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					Tax Section News
A Monthly Newsletter of the Tax Section of the New Hampshire Bar Association
May 2010

Section News                                       Upcoming Events of Interest
                                                   by John Washburn
DRA Taxpayer Advocate Addressed the
Section. On April 28th, DRA Taxpayer               IRS Representatives to Discuss the Offer
Advocate Robin Paveglio addressed the Tax          in Compromise Program. On
Section regarding the history and role of the      Wednesday, May 26th, from 3:00 – 5:00
Office of the Taxpayer Advocate.                   p.m., Peter Bousnakis, IRS Territory
                                                   Manager of the New England Territory, and
Ms. Paveglio also discussed the new draft          Scott Stone, IRS Manager of Collection
form, NH-BPT, which is intended to serve as        Group 14 in Portsmouth, will address the
the business profits tax return for all business   Offer in Compromise Program. Although
organizations (C corporations, S                   often represented by promoters using “high
corporations, partnerships, LLCs and sole          price promises” as a way to settle tax debts
proprietorships) for tax years beginning on or     for “pennies on the dollar,” the IRS Offer in
after January 1, 2011. The draft form will be      Compromise (“OIC”) program can actually
posted on the NHBA Tax Section web page.           be a viable program for taxpayers who have
Comments on the draft NH-BPT are                   exhausted other payment options. This
requested to be sent to John Mintken at the        presentation by two speakers from the IRS
DRA at:                  will include such topics as the types of
                                                   OICS, payment options, the forms used to
As a result of our meeting, Ms. Paveglio will      submit an OIC, the methods used to
also be providing copies of new DRA                evaluate an OIC, and how to screen a client
releases directly to the Tax Section               to determine if an OIC is viable.
leadership to post on the NHBA Tax Section
web page as a way to efficiently disseminate       The meeting will take place at the NH Bar
DRA news to tax practitioners.                     Center at 2 Pillsbury Street, in Concord
                                                   (Lower Level Seminar Room).
2010-2011 Section Officers Elected.                Refreshments will follow the presentation.
Officers for the 2010-2011 year were elected       Please RSVP to Trisha Laro at
as follows:                               or 603-715-3206.

   Chair: Kathryn Michaelis, Rath, Young &         News from the DRA
   Pignatelli, P.C.
   Vice-Chair: Louis DeMato, McLane, Graf,         Low & Moderate Income Homeowner’s
   Raulerson & Middleton, P.A.                     Property Tax Relief. New Hampshire
   Clerk: Joceline Champagne, NHBA                 residents who own a homestead subject to
                                                   the State Education Property Tax, resided
Many thanks to Chair John Washburn for his         in the homestead as of April 1, 2009, and
years of service to the Section!                   have a total household income of $20,000
                                                   or less if a single person (or $40,000 or less
                                                   if married or head of household) may apply
                                                   for property tax relief between May 1 and
                                                   June 30, 2010. For further information, see

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Tax Section News
A Monthly Newsletter of the Tax Section of the New Hampshire Bar Association
May 2010

the Press Release on the DRA website:             withholdable payment includes any U.S.                        source interest (including any original issue
                                                  discount), dividends, rents, salaries, wages,
                                                  premiums, annuities, and other fixed or
HIRE Act Expands Reporting                        determinable annual or periodical gains,
Requirements for Foreign                          profits, and income. A withholdable
                                                  payment also includes the gross proceeds
Accounts and Assets                               from the sale or disposition of any property
by Todd D. Mayo
                                                  that can produce U.S. source interest or
In the wake of the highly publicized              dividends.
challenges that the IRS has recently faced in
collecting information about accounts and         Under its agreement with the IRS, a foreign
assets held by US persons outside the US,         financial institution must report certain
the Hiring Incentives to Restore Employment       information about its U.S. account holders.
Act (Pub. Law 111-147) (“HIRE Act”)               For each U.S. account, the foreign financial
contains several notable provisions affecting     institution annually must report (1) the
the reporting requirements applicable to          name, address, and TIN of each U.S.
foreign accounts and foreign assets. The          account holder, (2) the account number, (3)
HIRE Act attempts to encourage—or,                the account value, and (4) the gross
depending upon your perspective, coerce—          receipts and gross withdrawals from the
foreign financial institutions to report on US    account. The foreign financial institution
account holders. In addition, the HIRE Act        must comply with the verification and due
expands the reporting requirements for US         diligence procedures that the IRS may
persons who own foreign accounts and              impose for purposes of ascertaining the
assets, and it clarifies the rules for            identification of US accounts. The foreign
determining whether a foreign trust has a         financial institution generally is exempt from
U.S. beneficiary. Significantly, the HIRE Act     reporting on any depository account held by
also taxes the use of property held in a          a natural person, so long as the aggregate
foreign trust.                                    value of all accounts held by that person at
                                                  that institution does not exceed $50,000.
Foreign Financial Institutions’ Reporting
Obligations                                       A foreign financial institution generally must
                                                  withhold tax at the rate of 30 percent on
The new IRC §§ 1471-1474 generally force a        certain payments to a “recalcitrant account
foreign financial institution (which is broadly   holder” or a foreign financial institution that
defined) to choose whether to comply with         has not agreed to report information about
certain reporting requirements or have            its U.S. account holders. A recalcitrant
payments to it subject to a new withholding       account holder is an account holder who
tax. Unless the foreign financial institution     refuses to waive applicable bank secrecy
enters into an agreement with the IRS to          laws, refuses to provide certain information
report information about its U.S. account         necessary to determine whether an account
holders, any “withholdable payment” to the        is a U.S. account, or refuses to provide
foreign financial institution generally will be   identifying information about the U.S.
subject to a 30-percent withholding tax. A        owners of the account. A foreign financial

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Tax Section News
A Monthly Newsletter of the Tax Section of the New Hampshire Bar Association
May 2010

institution generally must close a recalcitrant     Like the existing FBAR reporting
account holder’s account.                           requirements, this law has teeth. The failure
                                                    to report is subject to a $10,000 penalty
Specified Foreign Financial Assets                  (potentially increasing to $50,000 under
                                                    certain circumstances).
The HIRE Act expands the Foreign Bank and
Financial Accounts ("FBAR") reporting               Clarification of Rules Regarding US
requirements. Under existing law, a U.S.            Beneficiaries
individual who directly or indirectly owns
more than a 50 percent interest in non-U.S.         Under existing law, a U.S. person who
financial accounts having an aggregate value        transfers property to a foreign trust is
of more than $10,000 must annually report           treated as the owner of the property if the
certain information about the accounts. The         trust has a U.S. beneficiary. The HIRE Act
U.S. individual reports the required                clarifies the determination of whether a trust
information by filing Form TD F 90-22.1             has a US beneficiary. Under amended IRC
(Report of Foreign Bank and Financial               § 679(c), a foreign trust will be treated as
Accounts).                                          having a U.S. beneficiary if (1) the class of
                                                    beneficiaries (and the potential appointees
Under new IRC § 6038D, a U.S. individual            under a power of appointment) includes any
who holds interests in “specified foreign           U.S. person or (2) the transferor is directly
financial assets” having an aggregate value         or indirectly involved in any agreement or
of more than $50,000 also must annually             understanding (whether written, oral, or
report on those assets. A specified foreign         otherwise) that may result in the trust’s
financial asset includes (1) any depository or      income or principal being paid or
custodial account maintained by a foreign           accumulated to or for the benefit of a U.S.
financial institution, (2) any stock or security    person.
issued by a person other than a U.S. person,
(3) any financial instrument or contract held       Under new IRC § 679(d), a trust generally
for investment that has an issuer or                is presumed to have a U.S. person as a
counterparty which is other than a U.S.             beneficiary. The presumption does not
person, and (4) any interest in a foreign           apply if (1) the transferor furnishes to the
entity. This new reporting requirement              IRS the information that the IRS may
applies for taxable years beginning after           require concerning the transfer and (2) the
March 18, 2010.                                     transferor demonstrates that the trust has
                                                    complied with all applicable reporting
Although the new reporting requirements             requirements.
initially apply only to individuals, the statute
empowers the IRS to apply the reporting             These provisions apply to any transfer after
requirements to any domestic entity that is         March 18, 2010.
formed (or availed of) for purposes of directly
or indirectly holding specified foreign financial
assets. Thus, the new reporting requirements
potentially could apply to a U.S. trust that
holds foreign assets.

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Tax Section News
A Monthly Newsletter of the Tax Section of the New Hampshire Bar Association
May 2010

Taxation of Use of Property Held in a              Newsletter Notice
Foreign Trust                                      by Kathryn Michaelis

Under amended IRC § 643(i), a U.S. grantor         This May edition of the Newsletter is the
or U.S. beneficiary potentially will be taxed on   last edition for the 2009-2010 year.
the use of property held in a foreign trust.       Members who are interested in joining the
The use of the property will be deemed to be       Newsletter Committee for the 2010-2011
a distribution in an amount equal to the fair      year are encouraged to attend the next
market value of the property’s use, unless the     meeting or contact Kathryn Michaelis for
grantor or the beneficiary pays for the use of     more information. We encourage our
the property within a reasonable time. This        younger members to get involved! The
provision notably could have a significant         Newsletter is a great opportunity to
affect on a foreign trust that holds real estate   participate in the Tax Section. We hope
or artwork. This provision applies to any use      to issue the next Newsletter in September.
of property after March 18, 2010.
                                                   Many thanks to the following contributors
Pro Bono Corner                                    who made this Newsletter a success in its
by Joceline Champagne                              inaugural year by taking the time and effort
                                                   to keep Tax Section members informed on
On Tuesday, May 11th, the Pro Bono Low-            hot topics affecting their practice areas:
Income Taxpayer Project hosted a “Back to
Basics” seminar on handling federal tax                    Joceline Champagne
controversy collection cases. The featured                 Amy Kanyuk
speaker was Prof. Diana Leyden, Director of                David Conley
the University of Connecticut School of Law                Todd Mayo
Tax Clinic. She covered a wide range of                    Paul Mansur
topics from filing a power of attorney and                 Fred Coolbroth, Jr.
obtaining tax information about a client from
the IRS to completing financial information
                                                      The Tax Section News is distributed on or about
statements and navigating the various                  the first week of each month by the Tax Section
functions of the Service. As a result of the          leadership, with the assistance of the Newsletter
training, the Project has ten new volunteers          Committee, for the benefit of the members of the
who have committed to handling Pro Bono              Tax Section. This newsletter is not intended to be
                                                      a comprehensive summary of new developments
tax cases. If you are interested in
                                                     in all areas of tax law, but rather a list of highlights
volunteering and would like a copy of the              of newsworthy items that come to our attention.
seminar DVD and written materials, please                 Any updates, contributions, corrections or
contact Joceline Champagne at 715-3262 or                questions may be directed to the Vice-Chair, Thank you to all                   Kathryn Michaelis, at We
                                                           encourage contributions from the Section
the Pro Bono Taxpayer Project volunteers
                                                     membership. Contributions must be submitted via
who have helped and continue to help many                email no later than the 25th of each month for
low-income taxpayers throughout New                     consideration and inclusion in the next month's
Hampshire each year!                                                       newsletter.

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