May 09, 2017

Working with IRS Revenue Officers and Defending the Trust Fund Penalty Investigation

The tax attorneys at Nardone Limited in Columbus, Ohio, are committed to keeping taxpayers updated on how to utilize the Internal Revenue Service’s collection alternatives to manage their federal tax liabilities. The IRS has broad authority and tools available to collect delinquent taxes, including conducting a trust fund investigation of responsible persons. When an IRS revenue officer contacts a taxpayer, it is important that the taxpayer be aware of and understand the various collection alternatives available to resolve federal tax liabilities. Aside from simply paying the tax liability in full, there are various collection alternatives available to taxpayers that can help reduce or eliminate tax liabilities arising from an IRS audit or examination, including, but not limited to: (i) offer-in-compromise; (ii) installment agreements; (iii) currently not collectible status; (iv) discharge taxes in bankruptcy; and (v) challenge to the underlying tax liability.

Background Regarding Trust Fund Investigations

Internal Revenue Code (“IRC”) §6672, or otherwise referred to as the trust fund recovery penalty or a civil penalty, is one of the most invoked sections of the Internal Revenue Code by the IRS.  The statute creates a unique vehicle for the collection of what are referred to as trust fund taxes (i.e., those taxes collected from employees and held in trust for the United States).  In the context of employment taxes, the term trust fund taxes refers only to taxes withheld from employees—federal income taxes and one half of Federal Income Contributions Act (FICA)—not to the portion of employment taxes that the business itself owes, such as its matching share of FICA or the Federal Unemployment Tax Act (FUTA).  Regardless of whether the service attempts to collect the unpaid taxes from the business as the primary obligor, IRC §6672 empowers the IRS to collect the unpaid trust fund tax liabilities of corporations and other limited liability entities from the personal assets of those persons who are responsible for the nonpayment of the taxes. 

Willfulness

As part of the trust fund investigation, the IRS revenue officer will pursue all responsible persons under IRC §6672.  One of the many defenses that arise—as it relates to the IRS revenue officers’ attempted assessment against responsible persons—is the element of willfulness.  Willfulness is not defined in the IRC.  Rather, the Internal Revenue Manual section 5.7.3.3.2 provides the following definition:

“Willful means intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental.  No evil intent or bad motive is required…  To show willfulness, the government generally must demonstrate that a responsible person was aware, or should have been aware, of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.  A responsible person’s failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies the TFRP ‘willfulness’ element.”

The willfulness element of IRC §6672 is a lower standard than willfulness for criminal tax purposes.  See Stake v. United States, 347 F. Supp. 823 (D. Minn. 1972) (stating that the term “willfully,” as used in statute subjecting to penalty a person who is required but willfully fails to collect, account for and pay over any tax, is not the same as when used in sections imposing a criminal liability and instead means a choice voluntarily, consciously and intentionally made to pay other creditors before paying the government). Generally, willfulness exists if: (i) the responsible person was aware that the taxes were unpaid and, possessing the power to pay them with funds of the taxpayer entity, signed checks paying another creditor; or (ii) the responsible person’s actions were “grossly negligent” or in ‘reckless disregard’ of the fact that the taxes were due and would not be paid. 

Defenses to Willfulness

Thus, recognizing the elements for purposes of the definition of willfulness, taxpayers must consider the facts and circumstances of their particular case, to establish the necessary defenses.  When we think through willfulness, we have to apply that concept of willfulness to the underlying facts and circumstances.  We have to come up with credible and supportable arguments for purposes of the defense.  Below are some of the commonly cited defenses to a trust fund investigation determination that the taxpayer’s conduct was willful: 

  • Establish that responsible person was merely negligent. Generally, this involves proving that the person did not know the taxes were unpaid and did not a good reason to know; 
  • Establish reasonable cause in not paying the taxes. This defense, though generally available in penalty defenses, is generally unavailable in TFRP cases; however, some circuits have cited to this defense.  Research your circuit and tailor your argument accordingly;
  • Establish that no funds existed at the time the person became responsible. This defense becomes available when an individual takes over a financially distressed business with unpaid trust fund taxes.  Look to fit into the circumstances described by the Supreme Court in Slodov v. United States, 436 U.S. 238 (1978); and
  • Establish that the person, though having general management control, did not have control over the finances of the corporation.

Contact Nardone Limited

 Nardone Limited frequently represents individuals and businesses in federal tax matters, including collection alternatives. If you or your business have been contacted by an IRS revenue officer, or are struggling with tax liabilities, you should contact one of our tax attorneys today. Nardone Limited’s tax attorneys have vast experience representing clients before the IRS. We will thoroughly review your case to determine what options and alternatives are available to you.  Contact us today for a consultation to discuss your case.

 

April 19, 2017

IRS Changes FBAR Filing Deadline Beginning with Tax Year 2016

Nardone Limited’s tax attorneys assist taxpayers with U.S. tax reporting requirements, tax examinations, tax audits, appeals, and litigation relating to civil and criminal tax matters at the federal, state, and local levels. Further, the tax attorneys at Nardone Limited routinely advise taxpayers about U.S. tax reporting obligations regarding foreign financial accounts and the importance of reporting previously undisclosed foreign accounts as part of our criminal and civil tax controversy work. If a taxpayer has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain threshold amounts, the taxpayer may be required to report the account annually by electronically filing a FinCen 114, Report of Foreign Bank and Financial Accounts (“FBAR”), as discussed further below.

FBAR Filing Requirements

A U.S. person is required to file a FBAR if: (i) the U.S. person had a financial interest in or signature authority over at least one financial account located outside the United States and (ii) the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. A U.S. person must file the FBAR electronically through the FinCen’s BSA E-filing system. Failing to meet the FBAR filing requirements may result in serious consequences for taxpayers, as detailed in our previous article, FBAR penalties: The Significant Impact Taxpayers Can Face.

The previous annual FBAR filing requirement due date was June 30th. But, beginning with the 2016 tax year, the U.S. Government changed the deadline for filing FBARs to coincide with the individual federal income tax return deadline. Thus, the FBAR filing requirement is April 15th moving forward. The due date for filing FBARs for tax year 2016 was April 18, 2017; however, the IRS is granting automatic 6-month extensions to October 15th to provide taxpayers with ample time to file their FBARs. Taxpayers are not required to make a specific request for the 6-month extensions. Ultimately, it is very important that taxpayers with foreign accounts understand the FBAR filing requirements to ensure they are compliant with U.S. tax laws.

Opportunities to Report Previously Undisclosed Foreign Accounts and Assets

Many taxpayers are either not aware of the U.S. reporting requirements or simply choose to ignore the filing requirements relating to foreign accounts. We strongly encourage our clients to become compliant with any and all U.S. reporting requirements relating to their foreign financial accounts, even if they have not done so in the past. The Internal Revenue Service (“IRS”) offers various programs that allow taxpayers to disclose offshore accounts and resolve any tax and penalty obligations, as discussed further in Nardone Limited’s previous article, IRS Commissioner Urges Taxpayers to Take Advantage of IRS Voluntary Disclosure Programs, Citing $8 Billion in Collections. The Offshore Voluntary Disclosure Programs (“OVDP”) and the Streamlined Filing Compliance Procedures (“SFCP”) offer taxpayers who have undisclosed foreign accounts a way to become compliant with the U.S. tax laws. Nardone Limited routinely assists taxpayers with preparing and submitting OVDPs and SFCPs.

If you have a financial interest in, or have signature authority over a foreign account, we encourage you to contact Nardone Limited at (614) 223-0123 to ensure that you are compliant with any and all U.S. reporting requirements. Nardone Limited’s tax attorneys will review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

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 09, 2017

April 19, 2017

February 09, 2017

January 23, 2017

December 15, 2016

July 25, 2016

July 05, 2016

June 21, 2016

May 27, 2016

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