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Could An ETF Investment Cause Problems With The IRS? The Wall Street Journal Advises You To Ask Questions

December 15, 2011 By

As the economy tightens and investors look for new opportunities, the exchange-traded fund has become more and more popular.  As an investment fund traded on stock exchanges that contains viable assets such as stocks, commodities, or bonds, ETFs, when used appropriately, are really an extension of the index mutual fund. What is enticing is that they offer investors a myriad of opportunities otherwise not available with traditional mutual funds.

Wikipedia explains how an exchange-traded fund functions and why it often makes sense for an investor.  By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. The structures of the funds, however, are sometimes not examined fully, and they can be taxed quite differently from your everyday mutual funds. As result, the Tax Resolution Institute has noticed that there are specific taxation potholes with ETFs that need to be addressed before taking the leap. Luckily, the Wall Street Journal came to the rescue.

The Traditional Experts of American Finance

Wall Street Buddha: The Traditional Experts of American Finance

Laura Saunders and Jason Zweig of the Wall Street Journal outline some key questions to ask regarding such investments in What to Ask Before Buying. Keeping one step ahead of such investment imbroglios can save you some serious tax problems when it comes time to filing your tax returns later this year. Here are a few pertinent questions to ask in the beginning so you avoid an IRS tax crisis in the end:

1) When it comes to this kind of investment, are there tax potholes that I don’t know about? 

And the Wall Street Journal’s answer is that there are many such quirks in the world of exchange-traded products. For example, there are several ETFs that focus on precious metals like SPDR Gold Trust and iShares Silver Trust. As you can see, they are designed as Trusts.  An investors in such a trust can be caught off-guard when they find out their long-term gains are being taxed at 28% rather than 15%. That’s  not fair! Why is the IRS doing that to me? Well, to put it simply, the metals are deemed “collectibles” by the IRS and subject to higher taxation rates. Sorry.

2) By investing in these complicated funds, will I really have to make multistate tax filings? 

If you own a publicly traded partnership, you may have to file a tax return in more than one state. If income is generated in other states that is above a certain level, you will have to pay taxes in that state as well. For example, if you invest in one of those surprise oil fields in Southern California and they hit a gusher,  you’ll have to pay California state taxes even if you live in Chicago, Illinois. In addition, even if the payout on that one particular investment is below a certain threshold, the total payout from your investments across the board may put you over the limit. Although you are not being taxed on those external investments, they can effect whether you are taxed on

Read The Full Menu And The Fine Print Before Making Your Decision

Read The Full Menu And The Fine Print Before Making Your Decision

3) Will I be surprised by the ‘cost basis’ of my investment when I sell it when I am doing my taxes next year?

When you sell such an investment that is taxable and needs to be fully examined, the overall gain or loss of the income source is measured from the purchase price, known as the “cost basis.

Tracking cost basis is difficult to say the least, especially when there are adjustments from different sources. An Exchange-traded fund can include multiple investment sources. When it comes to such investments, your tax professional better be clear about the return of capital and exactly how the dividends were reinvested. If mistakes are made, the innocent taxpayer can end up, either looking like a criminal or a fool. The Tax Resolution Institute have seen clients that have both overpaid such taxes to the extreme without knowing it or underpaid to the point where the IRS came after them for the delinquent tax debt.

What the Tax Resolution Institute advises you to do is to read the fine print and check out the entire menu before making a major investment. Yes, exchange-traded funds have manageable costs and are flexible. In fact, if handled properly, they can even be tax efficient. For example, mutual funds are required to pay out all dividends and capital gains annually. If your mutual fund portfolio has lost value, there remains a tax liability on the capital gains that are less than a shadow. ETFs typically do not have this problem, but, as we discussed, they have other questions that need to be addressed before buying. But make sure you have covered the bases before you write the check.

Filed Under: Delinquent Tax Debts, Income Tax Problems, Tax Planning, Tax Resolution Services Tagged With: , , , , ,

An Introduction to Tax Resolution Services

May 5, 2011 By

A tax problem can cause trouble to you, your family, your assets and your security. These problems do not arise in a single day. If you are in trouble you probably saw it approaching and decided to ignore the warning signs.

IRS Tax Resolution Services

Do You Need Tax Resolution Services?

With the help of the Tax Resolution Institute, you can reduce your tax liability and avoid IRS and local State penalties by following some simple steps. For example you can deduct charitable donations to Haiti this year that can help you reduce your tax liability. E-filing is mandatory this year unless you sign a form to opt out.  If you are self-employed you need to make your first installment of estimated taxes before April 15. You should always file a comprehensive and correct tax return so that you may reduce the chances of an audit that will cost you additional money even if you ultimately owe nothing more in taxes.

If you are not able to fully pay your taxes, you should send as much as you can afford along with your tax returns when they are due. This can help you to avoid additional interest and penalties. The IRS maintains a computerized record when you file your return that shows that you had made an effort to pay at least some of the money you owe. This not only helps you reduce your IRS penalties, but may also aid you to make negotiations for a tax debt settlement in the future.

The Danger of Tax Scames

The Real Danger of IRS Tax Scams

Tax scams may cost a great deal more than they allegedly save you. One of the top tax scams listed by the IRS involves one’s attempt to hide their income offshore. If you try to avoid or evade US income tax by hiding your income in offshore banks, etc., you will be pursued aggressively if caught. The penalties for doing so are incredibly high.  The IRS currently is offering an opportunity for taxpayers with unrevealed income in offshore accounts to take part in a voluntary disclosure initiative. However, this voluntary disclosure initiative will be available only through August 31, 2011.

There are many instances in which people file fraudulent and misleading tax returns in order to save on taxes due or obtain inflated tax refunds. Scammers may encourage you to claim deductions and credits that you are not actually entitled to. If you participate in such scams willingly or unintentionally, you will need to repay taxes with interest and penalties.

Calculate Income Taxes Correctly

Calculate Income Taxes Correctly

If you file a tax return in which the withholding amount and reported income are not correct, you may need to pay penalties as well. Abusing tax-exempt organizations by doing things such as attempting to maintain control over donated income or assets may lead to penalties.

As an individual or a business owner you cannot afford to procrastinate. Interest and penalties will increase your tax debt.  If you owe the IRS or your local State $15,000 or more, you should consider using the Tax Resolution Institute in order to get the best result possible. Getting the help from the highest qualified and experienced tax attorneys and CPAs will allow you to solve your tax problems, which may include unfiled income taxes, payroll tax problems and other outstanding tax debt.

Filed Under: Delinquent Tax Debts, Income Tax Problems, Tax Resolution Services Tagged With: , , , , , ,

Tax Resolution Institute Reduces San Francisco Petroleum Executive’s Tax Liability By $120,000

June 24, 2010 By

The Tax Resolution Institute was able to lower the back tax liability of a San Francisco Petroleum Executive by $120,000. By employing federal tax expertise and experience with the IRS, we were able to protect or client from an incorrect assessment after a tax shelter was disallowed. If you need help with a big income tax debt or problem, check out the details of this account. Most likely, we can help you as well and provide real tax relief.

An Executive Tax Shelter Disallowed

An Executive Tax Shelter Disallowed

The Petroleum Company President recommended that the Executive enter into a major tax shelter. Although the Petroleum Company accountants estimated a less than 50% chance of shelter being viable, the company applied the pressure. When the president of a company recommends something to you, such a recommendation should be considered more of an exclamation point than a question mark. Knowing he had to go along in order to keep in good standing with the company, the Executive invested in the tax shelter despite initial misgivings.

Ultimately, it turned out that his initial misgivings were right on target. Seven years after the tax shelter was created, the IRS reviewed and disallowed it. All of the executive who took part in the tax shelter were considered full partners. As a result, he IRS assessed the tax liability across the board equally. Such an assessment, however, turned out to be incorrect when it came to the future client of TRI.

The Shock of an Incorrect Tax Liability Assessment

The Shock of an Incorrect Tax Liability Assessment

Our executive client who had the initial misgivings chose to stop taking the allowed deductions from the shelter after the first three years. Unlike his partners who had continued to take the personal income tax deductions for the entire period, his liability should have been significantly less. Since the IRS had assessed the liability as a whole, the back taxes owed by the Petroleum executive were much greater than what he had actually received in deductions taken from the tax shelter.

A major challenge is once a penalty has been assessed, the IRS does not want to admit that an assessment is ever wrong. Even when an inconsistency or problem is pointed out, changing the assessed amount remains difficult. Luckily, the San Francisco Petroleum Executive came to the Tax Resolution Institute. With years of experience handling such incorrect assessments, our tax experts knew what to do.

TRI's Helping Hand and Tax Relief

TRI's Helping Hand and Tax Relief

After intense negotiations and the filing of an amended tax return, the TRI Tax Experts appointed to the case were able to have the Petroleum executive’s tax liability pro-rated. In the end, after the new assessment, the amount owed in back taxes due to the disallowed tax shelter was reduced by approximately $120,000 in light of the actual tax deductions taken. If you are in tax trouble with the IRS and need tax relief, please contact us and we can help you. In truth, as the largest collection agency in the world, the IRS often makes mistake when it comes to assessments. The goal of the Tax Resolution Institute is to amend such mistakes in order to protect your financial future and the security of your assets. If you need tax resolution services, feel free to call the Tax Resolution Institute at 877-829-8370 or fill out our  tax resolution form.

Filed Under: Income Tax Problems, Tax Relief Tagged With: , , , , ,