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April 18, 2014 / 18 Nisan, 5774
At a Glance

Posts Tagged ‘IRS’

Congress Widens IRS Investigation, Pro-Israel Groups Were Targeted

Wednesday, May 15th, 2013

The chairman and the ranking committee member of the U.S. House Ways and Means Committee released a letter the committee sent today, May 14, to Steve Miller, Acting Commissioner of the Internal Revenue Service.  That letter informs Miller that the committee has greatly expanded the scope of its investigation into alleged misdeeds by the IRS.

Among other information that congress is now seeking is information about the IRS’s special scrutiny of organizations whose mission involve Israel.

Last week The Jewish Press connected the admitted increased scrutiny of certain conservative organizations by the IRS, and the alleged targeting by the agency of Z STREET, a pro-Israel organization.  That activity gave rise to a lawsuit filed against the IRS in 2010. (This reporter is the president of the organization that brought that lawsuit.)

Congressmen Dave Camp (R-MI)  and Sander Levin (D-MI) signed a 3 page, single space, 13 point  letter today, making clear that congress was greatly displeased with the lack of candor and responsiveness the IRS has displayed towards their committee’s now-nearly two year long investigation of the agency.

In addition to seeking information about the IRS dealing with organization’s whose mission deals with Israel, the Ways and Means Committee is also seeking information about any other kinds of organizations the IRS chose to scrutinize based upon those organization’s political views.

The tone of the letter makes clear that Acting Commissioner Miller is in for a grueling hearing this Friday.  The congressmen use euphemisms, but what they are accusing the IRS of doing was lying to the Committee, repeatedly – either by commission or omission – about actions it has now admitted taking.  Now they want to know, essentially, who decided that the committee would be told lies, and how far up the chain of command did the lying go, in addition to the underlying inappropriate conduct.

Congress is also demanding to know what information about the now-admitted, and perhaps additional to be admitted misdeeds was shared with the Treasury Department and with the White House, and when that information was shared.

One of the most jarring paragraphs in any letter sent to a government agency by a congressional committee is found in the May 14 letter from Congressmen Camp and Levin:

The IRS, through its officials, is legally and ethically bound to tell the truth to Congress and the American people.  In this situation, the IRS had a continuing obligation to update and correct information provided to Congress if it was later determined to be incomplete or inaccurate.  Why did your agency fail to be completely forthcoming with the Committee in its responses to the Committee’s ongoing investigation and in testimony before the Committee regarding the IRS’s practice of targeting conservative groups?

It is also clear that the Ways and Means Committee will be holding additional hearings into alleged widespread misdeeds.  The new material congress seeks must be supplied to the Ways and Means Committee by May 21, a week from today.

Perhaps the only thing that is not yet clear is who made the decisions to employ the vast power of the IRS to engage in inappropriate, bullying activity of particular groups of Americans, and how and who made the decisions to cover up that activity.  It appears congress intends to find out the answers to those questions.

It’s going to be a long, hot summer for the IRS.

 

IRS Chief Under the Congressional Spotlight on Friday

Tuesday, May 14th, 2013

A concerted effort by a mid-level Internal Revenue Service official last Friday, May 10, to confess to some minor irregularities in how the IRS has dealt with conservative organizations seeking tax exempt status has unraveled.  Lois Lerner, who oversees tax exempt organizations for the IRS, attempted to get out the word under the radar.  She failed miserably.

Lerner attempted to present the issue as having affected a small number of organizations, targeted by using a few key words, and acted out by only a few low level IRS employees in a remote office, for a limited period of time, which took place without the consent or even knowledge of higher level IRS officials.  By Monday morning that cover had been entirely blown.

In the center of a scandal that continues to grow wider, deeper and longer by the day, the Acting Internal Revenue Service Commissioner will be sitting in the hot seat before the House Ways and Means Committee this Friday morning, May 17, starting at 9:00 a.m.

The hearing is to discuss the practice of targeting applicants for tax-exempt status based on political leanings.  There will only be two people called to testify at this hearing: Acting Commissioner of the Internal Revenue Service, Steve Miller, and the Treasury Inspector General for Tax Administration, J. Russell George.  Miller was the assistant to the former IRS commissioner, Douglas Shulman, under whose watch many of the complaining organizations experienced allegedly excessive and inappropriate probing by the IRS.

The first admission, last Friday afternoon, was that the IRS had been subjecting certain conservative groups to increased scrutiny but insisting that only “low level IRS employees” in a remote Ohio office were using inappropriate ways in which to flag certain groups, and that the practice was short-lived.  The excuse was that in 2012 there were so many new groups seeking tax exempt status that the Agency had to figure out ways in which to more quickly help determine which groups were legitimate and which weren’t.

But as revelations continue to leak out of Washington, D.C., it appears the practice was much broader, it took place in multiple IRS offices in cities across the country, it went on for a much longer period of time than was originally admitted, and high level IRS officials were aware of some aspects of the progress for far longer than had earlier been admitted.

In addition to inappropriate questioning by IRS agents in Cincinnati, Ohio, the original site mentioned by Lerner, documents have revealed that agents in Washington, D.C. and at least one other IRS office were involved in providing increased levels of scrutiny to certain conservative organizations.

And it wasn’t only groups with the words “tea party” and “patriot” in their organization’s names that were pulled out of line for additional scrutiny.  The IRS net included groups that opposed Obamacare, those that focused on vote fraud, ones that sought to educate about the Constitution and the Bill of Rights, and ones that sought to limit the role of government.

Although Lerner claimed only low-level agents in the Cincinnati office engaged in and knew about the practice, it is now known that IRS employees in Washington were aware of the practice. The Inspector General’s report states that officials at the Internal Revenue Service knew in June 2011 that their agents were targeting conservative groups for additional scrutiny on tax documents, CNN reported Monday.

The original revelation of IRS inappropriate activity suggested that the practice only began in 2012, but the Inspector General’s report revealed that the practice began as far back as 2010.

IRC 501(c)(3) versus 501 (c)(4)

Thus far it appears that almost all of the groups complaining about the inappropriate, politically-oriented targeting are organizations seeking tax exempt status as “social welfare” organizations, which come under the Internal Revenue Code section 501(c)(4).  These groups, as distinct from 501(c)(3) organizations, are given more leeway in terms of engaging in political activity. There was a huge increase in the number of such organizations following a 2010 Supreme Court decision which gave a hecksher to political campaign spending by corporations, in Citizens United v. Federal Election Commission.

Both (c)(3) organizations and (c)(4) organizations are exempt from paying taxes, but only donations made to (c)(3) organizations are tax deductible.  Organizations that are (c)(3)s can engage in only very limited lobbying activity and cannot engage in political activity at all, whereas (c)(4)s can engage in unlimited lobbying and can engage in political activity to the extent it is consistent with the organization’s mission and so long as it is not the organization’s primary activity.

The pro-Israel and Jewish organizations that have complained about inappropriate IRS activity by the IRS are 501(c)(3)s.

It may be that the next wave of congressional inquiry will focus on what other kinds of organizations have been targeted for special scrutiny by the IRS.

In addition to Friday’s House Ways and Means Committee hearing, the IRS can look forward to hearings before at least one more, if not two more, congressional committees.

On Monday, Senate Finance Committee Chairman Max Baucus (D-MONTANA) called for a full investigation into the IRS targeting of conservative groups. Senator John McCain (R-AZ) also announced on Monday that the Senate Permanent Subcommittee on Investigations plans to investigate the new IRS revelations.

President Barack Obama issued a statement on Monday calling the alleged misdoing by the IRS “outrageous, if true.”  White House spokesperson Jay Carney said that Obama only found out about the matter last Friday.

IRS Punished Conservative Non-Profits, Perhaps Also Pro-Israel Groups

Saturday, May 11th, 2013

For more than a year the U.S. Congress has been investigating whether the Internal Revenue Service was inappropriately treating conservative groups seeking tax-exempt status, or burdening such groups with requests and demands which are impermissible, as many had claimed.

Friday, May 10, the IRS person in charge of the division dealing with non-profits, Lois Lerner, apologized for actions taken by the agency which were based on political affiliation.

“That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review,” Lerner said at a conference sponsored by the American Bar Association.

“The IRS would like to apologize for that,” she added.

How did the IRS do this?  By singling out dozens of organizations for additional reviews because they included the words “tea party” or “patriot” in their exemption applications, Lerner admitted.

The Ways and Means Committee has been seeking information on precisely this activity and “the IRS repeatedly denied they were targeting conservative grassroots organizations,” said committee chair Dave Camp (R-MI) in response to the revelation.  He announced  that the committee will soon hold hearings on this now-admitted practice by the IRS.

Camp stated in a press release issued just after the admission of wrongdoing by the IRS, “The IRS absolutely must be non-partisan in its enforcement of our tax laws. The admission by the agency that it targeted American taxpayers based on politics is both shocking and disappointing. The Committee on Ways and Means will thoroughly investigate this matter and will soon hold a hearing to get to the bottom of this situation.  We will hold the IRS accountable for its actions.”

PRO-ISRAEL GROUP SUED IRS CLAIMING TARGETING PRACTICE

While they are at it, the committee might want to ask the IRS whether their list of targets extended beyond political party discrimination. There is evidence the IRS also targeted pro-Israel groups whose positions were potentially inconsistent with the administration’s.

For example, in 2010, the passionately pro-Israel organization Z STREET filed a lawsuit against the IRS, claiming it had been told by an IRS agent that because the organization was “connected to Israel,” its application for tax-exempt status would receive additional scrutiny.  This admission was made in response to a query about the lengthy reveiw of Z STREET’s tax exempt status application.

In addition, the IRS agent told a Z STREET representative that the applications of some of those Israel-related organizations have been assigned to “a special unit in the D.C. office to determine whether the organization’s activities contradict the Administration’s public policies.”

Z STREET’s lawsuit claims the IRS activity constitutes viewpoint discrimination and a violation of its constitutionally protected right of free speech.  The organization is seeking, among other things, complete disclosure to the public regarding the origin, development, approval, substance and application of the IRS policy to treat pro-Israel organizations differently than it does other organizations. (disclosure: this reporter was the founder and president of Z STREET when the litigation was filed.)

At least one purely religious Jewish organization, one not focused on Israel, was the recipient of bizarre and highly inappropriate questions about Israel.  Those questions also came from the same non-profit division of the IRS at issue for inappropriately targeting politically conservative groups. The IRS required that Jewish organization to state “whether [it] supports the existence of the land of Israel,” and also demanded the organization “[d]escribe [its] religious belief system toward the land of Israel.”

For years the IRS has denied it took any such inappropriate actions and has done its best to prevent Z STREET from pursuing its claim of viewpoint discrimination. The IRS even took the position that because Israel is a country “where terrorism happens,” the service was justified in taking additional time to determine whether Z STREET was involved with funding terrorism.  Z STREET is a purely educational organization that has never funded anything, either in Israel or anywhere else.

Coincidentally, after two and a half years of non-movement, the very first hearing in Z STREET v IRS was recently scheduled for the afternoon of Tuesday, July 2, in the Federal District Court of the District of Columbia.

Representatives of several tea party groups rejected the apology offered by the IRS, and insist that steps be taken to prevent such blatant discrimination in the future.

Are You Rich Enough to Make Aliyah?

Thursday, April 18th, 2013

How many times have you heard people say, “I could never make aliya. It’s too difficult financially”?

Well, now there is one less excuse.

There are the standard financial pluses of living in Israel: the Israeli unemployment rate is lower than in America, day school tuitions are cheaper, and you don’t need to use personal vacation days for the chaggim.

While there are many benefits to living in Israel, there are some financial challenges, particularly around tax-filing time. While Americans living in Israel have an obligation to file with the IRS, Israel and America have a tax treaty between them, according to which if you pay taxes in Israel and also owe them in America (since America taxes her citizens on worldwide income), you can take a tax credit on your American taxes for what you paid to Israel.

In addition to filing U.S. taxes, American olim must file FBAR forms and they also may be responsible for filing under new FATCA requirements.

Confused? You’re not alone. But if you used this confusion as an excuse not to make aliya, your excuse no longer holds water. A new book can help you.

The IRS recently implemented FATCA, and Uncle Sam wants you to file your American taxes (in addition to your Israeli taxes) and FBAR form, but before you start to get too worried, there are solutions. For starters, get a copy of my recent book, The Expatriate’s Guide to Handling Money and Taxes? As a financial adviser with more than two decades of experience helping Americans abroad handle their American brokerage accounts and deal with the problems that arise from living in dual currencies, I wrote the book with the help of various leading international tax lawyers and accountants.

Just as you would extensively research communities, ulpans, schools, and jobs before moving to Israel, learn what your tax obligations to the Old Country will be when you are offshore. This should make your transition easier, as you won’t have nightmares about the IRS demanding a share of your new salary.

Why It’s Tough to Be an American

Thursday, April 4th, 2013

The American economy isn’t what it once was, and while some Americans are looking to move abroad to better their financial situation, Americans living abroad face specific financial challenges due to the fact that they are American citizens (which I discuss in depth in my new book, The Expatriate’s Guide to Handling Money and Taxes). While holding an American passport once was considered a great advantage, today it has broad ramifications for your finances. Any well-intentioned American parents or grandparents who are thinking of getting American citizenship for their Israeli-born children or grandchildren might want to think again when it comes to taking up this inherited privilege.

Why?

Below are six good reasons why financially, life has become more difficult for American citizens living overseas, regardless of how long they’ve been abroad, whether they’ve ever worked or lived in the States, or even whether they speak English:

(1) FBAR and FATCA. These terms refer to tax reporting requirements that U.S. citizens abroad must file if their assets reach certain minimum levels. Non-compliance can result in steep fines. These requirements have had a very serious effect on how foreign banks and investments view U.S. account holders, since FATCA requires foreign banks to report American accounts and assets to the American government.

The problems that follow are a direct consequence of FBAR and FATCA:

(2) Limits on buying mutual funds through an American brokerage account. You may think it’s O.K. if FATCA makes it difficult to open a foreign investment account, since after all, you can use your American brokerage account and continue with your familiar investments. But, beware: many American mutual funds are rejecting orders to buy if the address on the account is not a U.S. address. And I’ve been approached by clients of other brokerage houses whose mutual fund trades have retroactively been cancelled because of the foreign address issue. Not every brokerage firm in America is comfortable dealing with accounts of Americans living overseas.

There are also challenges in buying mutual funds through an overseas brokerage account. If your foreign investment house sells you a foreign mutual fund, not only will it report your assets to America (or else it risks facing steep taxes), but you may need to report the foreign mutual fund as a PFIC (Passive Foreign Investment Company).

(3) The current situation has made it very hard to transfer assets, as countries don’t automatically recognize notaries from other countries. This means if you live overseas and inherit an American brokerage account, you may need to fly into America to physically have your signature witnessed by an American company that can offer a “medallion guarantee.”

(4) It’s very difficult to get life insurance from a U.S. insurance company because they won’t recognize an address outside the United States.

(5) Say goodbye to your U.S. credit and debit cards. Some of them don’t work away from the United States, while many companies will refuse to mail your statements overseas. And if you have an existing account, now that your address has moved abroad, you won’t receive a new card when it becomes necessary.

(6) Don’t think you can solve your problems by opening a bank account in the United States. Without a U.S. address, forget about it. And if you receive a dollar check, it’s not a simple matter of depositing it in your bank account abroad, as the banks charge a fortune for conversions into local currency, and it’s not unusual to take up to three weeks for foreign checks (yes, outside the U.S. dollar checks are considered ‘foreign’) to clear.

So what are the solutions to these thorny problems?

You’ll find them in my new e-book, The Expatriate’s Guide to Handling Money and Taxes, which I wrote in order to help the many bewildered expats that I meet in my capacity as a financial adviser. As a reader of The Jewish Press, use the coupon code JPRESS to get the book at half price.

Three Mistakes that Can Get You in Big Trouble

Sunday, March 31st, 2013

Filing taxes is complicated. The forms aren’t particularly user friendly, and if you’re not quite sure what you’re doing you can end up making quite a few errors. The problem with errors on tax forms is that they can be very costly. For people who have multiple citizenships and residences (think olim or folks who spend a portion of the year living in Israel), the challenges of tax reporting are even more complicated.

I spoke with international tax lawyer Dave Wolf (and fellow contributor to a book on tax guidelines for American expatriates) and asked him, “What’s the worst mistake you’ve seen an expat make?”

He said: “The biggest mistake that I’ve seen expats make is believing that once they move out of America, they no longer have to report their worldwide income or report the existence of foreign bank accounts or companies.” Indeed, when it comes to the IRS, out of sight is not out of mind. It’s also important to note that if you have American citizenship through a parent or grandparent, even if you’ve never lived in America and English isn’t your mother tongue, you’re still obliged to report to the American tax authorities.

Mistake #2

Another common blunder that Dave mentioned was that people look for investment opportunities without taking into consideration the U.S. tax code. Specifically, complicated U.S. tax laws basically prevent American taxpayers from investing in overseas mutual funds. The IRS considers those investments “PFICs,” (passive foreign investment companies), and most Americans who understand how they work would not want to get involved with them or offshore mutual funds. When trying to invest smartly, lack of knowledge of international tax consequences can cost you a lot of money.

Final Mistake

The third blunder people make, Dave said, is “They either go to the wrong adviser, one who has no overseas experience, or they just don’t get any professional help at all.” I asked how you can avoid these mistakes. He said, “Make sure to consult with your tax lawyer, accountant, and/or investment manager before you leave the States to avoid any adverse tax consequences of investing or moving money overseas.” Sadly, many people overlook this seemingly small detail before making what could be one of the biggest financial decisions of their lives.

Find out more about what Dave has to say about avoiding making major tax mistakes by reading The Expatriate Guide to Managing Money and Taxes. For Jewish Press readers, get half off the regular price of the book by using the discount code JPRESS. Go to www.ExpatGuideToMoney.com and order now. The discount will expire on tax day, April 15th.

Knowledge is power, and reading this easy-to-follow guide for U.S. expats you can stay in full compliance with the law.

Do You Need to File an FBAR Form with the IRS?

Tuesday, March 5th, 2013

Americans earning income in the USA have to file taxes on or before April 15th, but what about Americans earning and living abroad? With the implementation of the Patriot Act as well as other laws, expatriate Americans face a whole slew of new reporting regulations. These laws make it necessary for Americans abroad to file reports…even if they don’t owe any taxes.

Unfortunately, many U.S. citizens living overseas are unaware of their reporting obligations towards to America. If they just fill in a basic tax form, they may think they’re done.

But they’re not. (There’s a lot more to do. At the bottom of this article, find out how to get a discount on The Expatriate’s Guide to Handling Money and Taxes.)

If you have more than $10,000 in assets overseas (on any single day of the year…if you transfer funds to buy real estate, or if you have a foreign bank account, or if you have a foreign pension fund, etc.) Uncle Sam wants to know about it. While the intentions behind filing the FBAR form were to make it more difficult to launder money and increase tax revenue, the real result has been to make life a nightmare for Americans living abroad.

Even honest folks who are unaware of their filing obligations are committing a criminal offense if they don’t file this report correctly by June 30of every year for the preceding tax year.

I discussed the issue of U.S. expats’ tax obligations with international tax specialist Ron Zalben, of Don Shrensky & Co, Jerusalem, to find out what U.S. olim need to know.

“Why are FBAR (Foreign Bank and Financial Accounts) and FATCA (Foreign Account Tax Compliance Act) forms causing so much trouble?” I asked.

Ron explained, “Since so many U.S. citizens living abroad have never filed a U.S. tax return (for legitimate or other reasons), it’s scary for them to now begin a relationship with the IRS.  They’re scared because of the uncertainty of dealing with the IRS – something they never have dealt with previously. This uncertainty causes panic and fear.  Starting shortly with FATCA, foreign banks will start sharing information of U.S. citizens’ bank accounts with the IRS.”

I asked Ron for specific tips on how to file the FBAR and he gave me these three ideas:

1. Don’t panic.

2. Seek professional advice.

3. Organize the details of your income and foreign accounts for each tax year.

Indeed, although the idea of filling in a very long, complex tax form might seem rather daunting, approaching it in a systematic manner is helpful. Make sure to include all bank and savings accounts in your name, as well as any accounts you have authority over or a financial interest in (business accounts, non-profit organization treasurers, children’s accounts, etc.)

To further awareness of American expatriates’ reporting requirements both Ron and I contributed chapters to a new book, called The Expatriate’s Guide to Handling Money and Taxes. The idea behind the book is to spread the awareness of new tax legislation that has already had a profound effect on expats everywhere.

If you want to make sure that you fulfill your legal obligation to the U.S. government properly, download this book and be sure to implement the easy-to-follow checklist of things to do. For Jewish Press readers, get half off the regular price of the book by using the discount code JPRESS. Go to www.ExpatGuideToMoney.com and order now. The discount will expire on tax day, April 15th.

How to Beat the U.S. Tax Blues (Podcast)

Wednesday, February 13th, 2013

Tax attorney Dave Wolf, a member of the New York State Bar Association’s Tax Section and a member of the appeal committee for Maror monies in Israel, tells Doug how to deal with U.S. tax laws when living abroad, which tax amnesties are available, and what would happen if you tried to renounce your American citizenship.

Printed from: http://www.jewishpress.com/blogs/goldstein-on-gelt/how-to-beat-the-u-s-tax-blues-podcast/2013/02/13/

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