Zeek Receiver to send out claim funds withheld for tax
Back in October we covered an update from the Zeek Rewards Receivership regarding funds withheld for tax purposes.
Shortly after the Receivership announced that victim checks would be going out on September 30th, reports surfaced about 30% of payouts being withheld by the Receiver.
Clarifying why the funds were held back, the Receivership put out an update a few weeks later explaining that they were waiting on clarification from the IRS regarding potential tax issues.
I have heard from many of you that this withholding should not have been made because these distributions are not taxable. The tax laws on this issue are not entirely clear.
We have attempted to get a definitive opinion from the IRS but have not yet been able to do so. Given this uncertainty we acted on the side of caution and made the withholding.
As of the time of publication of this article, the Receivership still hasn’t heard back from the IRS. Why that’s taking so long I have no idea, but in the meantime the Receivership has decided to release the funds being held anyway.
Citing “a tax opinion from a professional”, the Receivership writes
As I have said before, so that we do not expose the receivership to potential fines and penalties that would dramatically decrease the amount of money available to those claimants eligible for a distribution, we have sought assurance from the United States Internal Revenue Service that no withholding is required.
We have not been able to get such assurance. However, I have received a tax opinion from a professional that persuades me that tax withholding is not necessary.
The Receivership will no longer withhold taxes from distributions paid to affiliates.
If the Receivership previously withheld taxes from a distribution, we will issue a new check on December 23, 2014 to distribute the previously withheld funds to that affiliate.
Other checks will also be reissued on this date, covering problematic checks sent out in the initial batch.
Oh and if you’re one of these 60,000 or so affiliates – what on Earth are you waiting for?
In late January 2015, we also will send distributions to those qualified affiliate claimants who completed the online claim allowance requirements after August 15, 2014 and have not yet received a check.
Somewhat frustratingly, there are nearly 62,000 affiliate claimants that have received a letter of determination but have not yet accepted (or objected to) the recognized claim.
We have the funds on reserve to make a distribution to all these claimants in the same manner we did for approximately 90,000 affiliate claimants in September. But, unless a claim is accepted (or has had an objection resolved) and the affiliate claimant completes the release and OFAC certification, a distribution check cannot be mailed.
I encourage all of these affiliate claimants to go online and complete the process to be eligible for a distribution check in late January 2015.
Thinking that Zeek might reopen or that accepting a claim might somehow incriminate you at this point is ridiculous. Settle the objections (no, you’re not getting your VIP monopoly money balance), complete the release and OFAC certification and collect at least some of your initial investment back.
One thing I’ll mention as an aside is that, to be perfectly honest, the “tax professional” line did sound a bit flimsy. Affiliates who receive payments don’t seem to be at any risk, but if the IRS turn around at a later date and fine the Receivership – there’s obviously going to be less funds to distribute out going forward.
Why the IRS are taking forever to answer the Receiver’s queries though is beyond me. I don’t know what the average turn-around time is for tax queries but it’s been what now, over six months and counting?
Starting to enter “beyond ridiculous” territory here…
I think the IRS problem stems from the fact many Zeek members have already claimed their Zeek losses as a deduction from their IRS returns, meaning that money will need to be repaid to the IRS if they have also received a refund from the receivership.
This applies doubly since the refunds are coming in increments, meaning they could possibly happen in multiple reporting periods.
The questions then arise as to who is responsible for returning the money and how does the receivership deal with informing the IRS?
The 30% tax was related to affiliates from foreign countries, so it wasn’t about deductions or anything like that.
The problem the Receiver had in getting clear answers from IRS was probably related to “wrong type of question”, e.g. he can have asked questions about the wrong tax form for the foreign citizens.
* He didn’t withhold any taxes for U.S. tax payers.
* 30% tax only applied to foreign tax payers, to ALL of them.
The distributions are probably “reportable, non-taxable events” in themselves. Reportable to IRS, but not taxable. That’s the MAIN RULE.
If he then mixed in a specific Form W8 into the logic, he might have found a conflicting rule about 30% taxes. 🙂
Err, no.
In the words of Mr Bell himself in his October 22 announcement:
How amazing.
You’d think an experienced receiver such as Mr Bell would have some sort of idea of what questions to ask.
If only he’d known M_Norway was available to set him straight, Eh ???
I was talking about the part where he didn’t get any clear answers from the IRS.
Taxes doesn’t exactly seem to be his “core field of expertise”.
He could of course have tried to ask Howard Kaplan. 🙂
The amounts distributed are probably reportable, i.e. they need to be stated specifically on some type of tax form. The purpose for that is to identify the type of payment / the amount, e.g. so the tax payer can document that the amount has been legally received and is non taxable.
U.S. CITIZENS AND RESIDENTS
For U.S. citizens, that means he will need to get their tax identity from a W-9 tax form. That form is used to collect tax identities, it’s not used to report anything.
The amount / type of payment will need to be reported on a separate tax form, but the tax identity is needed on that form.
NON U.S. CITIZENS AND NON RESIDENTS
Non resident / non U.S. tax payers will need documentation too. “The amount has been legally received, and the type of payment is not taxable in the U.S. (it has been correctly reported to tax authorities there)”.
Correct documentation can prevent taxation / other types of tax trouble from tax authorities in the other country. It can also prevent anti money laundering trouble.
I’m pretty sure he could have used the foreign tax identity directly. The W-8 series seems to be used for other types of payments (e.g. scholarships, services, travel reimbursments, living allowances, honorarium, wages, interests and dividends).
Tell us, M_Norway, do they have an expression anything like “On this occasion, I’m wrong” in Norwegian ???
Preferably one that doesn’t involve a thousand word dissertation and nineteen Wikipedia references, if there is such a thing.
Rule 62. Stay of Proceedings to Enforce a Judgment
(a) Automatic Stay; Exceptions for Injunctions, Receiverships, and Patent Accountings. Except as stated in this rule, no execution may issue on a judgment, nor may proceedings be taken to enforce it, until 14 days have passed after its entry.
But unless the court orders otherwise, the following are not stayed after being entered, even if an appeal is taken:
(1) an interlocutory or final judgment in an action for an injunction or a receivership; or
(2) a judgment or order that directs an accounting in an action for patent infringement.
Admit it, you have absolutely no grounds for making that assumption.
As in zip, zilch, zero.
“Probably related to the wrong type of questions” is right out of your imagination.
I have tried to Google the different tax forms, and have looked at where most search hits are leading.
“Wrong types of questions” can mean that people have looked at a problem from a wrong perspective. It can be about the difference between “WHY do people / tax authorities need this information?” and “WHICH tax form will I need to use to report this correctly?”.
Tax payers will need to have the payment reported correctly for some specific reasons, e.g. to avoid wrong taxation or double taxation. The tax payer will need it to prove that taxes have been paid / the type of payment is exempted from tax, etc.
Tax authorities will need to have it reported correctly for similar reasons, to avoid wrong taxation or double taxation. The tax authorities will need it to verify that the tax payer’s information actually is correct.
Both tax payers and tax authorities will need documentation for amount, type of payment (tax code), tax identities for both parties, date / tax year the amount was paid / received. They will also need to know which countries. It will all need to be filled out in the same tax form. More than one tax form may be needed in some situations.
I used an expression like that in April 2013. 🙂
I don’t admit that. The fact is that he has waited a very long time for correct answers to a tax problem he may partly have created himself, by looking at the problem from the wrong perspective.
* Foreign tax payers in this case won’t need any “temporary U.S. tax ID” to report the amount in their own home countries. They would have needed it for other types of payments.
* I don’t think the IRS will need it either. It would have needed it for certain other types of payments.
If neither the IRS nor the foreign tax payer will need the W-8BEN tax identity, then his description of the problem must be too complicated.
Which is a, typically for M_Norway, long winded way of saying you have no idea what questions he asked and absolutely no reason to disbelieve the word of a highly qualified and respected receiver.
Actually, come to think of it, the concept that the opinion of an anonymous, Norwegian based blogger is more likely to be correct than that of a receiver with years of experience with an office full of similarly qualified people at his fingertips is so arrogantly ludicrous, I think you should keep pushing it.
People will be dining off the story for years.