PRIMARY CONTACTS: Mary D. Richter CPA
Onetax incentive that existsforthose in theexportbusiness isthereductionin tax rate onFDII, or Foreign Derived Intangible Income. FDII is income that is generated on the export of intangible assets, such as patents or trademarks. The Internal Revenue Service allows for income generated on the sale of these assets, subject to several complex limitations, to be taxed atthe13.125% as opposed to the 21% corporate tax rate.The rules regarding when and what qualifies for the FDII rate reduction are complex and seemingly always evolving.Schneider Downs’ tax professionals canprovideaidtobusinesses inmaking thedetermination as to whetherthey can benefit from a rate reduction on certain sales,help strategically plan new business ventures to take advantage of this significant rate reduction, and file the necessary forms and disclosures with the Internal Revenue Service annually.
IC-DISC offers significant income tax savings for exporters. Permanent tax savings are available to producers and distributors of U.S. made products used abroad.
Rely on your Schneider Downs’ internal tax professionals in exploring this great tax incentive. We can determine if your operating entity and business model is a good fit for this tax-advantaged vehicle.
Non-willful delinquency in connection with disclosing your foreign assets happens all the time. These violations can lead to a variety of penalties and other serious consequences. Violation penalties vary. Typically, they start at $10,000 and could be even higher. A willful failure to file an FBAR or other form, for example, can cost you the greater amount of $100,000 or 50% of the foreign account balance.
There are several existing IRS programs which can aid in fixing your non-compliance, and we can assist you in finding a tailored solution that makes sense for your situation. It is in your best interest to seek solutions proactively and disclose your foreign assets to the IRS. The IRS will not grant amnesty unless you make a first contact.
It’s important to emphasize that the timing is crucial, because the above IRS amnesty programs are currently available; however, the IRS could cancel them at any time. There are several existing amnesty programs:
Delinquent FBAR Submission Procedures
These procedures generally apply when the taxpayer did not fail to report any income and does not owe any tax, but non-willfully failed to file an FBAR or failed to include an account on a previously filed FBAR.
Taxpayers can go back and file the delinquent FBARs, and typically, the IRS will not impose a penalty for failure to file the FBARs. We can help you in assessing whether you qualify for this program.
Delinquent International Information Returns Submission
Taxpayers who have identified the need to file delinquent international information returns who are not under a civil examination or a criminal investigation by the IRS and have not already been contacted by the IRS about the delinquent information returns should file the delinquent information returns through normal filing procedures.
Normally, if you provide a reasonable cause for the delay in your submission and don’t have any unpaid tax liability and the IRS will waive any penalties associated with late filing. Sometimes, this type of tax amnesty is the best way to go. However, a thorough planning and analysis of all relevant facts is the key.
Streamlined Programs: Domestic and Foreign
Did you miss reporting of your foreign accounts, investment, and income? The IRS has two great programs for non-willful delinquently filing taxpayers to become compliant: the domestic streamlined program and foreign streamlined program.
The domestic streamlined program requires: non-willfulness, not being under IRS audit, and filed returns for several recent years. The potential 5% penalty could apply; however, this 5% penalty should be balanced against potentially large penalties associated with continuous noncompliance.
For the foreign streamlined program, the main requirements are: non-residency and non-willfulness in failure to disclose foreign assets. Streamlined foreign procedures don’t carry the 5% penalty, and prior filing of tax returns is not required.
Being non-willful is a crucial piece in the streamlined programs. Determination of whether one’s conduct was non-willful can be highly technical, so it’s best to work with a qualified international tax professional.
About Schneider Downs Tax Advisors
With one of the largest regional tax practices in the country, Schneider Downs Tax Advisors’ personal focus on clients and in-depth understanding of current issues ensures that clients are complying with tax filing requirements and maximizing tax benefits. Our industry knowledge and focus ensures delivery of technical tax strategies which can be implemented as practical business initiatives. Learn more at www.schneiderdowns.com/tax-services.
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