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Fort Worth Tax Law Blog

Federal prosecutors appeal tax evasion sentence

The tax case against the founder of Beanie Babies, Ty Warner, continues as prosecutors challenge the lenient probation sentence handed down after Warner pleaded guilty to one count of tax evasion.

Prosecutors alleged that Warner failed to report $24 million by hiding money in two Swiss offshore bank accounts, which allowed him to avoid paying $5.5 million in federal taxes. Sentencing guidelines allowed for prison sentence of up to 57 months, but prosecutors pushed for at least one year in prison to deter others.

Warner’s defense cited to the amnesty program that allowed many with foreign accounts to avoid criminal charges. Even when charged criminally, more than half of those convicted only received probation sentences. Warner had also paid a civil penalty and back taxes plus interest.

Belize firms accused of offshore tax evasion scheme

In a crackdown on offshore accounts, the Internal Revenue Service has placed more focus on the disclosure of foreign accounts. In addition, the Foreign Account Tax Compliance Act went into effect in July and requires foreign financial institutions provide the agency information on U.S. taxpayer clients.

A recently unsealed indictment accuses six individuals and six firms located in Belize of helping U.S. taxpayers avoid taxes by setting up offshore accounts. An undercover F.B.I. agent candidly told executives of the Belize firm that he wanted to set up an offshore account to conceal assets, stock ownership and money transfers from the IRS and Securities and Exchange Commission.

Treasury Officials Arm Themselves for Inversion Battle

Treasury Department officials are preparing an arsenal of administrative weapons for Secretary Jacob Lew to use in the government's battle to prevent U.S. companies from reincorporating overseas in an effort to avoid paying federal taxes, otherwise known as tax inversion.

Citibank sends Form 1099 for bank rewards programs

Most banks have some type of customer loyalty points program where you earn a certain number of points based on dollars charged each month. In some cases, the bank may offer a certain number of points for opening an account.

When you convert the points into a new television or an airline ticket, is it a taxable event? A recent tax court decision says it is appropriate for banks to send out 1099s reflecting the value of the merchandise redeemed, because the amount is taxable income.

Expert Argues In Favor of U.S. Corporate Tax

While the U.S. maintains the highest corporate tax rate at 35 percent, a paper published earlier this month by University of Southern California law professor Edward Kleinbard, suggests many companies use a system of elaborate tax loopholes to avoid paying anywhere near that amount.

Mortgage relief settlement could defray tax liability

As part of a recent settlement between Bank of America and the U.S. Department of Justice, almost seven billion dollars will be available to provide relief for homeowners struggling with “underwater” mortgages.

Forgiveness of substantial mortgage debt could however lead to large tax bills in April just as these homeowners are getting their heads above water. One portion of the settlement – approximately $490 million – will defray some of the tax liabilities. This post will discuss how the settlement could affect a typical borrower.

 

Democrats Follow Through With Inversion Threat

Senate Democrats moved to discourage the use of inversion by outlining a proposal that would restrict the practice of earnings stripping, where U.S. companies borrow money from overseas parents and deduct the interest expense on U.S. taxes.

Inversion deals come with capital gains tax headaches

Lately, we have been following the corporate maneuvers designed to reduce U.S. corporate tax burdens. Unlike the recent Kinder Morgan move that will only affect some investors, inversion deals will bring broader unwelcome tax surprises for legacy investors.

Medtronic’s acquisition of Covidien provides an example of how an inversion deal works. The U.S. company, Medtronic, will now adopt Ireland, Covidien’s domicile as its own. New replacements shares will issue as substitutes for the old Medtronic ones. This “forced sale and reissuance of shares” is a taxable event.

Those who have held large quantities of stock in Medtronic for many years will have to pay capital gains tax. Depending on income that could be 20 percent in Federal tax plus the 3.8 percent Medicare surtax on gains. In the rest of the post, we will provide some examples and strategies to minimize the tax hit.