Archives for August 2024

The Internal Revenue Service (IRS) recently issued Notice 2024-55, providing guidance on new exceptions to the 10% additional tax on early distributions from retirement plans. This notice is part of the SECURE 2.0 Act of 2022, which aims to make retirement savings more accessible and flexible for you if you are facing unforeseen financial challenges.

What is the 10% Penalty?

Typically, early distributions from retirement plans, such as 401(k)s and IRAs, are subject to a 10% additional tax if taken before the age of 59½. This penalty is intended to discourage you from using your retirement savings prematurely.

New Exception to 10% Penalty for Emergency Personal Expenses

Under Notice 2024-55, the IRS has introduced an exception to this penalty for distributions taken to cover emergency personal expenses. This exception to 10% penalty allows you to access your retirement funds without incurring the 10% penalty, if you met certain conditions.

Key Points of the Exception

1. Definition of Emergency Personal Expenses: The notice describe emergency personal expenses as unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. An emergency personal expense distribution is includible in gross income, but it is not subject to the 10 percent additional tax under IRC section 72(t)(1).
2. Unforeseeable financial expenses: Are those expenses that are related, but not limited to medical care, accident or loss of property due to casualty, imminent foreclosure or eviction from a primary residence, the need to pay for burial or funeral expenses, auto repairs, or any other necessary emergency personal expenses.
3. Eligible Plans Examples: 401(k) plans, 403(a) annuity plans, 403(b) plans, governmental 457(b) plans, IRAs are eligible to permit these distributions.
4. Limitations: There are limitations on the dollar amount and frequency of these distributions. For instance, you can only treat a distribution as an emergency personal expense once every three calendar years unless you fully repay the previous distribution or your contributions to the plan equal the amount of the previous distribution.
5. Repayment Option: If you take emergency personal expense distributions, you are permitted to repay these amounts to certain plans, allowing you to restore your retirement savings.

Impact of the New Exception

In summary, this new exception provides a safety net for you if you are facing unexpected financial hardships, allowing you to access your retirement savings without the added burden of a penalty. Also, it reflects a more flexible approach to retirement savings, acknowledging that emergencies can arise and providing a means to address them without putting at risk your long-term financial security.

Additionally, for more detailed information, you can refer to the full text of Notice 2024-55 on the IRS website.

You can also check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

$350 million in income is what a defense contractor allegedly tried to hide from the IRS. Although unsuccessful, since he was arrested this July of 2024 in Ibiza, Spain.

The Story

Edelman became a millionaire during the United States’ post-9/11 military efforts in Afghanistan and the Middle East. His defense contracting business received more than $7 billion from contracts with the U.S. Department of Defense to provide jet fuel to U.S. troops in Afghanistan and the Middle East.

He tried to use Delphine, his French wife to escape US taxation. He tried to say that Delphine founded and owned the defense contracting business. And because she was a French citizen residing abroad, she did not have U.S. tax obligations. Although he was a 50% owner of the defense contracting business. Edelman told this false story of Delphine’s ownership to various arms of the U.S. government, including to a Subcommittee of the U.S. House of Representatives during a 2010 Congressional investigation, to the Department of Defense during contract negotiations, to the Internal Revenue Service in a 2015 application to the Offshore Voluntary Disclosure Program, and to the Department of Justice in a 2018 presentation.

Edelman Used Foreign Banks And No FinCEN Reporting Was Done

In addition, the IRS says that he tried to hide his defense contracting profits into foreign banks. He used banks who were known to shield account holder identities from U.S. authorities. Edelman used banks in Switzerland, the Bahamas, Singapore, and the United Arab Emirates. And on top of that he held the accounts in the name of non-U.S. entities that were created in other foreign countries, Panama, Belize, and the British Virgin Island.
Well, this didn’t stop the IRS Criminal Investigation Division, who, in collaboration with Britain, Spain, and The Joint Chiefs of Global Tax Enforcement (known as the J5) caught up on his scheme. If you didn’t know, the J5 brings together the taxing authorities of Australia, Canada, the Netherlands, the United Kingdom, and the United States.
Edelman used these funds he tried to conceal from the IRS to fund his other business ventures around the world. He also had a business selling internet services to U.S. troops and contractors at Kandahar Air Base in Afghanistan. Also, he had a Mexican fuel infrastructure project, and a music television franchise in Eastern Europe. He allegedly also used the money to buy a ski chalet in Austria. Plus, he bought a house in Spain and a townhouse in London. He also bought multiple yachts—all of which were purchased in the name of nominees.

FinCEN Requirements

Now, if you didn’t know, if you have or control foreign bank accounts and assets or foreign business interests you might need to report them not only to the IRS, but also, to the Financial Crimes Enforcement Network (FinCEN).
You can see some of the rules and IRS forms regarding foreign assets here: form 8938, form 8858, form 8865, form 5471, form 3520 and form 8621. But you should consult with a tax professional if you have such assets.

Conclusion

Edelman and Delphine are charged with conspiring to defraud the United States and 15 counts of tax evasion. Edelman also is charged with two counts of making false statements to the United States, and 12 counts of willfully violating his foreign bank account reporting obligations, as part of a pattern of unlawful activity. They both face many years of prison.

Now keep in mind, the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.