March 25, 2014

First Time Offender Penalty Abatement Program

The tax lawyers at Nardone Law Group routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”). One area of particular interest to taxpayers is the IRS’s first time penalty abatement policy. If you or your business has unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer. Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities. The primary function of the IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed. There are collection alternatives available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy action, including: (i) an installment agreement; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; (v) an offer-in-compromise, and (iv) challenging the underlying tax liability. A request for abatement of penalties is one of several ways to challenge the underlying tax liability.

Request for Abatement of Penalties Based upon First-Time Abate Policy

The IRS’s first-time abate policy, or “First Bite” policy, under I.R.M. 20.1.1.3.6.1 is an administrative waiver, and does not carry any dollar threshold, enabling taxpayers to seek this first time abatement for substantial penalty amounts. It is important to note, however, that this First Bite abatement may only be applied to one single form and tax period. The First Bite policy states that individuals or businesses may seek this venue for alternative penalty relief if they are a first time “offender” with relation to federal tax liabilities. An individual or entity may qualify for abatement of penalties under the First-time Abate policy if: (i) the taxpayer has not previously been required to file a return, and has no prior penalties, for the proceeding 3 years; and (ii) the taxpayer has filed, or filed a valid extension for, all currently required returns, and paid, or arranged to pay, any tax due.

The second criterion requiring taxpayers to be current on their tax filings was recently added to the First Bite policy, and requires that the taxpayer be up to date on all federal return filings and payments, including estimated federal tax deposits through the IRS’s Estimated Federal Tax Payment System (“EFTPS”). If the taxpayer is currently enrolled in an installment agreement with the IRS, and is current on their related monthly installment payments, then the taxpayer will be deemed current on their tax payments for those periods.

NLG COMMENT: As tax attorneys specializing in representing individuals and businesses in front of the Internal Revenue Service, it is important to fully understand all options available to taxpayers, so that the taxpayers can avail themselves of those options, including abatement of penalties. The Service provides us these opportunities and tolls, and we have to ensure that we use them.

Contact Nardone Law Group

Nardone Law Group represents businesses and individuals in federal and state tax issues, including offers in compromise and installment agreements. If you would like to enter into an offer-in-compromise or an installment agreement with federal and state taxing authorities, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before federal and state taxing authorities.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including applying and entering into an offer-in-compromise or installment agreement. Contact us today for a consultation to discuss your case.

March 10, 2014

The IRS Offshore Voluntary Disclosure Program: A Recent Opt Out Success Story

The tax attorneys at Nardone Law Group (“NLG”) routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program.  Whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances.  For example, as explained in our prior article on Offshore Voluntary Disclosure Program Penalties and Opting Out, there are instances in which NLG may advise a taxpayer to opt out of the Offshore Voluntary Disclosure Program.  This article discusses a recent situation in which NLG: (1) advised the taxpayer that the Offshore Voluntary Disclosure Program did not make sense based on his unique facts and circumstances; (2) prepared the taxpayer’s request to opt out of the Offshore Voluntary Disclosure Program and  the taxpayer’s request for penalty forbearance; (3) successfully represented the taxpayer during the opt out audit or examination; and (4) obtained a very beneficial result for the taxpayer.

Nardone Law Group Obtains Successful Offshore Voluntary Disclosure Program Opt Out Result

NLG recently advised a taxpayer regarding an Offshore Voluntary Disclosure Program matter involving foreign mutual funds held within a foreign trust account, producing complex Passive Foreign Investment Company issues. Taxpayers and even other tax professionals often believe that the Offshore Voluntary Disclosure Program is automatically the best option for handling a particular foreign financial account or asset reporting matter that involves complex issues.  But, that is not the case. To make the decision between making a full Offshore Voluntary Disclosure submission and opting out of the program, one must fully review all of the relevant facts and circumstances.

In this instance, NLG thoroughly reviewed the taxpayer’s unique facts and circumstances—as we do with all matters—to determine the taxpayer’s best option. NLG considered whether the Offshore Voluntary Disclosure Program was best for this taxpayer, or whether it would be most beneficial for the taxpayer to opt out and undergo the opt out audit or examination. Even though the taxpayer’s foreign financial account reporting matter involved very complex issues, NLG’s detailed review and analysis indicated that the taxpayer should opt out of the Offshore Voluntary Disclosure Program.

Below is a chart that NLG prepared for this taxpayer, comparing the various possible outcomes of continuing with the Offshore Voluntary Disclosure Program or opting out, based on NLG’s review and analysis:

 

OVDP (27.5% Penalty)

Opt Out: No Reasonable Cause Established for   Penalties

Opt Out: Reasonable Cause Established for Civil   Fraud and FBAR Penalties Only

Opt Out: Reasonable Cause Established for Penalties

Total

$100,000.00

$110,000.00

$48,000.00

$20,000.00

Using the above chart, NLG explained to the taxpayer that under the Offshore Voluntary Disclosure Program, he would owe approximately $100,000 to the IRS. Conversely, NLG informed the taxpayer that under the best opt out scenario, the taxpayer’s debt to the IRS would be only about $20,000. The taxpayer followed NLG’s recommendation and ultimately concluded the opt out process owing the IRS only $21,000—meaning the IRS agreed with NLG’s overall position and analysis regarding the taxpayer’s case. NLG is very pleased to have assisted this taxpayer in obtaining a very good result with his Offshore Voluntary Disclosure Program opt out. This opt out success story simply confirms NLG’s belief that a detailed review and analysis not only provides accurate forecasting of the likely result for an Offshore Voluntary Disclosure or opt out, but also produces the best results.

As you can see, it is important to have an experienced tax attorney evaluate your case to decide whether the Offshore Voluntary Disclosure Program is best for you, or whether opting out of the Offshore Voluntary Disclosure Program makes more sense. Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program.  If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

NLG Comment: Please note that all figures and amounts used in this article have been modified to ensure confidentiality of the particular taxpayer involved.

March 04, 2014

Valuing a Closely-Held Business for an IRS Offer-in-Compromise

The tax lawyers at Nardone Law Group, LLC (“NLG”) routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”).  One area of particular interest to taxpayers is the IRS’s offer-in-compromise program.  If you have unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer.  Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities.  The primary function of an IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed.  There are collection alternatives, available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy actions, including: (i) installment agreements; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; and (v) an offer-in-compromise.

In a prior blog post, NLG discussed how the IRS values financial securities and, specifically, publicly traded stock. For a copy of that blog post, please click here. As a follow-up, this blog post will discuss the valuation of closely-held stock, meaning stock that is not publicly-traded, for purposes of an offer-in-compromise.  

Valuing Closely-Held Stock

As previously discussed, the IRS Internal Revenue Manual (the "IRM") directs that, to determine the value of a publicly-traded stock, the Offer Specialist should obtain valuation information from a daily newspaper, other internal sources, or a broker as to the current market price for the securities. IRM §§ 5.8.5.8(3) and 5.15.1.25(2). Conversely, to determine the value of closely-held stock that is either not traded publicly, or for which there is no established market, the IRM directs an Offer Specialist to evaluate the following methods of valuing the company and assign the applicable portion of the company’s value to the taxpayer’s stock:

  1. Obtain and verify a Collection Information Statement (“CIS”) from the company;
  2. Review the most recent year annual report to stockholders;
  3. Review the most recent year corporate income tax returns;
  4. Request an appraisal of the business as a going concern by a qualified and impartial appraiser.

When a taxpayer, however, holds only a negligible or token interest in a closely-held company and exercises no control over the corporate affairs, the IRM permits an Offer Specialist to assign no value to the stock. IRM § 5.8.5.8(5). As part of negotiating an offer-in-compromsie, the determination of an ownership interest is one of the more difficult issues that arise. This is especially true for professional service organizations where the income from the closely-held business is all paid out to the owners. But, there are many other issues that arise and cause complications for an offer-in-compromise. Thus, when representing a taxpayer before the IRS regarding an offer-in-compromise, and closely-held stock is at issue, we must have a full understanding of the valuation rules to ensure we obtain the fairest result from the IRS.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid federal income tax liabilities. The tax lawyers at NLG have vast experience in representing taxpayers who are in collections with IRS revenue officers.  The current data indicates that the offer-in-compromise program is becoming an increasingly viable collection alternative.  If you have unpaid federal income tax liabilities and are interested in working with the IRS toward an offer-in-compromise, you should contact an experienced tax attorney today. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.

February 24, 2014

Valuing Publicly-Traded Stock for an IRS Offers-in-Compromise

The tax lawyers at Nardone Law Group, LLC (“NLG”) routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”).  One area of particular interest to taxpayers is the IRS’s offer-in-compromise program.  If you have unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer.  Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities.  The primary function of an IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed.  There are collection alternatives available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy actions, including: (i) installment agreements; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; and (v) an offer-in-compromise. Thus, an offer-in-compromise is one of several collection alternatives.  Detailed information on the offer-in-compromise program can be found on NLG’s FAQ webpage here.

Valuation of Publicly-Traded Stock

As part of an offer-in-compromise, taxpayers have to take into consideration how the IRS will value certain assets, including financial securities. The Internal Revenue Manual (“IRM”) provides that financial securities are considered an asset and, thus, the value of financial securities should be determined and included in the reasonable collection potential calculation, or "RCP," when investigating an OIC. IRM §§ 5.8.5.8(1) and 5.15.1.25(1). Thus, if a taxpayer plans to liquidate a securities investment to fund an OIC, the IRS Offer Specialist reviewing the OIC must deduct from the value of the securities the associated fees and current year tax consequences of liquidation. IRM § 5.8.5.8(2). The IRM directs that, to determine the value of a publicly-traded stock, the Offer Specialist should obtain valuation information from the daily newspaper, other internal sources, or a broker as to the current market price for the securities. IRM §§ 5.8.5.8(3) and 5.15.1.25(2). After identifying the current market price of publicly-traded stock, the Offer Specialist must discount the value by estimated costs of sale to arrive at the QSV.  Thus, taxpayers that have financial securities and are considering submitting an OIC must take these IRM provisions into consideration.

It is important to note, however, that the IRM does not provide a formula for valuation of unregistered or otherwise restricted stock, specifically. Rather, the OIC provisions contained in the IRM provide guidance for discounting the value of publicly-traded securities based on their quick sale value, as well as a method for valuing closely-held stock, which is similar in marketability to unregistered or otherwise restricted stock. We will discuss the closely-held stock and restricted stock valuation issues for an OIC in a later blog post.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid federal income tax liabilities. The tax lawyers at NLG have vast experience in representing taxpayers who are in collections with IRS revenue officers.  The current data indicates that the offers-in-compromise program is becoming an increasingly viable collection alternative.  If you have unpaid federal income tax liabilities and are interested in working with the IRS on an offer-in-compromise, you should contact an experienced tax attorney today. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.

 

January 23, 2014

FATCA Update for Taxpayers with Offshore Accounts: Cayman Islands and Costa Rica Enter Intergovernmental Agreements with the United States

The tax attorneys at Nardone Law Group continue to monitor the latest developments in the Foreign Account Tax Compliance Act (“FATCA”) and the IRS’ continued efforts to combat tax evasion through use of foreign accounts. FATCA requires foreign financial institutions in participating foreign countries to report information to the IRS about financial accounts held by United States taxpayers. Under FATCA, individuals with offshore accounts or interests in foreign entities worth more than $50,000 must file Form TD F 90-22-1 (FBAR) and/or Form 8938 Statement of Specified Foreign Financial Assets. For a summary of FATCA reporting requirements for U.S. taxpayers, please see the IRS’s website here

The most recent FATCA update came on November 29, 2013, when the United States Treasury Department announced that the governments for the Cayman Islands and Costa Rica have signed intergovernmental agreements with the U.S. Under these intergovernmental agreements, financial institutions in the Cayman Islands and in Costa Rica are now required to report tax information about their U.S. account holders directly to their countries’ respective taxing authorities. The respective taxing authorities of the Cayman Islands and Costa Rica will then share information regarding U.S. persons holding bank accounts in those counties with the IRS. These new intergovernmental agreements with the Cayman Islands and Costa Rican governments demonstrate that the IRS is increasing enforcement of foreign account reporting and tax payment requirements in the United States. Accordingly, taxpayers with offshore accounts or assets who have not disclosed those foreign accounts or assets to the IRS should consider the IRS’ Offshore Voluntary Disclosure Program.

Many taxpayers forego entering the IRS’ formal Offshore Voluntary Disclosure Program based on the belief that, because their foreign accounts or assets are located in a foreign country that does not share information with the IRS, they can simply make a “quiet disclosure” of their foreign accounts or assets to the IRS by filing amended tax returns to include all previously undisclosed foreign income. But, FACTA requires a U.S. taxpayer to report a qualifying foreign account to the IRS regardless of whether or not that foreign account is located in a country that has entered an intergovernmental agreement with the U.S. Thus, taxpayers must beware of the temptation to file a quiet disclosure, as the IRS has increased its efforts and ability to expose those taxpayers. Please see our prior article regarding the IRS Chasing Down Quiet Disclosures Intended to Avoid the Offshore Voluntary Disclosure Program. Accordingly, taxpayers with foreign accounts or assets that must be disclosed pursuant to FATCA should seriously consider the Offshore Voluntary Disclosure Program, as it provides the best means for taxpayers to become compliant with foreign account reporting and tax payment obligations, and to forgo the risk of criminal prosecution for past noncompliance.

Contact Nardone Law Group

The tax attorneys at Nardone Law Group routinely advise clients in Columbus, Ohio and throughout the country about their federal tax reporting and payment obligations and ways to comply with federal tax law, including compliance with laws governing foreign accounts. If you have questions about your federal tax obligations, foreign accounts, or FATCA filing requirements, you should contact an experienced tax attorney. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

January 06, 2014

Update for 2014: IRS Increases User Fees for Offers-in-Compromise

Each new calendar year brings many changes to the tax code and regulations, and 2014 is no exception.  As of January 1, 2014, the IRS has increased the application fee from $150 to $186 to file an offer-in-compromise. The tax lawyers at Nardone Law Group, LLC (“NLG”) routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”).  One area of particular interest to taxpayers is the IRS’s offer-in-compromise program.  If you have unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer.  Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities.  The primary function of an IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed.  An offer-in-compromise is one of several collection alternatives that are available to taxpayers to resolve their delinquent federal tax liabilities and to stop IRS levy actions.  Detailed information on the offer-in-compromise program can be found on NLG’s FAQ webpage here.

Offer-in-Compromise Program Stops IRS Levy

Pursuant to 26 C.F.R. § 301.7122-1(b), the IRS may accept an offer-in-compromise under three circumstances: (i) when there is doubt as to liability; (ii) if there is doubt as to collectability; or (iii) if acceptance of the offer-in-compromise will promote effective tax administration.  When the IRS accepts an offer to compromise, the taxpayer receives the benefit of resolving its tax liabilities for less than the full amount owed, provided the taxpayer complies with the terms of the compromise agreement.  Moreover, Internal Revenue Code Section 6331(k)(1) is the statutory provision that prohibits the IRS from taking enforced collection activities, including levy actions, against a taxpayer to collect unpaid tax liabilities during the following periods: (i) during the pendency of a validly filed offer-in-compromise application; (ii) if rejected, for 30 days thereafter; and (iii) during the appeal, if a timely appeal of a rejection is filed.  

Increased Processing Fees for Offers-in-Compromise in 2014

The fee for processing an offer-in-compromise before January 1, 2014 is $150, and the fee for processing an offer-in-compromise thereafter is $186 (Reg-144990-12).  No fee will be charged if the offer-in-compromise is based solely on doubt as to liability—as defined in 26 C.F.R. § 301.7122-1(b)(1), or when the offer-in-compromise is made by a low-income taxpayer, defined as an individual who falls at or below the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the Department of Health and Human Services.  The IRS has not changed user fees for offers-in-compromise since 2003.  The IRS indicates that the reason for the fee increase is to help cover the full cost incurred by the IRS to provide an offer-in-compromise—or $2,718.  Federal agencies are generally required to charge their full cost to provide services that confer benefits on taxpayers—such as the offer-in-compromise program.  But, the IRS has received a waiver from the Office of Management and Budget from charging fees for covering the full cost of the offer-in-compromise program.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid federal income tax liabilities. The tax lawyers at NLG have vast experience in representing taxpayers who are in collections with IRS revenue officers.  The current data indicates that the offers-in-compromise program is becoming an increasingly viable collection alternative.  If you have unpaid federal income tax liabilities and are interested in working with the IRS on an offer-in-compromise, you should contact an experienced tax attorney today. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.

December 18, 2013

Nardone Law Group Speaks at Ohio Society of CPAs Mega Tax Event

As specialized tax attorneys, the attorneys at Nardone Law Group frequently give presentations to accountants and other tax professionals on common tax issues.  On Tuesday, December 17, 2013, Vince Nardone gave two presentations at the Ohio Society of CPAs Mega Tax Conference in Columbus, Ohio.  His first presentation topic was IRS Audit Representation, and covered the entire planning process from preparing for to actually handling an IRS audit.  His second presentation was on the subject of Defending a Trust Fund Investigation Under Internal Revenue Code Section 6672.  This presentation explained trust fund taxes and provided an explanation of the IRS' goals and strategies when investigating trust funds, as well as the proper techniques for defending against a trust fund investigation.    

The tax attorneys at Nardone Law Group routinely assist clients in Columbus, Ohio and throughout the United States who are facing an IRS audit or examination, or trust fund investigation.  If you have questions about your federal tax obligations, IRS audits, or the tax liabilities associated with a trust fund, you should contact an experienced tax attorney. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

December 11, 2013

The IRS Offshore Voluntary Disclosure Program Opt Out Audit or Examination Interview

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group routinely advise and assist Ohio taxpayers regarding the Internal Revenue Service’s Offshore Voluntary Disclosure Program.  Each taxpayer’s specific facts and circumstances are very important to determining whether or not the Offshore Voluntary Disclosure Program will be beneficial to the particular taxpayer. A taxpayer may initially begin the process of entering the Offshore Voluntary Disclosure Program, but thereafter learn that the bottom-line results may have been better had the taxpayer not entered the Offshore Voluntary Disclosure Program. The IRS has provided a remedy for this problem, known as opting out of the Offshore Voluntary Disclosure Program. Our previous article, The IRS Offshore Voluntary Disclosure Program: Penalties and Opting Out, provides an example of instances in which it may make sense for a taxpayer to opt out of the Offshore Voluntary Disclosure Program. But, a taxpayer must follow a specific procedure to opt out of the Offshore Voluntary Disclosure Program, which we discuss in our prior article titled The Process for Opting Out.

NLG Comment: Although opting out may be the right option for some taxpayers, in many cases it is best for a taxpayer to continue through the Offshore Voluntary Disclosure Program, as explained in our previous on When Opting Out May Not Make Sense.

As an update to our prior articles, we wanted to briefly highlight an important practical aspect of the decision to opt out of the Offshore Voluntary Disclosure Program, which is the fact that the IRS will then conduct an opt out audit or examination of the taxpayer related to the taxpayer’s foreign accounts or assets. As part of the IRS’ opt out examination, an IRS revenue agent will conduct an interview of the taxpayer to ask various questions and request certain documentation regarding the taxpayer’s foreign account tax reporting and payment noncompliance. This is a comprehensive interview involving numerous inquiries and requests to provide specific and voluminous information and documentation. Additionally, if issues that were not disclosed by the taxpayer are discovered during the examination interview, those issues may be subject to review by IRS Criminal Investigation.

Thus, if you are dealing with foreign account or asset tax reporting and payment noncompliance, it is very important that you engage qualified tax counsel to advise and assist you regarding the Offshore Voluntary Disclosure Program or opt out decision, and the opt out examination interview. For instance, the tax lawyers at Nardone Law Group are very familiar with the numerous questions and document requests the IRS revenue agents pose in the opt out interview, and routinely prepare our clients to handle those inquiries and requests effectively and efficiently.  Having a qualified tax attorney assist you in preparing for the IRS opt out examination interview can make the difference between successfully reducing or avoiding civil penalties and possible criminal exposure and being subjected to large civil penalties and potential criminal charges.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program.  If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

December 06, 2013

Recent Court Case Holding Wife Personally Liable for Trust Fund Taxes: IRS Trust Fund Recovery Penalty

By Matthew Porter, Esq., LL.M

The tax lawyers at Nardone Law Group, LLC regularly update our clients in Columbus, Ohio and throughout the United States on recent court cases so they better understand IRS audits, examinations, and trust fund recovery penalty investigations.  If you or your business has been the subject of a trust fund recovery penalty investigation initiated by a revenue officer with the Internal Revenue Service (“IRS”), you may know that the IRS revenue officer is seeking to establish who within the business is a responsible person. The IRS can personally assess the trust fund recovery penalty against those who it determines are liable for the trust fund recovery penalty, and it collects the liability from their personal income and assets. Due to the potentially devastating impact that a trust fund recovery penalty assessment can have on your personal financial situation, it is extremely important to know how and when an IRS revenue officer determines your liability. The below case highlights the importance of understanding the factors courts examine for purposes of assessing the trust fund recovery penalty.

Wife Liable for Trust Fund Recovery Penalty Despite Limited Involvement in Company

In Johnson v. United States, the Court of Appeals for the Fourth Circuit affirmed a district court ruling that a sole shareholder of a company was liable for the responsible person penalty even though she had minimal involvement in its day-to-day operations and did not learn of the deficiency until being told by IRS.  The Court rejected the taxpayer’s claim that she did not act willfully because the company continued to pay creditors after she learned of the back taxes.  In determining that the taxpayer was a responsible person, the Fourth Circuit examined whether she had the effective power to pay the taxes.  In other words, the court looked at whether she had the actual authority or ability to pay the taxes owed—which she did by virtue of her status within the corporation.  Although the taxpayer’s husband was delegated the duties to run the day-to-day operations of the company—including paying the company’s creditors—the Court found that the taxpayer was the corporation’s sole shareholder for many years and had the power to change the officers and directors as she chose.  And, therefore, she could direct the business of the corporation. As both vice president and chair of the board of directors, she enjoyed considerable actual authority at the company.

The Importance of Understanding the Concept of “Responsible Person”

The Appeals Court held that even though the taxpayer delegated and entrusted her authority to her husband, this did not relieve her of responsibility under Code Sec. 6672. As a result, she remained a “responsible person” because she had effective control of the corporation and the effective power to direct the corporation's business choices, including the withholding and payment of trust fund taxes. The Court’s decision highlights the importance of understanding that when a responsible person learns that withholding taxes have gone unpaid in past quarters for which they are responsible, the taxpayer has a duty to use all current and future unencumbered funds available to the corporation to pay back those taxes. In the Johnson case, the record demonstrated that the corporation continued to make payments to other creditors using unencumbered funds following receipt of the IRS notice.  This error was detrimental to the taxpayer’s case and resulted in an assessment of over $300,000 against the taxpayer.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses with federal tax issues, including those who have fallen behind on their trust fund taxes and who are being assessed with the trust fund recovery penalty by IRS revenue officers. The tax lawyers at NLG have vast experience in representing individuals and businesses with the trust fund recovery penalty. If you are struggling with tax liabilities and are currently involved with a trust fund recovery penalty investigation with an IRS revenue officer, you should contact an experienced tax attorney today. Our experienced tax lawyers will work with you through the trust fund recovery penalty investigation to analyze whether or not you are a responsible party. Contact us today for a consultation to discuss your case.

November 26, 2013

Inherited Foreign Accounts and the IRS Offshore Voluntary Disclosure Program

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely advise taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program and the importance of coming forward to report previously undisclosed foreign financial accounts—including inherited accounts—to the IRS. Under certain circumstances, federal tax law requires a U.S. taxpayer with an interest in a foreign financial account to report that foreign financial account interest to the IRS by filing a Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”). The purpose of the IRS’ Offshore Voluntary Disclosure Program is to allow noncompliant taxpayers to: (1) file certain required returns and forms related to disclosing foreign accounts—such as the FBAR; (2) disclose previously unreported income related to the foreign accounts; and (3) pay tax on that foreign income, while reducing the risk of high civil penalties and potential criminal exposure related to their prior noncompliance. But, some taxpayers are uncertain as to whether the Offshore Voluntary Disclosure Program applies to their specific situation—particularly when it comes to inherited foreign financial accounts.

NLG Comment: For more information on the requirements for filing the FBAR related to foreign financial accounts, please see our prior article regarding the FBAR Filing Requirement.

One problem we have noticed is that many taxpayers believe their inherited foreign financial accounts do not need to be formally disclosed through the IRS’ Offshore Voluntary Disclosure Program. These taxpayers think that that because they received minimal interest income from the inherited accounts, the IRS Offshore Voluntary Disclosure Program is unnecessary. Rather, these taxpayers believe they can simply file the previously un-filed FBARs disclosing their inherited foreign financial accounts to the IRS. This practice is known as making a "silent disclosure" or a "quiet disclosure." In fact, some taxpayers have even informed us that other professionals advised them that their inherited foreign account did not require a formal Offshore Voluntary Disclosure, and that a silent disclosure or quiet disclosure was more appropriate.

NLG Comment: For more information on the pitfalls of making a silent disclosure or quiet disclosure, please see our prior article on the IRS Chasing Down Quiet Disclosures.

Unfortunately, though, inherited foreign financial accounts do not necessarily automatically fall outside the IRS’ Offshore Voluntary Disclosure Program.  The fact that the funds were inherited and produced minimal interest income in the account is irrelevant. There is no threshold income amount that a foreign account must produce to make the IRS Offshore Voluntary Disclosure Program applicable. If a taxpayer has any amount of unreported income on which no tax has been paid, the taxpayer must utilize the formal disclosure process of the IRS’ Offshore Voluntary Disclosure Program, or risk the various civil penalties and possible criminal exposure that could apply outside the Offshore Voluntary Disclosure Program. It is only in the scenario where there is absolutely no income related to a taxpayer’s foreign account that a silent disclosure or quiet disclosure may make sense. Thus, it is very important to consult an experienced tax attorney to determine whether disclosing an inherited foreign financial account through the IRS’ Offshore Voluntary Disclosure Program, or through a silent or quiet disclosure, is best.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program and federal tax requirements for reporting foreign financial accounts, foreign income, and foreign assets.  If you have unreported foreign income, or an undisclosed foreign account, asset or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

March 25, 2014

March 10, 2014

March 04, 2014

February 24, 2014

January 23, 2014

January 06, 2014

December 18, 2013

December 11, 2013

December 06, 2013

November 26, 2013

-->