Vince Nardone: Tax and Controversy

IRS Freezes Tax Refund of Nonresident Alien Gambling in the United States: What to do?

If you are a nonresident alien and you traveled to the U.S. to gamble, you very likely know that casinos withhold tax on your gambling winnings, above a certain threshold amount, and send that money to the Internal Revenue Service ("IRS").  If you have lost more money gambling than you won, you may be surprised to learn that you are entitled to a refund of every cent the casino withheld.  Here is the $64,000 question: how does a nonresident alien obtain a refund of the taxes withheld from their gambling activities? 

Recently, the IRS has made it much more difficult for nonresident aliens to get a tax refund of the money withheld from their gambling activities.  The tax lawyers at the Nardone Law Group, LLC have previously written on the IRS's procedures for withholding taxes on a nonresident alien's gambling winnings.  Read that article here.  Whether you gamble in Columbus, Ohio or across the U.S., our tax attorneys want to provide nonresident aliens with important information on filing your tax return to obtain your refund of the tax withheld on your gambling winnings.  This article provides a guide for nonresident aliens to obtain the refund they are entitled to from the IRS based on their gambling winnings.

Refund Procedures for Nonresident Alien

Generally, a nonresident alien must file Form 1040NR to claim a refund of U.S. tax withheld from a casino based on their gambling winnings.  You file the Form 1040NR if the following are true at the end of the tax year: (1) you were a nonresident alien; (2) you were not engaged in a trade or business in the U.S. at any time; (3) you had no income that was effective connected with a U.S. trade or business; (4) your U.S. income tax liability was fully satisfied through withholding of tax by the casino; and (5) you are filing Form 1040NR solely to claim a refund of U.S. tax withheld by the casino.  If you only traveled to the U.S. to gamble, and you only had gambling winnings, you would meet these specifications.

The Form 1040NR needs to be supported by qualified substantiation documentation.  This is a make-or-break requirement to obtaining your tax refund.  The tax lawyers at Nardone Law Group have vast experience in working with the IRS on the issue of substantiation of gambling losses.  It is often the most difficult part of the process because the IRS often takes a very strict position with regards to substantiation of gambling losses.  The difficulty here is that most nonresident aliens who gamble in the U.S. do not think to maintain reliable documentation establishing their reportable gambling gains and deductible gambling losses.  Thus, it is often critical for an experienced tax lawyer to review the documentation to determine if the IRS will accept it as valid evidence of gambling losses.
Contact Nardone Law Group, LLC

If you are a nonresident alien, and you have had taxes withheld from your gambling winnings in the U.S., you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing nonresident aliens who have gambled in the U.S. before the IRS to obtain tax refunds from gambling. Our experienced tax lawyers will thoroughly review your case to determine whether you are entitled to a refund for the taxes withheld on your U.S. source gambling income. Contact us today for a consultation to discuss your case.

Offer in Compromise: The Dissipated Assets Problem

If you have federal tax debt, you may qualify for one of the Internal Revenue Service’s (“IRS”) collection alternatives, such as an Offer in Compromise, to pay your federal tax debt.  An Offer in Compromise is an agreement between the IRS and a taxpayer to settle the taxpayer’s federal tax debts for less than the total amount owed.  As part of an Offer in Compromise, the IRS considers the taxpayer’s income, assets, and expenses to calculate the taxpayer’s Reasonable Collection Potential (“RCP”).  RCP is a calculation of the amount the IRS believes it can collect from the taxpayer.  A high RCP amount reduces the likelihood that a taxpayer will qualify for a favorable Offer in Compromise, if the taxpayer qualifies at all.  Thus, it is very important to ensure that the IRS performs its analysis and calculation of RCP properly under the law. 

One possible problem for a taxpayer during the RCP calculation process is that the IRS may be able to include dissipated assets as part of the taxpayer’s RCP.  The tax lawyers at Nardone Law Group assist Ohio taxpayers with the Offer in Compromise process, and help Ohio taxpayers ensure that the IRS properly analyzes and calculates their RCP.  This article explains the potential problem of dissipated assets, and provides some guidelines for avoiding this problem.

What are “Dissipated Assets?”

 A dissipated asset is any asset that has been sold, gifted, transferred, or spent on non-priority items or debts and is no longer available to pay the tax liability.  The IRS Internal Revenue Manual gives the following guidelines to determine whether an asset is a dissipated asset:

1) When an asset was dissipated relative to the date the taxpayer submitted his Offer in Compromise.

2) If the taxpayer used an asset to pay existing, ongoing business operating expenses, the funds should not be considered a dissipated asset.

3) When the asset was dissipated relative to the time the federal tax debt arose.

4) How the asset was transferred.

5) Whether the taxpayer realized any funds from the asset transfer.

6) How the taxpayer used any funds realized from the asset transfer.

7) The value of the assets and the taxpayer’s interest in those assets.

The Dissipated Assets Problem

The problem is that many taxpayers may be tempted to dispose of assets prior to an Offer in Compromise, thinking they will reduce their RCP and increase the likelihood that they will qualify for an Offer in Compromise.  But, the law allows the IRS to include the value of a dissipated asset in the RCP calculation in certain circumstances, even though the taxpayer no longer has the asset itself (or even the proceeds from sale of the asset).  For example, if a taxpayer liquidates his Individual Retirement Account to pay for a vacation to the Bahamas, the amount liquidated and spent on that vacation will be included in his RCP even though that money is gone and unavailable to pay to the IRS.  But, if a taxpayer can show that the funds realized from a dissipated asset were needed to pay necessary living expenses, the IRS should not include these amounts in the RCP Calculation.  Thus, taxpayers with federal tax debt, and particularly those considering an Offer in Compromise, must be mindful of the potential consequences when transferring assets.

Nardone Law Group represents individuals and businesses in federal tax issues, including those who have fallen behind on their tax payments to the IRS.  If you are struggling with tax liabilities or are interested in working with the IRS to review collection alternatives, 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, or the Fresh Start program. Contact us today for a consultation to discuss your case.

Innocent Spouse Relief Update: IRS Lifts Two-Year Limit on Innocent Spouse Claims

If you are married, you are likely filing a joint U.S. federal income tax return with your spouse to take advantage of the benefits this filing status allows.  Did you know that filing a joint return means that the obligation to pay the tax liability is on both spouses, regardless of who earned the income?  This obligation is known as joint and several liability.  In signing a joint return, both spouses are held responsible for all taxes, interest, and penalties that may be due.  If you have been contacted by a revenue officer with the Internal Revenue Service, you may be surprised to learn that you are liable.  Revenue officers are in charge of collecting past due tax liabilities for the IRS.  Relief from liability for the tax, interest, and penalties on a joint return can be granted by the IRS if you qualify as an "innocent spouse" under the tax laws.  As tax lawyers in Columbus, Ohio, we often encounter situations where requesting innocent spouse relief makes sense.  This article focuses on the recent developments in tax law for requesting innocent spouse relief. 

Innocent Spouse Relief: A Primer

Innocent spouse relief falls under one of three categories.  First, relief can be requested under § 6015(b).  Pursuant to § 6015(b), innocent spouse relief is available to the requesting spouse if: (i) a joint return was filed for the years for which relief is requested; (ii) an understatement of tax attributes to erroneous items of the non-requested spouse; (iii) the requesting spouse establishes that he/she did not know and had no reason to know of the understatement at the time the return was signed; (iv) it would be inequitable to hold the requesting spouse liable for the deficiency in tax attributable to the understatement considering all the facts and circumstances; and (v) the requested spouse files a request for innocent spouse relief no later than two years after the date the Service has begun collection activities against the requesting spouse.

Second, relief can be requested under § 6015(c). Pursuant to §6015(c), innocent spouse relief is available to the requesting spouse under this section if (i) a joint return was filed; (ii) there is an unpaid deficiency attributable to items of the non-requesting spouse; (iii) taxpayers must be divorced, widowed, legally separated, or living apart for 12 months preceding the election; (iv) the requesting spouse must not have actual knowledge of the item or items giving rise to the deficiency; (v) the requesting spouse has the burden of proving how the deficiency should be allocated (the requesting spouse must prove items giving rise to the understatement are attributable to the non-requesting spouse); (vi) there can be no fraudulent transfer of assets; (vii) there can be no transfer of “disqualified” assets; and (viii) the requesting spouse applies for relief no later than two years after the date of the Service’s first collection activity, with respect to the requesting spouse.

Third, relief can be requested under § 6015(f) for unpaid taxes or deficiencies for spouses who are not eligible under the two previously mentioned provisions.  Equitable relief allows the IRS to review the facts and circumstances and grant relief where it appears that holding the innocent spouse liable for unpaid taxes would be inequitable.  The same two-year limitation on claims for innocent spouse relief applies to § 6015(f).

IRS Abandons Two-Year Requirement in § 6015(f) Cases

In July of 2011, the IRS issued Notice 2011-70 indicating that it will no longer require spouses to submit requests for equitable relief within two years from the date the IRS begins initial collection activity against the requesting spouse.  If you are contemplating filing a future request for innocent spouse relief, you can now file the request without regard to when the first collection activity was taken.  Requests must be filed within the period of limitation on collection in § 6502 (generally 10 years after assessment) or, for any credit or refund of tax, within the period of limitation in § 6511 (generally 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later).

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses in federal tax issues, including spouses filing requests for innocent spouse relief. Revenue officers with the Internal Revenue Service are responsible for and in charge of collecting past due taxes.  If you think you have a claim for innocent spouse relief, 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 innocent spouse relief. Contact us today for a consultation to discuss your case.