Articles and Publications. Russian Divorce.

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THINKING ABOUT TAXES

The French philosopher Rene Descartes said, “I think, therefore I am.” Since we are all creatures of our own thoughts, let’s engage in some thinking about income taxes which too often present problems resolved in darkness. In fact, when Descartes also said “Everything is self evident,” I doubt that he had in mind our modern obscure tax system.

TAX 101 – DON’T STAMPEDE TO DEFER TAX
During the 1970s and 1980s there was an epidemic of tax deferral fever. Many seemed to think that a dollar of tax postponed was akin to a dollar saved. In theory, tax deferrals make sense in limited circumstances:
1. As an arbitrage strategy to shift income to a year in which a lower tax bracket will apply. This tactic was more sensible during the era of the 70% top tax bracket.
2. As a deduction maximization strategy to average out bunched up income and thereby avoid phase out rules for various tax benefits (e.g., itemized deductions); or, to shift specific kinds of income to avoid the AMT. The AMT is not as common for Florida taxpayers as for those in high state income tax localities; and, itemized deductions now only partially phase out.
3. As a time value of money strategy to shift income that the tax payments delayed can be invested at well above average returns with little risk (often a pipe dream except for the owner of a successful growing small business); or for the executive receiving stock options.
4. As a pre-tax wealth accumulator in certain tax favored retirement accounts such as an Individual Retirement Account. With regard to IRAs, one can choose to defer current earned income with a regular IRA and also shelter investment earnings on the account; or, forego the earned income tax deferral with a Roth IRA that also shelters investment earnings but allows tax free qualified distributions. Which strategy makes sense depends upon ones’ particular circumstances.
5. As an estate planning tactic to take advantage of the step up in basis occurring u... Read More »

PRENUP BY RUSSIAN

Karina Duvall

According to Art. 40 of the Family Code of the Russian Federation a marriage contract is an agreement between persons planning to marry or an agreement between spouses regulating property rights and obligations of the spouses within marriage as well as in case of divorce. A marriage contract may be concluded prior to state registration of marriage (Art. 41 of the Family Code of the Russian Federation) in which case the contract comes into force on the date of state registration of the marriage. A marriage contract is subject to obligatory notarial certification.

A marriage contract may establish a matrimonial property regime different from the one established by the laws; it may establish joint, common or separate property regime in respect of all property of the spouses, certain types of property or private property of each of the spouses.

The spouses are entitled to determine their rights and obligations related to maintenance, participation in each other’s profits and bearing family expenses as well as indicate the property that will be transferred to each of the spouses in case of divorce and include any other provisions related to property relations of the spouses.

Herewith a marriage contract does not cover personal non-property relations of the spouses, their parental rights and liabilities; a marriage contract may not include provisions restricting penniless spouse’s right to maintenance or any other provisions placing one of the spouses in an extremely disadvantageous position or any provisions contrary to the family laws.

It is important to remember that the Code of Civil Procedures of the Russian Federation provides for exclusive jurisdiction in respect of immovable property. That is why if you are planning to buy any immovable property in any country other than Russia you should conclude a marriage contract in such country.

Though movable property located abroad (such as shares, bank accounts, cars, etc.) may be divided by decision of... Read More »

TAX ADVISORY AND NEWS

MORE ON OFFSHORE ACCOUNTS
Question number 43 of the Frequently Asked Questions was posted on the IRS website on June 24 only 6 days before the filing deadline for the Foreign Bank Account Report (FBAR). The answer states that a person who only recently learned of his or her obligation to file a FBAR and had insufficient time to file on time should file the report late but before September 23. These late reports should be filed and a copy sent to the Philadelphia Offshore ID Unit with an explanation of why the report is late. IRS will not impose penalties if the above conditions are satisfied. The above rule is for those having only signature authority over an account but no beneficial interest or those with an interest who properly reported the income earned on the account for 2008.
The above rule would seem inapplicable to taxpayers who have filed FBARs in prior years but have mistakenly waited to file the 2008 report at the same time as their extended Form 1040. These returns should be filed with the Detroit address in the FBAR instructions and no copy sent to Philadelphia. It would be wise to attach an explanation as to why the report is being filed late, however.
Most importantly, those who have not reported income on foreign accounts have until September 23 to come in from the cold and participate in the current IRS voluntary disclosure program. After September 23, IRS will re-evaluate the program and if participation is permitted the toll charge for entry in the form of civil penalties will likely rise substantially.
The Department of Justice has announced an agreement in principal with UBS over name disclosure dispute. Those with undisclosed foreign accounts, especially present or former UBS account owners, who have not yet come forward would be wise to step up to the plate now.

TIME FOR ASSERTING INNOCENT SPOUSE RELIEF
Taxpayers who file a joint return are jointly and severally liable for the tax shown on the return or the additional tax ... Read More »

RECENT TAX DEVELOPMENTS

TAX DEBTS
I often hear those with federal tax debts state: “I am worry-free because all I own is my home which is an exempt homestead.” I tell them to start worrying. Other creditors lack the powers given by Congress to IRS. IRS can reach your homestead to satisfy an individual tax debt even if the home is titled as tenants by the entireties and your spouse did not sign the tax return. IRS can reach your retirement assets protected in many states against most other creditors. IRS can also wipe out your bank account simply by sending a letter (Notice of Levy) to the bank and garnish your wages without a court order. In a flash the account or wages disappear. Recently, IRS Chief Counsel advised that IRS can levy on an interest in non qualified or incentive stock options even when the non-qualified stock option plan restricts transferability and the ISO plan is non-assignable under ERISSA. Although taxpayers have certain limited collection due process rights, it is often wiser to borrow to pay off IRS and deal with creditors who must first obtain a judgment in order to involuntarily collect from you.

COMPLEXITY OF TAX CODE
I recently participated in an American Bar Association telephone conference with Nina Olsen, the National Taxpayer Advocate. Her biggest complaint about the tax system is its complexity. She says taxpayers spend about 7.6 billion hours per year complying with the tax law. Since 2001, there have been more than 3,250 changes to the tax code. In 2008 alone, there were 500 changes. The number of words in the code, estimated at 2.1 million, has more than tripled since 1975. 25 volumes of tax regulations now take up 9 feet of library shelf space. Some of the more vexing areas of needless complexity involve the Alternative Minimum Tax, over 100 phase out rules for various tax benefits and approximately 130 distinct civil tax penalties. That, despite Congress having passed Tax Reform Acts in 1969, 1976, 1986 and 1998, a Tax Reduction Ac... Read More »

A LESSON LEARNED ABOUT RISK

January 11, 2009
A New Year resolution that should be on everyone’s list is to gain a better understanding of and appreciation for risk.

RISK IS A NORMAL ASPECT OF LIFE
Robert Frost: “We took risks. We knew we took them. Things have come out against us. We have no cause for complaint.”
Harold Macmillan: “To be alive at all involves some risk?”
We consciously and unconsciously take risks every day. We drive to work not thinking all the time of the likely risk of an accident and remote risk of death. We put the risk aside because driving is a must if we are to get about. We board planes for business trips and vacations assuming the risk flight because we view the hazard as remote and always happening to someone else. Some of these daily risks are born from absolute necessity and some are voluntarily assumed.
Risk is also an element of every investment alternative. Investment risk is directly related to reward. Before the sub-prime crisis many chased performance seeking the highest available rate of return thinking that the return in excess of other available rates was a gift. Many were unaware that they were taken on much greater risk than for lesser returning investments.
General George S. Patton: Take calculated risks. That is quite different from being rash.”
I was speaking with a stock broker a week ago. He said “there isn’t much risk left in the market because it has already fallen so low.” I asked him if he’d considered specific company risk. The risk that a company you hold may go out of business may not be reflected in the averages. Equity value can disappear very quick, e.g., Wachovia.
I visualize investment risk by thinking of a ladder braced at the bottom and pointing straight up in the air. The ground is the so called “risk free” U.S. Treasury rate for a short term, mid-term or long term obligation. Initially, each percentage point above the risk free rate takes you one rung up on the ladder. The hig... Read More »

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