Miami Tax Law Blog

Florida residents may have read about the continuing story concerning Facebook co-founder Eduardo Saverin. After news broke that he potentially saved tens of millions of dollars in taxes by renouncing his citizenship ahead of Facebook's initial public offering, Congressional legislators sprung into action. U.S. Senator Charles Schumer has created proposed legislation that has the potential to impose significant penalties on those who give up their passports allegedly to incur a lower tax bill.

Schumer's law is designed to prevent tax evasion and to punish those deemed to have engaged in it. The legislation would give the Internal Revenue Service the power to look into the reasons why people gave up their citizenship. This scrutiny would apply only to people with either an average tax bill of at least $148,000 or a net worth of $2 million or greater. A finding by the IRS that tax evasion was a "main reason" for giving up U.S. citizenship would subject a person to a 30 percent tax rate on future capital gains.

Two recent posts on this blog have discussed the potential tax consequences of Facebook's initial public offering and the increasingly complex reporting rules for offshore accounts that are motivating some people to give up their U.S. citizenship. A recent development in the story of Facebook's wildly popular IPO finds itself at the intersection of those two prior posts.

Florida residents may have heard that Eduardo Saverin, one of Facebook's founders, renounced his citizenship last fall ahead of the company's IPO. According to his spokesman, however, Saverin's decision was not prompted by any consideration for tax savings. Instead, Saverin wanted to reside and work in Singapore, said the spokesman.

Facebook is a ubiquitous presence in Florida, across the country and around the globe. The buzz surrounding the company is its upcoming initial public offering, which is drawing significant investor interest. But there is an additional angle to the IPO, which concerns the method the company has chosen to compensate its employees.

It has been common for technology businesses to include stock options in an employee's compensation package. But in recent years there has been a trend towards using restricted stock units, which do not function like traditional stock options. As their name hints, RSUs are limited in an important way. They do not become stock until a specified "liquidity event" occurs, such as an IPO. At that time, however, an employee with a large number of accumulated RSUs can receive an influx of company stock. Failure to accurately report the gains associated with the stock can result in a tax audit from the Internal Revenue Service.

Florida is home to nearly one-quarter of the time share resorts in the country, which is a greater percentage than that found in entire collections of some states. This is not surprising, given our state's long-held reputation as a vacation destination. But Florida is also the location of a number of instances of reported fraud relating to the resale of time shares. That subject generates the greatest number of complaints for the Florida Attorney General's Office.

According to the Federal Trade Commission, this type of white collar crime is on the rise across the country. Nationwide statistics evince a significant increase in fraud complaints filed by time share owners from 2009 to 2011. These data mirror figures from Florida, which reveal a fourfold increase in complaints over the same time period.

The Federal Bureau of Investigation is taking steps to address the rise in tax fraud and identity theft occurring in South Florida. This week, the agency announced the arrest of three ex-football players--two of whom were teammates at one time in the National Football League--who are charged with cashing fraudulently obtained tax refund checks.

To catch potential tax fraud and identity theft, FBI agents in North Miami created a check-cashing store and carefully examined the checks people wanted cashed. When the operation netted a suspected identity thief, the FBI allowed him to become an informer, and he brought one of the ex-NFL players into the store where he cashed refund checks, according to federal authorities.

The investigation into offshore accounts used for tax evasion was intended to increase compliance with the Tax Code while capturing taxes on previously sheltered income. But it has had an additional consequence. According to the Federal Register, more Americans living abroad--perhaps some formerly from Florida--are renouncing their citizenship, particularly those residing in Switzerland, where the Internal Revenue Service has focused the brunt of its examination into offshore accounts.

Expatriates face an increasingly difficult decision now that the Foreign Account Tax Compliance Act has imposed more stringent rules for disclosing assets held overseas. FATCA requires the disclosure of a broad array of foreign assets and prescribes heavy penalties for failing to file the appropriate form.

Statutes of limitations are an essential part of tax law, limiting how far back the Internal Revenue Service can go in attempting to assess penalties and collect back taxes against taxpayers from Florida and around the country. The IRS must generally abide by a three-year statute of limitations for many tax matters, though there are circumstances under which there is a longer statutory period or indeed none at all. As an example of their importance, the Supreme Court issued a ruling this week against the IRS in a tax case where the case turned on which statute of limitations applied.

The case involved one of a number of tax shelters the government alleged were designed for tax evasion. They were dubbed "Son of BOSS," because they appeared to be modeled on a prior shelter named "BOSS." The acronym stands for "bond and option sales strategy." The shelter promoted creative ways to raise the purchase price of a capital asset so that when it came time to sell it, the realized gain--and the tax on that gain--would be smaller.

Information is essential in the stock market, and every investor in Florida and around the country covets it. Good information can bring in a profit or avoid a loss. But to prevent unfairness in the markets, our nation's laws impose limits on what sorts of information a person can use as a basis for trading. And those laws also impose stiff penalties on those found guilty of insider trading. For example, two men recently convicted of insider trading received sentences of 10 and 11 years.

But a certain type of white collar defendant found guilty of insider trading could be spending even longer in prison under new recommendations by the U.S. Sentencing Commission. That agency voted to approve a measure that would allow judges to impose harsher punishment on financial professionals who engage in insider trading. The higher penalty is needed as a deterrent, the commission said, because professionals are routinely presented with the opportunity to trade on inside information.

The tax filing deadline came and went this week, and many taxpayers in Florida and around the country eagerly await their refund checks, if they have not received them already. But some taxpayers will unfortunately have trouble receiving that refund. Earlier this month, we noted the efforts of Florida Senator Bill Nelson to fight the rise in taxpayer identity theft, which has become an increasing problem in our state.

The confluence of a number of factors is responsible for the alarming rise in identity theft and associated tax fraud, say government agencies. The Internal Revenue Service must process approximately 145 million tax returns each year. In addition, 77 percent of taxpayers now use the faster electronic filing method. The U.S. Government Accountability Office discovered that, due to this high return volume, the IRS only checks the accuracy of a taxpayer's return against employer-provided W-2 forms after the filing deadline. By that time, many refund checks are out the door and traveling to identity thieves.