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.

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.

Serious Illness Does Not Necessarily Provide Reasonable Cause for Failure to Timely File Federal Tax Return

The tax attorneys at Nardone Law Group frequently remind our clients in Ohio and throughout the U.S. that the Internal Revenue Service (“IRS”) takes deadlines seriously.  Taxpayers should take those deadlines seriously because the IRS will assess significant penalties against taxpayers who miss deadlines.  In many instances, the IRS will not abate those penalties, even for a serious illness. In fact, only in extreme and unusual circumstances can an illness constitute reasonable cause for failing to file your federal tax returns on time.  If you were late filing your federal tax return or paying your federal tax liability because of an illness, the penalties for failure to file may be abated only if the health problems were continuous and rendered you effectively unable to meet your federal tax obligations.

This article reviews a recent Court of Federal Claims case, Stine v. U.S, 106 Fed. Cl. 586 (Fed. Cl. 2012), to show how the court interprets reasonable cause for failure to timely file a federal tax return. (See attached case.) Stine reinforces how difficult it is for an illness to exempt an individual from penalties.

Background

Failure to file federal tax returns or pay federal tax liabilities on time results in a penalty unless you can show that the failure is: (1) due to reasonable cause; and (2) not due to willful neglect. I.R.C. § 6651(a). Generally, to avoid the penalty, you must first show that, although you exercised ordinary business care and prudence, you were still unable to file your federal tax return on time.  Second, you must demonstrate that the failure was not intentional or reckless (i.e., willful neglect).

Serious Illness Must Make It “Virtually Impossible” to Meet Federal Tax Obligations

In the majority of cases, the IRS will not excuse filing federal tax returns late because of illness. The illness must be beyond your control and render you unable to file your federal tax return. This is a high standard. As the Seventh Circuit stated, the illness must make it virtually impossible for an individual to file federal tax returns or pay a federal tax liability on time.  For example, the courts have ruled that a hospital stay of several weeks may provide reasonable cause for delay in filing your federal tax return or paying your federal tax liability. Another court ruled that living with AIDs, taking antiviral medication, and having a nervous breakdown provided reasonable cause. Overall, facts must show that the illness rendered you unable to meet your federal tax obligations.

In Stine, as an example, the various ailments of the Taxpayer did not result in complete inability to file. The Taxpayer had a multitude of health issues including upper respiratory infections, pneumonia, knee pain, inpatient knee surgery, medication reactions, heart palpitations, and blurred vision. Nevertheless, the Court of Federal Claims held that this did not excuse filing federal tax returns late. The court found the following facts determinative: (1) the Taxpayer was not in a continuous state of incapacitation, and (2) the Taxpayer performed other financial transactions during the relevant time period, thus defeating her claim for reasonable cause.

Disability Must be Continuous

As evidenced by Stine, an intermittent incapacity does not constitute reasonable cause for failure to file a federal tax return on time. Because the Taxpayer was only temporarily incapacitated by surgeries and medication reactions, the Federal Court of Claims held that her disability was not continuous enough to provide reasonable cause for filing federal tax returns late.  As Stine reveals, a series of health problems throughout the course of a year, in and of itself, probably will not provide reasonable cause for filing your federal tax return late. The illness must make you unable to meet your obligation to file taxes throughout the entire time period relevant to the obligations—usually January 1 to April 15. Severe mental or physical illness that leaves an individual incapacitated or hospitalized for an extended period of time may be continuous enough to provide reasonable cause for filing federal tax returns or paying federal tax liabilities late.

Contact Nardone Law Group

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.

The IRS Offshore Voluntary Disclosure Program: Penalties and Opting Out

    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.  This article discusses one situation in which the Offshore Voluntary Disclosure Program may not make sense.

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.  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.  But, in certain circumstances, 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.

Opting Out of the Offshore Voluntary Disclosure Program

    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 if the Offshore Voluntary Disclosure Program did not exist.  This is because certain penalties imposed outside the Offshore Voluntary Disclosure Program:

    1) May not apply or may apply at a lesser rate to some taxpayers due to mitigating circumstances; or

    2) May not apply to the large base to which the 27.5% Offshore Voluntary Disclosure Program penalty applies (accounts, entities, and assets). 

    For example, assume a U.S. taxpayer held a foreign account with a high balance of $1 million, which generated income of $100,000 each year for the past 5 years.  The taxpayer mistakenly assumed he only had to report the income on his foreign tax return, and did not report any of the income on his U.S. tax return.  The taxpayer also did not report this foreign account to the IRS on a Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (“FBAR”), as is required for individuals with a financial interest in or signature authority over a foreign financial account.  After application of the foreign tax credit for taxes paid to the foreign country, the taxpayer had no tax deficiency for the unreported income, as reflected on the taxpayer’s amended U.S. individual income tax returns.

    The Offshore Voluntary Disclosure Program penalty in the above example is $275,000 (27.5% of $1 million).  But, if the taxpayer in this example decides to opt out of the Offshore Voluntary Disclosure Program, the penalty for failing to file an FBAR:

    1) May not be imposed, if the failure to file an FBAR was based on reasonable cause (i.e.,  based upon the advice of a tax professional); or

    2) May be $10,000 per account per year, if the failure to file an FBAR was not willful (here, $50,000).

    Thus, as you can see, opting out of the Offshore Voluntary Disclosure Program may be the best option for some taxpayers.  But, it is important to note that the above example is a simplified scenario.  In many instances, taxpayers will be facing additional penalties for the following: (i) failure to file certain other required information returns and forms; (ii) failure to file income tax returns; (iii) failure to pay the amount of tax shown on an income tax return; and (iv) accuracy-related penalty on underpayments of tax due.  Moreover, taxpayers should understand 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.

Tax Planning Update: Increased Withholding May Avoid Estimated Tax Penalty

As the 2012 tax year begins winding down, it is important to be sure that you have made correct estimated tax payments throughout the year.  If you have not, you may be penalized for the underpayment of estimated taxes.  Some taxpayers with significant income in addition to their salary may find that the amount of tax withheld is not enough to cover their required estimated tax payments.  The tax lawyers at Nardone Law Group, LLC wanted to inform our clients in Columbus, Ohio how increased withholding can be used to avoid the estimated tax penalty. 

Estimated Tax Withholding Summary

If you are subject to the estimated tax, you must pay 25% of your required annual payment for the current year on April 15th, June 15th, September 15th, and January 15th of the following year for a calendar year taxpayer. The required annual payment is generally the lesser of 100% of the tax shown on last year’s return or 90% of the tax on your current return.  Under I.R.C. § 6654, to calculate your 2012 estimated taxes, if your 2011 adjusted gross income exceeded $150,000, you must pay the lesser of 110% of the tax shown on last year’s return or 90% of your 2012 tax liability.  If your quarterly estimated tax payments, plus your salary withholdings, do not total at least 25% of your required annual payment, then you may be penalized for underpayment of estimated taxes.  The problem is that you cannot simply avoid the penalty by increasing your estimated tax payment for a later period.  Thus, some tax planning is necessary.

Tax Planning: Increase Withholding as Solution

If you know your estimated tax payments will fall short of your required annual payment for the year, you may withhold more from your salary for the rest of the year to cover the difference.  Under I.R.C. § 6654(g)(1), income tax withheld is deemed a payment of estimated tax in equal amounts on each of the four installment due dates, unless you establish the dates on which all the amounts were actually withheld.  Thus, you can retroactively eliminate the estimated tax penalty if you withhold additional amounts from your salary for the rest of the tax year.

Example: You expect your 2012 tax liability to be $20,000.  Your 2011 return showed a liability of $18,500.  Your withholding for 2012 will only total $15,000 and you have made no estimated tax payments.  If you make an additional estimated tax payment of $3,000 on January 15, 2013, you will avoid any underpayment penalty for the last installment ($15,000 plus $3,000 equals $18,000, which is 90% of $20,000) but you may still be penalized for underpaying the first three installments.  On the other hand, if you withhold an additional $3,000 from your salary before the end of 2012, your total withholding ($18,000) will be treated as estimated tax payments of $4,500 on each of the installment due dates.  Since $4,500 is 25% of $18,000 (90% of $20,000), you can completely avoid the underpayment penalty for all four installments.

Nardone Law Group represents individuals and businesses in federal tax issues, including those who have fallen behind on their estimated tax payments to the IRS. If you are struggling with tax liabilities or are interested in knowing additional tax planning strategies, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offer in Compromise, or the Fresh Start program. Contact us today for a consultation to discuss your case.

Tips for Taxpayers Who Owe Money to the IRS

As tax attorneys in Columbus, Ohio, we work with many individuals and businesses that simply cannot afford to pay their federal tax liabilities to the Internal Revenue Service.  There are many reasons why a taxpayer may fall behind on paying the IRS.  Falling behind on your taxes, however, is not the end of the world.  Taxpayers do have collection alternatives to resolve those unpaid federal tax liabilities.  Recently, the IRS issued its eleven tips of working with the IRS.  Please see below.

Eleven tips for taxpayers who owe money to the IRS

1. Tax bill payments - If you get a bill from the IRS this summer that shows you owe late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it may be better for you to get a loan to pay the bill in full rather than to make installment payments to the IRS. That's because the interest rate and penalties the IRS must charge by law are often higher than what lending institutions may be offering.

2. Electronic Funds Transfer - You can pay your tax bill by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.

3. Credit card payments - You can pay your bill with a credit card. Again, the interest rate on a credit card may be lower than the combination of interest and penalties the IRS must charge. To pay by credit card contact one of the following processing companies:
– WorldPay US, Inc. at 888-9PAY-TAX (or www.payUSAtax.com),
– Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed), or
– Link2Gov Corporation at 888-PAY-1040 (or www.pay1040.com).

4. Additional time to pay - Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. There generally is no set up fee for a short-term agreement.

5. Installment Agreement - You may request an installment agreement if you cannot pay the total tax you owe in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.

6. Apply Using Form 9465 - You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill using the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.

7. Apply Using Online Payment Agreement - If you owe $50,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at IRS.gov. You may still qualify for an installment agreement if you owe more than $50,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.

8. User fees - If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with lower incomes, the fee can be reduced to $43.

9. Offer in Compromise - IRS is now offering more flexible terms with its Offer-in-Compromise (OIC) Program. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed. An OIC is generally accepted only if the IRS believes, after assessing the taxpayer's financial situation, that the tax debt can't be paid in full as a lump sum or through a payment agreement.

10. Check withholding - Taxpayers who have a balance due may want to consider changing their Form W-4, Employee’s Withholding Allowance Certificate, with their employer.

11. Fresh Start - The IRS has a program to help struggling taxpayers get a fresh start. Through the Fresh Start program, individuals and small businesses may be able to pay the taxes they owe without facing additional or unnecessary burden.

Nardone Law Group represents individuals and businesses in federal tax issues, including those who have fallen behind on their tax payments to the IRS.  If you are struggling with tax liabilities or are interested in working with the IRS to review your a collection alternatives, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offer in Compromise, or the Fresh Start program. Contact us today for a consultation to discuss your case.

Discharge or Eliminate Tax Debts in Bankruptcy

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

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

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

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

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

Filing Requirements for Foreign Financial Accounts and Assets

Guest Author: Tawnya Underwood, Columbus, Ohio

The tax professionals at Nardone Law Group, LLC want to remind taxpayers of the upcoming deadline—June 30, 2012— for the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”).  The FBAR is required to be filed when (i) a US person having financial interest in, or signature authority over, a bank, securities or other financial account in a foreign country and (ii) if that account exceeds $10,000 during that year.  See 31 C.F.R. § 1010.350. 

FBAR Information and Requirements

Unlike other federal filings, the FBAR is not a tax form.  It is a law enforcement information return used by investigators to identify individuals who are using foreign accounts as a way to avoid US laws.  Another key difference is that he FBAR is not filed with a taxpayer’s federal income tax return, but rather June 30^th of the following tax year—the FBAR reporting period is the calendar year.  It is important to note that there are no extensions granted for the filing of the FBAR.  A taxpayer who requests an extension to file his/her federal income tax return must still file the FBAR by the June 30^th due date.  Further, the “mailbox” rule does not apply to FBARs as it does for tax returns.  The FBAR must reach the IRS on or before the deadline, or the taxpayer is subject to penalties. 

The IRS encourages taxpayers to file the FBAR electronically for the 2011 calendar year, which is due by June 30, 2012; however, it is not mandatory.  Beginning for the 2012 calendar, the FBAR due on June 30, 2013 MUST be filed electronically.  The IRS reports that the average burden associated with information collection for the FBAR is 20 minutes.  Obviously this 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.

In addition to filing the FBAR, a US person who holds a foreign financial account must also check the appropriate box on the FBAR-related federal return, such as Schedule B of the Form 1040 U.S. Individual Income Tax Return.

To be clear the FBAR is a federal information filing focused on foreign accounts, and not foreign assets.  For those taxpayers with interest in foreign financial assets, there is a new form which must be filed for assets with an aggregate value of $50,000 for individual taxpayers, and $75,000 for married filing jointly taxpayers.  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 assets whereas the FBAR is specific to foreign financial accounts.

The Internal Revenue Service provides a detailed chart which compares the FBAR and the Form 8938.  We have made that chart available by clicking here.

Contact NLG

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

REMINDER: Use Tax and General Tax Amnesty Programs

Hello everyone.  As the tax attorneys at Nardone Law Group, LLC have previously communicated in our September 26, 2011 blog entry Ohio Use Tax Amnesty and Other Voluntary Disclosure Options, the Ohio Department of Taxation issued an Information Release providing guidance on the Consumer's Use Tax Amnesty Program that runs from October 1, 2011 through May 1, 2013. The Tax Commissioner will waive all unassessed Use Tax liability due for any periods prior to January 1, 2009, and Consumer's Use Tax paid under the Amnesty is not subject to interest, or civil or criminal penalties. But, taxpayers who are registered for Ohio Use Tax as of June 1, 2011, are required to pay interest on any under-reported or unreported Consumer's Use Tax.

The Ohio Department of Taxation also issued an Information Release on the General Tax Amnesty. The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid.  The General Tax Amnesty program is open from May 1, 2012 to June 15, 2012.  The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:

• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
• Any penalties on delinquent taxes paid under this program are fully abated.
• Participants cannot be criminally prosecuted.
• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty Program.

To complicate things for Ohio taxpayers, ODT also has the Voluntary Disclosure Program, which is an ongoing program, and is available for various tax years for which a taxpayer may have a liability. Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:

• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.
• The Tax Commissioner is precluded from assessing the taxpayer, or from requiring the taxpayer to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by ODT.
• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

Prior to availing yourself of either: (i) the Use Tax Amnesty, (ii) the General Tax Amnesty, or (iii) the Voluntary Disclosure Program, you must consider the benefits of each, and also determined the potential unattended consequences of making the disclosure.  For more information, please also visit our recent article on the Ohio Tax Amnesty Programs. Also consider reviewing the Ohio Department of Taxation's discussion on each of these options.

The tax attorneys at Nardone Law Group represent businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are dealing with a local, federal or state tax issue, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the Ohio Department of Taxation and the IRS. We will thoroughly review your case to determine what options and alternatives are available, including the programs discussed in this article. Contact us today for a consultation.