June 06, 2014

FBAR Deadline Approaching: Do You Need To File?

The tax professionals at Nardone Law Group, LLC want to remind taxpayers of the upcoming June 30, 2013 deadline to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as the FBAR.  If you are a United States person and you either had a financial interest in or signature authority over any foreign financial account(s) at any time in 2012 (for as little as one day), you must file the FBAR by June 30 if the aggregate value of the account(s) exceeds $10,000.  This year, June 30 falls on a Sunday.  As a result, if you paper file, you should plan ahead to ensure the FBAR is received by the Department of Treasury by Friday, June 28, 2013.  If you have registered to e-file your FBAR, you may be able to timely file your FBAR through the BSA E-Filing System through Sunday, June 30, 2013.

FBAR Information and Requirements

The FBAR is not filed with your federal income tax return.  Rather, the FBAR is due by June 30 following the calendar year you are reporting.  It is important to note that there are no extensions granted for filing the FBAR.  If you have requested an extension to file your federal income tax return, you must still file the FBAR by June 30.  Further, the “mailbox” rule does not apply to FBARs as it does for other federal tax returns.  Thus, the FBAR must reach the Department of Treasury on or before the deadline—which, again, falls on a Sunday—or you will be subject to penalties. 

Filing FBAR Electronically Will Soon Be Mandatory

Effective July 1, 2013, the FBAR must be filed electronically.  To register for e-filing, visit the BSA E-Filing System and follow the registration instructions.  The IRS reports that the average burden associated with information collection for the FBAR is 20 minutes.  Obviously the time required depends largely on the number of foreign accounts held by the US person, the values of those accounts, the type of accounts, and type of authority the taxpayer has over those accounts.

Form 1040 Reporting: Schedule B and Form 8938

In addition to filing the FBAR, a US person who holds a foreign financial account must also check the appropriate box on FBAR-related federal returns, such as Schedule B of the Form 1040 U.S. Individual Income Tax Return.  If you have an interest in foreign financial assets, you may need to file Form 8938, which must be filed if your foreign assets have an aggregate value of $50,000 for individuals, and $75,000 if you are married filing jointly.  The Form 8938, Statement of Specified Foreign Financial Assets is required to be attached to your annual income tax return and must be filed by the due date of that return. The Form 8938 is specific to foreign assets whereas the FBAR is specific to foreign financial accounts.

Have You Failed to File Past FBARs?

If you were required to file the FBAR in the past but have failed to do so, you may be eligible for the Offshore Voluntary Disclosure Program (OVDP). The OVDP is a way for taxpayers to come into voluntary compliance with US tax laws and forgo the risk of criminal prosecution for past noncompliance. Nardone Law Group can assist if you have questions about the OVDP. 

Contact Nardone Law Group

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

June 04, 2014

IRS Audit or Examination Adjustments May Trigger Additional State Tax Reporting Requirements

The tax attorneys at Nardone Law Group routinely represent individuals and businesses with various state and federal tax controversies, such as tax audits or examinations. As tax professionals in Columbus, Ohio, we often assist taxpayers facing an Ohio Department of Taxation audit or examination or an IRS audit or examination. For more information on defending against an IRS audit or examination, please refer to our prior article on IRS Audits or Examinations. In addition to helping taxpayers defend the actual audit or examination by the taxing authority, however, NLG also advises taxpayers regarding obligations that may arise as a result of the audit or examination. For instance, when an IRS audit or examination results in changes or adjustments to a taxpayer’s income, the taxpayer may be required to file an amended state income tax return reflecting the IRS changes or adjustments. This is true for Ohio taxpayers, so this article summarizes the requirement for an Ohio taxpayer to file an amended Ohio income tax return to reflect any changes made by an IRS audit or examination.

Ohio Taxpayers Must File an Amended Ohio Income Tax Return to

Reflect IRS Audit or Examination Adjustments

Under Ohio law, if any item required to calculate an Ohio taxpayer’s income tax due changes as a result of an adjustment to the taxpayer’s federal income tax return, and that change affects the taxpayer’s Ohio income tax liability, the taxpayer must file an amended Ohio income tax return. Importantly, the requirement to file an amended Ohio income tax return applies whether the IRS or the taxpayer initiated the change to the taxpayer’s federal income tax return. When such a change occurs on the taxpayer’s federal income tax return, the taxpayer must file an amended Ohio income tax return within 60 days after: (1) the date the IRS agrees to or finally determines the adjustment to the taxpayer’s federal income tax return for federal income tax purposes; or (2) the date any federal income tax deficiency, refund, abatement, or credit is assessed or paid, whichever occurs first.

Also, it is significant to note that the statute of limitations for the Ohio Department of Taxation to assess any additional Ohio tax, interest, and penalties due related to such federal adjustments does not begin to run until the taxpayer files the required amended Ohio income tax return. Generally, the Ohio Department of Taxation may not issue an assessment of additional tax, interest, and penalties due against a taxpayer more than four years after the final filing deadline date for the relevant return or the date the taxpayer filed the relevant return, whichever is later. So, if a taxpayer does not file the required amended Ohio income tax return, the Ohio Department of Taxation essentially has an indefinite period of time to discover the taxpayer’s additional income resulting from the federal adjustments, and to assess additional tax, interest, and penalties related to the same. Accordingly, taxpayers who have experienced adjustments to their federal income tax returns—either by their own initiative or as a result of an IRS audit or examination—should contact an experienced tax attorney to determine whether they may be required to file an amended state income tax return to reflect the federal adjustments.

Nardone Law Group represents individuals and businesses in federal tax issues, including those who have become subject to an Ohio Department of Taxation audit or examination or IRS tax audit or examination. If you are facing an Ohio Department of Taxation or IRS tax audit or examination, or are interested in learning about additional obligations that may have arisen due to your 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 Ohio Department of Taxation audits and examinations and IRS tax audits and examinations. Our experienced tax lawyers will thoroughly review your case to determine what requirements or obligations exist, and what options and alternatives are available to resolve  your matter. Contact us today for a consultation to discuss your case.

May 30, 2014

Ohio Voluntary Disclosure of Employer Withholding Tax Liabilities

The tax lawyers at Nardone Law Group routinely advise and assist taxpayers regarding their ability to utilize voluntary disclosure programs, prior to being audited by the Internal Revenue Service. For more information, see our articles regarding Voluntary Disclosure Programs – Ohio and Other States and the Ohio Use Tax Amnesty and Other Voluntary Disclosure Options. Importantly, one area that Nardone Law Group has noticed causing confusion for businesses involves classifying workers as independent contractors versus employees. Correctly classifying workers as independent contractors or employees is vital in ensuring that a business is properly reporting its  withholding tax liability to the Ohio Department of Taxation (the “Department”). Below is a summary of the classification determination and the option to make a voluntary disclosure if your business had incorrectly classified workers.

 

Worker Classification

The determination of whether a worker is an independent contractor versus an employee is not a clear-cut, black-and-white test. Rather, it is based on a number of factors, which focus on the level of employer control over the worker. In Ohio, if a business misclassifies its workers as independent contractors versus employees and is audited, the Department will assess tax, interest, and penalties not only for failure to pay the withholding tax liability, but also for failure to file the required Ohio withholding forms. Further, an employee charged with the responsibility for filing the withholding tax report and making payment will become personally liable for the  failure to file the report and tax due. See Ohio Revised Code section 5747.07(G).

 

Ohio Voluntary Disclosure of Employer Withholding Tax Liabilities Program

Fortunately, the Department offers a voluntary disclosure program for withholding tax liabilities. By making this disclosure, businesses can avoid payment of penalties for failure to file timely and for failure to pay timely. Under the program, the Department requires businesses to pay all of the withholding tax due plus interest for at least the past four tax years, although the Department can technically ask for the past 10 years. This interest can range from 3% to 6% depending on the tax year involved. It is important to note that only businesses that are not currently under audit are eligible for this program. Thus, if you suspect that your business is not in compliance, the time to act is now – before the Department contacts you.

 

Contact Nardone Law Group

If your business is interested in participating in one of the Ohio Voluntary Disclosure Programs, you should contact the experienced tax attorneys at Nardone Law Group. We have vast experience representing individuals in voluntary disclosure programs with the IRS and the Ohio Department of Taxation. 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.

May 27, 2014

Vince Nardone Speaks at Ohio Accounting Show

The tax lawyers at Nardone Law Group, LLC routinely present and speak at continuing education programs for attorneys and certified public accountants. Vince Nardone recently spoke to the Ohio Society of CPA's at the Ohio Accounting Show in Dayton, Ohio. Mr. Nardone spoke on defending individuals and businesses in IRS audits and examinations; more specifically he advised the attendees on how to prepare for and handle the audit with a consistent message and presentation from initial interview through the settlement or litigation. Nardone Law Group represents many individuals in various audits with the Internal Revenue Service and other taxing authorities. You can find more information on the tax planning and controversy services that we offer by visiting our website.

May 20, 2014

Internal Revenue Service: Voluntary Worker Classification Settlement Program

The tax lawyers at Nardone Law Group, LLC routinely advise and assist taxpayers regarding their ability to utilize voluntary disclosure programs, prior to being audited by the Internal Revenue Service. For more information, see our article regarding the offshore voluntary disclosure program. One of the most significant areas that the IRS targets in its audit initiatives is worker misclassification. Please reference our article titled Internal Revenue Service Attorneys Discuss Section 3509 as the Service Continues to Assault Small Business in the Employment Tax Area – Tax Audits. Worker misclassification occurs when a business classifies a worker as an independent contractor, although the worker should have been classified as an employee for federal tax withholding purposes. The determination of whether a worker is an independent contractor versus an employee is based on a number of factors, which basically boil down to the level of control the business may exercise over the worker. If a business misclassifies a worker, the IRS will assess not only the resulting unpaid tax, but also significant penalties and interest, which can be financially devastating to most small businesses.

IRS Voluntary Worker Classification Settlement Program

Fortunately, on September 21, 2011, the IRS announced the voluntary worker classification settlement program (“VCSP”), which allows businesses to come into compliance by disclosing the misclassification of workers and paying only a fraction of the tax due, with no penalties and no interest. Under the VCSP, a business agrees to pay only 10% of the employment tax liability that may have been due on compensation paid to those workers for the most recent tax year, calculated at the reduced rates under Internal Revenue Code Section 3509(a). Further, the business agrees to classify the entire class of workers—meaning those that it misclassified as independent contractors during prior years—as employees in all future years.

Formerly, the VCSP required the business to extend the statute of limitations on assessment of employment taxes for three years subsequent to the first year for which they were participating in the program (i.e., they would be subject to a special six-year statute of limitations, rather than the usual three years that generally applies). Further, a limited set of businesses were eligible. But, since the program was announced, the IRS has introduced several modifications making this option more appealing and original to businesses. For example, now businesses accepted into the program are no longer subject to a special six-year statute of limitations. Also, businesses under IRS audit, other than an employment tax audit, can qualify for the VCSP. These and other modifications to the program are described in Announcement 2012-45.

NLG Comment: As tax attorneys specializing in representing businesses before the Internal Revenue Service, we know firsthand that it is important for taxpayers to understand all options available to them. Further, the costs of coming into compliance voluntarily are far less than the costs of being obligated to come into compliance by the Internal Revenue Service.

Contact Nardone Law Group

If you are interested in your business participating in the IRS Voluntary Worker Classification Settlement Program, you should contact the experienced tax attorneys at Nardone Law Group. We have vast experience representing individuals in employment tax disputes before the IRS. 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.

 

April 23, 2014

IRS Crackdown: Undisclosed Cayman Islands Accounts

The tax attorneys at Nardone Law Group continue to monitor the latest developments in the Internal Revenue Service’s (“IRS”) efforts to uncover taxpayers with undisclosed foreign accounts, assets, or entities. In our prior article discussing the Cayman Islands government’s decision to enter an Intergovernmental Agreement with the United States under the Foreign Account Tax Compliance Act (“FATCA”), we explained that certain Cayman Islands-based financial institutions would now be reporting U.S. taxpayers’ accounts to the IRS. This article explains that the IRS—emboldened by the new agreement with the Cayman Islands government—now appears to be focusing on undisclosed Cayman Islands-based bank accounts. In fact, the IRS may be moving more aggressively than usual to obtain information about and build cases against taxpayers who hold secret Cayman Islands-based bank accounts. The IRS’ increased efforts to track down and prosecute noncompliant taxpayers regarding hidden foreign accounts underscores Nardone Law Group’s continued message to taxpayers: the time is now to take advantage of the IRS’ Offshore Voluntary Disclosure Program to come into compliance with federal tax reporting and payment obligations for foreign accounts, assets, and entities.

A recent update from the U.S. Department of Justice revealed that undercover IRS agents recently completed an investigation of three prominent financial advisors based in Miami, Florida who had advised clients regarding use of Cayman Islands-based bank accounts to evade taxes and launder money obtained through criminal activity. The investigation produced indictments against all three high-level financial advisors. When asked about this recent victory for the IRS, one Assistant U.S. Attorney General noted that taxpayers may no longer expect to receive tip-offs as to potential government investigations into their offshore account activity, such as warning letters from their foreign banks. In other words, the IRS is quickly obtaining and analyzing foreign account, asset, and entity information from the growing number of countries that have entered Intergovernmental Agreements with the U.S., and is immediately and vigorously pursuing noncompliant taxpayers. Again, the most recent example is the IRS’ crackdown on undisclosed use of Cayman Islands-based financial institutions, which many believe have already provided their U.S. account-holder lists to the IRS.

Because of the IRS’ continued and increasing efforts to combat tax evasion through use of foreign accounts, assets, and entities, now is the time for taxpayers with undisclosed foreign accounts, assets, and entities to come forward. The proper way to do so is through the Offshore Voluntary Disclosure Program, which provides noncompliant taxpayers a life-line to limit the otherwise onerous civil penalties and risk of criminal prosecution. But, importantly, taxpayers who the government has contacted regarding investigation of their undisclosed foreign accounts, assets, or entities are ineligible for the protection the Offshore Voluntary Disclosure Program offers. Accordingly, taxpayers with foreign accounts, assets, or entities or that must be disclosed pursuant to FATCA—and now particularly those based in the Cayman Islands—should act swiftly to enter the Offshore Voluntary Disclosure Program, or risk being precluded by government contact. Simply put, the Offshore Voluntary Disclosure Program provides the best means for taxpayers to become compliant with foreign account, asset, and entity reporting and tax payment obligations, and to limit the risk of criminal prosecution for past noncompliance.

Contact Nardone Law Group

The tax attorneys at Nardone Law Group routinely advise clients in Columbus, Ohio and throughout the country about their federal tax reporting and payment obligations and ways to comply with federal tax law, including compliance with laws governing foreign accounts, assets, and entities. If you have questions about your federal tax reporting or payment obligations under FATCA concerning foreign accounts, assets, or entities, 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.

March 25, 2014

First Time Offender Penalty Abatement Program

The tax lawyers at Nardone Law Group 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 first time penalty abatement policy. If you or your business has 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 the 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. There are collection alternatives available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy action, including: (i) an installment agreement; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; (v) an offer-in-compromise, and (iv) challenging the underlying tax liability. A request for abatement of penalties is one of several ways to challenge the underlying tax liability.

Request for Abatement of Penalties Based upon First-Time Abate Policy

The IRS’s first-time abate policy, or “First Bite” policy, under I.R.M. 20.1.1.3.6.1 is an administrative waiver, and does not carry any dollar threshold, enabling taxpayers to seek this first time abatement for substantial penalty amounts. It is important to note, however, that this First Bite abatement may only be applied to one single form and tax period. The First Bite policy states that individuals or businesses may seek this venue for alternative penalty relief if they are a first time “offender” with relation to federal tax liabilities. An individual or entity may qualify for abatement of penalties under the First-time Abate policy if: (i) the taxpayer has not previously been required to file a return, and has no prior penalties, for the proceeding 3 years; and (ii) the taxpayer has filed, or filed a valid extension for, all currently required returns, and paid, or arranged to pay, any tax due.

The second criterion requiring taxpayers to be current on their tax filings was recently added to the First Bite policy, and requires that the taxpayer be up to date on all federal return filings and payments, including estimated federal tax deposits through the IRS’s Estimated Federal Tax Payment System (“EFTPS”). If the taxpayer is currently enrolled in an installment agreement with the IRS, and is current on their related monthly installment payments, then the taxpayer will be deemed current on their tax payments for those periods.

NLG COMMENT: As tax attorneys specializing in representing individuals and businesses in front of the Internal Revenue Service, it is important to fully understand all options available to taxpayers, so that the taxpayers can avail themselves of those options, including abatement of penalties. The Service provides us these opportunities and tolls, and we have to ensure that we use them.

Contact Nardone Law Group

Nardone Law Group represents businesses and individuals in federal and state tax issues, including offers in compromise and installment agreements. If you would like to enter into an offer-in-compromise or an installment agreement with federal and state taxing authorities, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before federal and state taxing authorities.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including applying and entering into an offer-in-compromise or installment agreement. Contact us today for a consultation to discuss your case.

March 10, 2014

The IRS Offshore Voluntary Disclosure Program: A Recent Opt Out Success Story

The tax attorneys at Nardone Law Group (“NLG”) 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, as explained in our prior article on Offshore Voluntary Disclosure Program Penalties and Opting Out, there are instances in which NLG may advise a taxpayer to opt out of the Offshore Voluntary Disclosure Program.  This article discusses a recent situation in which NLG: (1) advised the taxpayer that the Offshore Voluntary Disclosure Program did not make sense based on his unique facts and circumstances; (2) prepared the taxpayer’s request to opt out of the Offshore Voluntary Disclosure Program and  the taxpayer’s request for penalty forbearance; (3) successfully represented the taxpayer during the opt out audit or examination; and (4) obtained a very beneficial result for the taxpayer.

Nardone Law Group Obtains Successful Offshore Voluntary Disclosure Program Opt Out Result

NLG recently advised a taxpayer regarding an Offshore Voluntary Disclosure Program matter involving foreign mutual funds held within a foreign trust account, producing complex Passive Foreign Investment Company issues. Taxpayers and even other tax professionals often believe that the Offshore Voluntary Disclosure Program is automatically the best option for handling a particular foreign financial account or asset reporting matter that involves complex issues.  But, that is not the case. To make the decision between making a full Offshore Voluntary Disclosure submission and opting out of the program, one must fully review all of the relevant facts and circumstances.

In this instance, NLG thoroughly reviewed the taxpayer’s unique facts and circumstances—as we do with all matters—to determine the taxpayer’s best option. NLG considered whether the Offshore Voluntary Disclosure Program was best for this taxpayer, or whether it would be most beneficial for the taxpayer to opt out and undergo the opt out audit or examination. Even though the taxpayer’s foreign financial account reporting matter involved very complex issues, NLG’s detailed review and analysis indicated that the taxpayer should opt out of the Offshore Voluntary Disclosure Program.

Below is a chart that NLG prepared for this taxpayer, comparing the various possible outcomes of continuing with the Offshore Voluntary Disclosure Program or opting out, based on NLG’s review and analysis:

 

OVDP (27.5% Penalty)

Opt Out: No Reasonable Cause Established for   Penalties

Opt Out: Reasonable Cause Established for Civil   Fraud and FBAR Penalties Only

Opt Out: Reasonable Cause Established for Penalties

Total

$100,000.00

$110,000.00

$48,000.00

$20,000.00

Using the above chart, NLG explained to the taxpayer that under the Offshore Voluntary Disclosure Program, he would owe approximately $100,000 to the IRS. Conversely, NLG informed the taxpayer that under the best opt out scenario, the taxpayer’s debt to the IRS would be only about $20,000. The taxpayer followed NLG’s recommendation and ultimately concluded the opt out process owing the IRS only $21,000—meaning the IRS agreed with NLG’s overall position and analysis regarding the taxpayer’s case. NLG is very pleased to have assisted this taxpayer in obtaining a very good result with his Offshore Voluntary Disclosure Program opt out. This opt out success story simply confirms NLG’s belief that a detailed review and analysis not only provides accurate forecasting of the likely result for an Offshore Voluntary Disclosure or opt out, but also produces the best results.

As you can see, 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.

NLG Comment: Please note that all figures and amounts used in this article have been modified to ensure confidentiality of the particular taxpayer involved.

March 04, 2014

Valuing a Closely-Held Business for an IRS Offer-in-Compromise

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.  There are collection alternatives, available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy actions, including: (i) installment agreements; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; and (v) an offer-in-compromise.

In a prior blog post, NLG discussed how the IRS values financial securities and, specifically, publicly traded stock. For a copy of that blog post, please click here. As a follow-up, this blog post will discuss the valuation of closely-held stock, meaning stock that is not publicly-traded, for purposes of an offer-in-compromise.  

Valuing Closely-Held Stock

As previously discussed, the IRS Internal Revenue Manual (the "IRM") directs that, to determine the value of a publicly-traded stock, the Offer Specialist should obtain valuation information from a daily newspaper, other internal sources, or a broker as to the current market price for the securities. IRM §§ 5.8.5.8(3) and 5.15.1.25(2). Conversely, to determine the value of closely-held stock that is either not traded publicly, or for which there is no established market, the IRM directs an Offer Specialist to evaluate the following methods of valuing the company and assign the applicable portion of the company’s value to the taxpayer’s stock:

  1. Obtain and verify a Collection Information Statement (“CIS”) from the company;
  2. Review the most recent year annual report to stockholders;
  3. Review the most recent year corporate income tax returns;
  4. Request an appraisal of the business as a going concern by a qualified and impartial appraiser.

When a taxpayer, however, holds only a negligible or token interest in a closely-held company and exercises no control over the corporate affairs, the IRM permits an Offer Specialist to assign no value to the stock. IRM § 5.8.5.8(5). As part of negotiating an offer-in-compromsie, the determination of an ownership interest is one of the more difficult issues that arise. This is especially true for professional service organizations where the income from the closely-held business is all paid out to the owners. But, there are many other issues that arise and cause complications for an offer-in-compromise. Thus, when representing a taxpayer before the IRS regarding an offer-in-compromise, and closely-held stock is at issue, we must have a full understanding of the valuation rules to ensure we obtain the fairest result from the IRS.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid 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 offer-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 toward 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, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.

February 24, 2014

Valuing Publicly-Traded Stock for an IRS Offers-in-Compromise

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.  There are collection alternatives available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy actions, including: (i) installment agreements; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; and (v) an offer-in-compromise. Thus, an offer-in-compromise is one of several collection alternatives.  Detailed information on the offer-in-compromise program can be found on NLG’s FAQ webpage here.

Valuation of Publicly-Traded Stock

As part of an offer-in-compromise, taxpayers have to take into consideration how the IRS will value certain assets, including financial securities. The Internal Revenue Manual (“IRM”) provides that financial securities are considered an asset and, thus, the value of financial securities should be determined and included in the reasonable collection potential calculation, or "RCP," when investigating an OIC. IRM §§ 5.8.5.8(1) and 5.15.1.25(1). Thus, if a taxpayer plans to liquidate a securities investment to fund an OIC, the IRS Offer Specialist reviewing the OIC must deduct from the value of the securities the associated fees and current year tax consequences of liquidation. IRM § 5.8.5.8(2). The IRM directs that, to determine the value of a publicly-traded stock, the Offer Specialist should obtain valuation information from the daily newspaper, other internal sources, or a broker as to the current market price for the securities. IRM §§ 5.8.5.8(3) and 5.15.1.25(2). After identifying the current market price of publicly-traded stock, the Offer Specialist must discount the value by estimated costs of sale to arrive at the QSV.  Thus, taxpayers that have financial securities and are considering submitting an OIC must take these IRM provisions into consideration.

It is important to note, however, that the IRM does not provide a formula for valuation of unregistered or otherwise restricted stock, specifically. Rather, the OIC provisions contained in the IRM provide guidance for discounting the value of publicly-traded securities based on their quick sale value, as well as a method for valuing closely-held stock, which is similar in marketability to unregistered or otherwise restricted stock. We will discuss the closely-held stock and restricted stock valuation issues for an OIC in a later blog post.

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid 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, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.

 

June 06, 2014

June 04, 2014

May 30, 2014

May 27, 2014

May 20, 2014

April 23, 2014

March 25, 2014

March 10, 2014

March 04, 2014

February 24, 2014

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