Tax, Trusts & Estates Law Monitor : Estate Planning Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Gift Tax & Trust Issues

The IRS recently announced a second voluntary disclosure program to encourage US taxpayers to reveal their foreign assets, file tax returns for missing years and otherwise come into compliance with the tax laws.

The IRS had a similar voluntary disclosure program which ended in 2009 and resulted in approximately 15,000 taxpayers entering the program, well more than the IRS anticipated.

“Voluntary disclosure” is a long-term IRS policy that a taxpayer who may have committed a tax crime can disclose and correct past wrongs, and in doing so, avoid criminal prosecution. Correcting past wrongs generally includes filing or amending tax returns for prior years and paying all related taxes, interest and penalties.

The new voluntary disclosure program carries stiffer penalties than the first program, reflecting a policy choice that delinquent taxpayers should not be rewarded for waiting. To enter into the new program, a taxpayer must file complete and accurate original or amended returns, any related information returns, including Form TD F 90-22.1, also known as an “FBAR,” which reports the taxpayer’s foreign bank accounts, cooperate in the voluntary disclosure process, and pay all interest and penalties. Under the new program, taxpayers must pay accuracy related penalties, failure to file and failure to pay penalties (if applicable), and also pay an additional penalty generally equal to 25% of the highest aggregate balance in the foreign bank account during the period covered by the voluntary disclosure.

There is a reduced penalty structure for taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year, and for certain other taxpayers who did not open the account or had minimal contact with it.

The program reflects the IRS’ increasingly aggressive approach to enforcing the tax laws in the international area. The IRS recently opened offices in several other counties, particularly in Asia, as part of these efforts. The agency continues to negotiate mutual assistance agreements with other countries’ tax authorities. Moreover, recent legislation (the Foreign Account Tax Compliance Act or “FATCA”) requires foreign banks to disclose information about account holders with US ties. In short, the US landscape for international taxpayers is changing dramatically. For those not in compliance, it is getting more and more difficult to hide.

The deadline for the program is August 31. If you desire further information about the voluntary disclosure program, please contact us.
 

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When a target company participates in an ERISA-regulated multiemployer pension plan, the acquiring company generally faces a number of unique issues. The most important of these is that the acquirer is likely to take on any liability for the multiemployer plan’s underfunding, even if the transaction is structured as an asset purchase.

In Einhorn v. Ruberton Construction Co., decided on January 21, 2011, the Third Circuit Court of Appeals followed a number of other circuits and held that a company purchasing assets from another company may be liable for delinquent pension contributions to multiemployer pension or health funds. As a result, asset purchasers must consider ERISA liability when deciding whether or not to purchase another company’s assets.

The Third Circuit considered whether Ruberton Construction Company could be held liable under two collective bargaining agreements it had entered into with the union, as a successor employer to the original signatory to the agreements, Statewide Hi-Way Safety, Inc., who sold its assets to Ruberton for $1.6 million. In its decision, the Third Circuit considered the circumstances under which a purchaser of assets would bear liability under ERISA for delinquent employee benefit fund contributions. The Third Circuit held that successor liability could be appropriate where (1) the successor was on notice of the underfunding, (2) there was sufficient continuity of both workforce operations between the corporate entities, and (3) the predecessor could not provide adequate relief (and had ample time to insulate itself from liability through the negotiation process).

Of further concern to the Third Circuit was the policy goal underlying ERISA to protect both plan participants and their beneficiaries. The Court reasoned that if successor liability were not imposed, other employers would have to make up the difference so that beneficiaries could receive their health care benefits, which would be contrary to the Congressional policy underlying multiemployer pension funds, thus making it appropriate to expand successor liability. However, such a determination should be made on a case-by-case basis.

The decision will have a significant impact on the future structure of asset purchases, and buyers will now need to consider how to protect themselves when negotiating with a company that has a multiemployer plan.

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We have blogged frequently on domicile issues and have even written a guidebook on how to change your domicile from New York or New Jersey to Florida. In that regard, we wanted to make note of an article on February 23 in The New York Times (see http://www.nytimes.com/2011/02/24/nyregion/24taxes.html?_r=2) which addressed New York City domicile issues. The rules on whether you are taxed as a New York City resident are similar to the rules regarding whether you are a New York State resident. An individual will be taxed as a New York City resident if (i) he or she is domiciled in New York City, or (ii) he or she is not domiciled in New York City, but maintains a permanent place of abode in New York City and spends more than 183 days in New York City. How is New York finding New York City taxpayers? In addition to its fleet of auditors, the 2010 New York income tax return adds a new question asking New York taxpayers who maintain living quarters in New York City to provide the number of days spent in New York City. Taxpayers who are close to 183 days of residence should be certain to keep accurate and detailed records so that they are properly classified.

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