Scariest Tax Form?

Omit It, And IRS Can Audit You Forever

Before you file your taxes, consider how long you must look over your shoulder. In many cases, the IRS has three years to audit. The three years is doubled to six if you omitted more than 25% of your income. Plus, the IRS now has six years to audit if you overstate basis and it has the effect of understating your income by more than 25%. The three years is also doubled if you omitted more than $5,000 of foreign income (say, interest on an overseas account).

But the exceptions from the three year rule get even worse if you miss certain forms that apply to you. If they apply, don’t omit Form 3520 for gifts or inheritance from foreign nationals, or Form 8938 for overseas assets. If you don’t file, the IRS clock never starts to run. More generally, the IRS has no time limit if you never file a return. For unfiled tax returns, criminal violations or fraud, the IRS can take its time. In most criminal or civil tax cases, though, the practical limit is six years.


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If you miss some tax forms, the IRS can audit forever, and occasionally they do try to reach back 10 or more years. When a U.S. shareholder owns part of a foreign corporation, it can trigger reporting, including filing an IRS Form 5471. It is an understatement to say this form is important. Failing to file it means penalties, generally $10,000 per form. A separate penalty can apply to each Form 5471 filed late, incomplete or inaccurate. This penalty can apply even if no tax is due on the return. That is harsh, but the rule about the statute of limitations is even harsher.

If you fail to file a required Form 5471, your entire tax return remains open for audit indefinitely. This override of the normal IRS statute of limitations is sweeping. The IRS not only has an indefinite period to examine and assess taxes on items relating to the missing Form 5471. In fact, the IRS can make any adjustments to the entire tax return with no expiration until the required Form 5471 is filed.

Think of a Form 5471 like the signature on your return. Without it, it really isn’t a return. Forms 5471 are not only required of U.S. shareholders in controlled foreign corporations. They are also required when a U.S. shareholder acquires stock resulting in 10% ownership in any foreign company. The harsh statute of limitation rule for Form 5471 was enacted in 2010, part of the same law that brought us FATCA, the Foreign Account Tax Compliance Act.

The possibility that the IRS can audit forever is chilling. The potential for large civil penalties and perhaps even criminal liability can be real. Consider your audit exposure before you file.

For example, if you don’t sign your return, the IRS does not consider it a valid tax return. That means the three years can never start to run. Another big no-no is if you alter the penalties of perjury language at the bottom before you sign. If you do so, it also can mean the tax return does not count.

Every year it seems that Federal lawmakers make changes to the tax code.
This year is no exception!
Click image below for some of the tax changes that could affect you;

tax help

Guide to Changes in the Tax Laws for 2016


These moves may sound like tax protester statements. However, some well-meaning taxpayers forget to sign or may unwittingly change the penalties of perjury wording. Some other taxpayers just miss a form to end up in audit purgatory. An example of the latter can arise if you have an offshore accounts held by a company. If you miss one, the IRS can audit you forever.

If you file early, do you shorten the audit period? Normally no, the IRS audit clock starts running on the later of your actual filing or the due date. If you file in January and your return is due April 15th, the audit clock starts to tick on April 15th. The time periods can be downright frightening in some cases.

Tax lawyers and accountants are used to monitoring the duration of their clients’ audit exposure, and so should you. Watch the calendar until you are clear of audit. In most cases, that will be either three years or six years. But in some cases, even though you filed and thought everything was in order, the statute of limitations never runs.

Breaking down all the different ways to file your tax return

Link to original article on FORBES / Taxes
This discussion is not legal advice.


Nevada Morphs into an Energy Technology Hub

In the Headlines: brought to you by Adrian Rowles

Every month another company, it seems, announces plans to build a factory in Nevada to churn out the future of energy technology. A year and a half ago, Tesla started building a massive battery factory, dubbed the Gigafactory, just outside of Reno. It has since been joined by a number of other high-tech companies involved in battery recycling, a futuristic transportation system, and electric cars. Nevada, known mostly for gambling, turns out to have a unique set of characteristics like the low cost of doing business, large incentives, the ability to move quickly, and ample clean energy resources that make it attractive to companies developing innovative energy technologies. It has slowly become a hub for the manufacturing of energy storage, clean energy, and greener transportation that could one day be as important as Silicon Valley is to Internet and software startups.

Headlines2-Gigafactory-ISSecretive Tesla-rival Faraday Future has its sights on Nevada. The company said it planned to build a $1 billion electric car factory outside of North Las Vegas early next year if legislators approve a package of incentives and tax breaks. The startup, backed by Chinese Internet billionaire Jia Yueting, aims to build a three million square-foot factory on a 900-acre site that will churn out electric vehicles. Earlier, Nevada made the news again when Hyperloop Technologies revealed that in 2016 it plans to start testing an ultra-fast transit system known as a hyperloop on 50 acres of Nevada desert. Tesla CEO Elon Musk has popularized the hyperloop idea, which involves pods riding around on an air cushion through reduced-pressure tubes. Yet another company, Aqua Metals, a battery recycling startup, said it would build its first battery recycling factory on a site near Tesla’s Gigafactory. Aqua Metals, which recently closed on a loan to fund the project, has developed a more energy efficient process than traditional methods to recycle lead acid batteries—the kind that start up gas-powered cars (Tesla uses lithium-ion batteries for its cars).

In addition to the arrival of the energy tech companies, Nevada is at the forefront of clean energy projects including solar, wind, and geothermal farms. Apple built a data center outside of Reno, and has been building a solar farm about 70 miles away to help power its operations. A geothermal startup called AltaRock Energy bought a geothermal plant earlier this year about a hundred miles east of Nevada’s Black Rock Desert. The company is using its novel technology to enhance the geothermal well and help the struggling site pay back a loan backed by the Department of Energy.

Nevada’s attraction is that it has one of the lowest costs of doing business in the West. The state has no corporate income tax, minimal employer payroll tax, and land is relatively cheap. At the same time, the Bay Area and Silicon Valley are within a drive of just a few hours, enabling employees from companies like Tesla to quickly travel there from their headquarters near San Francisco. Because of the way the state operates, Nevada’s environmental and regulatory bodies can move more quickly than many other states. The political mindset is that government should get out of the way of business—a laissez faire ideology that explains the rise of the gambling industry in the state.

When Tesla’s Musk went looking for a home for the Gigafactory, he wanted a location where he could immediately start building the massive structure. He did not want to wait during a lengthy process other states require for meeting environmental reviews and regulations. For years, Nevada politicians have wanted to stimulate its economy and move away from its dependence on gambling. As a result, the state economic development agency has aggressively offered companies like Tesla big incentive packages to build their factories in Nevada. Tesla was able to acquire $1.4 billion in tax breaks, free land, and other benefits from the state.

Nevada’s abundance of clean energy from solar, wind, and geothermal farms also makes it attractive to companies like Tesla. Eventually, Tesla hopes to operate its battery factory entirely on clean energy, which would be difficult to do in other states that lack enough production of clean energy. Even excluding clean energy, Nevada is already home to low cost and reliable energy from natural gas. Such sources are necessary for energy-intensive factories. Furthermore, Nevada is rich in minerals that are critical to some clean tech companies. For example, the state has one of the few lithium mines in the U.S., producing a critical ingredient for batteries. Tesla plans to buy lithium from a mining project that is under development 200 miles from its battery factory.

With its growing mass of energy tech companies, Nevada now has an ecosystem that invites more to move in. Construction companies are building roads throughout the sparse, rural areas around the Gigafactory to bring in supplies and employees. Construction workers at the Gigafactory can continue onto other projects like the Hyperloop test track or the Faraday Future car factory. All of this is mostly good news for Nevada’s smaller cities like Reno. For years, it has been economically depressed and dependent on gambling and tourism. But now the city is morphing into an area with highly-skilled manufacturing jobs. And a significant part of those jobs are coming from the future of energy technology.


  1. – Fortune
  2. – US Energy Information Administration

The Good News Is  . . .       

  • U.S. import prices fell in November as the cost of petroleum and several other goods continued to decline, suggesting that cheaper crude oil and a strong dollar will keep inflation pressures from imports subdued for a while. The Labor Department said import prices dropped 0.4% last month after a revised 0.3% decrease in October. Import prices have declined in 15 of the last 17 months. In the 12 months through November, prices tumbled 9.4%. Dollar strength and a sharp decline in oil prices have dampened inflation, leaving it running well below the Federal Reserve’s 2% target.
  • Leading fashion retailer, Nordstrom, Inc., reported earnings of $0.73 per share, an increase of 5.8% over year earlier earnings of $0.69 per share. The firm’s earnings topped the consensus estimate of analysts by $0.02. The company reported revenues of $3.1 billion, an increase of 8.9%.  Management attributed the company’s results to higher than expected growth in its Nordstrom Rack and units.
  • DuPont, the 213-year-old inventor of Kevlar, and Dow, the 118-year-old maker of plastics and chemicals, have announced a “merger of equals.” Shareholders of each company are expected to own half of the newly combined business, to be called DowDuPont. Under the terms of the merger, Dow shareholders would receive one share of the new combined company for each of their shares, while DuPont shareholders would receive 1.282 shares for each of their shares. Once combined, DowDuPont plans to split into three independent companies, each with its own specialty. The three businesses will include: one specializing in agricultural chemicals, with $19 billion in pro forma sales last year; one in plastics and other materials, with $51 billion in annual revenue; and a third in specialty products like those for electronics and nutrition, which would have about $13 billion in annual sales.


  1. – Reuters
  2. – CNBC
  3. – Nordstrom, Inc.
  4. – NY Time Dealbook


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Puerto Rico is being dubbed “America’s Greece.” The island has too much debt that it can’t pay.

The fallout: So who gets hurt if Puerto Rico doesn't pay up -- or if it only pays back a fraction of what it owes? It could be you.

A lot of regular Americans hold these bonds.
If you have a 401K, you’re probably exposed to these bond losses!

Puerto Rico’s bonds have also been demoted to “junk” status.

Over 20% of bond mutual funds own Puerto Rican bonds, according to data from Morningstar
(the exact numbers are 377 funds out of 1,884 United States bond mutual funds).


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Right now, hedge funds hold about $15 billion in Puerto Rican debt, mutual bond funds hold another $11 billion or so, and individuals hold the rest.

Among the funds that hold Puerto Rican debt, some of the largest are run by Oppenheimer Funds and Franklin Templeton.
For example, the Franklin Double Tax-Free Income Fund (FPRIX) holds nearly half of its investments in Puerto Rican bonds.

The biggest fund at stake is Franklin’s $229 million Double Tax-Free Income Fund, or FPRTX, which directs 47 percent of its assets to commonwealth securities.
That’s the largest allocation among muni mutual funds, according to Morningstar.

Numerous Oppenheimer Rochester municipal funds hold 15% or more of the fund in Puerto Rican bonds, including the Oppenheimer Rochester MD Municipal Fund (ORMDX)
Oppenheimer held $4.6 billion of Puerto Rico securities, about 17 percent of its assets, as of April, according to Morningstar.

Franklin held $2.3 billion—for a 3 percent allocation to Puerto Rico—as of April.

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Link to CNN Money: Who owns Puerto Rico’s debt?

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According to the Federal Reserve, the value of a typical 401(k) is about $120,000. That’s almost nothing if you’re looking at retiring anytime soon.

This is a lot less than the amount you could collect through compounded growth by deferring taxes for gross roll up with after tax dollars.

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