April 17, 2015

As Part of an IRS Audit or Examination, Taxpayers Must Be Aware of IRS' Assertion of Economic Substance and Related Penalties

Nardone Law Group’s experienced tax attorneys routinely assist individuals and businesses in, Columbus, Ohio and nationwide, that become subject to an Internal Revenue Service audit or examination. An IRS audit or examination occurs when the IRS selects a tax return and reviews the taxpayer’s records from which the reported information on the tax return is derived. As part of that examination, the IRS will review the taxpayer’s transactions for the relevant years to ensure those transactions have economic substance. If the transactions are void of economic substance, the IRS may assert penalties against the taxpayer.

Background

 The economic substance doctrine is one of the longstanding  judicial doctrines that must be considered as part of any tax planning and will be considered by the IRS as part of any IRS audit or examination.  In general, and without getting in to the technicalities, this simply means that a transaction may be disregarded if the transaction does not change the taxpayer’s economic position independent of its federal income tax consequences.   For the longest time, the courts have acknowledged and authorized a taxpayer’s lawful effort to avoid the payment of tax.  In fact, one of the most famous quotes from Judge Learned Hand states:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible.  Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.  Commissioner v. Newman, 159 F.2d 848, 850-851 (2d Cir. 1947).

But, taxpayers, in some instances, cross the line from tax avoidance to tax evasion when the transactions that they are entering into lack or are void of any economic substance.  That is, there was no business purpose for the transaction. In those instances, the IRS will challenge the taxpayer’s position and may pursue both civil and criminal penalties.  It is important to note that the economic substance doctrine was ultimately codified under Internal Revenue Code § 7701(o).

What Does All of This Mean?

In layman’s terms, if an individual or business is planning to enter into a transaction that is motivated by tax planning, the transaction must have independent significance from both a business purpose perspective and true economic impact on the taxpayer, separate from the tax consequences.  That is, there must be a legitimate intent and reasonable expectation of profit.  We cannot simply create tax planning transactions with no legitimate business purpose.  Over the last decade or two, many so-called smart tax attorneys, and tax accountants at large law firms and accounting firms, have found themselves in harm’s way because they aided and abetted taxpayers in pursuing transactions void of economic substance. Tax professionals and taxpayers themselves must be careful to ensure that they do not participate in these tax evasion type activities versus those legitimate tax avoidance planning opportunities that exist in most legitimate business transactions that a taxpayer may enter into.

NLG Comment: Avoid the too-good-to-be-true type of planning that certain tax professionals may attempt to sell you.  Question their guidance, their reliance on certain laws and their analysis of the tax code.  Simply because something may sound complicated and may sound sophisticated, does not mean that what they are proposing will work or is even within the law.  In fact, in many instances, tax professionals or tax promoters intentionally complicate facts in an attempt to disguise the true motivation of the transaction: tax evasion.

Contact Nardone Law Group

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

Contact us today for a consultation to discuss your case.

April 10, 2015

Recent Guidance Affects the IRS' Ability to Issue a Notice of Federal Tax Lien on an Unrecorded Property Conveyance

The tax attorneys at Nardone Law Group in Columbus, Ohio, routinely advise taxpayers who have been contacted by a revenue officer with the Internal Revenue Service. If a taxpayer neglects to make payment of a federal tax liability, the IRS has broad authority and tools available to collect delinquent taxes, which includes the filing of a Notice of Federal Tax Lien. A Notice of Federal Tax Lien can cause a taxpayer significant financial harm, so it is crucial that taxpayers are aware of the various ways to obtain relief when issued a Notice of Federal Tax Lien. See our previous article, Discharging Property from a Notice of Federal Tax Lien, where we focused on the option of discharging property as one of the solutions available to help taxpayers resolve a Notice of Federal Tax Lien.

Recently, the IRS issued interim guidance regarding the government’s ability (or possible inability) to issue a Notice of Federal Tax Lien on an unrecorded property conveyance, frequently arising in divorce cases. This article provides a brief overview of the IRS guidance, as well as some potential issues and questions that may arise as a result.

What Does the Guidance Say?

In September 2014, the IRS issued interim guidance (found here) regarding “policies and procedures for prioritizing the federal tax lien relative to a change in the Service’s position on unrecorded conveyances.” The new procedures are to be incorporated into Internal Revenue Manual 5.17.2.7.1, with the new subsection title of Unrecorded Conveyances.

The IRS guidance provided, in pertinent part:

"A recent court decision has led to a change in the Service’s position relative to unrecorded conveyances. The new position is that a federal tax lien does not attach to property once a conveyance divests a taxpayer of their interest in that property, regardless of what state law provides regarding the rights of creditors in unrecorded conveyance situations."

Essentially, once a property interest has been conveyed from one party to another, the IRS can no longer issue a Notice of Federal Tax Lien on that property interest, against the party that transferred the property, regardless of whether the conveyance was properly recorded. Furthermore, this policy is to take precedence over any contrary state laws.

What Does the Guidance Mean?

This issue of prioritizing a Notice of Federal Tax Lien on an unrecorded conveyance frequently arises in divorce cases, where one of the spouses receives full title to the house. The IRS guidance provided an illustrative example:

A husband and wife divorced in December 2005. The court awarded the residence to the wife with a contingency that, if the wife sells the residence within three years of the divorce, the wife will split the proceeds with the husband.

The husband failed to pay his 2005 taxes, and the IRS filed a Notice of Federal Tax Lien in September 2008. The husband’s contingent property right expired in December 2008, and the wife never recorded the property conveyance in the county deed records. 

Even though the real property conveyance was unrecorded when the Notice of Federal Tax Lien was filed, the lien could only have attached to the husband’s contingent personal property interest in the monetary proceeds, until that right expired. Therefore, since the contingent right expired in December 2008, the Notice of Federal Tax Lien could not attach to a real property interest in the residence.

How will the Guidance Affect Existing Practice?

This guidance has created a fair amount of confusion in the states. Traditionally, state laws played the important role of defining property rights, and state recording statutes are directly relevant to determining priority rights. The IRS guidance, however, expressly disregards state laws in relation to the rights of creditors in unrecorded conveyance situations.

This guidance seems to suggest that the IRS is seeking to protect the innocent spouse, or transferee, from having their rightfully acquired property interest improperly seized by the government. Since it is still unclear how this guidance will affect the IRS’ practices and procedures going forward, it is important for taxpayers to stay updated and informed on the changes as they occur.

Contact Nardone Law Group

Nardone Law Group represents individuals and businesses in federal tax issues, including resolving a Notice of Federal Tax Lien. If you have been contacted by an IRS revenue officer, or have been subjected to a Notice of Federal Tax Lien, contact one of our experienced tax lawyers today. Nardone Law Group’s tax attorneys and professional staff have vast experience representing clients before the IRS. If you are subject to a Federal Tax Lien, we will thoroughly review your case to determine what options and alternatives are available.

Contact us today for a consultation to discuss your case.

April 06, 2015

'Former Credit Suisse Bankers' Sentenced, all related to IRS Crackdown on Taxpayer's Failure to Disclose Offshore Accounts

Nardone Law Group’s experienced tax attorneys, located in Columbus, Ohio, routinely advise taxpayers on their U.S. tax reporting obligations regarding foreign financial accounts and the importance of reporting previously undisclosed foreign accounts. See our prior articles discussing the IRS’ Offshore Voluntary Disclosure Program and the IRS’ Streamlined Filing Compliance Procedures program.

This article discusses the IRS’ continued enforcement and scrutiny of taxpayers related to Offshore Accounts, including the taxpayers’ tax and investment professionals.  In many instances, the IRS is more interested, or as interested, in going after the tax attorneys, tax accountants, investment advisors, or bankers that help the taxpayers facilitate their tax evasion activities. The IRS’ interest in the professional themselves is highlighted in the recent prosecution and sentencing of two former Credit Suisse AG bankers.  The idea is that some taxpayers would not be willing to, or able to, participate in tax evasion activities without the aiding and abetting of their professional advisors.  Thus, if we deter the professional from participating in certain activities, we then deter the taxpayer. 

Indictment and Sentencing

In this particular case, the bankers assisted taxpayers with undisclosed foreign accounts from reporting earnings on those accounts.  The bankers’ assistance included the use of secret accounts and shell companies used to conceal the underlying activity and the ownership of the accounts.  In some instances, taxpayers did not even receive monthly or yearly statements as to the amounts in their accounts at any particular time.  That is, all parties involved wanted to avoid any sort of paper trail.  The taxpayers would likely not have been able to achieve the concealment without the aiding and abetting of the bankers.  The bankers ultimately plead guilty and were recently sentenced.  In the recent sentencing, a federal judge sentenced both bankers to five years of unsupervised probation for their roles in helping numerous taxpayers hide earnings from taxing authorities.  Both bankers were also fined for their involvement.  The light sentence for both bankers took into account many facets of the case, including the bankers’ cooperation with the government and their family and personal circumstances. See the statement of facts from Andreas Bachmann’s indictment and those from Josef Dorig’s indictment for additional and specific detail.

Contact Nardone Law Group

Nardone Law Group frequently represents individuals and businesses in federal and state tax issues, including defending individuals and businesses being investigated and prosecuted for tax evasion activities, as well as participating in the IRS’ Offshore Voluntary Disclosure Programs and the Streamlined Filing Compliance Procedures. If you have been contacted by the IRS, or have an undisclosed foreign account, asset, or entity, contact an experienced Nardone Law Group tax attorney today. We will thoroughly review your case to determine what options and alternatives are available.

Contact us today for a consultation to discuss your case.

April 01, 2015

Civil Forfeiture in Structuring Cases: How Far Can the IRS Reach?

The tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated regarding the Internal Revenue Service’s efforts to eliminate tax fraud, through civil and criminal investigations. In our prior article on Criminal Tax Convictions, we discussed the IRS’ ability to prosecute taxpayers for tax evasion, such as failing to remit withheld employment taxes. Taxpayers who commit tax crimes, such as filing false returns, failing to remit withheld taxes, or assisting others in similar acts, can face severe punishments if convicted. These punishments usually involve considerable fines, penalties, and, in some instances, incarceration.

In certain cases, the IRS has the ability to seize a taxpayer’s assets (i.e., property or cash) that it suspects have been somehow used in criminal activity. This seizure and forfeiture of taxpayer assets often arises in the context of structuring cases, which involve manipulating cash transactions to avoid reporting requirements. Recently, IRS Commissioner John Koskinen testified before the House Subcommittee on Oversight on Financial Transaction Structuring to discuss the IRS’ new policy regarding civil forfeiture in structuring cases (the full testimony can be viewed here). This article is intended to provide a brief overview of structuring cases and the IRS’ new position on civil forfeiture actions.

What is “Structuring”?

Under the Bank Secrecy Act (BSA), financial institutions are required to report any deposit, withdrawal, exchange of currency, or other payment or transfer exceeding $10,000. Multiple transactions are to be treated as a single transaction if the transactions are made by, or on behalf of, any one person and total more than $10,000 during one business day. Structuring involves the willful manipulation of cash transactions to fall below the $10,000 reporting threshold. While legitimate business reasons may exist for keeping deposit levels under $10,000, more often than not, the intention for doing so is to defraud and evade the BSA reporting requirements. Taxpayers that willfully violate the anti-structuring provision may be subject to a fine of no more than $250,000, imprisonment for a maximum of five years, or both. This is why the IRS vigorously pursues structuring cases.

The Difference between Civil and Criminal Forfeiture

A “seizure” is the process by which the government initially comes into possession of property. “Forfeiture” proceedings are how the government is able to acquire legal title and full rights over the property. Generally, civil forfeiture is a process by which the government can seize property that is suspects has been involved or used in criminal activity. Criminal forfeiture typically follows a criminal conviction. The key difference is that with a civil forfeiture, the property owner need not be convicted or even charged with a crime. In his testimony, Commissioner Koskinen stressed that there are significant due process protections in place to protect the rights of innocent parties. Furthermore, there are numerous safeguards that ensure the reasonableness of any seizure and allow interested parties to have a full and fair opportunity to be heard.

“Legal Source” vs. “Illegal Source” Structuring Cases

Following some negative press, the IRS stated that it would no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases, absent exceptional circumstances. Legal source structuring cases involve funds that come from legal activities and are not derived from, or associated with, any other illegal activity. One example of why legal source structuring cases were receiving criticism involved a restaurant owner who, for 38 years, had deposited all of the earnings from her cash-only business at a local bank. The IRS seized the owner’s checking account, even though she had not been charged with any crime, because of a pattern of less-than-$10,000 deposits. Apparently the pattern was a sufficient basis to obtain a seizure warrant, despite the fact that it isn’t illegal to deposit less than $10,000, so long as you are not intending to evade the BSA reporting requirements. These types of instances are what prompted Commissioner Koskinen’s testimony and the IRS’ updated policy regarding civil forfeiture actions in legal source cases.

Recognizing that businesses and individuals may make deposits under $10,000 without any intent to evade reporting requirements, the IRS concluded that it should begin focusing its resources on cases where evidence indicates that the funds used in the structuring scheme are from illegal sources. Commissioner Koskinen emphasized, however, that structuring deposits or withdrawals to evade reporting requirements is a felony, regardless of whether the funds come from a legal or illegal source. The new policy simply means that the IRS will not be seizing assets in structuring cases unless there is evidence that the funds are somehow connected to illegal activity.

The IRS’ new policy on civil forfeiture in structuring cases should help eliminate instances of law-abiding taxpayers having their assets seized because of a transaction “pattern.” This will also allow the IRS to focus its attention on “illegal source” structuring cases, ensuring consistency in how structuring investigations and seizures are conducted. Seizures and forfeitures are powerful tools, so it is important for taxpayers to be aware of the BSA reporting requirements and the IRS’ broad investigative power.

Contact Nardone Law Group

Nardone Law Group routinely represents businesses and individuals who are undergoing an IRS audit or examination, including criminal investigations. If you have been contacted by an IRS revenue officer, or if you are currently facing a civil or criminal tax investigation, contact one of our experienced tax attorneys today. Nardone Law Group’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.

March 17, 2015

Transitional Treatment under the IRS Offshore Voluntary Disclosure Program

Nardone Law Group’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 offers various programs that allow taxpayers to disclose foreign accounts, assets, or entities, and resolve any tax and penalty obligations. Two of these programs are the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures. Each program has certain requirements that taxpayers must meet in order to qualify for participation.

In 2014, the IRS expanded the streamlined procedures, making them available to a wider population of U.S. taxpayers. As part of those expansions, certain taxpayers participating in the Offshore Voluntary Disclosure Program will be allowed to take advantage of the favorable penalty structure of the expanded streamlined procedures, while remaining in the offshore disclosure program. This is commonly referred to as transitional treatment. As we always advise our clients, whether the Offshore Voluntary Disclosure Program will be beneficial to a particular taxpayer depends on that taxpayer’s facts and circumstances. Therefore, it is important to know the relevant requirements, and resulting benefits, for transitional treatment under the Offshore Voluntary Disclosure Program.

What is Transitional Treatment?

Transitional treatment under the Offshore Voluntary Disclosure Program allows taxpayers currently participating in the program an opportunity to take advantage of the favorable penalty structure of the expanded Streamlined Filing Compliance Procedures. For example, certain taxpayers who qualify for transitional treatment will not be required to pay the Title 26 miscellaneous offshore penalty, prescribed under the Offshore Voluntary Disclosure Program.

To receive transitional treatment, taxpayers must meet the general eligibility requirements for the expanded Streamlined Filing Compliance Procedures (discussed here). The streamlined procedures are available to individual U.S. resident and non-resident taxpayers who have a valid taxpayer identification number. Furthermore, the taxpayer must be able to certify that their failure to report all income, pay all tax, and submit all required information returns, was due to non-willful conduct.

How Does Transitional Treatment Work?

A taxpayer is considered eligible for transitional treatment under the streamlined procedures if they submitted a voluntary disclosure letter under the Offshore Voluntary Disclosure Program prior to July 1, 2014, but do not yet have a fully executed closing agreement.  If eligible, the taxpayer may request treatment under the applicable penalty terms available under the Streamlined Filing Compliance Procedures.

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

To receive transitional treatment, the taxpayer does not need to opt out of the Offshore Voluntary Disclosure Program, but will be required to certify, as discussed below, that the failure to report was due to non-willful conduct. The IRS will review the facts and circumstances of the taxpayer’s case and determine whether to incorporate the streamlined penalty terms in the Offshore Voluntary Disclosure Program closing agreement. 

NLG Comment: It is important to understand that this certification must be carefully reviewed and thoroughly understood before making such certification. Intentionally falsifying this certification or negligently failing to conduct the necessary due diligence to determine whether a particular taxpayer qualifies, may place that particular taxpayer in significant harm. If the Internal Revenue Service determines that the taxpayer intentionally falsified the certification, the taxpayer may be prosecuted.

Contact Nardone Law Group

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

Contact us today for a consultation to discuss your case.

March 13, 2015

Certification of Non-Willful Conduct an Important Aspect of Offshore Account Disclosure

The tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated and informed about the various programs the Internal Revenue Service offers that allow taxpayers to disclose foreign accounts, assets, or entities, and resolve any tax and penalty obligations. In our prior articles on the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, we provided an overview of the recent expansions of those programs, as well as the qualification requirements and benefits of each. To qualify for participation and to take advantage of the various benefits that each program provides, it is important that taxpayers are aware of and fully understand these requirements. 

Under the Streamlined Filing Compliance Procedures, taxpayers are required to certify that their failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. The certification requirement also applies to taxpayers who are receiving transitional treatment under the Offshore Voluntary Disclosure Program. While this article provides a brief overview of the certification requirement, we strongly advise taxpayers to consult with an experienced tax attorney before making this certification to the IRS.

When is Conduct “Non-Willful”?

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

The “non-willful conduct” certification requires taxpayers to provide specific reasons for their failure to comply with the relevant reporting obligations. This is often more difficult than it sounds. Taxpayers may believe that their conduct was “non-willful,” however, the IRS must agree. Additionally, this applies if a taxpayer was “willfully blind” regarding a duty to report. The taxpayer cannot actively choose to ignore a duty, when they are aware that such a duty exists. For example, if a taxpayer is aware of an FBAR reporting requirement and consciously chooses not to file the FBAR, that is sufficient to constitute a “willful” violation.  

Why is this so important? When a taxpayer certifies that their conduct was non-willful, they do so under penalty of perjury. Intentionally falsifying this certification or negligently failing to conduct the necessary due diligence to determine whether a particular taxpayer qualifies, may place the taxpayer in significant harm. For example, if the taxpayer ultimately does not qualify for the Streamlined Filing Compliance Program, the taxpayer will not be eligible for the Offshore Voluntary Disclosure Program. Furthermore, if the IRS determines that the taxpayer intentionally falsified the certification, the taxpayer might be subject to criminal prosecution.

Contact Nardone Law Group

Nardone Law Group routinely represents clients before the Internal Revenue Service. As you can see, it is crucial that the certification of non-willful conduct be reviewed and thoroughly understood before making such certification. If you have an undisclosed foreign account, asset, or entity, you should contact one of our experienced tax attorneys today. Nardone Law Group’s tax attorneys will thoroughly review your case to determine which options and alternatives are available, including transitional treatment under the Streamlined Filing Compliance Procedures.

Contact us today for a consultation to discuss your case.

March 05, 2015

Ohio Department of Taxation Sales Tax Audits: Contesting the Use of Purchase Markup Analysis When Primary Sales Records Maintained by Vendor

The tax attorneys at Nardone Law Group in Columbus, Ohio, routinely advise individuals and businesses on state and federal tax issues, including those involving the Ohio Department of Taxation. When faced with a sales tax audit, appeal, or other litigation, many owners of restaurants and bars find themselves in unfamiliar territory and often end up owing additional sales tax, interest and penalties as a result of the audit, despite having adequate records of their sales.  In many cases, the additional assessment could have been avoided with proper counsel from a tax attorney.

Vendor Tax Requirements via the Ohio Revised Code and the Ohio Administrative Code

Section 5739.11 of the Ohio Revised Code requires Ohio vendors to “keep complete and accurate records of sales, together with a record of the tax collected on the sales” and to “keep all invoices, bills of lading, and other such pertinent documents.” Additionally, Chapter 5703-9-02(A) of the Ohio Administrative Code elaborates on this requirement by requiring Ohio businesses subject to the Ohio sales tax to maintain complete and accurate records, which include:

1. Primary records such as purchase invoices, bills of lading, sales invoices, guest checks, exemption certificates, tax payment receipts, and cash register tapes; and

2. Secondary records such as bank deposit receipts and daybooks, journals, or any other records in which accumulated data is recorded.  Secondary records must be supported by complete detailed primary records from which the secondary records were created.

Alternate Audit Methods, Including Purchase Mark-Up Analysis

If a vendor fails to maintain primary sales records, the Ohio Department of Taxation is permitted to use certain alternative methods to determine the correct amount of taxable sales. One of these methods is a purchase mark-up analysis, employed on a test or sample basis, whereby the auditor will use the vendor’s purchase invoices from a sample period to estimate the vendor’s sales figures at an attributed mark-up cost for the entire audit period. This method almost always leads to significantly increased sales tax liability because it does not account for reduced mark-ups or loss through spoilage, breakage or theft.

If a vendor has maintained primary records of its sales as required by the Ohio Administrative Code, then the vendor’s sales tax liability should be readily ascertainable without the use of alternate audit methods, and it should dispute any attempt by the Ohio Department of Taxation to use the mark-up or “test-check” method of estimating taxable sales.  The Supreme Court of Ohio has held that the purpose of the record-keeping requirements, under O.R.C. 5739.11 and O.A.C. 5703-9-02, is to permit the Tax Commissioner to ascertain with clarity whether sales tax has been properly collected and remitted.  McDonald’s v. Kosydar (1975), 43 Ohio St.2d 5. 

Accordingly, “adequate records” are those that allow the Tax Commissioner to determine whether sales tax has been properly collected and remitted.”  National Delicatessens v. Collins (1976), 46 Ohio St.2d 333. In order to protect itself, “the taxpayer need only keep complete and accurate records of his taxable sales, which he is under a duty to do by virtue of Section 5739.11, Revised Code.”  S. S. Kresge Co. v. Bower (1960), 170 Ohio St. 405.  If complete and accurate records of taxable sales are kept, then no speculation should be involved in a determination of the vendor’s sales tax liability.  See, S.S. Kresge Co., at 409.  Accordingly, a bar or restaurant can avoid an assessment of additional sales tax, that would almost certainly result from a mark-up analysis, simply by maintaining primary records of sales and having proper legal guidance during a sales tax audit.

Contact Nardone Law Group

If you are the owner of a bar, restaurant, drive-thru or convenience store and you are facing a sales tax audit by the Ohio Department of Taxation, or have been contacted by an Ohio Department of Taxation auditor, you should contact one of our experienced tax attorneys today. Nardone Law Group has vast experience representing bars and restaurants in sales tax audits, examinations, and litigation with the Ohio Department of Taxation.  Our experienced tax lawyers will thoroughly review your case to determine what options are available to you. 

Contact us today for a consultation to discuss your case.

February 23, 2015

Failure to Remit Withheld Employment Taxes (i.e. Tax Evasion) Can Result in Severe Criminal Consequences

The tax attorneys at Nardone Law Group in Columbus, Ohio, continuously monitor the Internal Revenue Service’s efforts to eliminate tax fraud, through civil and criminal tax investigations. In our prior article on Criminal Tax Convictions, we discussed a recent decision by the U.S. Court of Appeals highlighting the government’s authority to criminally punish fraudulent taxpayers.  It is important that taxpayers are aware that the IRS also has the ability to conduct both civil and criminal investigations, which may result in fines, as well as sentences of incarceration. Taxpayers who commit tax crimes, such as filing false returns, failing to remit withheld taxes, or assisting others in similar acts, can face severe punishments if convicted.

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. Usually, 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 employee’s responsibility to pay the withheld employment taxes. The IRS frequently investigates employers, or individual taxpayers, who fail to remit federal employment taxes. Employers who fail to withhold employment taxes, or fail to remit them to the IRS, may be subject to criminal and civil sanctions.

Virginia Businessman Sentenced to Prison for Employment Tax Fraud

In June 2014, a Virginia businessman (the “Debtor”) plead guilty to failing to collect and remit more than $2.2 million in employment taxes, as well as the theft of over $186,000 from an employee pension plan. The Debtor served as executive chairman of a corporation and, from 2009 through 2011, was responsible for collecting, accounting, and paying the company’s payroll taxes to the IRS. Although appropriate payroll taxes were withheld from employee wages, the Debtor failed to pay both the employee withholdings and the employer’s matching portions to the IRS.

Furthermore, the employees were able to contribute portions of their paychecks to a qualified pension plan, which would be administered by an asset custodian. The Debtor, who was responsible for authorizing these payments, failed to send them to the asset custodian over the course of three years. This resulted in a loss of $186,263. Finally, the Debtor used company accounts to complete a variety of personal purchases. These purchases included $505,871 for the use of a Washington, D.C. football stadium executive suite and $40,000 for the sponsorship of a horse race in Virginia.

 In September 2014, the Debtor was sentenced to 18 months in prison, with three years of supervised release, and was ordered to pay more than $1.6 million in restitution to the IRS. This sentence is to be served consecutively to a 28-month prison that the Debtor was already serving, in relation to campaign finance violations the Debtor made in the 2008 presidential primary and a 2006 U.S. Senate campaign.

NLG Comment: Failure to remit employment taxes can result in severe consequences for both employers and employees. Employers may be subject to criminal and civil sanctions, while employees might not qualify for social security, Medicare, or unemployment benefits, due to the employer’s failure to pay employment taxes. If you or your business have been contacted by an IRS revenue officer, or are currently undergoing an investigation, it is important to consult with an experienced tax attorney to find out what solutions are available.

Contact Nardone Law Group

Nardone Law Group 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, or if you are currently facing a civil or criminal tax investigation, contact one of our experienced tax attorneys today. Nardone Law Group’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.

February 16, 2015

What Taxpayers Should Know About Doubt as to Liability Offers-in-Compromise

The tax attorneys at Nardone Law Group in Columbus, Ohio, routinely advise taxpayers and businesses 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 the ability to file a Notice of Federal Tax Lien. Therefore, if taxpayers are contacted by an IRS revenue officer, it is important to understand the various collection alternatives available to resolve federal tax liabilities. Some collection alternatives include: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. Utilizing a collection alternative may help prevent, or significantly reduce the effect of, an IRS collection action.

In our previous article on Offers-in-Compromise, we provided a general overview of this particular collection alternative, including some of the factors that taxpayers should consider when deciding whether they are eligible to make an offer.  This article provides a more detailed look at one type of offer-in-compromise, known as a doubt as to liability offer-in-compromise (or “DATL-OIC”). As its name would suggest, this collection alternative involves offering a payment amount to the IRS, in an attempt to resolve a disputed federal tax liability. Taxpayers need to be aware, however, that the process is more intricate and involved than simply negotiating or settling on a reduced amount with the IRS. To better understand doubt as to liability offers-in-compromise, it is helpful to distinguish them from regular offers-in-compromise.

The Difference between ‘Doubt as to Collectability’ and ‘Doubt as to Liability’

An offer-in-compromise is an agreement between a delinquent taxpayer and the IRS to settle a federal tax liability for less than the full amount owed or assessed. An offer-in-compromise provides eligible taxpayers the opportunity to pay off their tax debt and to get a fresh start. It is important that taxpayers are aware of the important distinctions the IRS makes between when a taxpayer is simply unable to pay the liability in full and when the taxpayer wants to dispute the amount that has been assessed, either wholly or partially.

If a taxpayer agrees on the amount of liability assessed by the IRS, but is unable to make a full payment, the taxpayer can make a doubt as to collectability offer, regularly referred to as an offer-in-compromise. To be considered for a doubt as to collectability offer, taxpayers must make their offer based on what the IRS will consider their true ability to pay. Taxpayers can utilize this collection alternative by filing a Form 656, Offer-in-Compromise (OIC).

Taxpayers who have a legitimate doubt that they owe part or all of their tax liabilities can file a Form 656-L, Offer-in-Compromise (Doubt as to Liability). “Doubt” as to liability exists when there is a genuine dispute as to the amount, or even the existence of, a federal tax liability. Generally, taxpayers will utilize a doubt as to liability offer because they were unable to dispute the liability during the time allowed. Taxpayers who do not dispute the amount of tax debt should not file a Form 656-L. When deciding whether to file a form 656-L, Offer-in-
Compromise (Doubt as to Liability)
, taxpayers should consider the following:

1. A doubt as to liability offer is only accepted for the tax period(s) in question;

2. Submitting an offer application does not guarantee that the IRS will accept the offer – rather,  it begins a process of evaluation and verification;

3. The taxpayer’s offer must be more than zero ($0);

4. Taxpayers must include a written statement that explains why the tax debt, or a portion of the tax debt, is incorrect;

5. Taxpayers also must provide documentation or evidence that will help the IRS to identify the reason(s) for doubting the accuracy of the tax liability; and

6. Doubt as to liability does not exist if the tax debt has been established by a final court decision or judgment.

Taxpayers cannot submit a doubt as to liability offer (Form 656-L) and a doubt as to collectability offer (Form 656 or 656-B) at the same time. Essentially, this means that taxpayers cannot simultaneously dispute the assessment of tax liability, while claiming that they are unable to pay it. Taxpayers should resolve any disagreements about the validity of the tax liability before considering filing any offers based on a doubt as to collectability.

Calculating ‘Doubt as to Liability’ Offers

As we discussed in our prior article on offers-in-compromise, doubt as to liability requires an intimate understanding of the policies and procedures behind the IRS offer-in-compromise program. Taxpayers cannot simply offer an amount and hope that the IRS will accept that number, regardless of the taxpayer’s good faith belief in that number’s accuracy or validity. A doubt as to liability offer-in-compromise is quite different from a contract dispute that leads to a settlement or negotiation between two private parties. Rather, it requires a thorough understanding of the calculation used by the IRS to determine the amount owed. A taxpayer who simply offers some amount to the IRS, without any evidence or detail, is going to be rejected. This is a waste of both time and money for the taxpayer. Therefore, due to the many nuances and planning techniques involved with calculating a doubt as to liability offer, it is important to work with someone that routinely handles these offers-in-compromise.

A doubt as to liability offer-in-compromise can provide individual taxpayers and businesses an excellent opportunity to resolve their federal tax liabilities, especially if they dispute the amount assessed by the IRS. Taxpayers who have been contacted by an IRS revenue officer should consult with an experienced tax attorney to find out if they qualify for an offer-in-compromise or other collection alternatives. 

Contact Nardone Law Group

Nardone Law Group represents individuals and businesses in federal tax matters, including collection alternatives, such as offers-in-compromise. 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 Law Group’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.

February 11, 2015

Offer-In-Compromise as an IRS Collection Alternative for Federal Tax Liabilities

The tax attorneys at Nardone Law Group 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 the ability to file a Notice of Federal Tax Lien. Therefore, if individual taxpayers or businesses are contacted by an IRS revenue officer, it is important to 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) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. Utilizing a collection alternative may help prevent, or significantly reduce the effect of, an IRS collection action.

This article is the first of a series that will focus on the offer-in-compromise as an IRS collection alternative. This article provides a general description of the offer-in-compromise program, including how to determine whether you are eligible. Future articles in the series will provide a more in-depth discussion of the offer-in-compromise program, including Doubt as to Liability Offers. First, it is helpful to understand what an offer-in-compromise entails and how it can help a taxpayer manage their federal tax liabilities.

What is an Offer-in-Compromise?

The IRS, similar to any other business, encounters situations where outstanding debts cannot be collected in full or a dispute arises over the amount owed. It is generally acceptable business practice to resolve such collection and liability issues through a compromise. An offer-in-compromise is an agreement between a delinquent taxpayer and the IRS to settle a federal tax liability for less than the full amount owed or assessed. An offer-in-compromise provides eligible taxpayers the opportunity to pay off their tax debt and to get a fresh start.

To utilize this collection alternative, taxpayers can fill out either a Form 656, Offer-in-Compromise (OIC) or Form 656-L, Offer-in-Compromise (Doubt as to Liability), which allows the taxpayer to propose a settlement to the IRS. Submitting an application does not ensure that the IRS will accept the taxpayer’s offer. Instead, the application begins a process of evaluation and verification, during which the IRS considers any special circumstances that might affect the taxpayer’s ability to pay. The taxpayer’s settlement offer, upon filing and acceptance for processing, will be acted upon by recommendation for one of the following: (i) acceptance, (ii) rejection, (iii) termination, or (iv) it may be withdrawn by the taxpayer or the taxpayer’s agent. To qualify for acceptance, taxpayers should be aware of several eligibility requirements, as well as factors that the IRS considers when reviewing an application for an offer-in-compromise.

Eligibility for Offer-in-Compromise

For an individual taxpayer or business facing federal tax liabilities, an offer-in-compromise can be a saving grace. Before a taxpayer’s offer-in-compromise can be considered by the IRS, however, the taxpayer must:

1. File all tax returns the taxpayer is legally required to file;

2. Make all required estimated tax payments for the current year; and

3. Make all required federal deposits for the current quarter, if you are a business owner with employees.

The IRS has not established a minimum compliance requirement for the acceptance of an offer-in-compromise. Rather, the IRS is authorized to consider several factors, when analyzing whether to accept an offer-in-compromise, including: (i) economic hardship, (ii) public policy, and (iii) equity. Generally, if a taxpayer can pay their tax debt in full, whether through an installment agreement or a lump sum, the IRS will not accept an offer-in-compromise. Furthermore, if a taxpayer or business is currently undergoing bankruptcy proceedings, they will not be eligible to apply for an offer-in-compromise. If the IRS decides to accept a taxpayer’s offer, the compromise becomes a legally binding agreement between the IRS and the taxpayer, enforceable by either party.

NLG Comment: It is important to note that the Offer-in-Compromise (Doubt as to Liability) requires an intimate understanding of the policies and procedures behind the IRS offer-in-compromise program. You cannot simply offer some amount to the IRS and hope that they will accept that number. This is much different than a settlement and contract dispute between two private parties. Rather, it requires a  thorough understanding of the calculation used by the IRS to determine the amount owed. There are many nuances behind the calculation and planning techniques available to minimize the ultimate amount owed. It is important to work with someone that handles these offers-in-compromise on a daily basis. And remember, if you want to simply offer some amount to the IRS without any back up or detail, and without going through the necessary calculation, you would be better off to save your time, and your money, by not submitting an offer. It would simply be rejected. Rather, you need to do the necessary due diligence and complete it correctly.

An offer-in-compromise can provide individual taxpayers and businesses an excellent opportunity to resolve their federal tax liabilities, especially if they are unable to pay the full amount owed. Taxpayers who have been contacted by an IRS revenue officer should consult with an experienced tax attorney to find out if they qualify for an offer-in-compromise or other collection alternatives.

Contact Nardone Law Group

Nardone Law Group represents individuals and businesses in federal tax matters, including collection alternatives, such as offers-in-compromise. 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 Law Group’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 17, 2015

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February 11, 2015

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