1. Chapter 15 International Tax and Foreign Financial Asset Reporting 1

2. Update PFIC Temp. (and Prop.) Regulations (Dec. 31, 2013) 2

3. What is a PFIC? 3

4. A PFIC is a foreign corporation that meets one of two tests: 1)75% "passive" income, or 4

5. 2)50% of assets produce passive income or are held for the production of passive income. 5

6. Ex: A Foreign Mutual Fund 6

7. No Minimum Ownership Requirement 7

8. How are PFIC shareholders taxed? 8

9. Three Regimes: 1)IRC sec. 1291 Fund 2)Qualified Electing Fund (QEF) 3)Mark to Market 9

11. 2011 U.S.A. Foreign Foreign Partnership 14 Foreign Partnerships U.S. Grantor Trust The Romneys

12. PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC PFIC 17 233 Pages (of 379) for PFICs Normally reporting numbers under $10 and often zeros.

13. With such Tiny Numbers Why Comply? 13

14. If Form 8621 is not filed, then the statute of limitations on Form 1040 or 1120 remains open (until 8621 is filed + 3 years-- IRC sec. 6501(c)(8)) 14

15. Update General Rule: A U.S. person that is shareholder of a PFIC must file Form 8621 (or successor form) 15 Separate Form 8621 for Each PFIC

16. Update For a tax year of the U.S. person ending on or after Dec. 31, 2013 = All 2013 Calendar Year Returns 16

17. Update No annual filing requirement for TYBB 12/31/2013 (contrary to suspension threat in Notice 2011-55) 17

18. Update 18 Draft Form 8621

19. 19 Draft Part 1: “Reserved for Future Use”

20. Update Filing Exception A PFIC in which the shareholder is only subject to tax under Sec. 1291 (NO QEF of MTM Election) but no excess distributions or gains and either 20

21. Update A)aggregate value of all PFIC stock owned at year end > $25,000 ($50,000 for MFJ) 21

22. Update Shareholders must take into account all PFIC stock owned directly or indirectly except for PFIC stock owned through another U.S. person that itself is a shareholder of the PFIC. 22

23. Update or or B) the PFIC stock is owned through another PFIC, and the value of the shareholder's proportionate share of the upper-tier PFIC's interest in the lower- tier PFIC does not exceed $5,000. (Reg. §1.1298-1T(c)(2)(i)) 23

24. Update FMV? Shareholders may rely upon periodic account statements provided at least annually to determine the value of the PFIC. 24

25. Update Attach Form 8621 to federal income tax return (or, if applicable, partnership or exempt organization return) 25

26. Example In January 2013, Wanda invested about $10,000 (.000264%) in a foreign partnership that owns 12 PFICs. Each PFIC reports $0, income, distributions, etc.

29. Suggested Filing Strategy

30. File 12 separate Form 8621s. File 12 separate Form 8621s. Make a QEF election for each. Make a QEF election for each. Report zeros in Form 8621 Part II. Report zeros in Form 8621 Part II.

31. x

32. If no prior QEF election, then make a deemed sale election

33. x Enter Gain or Loss In Part IV as Excess Distribution

34. Make the Reg. sec. 1.1411-10(g) Election to match net investment income with Chapter 1 income for the PFIC QEF.

35. 35 Draft

36. 36

37. 15-1 Notice 2013-10 (Jan. 23, 2013) IRS Defers Start Date For Form 8938 Filing By Specified Domestic Entities to 2013 At The Earliest 37

38. 38 FBARS Must Be Filed Electronically

39. 39 FBAR Filing Authorization Form

40. 40 Check-the-Box For Late Filing Reason

41. Taxpayer X exercised ordinary business care and prudence, but was was unable to comply due to the following reasonable cause:

42. “The taxpayer’s reason should address the penalty imposed. To show reasonable cause, the dates and explanations should clearly correspond with events on which the penalties are based.”

43. Compliance History. “Check the preceding tax years (at least three) for payment patterns and the taxpayer’s overall compliance history.”

44. Length of Time. “Consider: (1) when the act was required by law, (2) the period of time during which the taxpayer was unable to comply with the law due to circumstances beyond the taxpayer’s control, and (3) when the taxpayer complied with the law.”

45. Circumstances Beyond Taxpayer’s Control. “Consider whether or not the taxpayer could have anticipated the event that caused the noncompliance. Reasonable cause is generally established when the taxpayer exercises ordinary business care and prudence, but, due to circumstances beyond the taxpayer’s control, the taxpayer was unable to timely meet the tax obligation.”

46. 15-2 Rev Rul 2013-14 (June 24, 2013) Mexican Land Trusts Are Not Trusts For U.S. Tax Purposes 46

47. 15-4 National Taxpayer Advocate (NTA) 2012 Report to Congress NTA Report Criticizes IRS OVDI For Discouraging Voluntary Compliance 47

48. 15-8 GAO Report on Offshore Disclosures (March 2013) IRS Has Collected Billions of Dollars, but May Be Missing Continued Evasion 48

50. Steven Michael Rubenstein

51. $80,000 Cayman Islands Account Unreported Interest & No FBARs: $2,000 in 2010 $2,000 in 2011 $2,000 in 2012

52. 15-2 Hom (DC CA 9/30/2013) IRS May Use Income Tax Investigation Information For FBAR Purposes 52

53. 15-2 In re Grand Jury Proceedings (11 Cir. 2/7/2013) Required Records Doctrine Trumps 5th Amendment Rights For Foreign Bank Records 53

54. 15-3 Thomas v. UBS (7 th Cir. 02/07/13) Seventh Circuit Soundly Rejects Former UBS Clients' Suit To Recover Penalties 54

55. 15-3 “The plaintiffs, and the other members of the class—who number in the thousands—are American citizens who had bank accounts in UBS in 2008 when the UBS tax-evasion scandal (of which more shortly) broke. The accounts of the three plaintiffs were large—$500,000 to $2 million each. The plaintiffs had not disclosed the existence of the accounts on their federal income tax returns, as they were required to do by Form 1040, Schedule B, …” 55

56. 15-3 “They also did not disclose the income they earned in those accounts. Neither did they pay federal income tax on that income, though it was taxable. Eventually they ‘fessed up and paid the taxes they owed plus interest on those taxes and a 20 percent penalty. They did this pursuant to an IRS amnesty program, adopted in the wake of the scandal, called the “Offshore Voluntary Disclosure Program.” 56

57. 15-3 “The plaintiffs are tax cheats, and it is very odd, to say the least, for tax cheats to seek to recover their penalties … from the source, in this case UBS, of the income concealed from the IRS.” 57

58. 15-4 “…our plaintiffs do not argue that they … received tax advice from UBS. They argue rather that the bank should have prevented them from violating the law. This is like suing one’s parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes and so would not subject himself to penalties.” 58

59. 15-4 “…a bank is not a fiduciary of its depositors. It is merely a creditor. [Citations omitted] It has no duty to treat them like children or illiterates, and thus remind them that they have to pay taxes on the income on their deposits. It has no duty to read aloud to them line 7a on Schedule B of Form 1040.” 59

60. 15-4 “We needn’t discuss the plaintiffs’ remaining claims—of negligence and malpractice—as they are frivolous squared. This lawsuit, including the appeal, is a travesty. We are surprised that UBS hasn’t asked for the imposition of sanctions on the plaintiffs and class counsel.” 60

61. 15-9 Sergio Garcia (TC March 14, 2013) Pro Golfer's Endorsement Income Reallocated As 65% Royalty, 35% Personal Services 61