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BHBM Tax Law Alert 9/12/2018


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FEDERAL TAX LAW UPDATE

IRS: Offshore Voluntary Compliance Program to End September 28

On September 4, 2018, the IRS issued a press release reminding taxpayers of the September 28 deadline to apply for the Offshore Voluntary Disclosure Program (the “OVDP”). The 2014 OVDP is the most recent version of the OVDP that was initially announced in 2009. Generally, the 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.

For instance, United States citizens, residents and other specific parties must annually report their direct or indirect financial interest in, or signatory authority (or other authority that is similar to signatory authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeds $10,000 at any time during that year. The willful failure to disclose such foreign accounts or willfully filing false returns may subject a taxpayer to both criminal and civil penalties.

Specifically, potential criminal charges related to the failure to disclose these foreign financial accounts include tax evasion, filing a false tax return, failure to file an income tax return, conspiracy to defraud the U.S. government with respect to claims, and conspiracy to commit offense or to defraud the United States. In addition, the civil penalty for willfully failing to disclose these accounts can be as high as the greater of $100,000 or 50% of the total balance of the foreign financial account per violation.

The 2014 OVDP provides a statutory civil penalty framework and assurance that no recommendation of criminal prosecution will be made to the Department of Justice for tax noncompliance and reporting issues related to an accepted voluntary disclosure. Recently, the IRS has indicated that only taxpayers who submit a complete offshore voluntary disclosure (as set forth in 2014 OVDP FAQ 24) by September 28, 2018 will benefit from the program’s limits on civil and criminal penalties.

Alternatively, the IRS provides various other disclosure opportunities that will remain after September 28, including the Offshore and Domestic Streamline Compliance Procedures (for non-willful noncompliance), the delinquent FBAR procedures, the delinquent international information return procedures and the long-standing voluntary disclosure procedures. However, there is no guarantee these programs will remain available, and none of the continued programs provide the same measure of protection from criminal prosecution as the 2014 OVDP.

LOUISIANA TAX LAW UPDATE

Louisiana Issues Information on Changes to Tax Treatment of School Tuition Organization Donations 

In Revenue Information Bulletin 18-024 (“RIB”), the Louisiana Department of Revenue issued guidance with respect to changes to corporate, individual and fiduciary income tax treatment of donations made to school tuition organizations (“STOs”). The Tuition Donation Credit Program authorizes STOs to collect and use taxpayer donations to provide scholarships to students that meet the program’s income requirements to attend non-public schools. All STOs are tax-exempt, not-for-profit organizations with IRC § 501(c)(3) status. Generally, contributing taxpayers can earn a credit toward their Louisiana state taxes for the year in which they make a donation.

In 2017, the Louisiana Legislature amended the provisions for donations made to STOs. Specifically, Act 377 made the following changes to La. R.S. § 47:6301 with regard to donations made on or after January 1, 2018:

1. Changes the rebate to a nonrefundable income tax credit with a three year carryforward;

2. Provides that, to qualify for the credit, the donor must be a taxpayer who is required to file a Louisiana income tax return; and

3. Stipulates that, if the credit is claimed and allowed, no other Louisiana tax benefit shall be allowed for the same donation.

Specifically, RIB 18-024 provides a set of examples and guidance regarding the impact of recent proposed treasury regulations on STOs. For instance, the Department of the Treasury and IRS recently issued IR-2018-172 and proposed regulations titled “Contributions in Exchange for State or Local Tax Credits” which provide that under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive. Accordingly, RIB 18-024, provides the following example:

Raymond, an individual income taxpayer, donates $20,000 to a school tuition organization on September 1, 2018, and Louisiana Department of Education issues a receipt through the school tuition organization to Raymond on October 1, 2018. Raymond claims the nonrefundable income tax credit of $19,000 ($20,000 less $1,000 of administrative costs) on his 2018 individual income tax return. The proposed regulations affect Raymond’s federal itemized deductions. Raymond may only deduct $1,000 as a federal itemized deduction for charitable contributions because Raymond receives, or expects to receive, a nonrefundable income tax credit of $19,000. Raymond is not required to make any adjustment on his Schedule E of the LA Form IT-540 as otherwise required by the provisions of the “Add Back to Prevent Double Benefit” section above.

The amendments to the regulations are proposed to apply to contributions made after August 27, 2018. For donations to STOs made from January 1, 2018, to August 27, 2018, the proposed regulations currently do not apply. However, taxpayers should be aware that the proposed regulations, including the applicability date, may be changed at a later date.

To review the new guidance and examples, see RIB 18-024.


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