November 12, 2013

IRS May Apply Certain Tax Liability Payments in Government’s Best Interest

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely help individuals and businesses make use of the Internal Revenue Service’s (“IRS”) collection alternatives to repay federal tax liabilities. The IRS has significant power to collect delinquent tax debts from taxpayers by enforced collection actions, such as a levy against taxpayers’ assets or obtaining a judgment and order from a court directing the taxpayer to pay. Many times, taxpayers must repay tax liabilities by making partial payments of the amount owed to the IRS. Fortunately, the IRS offers certain collection alternatives that allow taxpayers to repay their federal tax liabilities to the IRS using partial payments. Please see our prior article for more information on the various collection alternatives.

But, the order of payment can be an important consideration for taxpayers trying to repay all of their federal tax liabilities. In many instances, a taxpayer making voluntary partial payments may direct the IRS as to how to apply those payments to the federal tax liabilities. Under certain circumstances, though, the IRS may apply a taxpayer’s voluntary or involuntary partial payments to the taxpayer’s federal tax liabilities in the manner which would most benefit the IRS. Accordingly, the tax lawyers at Nardone Law Group want to inform taxpayers about the difference between a voluntary payment and an involuntary payment to the IRS, and the effect that difference may have as to repaying federal tax liabilities to the IRS.

Voluntary Versus Involuntary Payments to the IRS: How Will My Payments Be Applied to My Federal Tax Debt?

Under IRS Revenue Procedure 2002-26, if a taxpayer provides written directions as to the application of a voluntary payment to the taxpayer’s outstanding federal tax liabilities, the IRS will apply the payment in accordance with the taxpayer’s directions. If, however, the taxpayer does not provide specific written directions to the IRS as to how to apply a voluntary payment, the IRS will apply the payment to the federal tax liabilities in a manner that will serve the IRS’ best interest. Moreover, where a taxpayer’s payment to the IRS is involuntary, the taxpayer has no right to direct a particular application of the payment and the IRS may allocate the payment in the IRS’ best interest.

An involuntary payment to the IRS results from enforced collection action by the IRS. Enforced collection action means either actual seizure of taxpayer funds through a levy, or the IRS’ obtaining the right to recover taxpayer funds through a court order directing the taxpayer to repay federal tax liabilities. As an example, the IRS may apply federal tax liability payments made by a taxpayer as a result of criminal restitution as the IRS sees fit. In this context, criminal restitution is repayment for loss resulting from a tax-related crime, based on a court order or plea agreement as part of a criminal case. Thus, because of their nature as court-ordered payments, criminal restitution payments are involuntary payments to the IRS.

As you can see, whether a payment to the IRS is voluntary or involuntary is an important distinction. That distinction can either cost, or save a taxpayer extra money and time in repaying federal tax liabilities to the IRS based on whether the taxpayer is able to direct allocation of the payments, or whether the IRS may apply the payments in its best interest. Accordingly, it is important for any taxpayer making payments to the IRS to consult experienced tax counsel to ensure those payments are applied in the taxpayer’s best interests where possible.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including collection alternatives to resolve federal tax liabilities and avoid or remove federal tax liens and levies. If you are struggling with tax liabilities or received a Notice of Federal Tax Lien or IRS levy notice, 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 Fresh Start Initiative Offer in Compromise, installment agreement, currently not collectible, or discharge in bankruptcy options. Contact us today for a consultation to discuss your case.

November 01, 2013

District Court Procedures for Return of Seized Property in Connection with Criminal Tax Evasion Investigation of CEO

By Matthew Porter, Esq., LL.M

The criminal tax attorneys at Nardone Law Group regularly update their clients in Columbus, Ohio and across the United States on recent court cases involving criminal tax evasion. This article addresses a recent district court case—Gourmet Express, LLC v. U.S., et al—from the Northern District of California in which the court ordered the U.S. government to reproduce documents that were seized by the IRS during a warrant search of a CEO’s home in connection with a criminal tax evasion investigation of that CEO. The court laid out the procedures under Federal Rules of Criminal Procedure Rule 41(g), which requires the district court to balance four discretionary factors to determine whether to allow the government to retain the documents or to order them returned. After balancing the factors under Rule 41(g), the district court found that the government’s retention of the documents was not reasonable where the LLC, also known as the movant, sought only the reproduction documents versus the return of them and where the government failed to show that all of the material collected were “returns” or “return information” under 26 U.S.C.§ 6103.

Motion to Return Property Under Rule 41(g): A Tool to Obtain Seized Documents

When the IRS seizes documents under a search warrant during a criminal tax evasion investigation, Rule 41(g) provides a movant the ability to move a court for the property’s return. The rule weighs the competing interests of disclosure versus who has been aggrieved by an unlawful search and seizure of property or by the deprivation of property. Generally, in a criminal tax case, a Rule 41(g) motion should be presumptively granted if the government no longer needs the property for evidence. The district court held that since the movant sought only the reproduction of the documents, rather than the return of the seized documents, this would not deprive the United States of the evidence. Thus, this would ordinarily require that the documents be reproduced. Although the district court ordered that the documents be reproduced, the district court granted the government leave to file a motion for stay the enforcement of the order to show that the information was protected from disclosure under 26 U.S.C. § 6103.

The importance of this case is that it provides a blueprint for obtaining documents seized by the government in a criminal tax evasion investigation. Often times, the IRS will seize documents, including business records and tax information, and take several years to fully investigate you without returning those documents. Taxpayers in such a situation should carefully review Rule 41(g) and consult with an experienced criminal tax defense lawyer to discuss their options in obtaining the seized documents.

Contact Nardone Law Group

If you have concerns about civil or criminal tax matters, you should contact one of the experienced criminal tax attorneys at Nardone Law Group. We help individuals through all aspects of criminal tax matters, from criminal investigation by state and federal taxing authorities to criminal defense. The tax lawyers at Nardone Law Group can help you understand your rights and responsibilities when it comes to federal, state, and local taxes.  Contact Nardone Law Group today for a consultation.

October 30, 2013

Notice of Federal Tax Lien: Taxpayer Options for Resolution and Collection Alternatives

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely help individuals and businesses make use of the Internal Revenue Service’s (“IRS”) collection alternatives to repay federal tax liabilities. The IRS has significant power to collect delinquent tax debts from taxpayers, including the ability to file a Notice of Federal Tax Lien or obtain a levy against taxpayers’ assets. Utilizing a collection alternative may help prevent an IRS Notice of Federal Tax Lien or levy. So, it is very important that taxpayers understand the various collection alternatives available to resolve federal tax liabilities with the IRS. Accordingly, the tax lawyers at Nardone Law Group want to: (1) provide Ohio taxpayers with a recent case example of the IRS’ power to file federal tax liens and levy against taxpayer property based on unpaid tax debt (see U.S. v. Kolb, 112 AFTR 2d 2013-XXXX (DC AR, 10/10/2013), discussed below; Download U.S. v. Kolb (00150830)); and (2) inform Ohio taxpayers about IRS collection alternatives that are available to resolve federal tax debt.

IRS Has Power to File Federal Tax Liens and Levy Against Taxpayer Assets to Satisfy Federal Tax Liabilities

In U.S. v. Kolb, the United States District Court for the Western District of Arkansas (Harrison Division) considered the government’s requests for judgment against the taxpayer and for foreclosure on federal tax liens against the taxpayer’s property to satisfy unpaid federal taxes. The IRS had properly assessed various federal taxes, along with interest and penalties for various tax years against the taxpayer in Kolb. Additionally, the IRS had filed federal tax liens against the taxpayer’s assets based on the outstanding federal tax liabilities. Ultimately, the court in Kolb granted the government’s requests, entering judgment against the taxpayer as to the federal tax liabilities, ordering foreclosure of the federal tax liens against the taxpayer’s property, and sale of the property with application of the sale proceeds to the taxpayer’s federal tax liabilities. Thus, the Kolb case is an example of the IRS’ power to collect federal tax debts from taxpayers, and illustrates the importance of working with the IRS to repay federal tax liabilities voluntarily rather than through liens and levies.

Collection Alternatives Available to Repay Federal Tax Liabilities to the IRS

The IRS offers various options for taxpayers to repay their liabilities voluntarily, rather than through federal tax lien foreclosure sales (similar to the result in Kolb) or levies. These options are called collection alternatives. For instance, where a taxpayer qualifies based on very specific legal requirements, the taxpayer may be able to discharge certain types of federal tax debts in bankruptcy. But, even if some or all of a taxpayer’s federal tax liabilities cannot be discharged in bankruptcy, the taxpayer may qualify for the currently not collectible collection alternative. Currently not collectible status means that the IRS has determined that the taxpayer’s income and assets are too low to justify the IRS collecting against the taxpayer currently. In those instances, the currently not collectible collection alternative gives a taxpayer time to build back up to a better financial position before the IRS requires payment.

Alternatively, the Offer in Compromise collection alternative is available for taxpayers who have some ability to pay the IRS, but who cannot pay the full amount of federal tax liabilities owed. The Offer in Compromise allows certain taxpayers who qualify based on financial situation to satisfy all federal tax liabilities by paying less than what is actually owed. Finally, if a taxpayer does not qualify for the Offer in Compromise collection alternative, the IRS may allow the taxpayer to repay the full amount of federal tax liabilities in monthly payments through the installment agreement collection alternative.

As explained above, collection alternatives provide taxpayers a means to repay their liabilities to the IRS voluntarily, rather than through IRS foreclosure sales or levies. Accordingly, collection alternatives are a very important tool for taxpayers facing the IRS collection process. Finally, for more information about the various options to fully or partially resolve a Federal Tax Lien or levy, please see our prior article titled Notice of Federal Tax Lien: Taxpayer Options for Resolution and Collection Alternatives.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including collection alternatives to resolve federal tax liabilities and avoid or remove federal tax liens and levies. If you are struggling with tax liabilities or received a Notice of Federal Tax Lien or IRS levy notice, 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 Fresh Start Initiative Offer in Compromise, installment agreement, currently not collectible, or discharge in bankruptcy options. Contact us today for a consultation to discuss your case.

October 25, 2013

U.S. Sentencing Commission’s Proposed Changes to Sentencing Guidelines for Tax Crimes

By Matthew Porter, Esq., LL.M

On May 1, 2013, the United States Sentencing Commission submitted its amendments to the federal sentencing guidelines to Congress (the amendments to federal sentencing guidelines can be found at Part 4, on page 12 by following this link). Of particular interest to the criminal tax attorneys at Nardone Law Group is the Sentencing Commission’s amendment to the guidelines for calculating tax loss. The tax loss amendment will take effect on November 1, 2013 unless vetoed by Congress. Until that time, the tax lawyers at Nardone Law Group expect many stakeholders to state their positions on the proposed changes to calculating tax loss. This article address the amendment as it relates to calculating tax loss.

What Is “Tax Loss”?

When a defendant is found guilty of a tax crime, the primary factor the court uses to determine the individual’s sentence is “tax loss.” Tax loss is generally the amount of tax a defendant owed and did not pay. Currently, there is a conflict in the Federal Courts Appeals over whether unclaimed credits, deductions, and exemptions should be considered in calculating tax loss. To illustrate the split, consider an individual who is convicted for failing to file a federal income tax return. In calculating the tax loss, some courts look only to the person’s income and determine how much tax the person should have paid on his income. Other courts consider the individual’s income, and then deduct appropriate exemptions, deductions, and credits to determine the amount of tax a person should have paid. The difference in the court’s interpretations of the tax loss guidelines can result in years of imprisonment in some cases.

NLG Comment: From our perspective, the tax loss calculation amendment is long overdue.  It is absolutely unfair to sentence someone for tax loss, when the Court fails to identify the true and actual tax loss for a particular taxpayer.

The Sentencing Commission’s Proposed Amendment

The Sentencing Commission seeks to remedy this circuit split by amending Commentary to §2T1.1 to recommend consideration of legitimate unclaimed credits, deductions, and exemptions in calculating tax loss. The goal of the amendment is uniformity relating to a reasonable estimation of the tax loss.

The new Commentary provides that a court should account for the standard deduction and personal and dependent exemptions to which the defendant was entitled in calculating tax loss. The Commentary also recommends that courts account for unclaimed credits, deductions, or exemptions that are needed “to ensure a reasonable estimate of the tax loss” to the extent certain requirements are met.

As we understand as of October 2013, the Department of Justice has not come out with its stated position on the amendment to tax loss calculation. According to a recent statement from the Justice Department, the Department is still considering its position.

Contact Nardone Law Group

If you have concerns about civil or criminal tax matters, you should contact one of the experienced criminal tax attorneys at Nardone Law Group. We help individuals through all aspects of criminal tax matters, from criminal investigation by state and federal taxing authorities to criminal defense. The tax lawyers at Nardone Law Group can help you understand your rights and responsibilities when it comes to federal, state, and local taxes. Contact Nardone Law Group today for a consultation.

October 21, 2013

Criminal Conviction Rate for Tax Evasion at High Point

By Vincent J. Nardone, Esq., LL.M

When civil tax matters turn into criminal investigations, Nardone Law Group understands the significant impact of aggressive defense against criminal prosecution. New numbers from Criminal Investigation, the law enforcement arm of the Internal Revenue Service, prove the importance of vigorous criminal defense in tax controversies. In 2012, the IRS had a conviction rate of 93% in tax evasion cases. In a meeting earlier this year, NLG tax attorneys learned the significance of this number from Richard Weber, the Chief of Criminal Investigation. For more information about Criminal Investigation’s Annual Report, see the full Annual Report here.

The Internal Revenue Service has the highest conviction rate of all federal law enforcement agencies according to Mr. Weber. In the meeting, Mr. Weber indicated that the IRS’s criminal conviction rate hovered around 90% for a very long period of time. While there was only one year recently where the rate dipped below 90%, the 93% figure is a significant increase from prior years.

If you have concerns about criminal investigations for tax matters or need to talk to an experienced criminal defense lawyer for state or federal tax liabilities, you should contact Nardone Law Group. Nardone Law Group, a Columbus, Ohio law firm, has vast experience representing individuals in civil and criminal tax controversies. Contact us today for a consultation.

October 15, 2013

Court Holding That IRS May Use Taxpayer Return Information to Conduct FBAR Investigations Provides More Reason for Taxpayers to Consider the Offshore Voluntary Disclosure Program

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely advise taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program and the importance of coming forward to report previously undisclosed foreign financial accounts to the IRS. Under certain circumstances, federal tax law requires a U.S. taxpayer with an interest in a foreign financial account to report that foreign financial account interest to the IRS by filing a Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”). Despite the FBAR filing requirement, the IRS has noticed the ongoing problem of taxpayers using foreign bank accounts while failing to comply with federal tax reporting and payment obligations related to those foreign financial accounts. In response, the IRS has been making it a priority to identify and pursue these noncompliant taxpayers.

NLG Comment: For more information on the FBAR filing requirement or the IRS’ actions to uncover noncompliant taxpayers, please see our prior articles regarding the FBAR Filing Requirement and the IRS Offshore Voluntary Disclosure Program and the IRS’ use of John Doe Summonses related to Correspondent Accounts.

Because the IRS has been pursuing FBAR noncompliance as a priority, the tax attorneys at Nardone Law Group want to: (i) highlight a recent case illustrating the IRS’ efforts to pursue taxpayers who fail to file the FBAR; and (ii) explain the benefit of the IRS Offshore Voluntary Disclosure Program for taxpayers who have failed to disclose their foreign financial accounts to the IRS by failing to file the FBAR.

Federal District Court Rules IRS May Use Federal Tax Return Information to Initiate FBAR Investigations Against Taxpayers

The recent decision by the United States District Court for the Northern District of California in Hom, et al. v. United States, 112 AFTR 2d 2013-839 illustrates the IRS’ mission to ensure taxpayers are complying with federal tax reporting requirements related to foreign assets and foreign financial accounts by filing the FBAR.  In Hom, the taxpayer sued the federal government alleging that the IRS violated his rights by using information from his federal personal income tax return to initiate an investigation as to whether Hom had properly filed FBARs to report foreign financial accounts. Generally, federal tax returns and federal tax return information are confidential and protected from disclosure under federal law. But, federal law also provides an exception that allows officers and employees of the Department of the Treasury to inspect or disclose federal tax returns or federal tax return information if their official duties require the inspection or disclosure for tax administration purposes. In relevant part, tax administration means execution and application of the internal revenue laws or related statutes, including assessment, collection, and enforcement functions.

Based on the statutory exception to the tax return and tax return information confidentiality and nondisclosure provision, the court in Hom dismissed the taxpayer’s case against the federal government. Importantly, with respect to the connection between using federal tax return information to help enforce the FBAR filing requirement, the court in Hom—citing a General Explanation of Tax Legislation published by Congress’ Joint Committee on Taxation—noted that “Congress . . . believed that improving compliance with this reporting requirement is vitally important to sound tax administration.” The court’s decision in Hom clarifies that the IRS may use a taxpayers’ tax return or tax return information in the quest to track down and pursue those taxpayers who have failed to disclose foreign financial accounts by filing the FBAR. Thus, the Hom case is a strong reminder to taxpayers that failing to comply with federal tax reporting requirements—including the obligation to file the FBAR disclosing foreign financial accounts—can easily result in an IRS investigation. So, it is very important for any taxpayer with a foreign financial account, foreign income, or foreign assets to consult with an experienced tax attorney about potential federal tax reporting and payment obligations—such as the FBAR—and the benefit of the IRS’ Offshore Voluntary Disclosure Program.

Taxpayers Benefit from the Offshore Voluntary Disclosure Program

Fortunately for noncompliant taxpayers—such as those who have failed to file the FBAR disclosing foreign financial accounts—the IRS Offshore Voluntary Disclosure Program provides an option to avoid involuntary IRS enforcement action. The IRS Offshore Voluntary Disclosure Program allows taxpayers who have failed to file the FBAR to come forward voluntarily to disclose their foreign financial accounts to the IRS. The Offshore Voluntary Disclosure Program enables a taxpayer to potentially reduce otherwise significant penalties and interest that could apply, as well as limit the risk of criminal investigation and prosecution related to failure to report foreign financial accounts. Nonetheless, many taxpayers do not understand the requirement to disclose their foreign financial accounts to the IRS on the FBAR, and do not seek advice from a tax lawyer about the benefits of the Offshore Voluntary Disclosure Program. Additionally, some taxpayers try to make a “quiet disclosure” of their previously unreported foreign financial accounts. Unfortunately, as demonstrated by the Hom case, such taxpayer misunderstandings and failures can lead to FBAR investigations by the IRS.

NLG Comment: For more information on “quiet disclosures” and the associated pitfalls, see our prior article about the IRS Chasing Down Quiet Disclosures

Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program and federal tax requirements for reporting foreign financial accounts, foreign income, and foreign assets—such as the FBAR.  If you have unreported foreign income, or an undisclosed foreign account, asset 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.

October 11, 2013

Federal Government Shutdown Affects IRS and Taxpayers

By Nicholas Eusanio, Esq., LL.M

The tax attorneys at Nardone Law Group in Columbus, Ohio routinely assist individuals and businesses in utilizing IRS collection alternatives to repay their federal tax liabilities and avoid Notices of Federal Tax Liens or levies when possible. But, taxpayers should be aware that the recent federal government shutdown has significantly impacted the IRS audit and examination, and collection processes. Accordingly, the tax lawyers at Nardone Law Group want to inform Ohio taxpayers about the effect the federal government shutdown may have related to dealing with the IRS right now. This article highlights some key points a taxpayer should know regarding the IRS’ current limited operations based on the federal government shutdown.

IRS Shutdown May Benefit Taxpayers

Because the federal government has failed to approve a short-term spending bill to maintain funding for federal government agencies, the federal government shut down on October 1, 2013. Until Congress can come to an agreement on a funding measure, the federal government shutdown will continue. The federal government shutdown involves most federal government agencies and, unfortunately for taxpayers, includes the IRS. Below are some of the most important points for taxpayers to know related to the current IRS shutdown:

1) Most IRS audit, examination and collections employees—such as revenue agents and revenue officers—are furloughed during the federal government shutdown. This means that IRS revenue agents or revenue officers handling audits or examinations or collection of tax liabilities and processing collection alternatives are no longer operating. As a result, the IRS is not conducting any audits or examinations, or field collection activity at this time. In fact, we have received numerous telephone calls from revenue agents recently to postpone audits or examinations.

2) The IRS recently confirmed that although taxpayers may continue to receive federal tax lien or levy notices with October mailing dates, the IRS is not currently pursuing liens or levies against most taxpayers for civil tax issues during the shutdown. The IRS is taking collection enforcement action—such as liens or levies—against taxpayers in civil tax matters only in limited circumstances. So, according to the IRS, most lien or levy notices that taxpayers continue to receive during the IRS shutdown are either notices that the IRS mailed out prior to the full shutdown or that the IRS’ computer systems automatically generated to inform taxpayers that they could be subject to a lien or levy in the future.

3) The IRS Criminal Investigations Division continues to operate during the federal government shutdown.

4) Taxpayers must continue to file federal tax returns and pay federal taxes by the due dates for filing the returns or making the payments. Tax return, payment, and refund processing may be delayed during the IRS shutdown.

NLG Comment: The pause in IRS audit or examination and collection activity due to furloughed revenue agents and revenue officers can be a benefit for taxpayers who have not yet discussed their cases with an experienced tax attorney. Taxpayers who are: (i) facing an IRS audit or examination by a revenue agent; (ii) trying to qualify for a collection alternative through a revenue officer; or (iii) concerned about potential IRS lien or levy action based on an IRS notice should take this opportunity to contact a tax lawyer for assistance while the IRS is not operating. Time and experience are always very important factors in properly preparing for an IRS audit or examination, adequately compiling information and documentation to request and obtain an IRS collection alternative, or taking the necessary steps to avoid an IRS lien or levy. Accordingly, the IRS shutdown provides taxpayers a golden opportunity to utilize this extra time and retain the benefit of experienced tax counsel to assist with their cases.

Nardone Law Group represents businesses and individuals in federal and state tax issues, including federal tax liens and levies, IRS audits or examinations, or IRS collection alternatives. If you are struggling with tax liabilities, received a federal tax lien or levy notice, or have been contacted by a revenue agent for an audit or examination, 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 Fresh Start Initiative Offer in Compromise, installment agreement, currently not collectible, or discharge in bankruptcy options. Contact us today for a consultation to discuss your case.

September 13, 2013

Update for Clients with Offshore Accounts: U.S. and Switzerland Reach Agreement on Tax Evasion Investigations

By Matthew Porter, Esq., LL.M

The tax attorneys at Nardone Law Group are tracking the latest developments in the IRS and U.S. Department of Justice’s continued efforts to combat offshore tax evasion. The U.S. Government’s efforts in criminally prosecuting offshore tax evasion has highlighted the importance of understanding the IRS’s Offshore Voluntary Disclosure Program (the “OVDP”). On August 29, 2013, the United States and Switzerland reached an agreement that severely punishes Swiss banks that allowed U.S. citizens to shelter their money in offshore accounts. The tax attorneys at Nardone Law Group view this agreement as yet another significant step by the U.S. government to aggressively enforce international tax compliance and punish offshore tax evasion, highlighting the importance of programs such as the IRS’s Offshore Voluntary Disclosure Program, or the OVDP. 

U.S. Government Criminally Prosecuting U.S. Citizens with Undisclosed Swiss Accounts

The agreement with Switzerland provides the U.S. Government greater access to secret offshore accounts so that it can criminally prosecute those who have violated international tax law.  According to Deputy Attorney General James M. Cole, “This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts.” Mr. Cole further indicates that “Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States.”

Further, the U.S.-Swiss agreement encourages Swiss banks to cooperate in the Department of Justice’s continuing investigations of the use of foreign bank accounts to commit tax evasion.  Switzerland will also encourage its banks to participate in the program.  If you have hidden assets in an offshore account in Switzerland, it is extremely important to discuss your options with an experienced international tax lawyer.  Effectively reporting to the IRS can be a daunting and intimidating undertaking.  But, the IRS’s Offshore Voluntary Disclosure Program—or the OVDP—can be very beneficial for noncompliant U.S. taxpayers to come forward while limiting their risk of criminal prosecution.

U.S. Taxpayers May Utilize the IRS’s Offshore Voluntary Disclosure Program (OVDP) to Report Hidden Swiss Accounts

Although the U.S. Government is continuing to criminally prosecute U.S. citizens who have unreported foreign accounts, the IRS provides an opportunity to come forward and report those accounts through the OVDP.  The OVDP enables noncompliant U.S. taxpayers the opportunity to resolve their tax liabilities while minimizing their chances of criminal prosecution.  If you have questions about the IRS’s OVDP, you should contact an experienced international tax lawyer to discuss your options in reporting your hidden offshore accounts.

Contact Nardone Law Group

The tax attorneys at Nardone Law Group routinely advise clients in Columbus, Ohio and throughout the United States about their federal tax obligations and ways to comply with federal tax law, including compliance with laws governing foreign accounts. The recent U.S.-Swiss agreement highlights the importance of understanding your offshore account filing requirements and the IRS’s OVDP.  If you have questions about your federal tax obligations, foreign accounts, or the OVDP, you should contact an experienced tax attorney. 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.

September 09, 2013

Maintaining Tax Records Indefinitely Often Important in Defending IRS Audits and Examinations

By Matthew Porter, Esq., LL.M

    The tax attorneys at Nardone Law Group in Columbus, Ohio routinely assist individuals and businesses that become subject to an IRS audit or examination.  Most tax practitioners advise their clients to maintain tax records for seven years to avoid a potential IRS audit or examination.  The tax attorneys at Nardone Law Group, however, recommend that taxpayers maintain their tax records indefinitely to ensure that an IRS audit or examination does not result in an assessment of additional tax, penalties, and interest.  An IRS audit or examination occurs when the IRS selects a tax return to review the taxpayer’s records from which the information that is reported on the tax returned is derived.  IRS revenue agents are typically the employees within the IRS who audit and examine tax returns. 

    Below is a recent United States Tax Court case that highlights the importance of maintaining tax records indefinitely to successfully defend against an IRS audit and examination. 

    In Keith Dunford, et ux. v. Commissioner-full case opinion linked-the United States Tax Court held that married consulting business owners failed to substantiate their business expense deductions on Schedule C of their Form 1040, U.S. Individual Income Tax Return beyond those that the IRS had already allowed during the audit and examination.  Further, the taxpayers were not entitled to net operating loss carryover deductions due to a lack of substantiation.  The taxpayers did not retain their books and records to substantiate their alleged losses in prior years giving rise to the net operating loss carryover deductions.  As a result, the IRS’s determinations made during the audit and examination, which have the presumption of correctness, were upheld by the U.S. Tax Court.  The result in the Keith Dunford case was that the taxpayers were assessed additional tax, penalties, and interest.  If the taxpayers would have retained their records, the results would have been vastly different. 

Taxpayers Should Retain Books and Records Indefinitely

    A fundamental reason why taxpayers should retain their records indefinitely is that taxpayers bear the burden to prove their entitlement to any deductions they claim.  The tax laws require taxpayers to maintain sufficient records to substantiate their gross income, deductions, credits, and other tax attributes.  See I.R.C. § 6001.  The regulations indicate taxpayers should maintain their records so long as the contents of them may become material in the administration of any internal revenue law.  See 26 C.F.R. § 1.6001-1(e).  Determining when and whether the records are material in the administration of the tax laws is dependent on your tax situation.  As an example, depending on the deductions claimed—in the Keith Dunford case it was the net operating loss carryover deduction—those records could become material many years after the deduction was reported on the taxpayer’s federal income tax return.

    A taxpayer bears the ultimate burden to prove that an IRS revenue agent’s proposed assessment of additional tax during the audit and examination was unfair or inaccurate.  When a taxpayer fails to maintain adequate records to support items of income, deductions, losses, and credits, as the taxpayer failed to do in Keith Dunford, the IRS’s conclusions made during the audit and examination are much more likely to stand in Tax Court.

Contact Nardone Law Group for IRS Audit or Examination Representation

    Nardone Law Group represents individuals and businesses in federal tax issues, including those who have become subject to an IRS 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 to avoid an IRS audit or examination, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients in IRS audits and examinations. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available during or after the IRS audit or examination, including the Offer in Compromise, or the Fresh Start program. Contact us today for a consultation to discuss your case.

September 06, 2013

The FBAR Filing Requirement and the IRS Offshore Voluntary Disclosure Program: Allowing Taxpayers to Remedy Prior Failure to Disclose Foreign Accounts

By Nicholas Eusanio, Esq., LL.M

    The tax attorneys at Nardone Law Group in Columbus, Ohio routinely advise taxpayers about the Internal Revenue Service’s Offshore Voluntary Disclosure Program and the importance of coming forward to report previously undisclosed foreign financial accounts to the IRS. Under certain circumstances, federal tax law requires a U.S. taxpayer with an interest in a foreign financial account to report that foreign financial account interest to the IRS by filing a Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”). Despite the FBAR filing requirement, the IRS has noticed a significant trend in taxpayers using foreign bank accounts while failing to comply with federal tax reporting and payment obligations related to those foreign financial accounts. In response, the IRS has recently increased efforts to identify and pursue these noncompliant taxpayers.

NLG Comment: For more information on the IRS’ current actions to uncover taxpayers that use foreign financial accounts to avoid federal tax reporting obligations, such as filing the FBAR, please see our prior articles regarding the IRS’ use of John Doe Summonses related to Correspondent Accounts.

    Accordingly, the tax attorneys at Nardone Law Group want to: (i) inform taxpayers about the requirement to disclose foreign financial accounts to the IRS on the FBAR; (ii) explain the benefit of the IRS Offshore Voluntary Disclosure Program for taxpayers who have failed to disclose their foreign financial accounts to the IRS; and (iii) highlight a recent criminal case illustrating the IRS’ efforts to pursue taxpayers who fail to file the FBAR and who conceal their foreign financial accounts.

FBAR Filing Requirement: Disclosing a Foreign Financial Account Interest

    A U.S. citizen with a financial interest in a foreign financial account must file the FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. Such a taxpayer must also disclose any such foreign financial account on Schedule B of the taxpayer’s individual income tax return. A “financial account” includes a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained within a financial institution or other person performing the services of a financial institution. A financial account also includes a commodity futures or options account, an insurance policy with a cash value, an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund.  A “foreign financial account” is a financial account located outside the United States, but also includes correspondent accounts.

    Importantly, there are significant civil and criminal penalties associated with failure to file the FBAR. The IRS will impose a civil penalty of $10,000 per violation for a non-willful violation, or 50% of the amount in the foreign financial account at the time of the violation—not to exceed $100,000—per violation for a willful violation of the FBAR filing requirement. In addition, the criminal penalty for willful FBAR violations is a fine of up to $250,000, imprisonment of up to five years, or both. Moreover, if a taxpayer willfully violates the FBAR filing requirement while violating another federal law or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, the above noted maximum criminal penalties double to $500,000 and 10 years of incarceration.

Taxpayers Benefit from the Offshore Voluntary Disclosure Program

    Fortunately for noncompliant taxpayers—such as those who have failed to file the FBAR disclosing foreign financial accounts—the IRS Offshore Voluntary Disclosure Program provides an option to avoid involuntary IRS enforcement action. The IRS Offshore Voluntary Disclosure Program allows taxpayers who have failed to file the FBAR to come forward voluntarily to disclose their foreign financial accounts to the IRS. The Offshore Voluntary Disclosure Program enables a taxpayer to potentially reduce otherwise significant penalties and interest that could apply, as well as limit the risk of criminal investigation and prosecution related to failure to report foreign financial accounts. Nonetheless, many taxpayers do not understand the requirement to disclose their foreign financial accounts to the IRS on the FBAR, and do not seek advice from a tax lawyer about the benefits of the Offshore Voluntary Disclosure Program. Additionally, some taxpayers try to make a “quiet disclosure” of their previously unreported foreign financial accounts. Unfortunately, as explained in the following section, such taxpayer misunderstandings and failures can lead to criminal prosecution and conviction.

NLG Comment: For more information on “quiet disclosures” and the associated pitfalls, see our prior article about the IRS Chasing Down Quiet Disclosures

Criminal Failure to File the FBAR Disclosing Foreign Financial Accounts

    The recent decision in United States v. Stephen Kerr, et al., 112 AFTR 2d 2013-XXXX illustrates that, where appropriate, the IRS is heavily pursuing criminal prosecution against taxpayers that fail to report foreign financial accounts on the FBAR. In the Kerr case, the IRS successfully convinced a jury to convict the defendant taxpayers with federal tax crimes linked to their failure to disclose hidden Swiss bank accounts. In fact, the jury specifically convicted one defendant on two counts of failing to file the FBAR to disclose his interest in foreign financial accounts. That defendant subsequently filed a special motion attempting to—among other things—persuade the court that the IRS did not prove he had a legal duty to file the FBAR. But, the court denied that defendant’s motion, finding that the duty to file the FBAR reporting his foreign financial accounts is clearly established by federal regulations. Thus, the Kerr case is a strong reminder to taxpayers that failing to comply with federal tax reporting and payment requirements—including the obligation to file the FBAR disclosing foreign financial accounts—can easily result in criminal investigation and prosecution. So, it is very important for any taxpayer with a foreign financial account, foreign income, or foreign assets to consult with an experienced tax attorney about potential federal tax reporting and payment obligations—such as the FBAR—and the benefit of the IRS’ Offshore Voluntary Disclosure Program.

    Nardone Law Group represents businesses and individuals in federal and state tax issues, including the Offshore Voluntary Disclosure Program and federal tax requirements for reporting foreign financial accounts, foreign income, and foreign assets.  If you have unreported foreign income, or an undisclosed foreign account, asset 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.

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