Vince Nardone: Tax and Controversy

Notice of Federal Tax Lien: Knowing and Protecting Your Rights

A Federal Tax Lien can significantly increase one’s financial woes in this sluggish economy.  The tax attorneys at Nardone Law Group want to better inform Ohio taxpayers about Federal Tax Liens.  In the event you neglect to make payment of a federal tax liability, the Internal Revenue Service (“IRS”) has authority to file a Notice of Federal Tax Lien (“NFTL”) against your assets to secure payment or satisfaction of that tax debt.  This article explains the requirements and problems of the IRS in notifying taxpayers and their representatives of a Federal Tax Lien.

Federal Tax Lien Notice Requirements & Problems

The IRS must notify you in writing within five business days of filing a Federal Tax Lien.  This notice is required the first time a Federal Tax Lien is filed for each tax period.  After the five-day notice period, you have 30 calendar days to request a hearing to appeal the Federal Tax Lien.  Importantly, IRS regulations also require the IRS to provide copies of any Federal Tax Lien to your tax representative—which could be an accountant, CPA, financial advisor, financial planner, or tax-preparer/tax service—no later than five days after the notice is sent to the taxpayer.  But, a recent report by the Treasury Inspector General for Tax Administration (“TIGTA”) reveals that the IRS does not always follow this requirement.   After conducting a sample analysis, TIGTA found that the IRS failed to notify the taxpayer’s of a Notice of Federal Tax Lien in 18 percent of cases reviewed.  As a result, TIGTA estimated the IRS’ failure may have damaged the rights of over 43,000 taxpayers related to Federal Tax Liens.

Protecting Taxpayers’ Rights

As tax lawyers who represent individuals and businesses in federal tax controversies, we recognize there are many problems with the IRS’ Notice of Federal Tax Lien process.  We certainly agree that the IRS’ failure to notify taxpayers and/or their representatives of a Federal Tax Lien is very troubling and jeopardizes your rights.  Thus, the TIGTA report is not a surprise, and serves as a useful reminder that regular correspondence with one’s tax representative is very important. We encourage taxpayers, accountants, CPAs, financial advisors and planners, tax-preparers, and tax-services alike to review the audit report.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including Federal Tax Liens and collection alternative resolutions.  If you are struggling with tax liabilities or received a Notice of Federal Tax Lien, 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 offer in compromise. Contact us today for a consultation to discuss your case.

Discharge or Eliminate Tax Debts in Bankruptcy

Due to the economic downturn and stubbornly high unemployment rate, personal bankruptcy filings are on the rise. As an Ohio tax attorney that specializes in tax disputes, including IRS audits and IRS appeals, one of the areas that I especially enjoy is the discharging of an individual's income tax liabilities as part of filing a Chapter 7 bankruptcy petition.  The reason, as well as the whole purpose of bankruptcy, is to allow an individual to make a fresh start.  If you think about it, how can an individual make a fresh start if, after the bankruptcy has concluded, the individual remains with income tax liabilities?  This simply does not make sense.  This article provides guidance on the general rules for discharging tax debts in bankruptcy.  For general terms and definitions related to bankruptcy, click here.

Luckily, the Bankruptcy Code allows for the discharge of income tax liability in bankruptcy. The general rules governing the discharge of income taxes in bankruptcy are the “3-year”, “2-year”, “240 day” rules.  Taxes which cannot be discharged in bankruptcy include: (i) those due and owing three years or less before the filing of a bankruptcy petition; (ii) those for which a late return was filed within two years of the petition date; and (iii) those assessed at any time within 240 days before the petition date. Thus, taxes can be discharged in bankruptcy if: (i) the taxes have been due for more than three years; (ii) the return has been filed for at least two years; and (iii) the taxes have been assessed for at least 240 days. These time periods just described must be met before the bankruptcy petition is filed.  It is also important to note that the three-year lookback period for collecting taxes and the 240-day lookback period for assessment of taxes are suspended for any period during which a stay of proceedings was in effect in a prior bankruptcy case or during which collection was precluded by the existence of one or more confirmed plans, plus 90 days, plus the time for certain hearings and appeals.

Now, there are a number of exceptions to the above rules, and a number of pitfalls that you must watch out for.  One of those pitfalls was recently at issue in the case of Wogoman, 110 AFTR 2d ¶ 2012-5039.  In Wogoman, the Tenth Circuit held that a debtor's Form 1040 Individual Income Tax Return filed after the IRS had assessed the tax liabilities for the year involved did not qualify as a return as defined by Title 11 United States Code Section 523(a)(19).  As a result, the Tenth Circuit held that the tax debt relating to the return was not dischargeable.  This case was certainly a bad result for the debtor/taxpayer.

The issue of whether a return filed after the IRS has assessed the tax liabilities has become more of an issue after the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act passed. The reason is that a bankruptcy discharge does not discharge an individual from an income tax debt with respect to which a return was not filed.  And, the IRS takes the position that a return filed after assessment generally does not represent an honest and reasonable attempt to satisfy the requirements of the tax laws and thus is not a return for bankruptcy purposes. In some instances, however, there may be some steps you can take to correct this issue, but not always.  Thus, prior to filing a petition for bankruptcy it is very important to engage a tax attorney that can work with your bankruptcy counsel to ensure you are placed in the most advantageous position so that you can make an informed decision regarding whether or not to file bankruptcy and whether or not your income taxes are dischargeable.

If you are unsure as to whether or not your taxes are eligible to be discharged in bankruptcy, you should contact an experienced tax attorney today. The Ohio tax attorneys at Nardone Law Group, LLC have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case, and work with your bankruptcy attorney, to determine whether your taxes may be discharged in bankruptcy. Contact us today for a consultation to discuss your case.

Guidance on IRS Filing Requirements for Specified Foreign Financial Assets

Guest Author: Tawnya Underwood, Columbus, Ohio

Do you have foreign financial assets?  If so, you may be required to report your foreign financial assets to the Internal Revenue Service on the IRS Form 8938, Statement of Specified Foreign Financial Assets for tax years 2011 and beyond.  The tax attorneys at Nardone Law Group, LLC have helped a number of clients in Ohio and throughout the country with the filing requirements as they relate to foreign assets and accounts.  Our Ohio tax lawyers want to alert you to the IRS’s updated guidance on reporting of specified foreign financial assets.   

Background

The IRS issued Temporary Regulations effective for taxable years ending after December 19, 2011 under Internal Revenue Code §6038D.  These Temporary Regulations provide taxpayers with guidance as to filing obligations and reporting thresholds for the Form 8938.  The Form 8938 is attached to your annual income tax return and must be filed by the due date of that return (including extensions).  At the present time, only individuals holding specified foreign financial assets are subject to the Form 8938 filing requirement; however, it is expected that the IRS will issue final regulations in 2012, requiring specified domestic entities to report specified foreign assets. 

Reporting Requirements

The below chart details U.S. resident taxpayers’ reporting thresholds for specified foreign financial assets:

Taxpayers Living in the U.S.	Value of Specified Foreign Financial Asset
Unmarried Taxpayer	More than $50,000 on the last day of the tax year; or More than $75,000 at any time during the tax year.
Married Filing Jointly	More than $100,000 on the last day of the tax year; or More than $150,000 at any time during the tax year
Married Filing Separate	More than $50,000 on the last day of the tax year; or More than $75,000 at anytime during the tax year

*Please note, the dollar amounts above increase for taxpayers living abroad. 

The IRS basic Questions and Answers (Q&A) on filing requirements for specified foreign financial assets can be accessed by clicking here. 

Assets that must be reported on a Form 8938, if they exceed the reporting thresholds as listed above, include:

• Financial accounts maintained by a foreign financial institution.  These include savings, checking, and deposit accounts;
• Stock or security issued by a foreign corporation; and
• An interest in a foreign retirement plan or deferred compensation plan.

Assets that are not required to be reported on a Form 8938 include:

• Foreign real estate, such as a personal residence or rental property;
• Financial account with a U.S. Branch of a U.S. based financial institution; and  
• Financial account maintained by a U.S. Financial institution holding foreign stocks and securities.

Some taxpayers feel that the reporting requirements for foreign financial assets are duplicative of the reporting requirements for foreign financial accounts.  In some cases it may be required that a taxpayer file both the Form 8938 and the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  The IRS addresses taxpayer’s questions in the Q&As related to this issue and has provided a chart detailing the differences in filing requirements for the Form 8938 and the FBAR, which can be viewed by clicking here.  You can also visit Nardone Law Group's FAQ's page on this topic by clicking here.

With the relatively new filing requirement of the Form 8938—2011 being the first taxable year requiring this filing—some taxpayers may have not realized their reporting requirement.  For those of you who have filed your 2011 Form 1040 U.S. Individual Income Tax Return by the April 17, 2012 deadline, but now realize you should have also included the Form 8938, do not panic.  You should take the following step:  file the Form 1040X, Amended U.S. Individual Income Tax Return, with your Form 8938 attached. You may have heard of the IRS’s Offshore Voluntary Disclosure Program, which is a program allowing taxpayers to come into compliance as it relates to undisclosed foreign accounts and undisclosed foreign entities used for purposes of avoiding or evading tax.  Simply not filing your Form 8938 for the 2011 tax year will not require that you enter the Offshore Voluntary Disclosure Program.  For more information related to the IRS’s Offshore Voluntary Disclosure Program, please click here.

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