February 09, 2017

Tax Attorneys Nick Reeves and Christopher Tackett Speak to Columbus Bar Association on Defending Ohio Sales Tax Audits

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Nardone Limited tax attorneys Nick Reeves and Christopher Tackett recently were asked to serve as guest presenters at the Columbus Bar Association, Business Taxation Committee meeting on February 8, 2017. Mr. Reeves and Mr. Tackett were honored to appear at the Business Tax Committee and deliver their presentation on defending Ohio sales tax audits. In particular, Mr. Reeves and Mr. Tackett presented strategies to avoid the Ohio Department of Taxation’s use of the indirect “mark-up” method for estimating sales tax liability. Attorney Nick Reeves discussed certain proactive steps that a business in the bar, restaurant, and liquor industry can take prior to the sales tax audit, to put the business in the best position to defend against the indirect mark-up method during an Ohio sales tax audit. Mr. Reeves also discussed steps and strategies for how to defend against Ohio sales tax audits.  To conclude the presentation, litigation attorney Chris Tackett presented regarding the administrative appeal process and strategies for appealing an Ohio sales tax assessment. Mr. Tackett also spoke regarding specific strategies for contesting the mark-up audit method on appeal, and on strategies for seeking abatement of penalties associated with Ohio sales tax assessments.  The presentation went very well, and Nardone Limited would like to thank the CBA Business Tax Committee for inviting us to participate.    

January 23, 2017

Vince Nardone Talks IRS Enforcement at OSCPA Southwest Ohio Tax Update

Ohio society of cpasTax attorney Vince Nardone recently spoke at The Ohio Society of CPAs Southwest Ohio Tax Update held on Thursday, January 19, 2017 in Fairfield, Ohio.  Mr. Nardone spoke to large group, mostly consisting of CPAs and accountants from the Cincinnati area, on updated trends regarding IRS enforcement activities.  As part of our efforts to continue to represent our business and individual taxpayers and defending those taxpayers in IRS audits, examinations, and appeals, we strive to stay on top of the IRS trends in enforcement.  We appreciate and thank The Ohio Society of CPAs tax learning manager, Bob Meister, for inviting us and allowing us to participate. 

December 15, 2016

IRS Documentation Requirements Concerning Charitable Contributions

The tax attorneys at Nardone Limited, in Columbus, Ohio, strive to regularly report on IRS audit and exam issues that may affect our clients. Charitable giving typically peaks as the tax year comes to a close for most individuals and businesses, especially during the holidays. It is important for purposes of IRS audits and exams that taxpayers retain the correct kind of documentation for their charitable contribution deductions.  

Charitable Contribution Deduction

Taxpayers who itemize their deductions are entitled to deduct the amount of contributions made to qualified charitable organizations. Internal Revenue Code §170. Taxpayers report their charitable donations on Schedule A of Form 1040, U.S. Individual Income Tax Return. Deductions are available for contributions of cash, goods, securities, and intellectual property. A taxpayer may not take a charitable contribution deduction for the value of services rendered. For example, a taxpayer cannot deduct the value of his time spent volunteering at a food bank, however, he could deduct the value of the truck or cash he donated to the food bank. There are special rules concerning substantiation of different types of donations. To withstand IRS audits and exams taxpayers must be familiar with the substantiation requirements and have the substantiating documentation handy.

What Kinds of Contributions Qualify for Deductions?

As stated above, a charitable contribution is only deductible if made to a qualified charitable organization. Qualified charitable organizations exist exclusively for the advancement of religious, charitable, or educational purposes. These organizations are tax-exempt and have filed the requisite paperwork to receive charitable contributions with the IRS. In other words, while a taxpayer may have charitable intent when he gives his coat to a person in need, the IRS will not honor a deduction for the cost of the coat, because the taxpayer did not make a contribution to a qualified charitable organization. The IRS would allow a deduction if the taxpayer donated his coat to a qualified charitable organization, like the Salvation Army, and acquired the requisite supporting documents. Additionally, charitable contributions must not involve reciprocity of any kind. The IRS would allow a deduction for contribution to a taxpayer’s place of worship, if the taxpayer received nothing of value in return for his donation. But, if the taxpayer’s donation went towards payment of the taxpayer’s child’s parochial education, then the IRS would disallow at least the portion of the deduction attributable to the tuition. It is not determinative that the parochial school is a qualified charitable organization; the IRS may still deny a deduction if the contribution involves a measurable benefit to the taxpayer.

What Kind of Documentation Does the IRS Require?

The presumptive reason that the IRS requires deductible donations to be made to qualified organizations is ease of administration and promotion of truthful tax reporting. The coat recipient in the first example will likely not be available to substantiate the donation when the IRS comes knocking. In that vein, there are a number of substantiation requirements for different types of donations. The general rule is that when the donation is larger, the substantiation must be stronger. For cash donations, the donor must maintain a bank record, cancelled check, receipt or other communication from the donee. If the taxpayer donates property other than cash to a qualified organization, he may generally deduct the fair market value of the property. For noncash gifts of less than $250, the taxpayer must maintain a receipt from the donee, including the donee’s name, the date and location of the donation, and a detailed description of the donated property. For any contribution of $250 or more (including contributions of cash or property), a taxpayer must obtain and keep in his records a contemporaneous written acknowledgment from the qualified organization, indicating the amount of cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. If a taxpayer takes a donation for more than $500, he must include a description of the donated property with the tax return. For non-cash donations of over $500, the taxpayer must fill out Form 8283, Noncash Charitable Contributions, and file the form with the tax return. For noncash gifts over $5,000, taxpayers must get an appraisal. Failure to provide any of the required documentation may result in the IRS disallowing the deduction. The IRS’s disallowance of a deduction results in increased tax liability for the taxpayer. Thus, it is important that taxpayers make sure they can support each and every deduction with the appropriate documentation, or taxpayers may face unexpected liabilities.

Contact Nardone Limited

The tax attorneys at Nardone Limited have a great deal of experience representing taxpayers who are undergoing IRS audits, IRS exams, or criminal tax investigations. To the extent you have questions relating to charitable tax deductions and substantiation or any of the above, you should contact one of the experienced attorneys at Nardone Limited.

Contact us today for a consultation to discuss your case.

Vince Nardone Talks IRS Enforcement at Ohio Society of CPAs Mega Tax Day


Ohio society of cpasTax attorney Vince Nardone recently spoke at the Ohio Society of CPAs 2016 Mega Tax Day held on Tuesday, December 13th.  Mr. Nardone spoke to a large group of participants on updated trends regarding IRS enforcement activities.  As part of our efforts to continue to represent our business and individual taxpayers and defending those taxpayers in IRS audits, examinations, and appeals, we strive to stay on top of the IRS trends in enforcement.  We appreciate and thank the Ohio Society of CPAs for inviting us and allowing us to participate in their yearly event. 

 

 

July 25, 2016

Vince Nardone Named to 2017 Ohio Super Lawyers List

Attorney Vince Nardone has been named to the 2017 Ohio Super Lawyers list. Super Lawyers, a division of Thomson Reuters, is a rating service that rates and lists lawyers who have attained a high-degree of peer recognition and professional achievement. The selection process is based upon peer nominations and evaluations, as well as independent research.

A description of the selection process can be found at http://www.superlawyers.com/about/selection_process.html.

July 05, 2016

Update Regarding Offshore Accounts and IRS Enforcement Action

Nardone Limited's experienced tax attorneys, located in Columbus, Ohio, routinely advise taxpayers about U.S. tax reporting obligations regarding foreign financial accounts and the importance of reporting previously undisclosed foreign accounts. The Internal Revenue Service (IRS) offers various programs that allow taxpayers to disclose offshore accounts and resolve any tax and penalty obligations. The Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedure Program (SFCP) offer taxpayers who have undisclosed foreign accounts a way to become compliant with U.S. tax laws. Due to ongoing IRS enforcement efforts in the offshore area, it is important for taxpayers with undisclosed foreign assets or accounts to consider voluntary disclosure to minimize their penalty amount, and reduce their chances of criminal prosecution.

You would think that most taxpayers are now aware of the IRS reporting requirements for offshore accounts. But, there are likely many taxpayers that simply do not know about, and others that continue to simply disregard, the statutory and regulatory requirements for reporting offshore accounts. The European Union, however, is making it harder for taxpayers that choose to conceal their assets and income from IRS reporting requirements, and the EU’s recent position will likely expose other taxpayers that simply do not know the rules.

Background on Offshore Accounts

The OVDP and the SFCP are available to U.S. taxpayers who have undisclosed foreign accounts and assets and wish to become compliant with federal tax laws. But, certain events make these programs unavailable to particular delinquent taxpayers. As an example, if the IRS has initiated a civil or criminal examination for any year, regardless of whether it relates to undisclosed foreign financial assets, the taxpayer will not be eligible to participate in the OVDP or any of the streamlined procedures. Further, once the IRS has served a “John Doe” summons, made a treaty request, or has taken similar action and has obtained information that provides evidence of a specific taxpayer’s noncompliance with the tax laws or reporting requirements, that particular taxpayer may become ineligible for one of the voluntary disclosure programs. For this reason, taxpayers should be concerned about and monitoring the European Union’s activity in the offshore area.

Brussels

The UK’s recent exit from the EU has given other countries the ability and clout to push for more transparent requirements regarding tax disclosure obligations in Brussels. As reported by certain news outlets, the EU is reviewing its role regarding investments and looking at toughening its reporting and disclosure requirements of certain investors. As an example, the EU is looking at requiring “trusts” to disclose their actual owners as part of the investments that the "trust" may have within the EU. These additional disclosure requirements, if ultimately implemented, would make it more difficult for taxpayers from other countries to conceal their assets and income. We will have to wait for more detail regarding potential actions of the EU regarding the "trusts" and disclosure requirements. The potential move by Brussels and the EU, in general, should be closely watched.

Vince Nardone Comment: We understand and know that there are many taxpayers that remain committed to not disclosing their assets and income to the U.S. authorities, including the IRS. Although we understand it, we certainly believe it is in the taxpayer's best interest to disclose and minimize the negative economic impact of IRS enforcement.

Contact Nardone Limited

Nardone Limited represents businesses and individuals with federal and state tax issues, including identifying U.S. tax reporting and payment obligations related to foreign financial accounts and utilizing the Offshore Voluntary Disclosure Program or Streamlined Filing Compliance Program to come into compliance related to previously undisclosed foreign accounts. If you have unreported foreign income, or an undisclosed foreign account, asset or entity, you should contact an experienced tax attorney today. Nardone Limited’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. Contact us today for a consultation to discuss your case.

June 21, 2016

Vince Nardone Talks IRS Enforcement with Ohio Society of CPAs

Vince Nardone was given the opportunity to speak at the Akron CPE Day hosted by the Ohio Society of CPAs on Monday, June 20, 2016. His presentation, titled “IRS Enforcement Activities” covered topics such as: IRS enforcement and funding cuts, collection and examination statistics, employment tax initiative and fraud, criminal tax enforcement, voluntary disclosure programs, and IRS audit plans.

Mr. Nardone explained the roles of IRS Revenue Agents and IRS Revenue Officers throughout IRS collection initiatives, including: levies, seizures, fraud and trust fund investigations, suits for injunctive relief, and criminal referrals. It is important to note that 93% of all revenue that the United States brings in comes from the Internal Revenue Service and the enforcement initiatives carried out through IRS audits and examinations. Thus, when we discover that there has been $900 million in IRS budget cuts since 2010, it is important to understand what this means for the U.S. taxpayers.

We are extremely thankful for the continued relationship with the Ohio Society of CPAs and we are looking forward to the Northeast Ohio CPE Day and the MEGA Tax Conference, both being held in December of 2016.

May 27, 2016

Defending Taxpayers in Criminal Tax Investigations Involving Employment Taxes

The criminal tax attorneys at Nardone Limited in Columbus, Ohio, continuously monitor and defend taxpayers in civil and criminal tax investigations and prosecutions. To properly represent a taxpayer confronted by the substantial resources and long-arms of the IRS and the Department of Justice, the criminal attorneys handling your tax investigation must specialize in criminal tax cases to ensure you are competently represented.  Anything less is simply unacceptable. That is why we focus a substantial amount of time and investment fighting the good fight for our clients that have found themselves ensnared by a criminal tax investigation.  In our prior article regarding tax evasion, we discussed the IRS’ criminal tax enforcement impacting taxpayers that do not collect or pay over their required employment taxes.  As that article confirmed, taxpayers who commit tax crimes, such as: (i) filing false returns; (ii) failing to remit withheld taxes; or (iii) assisting others in similar acts, face severe punishments if convicted. These same taxpayers may also find themselves defending and responding to a civil injunction filed by the IRS for failing to collect or pay over the employment taxes.   

General Background

Employers are required by law to withhold employment taxes from all employees. Employment taxes include: (i) Federal Income tax withholding and (ii) Social Security and Medicare taxes. Both employers and employees are responsible for the collection and remittance of employment taxes to the IRS. Generally, the employer will withhold these taxes on behalf of their employees. But, in certain cases, such as when an individual is self-employed, it is the worker’s responsibility to pay the employment taxes, since there is no specific employer when you are self-employed. The IRS frequently investigates employers, or individual taxpayers, who fail to withhold or remit federal employment taxes. More recently, the IRS has expanded its use of civil injunctions to strengthen employment tax enforcement.  The injunctions generally involve the requirements that: (i) employers must pay taxes on time; (ii) employers must notify their revenue agent or revenue officer when taxes have been transmitted; and (iii) employers must inform the IRS if they establish a new business.   

IRS Issues Civil Permanent Injunction against Florida Business and Individual Owners

In April 2016, the IRS obtained an order from the District Court, in the Southern District of Florida, granting a permanent injunction against Rafael Mayeta and Federal Security Services, Inc. (the “Defendants”).  The IRS had filed a complaint for permanent injunction under 26 U.S.C. §7402(a) against the Defendants.  The order restrains and enjoins the Defendants from:

  1. Failing to pay over to the IRS employment taxes withheld from employee wages;
  2. Failing to make timely federal employment and unemployment tax deposits and payments to the IRS;
  3. Failing to file timely federal employment and unemployment tax returns;
  4. Assigning any property or making any disbursements until all required taxes that accrue after the injunction date are paid to the IRS;
  5. Owning or operating any new or unknown company or business within five years without notifying the IRS;
  6. Failing to notify the IRS of their future employment tax conduct; and
  7. Failing to provide proof to the IRS of their compliance with the injunction.

Effectively, the civil injunction shut down the taxpayer’s business and made it much more difficult to operate. The concern, however, is that the IRS and the Justice Department took such action, subject to a much lower burden than in a criminal tax enforcement case. This makes it much easier for the IRS and the Justice Department to take this type of action and makes it much more difficult for taxpayers to defend against those actions.

Vince Nardone Comment: The IRS’ use of, and expansion of, powers under the civil injunction procedures allows the IRS to bypass the higher burden and standards of proving someone guilty beyond a reasonable doubt. Ultimately, the IRS may pursue and charge the taxpayer criminally. But, the civil injunction procedure provides them a much lower burden and standard to adjoin and restrain taxpayers from taking steps that the IRS believes is illegal. There are instances and cases, however, in which the IRS simply has it wrong and, in those instances, the taxpayers need to be able to defend against the IRS’ complaint and pursuit of a permanent injunction.

Contact Nardone Limited

Nardone Limited routinely represents businesses and individuals who are undergoing an IRS audit, examination, or investigation, including criminal tax investigations. If you have been contacted by an IRS revenue officer, revenue agent, or special agent—or if you are currently facing a civil or criminal tax investigation—contact one of our experienced tax attorneys today. Nardone Limited’s tax lawyers and professional staff have vast experience representing taxpayers 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.

May 20, 2016

Vince Nardone talks IRS Collection Alternatives with the Ohio Society of CPAs

Thursday, May 19, 2016 - Vince Nardone was given the opportunity to speak at the Ohio Society of CPA's Dayton Accounting Show. As a tax attorney who specializes in representing individuals and businesses in front of the IRS, Mr. Nardone’s discussion focused on combating IRS collection initiatives, including working with IRS Revenue Officers, as well as the tax collection alternatives that are offered to both businesses and individuals who owe money to the IRS.

Vince Nardone focused on the following collection alternatives: (i) installment agreements; (ii) offers-in-compromise; (iii) currently not collectible; (iv) bankruptcy; and (v) payment in full. He also briefly discussed the Notice of Federal Tax Lien, the Notice of Intent to Levy, withdrawing a Notice of Federal Tax Lien, and trust fund penalties. If you would like more information on minimizing the Internal Revenue Service’s impact on individuals and businesses using collection alternatives, please view our summary here. For more information about the Dayton Accounting Show, please visit the OSCPA website.

We would like to thank the Ohio Society of CPAs for the continued partnership and we look forward to speaking at the Akron CPE Day in June.

April 15, 2016

U.S. Tax Court Holds Law Firm Liable for Accuracy-Related Penalties

Nardone Limited’s experienced tax attorneys, in Columbus, Ohio, routinely assist individuals and businesses that become subject to an Internal Revenue Service (“IRS”) 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. If a taxpayer is negligent or disregards the rules or regulations, causing an underpayment in tax, the IRS is authorized to impose a penalty. One of the penalties the IRS may impose is an accuracy-related penalty.

Accuracy-Related Penalties

Internal Revenue Code §6662 allows the IRS to impose a penalty against a taxpayer if the taxpayer’s negligence or disregard for the rules and regulations causes an underpayment of tax, or if the underpayment exceeds a computational threshold called a substantial understatement. Generally, an “understatement” is the difference between the correct amount of tax and the tax reported on the return, reduced by any rebate. Understatements are reduced by the portion attributable to an item for which the taxpayer had substantial authority, or any item for which the taxpayer, in the return or an attached statement, adequately disclosed the relevant facts affecting that item’s tax treatment and the taxpayer had a reasonable basis for the treatment.

The amount of an accuracy-related penalty equals 20 percent of the portion of the underpayment attributable to the taxpayer’s negligence or disregard of the rules or regulations by the taxpayer. “Negligence” includes any failure to make a reasonable attempt to comply with the tax law, and “disregard” includes any careless, reckless, or intentional disregard. Negligence can arise by failing to keep adequate records or to substantiate items that give rise to the underpayment. However, taxpayers are generally not subject to the accuracy-related penalty if they establish that they had a reasonable cause for the underpayment and acted in good faith. A recent U.S. Tax Court decision, which upheld accuracy-related penalties against a law firm, exemplifies the IRS’ ability to assess penalties against negligent taxpayers.

Brinks Gilson & Lione A Professional Corp. v. Commissioner

In Brinks Gilson & Lione A Professional Corporation, the U.S. Tax Court upheld the accuracy-related understatement penalties against a law firm (“taxpayer”) for mischaracterizing, as compensation for services, dividends paid to shareholder-attorneys, that the firm later agreed were nondeductible dividends. The taxpayer argued that it had substantial authority for deducting in full the yearend bonuses it paid to its shareholder-attorneys. Additionally, it argued that, because it relied on the services of a reputable accounting firm to prepare its returns, it had reasonable cause to deduct those amounts and acted in good faith in doing so. The IRS, however, argued that amounts paid to shareholder-employees of a corporation do not qualify as deductible compensation to the extent that the payments are funded by earnings attributable to the services of nonshareholder employees or to the use of the corporation’s intangible assets or other capital.

Previous courts that have assessed compensation paid to shareholder-employees by its effect on the returns available to shareholders’ capital refer to the independent investor test. The test recognizes that shareholder-employees may be economically indifferent to whether payments they receive from their corporation are labeled as compensation or dividends. While compensation is deductible to the corporation, dividends are not.

In applying this test, courts consider whether ostensible salary payments to shareholder-employees meet the standards for deductibility by taking the perspective of a hypothetical “independent investor” who is not also an employee. Ostensible compensation payments made to shareholder-employees by a corporation with significant capital that zero out the corporation’s income and leave no return on the shareholders’ investments fail the independent investor test. Therefore, the taxpayer’s practice of paying out yearend bonuses to its shareholder attorneys that eliminated its book income fails the independent investor test.

Additionally, the court rejected the taxpayer’s argument that it had reasonable cause and acted in good faith in claiming the deductions because it relied on the accounting firm. The court rejected this argument for two reasons. First, the record provided no evidence that the accounting firm advised the taxpayer regarding the deductibility of the yearend bonuses. Second, in characterizing as compensation for services amounts that have been determined to be dividends, the taxpayer failed to provide the accounting firm with accurate information. For additional information on this case, please click here.

Vince Nardone Comment: This case emphasizes the importance of taxpayers working with experienced tax controversy attorneys to properly document the underlying facts and circumstances to support a reasonable cause defense, as it relates to the abatement of penalties, including negligence. Too many taxpayers, and too many tax professionals, attempt to handle this matters without the necessary experience.

Contact Nardone Limited

Nardone Limited 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 avoid possible penalties for underpayment of tax, contact one of our experienced tax attorneys today. Nardone Limited’s tax lawyers and professionals have vast experience representing clients undergoing IRS audits and examinations. We will thoroughly review your case to determine what options and alternatives are available.

February 09, 2017

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