International Executive Services TAX US Tax Update 2009 and Hot Topics Michael Koehler Steuerberater, CPA, Manager Tax Warsaw, February 17, 2010

International Executive Services

TAX

US Tax Update 2009 and Hot TopicsMichael KoehlerSteuerberater, CPA, Manager Tax

Warsaw, February 17, 2010

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NOTICE

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Agenda

Due Dates, TY 2009 in numbers

Tax UpdatesHaiti Charity BillTax provisions expired in 2009 and expiring in 2010Tax Extenders Act 2009International Tax EnforcementForeign Account Tax Compliance Act (FATCA)Senate’s Jobs Creation BillsEstate & gift tax updateHealth Care Reform BillsAdministration’s Tax Proposal 2011

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Due Dates

Initial due date - April 15, 2010Extension dates-

June 15, 2010 - Automatic Extension for taxpayers abroadOctober 15, 2010December 15, 2010January 30, 2011

Forms4868

6 month extension through October 15, 2010 Additional 2 month extension through December 15 valid for taxpayers abroad with written request to the Philadelphia Center

2350 First year abroad electing foreign earned income and housing exclusion

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TY 2009 in numbers

Single MFJ MFS HOH

Standard deduction $5,700 $11,400 $5,700 $8,350

Tax brackets 10% 15% 25% 28% 33% 35%

≤ $8,350 ≤ $33,950 ≤ $82,250≤ $171,550≤ $372,950> $372,950

≤ $16,700 ≤ $67,900≤ $137,050≤ $208,850≤ $372,950> $372,950

≤ $8,350 ≤ $33,950 ≤ $68,525≤ $104,425≤ $186,475> $186,475

≤ $11,950 ≤ $45,500≤ $117,450≤ $190,200≤ $372,950> $372,950

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TY 2009 in numbers

Personal Exemption: $3,650 (min. $2,333)

401(k) contribution limit: $16,500IRA contribution limit: $5,000Roth IRA AGI limitation: $166,000 (MFJ), $0 (MFS) or

$105,000 (Single or HOH)

FICA threshold: $106,800

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Haiti Charity Bill

Signed into law on January 22, 2010

Cash contributionsAfter January 11, 2010 and before March 1, 2010For relief of Haiti earthquake victimsTo U.S. qualified charityCan be treated as if made on December 31, 2009

Caution: Itemized deduction phase out repealed in 2010

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2009 Expired Provisions

Increased AMT exemption amountAdditional standard deduction for real estate taxDeduction for State and local sales taxAllowance for additional IRA contributions in certain bankruptcy casesAbove the line deduction for qualified tuition and related expenses

Other business and energy related provisions

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2010 Expiring Provisions

First time home buyer creditReduced capital gains tax ratesDividends taxed at capital gains tax rates10% tax bracketIncrease of refundable child tax creditMaking work pay creditRepeal of personal exemption phase-out

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Tax Extenders Act of 2009

Extend provisions expired in 2009 for 1 year until 12/31/2010

Deduction for State and local sales taxAdditional standard deduction for real property taxAbove-the-line deduction for qualified tuition and related expenses

Revenue provisionsForeign Account Tax Compliance ActTax carried interest as ordinary income

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International Tax Enforcement

Growing concerns that taxpayers with international investments are underpaying their U.S. taxes while at the same time the IRS may lack sufficient information and tools to identify these issues and to pursue effectively

An estimated 800 new hires at the IRS devoted to international enforcement

After tax returns are filed, prepare for or even anticipate increased scrutiny from the IRS

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IRS identified various issues including foreign tax credit, international financing, transfer pricing and information return filing issues

Automatic assessment of penalties for late filed Forms 5471 of corporate taxpayers

If successful, automatic assessment of penalties could be expanded to other taxpayers and/or other forms

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Foreign Bank Account ReportingFinancial interest and/or signature authority over foreign bank accountsAggregate value exceeding $10,000Failure to file FBAR subject to both criminal and civil penalties

Civil penalties: up to the greater of $100,000 or 50% of the account balanceCriminal penalties: fine up to $250,000 and imprisonment for 5 years

Not considered tax return informationDistribution to other law enforcement agencies not limited by nondisclosure rules

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Foreign Bank Account Reporting cont.

Revised Form TD F 90-22.1 in October 2008Voluntary disclosure initiative in 2009

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Foreign Account Tax Compliance Act

November 18, 2009: introduced as a separate bill

December 7, 2009: attached to Tax Extenders Bill 2009 as revenue offset

December 9, 2009: House approves Tax Extenders Bill 2009

December 22, 2009: Senate will consider Tax Extenders Bill 2009 when it reconvenes in January 2010

February 11, 2010: Attached to Senate’s Jobs Creation Bills

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Increase foreign financial asset reportingDepository or custodial accounts at foreign financial institutionsStocks or securities issues by a foreign personOther financial instruments or contracts held for investment issued by a foreign personAny interest in a foreign entityAggregated value over $50,000Disclosure statement as part of the income tax returnIn addition to FBARFailure to disclose, same penalties as for FBAR

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Increase of statue of limitation6 years instead of 3 yearsUnderreporting of gross income in excess of $5,000 from foreign financial assets required to be reported

New 40% accuracy related penalty

Passive Foreign Investment Company (PFIC) Reporting

Form 8621 required Currently: only if distribution received or PFIC shares disposedIn the future: annually

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Foreign banks required toIssue Forms 1099, orProvide information about US customers to the IRS

Name of account ownerTaxpayer identification numberAccount numberAccount balanceIncome earnedGross withdrawals from account

30% withholding tax on US income

Similar reporting requirements for other foreign entities with respect to their >10% U.S. owners

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Disclosure of assistance in acquiring or forming of foreign entities

Any person, including tax advisors, lawyers, etc. forMaterial aid, assistance or advice toU.S. person acquiring a direct or indirect interest in foreign entityRequired to file an information return

Identity of U.S. personIdentity of foreign entityOther information as required by the Secretary

Gross income from such assistance or advice in excess of $100,000Penalty: greater of $10,000 or 50% of gross income

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Senate‘s Jobs Creation Bills

February 11, 2010 2 separate bills introducedSenate Finance Committee Leaders

Hiring Incentives to Restore Employment ActIncludes Tax Extenders, FATCA, Economic Substance Doctrine

Senate Majority LeaderHiring Incentives to Restore Employment ActIncludes FATCADoes not include Tax Extenders

Create tax incentives for small business to encourage job creation

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Estate & Gift Tax Update

Current law as enacted in 2001Exemption of $3.5 million for estate tax in 2009Exemption of $1 million for gift tax in 2009Maximum tax rate 45% in 2009 (35% in 2010)No estate tax for 2010

Sunset provisionBeginning 2011, reverts back status before 2001Unified exemption of $1 million for estate and gift taxMaximum tax rate 55%

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Estate & Gift Tax Update

December 3, 2009House approves „Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009“Permanently extends estate and gift tax provisions of 2009

Exemption of $3.5 million for estate tax in 2009Exemption of $1 million for gift tax in 2009Maximum tax rate 45%

No repeal of estate tax for 2010Senate has not scheduled consideration of estate tax bill

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Health Care Reform Bills

House and Senate version of the Health Care Reform Bill include various tax provisions

Increase of additional tax on distributions from HASFrom 10% to 20%Distributions before age of 65 used for other than qualified medical purposes

Limitation of contributions to flexible spending arrangements to $2,500 per yearAGI limitation for medical expenses as itemized deductions

Increased from 7.5% to 10%

Additional medicare tax on high-income taxpayersAdditional 0.9 on wages of individuals over $200,000 ($250,000 MFJ)

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Health Care Reform Bills

Adoption creditIncreased from $10,000 to $13,170Made refundable

Additional tax of 2.5% of modified AGIIndividuals not obtaining acceptable health care coverage for themselves or dependentsDependents, nonresident aliens and certain individuals residing outside the U.S. should be exempt

Income surtax5.4%Modified AGI in excess of $500,000 ($1 million MFJ)

Economic substance doctrineChange taxpayer’s economic position in a meaningful waySubstantial purpose other than tax treatment

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Administration‘s Tax Proposal 2011

Reinstate 36% and 39.6% tax rates10%, 15%, 25% and 28% tax brackets continue with thresholds indexed for inflation33% and 35% tax rates eliminated36% tax bracket starts at $190,650 for singles ($231,300 MFJ)39% tax bracket should start where old 35% rate applied

Increase of maximum capital gains and dividends tax rate for higher-income tax payers

20% instead of 15%Taxpayers subject to 36% and 39.6% tax brackets

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Restore phase-outs of itemized deductions and personal exemptions

Single taxpayer with AGI exceeding $200,000 ($250,000 MFJ)Limit the tax benefit of itemized deductions to 28%

Changes to AMTIndex the phase-out of AMT exemption and the threshold for 28% AMT rate for inflationContinue temporary “patches” to set AMT exemption amountNew maximum capital gains and dividends rate for higher-income taxpayer also apply to AMT

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Extend the „Making Work Pay Credit“ for 1 year (until end of 2011)Modifications of income limits for refundable child tax creditAdjustments to phase-out of nonrefundable child care creditChange “Saver’s Credit” from nonrefundable tax credit to matching contribution to taxpayer’s qualified retirement planReplace HOPE scholarship credit permanently with American Opportunity Tax CreditMake permanent temporary features of the earned income tax credit

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Extend certain 2010 expiring provisions through December 31, 2011

Did not provide list of provisions planned to be extendedDid not propose to extend:

First time home buyer creditAdditional standard deduction for real estate taxesSales tax deduction for purchase of motor vehicleLimited exclusion of unemployment compensation

Codify economic substance doctrineChange taxpayer’s economic position in a meaningful waySubstantial purpose other than tax treatmentLacking economic substance: 30% penalty for understatements (20% with adequate disclosure)

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Worker classificationRevenue Act of 1978 prohibited the IRS from

Reclassifying an independent contractor to employee statusIssuing guidance addressing the proper classification of workers

Allow the IRS to require the service recipient to prospectively reclassify workers who are currently misclassifiedDirect the IRS to issue guidance that

Interprets common law in a neutral mannerProvides safe harbors and/or rebuttable presumptions

Anticipated that new enforcement activity would focus mainly on proper worker classification

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Repeated willful failure to file a tax return becomes a felony

3 years within any 5 consecutive year periodAggregate tax liability for the period is at least $50,000

Estate and gift tax changesMake 2009 law permanentRequire consistency in property value for transfer and income taxModify rules on valuation discounts

International tax enforcementFATCARequire reporting on transfers to and from foreign account by the taxpayer and by the bank if aggregate value of such transfers exceed $50,000

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U.S. tax session

Questions?

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Contact:KPMG AG Wirtschaftsprüfungsgesellschaft

Michael Koehler Dagmar Geßner GasparT +49 69 9587-2888 T +49 69 9587-2250

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Documents

International Executive Services TAX US Tax Update 2009 and Hot Topics Michael Koehler Steuerberater, CPA, Manager Tax Warsaw, February 17, 2010