IRS Private Debt Collection Program

Tax_debt

    The tax attorneys at Nardone Limited, in Columbus, Ohio, routinely advise taxpayers who have been contacted by an Internal Revenue Service (“IRS”) revenue officer. If a taxpayer fails to make a payment on a federal tax liability, the IRS has broad authority and tools available to collect delinquent tax from individuals and businesses. One of the tools the IRS has recently utilized is the use of private debt collection agencies. The private debt collection program allows certain designated companies to collect tax debts on the IRS’s behalf.

    The program is authorized under the Fixing America’s Surface Transportation Act (“FAST Act”) and requires the IRS to use private collection agencies once the IRS is no longer actively working on the taxpayer’s case. The IRS will only use a third party for certain accounts, such as older overdue accounts that have been removed from the IRS’s active list due to lack of resources. The IRS, however, has provided a list of accounts that it will not assign to private collection agencies. The following is a list of account types the IRS will not assign to a private collection agency:

  1. The taxpayer is deceased or under the age of 18;
  2. Taxpayers in a designated combat zone;
  3. Taxpayers that are victims of tax-related identity theft;
  4. Taxpayers under examination, litigation, criminal investigation or levy;
  5. Accounts subject to pending or active offers in compromise;
  6. Accounts subject to an installment agreement;
  7. Accounts subject to a right of appeal;
  8. The case is classified as an innocent spouse case; and
  9. Taxpayers in a disaster area.

Nardone Limited Comment: On February 14, 2018, United States Senators Elizabeth Warren, Ben Cardin, and Sherrod Brown introduced legislation to repeal authority from the IRS to contract with private debt collection agencies. The bill, however is still in the “introduced” phase. For more information, or to track the bill, click here

How Will You Know it is a Designated 

Private Collection Agency?

    First, the IRS has listed the following companies as those authorized to collect on its behalf: CBE Group, Conserve, Performant, and Pioneer. But, before assigning a taxpayer’s account to a third party, the IRS will send the taxpayer and the taxpayer’s representative a notice indicating that their account is being transferred. The IRS will then send a second letter confirming the transfer. If one of the collection agencies listed above contacts you, they will not ask for payment on any prepaid card, such as a gift card or prepaid debit card.  Any payments for unpaid taxes should be sent directly to the IRS, not the private collection agency.

    Further, the collection agencies authorized to collect on the IRS’s behalf are required to follow the Fair Debt Collection Practices Act (the “Act”). This means that the collection agency may not contact a taxpayer: (i) before 8:00 A.M. or after 9:00 P.M.; (ii) without permission from the taxpayer’s attorney (if the debt collector knows the taxpayer is represented); or (iv) at the taxpayer’s place of employment. Fair Debt Collection Practices Act §805. The Act also prohibits the collector from threatening or harassing the taxpayer. Id at §806. Taxpayers may file a complaint about a private collection agency or report misconduct by contacting the Treasury Inspector General for Tax Administration.

Nardone Limited Comment: If a taxpayer or business is contact by an IRS revenue officer or private collection agency, it is important to understand the various collection alternatives available to taxpayers to resolve federal tax liabilities. Some collection alternatives include: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. For more information about collection alternatives, see our previous blog articles “Bankruptcy as a Collection Alternative for Tax Liabilities” and “Offers-In-Compromise Under our Current Administration.”

Contact Nardone Limited

    If you or your business have been contacted by the IRS or a private collection agency regarding outstanding tax liabilities, it is important to consult with a legal professional who is experienced in communicating with IRS revenue officers and private debt collection agencies. The tax attorneys at Nardone Limited have vast experience representing clients before the IRS. Contact us today for a consultation to discuss your case.

November 16, 2018

Tax Relief for Innocent Spouses

Innocent-spouse-relief

    The tax attorneys at Nardone Limited, in Columbus, Ohio, have extensive experience representing taxpayers who are involved in various stages of Internal Revenue Service (“IRS”) collection processes. We specialize in working with IRS revenue officers, and guiding clients through tax collection alternatives, including offers-in-compromise, installment agreements, discharges in bankruptcy and innocent spouse relief. Generally, taxpayers who file a joint tax return are jointly and severally liable for liabilities arising from mistakes and omissions on that tax return. Imposition of joint and several liability means that each taxpayer is legally responsible for the entire liability. This means that the IRS can proceed against either taxpayer—or both—to resolve the tax liability. IRC §6013(d)(3). But, there is an exception to the general rule if a spouse is innocent. IRC §6015. Petitioning taxpayers may be able to persuade the IRS that joint and several liability should not apply, in consideration of the facts and circumstances surrounding preparation of the return. The IRS’s review of innocent spouse relief is fact-intensive, with no one factor being determinative.

Request for Innocent Spouse Relief

    Taxpayers can request innocent spouse relief in three forms: (i) relief from liability for additional tax owed where the spouse or former spouse failed to correctly report income or claim deductions; (ii) relief in the form of separation of the liability attributable to the taxpayer and liability attributable to the taxpayer’s estranged or former spouse; and (iii) relief where the taxpayer does not otherwise qualify for innocent spouse relief, however holding the taxpayer liable for the tax deficiency would be inequitable. A taxpayer requesting innocent spouse relief must generally do so within two years of the tax liability assessment.

    Requesting innocent spouse relief in any of the forms described above requires filing IRS Form 8857, Request for Innocent Spouse Relief. To qualify for liability relief, a petitioning taxpayer must demonstrate: (i) that they filed a joint tax return with an understatement of tax due to reporting of their then-spouse’s erroneous items; (ii) that at the time of signing the return the taxpayer did not know or have reason to know about the understatement of tax; and (iii) that it would be unfair, after considering the facts and circumstances, to hold the innocent spouse liable. IRC §6015. To qualify for separation of liability relief, a petitioning taxpayer must demonstrate that: (i) the taxpayer is no longer married to or is legally separated from the spouse with whom the taxpayer filed the joint return; and (ii) the taxpayer was not a member of the same household as the other spouse on the joint tax return for the 12-month period preceding the request for relief.

Knowledge or Reason to Know of the Misstatement

    It is often difficult for the petitioning spouse to prove that they did not know or have reason to know of the deficiency. After all, the petitioner did sign the return. Further, even if the petitioning spouse had actual knowledge of only a portion of the erroneous items, the IRS will not grant relief. The IRS will argue that the petitioner should have known about the deficiency if the petitioner benefited from the understatement of tax or the return represented an unqualified departure from the couple’s prior returns. The presumption when an individual affixes their signature to a document is endorsement of its contents. But, a petitioner may satisfy the lack of knowledge element even in certain conditions where a petitioner was given the opportunity to review the return. For example, if the petitioner’s spouse was hiding an income source, then it would be reasonable for the petitioner, having reviewed the return, to be ignorant of the understatement of income. In other situations, the disparity in education between the petitioner and the other person named on the return may be so great as to impede the petitioner’s meaningful review. Our previous blog article illustrates an example of the IRS denying a spouse relief for failure to prove she did not know, or have reason to know of the understatement of tax.

    Satisfaction of the above elements require the petitioning taxpayer to be familiar with tax law. To fill out Form 8857 the taxpayer must be equip with detailed and relevant information in order successfully plead their case to the IRS. Form 8857 includes questions about the petitioner’s marriage, educational background, health problems, involvement with the couple’s finances and current financial status. Petitioners may have to conduct extensive investigation into past financials and proffer documentation about sensitive private topics. Thus, preparing to request innocent spouse relief can be difficult, especially while facing persistent IRS revenue officers during the collections process.

Contact Nardone Limited

    The tax attorneys at Nardone Limited have experience preparing requests for innocent spouse relief and guiding clients through other tax collection alternatives. The IRS recognizes certain situations where it would be inappropriate to impose joint and severable liability, however, it is up to the petitioner to prove the elements for entitlement to innocent spouse relief. A taxpayer’s review or non-review of her joint tax return will not prelude innocent spouse relief. The tax attorneys at Nardone Limited have vast expertise in representing taxpayers in all stages of IRS tax collections processes. If you have questions regarding your tax liability, or communications you have received from an IRS revenue officer, please contact Nardone Limited.

November 09, 2018

IRS Publishes New Guidance on TCJA and Tips for Filing

Tax-cuts-and-jobs-act

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys keep individuals and businesses informed about new information and guidance provided by the IRS. As a follow-up to our prior blog article on posted non October 19, 2018, this article explores how to properly prepare for the new tax changes as a result of The Tax Cuts and Jobs Act (“TCJA”).

Publication 5307

    On October 30, 2018, the IRS published a news release informing taxpayers that it published new information—IRS Publication 5307 (the “Publication”)—that will help taxpayers learn how the tax reform affects their taxes, as well as tips for filing their 2018 tax returns. IR-2018-209. This news release is part of a series of information provided by the IRS regarding the effects of the TCJA. The Publication contains information about (i) increasing the standard deduction, (ii) suspending personal exemptions, (iii) increasing the child tax credit, and (iv) limiting or discounting certain deductions. In addition to the Publication, the IRS also indicated that it recently updated a special page on its website dedicated to helping taxpayers understand the tax changes. This page highlights information taxpayers should be aware of and provides tips to taxpayers before they file their 2018 tax returns.

Tips for Filing 2018 Tax Returns

    Because taxpayers are adjusting and responding to the TCJA for the first time, it is important for taxpayers to prepare in advance before filing their 2018 tax returns. The IRS warns taxpayers that refunds may be different in 2019 than in previous years, and that some taxpayers may even owe money this year. In order to avoid surprises or delays as it relates to filing tax returns for 2018, the IRS offers the following advice to taxpayers.

  1. IRS Withholding Calculator. If taxpayers are unsure or concerned that they may have a tax bill after filing their 2018 tax returns, they should perform a “paycheck checkup.” Taxpayers can use the IRS Withholding Calculator located on the IRS website. This tool will provide taxpayers guidance on whether they need to adjust their withholding or make estimated or early payments.
  1. Documents. Before filing their taxes, taxpayers should ensure that they have all of the necessary documents, and that all of those documents are complete. Filing before the taxpayer has gathered all of the necessary documents could result in the taxpayer having to file an amended return, which could significantly delay the taxpayer in receiving a tax return.
  1. E-File. Electronic filing is the most efficient and easiest way to avoid errors. The IRS indicated that it has been working with tax preparers to ensure that the new tax law changes are incorporated into the tax filing systems.
  1. Direct Deposit. In order to avoid delays in receiving tax refunds, the IRS suggests having the refund directly deposited into the taxpayer’s bank account, as opposed to having it sent via mail. This, in conjunction with electronically filing, is the fastest way for the taxpayer to get their refund.
  1. Renewing ITIN’s. Taxpayers who file using an expired Individual Taxpayer Identification Number (“ITIN”) are likely to experience processing delays. ITIN’s may expire in two ways: (i) the taxpayer has not used their ITIN on any tax return for years 2015, 2016, or 2017; or (ii) the ITIN has a middle digit of 73, 74, 75, 76, 77, 81, or 82. To avoid delays, expired ITIN’s should be renewed before the end of the year.

    Taxpayers should already be considering how the TCJA will affect their 2018 tax returns. Ensuring that you are up to date on the latest details and guidance regarding issues that may affect you or your business are necessary in order to avoid penalties or delays. If you or your business need guidance on navigating the TCJA and its affects, it is important that you seek guidance from a legal professional experienced in tax matters.

Contact Nardone Limited

    Nardone Limited represents employers with federal tax issues, including changes as a result of the TCJA. If you are unsure how the TCJA will affect you or your business, you should contact an experienced tax attorney before filing your taxes. Nardone Limited’s tax attorneys and professionals are well experienced with representing businesses regarding federal tax issues. Contact us today for a consultation to discuss your case.

October 30, 2018

Worker Misclassification Audits

Business_audit

    The experienced tax attorneys at Nardone Limited, located in Columbus, Ohio, frequently advise taxpayers throughout the Internal Revenue Service (“IRS”) audit and examination process. This includes providing guidance to employers on worker misclassification concerns. Misclassifying a worker can come with significant penalties to a business if audited by the IRS. For more information on penalties for misclassifying a worker, see our prior tax blog article posted on October 10, 2018. If an employer is concerned that an audit may reveal that they have misclassified a worker, it is helpful for the employer to understand how an audit can originate. Worker misclassification typically comes to light in two ways: (i) a worker files a complaint with the IRS seeking determination of their status; or (ii) the IRS conducts an audit of the business.

Background Regarding Worker-Reported Audits

    If a worker believes they have been misclassified and reports their suspicion to the IRS, both the worker and the firm are required to fill out Form SS-8. For purposes of Form SS-8, “firm” means any individual, business enterprise, organization, state, or other entity for which a worker has performed services. The purpose of Form SS-8 is to help the IRS determine the status of a worker under common law rules. Generally, under the common law rules, the worker is an employee if the firm “has the right to control what will be done and how it will be done.” IRS Instructions for Form SS-8. The questions on Form SS-8 contemplate behavioral control, financial control, and the relationship between the worker and the firm. Behavioral control considers who decides how the work must be performed; while financial control considers the pay structure for the particular worker. The IRS then reviews the forms to render a decision. The decision may either be a formal determination or an information letter. Formal determinations bind the IRS in all future cases with the same facts, while information letters are only advisory. But, for the worker and the firm, either are binding. IRS Instructions for Form SS-8.

Nardone Limited Comment: Prior to completing Form SS-8 or any other questionnaire sent by the IRS, it is important for the employer to consult with an experienced tax controversy attorney who handles these matters on a routine basis. It is not a good idea to work with an attorney or accountant who is unfamiliar with employment tax audits or worker classification issues. Professionals who do not routinely handle these types of issues, will not have the appropriate perspective and background to know when to respond and how to respond to the IRS. We have seen too many situations where a response from a professional, who does not specifically specialize in tax controversy matters, has hurt the client’s position rather than helped it.

IRS-Initiated Audits and Examinations

    If the IRS initiates and performs an audit or examination, the IRS considers several factors, such as: the use of a large number of independent contractors, Form 1099-MISC with large reporting of nonemployee compensation, and mismatches where workers with identical or near-identical jobs are classified differently. The identical jobs issue frequently arises with temp-to-hire workers, who are initially classified as independent contractors.  But, upon hire, there is no meaningful change in their job duties or right of control. If the IRS decides to conduct an audit, it will contact the business by mail. An audit can either be done in person—such as at the business location—or by mail. The audit process may involve disclosing company documents such as: contracts, payroll information, and email correspondences to the IRS. Information considered by the IRS will be analyzed to determine whether there should be a change in tax liability. An audit can conclude in three ways: (i) no change; (ii) agreed; or (iii) disagreed. A “no change” determination is made if the business substantiates all of the items being reviewed. An “agreed” or disagreed” conclusion means that either the business agrees with the IRS’ proposed changes or it disagrees with the proposed changes. If a business wishes to challenge the IRS’ decision, the business has 30 days from the date of the determination letter, to appeal to Office of Appeals.

    It is important to recognize, as the employer, that the submission of a Form SS-8 may trigger a number of unintended consequences. Thus, recognizing the legal framework of the worker classification issue as it relates to independent contractors versus employees, is really important. It is equally as important to understand the employer’s options as it relates to responding to the Form SS-8 and the potential response from the IRS. With that said, sitting down with someone and investing some time and money to properly understand the overall circumstances regarding the Form SS-8 is prudent under the circumstances. We also have to understand and recognize that there may be some ulterior motives as it relates to the submission of the Form SS-8 by the worker, as well as the impact the submission may have with other federal and state agencies, including the U.S. Department of Labor and the unemployment compensation agency within the particular state. 

Contact Nardone Limited

    Nardone Limited represents businesses with federal tax issues, including preparing for IRS audits and examinations regarding worker classification issues. If you have workers who may be improperly classified, or think you may need to update your classification procedures, you should contact an experienced tax attorney. Nardone Limited’s tax attorneys and professionals are experienced with representing clients before the IRS. Contact us today for a consultation to discuss your case.

October 19, 2018

IRS Urges Business Owners to Consider New Tax Law Changes

Tax cuts and jobs act

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys advise businesses of the effects of new and emerging changes to federal tax law. The Tax Cuts and Jobs Act (“TCJA”) that was passed in December 2017, is the most recent and substantial change in federal tax law, and will affect how nearly all businesses file their 2018 tax returns.

The Tax Cuts and Jobs Act to Affect Small Businesses

    On October 9, 2018, the IRS published a news release urging small business owners to familiarize themselves with the new tax changes as a result of the TCJA before the end of the year. IR-2018-197. According to the IRS, the TCJA will affect almost all business owners when it comes to tax rates, quarterly estimated tax payments, and allowed deductions and credits. The IRS indicated that it will continue to provide resources to help ensure small businesses and self-employed taxpayers meet their tax responsibilities. The IRS, however, has already provided taxpayers with significant guidance regarding the TCJA on its website. The amount of information and awareness being provided by the IRS should be a signal to taxpayers that come time to file their tax returns, the IRS will expect businesses to be knowledgeable of their tax obligations.  

How Will the TCJA Affect the Bottom Line?

    As a follow-up to the October 9, 2018 publication, the IRS issued yet another news publication that provided guidance to businesses on the effects of the TCJA. On October 16, 2018, the IRS offered several examples on how the TCJA may affect the bottom line of many businesses. IR-2018-203. The IRS provided the following examples:

1. The Qualified Business Income Deduction. Under IRC §199A, sole proprietors, partnerships, trusts and S corporations may now deduct 20 percent of their qualified business income.

2. The 100 Percent Depreciation Deduction. The TCJA made several amendments to the allowance for additional first year depreciation deductions in IRC §168(k)—such as increasing the additional first year depreciation deduction percentage from 50% to 100%—for qualified property placed in service after September 27, 2017, and before January 1, 2027.

3. Fringe Benefits. The TCJA has changed what business may deduct for certain fringe benefit expenses. This includes business expenses for things such as, meals and entertainment, transportation, moving, and employee achievement awards. For example, before the TCJA, IRC §274(n)(2) allowed businesses a 100% deduction for de minimis meal expenses, however, the TCJA modified the statute to only allow a 50% deduction for de minimis meal expenses. The TCJA takes it a step further for deductions related to entertainment expenses, by eliminating business deductions for entertainment expenses altogether, regardless if the expense is directly related to, or associated with the business. IRC §274(a). For more information on deducting certain fringe benefits such as, transportation, lodging, and meal expenses, see our previous blog article.

4. Estimated Taxes. Due to the numerous changes to the Internal Revenue Code (the “IRC”), the IRS suggests that individuals, including sole proprietors, partners, and S corporation shareholders, consider paying quarterly installments of estimated tax—unless the taxpayer owes less than $1,000 when they file their tax returns or if they had no liability in the prior year. IR-2018-203. According to the IRS, the number of taxpayers who are subject to penalties for underpayment of taxes, continues to increase. For example, the IRS saw a 40% increase in penalties between 2010 and 2015.

    This list serves only as an example of the types of changes the TCJA has made to the IRC. Before filing their 2018 taxes, businesses are responsible for doing their due diligence to understand how the TCJA may affect their particular business. Because the TCJA is long, nuanced, and is affecting taxpayers for the first time, it is important to seek guidance from a legal professional.

Contact Nardone Limited

    Nardone Limited represents employers with federal tax issues, including changes as a result of the TCJA. If you are unsure how the TCJA will affect your business, you should contact an experienced tax attorney before filing your taxes. Nardone Limited’s tax attorneys and professionals are well experienced with representing businesses regarding federal tax issues. Contact us today for a consultation to discuss your case.

Tax Attorney Vince Nardone Speaks at the 2018 Cleveland Accounting Show

    On October 18, 2018, tax attorney Vince Nardone spoke at The Ohio Society of CPAs (OSCPA) Cleveland Accounting Show at the I-X Center. Mr. Nardone presented the topic “When Tragedy Strikes: How to Navigate Client Issues” to a large group, consisting mostly of CPAs and accountants from the Cleveland area. The discussion was geared towards the necessity of business succession planning and having the necessary system and structure in place to allow for that proper transition, including a buy/sell agreement or practice continuation agreement.

    The Ohio Society of CPAs is the #1 provider of CPE for Ohio CPAs year after year, and the 2018 Cincinnati Accounting Show was a great opportunity for CPAs to learn about the latest advancements on a variety of important topics in the industry. We appreciate and thank The Ohio Society of CPAs’ accounting learning manager, Amber McAuliffe, for inviting us and allowing us to participate.

    After the presentation, Mr. Nardone and Caitlin Davies, Nardone Limited’s client relations coordinator, stopped by the new Fat Head’s Brewery in Middleburg Heights. Highly recommend stopping there if you are ever in the area. The food, drinks, and service were fantastic!

 

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October 10, 2018

Internal Revenue Service Penalties for Improper Worker Classification

    The tax attorneys at Nardone Limited often assist taxpayers throughout the Internal Revenue Service (“IRS”) auditing and examination process. Frequently, IRS audits and examinations involve worker classification issues. Despite government efforts to end misclassification through increased enforcement efforts, the misclassification of employees as independent contractors persists. For tax purposes, this means that the employer—because it classified a worker or group of workers as independent contractors—did not withhold any employment taxes. This is okay, as long as the IRS also agrees that the worker or group of workers are in fact independent contractors and not employees. But, if the IRS finds that the employer had no reasonable basis for classifying the employee as an independent contractor, the employer may be held liable for employment taxes for that misclassified worker.

Penalties for Unintentional Failures to Pay and Withhold Employment Taxes

    If an employer fails to deduct and withhold income tax on an employee’s wages by reason of treating the worker as an independent contractor, the employer’s liability for income tax withholding is limited to 1.5% of the wages. IRC §3509(b)(1)(A). But, the IRS may increase that liability to 3% if the employer did not meet the applicable requirements, such as filing Form 1099-MISC. IRC §3509(b)(1). Further, the employer is also responsible for unpaid social security tax, at an assumed rate of 20%. IRC §3509(a)(2). But, the assumed rate of 20% will increase to 40% if the IRS finds that the employer failed to meet the applicable requirements. IRC §3509(b)(1)(B). The IRS, however, will grant relief to employers who can show that it had a reasonable basis for classifying the worker as an independent contractor. The employer must show that it exercised ordinary business care and prudence in determining its tax obligations, but nevertheless failed to comply with those obligations.

“Reasonable Basis” Relief

    Section 530 of the Revenue Act of 1978 provides relief to employers for unpaid employment taxes if the employer is able to meet a three part test. For an employer to be granted relief under §530 it must prove the following:

  1. Reporting consistency;
  2. Substantive consistency; and
  3. Reasonable basis.

    An employer may demonstrate reporting consistency, by showing that it timely filed the requisite information returns consistent with the employer’s treatment of the worker as an independent contractor. Secondly, the employer must show that it treated the worker and any similar workers, as independent contractors. If the employer treated similar workers as employees, §530 relief may not be available. Finally, the employer must have had a reasonable basis for not treating the workers as employees. The IRS has listed the following as acceptable justification for showing reasonable basis: (i) the employer reasonably relied on a court case or a ruling issued to the employer by the IRS; (ii) the employer was previously audited by the IRS at a time when the employer treated similar workers as independent contractors and the IRS did not reclassify those workers; and (iii) the employer relied on advice provided by an attorney or accountant. IRS Pub. 1976 (Rev. 1-2017).

    The laws regarding worker classification are complex and unclear. Misclassifying a group of workers for an extended period of time could lead to substantial and unexpected payments to the IRS if the employer is unable to show that it had a reasonable basis for misclassifying an employee or group of employees. Employers must not only consider the possibility of the IRS conducting an audit, they must also consider the possibility that a worker may file a complaint. Workers who suspect they have been misclassified by an employer are able to file a complaint with the Department of Labor. The filing of a complaint by a misclassified worker, or group of workers, may give the IRS cause to audit the employer. For these reasons, it is necessary that employers understand the associated risks of classifying workers and the importance of seeking guidance from a legal professional when making those decisions.

Nardone Limited Comment: Although the laws regarding worker classification are complex, there are instances where the law is very clear on determining whether certain workers are employees or independent contractors. As an example, see our prior blog on treating dental hygienists as independent contractors versus employees.

Contact Nardone Limited

    Nardone Limited represents employers with federal tax issues, including proper worker classifications for IRS audits and examinations. If your business is subject to IRS taxes and penalties for improper worker classification, you should contact an experienced tax attorney today. Nardone Limited’s tax attorneys and professionals are well experienced with representing clients before the IRS. Our experienced tax attorneys will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

September 28, 2018

Tax Attorney Vince Nardone Speaks at the 2018 Cincinnati Accounting Show

    On September 27, 2018, tax attorney Vince Nardone spoke at The Ohio Society of CPAs' Cincinnati Accounting Show.  Mr. Nardone presented the topic “When Tragedy Strikes: How to Navigate Client Issues” to a large group, consisting mostly of CPAs and accountants from across the state of Ohio. The discussion was geared towards the necessity of business succession planning and having the necessary system and structure in place to allow for that proper transition, including a buy/sell agreement or practice continuation agreement.

    The Ohio Society of CPAs is the #1 provider of CPE for Ohio CPAs year after year, and the 2018 Cincinnati Accounting Show was a great opportunity for CPAs to learn about the latest advancements on a variety of important topics in the industry.  We appreciate and thank The Ohio Society of CPAs’ accounting learning manager, Amber McAuliffe, for inviting us and allowing us to participate.

September 20, 2018

Taxpayers May Have a Difficult Time Proving Their Failure to Report Foreign Financial Accounts Was Due to Non-Willful Behavior

Foreign_currency

    Nardone Limited’s tax attorneys advise taxpayers about U.S. tax reporting requirements and obligations regarding foreign financial accounts and the importance of reporting previously undisclosed foreign accounts. If a taxpayer has a financial interest in or signature authority over a foreign financial account and the account exceeds certain threshold amounts, the taxpayer may be required to report the account annually by electronically filing a FinCen Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”). But, if a taxpayer has failed to file the FBAR, the Internal Revenue Service (“IRS”) offers various programs that allow taxpayers to disclose offshore accounts and resolve any tax and penalty obligations.

Background Regarding Foreign Accounts and Voluntary Disclosure

    The Offshore Voluntary Disclosure Program (“OVDP”) and the Streamlined Filing Compliance Procedure Program (“SFCP”) offer taxpayers who have undisclosed foreign accounts a way to become compliant with U.S. tax law. The OVDP was created for taxpayers with exposure to potential criminal liability and substantial civil penalties due to a willful failure to report foreign financial assets and to pay the tax due on those assets. The SFCP, on the other hand, was developed to provide relief for taxpayers whose failure to report foreign financial assets and pay due taxes, did not result from willful conduct. But, taxpayers must use caution when considering whether their failure to disclose foreign accounts was due to willful conduct. 

NL COMMENT: It is important to note that the Offshore Voluntary Disclosure Program is ending on September 28, 2018. The IRS has indicated that additional information on the voluntary disclosure process will be forthcoming. But, if a taxpayer is concerned that their failure to report foreign income was due to willful conduct, it is important that they contact a legal professional to discuss their options.

The Standard for Willfulness in the Civil Context

    Failure to file an FBAR can have significant civil or criminal penalties, depending on whether the violation was non-willful or willful. For non-willful violations of the FBAR requirements, the maximum penalty is $10,000. The maximum civil penalty for a willful violation is the greater of $100,000 or fifty-percent of the balance in the account at the time of the violation. The statues and regulations, however, do not define “willfulness.” Thus, it is up to the courts to determine how to interpret the term willful.

    Every federal court that has considered the willfulness standard for civil FBAR cases has concluded that the civil standard applies. See Bedrosian v. United States, No. CV 15-5853, 2017 WL 4946433. Further, the courts are consistent with regard to the burden of proof for civil FBAR penalties, concluding that the government must prove the civil FBAR penalty by a preponderance of the evidence. IRS Program Manager Technical Assistance (PMTA), 2018-013. Unfortunately, for taxpayers this means that taxpayers will have a more difficult time convincing the courts that their non-compliance was due to non-willful behavior, while the government will have an easier time proving a violation.

    In the criminal context, the Supreme Court has narrowly interpreted the term “willful,” limiting it to knowing violations. But, the standard for civil FBAR cases includes “willful blindness” and “recklessness.” PMTA 2018-013. The government can establish willful blindness by evidence that the taxpayer made a conscious effort to avoid learning about reporting requirements. United States v. Williams, 489 F. App’x 665. Further, the reckless standard can be met if the government can show that the taxpayer clearly should have known that there was a grave risk that withholding taxes were not being paid and if the taxpayer was in a position to find out for certain very easily. United States v. Vespe, 868 F.2d 1328. Thus, if utilizing the SFCP, it will be more difficult for taxpayers to claim that they did not know of the requirements, especially when the internet and computers are so easily accessible.

Conclusion

    We strongly encourage our clients to be compliant with any and all U.S. reporting requirements relating to their financial foreign accounts, even if they have not done so in the past. The IRS offers options to non-compliant taxpayers when it comes to disclosing unreported foreign financial accounts. Ultimately, if you have a foreign account and are concerned that your failure to report income, pay tax, and submit the FBAR was due to willful conduct, we encourage you to contact Nardone Limited at 614-223-0123 to discuss your options.  

 

September 10, 2018

State of Ohio Unclaimed Funds Audits and the Impact on Our Businesses

Calculator

    The tax attorneys at Nardone Limited in Columbus, Ohio routinely advise clients regarding their holding responsibilities as mandated by the Ohio Division of Unclaimed Funds (“Division of Unclaimed Funds”). Subject to certain exceptions, all businesses located in Ohio, who: (i) maintain account balances; (ii) write checks; or (iii) hold funds in escrow are required to file an Annual Report with the Division of Unclaimed Funds. With the exception of life insurance companies, the annual reporting deadline for businesses is November 1st. Further, even if a business is not holding any unclaimed funds for a specific year, the business is still required to file a negative report with the Division of Unclaimed Funds. Failure to report the required funds may result in civil and criminal penalties. Further, if a business is the keeper of any unclaimed funds, then the business may be subject to an audit by the Division of Unclaimed Funds.

Criteria for the Division’s Selection of Businesses for Audit

    Unclaimed funds include monies or the right to monies that may have been dormant in a checking or savings account, uncashed checks, dormant payroll checks, credit balances, and unclaimed wages. When a business maintains unclaimed fund, the Division of Unclaimed Funds may select the business for audit. Businesses are selected for audit first on a random basis and then based upon the application of certain non-exhaustive factors, including: (i) the business’s assets or sales volume; (ii) the business’s past reporting history relative to other entities of the same size or industry; (iii) evidence or complaints of failure by the business to conduct due diligence as required by the Division of Unclaimed Funds and Ohio law; (iv) filing negative annual reports for consecutive years; and (v) simply never being subject to an audit.

A Business’s Rights During an Unclaimed Funds Audit

    Like any administrative action, an audit by the Division of Unclaimed Funds is governed by notice and other procedural requirements under Ohio law. The Division of Unclaimed Funds must send the business written notice of the audit. The notice will contain information including: (i) the auditor, (ii) the scope of the audit, (iii) the identity of all participating states, and (iv) notice of the right to appeal. After the Division of Unclaimed Funds has sent the notice, the Division of Unclaimed Funds will send an initial request relating to the records required for review. Upon receipt of the initial request, a business has 60 days to make the requested records available, unless the Division of Unclaimed Funds and the business agree to an extension.

The Audit Process

    During the audit, the auditor will review the documents provided by the business. Ultimately, the Division of Unclaimed Funds will issue preliminary findings based upon the auditor’s review of the documentation.  The business is then required to respond to the preliminary findings by either agreeing to the preliminary findings or providing the necessary documentation to dispute the preliminary findings. The Division of Unclaimed Funds will then review the additional documentation and will issue its final findings, including any assessed penalties. It is important that businesses know that their policies regarding the retention of records and unclaimed funds may not meet the requirements under Ohio law, and any inadequacies may result in the Division of Unclaimed Funds assessing civil and criminal penalties, plus interest.

Potential Penalties

    If a business fails to properly report unclaimed funds, then the business may be subject to: (i) two civil penalties of up to $100.00 per day and (ii) criminal penalties of up to $500.00 per day, plus interest at a rate of 1% per month on the balance of unclaimed funds due. See R.C. 169.12 and 169.99. Thus, it is very important that businesses comply with the Division of Unclaimed Funds’ reporting requirements.

Conclusion

    The tax attorneys at Nardone Limited in Columbus, Ohio routinely represent businesses in matters regarding the Division of Unclaimed Funds requirements and audits. If your business has been contacted by the Division of Unclaimed Funds for an audit, we encourage you to contact one of our tax attorneys.

August 30, 2018

When is a U.S. Taxpayer Required to File an FBAR to Report Signature Authority on a Foreign Account?

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    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists taxpayers with representation and tax examinations, tax audits, appeals, and civil litigations with the Internal Revenue Service and the Ohio Department of Taxation. As part of that representation, our tax attorneys routinely advise taxpayers on their U.S. reporting requirements relating to signature authority on foreign accounts. If a taxpayer has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account exceeding certain threshold amounts, the taxpayer may be required to report the account annually by electronically filing a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), as discussed further below.

    A U.S. person is required to file a FBAR if: (i) the person had a financial interest in or signature authority over at least one financial account located outside of the United States, and (ii) the aggregate value of all foreign financial accounts exceeded $10,000.00 at any time during the calendar year reported. To determine whether the taxpayer’s account exceeds the $10,000.00 threshold, the account’s balance must be over $10,000.00 at any time during the calendar year. For purposes of triggering an FBAR filing requirement, it does not matter what the ending balance or beginning balance is on a particular day or in a particular month. The threshold is met as long as the account balance goes over $10,000.00 at any point during the day, on any day during the year. As an example, let’s assume that a foreign account begins the day with a $0.00 balance. The foreign account receives deposits of over $15,000.00 during the day, but then $10,000.00 is immediately transferred out for purposes of paying expenses. As a result, the account’s end of day balance is $5,000.00. If a U.S. person has signature authority over that account, that U.S. person is required to file an FBAR relating to the foreign account since the balance was over $10,000.00 during the day, even though the day’s beginning and ending balances were under $10,000.00.

Consequences of Failing to File FBARs

    If you are a U.S. person and you meet the criteria for filing an FBAR, as detailed above, then you are required to file an FBAR electronically. Please note, the FBAR is not filed as part of your Form 1040 U.S. Individual Income Tax Return. But, the deadline for filing the FBAR does coincide with the federal income tax return filing deadlines. Thus, the due date for the 2017 FBAR was April 15, 2018. But, the IRS grants automatic six-month extensions to October 15th to provide taxpayers with ample time to file their FBARs. Further, taxpayers are not required to make a specific request for the six-month extension. Ultimately, it is very important that taxpayers with foreign accounts, or signature authority over foreign accounts, understand the FBAR filing requirements to ensure that they are compliant with U.S. tax laws. Otherwise, the penalties and consequences of failing to file an FBAR can be steep. And, the IRS may assess penalties for failing to file required FBARs, including criminal and civil penalties.

Conclusion

    We strongly encourage our clients to be compliant with any and all U.S. reporting requirements relating to their financial foreign accounts, even if they have not done so in the past. There are a few options for taxpayers: (i) to disclose offshore accounts, including offshore accounts where the taxpayer is simply a signature authority on the account, and (ii) to resolve any tax liabilities and penalties relating to the foreign accounts. Specifically, the IRS offers the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedure Program as ways for U.S. persons to become compliant with tax laws. But, it is important to note that the Offshore Voluntary Disclosure Program is ending September 28, 2018. Ultimately, if you have a financial interest in or signature authority over a financial account, we encourage you to contact Nardone Limited at 614-223-0123 to ensure that you are compliant with any and all U.S. reporting requirements.

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