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.

July 02, 2014

The FBAR Filing Requirement: Taxpayers Not Required to Disclose Virtual Currency... For Now

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely advise taxpayers about their U.S. tax reporting obligations related to foreign financial accounts, as well as the importance of coming forward to report previously undisclosed foreign accounts through the Internal Revenue Service’s Offshore Voluntary Disclosure Program. 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 FinCEN Form 114 (formerly Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”)). Despite the FBAR filing requirement, many taxpayers continue to hold foreign bank accounts while failing to comply with U.S. tax reporting and payment obligations related to those foreign financial accounts. Often times, this is because the particular taxpayer simply does not realize that he or she is required to file the FBAR for the specific foreign account at issue. Below is a brief explanation of the FBAR filing requirement, along with a summary of the IRS’ recent guidance stating that taxpayers are not currently required to report virtual currency on the FBAR, which has become increasingly prevalent in the digital age.

 

FBAR Filing Requirement: Disclosing a Foreign Financial Account Interest

A U.S. citizen with a financial interest in a foreign financial account must file the FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. Such a taxpayer must also disclose any such foreign financial account on Schedule B of the taxpayer’s individual income tax return. A “financial account” includes a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained within a financial institution or other person performing the services of 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, but also includes correspondent accounts.

Significantly, during a recent web-seminar an IRS Senior Program Analyst Rod Lundquist of the IRS’ Small Business/Self Employed division confirmed that taxpayers are not currently required to report virtual currency on the FBAR. Virtual currency is a digital demonstration of value that operates as a standard of exchange, a unit of account, or an item of value. “Convertible” virtual currency is virtual currency that has a corresponding value in real currency—such as the U.S. dollar. For example, bitcoin is a convertible virtual currency that users digitally exchange and that can be changed for U.S. dollars, Euros, and other real currencies. The debate over U.S. tax reporting requirements for foreign virtual currencies continues. But, at least for now, virtual currencies—including bitcoin—need not be reported on the FBAR based upon the IRS’ most recent guidance.

The determination as to whether a taxpayer has an obligation to file the FBAR is important, as the failure to file the FBAR when required to can have significant consequences. For instance, there are large civil and criminal penalties associated with failure to file the FBAR. The IRS will impose a civil penalty of $10,000 per violation for a non-willful violation, or 50% of the amount in the foreign financial account at the time of the violation—not to exceed $100,000—per violation for a willful violation of the FBAR filing requirement. In addition, the criminal penalty for willful FBAR violations is a fine of up to $250,000, imprisonment of up to five years, or both. Moreover, if a taxpayer willfully violates the FBAR filing requirement while violating another federal law or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, the above noted maximum criminal penalties double to $500,000 and 10 years of incarceration.

 

Contact Nardone Law Group Today

Nardone Law Group 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 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 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.

June 26, 2014

IRS Crackdown: Credit Suisse Pleads Guilty to Conspiracy to Aid U.S. Taxpayers in Filing False Tax Returns and Forms with the IRS

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. This article explains that 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, the IRS and Justice Department are not only targeting individual account holders, but also the large financial institutions that assist those individuals in concealing foreign accounts, assets, and income. For instance, the Justice Department recently pressed the large Swiss financial institution, Credit Suisse, into pleading guilty to charges of conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other forms with the IRS. Below is a summary of the IRS’ efforts and success in prosecuting Credit Suisse, and the important signal that sends for non-compliant taxpayers.

Under the plea agreement, Credit Suisse must pay a total of $2.6 billion in restitution and other penalties. The plea agreement resulted from years of IRS and Justice Department investigation into the large Swiss financial institution.  The investigation also lead to indictments of eight Credit Suisse executives, two of which have already plead guilty to charges related to assisting U.S. taxpayers in skirting their U.S. tax reporting and payment obligations related to foreign accounts, assets, and income. This is just one more example of the IRS’ and Justice Department’s continuing efforts to track down and prosecute noncompliant taxpayers and cooperating financial institutions regarding hidden foreign accounts, assets, 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 of Credit Suisse who were 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 to come into compliance with federal tax reporting and payment obligations for foreign accounts, assets, and entities.

Because of the IRS’ continued and increasing efforts to combat tax evasion through use of foreign accounts, assets, and entities, now is the time for taxpayers with undisclosed foreign accounts, assets, and entities to come forward. The proper way to do so is through the Offshore Voluntary Disclosure Program, which provides noncompliant taxpayers a life-line to limit the otherwise onerous civil penalties and risk of criminal prosecution. But, importantly, taxpayers who the government has contacted regarding investigation of their undisclosed foreign accounts, assets, or entities are ineligible for the protection the Offshore Voluntary Disclosure Program offers. Accordingly, taxpayers with foreign accounts, assets, or entities or that must be disclosed pursuant to FATCA—and now particularly those based in Switzerland—should act swiftly to enter the Offshore Voluntary Disclosure Program, or risk being precluded by government contact. Simply put, the Offshore Voluntary Disclosure Program provides the best means for taxpayers to become compliant with foreign account, asset, and entity reporting and tax payment obligations, and to limit 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, assets, and entities. If you have questions about your federal tax reporting or payment obligations under FATCA 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.

June 06, 2014

FBAR Deadline Approaching: Do You Need To File?

The tax professionals at Nardone Law Group, LLC want to remind taxpayers of the upcoming June 30, 2013 deadline to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as the FBAR.  If you are a United States person and you either had a financial interest in or signature authority over any foreign financial account(s) at any time in 2012 (for as little as one day), you must file the FBAR by June 30 if the aggregate value of the account(s) exceeds $10,000.  This year, June 30 falls on a Sunday.  As a result, if you paper file, you should plan ahead to ensure the FBAR is received by the Department of Treasury by Friday, June 28, 2013.  If you have registered to e-file your FBAR, you may be able to timely file your FBAR through the BSA E-Filing System through Sunday, June 30, 2013.

FBAR Information and Requirements

The FBAR is not filed with your federal income tax return.  Rather, the FBAR is due by June 30 following the calendar year you are reporting.  It is important to note that there are no extensions granted for filing the FBAR.  If you have requested an extension to file your federal income tax return, you must still file the FBAR by June 30.  Further, the “mailbox” rule does not apply to FBARs as it does for other federal tax returns.  Thus, the FBAR must reach the Department of Treasury on or before the deadline—which, again, falls on a Sunday—or you will be subject to penalties. 

Filing FBAR Electronically Will Soon Be Mandatory

Effective July 1, 2013, the FBAR must be filed electronically.  To register for e-filing, visit the BSA E-Filing System and follow the registration instructions.  The IRS reports that the average burden associated with information collection for the FBAR is 20 minutes.  Obviously the time required depends largely on the number of foreign accounts held by the US person, the values of those accounts, the type of accounts, and type of authority the taxpayer has over those accounts.

Form 1040 Reporting: Schedule B and Form 8938

In addition to filing the FBAR, a US person who holds a foreign financial account must also check the appropriate box on FBAR-related federal returns, such as Schedule B of the Form 1040 U.S. Individual Income Tax Return.  If you have an interest in foreign financial assets, you may need to file Form 8938, which must be filed if your foreign assets have an aggregate value of $50,000 for individuals, and $75,000 if you are married filing jointly.  The Form 8938, Statement of Specified Foreign Financial Assets is required to be attached to your annual income tax return and must be filed by the due date of that return. The Form 8938 is specific to foreign assets whereas the FBAR is specific to foreign financial accounts.

Have You Failed to File Past FBARs?

If you were required to file the FBAR in the past but have failed to do so, you may be eligible for the Offshore Voluntary Disclosure Program (OVDP). The OVDP is a way for taxpayers to come into voluntary compliance with US tax laws and forgo the risk of criminal prosecution for past noncompliance. Nardone Law Group can assist if you have questions about the OVDP. 

Contact Nardone Law Group

If you are unsure as to whether or not you are required to file the FBAR or the Form 8938, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group have vast experience representing clients with international tax issues such as filing FBARs. Our experienced tax lawyers will thoroughly review your case to determine whether you are required to file the FBAR or the Form 8938, and will also assist in determining whether you should participate in the IRS’s Offshore Voluntary Disclosure Program, which allows non-compliant taxpayers to come forward and file past-due FBARs.  Contact us today for a consultation to discuss your case.

June 04, 2014

IRS Audit or Examination Adjustments May Trigger Additional State Tax Reporting Requirements

The tax attorneys at Nardone Law Group routinely represent individuals and businesses with various state and federal tax controversies, such as tax audits or examinations. As tax professionals in Columbus, Ohio, we often assist taxpayers facing an Ohio Department of Taxation audit or examination or an IRS audit or examination. For more information on defending against an IRS audit or examination, please refer to our prior article on IRS Audits or Examinations. In addition to helping taxpayers defend the actual audit or examination by the taxing authority, however, NLG also advises taxpayers regarding obligations that may arise as a result of the audit or examination. For instance, when an IRS audit or examination results in changes or adjustments to a taxpayer’s income, the taxpayer may be required to file an amended state income tax return reflecting the IRS changes or adjustments. This is true for Ohio taxpayers, so this article summarizes the requirement for an Ohio taxpayer to file an amended Ohio income tax return to reflect any changes made by an IRS audit or examination.

Ohio Taxpayers Must File an Amended Ohio Income Tax Return to

Reflect IRS Audit or Examination Adjustments

Under Ohio law, if any item required to calculate an Ohio taxpayer’s income tax due changes as a result of an adjustment to the taxpayer’s federal income tax return, and that change affects the taxpayer’s Ohio income tax liability, the taxpayer must file an amended Ohio income tax return. Importantly, the requirement to file an amended Ohio income tax return applies whether the IRS or the taxpayer initiated the change to the taxpayer’s federal income tax return. When such a change occurs on the taxpayer’s federal income tax return, the taxpayer must file an amended Ohio income tax return within 60 days after: (1) the date the IRS agrees to or finally determines the adjustment to the taxpayer’s federal income tax return for federal income tax purposes; or (2) the date any federal income tax deficiency, refund, abatement, or credit is assessed or paid, whichever occurs first.

Also, it is significant to note that the statute of limitations for the Ohio Department of Taxation to assess any additional Ohio tax, interest, and penalties due related to such federal adjustments does not begin to run until the taxpayer files the required amended Ohio income tax return. Generally, the Ohio Department of Taxation may not issue an assessment of additional tax, interest, and penalties due against a taxpayer more than four years after the final filing deadline date for the relevant return or the date the taxpayer filed the relevant return, whichever is later. So, if a taxpayer does not file the required amended Ohio income tax return, the Ohio Department of Taxation essentially has an indefinite period of time to discover the taxpayer’s additional income resulting from the federal adjustments, and to assess additional tax, interest, and penalties related to the same. Accordingly, taxpayers who have experienced adjustments to their federal income tax returns—either by their own initiative or as a result of an IRS audit or examination—should contact an experienced tax attorney to determine whether they may be required to file an amended state income tax return to reflect the federal adjustments.

Nardone Law Group represents individuals and businesses in federal tax issues, including those who have become subject to an Ohio Department of Taxation audit or examination or IRS tax audit or examination. If you are facing an Ohio Department of Taxation or IRS tax audit or examination, or are interested in learning about additional obligations that may have arisen due to your audit or examination, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients in Ohio Department of Taxation audits and examinations and IRS tax audits and examinations. Our experienced tax lawyers will thoroughly review your case to determine what requirements or obligations exist, and what options and alternatives are available to resolve  your matter. Contact us today for a consultation to discuss your case.

May 30, 2014

Ohio Voluntary Disclosure of Employer Withholding Tax Liabilities

The tax lawyers at Nardone Law Group routinely advise and assist taxpayers regarding their ability to utilize voluntary disclosure programs, prior to being audited by the Internal Revenue Service. For more information, see our articles regarding Voluntary Disclosure Programs – Ohio and Other States and the Ohio Use Tax Amnesty and Other Voluntary Disclosure Options. Importantly, one area that Nardone Law Group has noticed causing confusion for businesses involves classifying workers as independent contractors versus employees. Correctly classifying workers as independent contractors or employees is vital in ensuring that a business is properly reporting its  withholding tax liability to the Ohio Department of Taxation (the “Department”). Below is a summary of the classification determination and the option to make a voluntary disclosure if your business had incorrectly classified workers.

 

Worker Classification

The determination of whether a worker is an independent contractor versus an employee is not a clear-cut, black-and-white test. Rather, it is based on a number of factors, which focus on the level of employer control over the worker. In Ohio, if a business misclassifies its workers as independent contractors versus employees and is audited, the Department will assess tax, interest, and penalties not only for failure to pay the withholding tax liability, but also for failure to file the required Ohio withholding forms. Further, an employee charged with the responsibility for filing the withholding tax report and making payment will become personally liable for the  failure to file the report and tax due. See Ohio Revised Code section 5747.07(G).

 

Ohio Voluntary Disclosure of Employer Withholding Tax Liabilities Program

Fortunately, the Department offers a voluntary disclosure program for withholding tax liabilities. By making this disclosure, businesses can avoid payment of penalties for failure to file timely and for failure to pay timely. Under the program, the Department requires businesses to pay all of the withholding tax due plus interest for at least the past four tax years, although the Department can technically ask for the past 10 years. This interest can range from 3% to 6% depending on the tax year involved. It is important to note that only businesses that are not currently under audit are eligible for this program. Thus, if you suspect that your business is not in compliance, the time to act is now – before the Department contacts you.

 

Contact Nardone Law Group

If your business is interested in participating in one of the Ohio Voluntary Disclosure Programs, you should contact the experienced tax attorneys at Nardone Law Group. We have vast experience representing individuals in voluntary disclosure programs with the IRS and the Ohio Department of Taxation. 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.

May 27, 2014

Vince Nardone Speaks at Ohio Accounting Show

The tax lawyers at Nardone Law Group, LLC routinely present and speak at continuing education programs for attorneys and certified public accountants. Vince Nardone recently spoke to the Ohio Society of CPA's at the Ohio Accounting Show in Dayton, Ohio. Mr. Nardone spoke on defending individuals and businesses in IRS audits and examinations; more specifically he advised the attendees on how to prepare for and handle the audit with a consistent message and presentation from initial interview through the settlement or litigation. Nardone Law Group represents many individuals in various audits with the Internal Revenue Service and other taxing authorities. You can find more information on the tax planning and controversy services that we offer by visiting our website.

May 20, 2014

Internal Revenue Service: Voluntary Worker Classification Settlement Program

The tax lawyers at Nardone Law Group, LLC routinely advise and assist taxpayers regarding their ability to utilize voluntary disclosure programs, prior to being audited by the Internal Revenue Service. For more information, see our article regarding the offshore voluntary disclosure program. One of the most significant areas that the IRS targets in its audit initiatives is worker misclassification. Please reference our article titled Internal Revenue Service Attorneys Discuss Section 3509 as the Service Continues to Assault Small Business in the Employment Tax Area – Tax Audits. Worker misclassification occurs when a business classifies a worker as an independent contractor, although the worker should have been classified as an employee for federal tax withholding purposes. The determination of whether a worker is an independent contractor versus an employee is based on a number of factors, which basically boil down to the level of control the business may exercise over the worker. If a business misclassifies a worker, the IRS will assess not only the resulting unpaid tax, but also significant penalties and interest, which can be financially devastating to most small businesses.

IRS Voluntary Worker Classification Settlement Program

Fortunately, on September 21, 2011, the IRS announced the voluntary worker classification settlement program (“VCSP”), which allows businesses to come into compliance by disclosing the misclassification of workers and paying only a fraction of the tax due, with no penalties and no interest. Under the VCSP, a business agrees to pay only 10% of the employment tax liability that may have been due on compensation paid to those workers for the most recent tax year, calculated at the reduced rates under Internal Revenue Code Section 3509(a). Further, the business agrees to classify the entire class of workers—meaning those that it misclassified as independent contractors during prior years—as employees in all future years.

Formerly, the VCSP required the business to extend the statute of limitations on assessment of employment taxes for three years subsequent to the first year for which they were participating in the program (i.e., they would be subject to a special six-year statute of limitations, rather than the usual three years that generally applies). Further, a limited set of businesses were eligible. But, since the program was announced, the IRS has introduced several modifications making this option more appealing and original to businesses. For example, now businesses accepted into the program are no longer subject to a special six-year statute of limitations. Also, businesses under IRS audit, other than an employment tax audit, can qualify for the VCSP. These and other modifications to the program are described in Announcement 2012-45.

NLG Comment: As tax attorneys specializing in representing businesses before the Internal Revenue Service, we know firsthand that it is important for taxpayers to understand all options available to them. Further, the costs of coming into compliance voluntarily are far less than the costs of being obligated to come into compliance by the Internal Revenue Service.

Contact Nardone Law Group

If you are interested in your business participating in the IRS Voluntary Worker Classification Settlement Program, you should contact the experienced tax attorneys at Nardone Law Group. We have vast experience representing individuals in employment tax disputes 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.

 

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