FAS CPA & CONSULTANTS

Small business interruption loans from the Paycheck Protection Program of the CARES Act would be available to:  

Companies and some nonprofits with 500 or fewer employees during the period February 15 through June 30, 2020  

The maximum loan amount of $10 million could be used for:  

Payroll and employee-related costs, debt, rent and utility payments  Use of these loans for payroll is limited to:  

Compensation of $100,000 / employee, independent contractor or sole proprietor maximum maturity of 10 years interest rate 4% no personal guarantee   These loans are to be administered by banks and credit unions:  

Borrowers should turn to their bank to apply these loans could qualify for loan forgiveness any debt forgiveness will not be subject to federal income tax

If you are a U.S. citizen and 10% stockholder of a foreign company, the foreign company is classified as a Controlled Foreign Corporation (CFC). If the CFC is paying you for services or distributing dividends, such payments received will be classified as Subpart F income.    Subpart F is very complicated and needs to be analyzed in great detail to prevent unintended consequences.  In this article, we endeavor only to provide you with a brief synopsis of the issues you have to take note of and discuss with your tax professional.   

From the outset it is important to take note: Subpart F income DOES include passive income.  Any foreign investment you might have that is making a passive income for you in the current financial year, will in all probability be deemed to be Subpart F income and be taxable even if it is not distributed.  

So What Are A Controlled Foreign Corporations?  

Not all foreign investments nor all foreign corporations are automatically defined as “controlled foreign corporations.”  A Controlled Foreign Corporation is defined by law as a corporation with more than 50% U.S. ownership in which individual U.S. persons each own at least 10% of the corporation.  

The 10% rule falls under the rules of attribution. This means that family members fall under closer scrutiny and in some situations, the individual shares of family members can be attributed to one member of the family for Subpart F.  For example, a family owned corporation with say twelve members who all own a proportionate share, around 8% each, structurally avoid the 10% rule.  No one owns the statutory 10% for the rule to come into play?   You would be wrong to make this assumption: this is exactly where attribution will come into play and derail your plans.  Meticulous care should be taken - allow a professional to assess the situation.  

Can These CFC Rules Be Circumvented?  

It is possible to set up a business to navigate around these CFC rules, but this might be a bit more difficult than it sounds, i.e. it will be risky.  It can be done if you register a foreign corporation with assets under $10,000,000 in locations like the British Virgin Islands, Hong Kong or the like.  However, it is imperative that you are the majority shareholder of the business.   

Obviously it will not be precautions at all to start up a foreign corporation and to invest substantial money in doing so with the objective to allow some third party with no real stake in the outcome to control it.  It is common cause that corporation such as these remain in U.S. ownership up to a scale of between 75 and 90% and to allow foreign ownership for the balance as might be prescribed by local law.

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This bill was introduced in Congress with bipartisan support on Thursday, January 9th, 2020. The law is meant to create an exception for the capital gains taxes that occur when virtual currency is used for payment in everyday commerce.  

ON ANOTHER NOTE 

Some analysts say that there is a 60% likelihood for a Bitcoin ETF approval coming through in 2020  The gain is created because current US law deems the use of Bitcoin to pay for a good or service to be a sale of the Bitcoin transacted, which creates a taxable event.  The use of virtual currency is complicated by wild price fluctuations, and the requirement for users to track every gain they made every time they use Bitcoin as a medium of exchange, hampers the currency.  In this version of the law, capital gains taxes are exempt when the gains made by the taxpayer as a result of their transaction is equal to or less than $200, an exemption that already exists for foreign currencies.  This law would go a long way toward equalizing Bitcoin with other currencies when it comes to its daily use in commerce. If the bill is passed, it would be instated for the fiscal year of 2020. 

ON ANOTHER NOTE 

Surveys suggest that more financial advisors will add Bitcoin to their client’s portfolios in 2020.  As technology continues to develop cheap and speedy, virtual currency transactions become possible, combined with the bill, it would no doubt be helpful when more people start using virtual currency for small payments.  Increased acceptance of digital assets in commerce and the financial sector combined with an upcoming halving event are good enough reason to except a bull market for Bitcoin in 2020.  Strategic Changes To The Whitepaper Suggest That LIBRA Will Be Adapted To Address Concerns That It Will Be Classified As A Security

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The IRS is coming for bitcoin investors who are not paying their fair share on their gains.  The message is that the IRS is fully aware of what bitcoin investors are doing, and they have a secret weapon.   Special Agent Gary Alford, the man who broke the Silk Road and took Ross Ulbricht down, is now the new cyber-crime coordinator for the IRS.  Special Agent Eisner says enough already. Enough with the sensational criminals. It is time for the run of the mill enforcement of cryptocurrency tax law. 

According to Eisner, for once law enforcement is ahead of the curve.  The IRS believes the time has come to prosecute bitcoin tax evasion and they say that they are ready to go to a jury and get convictions.  Tax practitioners are asking the IRS for more guidance on the existing regulations.  New direction expected in June is expected to resolve any uncertainty on how to deal with the cost basis when a fork occurs. Practitioners must ask their clients about crypto gains. Gains can be taxed like gains on stock investments. This is, however, simplistic. Bitcoin taxation can be quite complicated.  According to the IRS’ official guidance, crypto is property for purposes of taxation.  

Hence, if you buy bitcoin and hold onto it for longer than a year, you are liable for the long-term capital gain tax.  Individuals earning more than $425,000 or married couples who make more than $479,000 will pay 20%. Those under these thresholds pay 15%.  When buying virtual currency with fiat (buying it for the first time using dollar), no taxable event is recorded yet. However, as soon as any gains are made, the investors are liable to file with the IRS. This is problematic. Compliance is very low.  

Figures obtained when the IRS summonsed the records of Coinbase, show that only 800 out of more than 20,000 investors who made gains, filed with the IRS.  This lack of compliance is what spearheaded the IRS to go public with Special Agent Eisner.  It is hoped that these typed of high profile outreach would move investors toward voluntary compliance.  Taxpayers that willfully conceal crypto gains can be prosecuted if they kept records of their investments or revealed it to their accountants.  Ignorance of the law, of course, is no excuse.  Considering that bitcoin is taxed at rates that compare very favorably with other investments, no leniency should be expected when the prosecutions start.  Gold, for example, as a collectible, is never taxed below a rate of 28%, even if you are invested in a gold exchange-traded fund.  Currency taxation is even more perilous for the investor.  Currency is always taxed at regular income rates, never as capital gains.  

If you own currency shares, no matter how long you have held it, you will never pay capital gain rates. Marginal income tax rates can be as high as 37% on federal tax.  Commodity futures are even more perilous in respect of taxation.  Section 1256 contracts (commodity futures and EFTs that hold commodity futures) are marked to market at the end of the financial year. This means you owe taxes on paper profits irrespective of whether you sold or not.  What’s worse, 60% of all gains are considered long-term capital gains, and 40% as short-term capital gains.  

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The Internal Revenue Service (IRS) does not treat money held in a foreign account the same as money that is held on a domestic account. Out of fear of being unable to take revenue from foreign accounts, the IRS has taken steps to discourage foreign account use. This is a huge area of serious concern for any U.S. individuals with assets in foreign institutions.  

One example of such tactics occurred in 2014 when the IRS mandated all U.S. taxpayers holding offshore accounts in excess of $10,000 to file a new Financial Crimes Enforcement Network (FinCEN) Form 114 by June 30 or else be subject to a penalty of up to 50% of their assets.  Due to this increased aggressiveness from the IRS and the Department of Justice (DOJ), most foreign banks, especially in Switzerland and the United Kingdom, do not want deposits from U.S. citizens. 

Very few foreign banks have the type of compliance department necessary to handle the complex U.S. regulations and heightened scrutiny. For this reason, many foreign banks do not devote too much time and energy to courting U.S. clients.  

U.S. individuals interested in opening foreign bank accounts must consider these challenges and clear up credit concerns and any possible risk flags. Decreasing as many risks as possible on an individual level can help skeptical foreign banks overlook the risk of being an American subject to IRS taxation.

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Offshore banking brings many benefits and it is completely legal when done correctly. But more useful is to know what are the best jurisdictions you can get a license for a start-up offshore bank.   

Dominica   

The even better news is that in this country fresh applicants are actively sought, which means the application process is easy and quick. To top it all, Dominica is one of the most preferred destinations for offshore banking because it also claims at the top of the second passport industries list, meaning that many of the people who start a banking venture also purchase a second Dominican passport.  

Cayman Islands  

The Cayman Islands are the most expensive jurisdiction to get a full offshore banking license. The fees paid to the government for issuing the license can hike up to over half a million dollars and another half dedicated to legal fees. Of course, there are many other costs you will have to cover until you get that license. Also the application processing time is not too short and extends to over 12 months. Now, these may seem as all negatives, but really, they are just preventing measures to ensure that the institution getting licensed will be safe for depositors, will not commit any fraudulent actions and will not go into bankruptcy easily. This is the very reason why so many people and businesses choose offshore banking exactly in the Cayman Islands. As statistics have it, there are more than 70,000 companies registered there of which 350 are banks. This is a pretty big figure for a not so large piece of land.

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There are two types of FBAR violations for non-reporting offshore accounts: willful and non-willful and the IRS imposes very different penalties for each one. To put this into perspective:  

1. A willfulness penalty is the greater of $100,000 OR 50% of the balance in the foreign account at the time of the violation. 

2. A non-willful violation leads to a maximum penalty of $10,000.  What Am I Supposed to Do During an FBAR IRS Audit?  First off, the IRS is sending a clear message to the public. 

They are taking FBAR violations as serious and they will be using the case law as a tool during examinations. Taxpayers who might want to convince the IRS revenue agent that their failure to report a foreign bank account was unwillful will face these judgments above head on.  

1. The IRS agents will be fully cognizant of these court cases. 

2. The IRS agents will rely on these judgments to support their position  

Put differently, deniability in the form of ignorance of the FBAR obligation or insisting that you did not read or comprehend the tax return properly will in all probability not bring relief to anyone pinned in this position.  The key to turning these kinds of cases around is a clear understanding of what willfulness means in legal terms coupled with a clear understanding of what the government must produce to meet the required burden of proof.

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Financial Service Provider (FSP) is the license granted by the Financial Service Provider Register (FSPR) to companies in New Zealand after a process of application that includes the incorporation or registration of the entity with the Bureau of Companies. In order to maintain your license as a FSP, you must start being active within three months. Failure to do so will result in the license being revoked. This, of course, is not the only requirement you need to meet in order to obtain and keep a FSP license. Here are some of the key points you need to address when applying:

Have a physical office within the country. Have a compliance officer employed within the stated office. Make arrangements for client record-keeping and anti-money laundering to be handled by the firm’s office in the jurisdiction. Be a registered corporation and comply with the country’s business laws.  

We estimate that the costs of a FSP to keep its appointment is at least $40k to $50k a year.  

Once registered as a FSP your organization can offer:  

Financial adviser service 

A brooking service 

Acting as a deposit taker as defined in the 

Reserve Bank of New Zealand Act 1989 

Keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other people 

Providing credit under a credit contract 

Operating a money or value transfer service Issuing and managing means of payment (for example, credit and debit cards, checks, travel checks, money orders, bankers’ drafts, and electronic money) 

Giving financial guarantees 

Participating in an offer of securities to the public as an issuer of the securities or a promoter 

Changing foreign currency 

Entering into derivative transactions or trading in money market instruments, foreign exchange, interest rate and index instruments, transferable securities (including shares), and futures contracts on behalf of another person 

Providing forward foreign exchange contracts 

Acting as an insurer 

Providing any other financial service that is prescribed for the purposes of New Zealand complying with the FATF Recommendations, other recommendations by FATF, or other similar international obligations that are consistent with the purpose of the 2008 Act.  

The activities a FSP can undertake are practically unlimited and there are no restrictions (subject to the laws of the jurisdiction where it operates) as long as it does not take deposits from the New Zealand public or do not do business in New Zealand.  

Turning your organization into a FSP can be a very profitable business, however as we already established, it is not an easy thing to do. What is more, there have been new requirements added recently, which are very strict and can be complex if not addressed by a professional, such as a resident director.

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If you are a Forex trader you should consider opening an offshore company for that purpose. It is a good idea whether you trade for yourself or as a service provider for other individuals and businesses. As you know, some jurisdictions are more favorable than others for a number of reasons. In this video we will look at 5 tax havens that make a good spot for your Forex trading offshore company.  

British Virgin Islands  

British Virgin Islands is a good choice for those who also want to provide Forex trading services to others.  

Cayman Islands  

In the past, the Cayman Islands was considered one of the best offshore jurisdictions to open a company in, including for Forex trading. This is because of the high level of privacy it provided to its international clients.  

Panama  

Panama is one of the jurisdictions that many tax and business advisors would avoid. Again, this is due to the bad name the country received after being involved in a number of money laundering scandals.  

Seychelles  

Seychelles would be one of the most preferred locations to open an offshore company for personal Forex Trading.  

Singapore  

Singapore is currently at the top of the best country to set up an offshore company for Forex trading.

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International Payment Processor  

If you want to start a payment processor of your own, you will need to partner with a corresponding bank. It is not easy to get a corresponding bank account nowadays, but with a sound AML policy and regular policies and procedures in place and in writing, corresponding banks may consider your application.  

Money Transmitter (MT) Licensing  

In the US, one of the biggest challenges faced by startups in the fintech space, is that of money transmitter licensing. Obtaining money transmitter licenses is not easy. It involves a large amount of paperwork, money and time. It can take up to two years to amass all 50 state licenses for the USA.  

Initial Coin Offering ICO  

The primary reason for people leaning towards ICOs is that it looks like a much easier way to raise a large amount of money. Click for more info. There are instances where that is clearly the case and that will be a long-term phenomenon.  

Offshore Banking Licensing  

Offshore banking brings many benefits and it is completely legal when done correctly. But more useful is to know what are the best jurisdictions you can get a license for a start-up offshore bank.

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