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Jeffrey B. Kahn, Esq. and Windus A. Fernandez Brinkkord Discusses Trump Tax Plan and New IRS Developments Detecting Non-compliant Taxpayers With Foreign Bank Accounts On ESPN Radio – October 2, 2015 Show

Topics Covered:

  1. Donald Trump’s Tax Plan.
  2. How Some Investors Get Special Access to Companies
  3. Beware if you have undisclosed foreign bank accounts and unreported foreign income – U.S. Signs Competent Authority Arrangements with Australia and the United Kingdom
  4. Questions from our listeners:
  • What if I haven’t invested enough for retirement?

  • What’s the difference between an exemption, credit and deduction?

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Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states:

And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states:

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states:

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states:

For today’s show we have coming up:

Segment 2 material: How Some Investors Get Special Access to Companies.

Windus states:

Also coming up is:

Segment 3 material: How two important tax agreements that have been signed by the U.S. and the countries of the United Kingdom and Australia could impact you if you have undisclosed foreign bank accounts and unreported foreign income.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Donald Trump’s Tax Plan.

Jeff states: For today’s top story we are going to round two of the presidential candidate tax plans to discuss Donald Trump’s tax plan just unveiled. You should recall that in a previous show we talked about Jeb Bush’s tax plan.

Windus states: Yahoo Finance on September 29, 2015 performed a “fact check” on Trump’s proposed tax plan and concluded that his numbers just do not add up. http://news.yahoo.com/fact-check-math-trumps-tax-plan-doesnt-always-081901786–finance.html

Jeff states: It’s true. I looked at his plan and also have my reservations about it. So Windus as we did with Jeb Bush let’s break down Trump’s tax plan for our listeners.

Windus states: Trump boldly stated that his tax plan “reduces or eliminates most of the deductions and loopholes available to special interests and to the very rich. In other words, it’s going to cost me a fortune.”

Jeff replies: Now I agree with the article that only Trump and his accountant can be sure Trump’s plan will cost him a fortune since he doesn’t specify which deductions and loopholes he plans to eliminate and has yet to release any of his tax returns.

Windus states: Well regarding his tax returns maybe he will offer the press to view them like his companies’ payroll compensation registers to show that he is gender-neutral when it comes to paying his employees.

Jeff states: Need I remind you though that Trump would first require you to sign a Confidentiality Agreement that also limits what you can state after reviewing any of his personal or business information.

Windus states: Well we do know that an income statement he released alongside his personal financial disclosure report this past summer reported his 2014 income as $362 million.

Jeff states: Now under the Trump tax plan, Trump would reduce the number of tax brackets from the current seven to four: 0 percent, 10 percent, 20 percent and 25 percent. While such a change would reduce taxes for middle-income earners, the “most other Americans” who would benefit the most would be those who make enough to fall into the current top tax bracket and pay 39.6 percent on income above $413,000. So how can Trump say his plan will cost him a fortune when under his plan Trump would pay 25 percent, instead of the current 39.6 percent, on any income above $300,000.

Windus states: I think Trump may have mis-spoke because the way you describe it, he would be making a fortune under his tax plan.

Jeff states: But he does not stop with income taxes, Trump is also looking to eliminate estate taxes. His proposal to eliminate the 40 percent tax on inheritances of more than $5.4 million would allow him to pass his estate to heirs tax-free, a savings worth billions given his self-estimated net worth of more than $10 billion.

Windus: So under the Trump tax plan he is going to save taxes while he is living and then pass on his wealth when he dies tax free to his family.

Jeff states: That’s right and let’s not forget about his businesses. In his tax plan he proposes cutting 10 percentage points from the current corporate tax rate of 35 percent. That would result in the Trump Organization and its subsidiaries to pay even less in taxes assuming they don’t already use tax strategies to reduce their effective rate below 15 percent.

Windus states: Now I read Trump’s tax proposal and his claim that the reduction in tax rates would provide major tax relief for middle income, and for most other Americans.

Jeff states: And I do agree with the article that Trump’s tax plan will undoubtedly reduce the amount Americans pay in income taxes. Trump’s tax plan goes on as far to provide that single people making less than $25,000 and married couples earning less than $50,000 a year would not have to pay any federal income taxes (keep in mind that they would still have to pay social security/Medicare taxes which Trump does not mention). He also keeps the Earned Income Tax Credit, a benefit low-income Americans can claim even if they pay no taxes under the current system.

Windus states: All of those tax cuts over a decade would cost nearly $12 trillion as estimated by the Tax Foundation, an organization which advocates for lower tax rates.

Jeff states: But Trump is no different from any other presidential candidate’s tax plan in the plan fails on how these tax cuts are to be funded. And as President he would have to follow the same standard as prior Presidents and Congress must follow whereby any tax reductions are offset by new tax revenues so that the legislation is “revenue neutral”. No politician is against tax cuts but there is a lack of consensus on how to fund them.

Windus: So can Trump really back up his claim that “And all of this does not add to our debt or our deficit.”

Jeff states: I don’t think so. Trump proposes making up some of the lost revenue by eliminating some deductions. But he’s ruled out a couple of the biggest ones, for home mortgage interest and charitable gifts, which are worth more than $120 billion a year. So how do you make up for the lost revenues from these tax cuts? Should we eliminate deductions for state and local taxes (you know Californians will not like that!). Perhaps we should begin fully taxing social security and retirement savings.

Windus states: So what about Trump’s statement that “We are reducing taxes, but at the same time if I win, if I become president, we will be able to cut so much money and have a better country.”

Jeff states: I remember hearing that argument when Ronald Regan announced how supply-side economics would save the economy. The Tax Foundation who said that Trump’s tax plan with a $12 trillion estimated cost over the next decade could come down to $10 trillion when the economic growth the cuts may spur is taken into account. So to get Trump’s tax plan to be revenue neutral, something still needs to be put in place to offset the cost of the tax cuts.

Windus states: Well he did say that “we won’t be losing anything other than we will be balancing budgets and getting them where they should be”.

Jeff states: But even if Trump’s tax plan wound up being revenue neutral, it wouldn’t bring in enough money to balance the budget. At the end of the current fiscal year on Wednesday, the Congressional Budget Office projects the deficit will be $426 billion. The Government Accountability Office has estimated all improper or insufficiently documented payments made by the federal government in 2014 to be $124 billion. Where do you fund the difference? So Mr. Trump it’s time to go back to the drawing board.

Well it’s time for a break but stay tuned because we are going to tell you How Some Investors Get Special Access to Companies.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states: Now Windus has a special offer for our listeners:

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

How Some Investors Get Special Access to Companies

Jeff states: Windus an article in the September 27th Wall Street Journal caught your attention. http://on.wsj.com/1YJdY7T

Windus discusses article. Jeff to comment.

Points to cover:

Investors gain special access to company top management, when they invest a specific dollar amount. 

I see plugs or one-line comments regarding how Wall Street isn’t as transparent as we like to think or that it isn’t as fair as we like to think.

An example stated in the article is that of Proctor & Gamble. Investors paid upwards of $1.4 Billion to gain access to top management in 2014. 

Many companies have private closed door meetings with specific investors/money managers. 

According to the article another company that uses this practice is General Electric.

Now many companies state they do this to help gain investor support, which is good for the stock and in turn, good for other investors.  BUT it isn’t always good.

For example, people in on these meetings with P&G earlier this year could have learned from the body language of the CEO that he was going to step down. By July he had resigned.  This could have definitely given an unfair advantage to those individuals in those meetings.

Specific companies choose to not hold meetings like this.  One example cited in this article is Morningstar, Inc.   Morningstar, Inc. stated for the purposes of this article that they believe this gives a certain section of investors an unfair advantage.  How could anyone really disagree with this statement?

A great example of companies giving an advantage was Bebe Stores Inc. when they inadvertently disclosed performance a day before it was release publicly.

Many companies hold quarterly investor meetings that people can call into.  In the case of P&G, the CEO stopped attending and commenting in this meeting.  Maybe these are the only places that investors should have access to company management.

Some companies even do road shows to gain access to investors and this is likely the best forum for a CEO to meet with investors instead of behind closed doors to people who pay for the right.  In my opinion, it likely takes very little for an investor to ascertain in a one on one meeting that can be a trading advantage.  Body language is important and very significant. 

The article goes on to identify studies where it tracked investors in specific companies without naming which companies, and those that had face time with management, made better investment decisions pertaining to those companies.  Even noting that trading volume was impacted around the time of these private meetings, as Brian Bushee of the Univ of Penn Wharton School of business noted.

There is another great example about when a CEO doesn’t comment on something in a private meeting, like breakfast with the CEO of JC Penny and the stock slumps because of his body language.  This hurts average investors.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Stay tuned because after the break we are going to tell you two important tax agreements that have been signed by the U.S. and the countries of the United Kingdom and Australia that could impact you if you have undisclosed foreign bank accounts and unreported foreign income.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

U.S. Signs Competent Authority Arrangements with Australia and the United Kingdom 

The IRS announced on September 24, 2015 that the United States has signed Competent Authority Arrangements (CAA) with two countries that the U.S. previously had intergovernmental agreements (IGAs).  The CAAs were signed with the Competent Authorities of Australia and the United Kingdom to Improve International Tax Compliance and to Implement FATCA.

For those of you who do not FATCA it stands for the Foreign Account Tax Compliance Act. Enacted in 2010 by Congress, since 2014 it has been in full force requiring foreign banks to disclose information on their U.S. accountholders to the IRS.

Jeff asks: Amy what is the significance of these CAA’s?

Amy replies: The CAAs with Australia and the United Kingdom are the first such arrangements to be signed. The U.S. expects that numerous other CAAs with additional competent authorities in IGA jurisdictions will be signed in the near future. IRS Commissioner John Koskinen stated that “The signing of these Competent Authority Arrangements marks another significant milestone in the international effort to gain proper reporting of offshore accounts and income.” He goes on to say that “Together in partnership with other tax authorities, we are demonstrating how far we have come in the fight against offshore tax evasion.”

Windus asks: You mentioned that the U.S. already has IGA’s with the U.K. and Australia. Before you explain how the CAA’s are better to the U.S. than IGA’s, please tell us what are IGA’s.

Amy replies: The IGA which again stands for intergovernmental agreement was developed by the IRS in consultation with the revenue authorities of France, Germany, Italy, Spain, and the United Kingdom to implement the information reporting and withholding tax provisions under FATCA. A list of all the intergovernmental agreements that are in effect are listed by the government on the internet. [Click here]. Financial institutions and host country tax authorities will use the International Data Exchange Service (IDES) as the secure electronic data transmission system to transmit and exchange FATCA data with the United States to target non-compliance by U.S. taxpayers using foreign accounts.

Windus asks: I understand that there are two versions of the IGA’s.

Amy replies: Yes. Under Intergovernmental Agreement Model 1, Foreign Financial Institutions (FFI’s) will be able to report information on U.S. account holders directly to their national tax authorities, who in turn will report to the IRS.

Under Intergovernmental Agreement Model 2 financial institutions will report information directly to the IRS rather than their local jurisdictions. Model 2 IGA was designed to address potential conflicts of national and local laws in countries like Switzerland and Japan that would make it difficult for FFI’s to comply with FATCA.

Either IGA still results in information on U.S. accountholders of foreign accounts to be eventually transmitted to the IRS so for U.S. taxpayers the version of the IGA that applies to the foreign country is not relevant.

Jeff asks: So what is the benefit of entering into a CAA?

Amy replies: A Competent Authority Agreement (CAA) is a bilateral agreement between the United States and the treaty partner to clarify or interpret tax treaty provisions. These agreements are more powerful and authoritative because they are made under a delegation of power to the Treasury Department that is built into the tax treaty that was signed off by the U.S. and the foreign country and ratified by the Senate. It also benefits the foreign country because that country will now also receive information on its citizens directly from IRS so that country can better enforce its own tax laws.

Jeff states: Clearly the landscape is changing where no longer can people hide assets in foreign accounts to avoid taxes which is why you need to contact … The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff asks: So Amy what should one do if they have undisclosed foreign bank accounts and unreported foreign income?

Amy replies: You should see tax counsel as soon as possible. The IRS has special programs in place that allow non-compliant taxpayers to come forward and avoid criminal prosecution and be subject to a lower amount of penalties. The tax law imposes penalties as high as $100,000 or 50% of the principal value of your foreign accounts per violation and you can be incarcerated for as long as 5 years if convicted by a Federal court.

Windus states: That is some serious punishment. Amy, what different programs are available to U.S. taxpayers?

Amy replies: The two main options are:

  1. Offshore Voluntary Disclosure Program; and
  2. Streamlined Filing Compliance Procedures.

The Offshore Voluntary Disclosure Program (OVDP) is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets.  OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.

OVDP requires that taxpayers:

  • File 8 years of back tax returns reflecting unreported foreign source income;
  • File 8 years of back FBAR’s reporting the foreign financial accounts;
  • Calculate interest each year on unpaid tax;
  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
  • Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years. Beginning August 4, 2014, this rate increases to 50% for U.S. accountholders of certain foreign banks.

In return for entering the offshore voluntary disclosure program, the IRS has agreed not to pursue:

  • Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and
  • Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a FinCEN 114, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

Jeff asks: What about the other option you mentioned of Streamlined Filing Compliance Procedures?

Amy replies: The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.  The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations.

  • Taxpayers will be required to certify that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114), was due to non-willful conduct.
  • If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.   Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.
  • Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the OVDP or its predecessor programs) may still use the streamlined procedures.  

Windus asks: If the streamlined procedures requires a taxpayer to prove he was non-willful in failing to report the foreign account and foreign income and the regular OVDP does not, why would it still be beneficial to pursue the streamlined procedures?

Amy replies: Well for one thing that penalty is a lot lower. Recall that under regular OVDP the penalty is 27.5% penalty based upon the highest balance of the account in the past eight years. Beginning August 4, 2014, this rate increases to 50% for U.S. accountholders of certain foreign banks. Under the streamlined procedures the penalty is 5% of the highest balance of the account in the past six years and if you are a foreign person, that penalty can be waived under the streamlined procedures.

Jeff states: This is a great opportunity to come into compliance and is no longer available to you if the IRS has found you first so contact… The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

You should also know that the securities and advisory services are offered through National Planning Corporation.(NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Windus, what questions have you pulled for us to answer?

Steve from Irvine asks: What if I haven’t invested enough for retirement?

Windus responds: Here are some strategies to help build up your assets prior to or during retirement:

  • Delay retirement until you are 65 or older. If you could use a few more years to invest, it may be worth thinking about staying in your current job or starting a second career.
  • Work part time in retirement. Bringing in extra income may keep you from using up your retirement savings too early. Nearly one-quarter of adults 65 to 74 years old are in the work force.
  • Reduce your spending during market declines. By cutting expenses in a down market, you can significantly lessen the financial impact on your portfolio. Retirees who move everything from stock investments to bond and money market investments risk missing out on the potential gains generated by stocks once they recover.
  • Contribute as much as possible to your retirement plan. If you are 50 or older, you may be able to make catch-up contributions that set aside additional funds in your retirement accounts. If possible, try not to borrow or make a large withdrawal from your retirement plan.

Bill from San Diego asks: What’s the difference between an exemption, credit and deduction?

Jeff replies: Exemptions and deductions work the same way. They reduce your taxable income, which lowers your tax bill. For example, if you take a $1,000.00 deduction, and you’re in the 20% tax bracket, you could save $200.00 on your taxes. Or if you get a $4,000.00 exemption, that amounts to an $800.00 savings in taxes.

The difference between exemptions and deductions lies in what you get and take them for.  Every deduction you claim must be something permitted under the tax law and there are substantiation requirements that you must meet if the IRS were to question these deductions. But exemptions are what you get for people in your family. You get one for being you, one for a spouse, one for each child and one for any other dependents.

Credits work differently. They’re a straight-up discount on your tax bill. So if you get a $1,000.00 credit, you pay $1,000.00 less in taxes.

Some people will go to extremes to accumulate tax deductions thinking they are saving more money when in fact they have less money in their pocket. For example, you decide to make a charitable contribution of $1,000.00. To claim the deduction you have to pay $1,000.00 to the charity. So you are now out of pocket by $1,000.00. Now you will end up saving $200.00 in taxes using our example of a 20% tax bracket so really your net out-of-pocket is $800.00. However, if you never made that charitable contribution, you have the $1,000.00 still in your pocket but will owe $200.00 in tax as you will not be claiming this deduction. Comparing the two alternatives, by not making the charitable contribution you are ahead by $600.00!

Jeff PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Have a great day everyone!

Request A Case Evaluation Or Tax Resolution Development Plan

Get a Tax Resolution Development Plan from us first before you attempt to deal with the IRS. You would meet with Board Certified Tax Attorney Jeffrey B. Kahn at the office location most convenient to you. Jeff will review your situation and go over your options and best strategy to resolve your tax problems. This is more than a mere consultation. You will get the strategy or plan to move forward to resolve your tax problems! Jeff’s office can set up a date and time that is convenient for you and take your credit card information to charge the $600.00 session fee which secures your appointment. By the end of your Tax Resolution Development Plan Session, if you desire to hire us to implement the strategy or plan, Jeff would quote you our fees and apply in full the $600.00 charge for the Tax Resolution Development Plan Session.