Welcome to the Moskowitz, LLP. Our Tax Attorneys have over three decades of experience representing clients (individuals, small businesses, corporations, municipalities, multi-million dollar businesses, trusts, estates, and other entities and organizations) with their tax matters. We are committed to obtaining results for our clients with skilled, calculated legal representation and providing personal, accessible service to meet the professional and personal tax needs of our clients.

Our Tax law firm, located in beautiful San Francisco, CA, provides civil tax, criminal tax, and related tax representation locally, as well as nationally and internationally. Our tax practice covers the entire spectrum of individual and business needs. We pride ourselves with our continual innovation and prudent creativity when it comes to case management, strategizing for, and when necessary, vigorously defending, our clients.

Our tax controversies practice involves, but is not limited to, the following:

• IRS and State practice and procedure: examination and appeals,
• Trial court litigation in the Tax Court, Court of Federal Claims and numerous courts,
• Criminal tax investigations and defense,
• State and local tax controversy and litigation,
• Foreign Reporting & Off-Shore compliance/investigation issues,
• Disclosure programs

In addition to tax controversies, we routinely provide representation with regard to:

• Tax return preparation (delinquent and current year),
• Transactional planning,
• Legal Opinion preparation,
• Asset protection/Wealth management,
• Tax delinquency resolution (collection representation),
• White Collar Crime defense.

We begin every engagement by clearly understanding the priorities of our client, both short and long term, so that we thoroughly understand the circumstances, facts, and risk tolerance involved or potentially involved. We then apply our over 35 years of tax experience to provide thoughtful advice, skilled lawyering, and anticipatory insight to the matter at hand and potential future concerns or rewards. Further, unlike some attorneys, we are accomplished advocates and trial Attorneys; fluent in the tax law, we understand the circumstances in which tax issues arise, and through years of experience we know how tax disputes and criminal charges emerge and how to avoid or resolve them. When necessary, our tax litigators have tried numerous federal cases in the Tax Court, the U.S. Court of Federal Claims, Bankruptcy Courts, and various District Courts.

The Law Offices of Stephen Moskowitz, LLP, located in the financial district of San Francisco, California, represents clients in California, throughout the United States, and internationally, where we practice federal, state and international tax law. For questions concerning federal, state, international tax law, or to discuss your matter with tax Attorney Stephen Moskowitz, please call us at (415) 394-7200, or fill out our information request form on our contact us page for a free confidential consultation, either in person or by telephone.

The Supreme Court of the United States has recently affirmed that pleading guilty to or assisting in the filing a false tax return is considered an “aggravated felony,” which is a deportable offense. This means that a resident alien can be immediately deported if he pleads to or is convicted of certain tax crimes.

The decision has far-reaching and detrimental effects on lawful permanent residents in the United States because the Supreme Court decided that falsely filing a tax return involved an act of deceit or fraud (factors in immigration issues) even though deceit or fraud may not be part of the actual [tax] crime itself.

The Crime(s):

1. Akio Kawashima - pleaded guilty to willfully filing a false tax return,
2. Fusako Kawashima - pleaded guilty to aiding and assisting the preparation of a false tax return.

The Kawashima, a married couple native to Japan who became lawful residents of the U.S. in 1984. They ran a successful restaurant chain called Cho Cho San in Thousand Oaks, California and Tarzana, California. The IRS determined that the total actual tax loss to the government was $245,126. At the time of this writing we do not have access to the indictment in the case, however, it is possible that they chose to plead to the false tax return charges in an effort to avoid tax evasion charges as tax evasion has been previously determined to be a deportable offense and carries higher prison sentences.

Shortly after the couple pled guilty, the Immigration and Naturalization Service (now the Department of Homeland Security) charged the Kawashimas with being deportable from the United States, under Title 8 of the United States Code.

Arguing that Filing False Tax Returns are Not Aggravated Offenses

The Kawashimas’ thus began a serious legal battle over whether filing a false tax return constitutes an aggravated felony leading to this Supreme Court Decision. 

The Supreme Court analysis was based on a statute dealing with immigration and naturalization issues.  An aggravated felony includes the crimes of murder, rape, sexual abuse of minors, illicit trafficking of firearms, money laundering, and running a prostitution ring.  As to tax crimes, Title 8 of the USC, provides that  an aggravated felony is defined as:

• (i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or
• (ii) is described in section 7201 of title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.  
  See USC, Title 8 §1101(a)

First, Mr. Kawashima’s attorney argued that the term “aggravated felony” does not apply to them under the immigration deportation standards because the crime he pled to,  willfully making or subscribing a false tax return, does not specifically involve “fraud and/or deceit” (as needed for deportation matters).   In attempting to clarify the immigration standards, however, the Court held that meaning of “deceit” means the “act or process of deceiving (as by falsification, concealment, or cheating).    Therefore, once Mr. Kawashima pled to knowingly submitting a tax return that was false, the Court reasoned that he had also thereby committed a felony that involved ‘deceit.’

As such, this case may mean that taxpayers who are convicted or plead to willfully making or subscribing a false tax return are also guilty of acting in a deceitful offense. 
  
Scope of the Consequences

Tax Crimes: 

Justice Ginsburg, who wrote the dissent, pointed out the far reaching consequences of this case. She explained that any conviction by federal, state, or local taxing authority that involves an amount over $10,000 would render the resident alien taxpayer deportable.  For example, furnishing a false W-2, supplying false or fraudulent information to an employer, or filing an incomplete or false return to a municipality, may be considered misdemeanors in some jurisdictions, yet could be considered an aggravated felony with punishment of deportation.

The decision rendered in Kawashima v Holder, has far-reaching and life-changing effects for all citizens.  There are a number of resident aliens in the Bay Area who need to be aware of this new development. The Supreme Court has equated filing a false tax return as a crime on the same level as murder or rape for the purposes of deportation. The Supreme Court’s decision is in line with other efforts of Congress and the Commissioner of Internal Revenue within the last decade to enforce existing tax laws and to create new tax laws that punish varying degrees of tax crimes. 

Offshore Tax Compliance: 

This decision raises new questions about efforts to get taxpayers to report foreign accounts with the Offshore Voluntary Disclosure Program (OVDI/OVDP). If you decide to participate in the OVDI/OVDP program, see 2012 Offshore Voluntary Disclosure Program, are you now in jeopardy of deportation because of the Kawashima case? Currently, the IRS has publicly declared that they will not report taxpayers participating in the OVDI to the Department of Justice (DOJ) if they made a mistake by not including their foreign assets on past tax returns. However, the IRS has not mentioned that they will refrain from calling Homeland Security.  Added to this, are you also in jeopardy of being deported when the overseas financial institutions begin compliance with the Foreign Account Tax Compliance Act (FATCA) by submitting your financial information directly to the IRS? These questions are just the tip of the iceberg. 

Introduction

The Internal Revenue Service (IRS) announced a recent third Offshore Voluntary Disclosure Program (OVDP) for U.S. taxpayers with unreported foreign income or financial accounts. The OVDP eliminates potential criminal penalties and greatly reduces the civil (monetary) penalties for U.S. taxpayers with previously undisclosed foreign income and assets. In most cases, U.S. taxpayers participating in the OVDP must pay a penalty equal to 27.5 percent of the highest aggregate balance of their foreign assets since the 2003 tax year. For those who mistakenly failed to disclose their foreign assets, the OVDP may not be necessary and they could be subject to unnecessarily paying 27.5%. This is not to say that these individuals do not need to disclose their previously undisclosed foreign income and assets to the IRS; however, these individuals may be able to get the benefits of OVDP without paying the 27.5%.

The Current Laws Governing the Disclosure of Foreign Accounts

U.S. taxpayers with foreign bank or financial accounts (totaling more than $10,000 at any time of the year) are required to file a Report of Foreign Bank and Financial Accounts (FBAR) by June 30th of the following year in which the account was held. When a taxpayer calculates the highest balance during the year, he or she must use the applicable exchange rate on the last day of the calendar year.

Almost every type of foreign financial account in which a taxpayer has signature authority must be disclosed. This includes annuities and certain life insurance products. In addition, as a general rule, U.S. citizens and residents are taxed on and must report all foreign income received from the foreign accounts. A U.S. taxpayer may even have a filing requirement for foreign accounts in which he does not have a personal beneficial interest in the account. For example, a U.S. taxpayer serving as a power of attorney, nominee, or agent or an employee with signature authority on a foreign account could have a filing obligation.

The Basics of the 2012 OVDP

The 2012 OVDP program provides that participants will be subject to a penalty of 27.5 percent of the highest aggregate amount in all foreign accounts in which they had a financial interest from the 2003 through 2011 tax years. However, in some cases the penalty is reduced to 5 or 12.5 percent.

Participants of the OVDP may only be subject to a reduced 5 percent penalty for accounts not opened by the participant. In addition, the taxpayer must have only had a minimal contact with the account. Minimal contact means that the taxpayer had withdrawn no more than $1,000 per year. Nonresidents who paid taxes in their foreign country and earned less than $10,000 of U.S. source income may also be eligible for the 5 percent penalty.

Participants of the OVDP may be subject to a reduced 12.5 percent penalty if the aggregate value of their previously undisclosed foreign accounts did not exceed $75,000 for the 2003 through 2011 tax years. 

OVDP participants must file all 2003 through 2011 tax returns or amended tax returns. Participants must also pay all back federal taxes and interest on previously undisclosed foreign source income.  Participants must also pay an accuracy related penalty of 20 percent of the outstanding tax liability. In addition, participants will be liable to pay delinquency penalties for failure to timely pay taxes which could reach as high as 25 percent of the tax liability owed per
year.

When Participation in the OVDP is not Necessary

Participation in the OVDP may not be necessary if all foreign income had been previously reported on U.S. tax returns or foreign income is not reportable on a U.S. tax return, but FBARS have not been filed. In these cases, as long as all delinquent FBAR returns are filed with the IRS, the IRS will not likely seek to impose a penalty for failing to timely disclose the foreign bank accounts. However, a persuasive argument must be made convincing the IRS why the FBAR returns were not timely filed.   This exception also applies in cases where a Form 3520 annual return to report transactions with foreign trusts and receipt of certain foreign gifts was not timely filed. Form 3520 must be filed with the IRS when U.S. taxpayers received distributions from foreign trusts, foreign inheritances, or certain foreign gifts.
Situations in which foreign income is earned, but is not reportable income on a U.S. tax return can be tricky. Examples were foreign income may not result in U.S. taxation are as follows:

• A taxpayer establishes a foreign account in which the foreign government does not permit the individual to remove the funds for an extended period of time. These financial accounts are commonly referred to as “blocked accounts.”  In such cases, the IRS may defer foreign source income accrued in such account until it is paid to the U.S. taxpayer;
• A U.S. taxpayer resides, or resided, in a foreign country. While the U.S. taxpayer resided in a foreign jurisdiction he or she participated in a foreign pension trust that is considered to be a qualified plan for U.S. tax purposes. If the United States had a tax treaty in place with the foreign jurisdiction where the trust was located and the tax treaty contains language that provides relief with respect to the earnings of the pension trust, such treaty language may present a barrier to U.S. taxation in regards to distributions received from the foreign trust;
• The U.S. taxpayer has a joint account with a foreign alien and the account is located in a foreign country. All the assets belonging in the account were provided by the alien. In such a case, a position could be taken that the foreign source taxable income should be assigned to the foreign alien and not the U.S. taxpayer.

Above is a partial listing of cases in which foreign source income derived from a foreign account may not be subject to U.S. taxation. It should be noted that just because foreign source income may not be taxable in the U.S does not mean that these sources of income should be excluded from a U.S. tax return. On the contrary, these sources of income must be reported on a U.S. tax return and a disclosure must accompany the tax return with an explanation as to why the foreign source income is excludable from U.S. taxation.

Can the IRS Automatically Assess a Penalty against a U.S. Taxpayer who Innocently or Mistakenly Failed to Disclose a Foreign Bank Account?

Above, we discussed an important exception to participation in the OVDP program. But what about cases where a U.S. taxpayer innocently or mistakenly failed to disclose a foreign account and mistakenly failed to report foreign source income? Is such a taxpayer doomed to pay the 27.5 percent OVDP penalty? And if this taxpayer does not participate in the OVDP, is this taxpayer subject to the more serious willful failure to report a foreign account penalty? The willful failure to disclose a foreign account penalty provides that a taxpayer could be penalized the greater of 50 percent of the value of the undisclosed foreign account per year of omission or $100,000 for each year of omission.

Before we begin our discussion on this matter, it is important for all our readers to understand that the penalty for willfully failing to disclose a foreign account is not automatic. If a U.S. taxpayer innocently or mistakenly failed to properly disclose a foreign account, the maximum penalty is $10,000, per year, per account. However, this penalty can be removed or abated for reasonable cause. 

If a U.S. taxpayer deliberately established a foreign account to evade U.S. taxes, he or she could be subject to the willful penalty and harsh criminal penalties which include the possibility of a long prison sentence. In order to avoid these draconian penalties, U.S. taxpayers who established an undisclosed foreign bank account to avoid paying U.S. taxes and did not previously disclose the account should consider participation in the 2012 OVDP. In other cases, where a U.S. taxpayer has an undisclosed foreign account or accounts but the account(s) were not established to evade U.S. taxes, whether a taxpayer chooses to enroll in the 2012 OVDP may depend on a number of factors. By far, the most important factor to consider is whether the previously undisclosed accounts can be classified as “willful.”   The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty.  

Willful is a legal concept, one which requires an affirmative act to evade or avoid a known legal requirement. Inadvertent negligence is not willfulness. In a recent case, United States v. Williams, 2010 Dist (ED VA 2010), a taxpayer sent $7 million to a Swiss bank account, checked the box “no” on Schedule B of Form 1040 stating that he did not have an interest in a foreign bank account. The taxpayer pled guilty to one count of tax fraud. The IRS claimed the taxpayer willfully violated the FBAR filing requirement and attempted to assess a willful penalty. The trial court disagreed that the Government’s case showed beyond a preponderance of the evidence standard that Williams’ conduct was willful.  

The court stated the willfulness meant a knowing or reckless violation of a standard, not just a couple of instances of inadvertent neglect. The lesson to be learned from Williams is the failure to report a foreign account does not necessarily mean a taxpayer will be subject to the harsh willful penalty even if the taxpayer specifically checked a box on a tax return denying the existence of a foreign account. The decision in Williams represents an important first step toward imposing discipline to a government seeking to wrongfully extract money from U.S. taxpayers who established or inherited foreign accounts and did not know of the requirements to disclose the account. The government has appealed and the case is tentatively calendared for argument March 20 - 23, 2012 before the Court of Appeals.

The decision as to whether an individual should participate in the OVDP is difficult because there are many factors to weigh and consider, such as applying the willfulness standard(s) as discussed above.  The individual should seek the assistance of a qualified tax attorney who can assist the individual in this process. In any case, whether or not the individual decides to enroll in the 2012 OVDP, the individual must amend his or her tax returns and report any previously undisclosed income and file all delinquent FBARs.  The disclosure should report all foreign source income that was previously omitted and a compelling argument citing facts, circumstances and law as to why all applicable FBAR or offshore penalties should not be assessed. Finally, the U.S. taxpayer making such a disclosure should be prepared to immediately satisfy all tax, interest, and penalties from the failure to disclose foreign source income.

Remember, the Williams case offers a compelling defense against penalties associated with not disclosing a foreign account. However, Williams does not excuse a U.S. taxpayer from disclosing foreign source income that is required to be disclosed and paying all applicable tax on the previously undisclosed income.

Our tax law firm has substantial foreign tax experience in this highly complex area which is now a major government focus.   In December of 2011, our law firm was recognized for our excellence in this area by honoring our senior partner, Stephen M. Moskowitz, Esq. when the government of South Korea invited Steve to speak to its National Congress and National Tax Service on U.S. Foreign Tax Compliance with Offshore Bank Accounts, FATCA and tax penalty assessment and collection procedures.   

We have represented many clients in (and outside of) the 2009 and 2011 Foreign Amnesty Programs.   Now with this 2012 Offshore Voluntary Disclosure Program we look forward to explaining all of your options, providing you with advice as to how to avoid criminal prosecution and legally minimize any payments to the government and make the best decision for you.

Who does the Internal Revenue Service consider a tax preparer? For such a simple question, the answer can be complicated. This is an important question for attorneys, accountants, Enrolled Agents, or other professionals. Tax returns that show substantial understatements due to tax preparer error, whether it be intentional or not, are subject to penalties under §6694 of the Internal Revenue Code. These tax preparer penalties are presumptively valid and the preparer challenging the penalty bears the burden of proving that he or she did not intentionally disregard rule or regulation pertaining to tax law, Internal Revenue Code §6694(b)(2).

Treasury Regulation § 301.7701-15 generally defines a tax return preparer as, “any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claim for refund of tax under the Internal Revenue Code.”  A person may be deemed a tax return preparer regardless of their education or professional status and regardless of their location (whether the person is within the United States or not) as long as he or she satisfies the definition of a tax return preparer. Treas. Reg. § 301.7701-15(d)(e).

As with any statute, the devil is in the details.  What does the IRS consider “compensation”? What is considered a “substantial portion” of the return? And when would the IRS consider the employer of the tax preparer to be the “real” preparer and apply penalties? Are there any exemptions to this statutory scheme? Finally, how much is the penalty?

To put it simply, if you are paid for your services then you are compensated for your work. But what if you are preparing a tax return for your sister and she decides to babysit your children for the weekend to thank you. Is this compensation?  According to Treasury Regulation § 301.7701-15(f)(1)(xii), it depends on the tax preparers intention. If you prepare a tax return expecting no compensation, then you are not a tax return preparer. If you expect something in return, even if it is insubstantial, then you are a tax return preparer.

A “substantial portion” of the tax return is a little harder to identify.  Any advice given to the taxpayer before the transaction occurs is not considered part of the preparation of the substantial portion of a tax return. Treas. Reg. 301.7701-15(a)(2)(i).  In order for advice to be considered part of the substantial portion of the tax return, it has to be given after the event occurred. For example, if attorney Joe gives advice about a merger (the event) and possible tax consequences before the merger occurs, Joe is not considered a tax preparer. However, if after the merger is completed, Joe continues to give advice, then he is considered a tax preparer at that time.

The analysis of what constitutes a “substantial portion of the tax return” does not end there. The IRS also looks at “substantial” in a much more practical way.  For example, in the infamous case, Goulding v. United States, 957 F.2d 1420 (7th Cir. 1992), Goulding was tax return preparer for a partnership return. The IRS concluded that Goudling was also the tax return preparer for an individual return of a partner even though Goulding did not prepare that individual’s return. The partnership return constituted only one line on the individual taxpayer’s return.  How can this be substantial? The IRS concluded, and the 7th Circuit agreed, that the one line represented a substantial portion of the taxpayer’s income and overall tax liability. See also Treasury Regulation §301.7701-15(b)(3)(iii) for an example in the corporate context.

When do you, as an employer, become liable for the tax preparation of your employee?  As an example, in Schneider v. U.S., 257 F.Supp.2d 1154 (2003), Schneider was a Certified Public Accountant that had an employee prepare a substantial portion a client’s return that Schneider signed.  There was an understatement of income determined by the IRS due to an incorrect assessment of business deductions. The court held that, “[…] being an employer of one or more persons who prepare a tax return for compensation is sufficient to qualify one as an income tax preparer.” 257 F.Supp.2d 1154, 1160.  Schneider received the penalty.  Have you ever signed a return prepared by your employee?

Volunteering your time or performing perfunctory mechanical functions in the preparation of tax returns excuse a tax preparer from penalties associated with preparation because of policy reasons. Treasury Regulation § 301.7701-15(f) lists who is not a tax return preparer. People who are employees of the IRS, people who provide assistance under the Volunteer Income Tax Assistance (VITA) program established by the IRS, and any organization sponsoring or administering a program established help the elderly (provided that the program follows established guidelines), are just some of the examples of preparers who are not considered tax preparers.

The tax return preparer penalty, depending on your intent, is equal to the greater of $1,000 or 50% of the income derived or to be derived by the tax return preparer (Treas. Reg. § 1.6694-2(a)) or equal to the greater of $5,000 or 50% of the income derived or to be derived by the tax return preparer (Treas. Reg. § 1.6694-3(a)).  If you are liable for a penalty as a tax return preparer with the intent to deceive the IRS, you would have to pay at least $5,000 or half of the income you earned, whichever is higher.

As the above examples reveal, whether or not you will be considered a tax return preparer is plain confusing. Other contexts, such as what happens if you are an employer who does not sign the tax return, have not been addressed in this blog.  It is of paramount importance to understand how this area of law can be argued and defended.   If you are accused, it is extremely important to defend and overcome the allegations because they can cost you far more than the above monetary penalty, they can cost you your license and livelihood.    Please contact Moskowitz LLP at (415) 394-7200 or via our Tax Law Firm's website if you have any concerns or questions regarding this complicated aspect of the tax law.

01-2012 Tax Times Newsletter (pdf, 1.09 mb)

Just in time for the holidays, Congress passed, and President Obama approved, a short-term extension of the Temporary Payroll Tax Continuation Act of 2011. The deal ensures that the social security withholding tax on employees stays at the current rate for the next few months.

Instead of the payroll tax reverting back to the rate of 6.2 percent, the law keeps the rate at 4.2 percent until the extension ends in March, 2012. A jump in the payroll tax rate to 6.2 percent would have equated to an average tax increase of $1,000 per year for 160 million Americans. To put it in simpler terms, the typical worker’s salary in this country would have been reduced by approximately $40 per pay period without the law.

But not all wage-earners benefit from the temporary extension. The deal includes a “recapture” provision for high-wage earning employees who receive more than $18,350 during the two month period that the law is in effect. Such high-wage earners are slapped with an additional income tax equal to 2 percent for the two month period. This recapture tax is not subject to any deductions or credits. However, the good news for these high-wage earners is that the recapture tax could be abolished when congress returns from the winter recess to negotiate a full-year extension of the payroll tax.

The deal also included several non-tax related provisions. For one, it extended the emergency federal unemployment benefits by two months to ensure that approximately 1.8 million jobless workers would not run out of benefits in January. It also extended the so called “doc fix” by delaying for two months a scheduled 27 percent reduction in payments to Medicare physicians. And to appease Republicans, the law requires President Obama to decide within the next 60 days whether he will go along with the proposed construction of the Keystone XL oil pipeline.

Employers are urged to implement the new payroll tax rate as soon as possible but not later than January 31, 2012. Any offsetting adjustments for Social Security tax over-withheld during January should also be made as soon as possible but not later than March 31, 2012. Workers need not take any action to realize the short-term cuts as employers and payroll companies are tasked with handling the withholding changes.

Stay connected to the latest major tax law changes and other informative tax news by subscribing to this blog.

San Francisco tax attorney Steve Moskowitz said this year's program was structured so that participants had to admit to intentionally evading taxes.

"I found that horribly offensive," Moskowitz said. "A lot of people inadvertently violated a law they hadn’t even heard of."

Moskowitz said some immigrants don't know they have to pay taxes on foreign income and would like to come clean when they find out. But admitting tax avoidance in the amnesty program, he said, could potentially get them in trouble later.

Moskowitz also argued that the punishment for those who didn't participate – tax audits for up to 12 years instead of eight – is unconstitutional.

Cornez, the Franchise Tax Board's tax counsel, said the $50 million in additional...

Read More: http://californiawatch.org/dailyreport/states-tax-amnesty-program-raises-350m-13750

Small business owners are always looking for a way to save money; especially in this economy.  Many small business owners are not aware of the tax incentives that certain retirement plans offer.  This post will outline some of the cost-saving ways that can make a real difference to your bottom line that can also provide added security for you and your employees upon retirement.

Simplified Employee Pension (SEP)

A SEP is an employer-established IRA plan that can be established by a one person business or by a business owner with multiple employees.  A small business owner who establishes a SEP may contribute up to 25% of his or her compensation but not more than $49,000 (for tax year 2011).  The maximum amount of compensation that can be considered under an SEP plan for 2011 is $245,000. 

An SEP is attractive because it is straightforward.  For instance, there are no reporting requirements for a SEP.  The small business owner simply sets up the account, makes contributions and claims a 100% deduction on his or her tax return.  Another advantage of a SEP is that it can be created after the end of the tax year.  So long as the plan is established and contributions are made by the due date of the income tax return for the year (including extensions), the requirements for the SEP plan have been met.  This can be a significant benefit to a small business owner with cash flow problems. 

Savings Incentive Match Plan for Employees (SIMPLE) IRA

A SIMPLE IRA is a good plan for a business with a net annual income of $15,000 or less.  The employer must have not more than100 employees who earned $5,000 or more in the proceeding calendar year to qualify for a SIMPLE IRA.  Contributions to a SIMPLE IRA plan include an employee’s salary reduction contribution as well as an employer’s matching contribution which is generally up to 3% of the employee’s reduction contribution.  A small business owner who takes an annual salary can benefit immensely by making both types of contributions to his or her own account. 

For 2011, the maximum contribution limit that can be made to a simple plan is $11,500.  Note that employees that are 50 years or older may contribute an additional $2,500 annually. 

Unlike a SEP plan, a SIMPLE IRA must be established before September 30th for the tax year that the small business owner wishes to make a contribution.  Salary reduction contributions for each employer must be made within 30 days after the end of the month in which the amounts would have been paid to the employees.  However, matching contributions and non-elective contributions may be made by the due date of the income tax return for the year (including extensions).

401(k) Plan

For businesses with a net annual income above $15,000, a 401(k) may be preferred over a SEP or a SIMPLE IRA because it allows the small business owner to contribute more to the retirement plan.  As with an SEP or a SIMPLE IRA plan, a 401(k) plan has a salary deferral component and an employer contribution component.  For 2011, the maximum salary deferred contribution component is $16,500 (or $22,000 for those ages 50 or older).  Additionally, a small business owner can make a maximum employer contribution of 25% of his or her own compensation.  The total that can be contributed to a 401(k) plan in 2011 is $49,000 ($54,500 for those ages 50 or older) or 100% of compensation, whichever is less.

Deferrals to a 401(k) must be made no later than 30 days after which the contributions are received.  Thus, if a contribution was received on December 31, 2011, the deadline would be 30 days later.

One drawback to a 401(k) plan is that there is a reporting requirement.  Access Form 5500, Annual Return /Report on Employer Benefit Plan at: http://www.dol.gov/ebsa/5500main.html

As with the SEP and SIMPLE IRA plans, elective contributions made to the plan are generally made on a pre-tax basis.  By electing to defer his or her own compensation and by contributing to the employees plans, the small business owner can substantially reduce the taxable income for the business for the current year.  

Bankruptcy Protection

It is worth noting that retirement accounts under SEP, SIMPLE IRA and 401(k) savings accounts are generally completely protected from bankruptcy.  This is an added bonus for small business owners who struggle to survive in this economy and are unsure about what the future will hold for their businesses. 

Whether you are a small business owner trying to identify the right retirement plan for your employees or a solo practitioner looking to identify significant tax deductions for your business, the attorneys and tax professionals at the Law Offices of Stephen Moskowitz, LLP can help you.  Call me at 1-888-829-3325 or (415) 394-7200 for your attorney-client privileged consultation and let us help you devise the right retirement strategy for your situation.

Having a sound retirement strategy is an important component of good tax planning.  There are many different types of retirement plans that can provide you or your employees with substantial annual tax benefits.  This blog post outlines the various types of retirement plans and touches upon some of the tax benefits associated with each of them.

Defined Benefit Plan

Under the traditional defined benefit or pension plan, the employer pays the employee a specific amount of compensation each month after the employee retires.  The amount of compensation received by the employee after retirement is usually based upon a combination of the number of years worked and the average of the highest three consecutive years of the employee’s salary. 

Some defined benefit plans, such as cash balance pension plans, involve an employer crediting the employee each year with a percentage of their annual salary plus interest.  This amount is deposited into an account and the employer invests that money as it see fit.  Upon retirement, the employee has the option of taking the balance in one lump sum or converting it into an insurance product called an annuity. 

Employers offering defined benefit plans are permitted to deduct their annual contributions to the plan which can result in significant tax savings.  However, defined benefit and pension plans are becoming a thing of the past as companies are moving to less expensive options.

Traditional Individual Retirement Account (IRA)

A traditional IRA is a personal savings account that allows the holder of the account to set aside a certain amount of money every year that is tax-sheltered.  Not only is the money that is deposited each year into the account tax deductable, but the earnings in the account also grow tax deferred until they are distributed.  Another advantage of an IRA is that one can have an IRA account even if they are also covered under another retirement plan.  However, individuals who are also covered by an employer-based plan may not be eligible to fully deduct their annual contributions to an IRA account.   

There are annual contribution limits to an IRA.  For 2010, an IRA holder can contribute up to $5,000, or their taxable compensation for the year, whichever is lesser.

Roth IRA

Much like a traditional IRA, a Roth IRA is a retirement savings fund with tax advantages.  What makes a Roth IRA different than a traditional IRA is that annual contributions to a Roth IRA are nondeductible.  The advantage of a Roth IRA is that in most cases the earnings accrued and distributions received from the account are entirely tax-free.  As with the traditional IRA, the maximum contribution level allowed by a Roth IRA account holder in 2010 is the lesser of $5,000 or the taxable compensation for the year.

Employer-Sponsored Plans

There are several different types of employer-sponsored retirement plans that have both a salary deferral component and an employer contribution component to each of them.  Some of the more popular plans include the 401(k), the 403(b) and the SIMPLE plan.  These plans allow the employee to defer a percentage of their monthly compensation to a retirement fund.  The employer also makes a contribution to the retirement fund on the employee’s behalf.  Both the contributions of the employer and the employee are not taxed until the funds are withdrawn. 
By electing to defer compensation under an employer-sponsored program, the employee is able to reduce their taxable income each year.  Also, because the maximum contributions limits to employer-sponsored plans are much larger than what is allowed under other plans, the tax benefits associated with an employer-sponsored plan are more significant.  

If you are an individual who make substantial annual income or a small business owners offering a retirement plan to your employees, it is highly recommended that you have your individual situation analyzed by an experienced tax professional.  The tax attorneys and tax professionals at the Law Office of Stephen Moskowitz, LLP are skilled in analyzing which combination of retirement plans are right for you or your business.  Call us today at 1-800-829-3327 for your free consultation and find out how we might be able to save a great deal more on your taxes each year.

San Francisco CA – October 26, 2011 – The United States (“U.S.”) and Korean Governments have entered into SCIP to combat tax evasion in the partnering countries.  The agreement between the U.S. and South Korea will allow the IRS to obtain records from South Korea’s National Tax Service (NTS) to verify and compare information reported by South Korean Americans to both agencies.  The NTS is focused on monitoring illegal schemes by South Korean businesses and individuals that move funds abroad, avoid taxes offshore and participate in money laundering schemes.

The IRS is interested in the actions of U.S. taxpayers centered in South Korea, particularly South Korean investors, who invest money illegally through affiliates in other countries.  SCIP mandates that Foreign Bank Account Holders (“FBA”) properly report their assets.  Since 2009, South Korea has entered into information-sharing agreements with 14 regions and countries including the British Virgin Islands, Costa Rica, The Cayman Islands, Malaysia, Panama and, now, the United States. 

Woori Bank, the oldest continuously operating bank in Korea, in response to SCIP, will call upon tax attorney Steve Moskowitz to help South Koreans comply with disclosing overseas holdings to the IRS.  Two seminars addressing SCIP and IRS programs will be held at the Domain Hotel in Sunnyvale, CA on November 3, 2011 and the Walnut Creek Marriott Hotel in Walnut Creek, CA on November 4, 2011.

Mr. Moskowitz, with over three decades of experience in tax law will address The Report of Foreign Bank and Financial Accounts (“FBAR”) and a proven course of action, among other tax concerns for South Koreans.

“The IRS is targeting South Koreans living in the United States, who are suspected of tax evasion, and has every right to request financial information from the South Korean government regarding Korean-Americans living in the United States,” says Steve Moskowitz.  “This could include real estate records, bank account information, tax returns and other pertinent information.  Many South Koreans living in the United States are nervous because they may have an inheritance from parents, have amassed funds prior to immigrating to the United Sates or possess investment funds and are unsure about reporting these assets,” he adds.

Woori Bank is headquartered in Seoul, Korea and includes the former Commercial Bank of Korea, Hanil Bank and Peace Bank.  Steve Moskowitz is the founding partner of Moskowitz LLP, and routinely provides advice regarding Offshore Accounts, Amnesty Programs, Passive Foreign Investment Companies (“PFIC”), Qualified Electing Funds (“QEF”), market-to-market calculations, informational returns, compliance and all other tax issues.