Miami Sound

I often joke with my Colombian father-in-law about the number of “Anglos” left in Dade County. I say “Is it two or three”. He answers, “Probably not that many!” Miami has the only Walgreens in the country where you can get “pastelitos” and “empanadas” and a cafecito while you pick up your Prozac, Xanax, and Lipitor. You need all of those drugs after dealing with the traffic. I have been back working in South Florida on business regularly having recently affiliated with a Boca-based law firm (Osborne & Osborne PA), only 30-45 minutes away from Miami but a different world. Regarding the Miami Sound Machine. I had a Cuban friend at West Point who introduced me to the band before they were famous in the late 1970’s. I remember telling a fellow Army officer in around 1983 that they would be famous one day. Mrs. Nowotny’s best friend had the band play at her sister’s wedding reception before they were famous.

When it comes to the tax law and Miami, two things come to my mind – (1) FBAR and FATCA and (2) The tax court case of Genaro Delgado Parker, come to mind. GD Parker is a very wealthy Peruvian who owned a Key Biscyane home on the water with over 10 thousand square feet of living space. Seven bedrooms and seven bathrooms. It short, a palace. Many Latin Americans have purchased homes in South Florida, Texas, New York and California. Sometimes, the non-resident alien (NRA) owns the house through an offshore corporation. Sometimes, the NRA creates a U.S. LLC which is treated as a disregarded entity. The LLC is owned by the foreign corporation. Sometimes, the LLC makes an election to be treated as a corporation for tax purposes.

GD Parker’s planning used the latter arrangement. The IRS got involved in a tax audit on other issues and in their poking around realized that he lived in his house without a lease between the corporation and himself. The IRS determined that a fair market rent was about $275,000 per year. The IRS treated this amount as a deemed dividend from the corporation that owned the home and disallowed about $1 million of home related expenses which they considered to be personal expenses. Of course, there was the issue of interest and penalties on top of the taxes for the years in question. The big point here is that every NRA that owns a home in the U.S. is sitting on the same time bomb.

The other issue is the statistical probability that all of the Latinos here legally and illegally are in compliance with the foreign bank account reporting requirements. Don’t make that bet! The problem is that after the UBS mess and the implementation of FATCA, you can no longer run and hide. The Government will find you and tax you into submission. Teh combination of taxes and penalties will consume all of the offshore money.

Don’t forget to count your blessings today. You have a roof over your head, clothes on your back and food in your stomach (we could all afford to miss a meal or two!) and we still live in a reasonably free country and parents who have girls at Prep school don’t have to worry about them being kidnapped by Islamic extremists.

About gerrynowotny

I am a tax and estate planning attorney with a JD and LL.M in estate planning from the Univesity of Miami School of Law. I have worked in the life insurance industry for twenty three years and the last eleven in private placement life insurance.
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