Topics Covered:

1. Are You Looking To Pay A $100 Million Tax Bill? If So, IRS Will Turn You Away If You Pay With A Check!
2. Investing In Charter-Schools
3. Fall 2015 Report Card Out By IRS On OVDP Milestones And FATCA Implementation.
4. Question from our listeners: I just got in the mail a Notice from IRS. It is identified as Notice Number CP504 and says – “Urgent!! They intend to levy Certain Assets.” I don’t agree that I owe this amount. How can I appeal? Will that stop the levy action?

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Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states:

And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states:

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states:

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states:

For today’s show we have coming up:

Segment 2 material: Investing In Charter-Schools

Windus states:

Also coming up is:

Segment 3 material: Fall 2015 Report Card Out By IRS On OVDP Milestones And FATCA Implementation.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Jeff states: So for today’s top story:

Are You Looking To Pay A $100 Million Tax Bill? If So, IRS Will Turn You Away If You Pay With A Check!

Jeff continues: This story was first reported by the Associated Press on September 14, 2015.

http://bigstory.ap.org/article/169640d82cd9462c9e006bc0b51b5b72/no-checks-please-irs-no-longer-takes-checks-over-100m

Starting in 2016, your check won’t be any good at the IRS if you’re making a tax payment of $100 million or more.

Windus states: Jeff you are saying that if you walk into an IRS Service Center with a check for $100 million dollars, the IRS will not accept it?

Jeff replies: It’s true. The IRS says it will reject all checks for more than $99,999,999 because check-processing equipment at the nation’s Federal Reserve banks can’t handle checks that big. Checks of $100 million or more have to be processed by hand, increasing the risk of theft, fraud and errors, according to a pair of memos from the IRS and the Treasury Department.

Windus states: And you would think that if someone was paying that much money, they would get special treatment anyways for the processing of that payment.

Jeff states: I guess the richest among us will have to pay their taxes just like everyone else and either wire their tax payments electronically or write multiple checks for less than $100 million apiece.

Windus: I bet the conservatives have latched on to this.

Jeff states: The Article does touch on this recognizing that conservatives have been complaining for years that President Barack Obama is trying to stick it to the rich, regularly proposing to raise their taxes. Now, they say, the Obama administration is making it harder for the super-rich to pay those taxes. Apparently, people sending huge checks to the federal government is a growing problem.

Windus asks: OK Jeff so how big of a problem is this – I cannot imagine somebody having to write a check for $100 million to the IRS for taxes?

Jeff states: Actually this limitation in amount is a problem not only with IRS but other federal agencies as well. The Treasury Department says it has noticed an increase in federal agencies trying to deposit checks of $100 million or more. In 2015 the IRS so far has accepted 14 checks for at least $100 million each.

Jeff continues: You see the Federal Reserve says most commercial banks can’t process checks with amounts that stretch for more than 10 digits, including cents. The Fed says federal agencies have been prohibited from depositing checks of $100 million or more for years.

Windus states: Apparently, the IRS didn’t get the memo. Do we know who any of the 14 taxpayers are that wrote checks to the IRS for at least $100 million?

Jeff replies: Confidentiality laws prevent those kinds of disclosures so we would never know unless it is admitted by the paying taxpayer. Very few individuals pay that much in federal income taxes. However, each year, the IRS tracks the 400 taxpayers with the highest incomes. These high rollers had an average income of nearly $336 million in 2012, the latest year for data. Their average tax bill was $56 million. A corporation would have to make nearly $300 million in taxable profits to have a tax bill of $100 million. Investors who get the bulk of their income from capital gains would have to make about $500 million in taxable income to have a tax bill that big.

Windus states: I wonder whether anyone in Congress has commented on this?

Jeff states: I do not think you will find much sympathy for people who will no longer be able to write enormous checks to the government. Most politicians would probably not mind making enough money to pay $100 million in taxes.

Windus states: Now for those people who have to pay $100 million or more, you still have the option to pay electronically.

Jeff states: That’s right and nearly 90% of individuals already file their federal taxes electronically, according to the IRS.

Windus states: I still don’t get it. The government is running at a deficit! 14 checks at $100 million a piece is $1.4 billion dollars and you can’t hire a government clerk to process this!

Jeff states: Windus you are assuming that each of those 14 people are writing a check for only $100 million. I am sure that there are checks even larger than that that would make the total even higher than $1.4 billion dollars.

Jeff continues: So bringing this to the level of us ordinary folk, you have got to understand that we are dealing with the government – not a general creditor. They want their money paid in full and in the manner that most suits them. For example, say you owe the IRS $50,000.00 and do not have the money to pay and want to enter into an Offer In Compromise whereby you are willing to pay $5,000.00 as a lump sum settlement. If the IRS believes you have the ability to pay the amount owed over as long as 10 years with interest and penalties that continue to accrue, they will not accept your $5,000.00 payment and instead put you on a payment plan collecting your money over the next ten years! That is why people who attempt to make their own Offer In Compromise to the IRS without representation usually fail.

Well it’s time for a break but stay tuned because we are going to tell you about Investing In Charter-Schools.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states: So Windus before we go into the next segment, please tell our listeners of your offer:

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Investing In Charter-Schools

Jeff states: So Windus you saw an article in the October 13, 2015 Wall Street Journal that caught your attention. http://on.wsj.com/1VZI82z

Windus states: That’s right apparently a new niche is developing as more charter schools open doors and some states even help with financing. Almost all charter schools are operated by nonprofit organizations. But these groups often rent and buy their buildings from private real-estate developers, and that is creating a new niche asset for some investors. The schools usually open in office buildings that are otherwise vacant.

Not a bad thing but what is interesting is:

1.  Why more charter schools? 

2.  Why office buildings? 

3.  Does State help hurt public schools?

Jeff to comment with Windus.

Windus states: Now another article on this topic came out in the Wall Street Journal on October 18, 2015 which is really summed up clearly. http://on.wsj.com/1Ps7SWp

Windus states: If we look at demographics of kids in charter schools versus public schools, ones that go to charter schools likely have parents taking a much more serious interest in their overall education.

Windus continues: So to know if a charter school is really better, “A true test would be for a charter school to take over a failing public school and, without changing any of the students and working with the same budget, show significant improvement.”

Jeff states: But you mentioned that some States help out in the financing and I would think that as an investor, those would be the better states to put your money in if you were looking to invest in charter schools.

Windus states: True and those States that have the highest percentage of students who perform poorly would probably fare well by having the State help out in financing of charter schools. Massachusetts could be one of those states.  Massachusetts Governor Charlie Baker wants to expand charter schools.  But again, why not reform public schools instead of creating a new school system. We are at a critical situation where reading and math scores are terrible.  In Massachusetts the comment was that 50% of their students are below average.  Kids in great home environments are not suffering, but the less fortunate you are in what Warren Buffet calls the “ovarian lottery” the more likely you are to just fall through the “crack” in public schools.

Jeff asks: Any such movement going on in Southern California?

Windus replies: In Orange County, there is a different kind of an activist that is really targeting fixing the school at the source. I read this article back in September in the Wall Street Journal and it deeply impacted me. http://on.wsj.com/1Yp90gq
Windus continues: In some cases the school and the unions are not helping the children and need to be challenged to change and get better.  A “parent revolution” can help fix a school but often this in communities where parents are working multiple jobs and the home environment is part of the issue with a child’s success. And so whether you are looking to investment in charter schools or have other investment/financial concerns, remember that:

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Jeff states: Windus I know that you have to get back to your meeting but I am glad you were able to be on with me for the first half of the show.

Windus signs off.

Jeff states: Stay tuned because after the break Amy Spivey will be joining me to tell you the Fall 2015 Report Card out by IRS On OVDP Milestones And FATCA Implementation.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states:

IRS Issues Fall 2015 Report Card On OVDP Milestones And FATCA Implementation

Offshore Compliance Programs For Taxpayers With Undisclosed Foreign Bank Accounts Generate $8 Billion; IRS Urges People to Take Advantage of Voluntary Disclosure Programs

Jeff states: On October 16, 2015 the IRS announced in a news release that more than 54,000 taxpayers have entered into offshore voluntary disclosure programs since 2009. Both the Offshore Voluntary Disclosure Program (OVDP) and the streamlined procedures enable taxpayers to correct prior omissions and meet their federal tax obligations while mitigating the potential penalties of continued non-compliance. There are also separate procedures for those who have paid their income taxes but omitted certain other information returns.

Amy states: IRS Commissioner John Koskinen stated “The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion. People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”

Jeff asks: Amy what sort of dragnet has the IRS created to catch non-compliant taxpayers?

Amy replies: Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and foreign jurisdictions, automatic third-party account reporting began in 2015, making it less likely that offshore financial accounts will go unnoticed by the IRS.

Amy continues: In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

Jeff states: OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

Jeff asks: Amy, When did the IRS first start OVDP?

Amy replies: OVDP was first started by the IRS in 2009. Since then there have been more than 54,000 voluntary disclosures by taxpayers with undisclosed foreign bank accounts. The IRS has collected more than $8 billion from this initiative. 

Jeff states: And the IRS is confident that it will catch those taxpayers who are not coming forward in OVDP. So we encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts or the foreign banks are reporting you to the IRS. By then, it could be too late to avoid the higher penalties and you may be subject criminal prosecution.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

OVDP Myths

Jeff states: During the course of U.S. taxpayers with previously undisclosed interests in foreign financial accounts and assets consulting with us on their options, we have heard a lot of myths out there causing confusion and misinformation so we are going to try and clear some misconceptions.

[Jeff to reading off each Myth and Amy to respond.]

Myth #1: An individual will be better off “explaining” the undisclosed foreign bank accounts through amended tax returns, rather than opting into OVDP.

Even outside of OVDP, any disclosure to the IRS requires that the taxpayer file amended tax returns and be prepared to provide the foreign bank information and statements to support the new income being reported. Such returns are signed by the taxpayer that they are true and complete. Being outside of OVDP the government can develop a case supporting severe penalties and even criminal prosecution using the combination of original filed tax returns which omitted the foreign income and amended tax returns reporting the foreign income as admissions of intent to evade U.S. income tax.  

Myth #2: Once an individual enters into OVDP, you cannot dispute the amount of penalties imposed by the program.

Just because the penalty rate structure is set in OVDP does not mean the amount of penalty can never be disputed. Agents assigned to OVDP cases do make mistakes and do misinterpret foreign bank income and transaction activity including those accounts, assets and transactions that should not be part of any penalty calculation. These disputes or differences can still be contested and challenged through different means and channels while still remaining in OVDP.

Myth #3: An individual who enters into OVDP opens up all years for examination since becoming a U.S. person for tax purposes with undisclosed foreign bank accounts and unreported foreign income.

While the normal Statute Of Limitations to examine a tax return is three years, it can be extended to six years where there is a substantial omission of income and where the government can show fraud, the government has no limitation on how far back it can go. Furthermore, the government has a six-year Statute Of Limitations to pursue criminal prosecution. A person who is in OVDP avoids criminal exposure and any income tax return amendments are limited to the last eight years or if shorter, from the time the individual becomes a U.S. person for tax purposes.

Myth #4: An individual who enters in OVDP is forfeiting assets, including entire lifetime savings and more to the government so that any income, inheritances, or gifts these people may receive in the future will belong to the IRS. 

Outside of OVDP, the MINIMUM penalty is 50% of the value of your foreign assets. But for taxpayers participating in OVDP, the MAXIMUM penalty is 27.5%. That means for taxpayers who are in OVDP, they will still get to keep at least 72.5% of their foreign assets.   And under the new Streamlined Procedures with a penalty of 5%, you still get to keep 95% pf your foreign assets.

Jeff states: Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”) or the new Streamlined Procedures. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states, Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment with Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Jeff continues: You should also know that the securities and advisory services are offered through National Planning Corporation (NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, what questions have you pulled for us to answer?

Question from Eric of Newport Beach: I just got in the mail a Notice from IRS. It is identified as Notice Number CP504 and says – “Urgent!! They intend to levy Certain Assets.” I don’t agree that I owe this amount. How can I appeal? Will that stop the levy action?

Answer. That notice is meant by the IRS to be threatening and intimidating but the IRS cannot levy with just this notice. The IRS must first issue a formal Notice of Intent to Levy. So while the IRS cannot carry out this threat now, you should not ignore the problem as the IRS will next issue a “Final Notice” that if the problem continues as unresolved will result in levy action. Eric I suggest that you call our firm and let us take control of your tax problem.

Now it was helpful that Eric told us the notice number that appeared on his letter from the IRS. The IRS knows that there are certain procedures they must follow before they can start levy action on your bank accounts, wages and other sources of income. The IRS also knows that taxpayers must be given the opportunity to appeal before levy action may begin. Perhaps that is the reason why the IRS will make these notices confusing and look the same so that when a notice gets issued offering appeals rights, it is overlooked by the taxpayer.

Be on the lookout for a Letter L-1058 or LT11 FINAL NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. Also be on the lookout for a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, Letter 3172. These letters will be sent to you by certified mail. These are the letters that if any appeal is not filed within the next 30 days from the date of the notice regardless of when you claim it or read it, the IRS will be able to commence levy action or keep the tax lien in place. It is imperative that you contact us when you get one of these notices so that you do not waive your appeals rights and your case can be resolved outside of IRS Collections.

Jeff PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: Well we are reaching the end of our show.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Jeff states: Have a great day and a great weekend!

Topics Covered:

1. The Economic Cycle And The Monday Morning Quarterback.
2. Covered California and what you need to know going into 2016.
3. Milestones in Foreign Account Tax Compliance Act, also known as FATCA.

4. Questions from our listeners:

   • What if a taxpayer has already filed amended returns reporting income from foreign assets without entering into the Offshore Voluntary Disclosure Program?

   • In what situation would you take social security at 62 versus 67 or 70?

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Windus states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Licensed Financial Planner, Windus A. Fernandez Brinkkord and my guest host today Sean Greene with Morrison Insurance Services, Inc. Jeffrey is out today, hopefully enjoying some time with the family as we speak

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Windus States, I’m going to fill in for Jeffrey and say:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

For today’s show we have coming up:

Segment 2 material: Covered California and what you need to know going into 2016.

Sean states: Also coming up in Segment 3 is Amy Spivey joining us from The Law Offices of Jeffrey B Kahn, P.C. to talk about: Milestones in Foreign Account Tax Compliance Act, also known as FATCA.

Windus: And of course towards the end of our show, we will be answering some of your questions.

Windus starts chit chat with Sean.

The Economic Cycle And The Monday Morning Quarterback

Last week the show took a pause mostly because both Jeffrey and I were on family vacations. Jeffrey in Florida and my husband and me in Charleston. It was a great five days and it gave me an opportunity to catch up on some reading. Ultimately my job is twofold: I help clients plan for their long term/mid-term/ & short term goals; and then I help them stay the course when things are turbulent. We just experienced an event that makes the second part of my job the most important: A market correction. While on planes traveling I did some reading, and it dawned on me that knowing where you are in an economic cycle is just like being a Monday morning quarterback. Everyone calls it after, few call it before.

A great example of this would be how much I “knew” the Fed would raise rates in September. And then, they didn’t. They ultimately didn’t for a number of factors and one of which was the correction the stock market was in at the time in which they had their meeting. Although they ultimately need to raise rates to give themselves more monetary policy in recessionary times, many believe we have a little more time before that next recession and therefore they still have some room. BUT how much room and how long before the next recession? No crystal balls here but I wanted to touch on a few articles that may be examples of how you can tell where we are in an economic cycle.

Sean, jump in here with questions.

There are four parts to an economic cycle. Understanding that can help to better understand timing of the next possible recession. However, peaks and expansion can last a longer than expected time, so just because we show signs of peak doesn’t mean that a recession is going to start tomorrow!

Here are the four parts: Expansion, peak, contraction, and trough. Pretty simple. To break it down quickly:

• Expansion is when the markets are growing. You typically see unemployment falling, and increases in pay, more housing “starts”/new construction.
• Peak is ultimately when this starts to wane a bit, maybe we start to see company’s thin work forces, hire less.
• Contraction is when manufacturing plummets, layoffs become prevalent.
• Trough is that time in between when the manufacturing turns around and companies start to hire again.

This is just a simple break down for everyone.

What caught my eye while traveling home from Charleston this week was the front page of the Business & Tech section of the Wall Street Journal on October 14^th. There were two articles. One stating that Truckers are seeing BIG increases in pay. The other article talked about how companies are trying the “firm 40” which is saying that they have enough employees to not need more than 40 hours of work from each and that they are focusing on quality of life. Wow. This is a 180 turnaround from 2008. In 2008, companies slashed their work forces squeezing each hour they could get out of each employee in order to try to stay profitable. And in many cases, reducing pay while doing that!

Sean, do you have any memories of what it was like in your industry in 2008?

Sean talks:

I’d like to pause quickly and let you know of an offer for the viewer’s today: Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Sean, I have several clients in different industries and another client made me start to think more about where we are in this cycle. She runs a staffing company. Staffing companies often see the peak coming before others because their businesses slow. Orders for new employees stall a bit. Do you have any companies that you work with that have spoken to you about that?

I’d like to re-visit another interesting aspect of the last two recessions, they started at the beginning of a new presidency. Ultimately at the end of the prior presidency the “tech” bubble started as Bill Clinton was finishing his term and George Bush Jr was starting his term. In fact. the tech bubble started in March of 2000 and George Bush was elected in the fall of that year. Let’s fast forward to the “Great Recession”. This started in December of 2007, President Obama was elected in November of 2008 and sworn in January of 2009. This recession ended in June of 2009, but the aftermath was a long term global recession that kicked off in 2009 and lasted for some time making the recession feel like it was longer then it was in reality. Food for thought, it’s been over 6 years since the last recession and that is longer than the average gap. In most recent history, though, this isn’t the case. The gap between the last few recessions has grown. Between the last 3 recessions the average has been 7.67 years. Kind of putting us in line with our next presidential turn over.

It kind of makes me feel bad for the next President. What do you think Sean?

Ultimately, knowing when the next recession will be would be fantastic, but we don’t get to know until it’s already started. Something that appears to be a correction, can turn into a recession if markers start to turn. What you should be focusing on in your investments is always investing with the correct timeline in mind and the correct risk tolerance in mind. People ask me for options to beat the less than 1% interest they are getting at the bank. If this is short term money and is needed for something on a short time horizon, you have to leave it in the bank. If this is money you don’t need for 3 to 5 years, you may have options, but those options likely won’t have guarantees and just realize that. For retirement money, if you aren’t retiring for 10 or more years, these pull back and recessions provide you with tremendous buying opportunities. These are the moments you should be saving more, and not worrying about the volatility in your principal balance. Working with an advisor during times where your ability to stay the course is challenged is a huge benefit.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Well it’s time for a break but stay tuned because when we come back we are going to talk with Sean about employee benefits, covered California and all the changes in regulation that are staying for the long term!

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Windus states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Licensed Financial Planner, Windus A. Fernandez Brinkkord and my guest host today Sean Greene with James Morrison Insurance Services, Inc. Jeffrey Kahn is out today, hopefully enjoying some time with the family as we speak.

Sean, thank you again for being here to co-host. Sean has a treat for us today, he is going to help us sort through some of the health insurance regulation for the state of California. Sean, you told me this has been a big week for health insurance. Why don’t you start by sharing what happened? Sean doesn’t just help companies with benefits but is also Vice President of political action committee of our local chapter of the association of health underwriting.

Sean, why don’t you tell us more about this association and then we’ll jump into the bills from this week.

Covered California and what you need to know going into 2016.

A few major bills:

1. Federally the PACE act has been passed.  This allows for the small group expansion to 100 employees to become a choice by each state.  Because California already passed in to law the expansion last year we will be staying with the small group definition of 2-99 employees at least thru 2016. 

2. On a state basis: Senate Bill 137- Carriers must update their online directories on a quarterly basis at minimum. AB 248- Large employers must provide plans with at least 60% actuarial value

General California group insurance news: 100,000 small businesses are renewing their coverage on December 1st. Last year one third of the amount of business moved and the carriers were still installing December business in mid-January

Companies on smartcare plans are seeing renewals of 40+ %.  Best solution for these businesses are Sharp and Calchoice

Healthnet has best rates for PPO

Blue Shield has 2^nd best and most consistent PPO rates

United Healthcare for companies offering HMO/PPO Options

According to Kaiser Family Foundation more than half of the still un-insured Californians qualify for either medical or subsidies thru the Affordable Care Act

3.85 Million Uninsured Residents in California.  37% or 1.4 million would qualify for medical.  16% or 623,000 are eligible for subsidies

Love it or hate it- Covered California is doing a great job of pinpointing pockets of uninsured and trying to connect with them

Individual open enrollment begins in November for January 1^st effective dates.  This is the one time of year (outside of qualifying events) that individuals can purchase or change their Health Insurance

Well it’s time for a break but stay tuned because when we come back we have Amy Spivey calling in to discuss Key Milestones in FATCA Implementation. If you have undisclosed foreign bank accounts you will not want to miss this.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Windus states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Licensed Financial Planner, Windus A. Fernandez Brinkkord. Jeffrey Kahn is off today so with me as my guest host today is Sean Greene with Morrison Insurance Services, Inc.

Calling into the studio from my Walnut Creek Office is Jeffrey Kahn’s associate attorney, Amy Spivey.

IRS Announces Key Milestone in FATCA Implementation; U.S. Begins Reciprocal Automatic Exchange of Tax Information under Intergovernmental Agreements

Windus states: The Internal Revenue Service announced on October 2, 2015 the exchange of financial account information with certain foreign tax administrations, meeting a key September 30th milestone related to FATCA, the Foreign Account Tax Compliance Act.

Amy states: This information exchange is part of the IRS’s overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions (FFIs) unless such FFIs agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Amy continues: To achieve this, the IRS successfully and timely developed the information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the intergovernmental agreements (IGAs) implementing FATCA.

Windus asks: Amy, what is the reason behind the Federal government enacting FATCA into law?

Amy replies: Well for a long time the IRS felt that U.S. taxpayers were keeping money abroad to evade paying U.S. taxes. There are also many U.S. taxpayers who are still not aware that when they file their U.S. income tax returns, they must report their worldwide income. So by enacting FATCA, foreign banks would eventually be reporting the same level of financial information as domestic banks already do to the IRS which the IRS can then use to verify compliance of U.S. taxpayers in reporting their worldwide income on their U.S. income tax returns. IRS Commissioner John Koskinen has even said that “meeting the September 30th deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements and that FATCA is an important tool against offshore tax evasion.”

Windus: I understand that a lot of foreign countries are also looking to benefit from the enactment of FATCA by in facilitating and participating in the exchange of financial account information so they can enforce their own tax laws on their citizens who may be evading that country’s tax laws.

Amy replies: That’s right. The U.S. government has entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but enable more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. And some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in U.S. financial institutions with their jurisdictions’ tax authorities. Under these reciprocal IGAs, the first exchange of information had to take place by September 30, 2015.

Windus states: It should be apparent that the risks of hiding money offshore are growing and the potential rewards are shrinking which is why if you have undisclosed foreign account or other tax issues, why do not even have anything to do with foreign accounts, you need to contact … The Law Offices Of Jeffrey B. Kahn as they will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. The number to call to make an appointment to meet with Jeffrey Kahn right here in downtown San Diego or at one of his other offices close to you is 866.494.6829. That is 866.494.6829.

Windus asks: So Amy what should one do if they have undisclosed foreign bank accounts and unreported foreign income?

Amy replies: You should see tax counsel as soon as possible. The tax law imposes penalties as high as $100,000 or 50% of the principal value of your foreign accounts per violation and you can be incarcerated for as long as 5 years if convicted by a Federal court. Since 2009, U.S. taxpayers have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP), which is open until otherwise announced.

Windus states: That is some serious punishment. Amy, what different programs are available to U.S. taxpayers?

Amy replies: The two main options are:

1. Offshore Voluntary Disclosure Program; and
2. Streamlined Filing Compliance Procedures.

Amy continues: The Offshore Voluntary Disclosure Program (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.  OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.

Amy continues: OVDP requires that taxpayers go back as far as eight years in amending income tax returns to report foreign source income and disclose foreign bank accounts. The taxpayers would include with their submission of these tax filings the payment of the back taxes, interest each year on the unpaid tax and a 20% accuracy-related penalty which is applied against the unpaid tax. In addition, the taxpayers would include payment of what we call the “OVDP penalty” which is 27.5% of the highest balance of the foreign bank account in the past eight years. The IRS in return will not pursue charges of criminal tax evasion which would have resulted in jail time or a felony on your record and the IRS will not pursue impose the other multitude of penalties the tax law otherwise provides.

Windus asks: What about the other option you mentioned of Streamlined Filing Compliance Procedures?

Amy replies: The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.  The key factor to be eligible for the streamlined procedures is that a taxpayer must show that he is non-willful in failing to report worldwide income and disclose foreign accounts.

Windus asks: If the streamlined procedures require a taxpayer to prove he was non-willful in failing to report the foreign account and foreign income and the regular OVDP does not, why would it still be beneficial to pursue the streamlined procedures?

Amy replies: Well for one thing that penalty is a lot lower. Recall that under regular OVDP the penalty is 27.5% penalty based upon the highest balance of the account in the past eight years. Beginning August 4, 2014, this rate increases to 50% for U.S. accountholders of certain foreign banks. Under the streamlined procedures the penalty is 5% of the highest balance of the account in the past six years and if you are a foreign person, that penalty can be waived under the streamlined procedures.

Windus states: So it appears that for the streamlined procedures, the effort that you must place the most emphasis on to have a successful result is not so much in the preparation of the amended tax returns but showing that a taxpayer is non-willful.

Amy replies: That is correct. Many people think just by stating to the IRS that they did not know the law requires that you must report foreign income on your U.S. income tax return and disclose foreign accounts on an FBAR will satisfy this non-willful standard. There is a lot more than that to meet this standard. In fact we have identified over 50 factors that we cover with our clients which we then address in the non-willful statements that get included with the packages submitted to IRS. A comprehensive non-willful statement is the key to a successful submission.

Windus states: This is a great opportunity to come into compliance and is no longer available to you if the IRS has found you first so contact… The Law Offices Of Jeffrey B. Kahn as they will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. The number to call to make an appointment to meet with Jeffrey Kahn right here in downtown San Diego or at one of his other offices close to you is 866.494.6829. That is 866.494.6829.

Hey Amy please stay on the phone with us for our questions to answer in segment 4 and Sean gets the honor of reading them!

Stay tuned. You are listening to Licensed Financial Planner, Windus A. Fernandez Brinkkord & Sean Greene, employee benefits broker and Amy Spivey with the Law Offices Of Jeffrey B. Kahn, P.C. on Inside Advantage on ESPN.

BREAK

Windus states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Licensed Financial Planner, Windus A. Fernandez Brinkkord. Jeffrey Kahn is off today so with me is my guest co-host Sean Greene with Morrison Insurance Services.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

You should also know that the securities and advisory services are offered through National Planning Corporation.(NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.

Windus states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

Sean, please do the honors of asking the questions today:

Question 1: What if a taxpayer has already filed amended returns reporting income from foreign assets without entering into the Offshore Voluntary Disclosure Program?

Windus: Amy, this is obviously a question for you, I’ll let you take it away.

Amy replies: When a taxpayer bypasses the Offshore Voluntary Disclosure Program and instead files the delinquent FBAR’s and amends income tax returns to include foreign income, that we call is a “quiet disclosure”.

Amy continues: The IRS is aware that some taxpayers have made “quiet disclosures” by filing amended returns, by filing delinquent FBARs, and paying any related tax and interest for previously unreported income from foreign assets without otherwise notifying the IRS. Because of this the IRS has put procedures in place whereby its computers can detect these filings and now open up examinations or investigations against these taxpayers. Our firm has already seen this happen.

Amy continues: That is why taxpayers who have already made “quiet disclosures” are encouraged to participate in OVDP by submitting an application, along with copies of their previously filed returns (original and amended), and all other required documents and information to the IRS’s Voluntary Disclosure Unit. By doing this taxpayers are protected from criminal prosecution and obtain the favorable penalty structure offered under OVDP. Unlike a voluntary disclosure through OVDP, quiet disclosures provide no protection from criminal prosecution and may lead to civil examination and the imposition of all applicable penalties. And remember, once the IRS starts an examination or investigation, it is too late to enter into OVDP.

Windus states: Clearly the landscape has changed for those with foreign accounts which we why you need to contact …The Law Offices Of Jeffrey B. Kahn as they will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. The number to call to make an appointment to meet with Jeffrey Kahn right here in downtown San Diego or at one of his other offices close to you is 866.494.6829. That is 866.494.6829.

Sean asks Question 2: In what situation would you take social security at 62 versus 67 or 70?

Windus: I love this question. I go over this with clients in all different situations. Just to tie this into our first segment, this is very much a Monday morning quarterback issue. Unless you can tell me definitively when you are going to die, we wouldn’t know for sure. There is certainly guidance I can give you though. In many cases if you are married, you can be creative and wait until full retirement age, opt to take your spousal benefit and the switch to your benefit at 70. Social security grows at an 8% growth rate from your normal retirement age until 70. I’ve had clients tell me that they aren’t going to live a day past 80. If that is the case, taking it at 62 will likely earn more money. There is great software that helps us navigate this. It allows us to take in to consideration if you aren’t married now but have been for more than 10 years and we can take a look at the spousal versus your own benefit. If you are going to live until 100 we can tell you how much more you’d earn if you were to take it early versus wait. In some cases, waiting earns you $100,000 over the course of your life. If that was the case, why would you wait? This question is really about being armed with the knowledge on how to navigate the system and we have some great tools for that.

Windus states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Sean, thank you for joining us, hope to have you back again. Amy, thank you for calling in! Have a great weekend everyone.

Topics Covered:

1. So the Federal Reserve made its decision yesterday to hold rates steady
2. Have ETFs Reached A Breaking Point?
3. How the new Streamlined Procedures for taxpayers reporting undisclosed foreign bank accounts are being administered by the IRS.
4. Questions from our listeners:

• I am a U.S. citizen living and working outside of the United States for many years. Do I still need to file a U.S. tax return?
• I pay income tax in a foreign country. Do I still have to file a U.S. income tax return even though I do not live in the United States?
• I am a U.S. citizen married to a nonresident alien. What is my filing status and can I claim an exemption for my foreign spouse?

******************************************************************

Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states: And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services. You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states: When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states: And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states: Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states: For today’s show we have coming up:

Segment 2 material: Have ETFs Reached A Breaking Point?

Windus states: Also coming up is:

Segment 3 material: How the new Streamlined Procedures for taxpayers reporting undisclosed foreign bank accounts are being administered by the IRS.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Jeff states: So for today’s top story:

So the Fed made its decision yesterday to hold rates steady

This was breaking news reported on September 17^th and of course all the news media picked to up. We looked at an article posted in Yahoo Finance on September 17th http://finance.yahoo.com/news/looming-fed-rate-decision-test-050656810.html

Jeff continues: So in case you have not heard this yet, the U.S. Federal Reserve in its September meeting voted to keep interest rates unchanged given their concerns about the global economy, financial market volatility and sluggish inflation at home, but left open the possibility of a modest policy tightening later this year.

Windus states: Fed Chair Janet Yellen said in a press conference that developments in a tightly linked global economy had in effect forced the U.S. central bank’s hand.

Windus states: The U.S. economy has been performing well enough to perhaps justify a rate hike “and we expect it to continue to do so,” Yellen said shortly after the Fed’s policy-setting committee released its latest statement following a two-day meeting.

Windus states: But Yellen added that “the outlook abroad appears to have become less certain,” driving down U.S. equity prices, pushing up the dollar, and tightening financial conditions in a way that may slow U.S. growth regardless of what the Fed does.

Windus states: “In light of the heightened uncertainty abroad … the committee judged it appropriate to wait,” Yellen said. “Given the significant economic and financial interconnections between the U.S. and the rest of the world, the situation abroad bears close watching.”

Jeff states: Now we have been hearing for a long time from Ms. Yellen that the decisions of the Fed are still be “data-dependent”. Windus, in making this decision to hold rates steady, is the Fed marching to a different beat?

Windus replies: I do not think so but it should be clear that international events and how they impact global markets are a variable for the Feds to consider.

Jeff asks: What about the concept that the U.S. economy is so large that even with a slow-down abroad, the U.S. economy could still be strong and weather through such a storm?

Windus replies.

Jeff asks: So getting back to the Fed’s decision, is there any future guidance we can pull from this?

Windus replies: The Fed still maintains its bias towards a rate hike sometime this year, while lowering its long-term outlook for the economy. The Fed still has two more meetings this year – one in October and one in December. Fresh economic projections showed 13 of 17 Fed policymakers foresee raising rates at least once in 2015, down from 15 at the last meeting in June. Four policymakers now say rates should not be raised until at least 2016, compared to two who felt that way in June.

Jeff asks: I always hear terms describing Fed officials as being doves or hawks. Can you explain the difference to our listeners?

Windus replies:

Jeff states: Now the Fed does make projections of GDP growth, unemployment and inflation and considers the projected movements in making rate change decisions. Windus, what are some of the projections that the Fed has communicated to the public that this article mentions?

Windus replies: Taken as a whole, the latest Fed projections of slower GDP growth, low unemployment and continuing low inflation suggest that concerns of a so-called secular stagnation may be taking root among policymakers. One policymaker even suggested a negative federal funds rate.

Windus states: The median projection of the 17 policymakers showed the Fed expects the economy to grow 2.1% this year, slightly faster than previously thought. However, its forecasts for GDP growth in 2016 and 2017 were downgraded.

Windus states: The Fed also forecasted that inflation would creep only slowly toward its 2% target even as unemployment dips lower than previously expected. It sees the unemployment rate hitting 4.8% next year and remaining at that level for as long as three years.

Windus states: Considering the foregoing, the Fed’s projected interest rate path shifted downward, with the long-run federal funds rate now seen at 3.5%, compared to 3.75% at the last policy meeting.

Jeff asks: So do you think that the Fed is being more dovish or hawkish now that growth projections revised down?

Windus replies: Despite the possibility that we could enter into some period of stagnation, I agree with the consensus that in the absence of any serious derailing of the economy, there will be some increase in rates before the year is out. Remember that we still have two Fed meetings to go before year’s end.

Jeff states: So it looks like the saga will continue into the 4^th quarter of 2015 and for now the status quo continues.

Well it’s time for a break but stay tuned because we are going to tell you about the new concerns over ETF’s.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states: Windus is calling into the studio as she is out on assignment and so in this next segment we want to talk about ETF’s.

Have ETFs Reached A Breaking Point?

Jeff states: A September 13, 2015 article in the Wall Street Journal caught your attention Windus. http://on.wsj.com/1QyPjgM

Jeff states: And in this article it reports how fund managers such as Black Rock, Inc. are trying to figure out what went wrong as the extreme stock-market gyrations in August exposed cracks in the business of exchange-traded funds.

Windus states: Which is one of the reasons why I thought we could talk a bit about the difference between a mutual fund and an ETF and when or why you’d chose to use one over the other.

Jeff asks: So first describe what is a mutual fund?

Windus replies: A mutual fund is a pooling of investors dollars towards a common objective.  Like growth, or income, etc. 
Windus states: This investment instrument can be either all stocks, all bonds, or a blend.  It can even have currencies in them and what have you.
Windus states: Mutual funds were originally created as a means to allow investors to invest with less risk because they were able to diversify with the purchase of one share, but also with a lower minimum.  With a mutual fund, you can typical start investing for as little as $50 a month.  Instead of trying to figure out how to buy one stock at a time, you have access to many with a small amount monthly.  Another great aspect of a mutual fund is the ability to always sell.  With a stock you technically have to reach out to the open market to find a buyer, with a mutual fund, you simply hit the redeem button.  Only in rare occasions will redemptions be stopped, or paused for a period of time.  Mutual funds are actively managed by a portfolio manager and typically a team of analysts.  Some have multiple portfolio managers.

Windus states: Another aspect of a mutual fund is that they settle in what we call “end of day” meaning that no matter when you sell during the day, the sale price will be reflective of the end of the market day not the time in which you imputed your sell order.  Now we are starting to talk about the differences of a mutual fund and an ETF.  Mutual funds sometimes get bad raps in markets where an index would have outperformed it.  What we need to realize is there are going to be rolling periods in the market when an index would have outpaced the mutual fund, and vice versa, and that you are ultimately buying the mutual fund instead because you believe in the manager’s ability to navigate the markets over time better than a straight index would. 

Jeff asks: so what is an EFT?

Windus replies: ETF’s are Exchange Traded Funds.  Like mutual funds, they can be a blend of both stocks bonds, or one or the other or even currencies, etc.  BUT unlike a mutual fund, and ETF is not necessarily actively managed.  ETF’s are commonly passively managed, meaning that they are periodically reset or reviewed by a manager but not daily reviewed or managed like a mutual fund.  Actively managed ETF’s have some about in current time and may gain traction but the benefit of the ETF is the lower fees, which wouldn’t be the case if they were to become managed the same way a mutual ultimately is.  Another interesting aspect of an ETF, which is the cause of some recent issues, is that you can redeem it the same way you redeem a stock.  If it is 9:02am and I enter the order to sell, the price I am given at that time is my settlement price, not the end of day price like it is with a mutual fund. 

Jeff states, before we go on Windus has a special offer for our listeners.

Windus states PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Windus states: You should also know that the securities and advisory services are offered through National Planning Corporation (NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.
Jeff states: Windus now that you have done a brilliant job in explaining mutual funds and ETF’s, tell us about what the Wall Street Journal article reported that really put ETF’s to the test. 

Windus states: As the Wall Street Journal article on September 14th highlighted, at 9:42am on August 24th one specific ETF tumbled 35% to its lowest level of the day, this is right when the markets were about to open with a 1000 point drop in the DOW.  At that time the combined weighted values of the stocks the ETF held was $72.42, just down 2.7% for the day.  How can the ETF sale price be $48.00 when the real value would be $72.42?  Assets in the ETF market have grown to roughly $2 trillion up from $305 billion a decade ago.  The volume of ETF’s being trades are up 14.9% compared to a decade ago.  Real time valuing an asset that holds multiple positions is a real challenge and apparently discrepancies can be found when trading volatility picks up. 

Windus continues: This isn’t the first time we’ve seen this, another instance was reported in 2012 as well.  As more and more investors connect to the markets on a daily basis more readily, this instant “valuation” of products that have so many positions may come under further pressure.  It has also yet to be seen how a bond ETF can actually handle money rapidly flowing out of it, and that time will come one day as well.  Mutual funds experience similar pressure but because they are not as instantly traded and because you often pay to be there, people are more cautious on getting out as they are when you can click a button and get out that second. 

Jeff asks: It seems that if people and get in and out of investments quickly by going online, I would think that more of these transactions are being made without much thought people are making bad decisions. Windus what do you think?

Windus responds.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Well Windus I know that you have to head off but I am glad that you were able to stay on for the first half of the show.

Windus signs off.

Jeff states: Stay tuned because after the break we are going to tell you how the new Streamlined Procedures for taxpayers reporting undisclosed foreign bank accounts are being administered by the IRS.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Windus is on assignment today so calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Streamlined Filing Compliance Procedures

PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: For someone with undisclosed foreign bank accounts and unreported foreign income who does not come forward and the IRS instead finds them, they are be looking a huge penalties. The penalties for noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The criminal penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report. As for the civil penalties they include a penalty equal to 50% of the principal in the undisclosed foreign bank accounts.

Jeff continues: We have been putting the word out for quite some time that if you have unreported foreign income and undisclosed foreign bank accounts, there are special programs in place with the IRS that you can avoid criminal prosecution and get a reduction in penalties that would otherwise be charged by the IRS. One of those programs are the “streamlined procedures” offered under the Offshore Voluntary Disclosure Program (OVDP).

Amy states. That’s right. The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.

Jeff asks: So let’s discuss the eligibility criteria for the streamlined procedures. [Jeff to read off each item and Amy to explain].

Jeff states: Taxpayers must certify that their conduct was not willful.

Amy replies: Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify, in accordance with the specific instructions, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1) was due to non-willful conduct.  

Jeff states: We will talk more about what constitutes non-willful conduct but for now you need to recognize that you cannot just make general statements that you did not know about this. The IRS is looking for details of your circumstances and your background to show that you had no reason to know or to make further inquiry on what were your reporting obligations.

Amy states: And when you make the statements to justify that your conduct was non-willful in the streamlined procedures, you are making them under penalties of perjury. Making false statements in an attempt to get this treatment will put you in more trouble.

Jeff states: The standard of what you need to show that you are non-willful is complicated as many factors need to be considered. When conducting the analysis for our clients and compiling these statements, we consider over 50 factors to justify that a taxpayer is non-willful. These are then incorporated and addressed in our non-willful statements to provide the most persuasive argument that a taxpayer should be deemed non-willful and therefore benefit under the streamlined procedures.

Jeff states: IRS has initiated a civil examination of taxpayer’s returns for any taxable year.

Amy replies: If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Jeff states: So even if the IRS were to randomly select you for an audit not knowing that you have unreported foreign income, you are locked out from this program. That is why one should not delay in coming forward – you want to beat the IRS at the pass.

Jeff states: Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments.

Amy replies: Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures. However, any penalty assessments previously made with respect to those filings will not be abated. 

Jeff states: So just because you may have been hit with a penalty by the IRS for a late-filed foreign information return like an FBAR or you filed amended income tax returns disclosing the foreign income, you can still get into this program.

Jeff asks what is the general treatment by the IRS under the streamlined procedures?

Amy replies: Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS. 

Jeff states: So these submissions are treated no differently than when you file your annual income tax return. Just because you include a check for the balance due and the IRS cashes does not mean you can’t be selected for audit sometime in the next three years.

Amy replies: Returns submitted under either the Streamlined Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.

Jeff states: The penalty under the streamlined is equal to 5% of the highest annual aggregate foreign account balance over the last 6 years and if you can show that you were a foreign person in any of the last three years, this penalty is completely waived. Additionally, as long as you are in the program, the IRS states it would not be pursuing criminal charges.

PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Windus is on assignment so I have my associate attorney, Amy Spivey, helping me out.

Jeff continues:

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call Windus A. Fernandez Brinkkord at her office to make an appointment. The number to call is 858.314.5169. That is 858.314.5169.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, what questions have you pulled for us to answer?

Question: I am a U.S. citizen living and working outside of the United States for many years. Do I still need to file a U.S. tax return?

Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits. 

Question:  I pay income tax in a foreign country. Do I still have to file a U.S. income tax return even though I do not live in the United States?

You have to file a U.S. income tax return while working and living abroad unless you abandon your green card holder status by filing Form I-407, with the U.S. Citizen & Immigration Service, or you renounce your U.S. citizenship under certain circumstances

Question:  I am a U.S. citizen married to a nonresident alien. What is my filing status and can I claim an exemption for my foreign spouse?

In general, if you are a U.S. citizen or resident alien married to a nonresident alien, you are considered “Married Filing Separately” unless you qualify for a different filing status. If you pay more than half the cost of keeping up a home for yourself and a qualifying child or other relative, you may qualify for the head of household filing status.

If you are a U.S. citizen or resident alien married to a nonresident alien, you and your spouse can choose to have your spouse treated as a U.S. resident for all U.S. federal income tax purposes. This allows you and your spouse to file a joint return, but also subjects your nonresident alien spouse’s worldwide income to U.S. income tax.

If you file a joint return, you can claim an exemption for your nonresident alien spouse. If you do not file a joint return, you can claim an exemption for your nonresident alien spouse only if your spouse has no income from sources within the United States and is not the dependent of another U.S. taxpayer.

Jeff PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: Amy thanks for joining us on today’s show.

Amy replies: Thanks for having me.

Jeff states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Jeff states: Have a great day everyone and a great weekend!

Topics Covered:

1. The Federal Reserve – Should I Stay Or Should I Rise?
2. It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals! – Jeb Bush’s Tax Plan
3. State Of California Taxation and Collection Tools Used By The State.
4. Questions from our listeners:
   • What’s a credit score?
   • Is it really true that I could settle my tax debt with the IRS for a discounted lump-sum payment?

***************************************************************************

Jeff states: Yes sometimes we just have to take the money and run!

Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show. This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states: And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.
You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states: When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states: And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states: Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states: Well today it’s “Full House Friday” because we have the whole Inside Advantage crew at bat – Amy Spivey will be calling into the show a little later and here in the studio with me and Windus is my paralegal, Susannah Kahn. Hi Susannah.

Sue says hi and chit chats with Windus and Jeff.

Jeff states:

For today’s show we have coming up:

Segment 2 material: It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals and the first one to talk about is Jeb Bush’s plan.

Windus states:

Also coming up is:

Segment 3 material: We are going to talk about how the State Of California taxes its citizens and what you need to know.

And of course towards the end of our show, we will be answering some of your questions.

Jeff states: So for today’s top story:

The Federal Reserve – Should I Stay Or Should I Rise?

Posted September 10, 2015 in Yahoo Finance. http://finance.yahoo.com/news/september-rate-hike-wont-175650188.html

Jeff continues: Next week will be a big one for U.S. markets as the Federal Reserve is due to hold its monthly policy meeting over two days on Wednesday and Thursday. The September meeting is a pivotal one, as investors are 50/50 on whether the bank is planning to raise interest rates this month or hold off in light of the recent market turmoil.

Windus states: In general, the rate that the Federal Reserve (or as everyone calls it the Fed) is talking about raising is the Discount Rate. The Discount Rate is the short term rate in which commercial banks borrow from the local federal reserve. When this rate is low, banks can turn around and lend out to people at lower rates. When this rate is high, banks have to charge higher rates when lending money out to people.

Windus continues: It is a common misunderstanding that the Discount Rate is a mortgage rate.  It isn’t, but the Discount Rate does impact mortgage rates.  Because when banks borrow from the Fed to turn around and make loans, if they now have to borrow at a higher rate from the Fed, they have to charge more interest to people on the loans they take from the bank.  Therefore, when the Fed raises the Discount Rate, so does everything else.

The Fed Divided

Jeff states: The article in Yahoo Finance states that Fed officials appear to be divided on whether to raise rates, as comments from the central bankers in past weeks show that there are several opinions on the matter.

Jeff continues: Some Fed officials believe that low rates for an extended period could eventually trigger asset bubbles. Those who support a rate hike point to the job market’s improvement, saying that the U.S. economy is ready to stand on its own. However, on the other hand, worries about inflation and China’s economic slowdown are making some central bankers nervous about a hike.

Why do banks borrow from the Fed?

Windus states: People think that banks should have their own money to lend and so why do banks borrow from the Fed.

Windus continues: Banks are required to maintain a certain level of reserves.  The required reserves are determined by the outside assets and liabilities of each depository institution, as well as the Fed itself, but the percentage typically used is 10%.  In 2007 and 2008, this number was 3%.  Partially due to the default of loans to financial institutions to prevent them from breaching this required deposit amount.  In 2007 and 2008, banks stopped lending for two reasons, loans were higher risk and they were having to keep more money on their balance sheets, but also because they have to meet this monetary deposit requirement and didn’t want to come under pressure.  Therefore, the Fed lowered the Discount Rate to make it easy for banks to borrow from them to cover this requirement and ultimately free up money for the bank to lend again. 

Jeff states: But we all know the flood gates of easy loans did not open. Instead the banks kept the funds for investment because the risk was too great for them to start lending again.

Investors Brace For Market Shock

Windus states: The article in Yahoo Finance goes on to state that as the Fed has waded out into uncharted territory by keeping interest rates low for such a long period and so many are unsure of how a rate hike will affect markets. Many investors worry that a rate increase will wreak havoc on share markets and have begun to prepare their portfolios.

Windus continues: The article suggests that for investors expecting a rate hike next week, financial sector stocks are an attractive bet, as most banks will be able to pass the cost of regulatory changes on to consumers, thus protecting their bottom lines. And in other sectors like healthcare and technology, the article suggests that investors are choosing stocks with low debt levels as borrowing is expected to become more costly with a rate increase.

Slow And Steady

Jeff states: Whether the Fed chooses to raise the Discount Rate this month or holds off until October or December, most analysts agree that a rate increase is coming sooner or later. However, some say the market’s panic is overdone as the Fed has promised to move slowly with consecutive rate increases after the first hike.

Windus states: What people do not understand is that the Discount Rate has never been this low in the history of the Discount Rate.  This rate is what we refer to as one of the Fed’s tools to stabilize the economy. Right now, unemployment is 5.1%, the lowest we’ve seen 2008.  This rate fell much quicker than the Fed anticipated.  If the economy continues to improve at this employment rate, the Fed needs to raise the Discount Rate.

Why does the Fed need to raise the Discount Rate?

Jeff asks Windus: Why do they need to raise the rate? 

Windus replies: If the Fed doesn’t raise the rates, then in the next recession, there will be less monetary policy options for the Fed to implement to get the economy moving.  Another concern about leaving the Fed rates low is that this could cause a bubble.  For example, a housing bubble by driving the purchase of more homes due to lower rates, we’ve seen that impact on the markets in the last 10 years.  Not something that we’d like to have a repeat of.

Windus continues: Now not raising them in September isn’t the end of this, in fact they meet again in October and December and will likely raise before the end of the year regardless of what they do in September.  In fact, it is possible that they will raise this rate more than once this year if they do raise it in September.

Jeff states: The Fed has stated that before making any subsequent rate adjustments, it would first evaluate the outcome of its first rate hike and could even lower rates again if there is a negative economic reaction following the increase.

Windus states: Ultimately, we are looking at a quarter of a percent rate hike in the month of September, maybe.  That would be a rate hike from 0% to .25%.  AND the long term current goal is to have this rate back up to 3.5% or 3.75% before the need to lower it occurs again.  The longer we take to raise it, the less likely it will be that the Fed can get it there before the next recession! The current Fed funds rate is .25%, the current Discount Rate is .75%

Well it’s time for a break but stay tuned because it’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals and the first one to talk about is Jeb Bush’s plan.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.

It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals!

Jeff states: And for our first candidate we will be talking about Republican presidential candidate, Jeb Bush who Wants Fewer Tax Breaks for Wealthy Than Most in the GOP.

His tax proposal was published in the Wall Street Journal on September 9, 2015 http://on.wsj.com/1hZcdlJ. It states that Mr. Bush would change income-tax rules and curb deductions that he says often unfairly benefit high-income households

Windus states: Mr. Bush’s proposal is the first of many tax plans to come out of this election season.  The election season is becoming like the holidays…starts too early and goes on too long. Can’t beat it so we may as well join it!

Windus continues: The general idea that I am picking up on is that this candidate will want to reduce taxes for the middle class but target increases on the wealthy.

Jeff asks Windus: What defines wealthy in the United States? 

Windus replies: Income is commonly used to determine “wealthy” and that is certainly what is being used to determine it for the Presidential candidates. Before you assume you’ll want the wealthy to be taxed at a higher rate, you may want to see how this would impact you and that is where some good financial planning comes into play because…

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Jeff states: Now the upper middle class is most commonly defined as the top 1% with household incomes above $525,000 annually, as of 2013 and as many presidential hopefuls learned in the past, the promise to raise taxes is not a winning campaign platform yet you cannot promise tax cuts without finding offsetting new revenues.

Windus states: Mr. Bush believes his tax cuts will spur economic growth and the more growth, the more new tax revenues. Specific to his plan, taxpayers who earn more than $200,000 annually “will bear a greater share of our income-tax burden than they do today”. “So the top 5% will bear a greater share,” he said, “And the top 10% as well.”

Windus continues: The way in which he plans on doing this is two-fold: 

1.  Allowing a tax deduction of interest on debt, which makes borrowing more attractive; and 

2.  Permitting what is called “carried interest” which allows investment-fund managers to pay lower taxes on much of their compensation.

Jeff states: So Mr. Bush is proposing that we treat more than just mortgage interest as a tax deduction but interest on other debts as well and when this increased level of borrowing, there will be greater economic activity.

Windus states: Another interesting aspect of his plan is to have few tax brackets…this would actually help wealthier taxpayers, but not so much for us California taxpayers who pay high state taxes because the deductions for state and local taxes would be eliminated and all other deductions would then be capped at 2%. 

Jeff states: Now, just like everyone, Mr. Bush believes his tax cuts will spur economic growth.  And it is entirely possible, if passed they could.  Of course this is not something that is easy to judge until the action is taken and we can see its impact.

Windus states: Change is difficult.  I understand we need change.  Some of this just sounds like it may be very costly for those essentially earning more than $150,000 and living in California.  And that may not be different for any of the tax reformation proposals we will be reading about in the next year which is why you should consider making a sound financial plan.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

Well it’s time for a break but stay tuned because we are going to tell you we are going to talk about how the State Of California taxes its citizens.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.

And calling into the studio from my Walnut Creek Office to make this a “Full-house Friday” is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states: We always talk about the IRS and its enforcement of the Federal Tax Laws so I thought that for this segment we would focus on State Taxation in this great State Of California.

State Of California Taxation.

Amy states: Unlike the Federal level which has one tax agency handling the administration, enforcement and collection of all Federal Taxes (income, employment, excise), the State Of California tax system is organized into three separate tax agencies:

1. Franchise Tax Board (FTB) which deals with State Income Tax
2. Employment Development Department (EDD) which deals with State Payroll Tax
3. Board Of Equalization (BOE) which deals with Sales & Use Tax, and Other Taxes & Fees

Windus: Amy, you would think that with our nation being so large that it would be the other way around where the Federal tax agency level would be divided up into different agencies and the State Of California operating with one tax agency?

Amy replies: True and most States do operate with a single tax agency like the Federal government. But as I said California is different and so to effectively deal with the State, you need to know how it agency operates.

Jeff states: OK Amy so let’s talk about FTB.

Franchise Tax Board (FTB)

Amy replies: FTB is responsible for administering two of California’s major tax programs: Personal Income Tax and Corporation Tax. Some other tax enforcement programs administered by the FTB:

1, City Business Tax Program – The FTB will exchange data with participating cities. City data helps the FTB identify self-employed individuals who are not filing required individual and business entity income tax returns, and state tax data helps cities identify businesses that may have a local business tax filing requirement.

2. Criminal Investigations – The FTB’s investigative efforts help bring individuals and business entities into compliance with tax laws and reduce the tax gap. The FTB will also publicize their investigation results as a means to deter other taxpayers from non-compliance with the tax laws.

3. Voluntary Disclosure Program -. The Voluntary Disclosure Program allows qualified entities, qualified shareholders, or beneficiaries that may have incurred an unpaid California tax liability or an unfulfilled filing requirement to disclose their liability voluntarily and avoid criminal prosecution.

Windus asks: Does the IRS have each of these same programs in place as the FTB?

Amy replies: It does have a Criminal Investigation Division which also administers the Voluntary Disclosure Program. By the way we have a lot of clients who have undisclosed foreign bank accounts who have engaged our services to enter into the Voluntary Disclosure Program and avoid criminal prosecution. As to information sharing, the IRS does get information from the State but not directly from local governments so it really is up to the State as to what information from local governments they include with what is being shared with IRS.

Jeff states: OK Amy so let’s talk about EDD.

Employment Development Department (EDD)

Amy replies: The EDD is responsible for the state programs involving unemployment insurance, disability insurance, payroll tax collection, and job training/workforce services. To better administer its programs in California’s two trillion dollar economy with nearly 16 million employed Californians, the EDD is divided into nine different branches.

The main one we deal with is the Tax Branch (TB) which administers the collection, accounting, and auditing functions of California’s payroll tax program. The program consists of Unemployment Insurance and Employment Training Tax, which are employer contributions, and State Disability Insurance and Personal Income Tax, which are withheld from employees’ wages. Each year, the EDD collects approximately $50 billion dollars in payroll taxes and processes more than 30 million employer tax documents and remittances.

Jeff states: And what about BOE?

Board Of Equalization (BOE)

Amy replies: The BOE was established in 1879 by a constitutional amendment. The BOE was initially charged with responsibility for ensuring that county property tax assessment practices were equal and uniform throughout the state. Currently the tax programs administered by the BOE are concentrated in four general areas: sales and use taxes, property taxes, special taxes and the tax appellate program. Each year, the BOE collects approximately $56 billion dollars in taxes and fees amounting to about 30% of all state revenue.

Jeff states: So Amy its seems that in terms of the percentage of revenues collected that each of the three State tax agencies collects about 1/3^rd of the State Of California’s revenues.

Amy replies: Yes Jeff that would be right.

Windus states: So Amy if one owns and operates a business here in California that business could be subject to tax enforcement and collection of taxes by the IRS and these three state tax agencies at the same time?

Amy replies: Yes that does happen and it is common that a business that becomes delinquent in its tax obligations usually is delinquent with more than one type of tax.

Jeff states: And so whether you are subject to the wrath of one tax agency or perhaps four tax agencies, you need to contact…

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

California Tax Agencies’ Collection Tools

Jeff states: Each taxing agency in California operates differently. So it is best to understand their rules and procedures if you are being targeted by the FTB, EDD or BOE.

Some of the collection actions that each tax agency will use:

1. Filing tax liens – good for 10 years and by refiling can be extended another 10 years (whereas for IRS it is 7 and 7 years).
2. Garnishing wages (State limited to 25%) (whereas IRS exempts a small amount of each paycheck from garnishment).
3. Sending levies to your customers which obligates your customers to pay the government instead of paying you.
4. Levying bank accounts (although retirement funds still exempt from levy).
5. Publishing a taxpayer top delinquency list which anyone can access on the internet.
6. Suspension of your California driver’s license.
7. Suspension of other California issued licenses such as a contractor’s license.

Jeff states: Each taxing agency in California operates differently. Remember that State tax officials do not have your best interests at heart. They are not responsible for informing you of your rights or giving you tax advice. So to level the playing field and give you the advantage you need to contact…

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.

You should also know that the securities and advisory services are offered through National Planning Corporation.(NPC) Member FINRA, SIPC, and a Registered Investment Advisor.  Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Susannah we are giving you the honor of pulling questions for us to answer.

Sue states: This is a question for Windus. Karen from Carlsbad asks what’s a credit score?

Windus replies: A credit score is a numeric rating determined by three credit bureaus: Equifax, Experian, and TransUnion. The most commonly used credit score is from FICO. This rating, which can vary by bureau, is defined by how much debt you have, whether you pay your bills on time, how many credit cards you have, and any unpaid bills, among other factors.

Your credit score (which can range from 300 to 850) affects most financial decisions: Buying a car, buying or renting a home, getting loans, and opening new lines of credit require credit score reviews by the people or companies who can grant you any of those things.

You can check your credit score in addition to your credit report, which you should do at least once a year to make sure it’s accurate and reflects credit cards or debts you actually have (and that no one else is using your name — and your credit — to buy stuff). Your credit score impacts basically your entire adult financial life so it’s important to know what it is and monitor it. You can do this for free without affecting your score at: www.annualcreditreport.com.

Sue states: Jeff I have a question for you from Ralph in Irvine who asks, is it really true that I could settle my tax debt with the IRS for a discounted lump-sum payment?

Jeff replies: That is possible with an Offer in Compromise. An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS would consider your unique set of facts and circumstances that covers the following:

• Ability to pay;
• Income;
• Expenses; and
• Asset equity.

IRS will generally approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time (that time is usually the remaining period left on the Statute Of Limitations For Collections). Be aware though that how the IRS arrives at how much they could expect to collect within a reasonable period of time can be very tricky which is the reason why most Offers submitted directly by taxpayers without professional guidance fail.

Jeff PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: Thank you Sue for coming on to the show today and making this a “Full-house Friday”. Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Have a great day everyone!