Vca Panorama Issue 2 2012 Jan17

Vca Panorama Issue 2 2012 Jan17

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  Panorama January 2012 VOLUME 1, ISSUE 2 Remind Me, What Are The Bush Tax Cuts? There has been rigorous debate in Congress over the pending expiration of some tax provisions affecting individuals. A portion of these cuts were enacted in 2001 and some additional provisions followed in 2003. Since these individ- In this Issue: ual tax cuts were implemented during the first term of President George W. Bush’s administration, they are collectively referred to as the “Bush Tax Cuts”. Remind Me, What Are The As enacted, the cuts were scheduled in the original legislation to expire, or Bush Tax Cuts? “sunset”, at the end of 2010. Republicans and Democrats have opposite views on extending the tax cuts, and whether the wealthiest taxpayers should be pay- Status Report on the ing more tax. President Obama agreed in late 2010 to temporarily extend the Mexico-U.S. Tax expiration of those provisions until December 31, 2012, in order to buy more Information Exchange time to get a political deal on taxes negotiated. We are now early in 2012, so it might be helpful to give a refresher on the spe- What Is A Durable Power cific provisions that are scheduled to change at the end of this year. We will of Attorney? limit the discussion to those provisions affecting high income taxpayers and that are most relevant to those taxpayers. The following summary identifies the key New Disclosure provisions of the Bush Tax Cuts, as well as the prior rule that we will revert to Requirement For Foreign at the end of the year: Financial Assets! • Lowered the top rates on ordinary income to 35% from 39.6%. • Lowered long-term capital gains rates to 15% from 20%. • Gradually raised the estate exemption to $3.5 million by 2009, and at the same time lowered the top estate rate to 45% from 55% over the same pe- riod. (President Obama agreed to temporarily raise the estate exemption to $5 million per person and further lower the estate tax rate to 35% through the end of 2012). Story continues inside ...
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  Story continued fromfront ... would provide both countries with a powerful tool to detect, prevent and combat tax evasion, money laun- Remind Me, … dering, terrorist financing, drug trafficking and organ- ized crime. However, as of the date of this newsletter, • Lowered the tax rate on qualified dividends to there has been no formalization of the requested agree- 15% from 39.6%. ment. • Indexed the alternative minimum tax for infla- What seems to be the holdup, you might ask? There tion. has been no official comment by Secretary Geithner, • Certain itemized deductions are phased out but there has been some speculation. About the same above specified levels of income. time that Secretary Carstens sent his request, the U.S. • Personal exemptions are phased out above speci- had begun a sizeable and formidable undertaking fied levels of income. against Swiss banks who were facilitating U.S. citi- zens and residents in tax evasion through the use of Keep in mind that the Bush Tax Cuts expire on De- unreported bank accounts in Switzerland, and cloaked cember 31, 2012 absent new legislation to extend or in Swiss bank secrecy laws. modify those rules. This means that the pre-Bush Tax Cut law will automatically be reinstated as of In fact, there is only one country with which the U.S. January 1, 2013. has such an expanded tax information exchange agree- ment as that requested by Carstens – Canada. Some commentators have surmised that the U.S. lack of re- sponse to Mexico is motivated by its desire to protect Status Report On The Mexico-U.S. its own financial institutions. If the U.S. were to re- Tax Information Exchange port tax information to Mexico on accounts held by Agreement. Mexicans in U.S. banks, the funds would likely leave the U.S. banking system, which is still fragile from the In February, 2009, Mexico’s Secretary of Finance, 2008 meltdown. Agustin Carstens, sent a formal request to the U.S. Secretary of the Treasury, Tim Geithner proposing So, while it would seem that universal tax information to expand the information exchanged between the sharing among all countries would be acceptable with- two countries under the current treaty. There is cur- out objection, that does not appear to be the case. rently a treaty between the U.S. and Mexico for the bulk exchange of information on the payment of in- Perspective terest (between corporations), dividends and royal- ties. However, the two countries have historically Strength not exchanged information regarding the payment by banks in one country to residents of the other country. What Is A Durable Power of Attorney? Secretary Carstens expressed his concern in that let- ter that the current U.S. and Mexico treaty is not A power of attorney is a written authorization for an enough by itself to deter tax evasion by individuals, individual to act on behalf of another in dealing with a or to prevent criminals from hiding profits obtained third party. The parties to the arrangement are the from illicit sources in one country in banks in the principal, who is the person granting authority to an- other country. He believes that this can be done to- other to act on his behalf, and the agent, who is the day by simply opening a bank account in the other person to whom authority has been granted by the country. principal. As an agent, there is a fiduciary obligation The argument behind Carstens’ request was that an to act with honesty and loyalty to his principal. expanded tax information exchange agreement Continued next page
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  A power ofattorney may grant broad or very narrow New Disclosure Requirement for authority to the agent to act, and the scope of his au- thority is spelled out in writing. A principal can grant Foreign Financial Assets! the authority to perform any legal act that he could The IRS released new Form 8938, Statement of Speci- have performed for himself. Since powers of attor- fied Foreign Assets (“SFFA”) that some individuals may ney derive from contract law principles, the principal need to complete and attach to their 2011 Form 1040. must have legal capacity to act for himself, before he The attached chart will help you identify whether the can transfer such authority to his agent. new filing requirement affects you. For example, if Sam appoints David as his agent, to Generally, this form furthers the IRS’ continuing efforts act on behalf of Sam for any matter, and Sam has full to ensure that U.S. taxpayers are reporting and paying mental and legal capacity to enter the arrangement, tax on all their worldwide sources of income. Simply then David’s appointment should be respected by any stated, if you are a “specified individual” who owns third party that he deals with at Sam’s instruction. “specified foreign financial assets” whose total value However, if Sam becomes mentally disabled because exceeds the “reporting threshold”, then you need to con- of age, David’s authority will end because of that dis- firm with your tax preparer your filing requirements for ability. this new Form. Also note that this form is required in addition to the annual requirement to report Foreign To remedy that particular situation, we have the dura- Bank and Financial Accounts (“FBAR”) on Form 90- ble power of attorney. The principal makes his 22.1. power survive his disability, by specifying in writing that the power is durable, meaning that it survives the Following are some examples of foreign financial ac- principal’s disability. Durable powers of attorney are counts and foreign financial assets that need to be con- commonly used in U.S. estate planning to address sidered in determining your filing requirements: one of the risks we all face – who can act for me on financial matters if my legal capacity becomes im- paired? A word of caution – while durable powers of • Financial accounts maintained by a foreign financial attorney are highly recommended components of any institution (“FFI”) are SFFA’s. However, a foreign branch of a U.S. financial institution is not consid- individual’s estate plan, third parties are not obligated ered a foreign financial institution. to deal with an agent attempting to transact with the third party pursuant to your validly executed power • A FFI includes investment vehicles such as foreign of attorney. You should check in advance with any mutual funds, foreign hedge funds and foreign pri- third party with whom you wish your agent to deal vate equity funds. with on your behalf. • Stock issued by a foreign corporation. • A capital or profits interest in a foreign partnership. • A note, bond, debenture, or other form of indebted- ness issued by a foreign person. Integrity • An interest in a foreign trust or foreign estate. • Swap contracts with a foreign counterparty. • Options or other derivatives entered into with a for- Innovation eign counterparty. Don’t take this lightly. Failure to timely (with your Character 2011 Form 1040) and accurately file this form could re- sult in penalties of $10,000, plus another $50,000 for continuing the failure to file after being notified of the failure by the IRS.
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  If you answerall 3 questions yes, you must file Form 8938 with your 2011 Form 1040 • A U.S. citizen • A Resident Alien for any part of the tax year (Green card or Are you a Specified substantial presence test) Individual? • A Nonresident Alien electing to be a Resident Alien for joint tax return purposes • A financial account maintained by a foreign financial institution • Foreign financial investment as- Do you own Specified sets not held in a financial insti- Foreign Financial tution account: • Stock or securities from a non- Assets? U.S. issuer •Any interest in a foreign entity • Any financial instrument from a non U.S. issuer Unmarried & SFFA Value as of: Lives in U.S. Lives Abroad Last day of tax year, or > $50,000 USD > $200,000 USD Any time during year > $75,000 USD > $300,000 USD Is the value of those SFFA assets above the Reporting Threshold? Married filing joint & SFFA Value as of: Lives in U.S. Lives Abroad Last day of tax year, or > $100,000 USD > $400,000 USD Any time during year > $150,000 USD > $600,000 USD
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  View Capital Advisors,LLC was founded in 2004 by its principals with the mission of providing sophisticated Contributing to this issue: investment asset management and financial and estate planning to our U.S. and Non-U.S. clients. R. Craig Brubaker I. Michael Goodrich We seek to bring wealth planning best practices and a wide range of non-proprietary solutions to our clients. We also conduct our own research and diligence on 2000 McKinney Avenue, Suite 600 world markets and investment alternatives. Dallas, TX 75201 For further information, please contact your investment 214-855-2550 representative or one of our wealth planning specialists: www.view-cap.com R. Craig Brubaker 214-855-2556 [email protected] I. Michael Goodrich 214-855-2552 [email protected] To ensure compliance with requirements imposed by U.S. Treasury Regulations, View Capital Advisors, LLC, and its affiliates, informs you that any U.S. tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. View Capital Advisors, LLC provides asset allocation and investment advisory services through its affiliated registered invest- ment advisor, View Capital RIA, LP and provides trade execution services through its affiliate, VCA Securities, LP.