Tax Pro Today, and has covered the tax and accounting field for over 20 years.
In the latest episode of a string of financial woes for Beverly Hills, 90210 alum Tori Spelling, the IRS has reportedly emptied her and her husband’s bank accounts of an unknown amount of money.
It was in 2013 that Spelling first alluded to financial trouble in an interview with People magazine. She hadn’t bought a purse in three years, she said, and admitted that she and her actor husband Dean McDermott had to be “restrictive” in their spending because the acting gigs weren’t coming in the way they once were. In her memoir, which came out later that year, she was more candid, saying that she and her family had “money problems,” and that she couldn’t “let go of her expensive tastes.”
Since then, Spelling and McDermott’s problems have only mounted. Last year, they were sued twice by American Express, the first time over a bill for $37,981.97, and then for an unpaid balance of $87,595.55.
Also in 2016, the IRS levied a federal tax lien against the couple for $707,487.30 in unpaid federal taxes from the 2014 tax year. The reported seizure of Spelling and McDermott’s bank account may be related to last year’s lien.
Ranica Arrowsmith is technology editor for Accounting Today.
By Shannon Pettypiece and Zachary Tracer
Despite a stalemate in Congress over a plan to repeal and replace Obamacare, President Donald Trump says his efforts on health care are “doing very well” and that he still wants a bill passed before tackling tax reform.
Trump said in an interview aired Wednesday morning on Fox Business that a GOP health bill will get done, even after members of Congress left last week for recess with no clear compromise in sight.
“We have to do health care first to pick up additional money so that we get great tax reform. So we’re going to have a phenomenal tax reform, but I have to do health care first,” Trump said.
Trump wouldn’t put a deadline on when a health care bill would be passed, saying it would happen “at some point.” He added that if it didn’t happen “fast enough” he would eventually move on to tax reform.
Companies and investors have been eagerly awaiting an overhaul to the U.S. tax system that the administration has promised will lower corporate taxes and make it easier to bring money back from overseas. But with health reform standing in the way, analysts now think it won’t be until the end of the year, at the earliest, when a tax plan could take shape.
“Markets, that have been expecting tax reform movement and action earlier in the year, based in part on administration and congressional statements, may be disappointed on this news and react accordingly,” said Terry Haines, an analyst with Evercore ISI.
During the interview, Trump also raised the threat that Obamacare’s insurance programs will fail if the government doesn’t keep making some payments to insurers. He appeared to be referring to what are known as cost-sharing reduction subsidies, which help lower-income people afford out-of-pocket medical costs, though he didn’t mention them by name. House Republicans sued to block the payments in 2014, though the Obama administration, and now the Trump White House, have defended them against the challenge as it goes through the courts.
“Even now as I came in here, payments have to be made that weren’t scheduled to be made on Obamacare,” Trump said. “If you don’t make them, it fails.”
Trump has repeatedly threatened to let Obamacare fall apart in order to force Democrats to negotiate with him. Halting the payments by ending defense of the lawsuit would cut off billions of dollars in funds to insurers, and would probably lead some to boost premiums, while others would likely quit Obamacare entirely.
The Trump administration hasn’t been clear on its plans for the payments. In a report this week, the Department of Health and Human Services told The New York Times that it plans to keep paying them as long as the lawsuit over the payments is pending. It later sent out a statement calling the report “inaccurate.”
“The administration is currently deciding its position on this matter,” Alleigh Marre, a spokeswoman for HHS, said in the e-mail. “The report was in reference to the current status of the lawsuit and is not an indication of what will happen in the future. No decisions have been made about how the administration will proceed.”
Trump was interviewed Tuesday by Maria Bartiromo for Fox Business Network’s “Mornings with Maria” program.
More than two thirds of U.S. consumers are concerned about tax fraud and identity theft this year, according to a recent survey. Their fears are well-founded: More than one third reported having had their identity stolen in the past.
The burden of increased digitization of financial and general communication infrastructure is cybersecurity. While going paperless is faster, more efficient and more convenient for accountants, their clients, and everyone in between, security must remain a central consideration as firms go electronic. The IRS has issued several alerts about tax scams warning of a 400 percent surge in phishing and malware incidents this tax season, including a surge in W-2 phishing and TurboTax hacking attacks.
The survey showed that 37 percent of taxpayers now file and share their tax information online or through a mobile app. Thirty-two percent deliver tax information in person, which is the safest method, and 11 percent filed or via traditional mail.
Baby Boomers are the most worried about identity theft, with 70 percent of respondents in that age group expressing concern. Sixty percent of Generation X respondents were concerned, while Millenials showed the least concern at 55 percent. Ironically, Baby Boomers file their taxes the “safe” way via mail at double the rate of Millennials (15 percent to their 8).
The survey was conducted by The Hartford Steam Boiler Inspection and Insurance Company, part of Munich Re, a data and information security risk insurer. There were 1,013 U.S. adult respondents who were contacted by landline and cell phone from March 9-12, 2017.
According to Eric Cernak, U.S. cyber and privacy risk practice leader for Munich Re, the risk of identity theft and fraud increases for Americans who file close to the April deadline.
“Tax fraud is a leading cause of the identity theft insurance claims that we receive,” Cernak added. “As more consumers file their taxes online, they should update security protections on computers, Wi-Fi networks and connected devices.”
Ranica Arrowsmith is technology editor for Accounting Today.
By Michael Cohn
A data breach in the Internal Revenue Service’s Free Application for Federal Student Aid, or FAFSA, tool, which the IRS was forced to shut down last month, may have affected up to 100,000 taxpayers.
The IRS shut down the tool last month when it noticed suspicious activity occurring (see IRS student loan link goes dark).
In early April, the IRS started mailing notifications about the breach to some 100,000 taxpayers who may potentially have been affected, though Commissioner John Koskinen testified before the Senate Finance Committee last week that the service believes that fewer than 8,000 fraudulent returns were processed (see IRS chief reports to Congress about tax season amid new push for his ouster). Up to $30 million in refunds were issued before the tool was shut down.
“Student financial aid is another area where we have concerns about the potential for unauthorized attempts at obtaining taxpayer information,” said Koskinen. “We have been working with the Department of Education to secure the online process through which student financial aid applicants obtain their family’s financial information, which they need in order to complete the Free Application for Federal Student Aid (FAFSA) or apply for an income-driven repayment (IDR) plan for their student loans. As part of this effort, in early March we disabled our IRS Data Retrieval Tool (DRT) found on the fafsa.gov website after we became concerned about the misuse of taxpayer data by criminals masquerading as students. Our IT, cybersecurity and privacy experts spent the next three weeks working with their counterparts in the office of Federal Student Aid (FSA) to find a way to secure the data provided to applicants for financial aid.”
“Fortunately, we caught this at the front end," Koskinen said, according to The New York Times. "Our highest priority is making sure we protect taxpayers and their identity.”
The IRS posted a questions and answers page on its website to help provide further information about the suspicious activity found on its data retrieval tool and the FAFSA form.
Security experts believe more government entities should be sharing information about tax fraud and security breaches. “You have to have some sort of alert system,” said Haywood “Woody” Talcove, CEO of the government unit at the technology company LexisNexis Risk Solutions, which provides tax security services to some state governments. “The other part that needs to start happening is data sharing. Once you identify a bad entity, it needs to be shared as quickly as possible.”
Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.
Americans generally feel they’re being over-taxed, especially around this time of the year. Even their president agrees.
“With lower taxes on America’s middle class and businesses, we will see a new surge of economic growth and development,” Donald Trump said this month, expanding on an earlier promise to cut Uncle Sam’s bill “massively.” But the reality is that the average U.S. worker pays quite a bit less than he would elsewhere in the developed world. And what’s more, this has been the case for a long time.
The Organization for Economic Cooperation and Development analyzed how 35 countries tax wage-earners, making it possible to compare tax burdens across the world’s biggest economies. Each year, the OECD measures what it calls the “tax wedge,” the gap between what a worker gets paid and what they actually spend or save. Included are income taxes, payroll taxes, and any tax credits or rebates that supplement worker income. Excluded are the countless other ways that governments levy taxes, such as sales and value-added taxes, property taxes, and taxes on investment income and gains.
Guess who came out at the top of the list? No, not the U.S. At the top are Belgium and France, while workers in Chile and New Zealand are taxed the least. America is in the bottom third.
A single worker earning an average wage in Belgium ends up paying a tax rate almost eight times higher than the average single worker in Chile, the OECD found.
But one simple number can be deceiving if you’re trying to paint a national picture. Married people and those with children tend to pay different tax rates than single, childless taxpayers. And in most countries, including the U.S., the well-off pay far more than lower-income people.
When the OECD analyzed married couples with children, the rankings looked a little different. New Zealand ends up with the lowest rate, while France ranks number one.
But let’s get back to America. The average single U.S. worker with no kids earned $52,543 last year and paid a combined $13,649 in payroll taxes, federal income tax, state and local government taxes. Their employer pitched in another $4,020 in payroll taxes. That overall rate, of 31.7 percent, might seem like a lot, but it’s more than 4 points below the OECD average.
In every other scenario analyzed by the OECD in its 584-page “Taxing Wages” report, the U.S. tax burden was also below average, from 3 points to almost 6 points depending on the taxpayers’ wages, marital status, and number of children. In fact, the tax burden on most American workers hasn’t budged much over the last two decades, despite tax cuts under former President George W. Bush and upper-income tax hikes under former President Barack Obama.
Workers in two of the world’s highest-taxed countries did get some relief last year. The average tax burden for singles fell by 2.5 percentage points in Austria and by 1.3 points in Belgium from 2015 to 2016. Otherwise, the OECD data suggest that a country’s tax burden usually stays remarkably consistent from year to year and decade to decade.
The only reliable way to change your tax burden may be to move.
Ben Steverman is a personal finance reporter at Bloomberg.
By Sahil Kapur and Lynnley Browning
Eight weeks ago President Donald Trump said he would be releasing a “phenomenal” tax plan within two or three weeks. But there’s no sign of a plan yet, and mixed signals from the White House are imperiling Republican promises of speedy action.
The administration hasn’t yet publicly answered the most basic questions about what a possible tax reform plan would look like. Will it pay for itself with offsets or add to the deficit? Trump hasn’t said.
White House Press Secretary Sean Spicer has emphasized that job creation and economic growth are priorities—an indication that controlling costs may not be Trump’s primary concern. That could render any tax cuts temporary, meaning they’d expire after 10 years under Senate budget rules.
Jim Lo Scalzo/Pool via Bloomberg
If the plan must pay for itself, where will that money come from? That too is unclear.
There’s also broad disagreement among Republicans and within the White House over whether to move forward with a border-adjusted tax on companies’ domestic sales and imported goods. House Speaker Paul Ryan strongly favors such a tax because it would encourage domestic manufacturing and help pay for lower rates for companies and individuals. It has the backing of Trump’s senior adviser Steve Bannon, but the president himself hasn’t weighed in, and other senior advisers, including Treasury Secretary Steven Mnuchin and National Economic Council head Gary Cohn, are said to oppose it.
Amid that disagreement, the administration has begun reaching out to Democrats to seek support—a move that might only aggravate Republicans’ discontent.
Last week, Trump was briefed by his top economic advisers on a variety of other potential tax measures, including a carbon tax and a valued-added tax, which are highly unpopular among Republicans. The White House issued a statement this week saying those taxes weren’t really under consideration—an indication of just how early in the process the administration is.
“I think what we’re trying to sort out is whether the President has a deal in mind or if he wants to cut any deal and declare victory,” said Doug Heye, a former aide for House Republican leadership and the Republican National Committee. “Tax reform is an enormous challenge on its own. More consistent direction from the White House would certainly help Congressional efforts.”
White House spokeswomen didn’t respond to emailed requests for comment.
Initial market euphoria that Trump’s election would lead to a once-in-a-generation opportunity to completely rewrite the tax code has begun to give way to more sober assessments, especially following GOP divisions that thwarted the Obamacare repeal effort. Kevin Brady, head of the tax-writing House Ways and Means Committee, said in November that Congress would be ready to act on tax legislation in the first 100 days of the new administration.
Now, Brady is saying that while his committee still intends to introduce legislation in the spring, there isn’t a specific deadline for action.
“Tax reform is incredibly difficult. It is not easy,” Brady told reporters earlier this week. “It is for lawmakers and Congress and the White House, the challenge of a lifetime.”
“I think what they’re going to do is play ‘Celebrity Apprentice,’ tax-reform style,” said Harold Hancock, who served as tax counsel for six years on the Ways and Means Committee before joining law firm McGuireWoods LLP last month. “They’ll see what the House does, see what the Senate does,” then make a decision about what to do, he said.
Spicer has tried to manage tax timing expectations during recent press conferences. “We’re at the first stages of the process” and “beginning to engage with Congress,” he said on March 30, adding that the timeline could be “several months.”
One thing complicating the administration’s tax overhaul efforts is that it’s unclear who’s taking the lead.
“I don’t think there’s clarity yet on who’s running the train,” said Stephen Shay, a senior lecturer at Harvard Law School, who was a senior tax official at Treasury during the last big tax overhaul under President Ronald Reagan. Referring to the current administration, Shay said “there’s nobody inside who has the knowledge base to put together tax reform.”
Trump’s delay on a tax proposal is hurting Ryan’s ability to get support for his plan among his party members. Representative Mark Meadows, who chairs the House Freedom Caucus, said his bloc of three-dozen ultraconservatives is waiting to hear from Trump on a tax plan before endorsing anything. Meadows’s group most recently scuttled Trump and Ryan’s efforts to shepherd an Obamacare replacement bill through the House, arguing that it didn’t hew to conservative principles.
“I think a lot of people are waiting to see which way the president wants to go,” the North Carolina Republican said in an interview Tuesday. “I think on the border-adjustment tax issue, they’re just waiting to see which way he wants to go and how compelling of a case he wants to make on that.”
If Trump decides to impose tariffs—he has called for tariffs of as much as 35 percent on products made by companies that move their production from the U.S. to other countries—instead of backing the border-adjusted tax, he could encounter resistance from the House conservatives.
“I’m typically not a tariff fan” because they generally lead to retaliatory tariffs and end up slowing growth, Meadows said.
The White House is also said to be in the early stages of gauging Democratic support for a tax overhaul in case it can’t get House Republicans on board. Cohn met on March 21 with Representative Richard Neal, the top Democrat on the Ways and Means panel, to discuss tax measures, according to a person familiar with the meeting who asked not to be named because the details are private. Cohn indicated that the White House wants to write a tax plan that Democrats can support, but didn’t offer specifics other than to suggest that Trump wants no absolute tax cut for upper earners, as Mnuchin has indicated, the person said.
If the White House does pursue a tax plan with bipartisan support, it would mean a radically different approach than the Ryan-backed blueprint, which includes tax cuts for the highest earners—a non-starter for Democrats.
By crafting their tax blueprint last year, “House Republicans came to consensus on tax policy issues, which gives them a head start on everybody else,” said Michael Steel, a managing director at lobbying firm Hamilton Place Strategies and a former spokesman for Republicans on the Ways and Means committee.
But even with that head start, Ryan reiterated the difficulty of coordinating a tax overhaul during an event in Washington on Wednesday.
“The House has a plan, but the Senate doesn’t quite have one yet,” he said. “They’re working on one. The White House hasn’t nailed it down, so even the three entities aren’t on the same page yet on tax reform.”
By Michael Cohn
Reality TV star Michael “The Situation” Sorrentino and his brother Marc are facing more tax evasion charges in a long-running case.
The U.S. Justice Department’s Tax Division in New Jersey announced the additional charges Friday against the former star of the MTV reality series “Jersey Shore” and his brother. The Sorrentino brothers were originally indicted in September 2014 on charges alleging they failed to pay taxes on $8.9 million in income received from promotional activities (see Gym, tan, laundry –and tax: Jersey Shore's ‘The Situation’ charged with failure to pay taxes). Their tax preparer, Gregg Mark, pleaded guilty in December 2015 (see Tax preparer for Mike ‘The Situation’ Sorrentino pleads guilty in tax fraud case).
Friday’s superseding indictment against the Sorrentinos includes new charges against both the brothers. Michael Sorrentino is now also charged with tax evasion and structuring funds to evade currency transaction reports, while Marc Sorrentino has now been charged with falsifying records to obstruct a grand jury investigation. An arraignment is scheduled for April 17 in a Newark federal court.
"Michael Sorrentino will enter a not guilty plea on April 17, 2017, and will vigorously contest the allegations in court," said attorney Kristen Santillo of Krovatin Klingeman LLC in Newark. Marc Sorrentino's attorney did not immediately respond to a request for comment.
The superseding indictment alleges that the brothers conspired to defraud the United States by not paying all federal income tax owed on approximately $8.9 million that Michael earned between 2010 and 2012. The brothers allegedly filed false tax returns understating their gross receipts, claiming bogus business deductions, disguising income payments made to the brothers and to others and underreporting their net business income. The Sorrentino brothers also allegedly commingled funds among their business and personal bank accounts and used the money from the business bank accounts to pay for personal items, such as high-end luxury vehicles and clothing.
Michael Sorrentino allegedly made multiple cash deposits on the same day in amounts less than $10,000, in different bank accounts he controlled so he could evade the banks’ reporting requirements. Banks are typically required to file reports with the U.S. Treasury for any cash deposits they receive over $10,000 identifying the person who conducted the transaction, and for whom the transaction was completed.
After being served with grand jury subpoenas seeking the books and records of the brothers’ businesses, Marc Sorrentino allegedly altered and reclassified taxable payments to himself as non-taxable payments and as legitimate business deductions before handing over the books and records to the grand jury.
If convicted, the Sorrentino brothers face up to five years in prison on the conspiracy count and three years for each count of aiding in the preparation of false tax returns. Michael Sorrentino also faces up to 10 years in prison for each structuring count and five years for the tax evasion count. Marc Sorrentino faces up to 20 years in prison for obstruction. Both men also face a period of supervised release, restitution and monetary penalties.
Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.
Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.
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