Jeffrey B. Kahn, Esq. and Windus A. Fernandez Brinkkord Discusses Junk Bonds, Student Loans and FATCA uncovering undisclosed foreign bank accounts On ESPN Radio – December 11, 2015 Show

Topics Covered:

1. Is The Stock Market Missing the Warning From Junk Bonds?

2. Should Everyone Be Eligible for Student Loans?

3. Beware if you are a U.S. Taxpayer with undisclosed foreign bank accounts, you have nowhere to run and no way to hide because the IRS has upgraded and enhanced the FATCA Registration System.

4. Questions from our listeners:

• I have been hearing a lot about new action from congress on student debt relief and the forgiveness of student loans for those with economic hardship. Being under the impression that student loans were the “unforgivable” debt, is this a marketing scheme or are there actually such measures in place now?
• My daughter is almost eight and with all the news I’ve been hearing, I know I need to start putting away for her college tuition. What are my options to best invest in her future?

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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: Should Everyone Be Eligible for Student Loans?

Windus states:

Also coming up is:

Segment 3 material: Beware if you are a U.S. Taxpayer with undisclosed foreign bank accounts, you have nowhere to run and no way to hide because the IRS has upgraded and enhanced the FATCA Registration System.

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:

Is The Stock Market Missing the Warning From Junk Bonds?

Jeff states: Windus this article in the December 6, 2015 issue of the Wall Street Journal caught your attention. http://on.wsj.com/1HPjqB0.

Windus states: That’s right. Investors are concerned of probable challenges in the economy as U.S. corporate high-yield bonds are headed for their first annual loss, on a total-return basis, since the credit crisis several years ago. The accumulation of defaults signal the slow of our six-year economic push, leaving some investors feeling unstable just as the Federal Reserve revisits raising interest rates for the first time since 2006.

Jeff states: So for those listeners who do not know or are too embarrassed to ask, what are junk bonds?

Windus replies: Junk bonds are basically an IOU from a corporation or organization stating the amount owed to the investor plus interest. This principal typically pays over a high 7% interest rate and has a shorter maturity than other bonds, gaining the attention of riskier investors. There are $1.3 trillion junk bonds currently outstanding, up from $247 billion in 1998 and $709 billion in 2007, according to data from Bank of America. Although attractive, these high-yield bonds come from heavily indebted companies that are most susceptible to default.

Jeff states: Therefore, investors who were previously eager to buy these high-yield bonds in a rising economy are just as hurried to dump them when the market starts to fluctuate.

Windus states: Historically that is true. An increase in junk-market defaults has a reputation of signaling economic declines. With new bond sales at a stand-still and an increasing high-yield bond default rate, after years of near record low levels, investors are now steering clear of new high-yield bonds from weak performance companies with triple-C credit ratings. When investors stop funding triple-C debt, it does not bode well for the economy.

Jeff states: But as long as corporate mergers and acquisitions continue, there will still be a need to fund these acquisitions with junk bonds as this is the preferred manner to acquire another company. Why issue more stock when it is easier to issue an IOU?

Windus replies: Which is probably why the ratio of high-yield debt to corporate earnings is nearing a historic high.

Windus continues: The article further goes on to state that, not to worry, the bottom hasn’t fallen out of the market. The withdrawal from risk is gradual as high-rated junk bonds are still finding buyers. In fact, some agencies are indicating a stable economy.

Jeff states: Well let’s point to some statistics:

According to the Labor Department, nonfarm payrolls increased a seasonally adjusted 211,000 in November while the unemployment rate remained at 5%. By comparison, Barclays PLC reported U.S. corporate bonds are down 2% this year. In 2008, junk bonds fell 26%.

Windus states: Yet, economists caution that a credit decline could drag on, replaying the junk bear market of 1999 to 2002, if economic growth slows at an uneven rate.

Windus continues: This year, according to data from Barclays, energy junk bonds are down 14% and heavy-industry junk bonds receded 15%. While pharmaceuticals have fallen 8% since September.

Windus states: While bond investments in restaurants and gambling for instance are still being made, in growth industries there have been aggressive discounts for out-of-favor bonds. In part, this is due to new regulations hindering trading by Wall Street Banks, which would be otherwise buying said bonds to bolster the market.

(free talk summarizing points and relating to business)

Well it’s time for a break but stay tuned because we are going to explore whether everyone should be eligible for student loans.

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 asks:

Should Everyone Be Eligible for Student Loans?

Windus replies: This was another article from the Wall Street Journal that I saw suggesting new standards for federal aid be introduced to limit debt to borrowers that are more likely to graduate. http://on.wsj.com/1lHqLrN

But before we talk about this I call your attention to my 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.

Jeff states: Windus you brought this article to my attention to take the opportunity to discuss the effect of a student debt sentence on investing in your future.

Windus states: Jeff, we are experiencing an excessive surge in Americans defaulting on their student debt after decades of the federal government not imposing any underwriting standards in its student loan program. This allows any citizen to borrow as much at $57,500 for college- and practically unlimited funds for graduate programs.

Jeff states: This is definitely a concern when you consider that these loans are being issued with little regard for a person’s ability to pay said funding back, with interest.

Windus states: The fact is, as of September 30, 2015, just over 7 million borrowers had gone without making a payment on their federal student loans for at least a solid year, according to Education Department figures. This surge in delinquencies is akin to the subprime mortgage lending which aided in the housing crisis…and we all know where that ended us.

Jeff states: Exactly and according to the New York Federal Reserve, the student delinquency rate has jumped to around 12%. Roughly double its rate from before the recession. The equivalent figure for home-mortgage debt never surpassed 9% after the housing market crash.

Windus states: The main issue we are facing here is defaulted borrowers are largely “nontraditional students” who either enrolled in community colleges or for-profit institutions, which have low or a lack of academic standards for enrolling. These students tend to be older, from lower-income families and more likely to be first-generation college scholars compared with four-year universities.

Jeff replies: Similarly, the Federal Reserve linked defaults to those having weak credit scores. Nearly 30% of students having credit scores at 500-599 a year before leaving school eventually became delinquent. Whereas only 9% became delinquent with a score of 680-729.

Jeff asks: How do we remedy this?

Windus replies: By either targeting more aid in the form of grants, which do not have to be repaid, or underwriting criteria based on the borrowers high school grades and test scores, colleges’ graduation and job-placement rates, and the earnings potential of various majors.

Jeff states: I know that law school can be very expensive especially if you attend a private law school but many private law schools offer programs that if let’s say a graduate passes up on that lucrative and generous salary working for a high-powered Wall Street law firm and instead takes a much lower salary working for the government or tax exempt organization, after a certain number of years of service the balance of the student loans are written off.

Jeff asks: With all the candidates running for President, what alternatives have we heard from the campaign trail?

Windus replies: Democratic presidential candidate Hillary Clinton has called for colleges to be held liable when their student default on loans, as a way to control costs.

Windus continues: Florida Senator Marco Rubio, a GOP presidential candidate, calls for all higher education programs to publish detailed data on their graduates to influence better financial decision making of future college borrowers.

Windus closes: Either way you spin it, we need to focus on ways to keep borrowers from making bad investments.

Which is why … 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 if you are a U.S. Taxpayer with undisclosed foreign bank accounts, beware that the IRS has upgraded and enhanced the FATCA Registration System. With nowhere to run and no way to hide you will want to stay tuned for 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

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

IRS Upgrades And Enhances FATCA Registration System

Beware if you are a U.S. Taxpayer with undisclosed foreign bank accounts, you have nowhere to run and no way to hide.

Jeff states: On November 24, 2015 the IRS announced that it has upgraded the Foreign Account Tax Compliance Act (FATCA) Online Registration System, enabling foreign financial institutions to register for a global intermediary identification number.

Amy states: The global intermediary identification number is a key identifier for foreign financial institutions just like a social security number is to a U.S. person. By following this registration process, foreign financial institutions can seek compliance under the Foreign Account Tax Compliance Act (FATCA).

Windus asks: What is all the hype about under the Foreign Account Tax Compliance Act?

Amy replies: The Foreign Account Tax Compliance Act (FATCA) was enacted into law by the U.S. in 2010 and by 2014 has been fully phased in establishing a 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.

Jeff asks: So what more can you tell us about this upgraded and enhanced FATCA reporting system?

Amy replies: The Online Registration System is a secure, web-based system run by the IRS that financial institutions and other entities can use to register for FATCA purposes. It was originally launched in 2013. The system allows the IRS to identify foreign financial institutions and certain other entities with FATCA obligations. These entities generally report on foreign financial accounts held by U.S. taxpayers under the terms of FATCA or pursuant to the provisions of specific intergovernmental agreements (IGAs).  

Jeff states: IRS Commissioner John Koskinen has said this registration system is the backbone of FATCA and that these upgrades improve the FATCA process and allows the IRS to more effectively identify U.S. taxpayers with undisclosed foreign bank accounts.

Windus asks: How many foreign financial institutions have registered with the IRS?  

Amy replies: The IRS claims that more than 170,000 financial institutions worldwide have registered with the IRS. These financial institutions are located in more than 200 jurisdictions.

Windus asks: And what motivation do the foreign financial institutions have to register?

Amy replies: In most cases, those foreign financial institutions that do not comply with FATCA or participate through an IGA are subject to 30% withholding on certain U.S. source payments.  

Jeff states: So with foreign banks acting like domestic banks and reporting your account information to the IRS, you can’t ignore this. Which is why …

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 asks: Amy, what programs are available to U.S. taxpayers who have undisclosed foreign accounts?

Amy replies: The main program is called the Offshore Voluntary Disclosure Program (OVDP). 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.

Windus 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. 

Windus asks: If a foreign bank has not yet reported a U.S. account holder to the IRS, why should a taxpayer NOT put off going into OVDP?

Amy replies: Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations. Those penalties could be as high as 50% of the account balances and can be assessed on an annual basis.

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 into 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: 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. Which is why …

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.

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 Windus and I always pleased to make our offers to our listeners where… 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.

Windus 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. 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.

Jeff continues so this week I have pulled some questions for Windus to answer. [Jeff to read questions]

Question from Debbie from Temecula: I have been hearing a lot about new action from congress on student debt relief and the forgiveness of student loans for those with economic hardship. Being under the impression that student loans were the “unforgivable” debt, is this a marketing scheme or are there actually such measures in place now?

Windus to respond.

Question from Steven in Los Angeles: My daughter is almost eight and with all the news I’ve been hearing, I know I need to start putting away for her college tuition. What are my options to best invest in her future?

Windus to respond.

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.

Windus states: Have a great day everyone!