Vince Nardone: Tax and Controversy

More Incentive to Enter the IRS Offshore Voluntary Disclosure Program: IRS Use of John Doe Summonses to Expose Caribbean Bank Accounts Intended to Avoid U.S. Tax Laws

By Nick Eusanio

    The IRS has recently noticed a significant trend in taxpayers using Caribbean bank accounts to avoid federal tax reporting and payment obligations related to foreign income, rather than taking advantage of the IRS’ Offshore Voluntary Disclosure Program to become compliant. The tax attorneys at Nardone Law Group routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program and the importance of coming forward to report previously unreported foreign income, accounts, and assets to the IRS. Nonetheless, many taxpayers do not seek advice from a tax lawyer about the Offshore Voluntary Disclosure Program, and instead ignore their federal tax reporting and payment responsibilities or make a “quiet disclosure” of unreported income. For more information on “quiet disclosures” and the associated pitfalls, see our prior article about the IRS chasing Down Quiet Disclosures. But, ignoring the Offshore Voluntary Disclosure Program or making a quiet disclosure can expose a taxpayer to audit, increased penalties and interest, and even criminal investigation and prosecution. 

    The tax attorneys at Nardone Law Group want to help inform taxpayers about the IRS’ current plans to expose and pursue those taxpayers using Caribbean bank accounts to evade their federal tax reporting and payment obligations. The IRS is now using John Doe summonses to discover noncompliant Caribbean account holders and pursue them for payment of tax, penalties and interest, and possibly even criminal investigation and prosecution under U.S. tax laws. The IRS’ pursuit of Caribbean bank account holders underscores the importance of consulting an experienced tax attorney about entering the Offshore Voluntary Disclosure Program to limit exposure to significant penalties and the risk of criminal investigation and prosecution related to undisclosed foreign accounts, assets, or income. 

IRS Exposing Noncompliant Caribbean Accounts Using John Doe Summonses
 
    The IRS recently noticed that many taxpayers continue to use Caribbean bank accounts to conceal foreign income or assets and avoid U.S. taxes. As a response, the IRS is now obtaining John Doe summonses—court orders for records relating to presently unknown individuals—to force foreign banks and financial institutions to turn over information and records identifying their U.S. account holders. Specifically, a federal court in San Francisco recently granted the IRS a John Doe summons demanding information about U.S. account holders from the Canadian Imperial Bank of Commerce First Caribbean International Bank (“First Caribbean International Bank”). See In re Tax Liabilities of John Does, N.D. Cal., No. 13-CV-01938, order 4/29/13. Based on the IRS’ recent efforts to expose potential tax evasion and other noncompliance, taxpayers with foreign bank accounts—and especially those with Caribbean bank accounts— should strongly consider the Offshore Voluntary Disclosure Program.

    The Offshore Voluntary Disclosure Program provides a potential life-line to taxpayers that want to come into compliance with U.S. tax laws and regulations, and limit exposure to onerous penalties and the risk of criminal prosecution.  Nardone Law Group plans to continue following the IRS’ use of John Doe summonses to expose tax noncompliance, and providing relevant updates to taxpayers with foreign accounts, assets, or income.  Now, more than ever, taxpayers with undisclosed foreign accounts, assets, or income should consider entering the Offshore Voluntary Disclosure Program to limit their exposure to IRS penalties and criminal prosecution.

    Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program.  If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

IRS Chasing Down Quiet Disclosures Intended to Avoid Offshore Voluntary Disclosure Program

By Nick Eusanio

    The tax attorneys at Nardone Law Group routinely advise Ohio taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program.  Whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances.  For example, there are instances in which Nardone Law Group may advise a taxpayer not to pursue the Offshore Voluntary Disclosure Program.  Nonetheless, many taxpayers decide not to seek advice from a tax lawyer about the Offshore Voluntary Disclosure Program, and instead simply file amended tax returns for earlier years or file current tax returns to include all previously undisclosed foreign income—in other words, they make a “quiet disclosure.”  But, making quiet disclosure rather than making a voluntary disclosure to the IRS can expose a taxpayer to audit, increased penalties and interest, and even criminal investigation and prosecution.  The tax attorneys at Nardone Law Group want to help inform taxpayers about the IRS’ current plans to expose and pursue those taxpayers making a quiet disclosure.  The IRS’ plan to chase down quiet disclosures highlights the importance of consulting an experienced tax attorney to determine whether entering the Offshore Voluntary Disclosure Program is best, or whether alternative action would be best. 

What is the Offshore Voluntary Disclosure Program and What is the Penalty Structure?

    The IRS’ 2012 Offshore Voluntary Disclosure Program provides taxpayers with undisclosed foreign accounts or foreign entities the opportunity to become compliant with United States tax laws while limiting exposure to civil penalties and criminal prosecution for nondisclosure.  Generally, taxpayers who have undisclosed foreign accounts or entities should make a voluntary disclosure because it allows them to become compliant with federal tax law, eliminate significant civil penalties, and generally avoid the risk of criminal prosecution.  Additionally, making a voluntary disclosure enables taxpayers to calculate the total cost of resolving their offshore tax matters with a reasonable degree of confidence.  Taxpayers who do not enter the Offshore Voluntary Disclosure Program risk discovery by the IRS, assessment of significant penalties—including penalties for failure to file foreign information returns and fraud—and potential criminal prosecution.

    Generally, taxpayers who participate in the 2012 Offshore Voluntary Disclosure Program must pay a penalty equal to 27.5% of the highest aggregate balance in their foreign bank accounts or entities, or the value of their foreign assets during the period covered by the voluntary disclosure.  In certain circumstances though, some taxpayers may qualify for a reduced penalty of 12.5% or even 5% of the highest aggregate balance in their foreign bank accounts or entities, or the value of their foreign assets, as opposed to the general 27.5% penalty.  Moreover, under the Offshore Voluntary Disclosure Program, taxpayers must pay a 20% accuracy-related penalty on the full amount of underpayments of tax, as well as failure to file and failure to pay penalties, if applicable.  But, because the 27.5% offshore penalty takes the place of various penalties otherwise imposed outside the Offshore Voluntary Disclosure Program, there may be cases where a taxpayer making a voluntary disclosure would owe less without entering the Offshore Voluntary Disclosure Program.  For more detail, please see our prior article discussing one scenario in which opting out of the Offshore Voluntary Disclosure Program may make sense.

IRS Exposing Quiet Disclosures
 
    Rather than entering the Offshore Voluntary Disclosure Program, many taxpayers have decided to make a quiet disclosure by simply amending prior tax returns or including previously unreported foreign income on current tax returns to avoid taxes, interest, and penalties imposed under the Offshore Voluntary Disclosure Program.  The Government Accountability Office (GAO)—an independent congressional agency that investigates government spending and recommends measures to increase efficiency and effectiveness in governmental programs—recently investigated the prevalence of quiet disclosures and issued a report of its findings and recommendations with regard to quiet disclosures.  The GAO’s investigation revealed many more likely quiet disclosures than the IRS had previously discovered.  The GAO cautioned that the large number of likely quiet disclosures it uncovered undermines the effectiveness of the Offshore Voluntary Disclosure Program, and significantly reduces the IRS’ identification of unreported foreign income and recovery of unpaid tax, interest and penalties related to that foreign income.  Accordingly, the GAO recommended that the IRS research and institute options and procedures to detect and pursue potential quiet disclosures.

    The IRS has agreed with the GAO’s report and recommendations, and is now reviewing the method the GAO used to identify quiet disclosures.  The IRS will likely soon implement a procedure for more efficiently and effectively reviewing taxpayer filings and uncovering quiet disclosures.  Thus, many more IRS audits and examinations and criminal investigations related to offshore accounts will likely follow.  Due to the IRS’ increased scrutiny, taxpayers that make a quiet disclosure may well expose themselves to increased interest and penalties, and even criminal investigation and prosecution.  The IRS’ new-found resolve to track down and pursue taxpayers making a quiet disclosure is a strong reminder that taxpayers with undisclosed foreign accounts or assets and unreported foreign income should consult an experienced tax attorney to discuss the Offshore Voluntary Disclosure Program and other available options for coming into compliance with the IRS. 

    Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program.  If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

The Draft Form 1042-S Designed for Foreign Account Tax Compliance Act (“FATCA”) Compliance

By Matt Porter

    The tax lawyers at Nardone Law Group, LLC routinely advise Ohio taxpayers on gambling issues for non-resident aliens and the impact of the Foreign Account Tax Compliance Act (“FATCA”) on a taxpayer’s investments.  The IRS recently released the highly anticipated draft version of Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, for the 2014 tax year.  A copy of the new draft Form 1042-S can be found on the IRS’s website here.  The new draft Form 1042-S is very similar to the Form 1042-S for 2013, but contains changes to reflect the new requirements imposed by FATCA.  This article addresses some of the main changes to the draft Form 1042-S and outlines the form’s impact on those non-resident aliens who have gambling winnings in the United States.

What is the Foreign Account Tax Compliance Act (“FATCA”)

    FATCA was originally enacted as a part of the Hiring Incentives to Restore Employment (HIRE) Act (Pub. L. No. 111-147).  Beginning in January 2013, FATCA requires U.S. and foreign financial institutions to annually identify and report their U.S. account holders.  The legislative intent of FATCA is to ensure that the United States government is able to determine the ownership of U.S. assets in foreign accounts. It is a revenue raising provision.  The new draft Form 1042-S contains several changes to ensure that withholding agents have all the necessary information to comply with new requirements under FATCA.

Changes on New Draft Form 1042-S Designed to Accommodate FATCA

    The many changes in the new draft Form 1042-S are designed to accommodate reporting of information relating to both Internal Revenue Code (“I.R.C.”) Chapter 3 withholding at source on payments to non-U.S. individuals and entities, and the new I.R.C. Chapter 4 FATCA information and withholding.  The changes include new boxes, new data to be tracked and reported as well as changes in the codes used on the form. While the instructions for the new draft Form 1042-S have not yet been issued, the tax lawyers at Nardone Law Group except them to be issued soon. 

U.S. Gambling and Form 1042-S

    Non-resident aliens who gamble in the United States will receive a Form 1042-S from the casino at which you gambled, above certain threshold amounts on certain games. Casino winnings for non-resident aliens are generally subjected to a 30% tax.  The 30% tax is indicated on the Form 1042-S that you receive and will be instantly deducting from your gross gambling winnings.  This is true even the non-resident alien has lost more gambling than they won.  The 30% withholding cannot be refunded unless the non-resident alien is from Canada or one of the other treaty countries listed under Gambling Winnings (Income Code 28) in IRS Publication 515.  For more information on this topic, please refer to the recent article entitled “Withholding of Tax on U.S. Gambling Winnings for Nonresident Aliens,” by the tax attorneys at Nardone Law Group, which can be found here.

Contact Nardone Law Group, LLC

    Nardone Law Group represents businesses and individuals in federal and state tax issues, including gambling issues for non-resident aliens and the Internal Revenue Service's Offshore Voluntary Disclosure Program. If you believe you are entitled to a refund of your U.S. gambling winnings or have questions on FATCA compliance and the new draft Form 1042-S, 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 obtaining a refund of the 30% tax withholding reported on Form 1042-S. Contact us today for a consultation to discuss your case.

IRS Increasingly Accepting Offers-in-Compromise

By Matt Porter

    The tax lawyers at Nardone Law Group, LLC (“NLG”) routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”).  One area of particular interest to taxpayers is the IRS’s offer-in-compromise program.  If you have unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer.  Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities.  The primary function of an IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed.  An offer-in-compromise is one of several collection alternatives that are available to taxpayers to resolve their delinquent federal tax liabilities.  The IRS is now offering more flexible terms with its offer-in-compromise program.  As a result, more and more offers are being accepted.

    This article briefly outlines the structure of the IRS offer-in-compromise program and provides the latest statistics on the IRS’s collection activities regarding the offer-in-compromise program.

The Offer-in-Compromise Program at a Glance

    An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed. An offer-in-compromise is generally accepted only if the IRS believes—after assessing the taxpayer's financial situation—that the tax debt cannot be paid in full as a lump sum or through a payment agreement.  Detailed information on the offer-in-compromise program can be found on NLG’s FAQ webpage here. 

Statistics on Acceptance of Offers-in-Compromise in the Prior IRS Fiscal Year

    During the IRS fiscal year 2012, the IRS received 64,000 offers-in-compromise from taxpayers with unpaid federal tax liabilities.  The amount of offers received has increased 8%, from 59,000 in fiscal year 2011 to 64,000 in fiscal year 2012.  The number of offers accepted, however, increased by 20% from 20,000 in fiscal year 2011 to 24,000 in fiscal year 2012.  The percentage of offers-in-compromise accepted in fiscal year 2011 was 33.9%.  The percentage of offers-in-compromise accepted in fiscal year 2012 rose to 37.5%.  The dollar amounts of offers accepted increased from $154,092,000 in fiscal year 2011 to $195,652,000 in fiscal year 2012.  This data confirms that the IRS has been more flexible in accepting offers-in-compromise.  This is good news for taxpayers, but it does not mean that your case will be accepted.  The following is a brief analysis of the role played by the IRS Appeals Office when a taxpayer and the IRS fail to agree on the terms of the offer-in-compromise.

IRS Appeals Review of an Offer-in-Compromise

    The IRS Appeals Office considers cases that involve, among other things, collection issues.  If you disagree with the IRS’s determination on your offer-in-compromise application, you may request an IRS Appeals hearing.  Your local IRS Appeals Office is separate and independent from the IRS office that proposed the collection action on your offer-in-compromise application.  During fiscal year 2012, the IRS Appeals Office received 135,061 new cases and closed 144,453 cases, including those received in a prior fiscal year.  The IRS Appeals Office received 9,496 offer-in-compromise cases in fiscal year 2012.  The IRS Appeals Office closed 10,164 cases and 4,411 cases were pending as of September 31, 2012.

Contact Nardone Law Group, LLC

    Nardone Law Group represents individuals and businesses with federal tax issues, including those who have fallen behind on their federal income tax liabilities. The tax lawyers at NLG have vast experience in representing taxpayers who are in collections with IRS revenue officers.  The current data indicates that the offers-in-compromise program is becoming an increasingly viable collection alternative.  If you have unpaid federal income tax liabilities and are interested in working with the IRS on an offer-in-compromise, you should contact an experienced tax attorney today. 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.

IRS Notice of Federal Tax Liens: Fresh Start Benefits for Taxpayers

By Nick Eusanio

    The IRS has authority to file a Notice of Federal Tax Lien against a taxpayer’s assets to secure payment or satisfaction of unpaid tax debt.  If you have unpaid tax debt, an IRS revenue officer may take collection action against you, like filing a Notice of Federal Tax Lien, to protect the IRS’ interest in the unpaid taxes.  But, the IRS’ Fresh Start Program provides some new benefits for taxpayers related to the Notice of Federal Tax Lien filing and withdrawal process.  The tax attorneys at Nardone Law Group want to summarize the Fresh Start benefits available to taxpayers related to preventing and withdrawing a Notice of Federal Tax Lien.

Fresh Start Taxpayer Benefits

    The IRS Fresh Start Program allows 3 main benefits to taxpayers related to a Notice of Federal Tax Lien:

1. Increased Threshold Amount for Filing a Notice of Federal Tax Lien

     Under the Fresh Start Program, the IRS no longer requires a revenue officer to file a Notice of Federal Tax Lien against a taxpayer for debts under $10,000.  Previously, IRS guidelines directed a revenue officer to file a Notice of Federal Tax Lien against a taxpayer with a debt of only $5,000.  So, the IRS has increased the Notice of Federal Tax Lien filing threshold guideline from $5,000 to $10,000.  But, it is important to note that under certain circumstances an IRS revenue officer may still file a Notice of Federal Tax Lien against a taxpayer with outstanding tax debt less than $10,000.

2. Request to Withdraw a Notice of Federal Tax Lien after Lien Release

     As part of the IRS Fresh Start Program, a revenue officer may now issue a withdrawal of a Notice of Federal Tax Lien once that lien has been released.  Release of a federal tax lien is an important goal for a taxpayer because a filed lien release provides notice that a taxpayer’s federal tax lien has been paid in full.  So, once a federal tax lien is released, credit reporting agencies will update the taxpayer’s credit history to reflect the release.  But, withdrawal of a released Notice of Federal Tax Lien is even better for a taxpayer.  Withdrawal of a Notice of Federal Tax Lien causes credit reporting agencies to remove any reference to a federal tax lien from a taxpayer’s credit history.  Thus, the ability to obtain withdrawal of a Notice of Federal Tax Lien from an IRS revenue officer is a major benefit for taxpayers who meet the specific eligibility requirements.

3. Request to Withdraw a Notice of Federal Tax Lien after Entering Direct Debit Installment Agreement.

    Thanks to the Fresh Start Program, a taxpayer that meets specific eligibility requirements may also now file an application to withdraw a Notice of Federal Tax Lien after entering into a Direct Debit Installment Agreement with the IRS.  A Direct Debit Installment Agreement is an agreement between a taxpayer and the IRS to repay tax debt in monthly installments by direct debit from the taxpayer’s designated financial account.  So, after working with an IRS revenue officer to enter a Direct Debit Installment Agreement to repay tax debt, a taxpayer may now also request that the revenue officer withdraw any Notice of Federal Tax Lien related to that debt.

    Nardone Law Group represents businesses and individuals in federal and state tax controversies.  If an IRS revenue officer has contacted you about your tax debt or even filed a Notice of Federal Tax Lien against you, you should contact an experienced tax lawyer today.  The tax attorneys at Nardone Law Group routinely assist Ohio taxpayers in negotiating with revenue officers to prevent filing of a Notice of Federal Tax Lien, and in releasing and withdrawing a Notice of Federal Tax Lien that a revenue officer has already filed.  Nardone Law Group’s tax lawyers and professionals have vast experience representing taxpayers before the IRS.  Our experienced tax attorneys will thoroughly review your case to determine what options and alternatives are available, including the Fresh Start Program and preventing or withdrawing a Notice of Federal Tax Lien.  Contact us today for a consultation to discuss your case.

The IRS Offshore Voluntary Disclosure Program: The Process for Opting Out

By Nick Eusanio

    The tax attorneys at Nardone Law Group regularly guide Ohio taxpayers through the Internal Revenue Service’s Offshore Voluntary Disclosure Program.  Whether or not the Offshore Voluntary Disclosure Program is beneficial to a particular taxpayer depends upon that particular taxpayer’s facts and circumstances.  For example, there are instances in which Nardone Law Group may advise a taxpayer to opt out of the Offshore Voluntary Disclosure Program.  This article briefly notes the reasons a taxpayer may decide to opt out of the Offshore Voluntary Disclosure Program, and discusses the procedure for opting out of the Offshore Voluntary Disclosure Program.

Why Opt Out of the Offshore Voluntary Disclosure Program?

    In one of our prior articles we explained the 2012 IRS Offshore Voluntary Disclosure Program and its penalty structure.  Most importantly, as part of the IRS’ 2012 Offshore Voluntary Disclosure Program taxpayers usually must pay a penalty equal to 27.5% of the highest aggregate balance in their foreign bank accounts, or the value of their foreign assets or entities during the period covered by the voluntary disclosure.  Because the 27.5% offshore penalty takes the place of various penalties otherwise imposed outside the Offshore Voluntary Disclosure Program, there may be cases where a taxpayer making a voluntary disclosure would owe less by opting out of the Offshore Voluntary Disclosure Program.  Please see our previous article providing an example of such a scenario. 

The Process for Opting Out of the IRS Voluntary Disclosure Program

    When a taxpayer has made contact with the IRS to initiate a voluntary disclosure, but thereafter notifies the IRS that the taxpayer is considering opting out of the IRS Offshore Voluntary Disclosure Program, the IRS examiner handling the case will take the following steps:

    1. Status Report: The IRS examiner will send a letter to the taxpayer summarizing the status of the voluntary disclosure, identifying any documents the taxpayer must still provide to the IRS and, if the IRS has enough information at the time, the amount of tax, interest, and penalties likely to be due under the Offshore Voluntary Disclosure Program.

    2. Caution Letter: If the taxpayer does not respond to the Status Report letter within 30 days, the IRS examiner will issue a letter to the taxpayer explaining that the decision to opt out of the Offshore Voluntary Disclosure Program must be in writing, and cautioning that the decision to opt out is irrevocable.  The taxpayer must provide a written response within 20 days of receiving the Caution Letter from the IRS.

    3. Taxpayer Opt Out Statement: The taxpayer then provides a written response to the IRS examiner, outlining the facts of the case, a recommendation of the penalties that should apply, and the reasoning for the penalty recommendations.

    4. IRS Case Summary: After the taxpayer provides a written opt out statement, the IRS examiner will prepare a case summary outlining the facts and disputed facts of the case, the examiner’s recommendation as to applicable penalties and position as to the taxpayer’s recommendations on applicable penalties, and the degree and scope of audit the examiner recommends for the taxpayer.

    5. IRS Centralized Committee Review: The examiner will then forward the taxpayer’s opt out statement and the IRS Case Summary to the IRS centralized review committee, which will evaluate those documents and determine how the examination will proceed.

    Taxpayers should understand, however, that opting out opens the case up for examination of all relevant years and issues.  Consequently, if issues that were not disclosed by the taxpayer are discovered under a full scope examination, those issues may be subject to review by IRS Criminal Investigation.  Thus, it is important to have an experienced tax attorney evaluate your case to decide whether the Offshore Voluntary Disclosure Program is best for you, or whether opting out of the Offshore Voluntary Disclosure Program makes more sense. 

    Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program.  If you have an undisclosed foreign account or entity, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offshore Voluntary Disclosure Program. Contact us today for a consultation to discuss your case.

Internal Revenue Service Offer-in-Compromise Program

 By Julie Biglin

    The tax attorneys at Nardone Law Group frequently advise our clients in Ohio and throughout the U.S. on various collection alternatives in dealing with the Internal Revenue Service.   Taxpayers who find they are unable to pay their taxes and their associated penalties should know that the single worst course of action is inaction.  To help alleviate their concerns, we typically talk to our clients about the following alternatives: (i) Offer-in-Compromise; (ii) Installment Agreement; (iii) currently not collectible status; and (iv) discharge of income taxes in bankruptcy, as well as a combination of several of those alternatives.

    As it relates to an Offer-in-Compromise, we have found that many taxpayers or their tax professionals fail to follow through with completing the entire process.  What we mean by that is: once the IRS accepts a taxpayer's offer, there are numerous tasks that remain to be completed.  One of those tasks involves dealing with the Notice of Federal Tax Lien and minimizing the impact that the Notice of Federal Tax Lien has against a taxpayer’s credit.  As an example, an unpaid tax lien can remain on your credit report for 10 years. Further, once the tax lien is paid and released, the lien does not immediately come off of your credit report. Rather, the record of the tax lien stays on your credit report for up to 7 years from the date of release.

    Thus, it is important to make sure that you obtain a Certificate of Release of Federal Tax Lien as soon as possible. Once the Offer-in-Compromise has been completed and approved by the IRS, a Form 668 (Z) Certificate of Release of Federal Tax Lien will be filed with the county recorder’s office. Once the Certificate of Release of Federal Tax Lien is filed with the recorder’s office, it is important to obtain a copy of the recorded release and send a copy to the three credit bureaus: (i) Equifax; (ii) Experian; and (iii) TransUnion. The release should be forwarded to each credit bureau requesting that they update their records to reflect that the tax liens have been removed.

    In sum, recognizing that the Notice of Federal Tax Lien remains on a taxpayer's credit report for 7 years, it is important to obtain the release of the Notice of Federal Tax Lien as soon as possible.

    Nardone Law Group represents individuals and businesses with federal tax issues, including those who have fallen behind on their tax payments to the IRS. The tax lawyers at NLG have vast experience in representing individuals who owe money to the IRS. A recent article about IRS collection alternatives can be found here. 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. 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.

IRS Audits or Examinations

    Slow economic times can present challenges for taxpayers under an IRS audit or examination.   As tax attorneys in Columbus, Ohio, we assist many individuals and businesses that become subject to an IRS audit or examination.  Keeping adequate records is one of the most important things you can do to avoid a potential IRS audit or examination, and ensure that an IRS audit or examination does not result in an assessment of additional tax, penalties, and interest.  Below is a United States Tax Court case example of a taxpayer that did not keep proper records and documents and therefore could not successfully defend against an IRS examination.  The tax lawyers at Nardone Law Group assist Ohio taxpayers on understanding IRS record keeping requirements and can provide some helpful tips on what types of documents to keep to successfully defend against an IRS audit or examination. 

    In Gorokhovsky v. Commissioner, T.C. Memo 2013-65 (full case opinion linked), the United States Tax Court considered an IRS examination by which the IRS found a deficiency in the taxpayer’s taxes and imposed an accuracy-related penalty as a result of the underpayment of tax.  The IRS examination arose from the taxpayer’s occupation as a self-employed attorney.  The taxpayer challenged the IRS examination.  The issues from the IRS examination were: (1) whether the taxpayer’s self-generated records and minimal supporting documentation were sufficient to substantiate deductions claimed on his tax returns; (2) whether the taxpayer’s statements and testimony regarding various unreported bank deposits were sufficient to show that those deposits were not income that should have been reported on his tax returns; and (3) whether he was liable for the accuracy-related penalty for underpayment of tax. 

    Agreeing with the IRS Examination, the court disallowed most of the taxpayer’s general business deductions as unsubstantiated expenses, and added the additional unreported bank deposits to the taxpayer’s income.  First, the court held that the taxpayer’s testimony as to his home office expense deduction was insufficient, because the taxpayer did not provide evidence demonstrating the nature or extent of the work performed there, whether he met clients there, or any other evidence showing the business use of the area. In denying the home office deduction the court also noted that the taxpayer leased a separate office for his law practice and offered no evidence to refute that the leased office was his principal place of business.  Second, the court rejected the taxpayer’s claimed business meal expenses because he provided no documentation of the place, time, and business purpose for the meals.  Third, the court disallowed the portion of the taxpayer’s claimed business travel expense deduction that related to travel to and from his home, as his home office had already been disallowed.  Fourth, the court considered various bank deposits to be unreported income of the taxpayer, as the taxpayer offered no evidence to refute that finding, but offered only his own self-serving statements to explain the unreported deposits. Finally, the court imposed the accuracy-related penalty on the taxpayer because he had substantially understated his income tax based on negligence in failing to maintain adequate records to support his deductions.

    As the above case example demonstrates, it is very important to maintain proper documentation to substantiate all business expenses deducted on a tax return so that you can effectively defend an IRS examination or audit.  The tax attorneys at Nardone Law Group routinely advise taxpayers on the importance of keeping proper documentation and the types of documentation to maintain as it relates to defending an IRS audit or examination.  For helpful tips and more detail on the types of documents you should keep for tax purposes, see our prior article on Federal Tax Record Keeping and Documentation for IRS Audits here.

    Nardone Law Group represents individuals and businesses in federal tax issues, including those who have become subject to an IRS tax audit or examination.  If you are facing an IRS tax audit or examination or are interested in learning how to keep adequate records to substantiate items contained in your federal tax return, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients in IRS tax audits and examinations.  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.

Internal Revenue Service Offer-in-Compromise Program

    The tax attorneys at Nardone Law Group frequently advise our clients in Ohio and throughout the U.S. on various collection alternatives in dealing with the Internal Revenue Service.   Taxpayers who find they are unable to pay their taxes and their associated penalties should know that the single worst course of action is inaction.  To help alleviate their concerns, we typically talk to our client about the following alternatives: (i) Offer-in-Compromise; (ii) Installment Agreement; (iii) currently not collectible status; and (iv) discharge of income taxes in bankruptcy, as well as a combination of several of those alternatives.

    Since March 12, 2012, when the IRS announced its fresh start initiative, the IRS has actually come through and remained committed to this initiative.  We have seen a serious uptick in offer-in-compromises being accepted.  Now, you still have to disregard the advertisements and false information being presented by firms regarding the likelihood of having an offer accepted for the amount that you propose.  But, Nardone Law Group has had significant success in the area of Offer-in-Comprises since the IRS announced its initiative in March, 2012.  We strongly encourage our clients to contact us if they are experiencing difficulty with the IRS and the payment of their taxes.  What everyone needs to know is that there are options.

    Also, see an excerpt from our frequently asked questions regarding Offer-in-Comprises below:

How does an Offer-in-Compromise work?

Answer:  The IRS prefers a partial payment to no payment at all. Thus, the IRS is sometimes willing to settle a tax liability for less than the full amount if (a) the taxpayer is unable to pay the full amount, (b) there is doubt as to how much the tax liability is, (c) collection of the liability would create economic hardship for the taxpayer (such as where the taxpayer is out of work due to health problems, or where sale of assets to pay the tax would leave the taxpayer without enough money to meet basic living expenses), or (d) compelling public policy or equity considerations exist, and due to the exceptional circumstances IRS's collection of the full liability would undermine public confidence that the tax laws are being fairly and equitably administered. Exceptional circumstances for this purpose might include situations where a taxpayer relies on erroneous advice from the IRS, or a medical condition prevents a taxpayer from managing his financial affairs

The taxpayer starts the settlement process by submitting an Offer-in-Compromise. If the offer is grounded on any reason other than doubt as to how much the tax liability is, financial information must be submitted along with the offer. If it is grounded on doubt as to the liability, IRS does not generally request a financial statement.

Except where the offer is based only on doubt as to liability, the taxpayer must agree to comply with all tax law rules on filing returns and paying taxes for five years or until the offered amount is paid, whichever period is longer. If these requirements are not met, the compromise terminates and IRS can seek collection of the original liability amount.

It is also important to note that notwithstanding the unwieldy amount of paper required to process a successful Offer-in-Compromise, the odds of acceptance are weighted against the taxpayer from the beginning. The IRS will reject an Offer-in-Compromise if: (1) all of the documents are not properly submitted; (2) the taxpayer fails to submit any additional requested documents; (3) the amount offered is less than what the IRS could expect to collect; or (4) if there is a public policy reason to reject it.

Are there other collection alternatives if I do not qualify for an Offer-in Compromise?

Answer:  Yes.  Another way to defer your tax payments is to request that the IRS enter into a payment plan with you—called an Installment Agreement.  Under an Installment Agreement, the taxpayer repays the entire tax liability over a period of time in monthly installments.  A taxpayer makes a request for an Installment Agreement on Form 9465.  The IRS charges a $43 fee for Installment Agreements, which will be deducted from your first payment if your request is approved.  Form 9465 requires less information than the hardship extension application.  Under certain circumstances, if your outstanding tax liability is under $50,000, you will not be required to submit financial statements. Even if the IRS grants your request to pay in installments, you will be charged interest on any tax not paid by its due date.  But the IRS will impose the late payment penalty at only half the usual rate (1/4% instead of 1/2%), if you file your return by the due date (including extensions).

    Nardone Law Group represents individuals and businesses with federal tax issues, including those who have fallen behind on their tax payments to the IRS. The tax lawyers at NLG have vast experience in representing individuals who owe money to the IRS. A recent article about IRS collection alternatives can be found here. 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. 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.

Recent Tax Court Opinion Highlights Need to Substantiate Gambling Losses

    The tax attorneys at Nardone Law Group, LLC frequently advise clients in Ohio and throughout the United States on tax law issues involving gambling.  The most frequent issues that arise are those involving substantiating gambling losses before the IRS.  Whether you are a professional or an occasional, amateur gambler, you can only deduct gambling losses to the extent of gambling winnings.  Professional gamblers have the added benefit of being able to deduct ordinary and necessary business expenses relating to their gambling, such as expenses for travel, meals, and lodging.  Amateur gamblers cannot deduct these expense as they are considered personal in nature when an activity is not engaged for profit. Professional gamblers report gambling winnings and losses on Schedule C, while amateur gamblers report their more limited losses as itemized deductions. 

    For most people, gambling is a form of entertainment, and they do not maintain detailed records for their gambling like they would a business or other for-profit activity. Gambling losses typically exceed gambling winnings.  As a result, the most common issue that arises is substantiating gambling losses.  In general, adequate documentation is required to claim gambling losses.  A recent case that highlights the importance of maintaining adequate documentation of gambling losses is Lakeisha R. Figures v. Commissioner, TC Memo 2012-296.  This article briefly describes the problems that Ms. Figures encountered in Tax Court for substantiating her gambling losses and sets forth proactive steps for taxpayers to follow to substantiate their gambling winnings and losses.

Taxpayer Substantiation of Gambling Losses in Figures v. Commissioner, TC Memo 2012-296

    In Figures v. Commissioner, TC Memo 2012-296, Petitioner Lakeisha Figures, an amateur gambler, claimed itemized deductions for gambling losses of $8,500, $15,455, and $5,522 for 2007, 2008, and 2009, respectively.  The Petitioner offered only her testimony that she played the slots quite often and that she incurred some losses. The Tax Court recognized that it could estimate the amounts of allowable deductions, but the taxpayer must first provide some credible evidence upon which to base the estimate.  The Petitioner ultimately failed in providing credible evidence.  She did not keep any records of her gambling activities for the years at issue. She did not testify as to the number of times she played or as to the amount of money she lost at any given visit. The Tax Court held that the evidence was insufficient to base an estimate as to Petitioner's gambling losses. Thus, the claimed gambling loss deductions were disallowed and the Petitioner was assessed with an accuracy-related penalty under I.R.C. § 6662.

    This case illustrates that Ms. Figures needed to provide more evidence to substantiate her gambling losses.  But how much evidence is needed?  The documentation standard may not be as narrow as it seems.  In fact, the Tax Court indicated that if sufficient evidence exists that a taxpayer incurred a gambling loss, then it can estimate the amount of allowable deductions.  The question then becomes what evidence could Ms. Figures have presented that would have been sufficient to prove her gambling losses?

1. Ms. Figures could have used a Player’s Club Card while she gambled at the casino. 

    By using a Player’s Club Card, you can request a win/loss statement and a signed letter that summarizes all of your tracked gaming activity.  You can request this information from the casino representative where you gambled.  The casino will generally require these requests to be in writing.  The tax attorneys at Nardone Law Group, LLC can assist in obtaining these statements and letters.  But, if you did not use a Player’s Club Card for the majority of your gambling activity, you cannot substantiate your gambling losses in this manner.  Accordingly, other evidence will be required.

2. In lieu of a Player’s Club Card, Ms. Figures could have maintained an accurate diary or similar record.

    If a diary is kept, the IRS requires that it contain the following information: (1) the date and type of specific wager or wagering activity; (2) the name and address or location of the gambling establishment; (3) the names of other persons (if any) present with the taxpayer at the gambling establishment; and (4) the amount won or lost.  It is best to keep this diary with you at the casino and update it contemporaneously with your gambling activities.  It is also advisable to withdraw the cash you are going to use gambling from the casino’s ATM machine and to use your credit card for other expenses at the casino to corroborate that the ATM withdrawals were for gambling only.  The more detailed gambling records you have to substantiate gambling losses the better.

Contact Nardone Law Group, LLC

    If you have started gambling in 2013, you should have a plan to document your gambling losses even if you only gamble recreationally.  There are other ways to document your gambling losses based on your specific facts and circumstances.  If you have questions, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have experience representing professional and non-professional gamblers in substantiating gambling losses. Contact us today for a consultation to discuss your case.