HMRC enquiry:California property

HMRC enquiry:California property

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My client is 55 and has been running a small gents' hairdressing business for the last 25 years. I have been his accountant for 4 years. For the last 18 months he has been the subject of an HMRC enquiry. He has repeatedly confirmed to me and HMRC that all income sources are being shown on his returns. We had another meeting with HMRC recently, and the latter revealed that they had discovered from the Web that he owns and lets a property in California. The client agreed, and was not at all fazed. He said that the property was left to him by an Albanian relative about 10 years ago, but all the paperwork has been thrown out. The income has always been shown on US tax returns, and the tax payable there exceeds what the UK tax would be. In the light of these facts, is he likely to escape penalties for the UK non-disclosure?
Ted

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By Colin23
10th Nov 2008 23:00

Penalty Mitigation
Ted
In my experience HMRC will not pursue penalties in such cases where there is no loss of tax to the Exchequer.

Let us assume your client is telling the truth. You need to obtain his US ITIN. An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the US Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX.
IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).
ITINs are issued regardless of immigration status because both resident and non-resident aliens may have U.S. tax return and payment responsibilities under the Internal Revenue Code.
Individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN, unless they meet an exception.

Once you have this you can obtain a signed authority from your client to get sight of the US tax returns which will prove the US tax paid. Provided the tax is sufficient and covered under the US /UK DTA you will obtain the appropriate offset and reduce the liability in the UK to NIL.

You can contact the IRS in the UK initially by telephone on
Phone Service
Tel: (0207) 894-0476
9 a.m. to Noon. Monday through Friday
FAX: (0207) 495-4224

or by mail at
Internal Revenue Service
United States Embassy
24/31 Grosvenor Square
London W1A 1AE

Milsted Langdon LLP has considerable experience in investigation work and would be happy to accept instructions from you.


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By User deleted
10th Nov 2008 17:22

Extenuating circumstances
I am hoping to get the client off the hook on the grounds that he genuinely thought that it was unnecessary to include US income on a UK tax return as long as it had been put on his US tax return. I had a case recently where a client omitted one of his pensions, thinking that as it had been taxed under PAYE he did not need to mention it. HMRC remitted all penalties in that case.

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By Jon Stow
10th Nov 2008 13:29

What?
Xenophobia? I have nothing against foreigners or those of foreign ancestry. I cannot stand lying dishonest clients who have set out to deceive me.

He has always made US Tax Returns yet somehow has thrown out the paperwork on his inherited property? How does he expect to show title to it for the future? Do we believe him? No, the lies continue. Sack him, Ted!

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By wdr
10th Nov 2008 11:09

Is there just a hint of Xenophobia in these answers?
Ask client for copies of US tax returns.

Us Land records should disclose history of ownwership, and could substantiate answer.

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By pawncob
09th Nov 2008 17:52

What?
What US returns?
How does he make US returns as a UK resident/domicile and forget to make UK returns?

Make the UK returns, suffer the tax and penalties, claim the
D.T. relief and charge him top dollar!!

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By Jon Stow
08th Nov 2008 18:49

There might not be any tax due
but I would already have sacked the client for lying to me. How did US Tax returns slip his mind? I am sure your engagement letter required full disclosure to you. Waste no more time on the person other than to send your bill. At least preserve your reputation with HMRC.

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