Author: Leon Clinton

Many individuals either contemplate or hold citizenship in more than one country. While dual citizenship can offer many benefits, such as enhanced travel mobility, access to social services, and the ability to work and reside in both countries, be sure you are aware of the tax responsibilities.

As a current or potential U.S. citizen, you should understand that the U.S. tax system imposes obligations on its citizens regardless of where they reside or generate income. Dual citizens could be liable for taxes in both the U.S. and the other country of their citizenship.

To ensure compliance with all necessary tax regulations and avoid potential legal and financial pitfalls, start with your tax residency status. The U.S. tax system categorizes individuals as resident or non-resident aliens, with varying tax implications for each category.

Being a resident alien means you are taxed on your worldwide income, whereas non-resident aliens are taxed only on U.S.-sourced income. The distinction between the two categories is based on factors such as length of stay in the U.S. and immigration status.

It is also worth noting that dual citizens may be subject to double taxation—being taxed by both countries on the same income. The U.S. has mechanisms to alleviate this burden, such as the foreign earned income exclusion, the housing exclusion or deduction, and the foreign tax credit. These tax breaks can significantly reduce U.S. tax liability on foreign earned and unearned income.

Additionally, the U.S. has entered into numerous double taxation treaties with other countries to prevent double taxation and promote economic cooperation.

Apart from income tax, there are also reporting requirements for foreign financial accounts and assets, with stringent penalties for non-compliance. You must know these requirements and make the necessary disclosures on time.

If you want to discuss dual citizenship or other complexities, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 13, 2023

The IRS is on a tear against improper employee retention credit (ERC) claims. Here are four recent actions taken by the IRS:

1. Unfair Stop to Processing New ERC Claims

On September 15, 2023, the IRS announced a temporary halt on processing new ERC claims until after the end of this year at the very least.

Why the stop? The IRS pinpointed a surge in improper ERC claims as the core issue. While numerous tax experts and associations commend the IRS for halting its ERC claim processing, we disagree with this approach.

We firmly believe that all valid claims should be addressed immediately, especially to assist businesses that have faced, and continue to face, financial hardships.

Although the IRS might not address your claim until after 2023 concludes, it’s crucial to submit it now and secure your place in the front of the line.

2. Slowdown in Processing of Existing Claims

The IRS has more than 600,000 ERC claims in its processing queue.

Instead of its standard processing goal of 90 days for the claims in process, the new goal is 180 days—and much longer if the claim needs further review or audit.

Two points here:

1. If your ERC claim is legitimate, be patient. Also, make sure you have the documents to back up your claim. Frankly, you should have had the documentation before you filed for the ERC.
2. If your ERC is not legitimate, review the possibilities in IR-2023-169 and discuss them with your tax professional.

3. New IRS Q&A Document

Before we get to the new Q&A document, let’s examine its headline—we bolded what we think are problems with the headline: “Client not convinced they’re ineligible for Employee Retention Credit? New IRS Q&A document may help.”

Really? How negative can you get? Here’s the IRS giving us a tool to convince you that you don’t qualify for the ERC.

This is all wrong. The IRS should provide clear guidance on qualification and non-qualification. After all, the IRS’s mission in life is to help you pay the proper tax, no more, no less. It’s not to intimidate you and your tax professional.

IRS Tells You to Watch Out for Red Flags

The ERC is a legitimate tax credit. But the IRS notes that the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.

In a September 14, 2023, news release, the IRS warns businesses to beware of nefarious actors who improperly assist businesses in claiming credits for which they don’t qualify.

But the IRS is correct in that you need to beware. Say your promoter helps you file for a $1 million credit, and you pay the promoter 25 percent ($250,000). Say next, the IRS disallows your claim. You could be out the $250,000 fee you paid the promoter.

Rule of thumb. Make sure your claim is valid.

IRS Hiring 3,700 New Employees, Primarily for Audits

In this hiring effort, and somewhat under the radar, is the fact that the IRS wants this new audit workforce to examine high-income earners, partnerships, large corporations, and promoters.

On the promoter front, the IRS wants to examine promoters aggressively peddling abusive schemes.

If you want to discuss the ERC, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 10, 2023

After years of delays, the first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024. It imposes a new federal filing requirement for most corporations and limited liability companies (LLCs) formed in 2024 and later.

The CTA’s purpose is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes. But it applies to honest business owners as well as criminals.

The CTA does not apply to all new businesses. It applies only to entities such as corporations, LLCs, and others formed by filing a document with a state secretary of state or similar official. It doesn’t apply to sole proprietors.

Some businesses are exempt, including

• large businesses—businesses with more than 20 full-time employees and $5 million in receipts on their prior-year tax return,
• certain businesses already heavily regulated by the government, such as banks and insurance companies,
• nonprofits, and
• several others.

Note that the exemption for large businesses may apply to updates but not to the initial formation because there is no prior-year tax return.

The CTA’s purpose is to compile a massive government database containing the identities and contact information of the “beneficial owners” of most types of business entities. Beneficial owners are the humans who own or exercise substantial control over the entity.

For most reporting companies, identifying the beneficial owners is simple. For example, a three-member LLC in which each member has a one-third ownership interest has three beneficial owners. Identifying beneficial owners for reporting companies with complex ownership structures can be more difficult.

Here’s what happens if you form a new LLC or corporation in 2024. Within 90 days of formation, you must file the beneficial owner information report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit. The report must contain the following for each beneficial owner:

• Full legal name
• Date of birth
• Complete current residential street address
• A unique identifying number from a current U.S. passport, state or local ID document, driver’s license, or foreign passport
• An image of the document that contains the unique identifying number

You must provide similar information for the people who filed the documents to form the entity, such as the articles of incorporation or articles of organization for an LLC.

The beneficial owner information report is filed online at a new federal database called BOSS (an acronym for Beneficial Ownership Secure System). You can’t file until January 1, 2024. You don’t pay any filing fees. The information in the BOSS database is strictly for use by law enforcement, the IRS, and other government agencies. FinCEN does not disclose the BOSS information to the public.

BOSS reporting is separate from your state and local filings when forming a new business entity. But from now on, filing the BOSS report must become a routine part of creating most new business entities.

If you want my help with your BOSS reporting, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 7, 2023