October 27, 2014

What Taxpayers Need to Know About IRS Audits and Examinations, And the Possibility of Penalties

Nardone Law Group’s experienced tax attorneys, in Columbus, Ohio, routinely assist individuals and businesses that become subject to an Internal Revenue Service audit or examination. An IRS audit or examination occurs when the IRS selects a tax return and reviews the taxpayer’s records from which the reported information on the tax return is derived. One of the most important things taxpayers can do to avoid a potential audit or examination is to maintain adequate personal and business records. While many tax practitioners advise clients to maintain tax records for seven years, Nardone Law Group recommends that tax records be retained indefinitely.

When taxpayers are subjected to an audit or examination, properly retained and organized records will help to effectively defend against the possibility of an assessment of additional taxes, as well as accuracy-related penalties. Proper documentation allows taxpayers to substantiate all business or personal expenses deducted on a tax return and will help to resolve any discrepancies that may arise. A recent U.S. Tax Court decision, which upheld an accuracy-related negligence penalty against a military service member, exemplified the IRS’ ability to assess penalties against negligent taxpayers.

Tax Court Upholds IRS Determination Regarding Charitable Deductions

In Thad D. Smith v. Commissioner, the U.S. Tax Court addressed the issue of tax deductions for charitable donations and the IRS’ ability to assess accuracy-related penalties for negligently unsubstantiated deductions. The petitioner, a pro se military service member, timely filed a federal income tax return for 2009, on which he claimed itemized deductions of $52,810. Upon audit, the IRS determined that $35,238 of these deductions should be disallowed due to a lack of substantiation. While the case was being considered by the IRS Appeals Office, the petitioner submitted an amended 2009 return, increasing his claimed deduction for noncash charitable contributions from $490 to $27,767. He based this new amount on clothing and other household items that he allegedly donated to the American Veterans National Service Foundation (AMVETS) in 2009.

IRS determinations in a notice of deficiency are generally presumed correct, so taxpayers bear the burden of proving that determinations are erroneous. Taxpayers must demonstrate their entitlement to deductions and are required to substantiate their claims. For noncash charitable contributions, the substantiation requirements become increasingly more stringent as the gifts increase in value. The most basic requirement provides that an individual may deduct a gift of $250 or more only if he substantiates the deduction with a “contemporaneous written acknowledgement of contribution by the donee organization.” This acknowledgment must include a description of any property other than cash.

The petitioner did not maintain written records establishing when or how the items were acquired, or what their cost bases were. Furthermore, he obtained blank signed forms from AMVETS and later filled them out himself by inserting supposed donation values. The court held that the petitioner failed to satisfy the “contemporaneous written acknowledgement” requirement, and subsequently disallowed any portion of the additional deduction claimed on his amended 2009 return.

Accuracy-Related Negligence Penalty

IRC section 6662 imposes a 20% penalty upon the portion of any underpayment attributable to negligence or the disregard of rules or regulations by a taxpayer. “Negligence” includes any failure to make a reasonable attempt to comply with the tax laws, and “disregard” includes any careless, reckless, or intentional disregard. With respect to an individual taxpayer’s liability for a penalty, the IRS bears the burden of proving that the penalty is appropriate. Once the Commissioner meets this burden of production, the taxpayer must prove that the determination is incorrect.

As a result of the petitioner’s unsubstantiated deductions, the IRS’ notice of deficiency assessed an accuracy-related penalty of $1,881. The petitioner acknowledged at trial that he had no basis for claiming most of the deductions, effectively discharging his burden of production. Therefore, the court upheld the IRS’ imposition of the accuracy-related penalty.

NLG Comment: This case is an excellent example of why taxpayers need to carefully organize and retain their personal and business records. Detailed records and files will help taxpayers defend against the assessment of additional taxes or penalties.

Contact Nardone Law Group

Nardone Law Group represents individuals and businesses in a multitude of federal tax matters, including taxpayers who are subjected to an IRS audit or examination. If you are facing an IRS tax audit or examination, or if you wish to learn more about how to adequately maintain your records, contact one of our experienced tax attorneys today. Nardone Law Group’s tax lawyers and professions have vast experience representing clients undergoing IRS audits and examinations. We will thoroughly review your case to determine what options and alternatives are available.

Contact us today for a consultation to discuss your case.

October 24, 2014

Recent 'Innocent Spouse Relief' Case Displays Requirement Threshold

The experienced tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated on the Internal Revenue Service’s efforts to collect federal tax liabilities, including advising taxpayers on the various collection alternatives that may be available. These collection alternatives include: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. When taxpayers are contacted by an IRS revenue officer, we recommend that taxpayers thoroughly scrutinize the liabilities to ensure accuracy.

In our prior article on Innocent Spouse Relief, we discussed how one may potentially avoid such tax liabilities if they fulfill the requirements to be considered an “innocent spouse.” Under the pertinent federal law, IRC section 6015, a spouse may seek relief from joint and several liability if they satisfy five conditions. This article will provide a brief overview of these five conditions and will summarize a recent case that provided an analysis of each requirement. To know if you qualify, it is important to carefully review each of the five requirements.

Innocent Spouse Relief Requirements

Under section 6015(b), a qualifying spouse may seek relief from joint and several liability. Taxpayers bear the burden of proving whether they are entitled to relief and are required to satisfy five conditions:

  1. A joint return was filed for the taxable year;
  2. There is an understatement of tax attributable to erroneous items of the taxpayer’s spouse;
  3. The taxpayer establishes that in signing the return, he or she did not know, and had no reason to know, that there was an understatement;
  4. Taking into account all facts and circumstances, it would be inequitable to hold the taxpayer liable for the relevant deficiency; and
  5. The taxpayer timely files for relief under section 6015(b).

In determining whether a taxpayer is entitled to relief, the court will thoroughly review the case and relevant facts in their entirety. If the court determines that the spouse has failed to satisfy one or more of the conditions, then the spouse is not entitled to relief from joint and several liability under section 6015(b). These cases can often be complex, however, and the taxpayer is not necessarily liable if they fail to meet the five requirements. The spouse may be able to seek equitable relief under section 6015(f), but this, too, involves a stringent requirement threshold. To better understand the requirement threshold for innocent spouse relief, it is often helpful to review cases that discuss the subject in greater detail. The following recent case, Irene K. Wang, et vir. v. Commissioner, provides an excellent example of a taxpayer who failed to meet the strict innocent spouse relief requirements.

Wife/Former Chemical Engineer/Homemaker Denied Relief

Recently, a Tax Court decision denied a woman innocent spouse relief from joint liabilities for years she and her husband claimed law firm business deductions for personal expenses. The petitioner wife, a homemaker and former chemical engineer, and her husband, a subsequently disbarred attorney, filed joint federal income tax returns for 2007 and 2008, and have continued to file jointly since. The IRS commenced audits of the couple’s 2007 and 2008 returns, and eventually issued notices of deficiency. The IRS determined deficiencies in tax and accuracy-related penalties of nearly $44,000 for the relevant period. The petitioner wife claimed that she met all five of the relevant requirements and should, therefore, be afforded relief as an innocent spouse.

The Tax Court denied her relief, however, concluding that she participated extensively in the firm’s business during the years at issue. Therefore, the court held that she failed to prove that she did not know, or had no reason to know, of the understatement, due to her heavy involvement in the business. Further, the fact that she had a high level of education and chose not to question the husband, regarding the tax filings, weighed heavily against her. Although she claimed that her husband was deceptive and intentionally withheld information from her, the court found no credibility in her testimony, which was constantly contradictory.

The court’s full opinion can be found here: Irene K. Wang, et vir. v. Commissioner

NLG Comment: As you can see, spouses bear a high burden of proof when seeking relief from joint liabilities. It is important to consult with an experienced tax attorney to find out whether you qualify and what options are available.

Contact Nardone Law Group

Nardone Law Group routinely represents individuals and businesses in federal tax issues, including spouses seeking innocent spouse relief. If you have been contacted by an IRS revenue officer and believe you might have a claim for innocent spouse relief, contact one of our tax attorneys today. The tax attorneys at Nardone Law group have vast experience representing clients before the IRS. We will thoroughly review your case and determine what options and alternatives are available.

Contact us today for a consultation to discuss your case.

October 16, 2014

FBAR Penalties: The Significant Impact Taxpayers Can Face When Failing to Report Foreign Financial Accounts

The tax attorneys at Nardone Law Group in Columbus, Ohio are continuously monitoring the latest developments and updates in the Internal Revenue Service’s efforts to uncover taxpayers with undisclosed foreign accounts, assets, or entities. One option available to taxpayers who want to come forward and report a previously undisclosed foreign account, is the IRS’ Offshore Voluntary Disclosure Program. As part of the Offshore Voluntary Disclosure Program, taxpayers have to address their failure to file the commonly referred to: FBAR form.

Background on FBAR Form

Federal tax law requires taxpayers with an interest in a foreign financial account to report that foreign financial account interest to the IRS by filing a Report of Foreign Bank and Financial Accounts (FinCEN Form 114, formerly Form TD F 90-22.1), commonly referred to as the “FBAR.” Taxpayers fulfill U.S. tax reporting obligations, relating to foreign financial accounts, by both disclosing the account on the taxpayer’s income tax return and by filing the FBAR. Failure to comply with the FBAR filing requirements can result in civil and criminal penalties, which, as illustrated in the case below, can be quite severe depending on the circumstances. First, we will provide a brief overview of the FBAR filing requirements, followed by discussion of a recent case that demonstrated the potential penalties facing non-compliant taxpayers.

FBAR Filing Requirements

U.S. taxpayers who have a financial interest in, or signature authority over, a foreign financial account must file the FBAR if the aggregate value of the account exceeds $10,000 at any time during the calendar year. The FBAR for any particular calendar year is to be filed on or before June 30 of the following year. Additionally, the taxpayer must also disclose the foreign financial account on Schedule B of the taxpayer’s individual income tax return.

A “financial account” includes any securities, brokerage, savings, demand, checking, deposit, or other account maintained within a financial institution. A financial account also includes a commodity futures or options account, an insurance policy with a cash value, an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. A “foreign financial account” is a financial account located outside the United States, including correspondent accounts. To better understand why it is so important to comply with the FBAR requirements, it’s helpful to understand the potential penalties.

Potential FBAR Penalties

The determination of whether a taxpayer has an obligation to file the FBAR is crucial, because a failure to properly do so can have significant consequences. For instance, failure to file the FBAR can result in severe civil, and sometimes criminal, penalties. For non-willful violations of the FBAR filing requirements, the IRS will impose a civil penalty of $10,000 per violation.  For willful violations, the maximum civil penalty is the greater of $100,000 or 50% of the balance in an unreported foreign financial account, per year, for up to six years. Additionally, the criminal penalty for a willful FBAR violation is a fine of up to $250,000 and/or imprisonment of up to five years, depending on the circumstances.

NLG Comment: For violations to be considered “willful,” the government must prove the failure to file was a voluntary, conscious, and intentional act. This can include a conscious effort by a taxpayer to avoid learning about the FBAR reporting and recordkeeping requirements.

Although these penalties are not imposed upon taxpayers very frequently, you can see that they have the potential to be significant. The following recent case demonstrates just how severe the FBAR penalties can be.

FBAR Penalties in Action

In June 2013, the U.S. government filed a complaint against Carl R. Zwerner for his alleged failure to timely report his interest in a foreign financial account. [See United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (S.D. Florida, June 11, 2013)].  Zwerner, an 87-year-old U.S. citizen, had a financial interest in a Swiss bank from 2004 to 2007, the balance of which exceeded $10,000 at all times. Zwerner attempted to voluntarily come into compliance through the filing of amended returns and original FBARs, but was subsequently subjected to an IRS audit. The government assessed civil FBAR penalties against Zwerner in the amount of 50% of the highest account balance at the time of the violations for each year, aggregating to the total amount of $3,488,609.33.  At trial, the jury returned a verdict finding Zwerner “willful” as to the years 2004, 2005, and 2006, and thus liable for $2,241,809 in FBAR penalties. This is quite a severe penalty, considering the apparent high balance of Zwerner’s account was $1,691,054 during the relevant time period.

The Zwerner verdict is a significant win for the government in its efforts to encourage taxpayers with undisclosed foreign financial interests to come into compliance with reporting and filing requirements. As you can see, the IRS has a broad scope to assess penalties when the failure to disclose a foreign financial account is deemed willful. Time will tell whether the government begins a pattern of assessing substantial FBAR penalties similar to Zwerner. One thing is certain: waiting to come into compliance is not a feasible option for taxpayers.

How Nardone Law Group Can Help

The tax attorneys at Nardone Law Group routinely represent businesses and individuals with federal and state tax issues, including identifying any reporting and payment obligations related to foreign financial accounts. The Offshore Voluntary Disclosure Program and FBAR are a prime example of how taxpayers can come into compliance relating to previously undisclosed foreign accounts. If you have unreported foreign income, or an undisclosed foreign account, asset, or entity, contact one of our experienced tax attorney’s today. One day can mean the difference between the benefits of voluntary disclosure and the severe penalties one can incur from a willful violation. Nardone Law Group has vast experience representing clients before the IRS. Our tax attorneys will thoroughly review your case to determine what options and alternatives are available.  

Contact us today for a consultation to discuss your case.

October 02, 2014

Ohio Society of CPAs Lima CPE Day

Vince Nardone recently spoke at the Ohio Society of CPAs Lima CPE Day. Vince spoke on representing financially distressed businesses and individuals in front of the Internal Revenue Service. This is a topic that routinely impacts our clients, including those involved in an IRS audit, appeal, or litigation with the Internal Revenue Service. We thank the Ohio Society of CPAs for allowing us to participate in the event.

September 19, 2014

IRS 'Streamlined Filing Compliance Procedures' Provide Taxpayers a Process for Offshore Account Disclosure

The tax attorneys at Nardone Law Group in Columbus, Ohio are committed to keeping taxpayers updated and informed about the various programs the Internal Revenue Service offers that allow taxpayers to disclose offshore accounts and resolve any tax and penalty obligations. In our prior article on the IRS’ Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Program, we provided a brief overview of the significant changes and expansions to those programs, which accommodate a broader group of U.S. taxpayers. As part of those expansions, the Streamlined Filing Compliance Program is now available to both non-U.S. residents and U.S. residents. There are specific requirements that pertain to both groups of taxpayers. This article is intended to provide a summary of the Streamlined Filing Compliance Procedures and the general eligibility requirements that apply to both non-U.S. residents and U.S. residents. In upcoming articles, we will provide a more detailed look at the requirements for residents and non-residents.

General Eligibility Criteria

The Streamlined Filing Compliance Procedures are designed to provide U.S. taxpayers: (1) a streamlined procedure for filing an amended or delinquent tax return, and (2) terms for resolving the taxpayer’s tax liability and any subsequent penalties. The following are a few general eligibility criteria for use of the streamlined filing procedures.

1. Individuals Only – The Streamlined Filing Compliance Procedures are designed for only individual taxpayers, including estates of individual taxpayers.

2. U.S. Residents or Non-Residents – As part of the recent expansion, the streamlined filing procedures are now available to both non-U.S. residents (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (the “Streamlined Domestic Offshore Procedures”).

3. Non-Willful Conduct - When utilizing the streamlined filing procedures, the taxpayer must certify that their failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. The IRS defines non-willful conduct as conduct that is due to negligence, inadvertence, or mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law.

NLG Comment: It is important to understand that this certification must be carefully reviewed and thoroughly understood before making such certification. Intentionally falsifying this certification or negligently failing to conduct the necessary due diligence to determine whether a particular taxpayer qualifies, may place that particular taxpayer in significant harm. As an example, and discussed below, if the taxpayer ultimately does not qualify for the Streamlined Filing Compliance Program, the taxpayer will not be eligible for the Offshore Voluntary Disclosure Program. In addition, if the Internal Revenue Service determines that the taxpayer intentionally falsified the certification, the taxpayer may be prosecuted.

4. Taxpayer Identification Number – All tax returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number. For U.S. citizens and resident aliens, as an example, the proper Taxpayer Identification Number is a valid Social Security Number. For individuals who are not eligible for a Social Security Number, an Individual Taxpayer Identification Number is a valid Taxpayer Identification Number. Tax returns submitted without a valid Taxpayer Identification Number will not be processed under the streamlined procedures.

5. IRS Examination Voids Eligibility – If, prior to the taxpayer’s disclosure under the Streamlined Filing Compliance Procedures, the IRS has initiated a civil examination or criminal investigation of a taxpayer’s returns for any taxable year, the taxpayer will not be eligible to use the streamlined procedures, regardless of whether the examination relates to undisclosed foreign financial assets

6. Coordination with the Offshore Voluntary Disclosure Program – Once a taxpayer makes a submission under the Streamlined Filing Compliance Procedures, the taxpayer may not participate in the Offshore Voluntary Disclosure Program. Similarly, a taxpayer who submits an Offshore Voluntary Disclosure Program voluntary disclosure letter on or after July 1, 2014, is not eligible to participate in the streamlined process.

However, a taxpayer eligible for treatment under the streamlined procedures who submits, or has submitted, a voluntary disclosure letter under the Offshore Voluntary Disclosure Program prior to July 1, 2014, but does not yet have a fully executed closing agreement, may request treatment under the applicable penalty terms available under the Streamlined Filing Compliance Procedures. In such a situation, the taxpayer does not need to opt out of the Offshore Voluntary Disclosure Program, but will be required to certify, as discussed above, that the failure to report was due to non-willful conduct. The IRS will review the facts and circumstances of the taxpayer’s case and determine whether to incorporate the streamlined penalty terms in the Offshore Voluntary Disclosure Program closing agreement. 

Contact Nardone Law Group

Nardone Law Group routinely represents clients before the Internal Revenue Service. As you can see, there are many factors to consider when deciding whether to participate in the Streamlined Filing Compliance Procedures. If you have an undisclosed foreign account, asset, or entity, you should contact an experienced tax attorney today. Nardone Law Group’s tax attorneys will thoroughly review your case to determine which options and alternatives are available, including the Streamlined Filing Compliance Procedures.

Contact us today for a consultation to discuss your case.

September 17, 2014

Collection Due Process Hearings: How They Can Help Taxpayers Challenge an IRS Collection Action

Collection Due Process Hearings: How They Can Help Taxpayers Challenge an IRS Collection Action

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely help individuals and businesses utilize the Internal Revenue Service’s (“IRS”) collection alternatives to manage their federal tax liabilities. The IRS has significant power to collect delinquent tax debts from taxpayers, including the ability to file a Notice of Federal Tax Lien or to obtain Notice of Intent to Levy against a taxpayer’s assets. Utilizing a collection alternative may help prevent, or significantly reduce the effect of, an IRS collection action. Therefore, it is important for taxpayers to understand the various collection alternatives available to resolve federal tax liabilities when contacted by an IRS revenue officer. Some collection alternatives include: installment agreements, offers-in-compromise, discharging taxes in bankruptcy, currently not collectible status, and challenging the underlying tax liabilities. One way to present collection alternatives and dispute the IRS' collection actions is through a Collection Due Process hearing.

General Summary of Collection Due Process Hearings

When a taxpayer is contacted by an IRS revenue officer, whose intent is to collect delinquent tax liabilities from that taxpayer, taxpayer's options are limited.  Further, the IRS revenue officer really does not care why the taxpayer has not paid or cannot pay.  Rather, the revenue officer only cares about finding out how the IRS can get paid.  Or said another way: 

"Show me the Money!"

Thus, one option that maybe available to taxpayers is to avail themselves of the IRS' Collection Due Process hearing procedure.  Through the Collection Due Process procedure, an impartial IRS employee from the IRS Office of Appeals conducts the necessary hearing. The Collection Due Process hearing procedure was created to give taxpayers rights to appeal lien and levy actions brought against them.  At a Collection Due Process hearing, the taxpayer has the opportunity to propose collection alternatives, such as those listed above, or, under limited circumstances, challenge the underlying tax liability. Collection Due Process hearings are an excellent opportunity for taxpayers to present their case, explain their situation, and ultimately, find the best solution possible for them.

Forfeiture of Ability to Challenge the Liability at Collection Due Process Hearing

A recent decision by the Ninth Circuit, U.S. Court of Appeals, affirming a decision by the U.S. Tax Court, however, highlighted one important procedural error that taxpayers must be wary of.  In Buckardt v. Commissioner, the court addressed whether a taxpayer could dispute pending tax liabilities at a Collection Due Process hearing.  In Buckardt, the IRS was attempting to collect unpaid federal income taxes from an individual taxpayer by way of Notice of Intent to Levy. The question was whether the taxpayer could challenge the underlying liability in the proceeding, when he had failed to do so prior to the Collection Due Process hearing. The court cited to 26 U.S.C. §6330(c)(2)(B), which states that a person may raise challenges to underlying tax liability in the hearing regarding a proposed levy if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such liability.

Ultimately, the court upheld the IRS’s collection action because the court found that the taxpayer received Notices of Deficiency for the tax years at issue.  But, the taxpayer failed to challenge, or appeal, the Notices of Deficiency, even though he had prior opportunity to do so.

NLG Comment: From our perspective, the lesson to take from this case is to ensure you timely respond to any IRS notice, whereby the taxpayer disagrees with the IRS action.  If we fail to respond, we may lose the right to dispute the underlying liability in a later proceeding, as highlighted in Buckardt above.

Contact Nardone Law Group

Nardone Law Group regularly helps taxpayers present IRS collection alternatives, through Collection Due Process hearings. If you or your business have been contacted by an IRS revenue officer, or are struggling with tax liabilities, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS. We will thoroughly review your case to determine what options and alternatives are available, including Collection Due Process hearings.

Contact us today for a consultation to discuss your case.

September 15, 2014

Using Innocent Spouse Relief as a Collection Alternative when Dealing with a Revenue Officer from the Internal Revenue Service

The tax attorneys at Nardone Law Group in Columbus, Ohio, 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 (“IRS”). There are various collection alternatives available to taxpayers, including, but not limited to: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liabilities. In regards to challenging the underlying tax liabilities, when taxpayers are contacted by an IRS revenue officer, taxpayers should thoroughly scrutinize the liabilities to ensure they are correct. One way to potentially avoid such liabilities is through innocent spouse relief. 

Innocent Spouse Relief

Married taxpayers may elect to file a joint U.S. federal income tax return with their spouse to take advantage of the benefits of joint filing status. A taxpayer may be surprised to learn, however, that filing a joint return means that the obligation to pay any tax liabilities falls on both spouses, regardless of who earns the income. This is known as joint and several liability. By signing a joint return, both spouses are responsible for all taxes, interests, and penalties that may arise. If you have been contacted by a revenue officer from the IRS and are held liable, you may be able seek relief as an “innocent spouse.”

For a detailed description of the conditions and requirements of innocent spouse relief, see our previous posting, “Innocent Spouse Relief Update.”

Collection Alternatives in Action

Recently, the U.S. Tax Court denied innocent spouse relief to a petitioner who was held jointly and severally liable for tax liabilities. The tax liabilities, and subsequent penalties, were the result of multiple years of overstated expenses by the husband and wife, on their joint federal income tax returns. The overstated expenses included: (i) professional and legal expenses, (ii) car and truck expenses, and        (iii) travel costs, from their multiple businesses. The husband sought innocent spouse relief, claiming that he did not know, and had no reason to know, that there were overstatements.  Ultimately, the court found that the petitioner husband was not entitled to innocent spouse relief because he did not meet the burden of proof under any of the three categories of § 6015.

Click here to view the entire court opinion from Blonde G. Hall, et al. v. Commissioner.

How Nardone Law Group Can Help

Nardone Law Group represents individuals and businesses in federal tax issues, including spouses filing requests for innocent spouse relief. Revenue officers with the IRS are responsible for and in charge of collecting past due taxes. If you believe you might have a claim for innocent spouse relief, 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 attorneys will thoroughly review your case to determine what options and alternatives are available.

Contact us today for a consultation to discuss your case.

August 15, 2014

Nonprofits not Paying Payroll Taxes to IRS – Collection Alternatives

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely help individuals and businesses, including nonprofits, make use of the Internal Revenue Service’s (“IRS”) collection alternatives to repay federal tax liabilities. The IRS has significant power to collect delinquent tax debts from taxpayers, including the ability to file a Notice of Federal Tax Lien or obtain a levy against taxpayers’ assets. Utilizing a collection alternative may help prevent an IRS Notice of Federal Tax Lien or levy. So, it is very important that all taxpayers understand the various collection alternatives available to resolve federal tax liabilities with the IRS. But, it is imperative that taxpayers falling into any large group identified by the IRS or any related United States government agency as having a disparate amount of outstanding tax liability, take action as soon as possible to resolve that debt. This article highlights one such group: tax-exempt or nonprofit organizations, which the IRS recently recognized as owing a large amount in delinquent federal payroll taxes. Additionally, this article notes the various collection alternatives that the IRS offers for taxpayers to repay outstanding liabilities and avoid involuntary collection action, such as federal tax liens and levies.

Although nonprofits are generally exempt from paying income taxes, they are obligated to pay certain other taxes, such as federal payroll taxes. This is an important point given a recent U.S. Treasury Inspector General for Tax Administration (“TIGTA”) report, which revealed that as of mid-June 2012 more than 64,000 tax-exempt organizations had almost $875 million in outstanding federal payroll tax liabilities. Although many owed smaller amounts to the IRS, about 1,200 of these tax-exempt entities each owed over $100,000 in past-due federal payroll taxes. Adding to the importance and seriousness of federal payroll tax liabilities is the fact that the IRS has power to assess those liabilities against, and collect them from, both an organization and any individual within the organization who can be deemed a responsible party.

Recognizing the significance of these findings, TIGTA made three recommendations to the IRS Director of Tax Exempt Organizations for improving federal payroll tax payment compliance by tax-exempt organizations. The IRS accepted and agreed to proceed with the third recommendation only. Under the approved recommendation, the IRS and Treasury Department will examine possibly introducing new legislation to bolster the IRS’ ability to enforce nonprofits’ compliance with payroll tax payment requirements. Based on these steps, tax-exempt organizations would be wise to begin reviewing their federal payroll tax compliance status and arranging for repayment of any delinquencies.

Collection Alternatives Available to Repay Federal Tax Liabilities to the IRS

The IRS offers various options for taxpayers to repay their liabilities voluntarily, rather than through IRS-imposed federal tax liens, federal tax lien foreclosure sales, or levies. These options are called collection alternatives. Below is a list of the various collection alternatives available to help taxpayers resolve delinquent tax debts:

1. Bankruptcy. If a taxpayer qualifies based on very specific legal requirements, the taxpayer may be able to discharge certain types of federal tax debts in bankruptcy.

2.Currently Not Collectible Status. Even if some or all of a taxpayer’s federal tax liabilities cannot be discharged in bankruptcy, the taxpayer may qualify for the currently not collectible collection alternative. Currently not collectible status means that the IRS has determined that the taxpayer’s income and assets are too low to justify the IRS collecting against the taxpayer at the present time. In those instances, the currently not collectible collection alternative gives a taxpayer time to build back up to a better financial position before the IRS requires payment.

3.Offer in Compromise. The Offer in Compromise collection alternative is available for taxpayers who have some ability to pay the IRS, but who cannot pay the full amount of federal tax liabilities owed. The Offer in Compromise allows certain taxpayers who qualify based on financial situation to satisfy all federal tax liabilities by paying less than what is actually owed.

4.Installment Agreement. Even if a taxpayer does not qualify for the Offer in Compromise collection alternative, the IRS may allow the taxpayer to repay the full amount of federal tax liabilities in monthly payments through the installment agreement collection alternative.

As explained above, collection alternatives provide taxpayers a means to repay their liabilities to the IRS voluntarily, rather than through IRS foreclosure sales or levies. Accordingly, collection alternatives are a very important tool for taxpayers facing the IRS collection process.

Nardone Law Group represents businesses—including nonprofit or tax-exempt organizations—and individuals in federal and state tax issues, including collection alternatives to resolve federal tax liabilities and avoid or remove federal tax liens and levies. If you or your business or nonprofit are struggling with tax liabilities or received a Notice of Federal Tax Lien or IRS levy notice, 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 Fresh Start Initiative Offer in Compromise, installment agreement, currently not collectible, or discharge in bankruptcy options. Contact us today for a consultation to discuss your case.

August 08, 2014

International Banks Further Incentivize Account Holders/Taxpayers to Become Compliant with U.S. Tax Reporting and Payment Obligations

The tax attorneys at Nardone Law Group continue to monitor the latest developments in the Internal Revenue Service’s (“IRS”) efforts to uncover taxpayers with undisclosed foreign accounts, assets, or entities. In our prior article providing an update regarding the U.S. and Switzerland Reaching Agreement on Tax Evasion Investigations, we explained that certain Switzerland-based financial institutions would begin reporting U.S. taxpayers’ accounts to the IRS. The IRS and the United States Department of Justice (“Justice Department”)—bolstered by the agreement with the Swiss government—continues to focus on undisclosed Swiss bank accounts. In fact, our recent article titled IRS Crackdown: Credit Suisse Pleads Guilty to Conspiracy to Aid U.S. Taxpayers in Filing False Tax Returns and Forms with the IRS noted that the large Swiss bank, Credit Suisse Group,  agreed to pay a total of $2.6 billion in restitution and other penalties to the U.S. government following a lengthy criminal investigation. Numerous other Swiss banks remain under criminal investigation by the U.S. Justice Department related to aiding in U.S. taxpayer noncompliance. In the wake of these major waves, international financial institutions that are not yet under criminal investigation are scrambling to assist the Justice Department and avoid criminal investigation and prosecution or civil penalties. This article explains that—as part of a Justice Department program limiting potential penalties against foreign banks—various international banks are encouraging their U.S. clients to become compliant with U.S. tax reporting and payment requirements.

Importantly, last year the Justice Department unveiled a self-disclosure program for international banks to reduce or avoid penalties for sheltering undisclosed accounts held by U.S. taxpayers. The Justice Department’s program allows banks to limit penalties for harboring unreported U.S. taxpayer-owned accounts if the banks encourage those account holders to disclose their unreported accounts. Presently, over 100 Swiss banks have enrolled in the Justice Department’s program. Banks in the program are encouraging their U.S.-based account holders to come into compliance with U.S. tax reporting and payment obligations by offering certain incentives.  These banks offer incentives like specified amounts of cash, or cost sharing arrangements, to help the account holders pay legal and accounting fees associated with utilizing the IRS’ various voluntary compliance programs, such as the Offshore Voluntary Disclosure Program or Streamlined Filing Compliance Procedures.

This trend is just one more example of the IRS’ and Justice Department’s continuing and effective campaign to track down and prosecute noncompliant taxpayers and cooperating financial institutions regarding hidden foreign accounts and income. Surely, it is only a matter of time before the IRS and Justice Department begin to investigate and prosecute the various individual account holders who are involved in these evasive and covert schemes to dodge tax reporting and payment responsibilities. Thus, this update underscores Nardone Law Group’s continued message to taxpayers: the time is now to take advantage of the IRS’ Offshore Voluntary Disclosure Program or Streamlined Filing Compliance Procedures to come into compliance with federal tax reporting and payment obligations for foreign accounts.

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, such as the Offshore Voluntary Disclosure Program and Streamlined Filing Compliance Procedures. If you have questions about your federal tax reporting or payment obligations concerning foreign accounts, assets, or entities, 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.

July 14, 2014

IRS Changes Offshore Voluntary Disclosure Program & Expands Streamlined Filing Compliance Program

The tax attorneys at Nardone Law Group (“NLG”) routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program. As NLG’s clients, Ohio taxpayers, and other NLG blog-readers have come to expect, we want to provide an update on the recent changes the IRS made to its Offshore Voluntary Disclosure Program, and the newly expanded IRS Streamlined Filing Compliance Procedures. As we always advise our clients and inform taxpayers at large, whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances.  This guidance is even more important now given the latest changes to the Offshore Voluntary Disclosure Program and the expansion of the Streamlined Filing Compliance Procedures.

This article provides a brief overview of the significant changes to the Offshore Voluntary Disclosure Program, the expansion of the Streamlined Filing Compliance Procedures, and how NLG works with each taxpayer to determine the best option to achieve federal tax compliance for that taxpayer’s specific facts and circumstances. As a beginning point for better understanding and appreciating the IRS’ recent changes to the Offshore Voluntary Disclosure Program, it would be helpful to review our prior article regarding Offshore Voluntary Disclosure Program Penalties and Opting Out. As you can see, NLG works with each taxpayer to determine whether the entering Offshore Voluntary Disclosure Program or whether opting out and undergoing a regular examination is the best option to become compliant. But, given these recent updates and expansions, NLG is now more often evaluating the Streamlined Filing Compliance Procedures as potentially being the preferred option for each taxpayer.

Recent Updates to the Offshore Voluntary Disclosure Program

Now that you have this important background, the following updates to the 2012 Offshore Voluntary Disclosure Program will, appropriately, seem much more significant:

1. Now, a 50% offshore penalty applies if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.

NLG Comment: At first glance, taxpayers may think that this change is fairly benign. But, to the contrary, this is a major change given that the governments of approximately 78 foreign countries have already agreed or are finalizing negotiations with the U.S. government to share information regarding U.S. taxpayers owning accounts, assets, or entities in those countries. This information sharing will invariably lead to more overarching investigations of large foreign financial institutions and resulting criminal charges, similar to those we highlighted in our article titled IRS Crackdown: Credit Suisse Pleads Guilty to Conspiracy to Aid U.S. Taxpayers in Filing False Tax Returns and Forms with the IRS. For those taxpayers with undisclosed offshore holdings whose banks may become subject to a U.S. government investigation, their cost for coming back into U.S. tax compliance just increased significantly. Thus, it is important for noncompliant taxpayers to come forward before their foreign financial institutions fall under IRS or U.S. Justice Department scrutiny.

2. For taxpayers who do not need to enter the Offshore Voluntary Disclosure Program or utilize the Streamlined Filing Compliance Procedures, and simply have delinquent FinCEN Forms 114 (formerly Form TD F 90-22.1) Report of Foreign Bank and Financial Accounts (“FBAR”) or foreign information returns (such as Form 8938 Statement of Specified Foreign Financial Assets), there are new:

a. Delinquent FBAR Submission Procedures; and

b. Delinquent International Information Return Submission Procedures.

3. There are no longer reduced 12.5% or 5% offshore penalties under the Offshore Voluntary Disclosure Program because of the expansion of the Streamlined Filing Compliance Procedures.

4. The IRS is compelling taxpayers to provide additional information and documentation to enter the Offshore Voluntary Disclosure Program, and has modified the required offshore voluntary disclosure letter and attachment.

5. A taxpayer must now pay the offshore penalty at the time the taxpayer makes an Offshore Voluntary Disclosure Program Submission.

Expanded Streamlined Filing Compliance Procedures

Previously, only non-resident U.S. taxpayers who had failed to file required returns and reports could qualify for the Streamlined Filing Compliance Procedures. But, the Streamlined Filing Compliance Procedures are now available to:

  1. A larger contingent of U.S. taxpayers residing offshore; and
  2. For the first time, U.S. taxpayers residing in the United States.

The IRS has now eliminated the requirements that a taxpayer have $1,500 or less of unpaid tax per year and submit a risk questionnaire to qualify, but is requiring that taxpayers certify that prior noncompliance was not due to willful conduct. Importantly, qualifying U.S. taxpayers living outside the country, all penalties will be waived. Finally, with respect to resident U.S. taxpayers, the penalty will be only 5 percent of the highest aggregate balance of the foreign financial assets causing the tax compliance issue over the relevant period. Thus, the expanded Streamlined Filing Compliance Procedures can be a very helpful tool for certain taxpayers seeking to become compliant with U.S. tax reporting and payment obligations related to their foreign accounts, assets, or entities.

As you can see, it is important to have an experienced tax attorney evaluate your case to decide whether the Offshore Voluntary Disclosure Program, opting out and undergoing a regular civil examination, or the Streamlined Filing Compliance Procedures is best for you. 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, 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.

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