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Tax Problem Attorney Blog

Taxes

The Wisconsin owner of several self-help and life development companies received a rather jarring wake-up call when he was convicted on tax crimes and sentenced to a year in federal prison. Eric T. Plantenberg had failed to file taxes for ten years from 2000 to 2010 after he began subscribing to the views of the Church of Compassionate Service. According to court documents the Church of Compassionate Service is a group that advances frivolous tax arguments, chiefly to individuals who are receptive to an anti-tax or anti-government message. Arguments related to and reminiscent of the group’s anti-tax position have been determined to be clearly frivolous by the courts since at least the early 1980s.

What did the tax scam consist of?
It is not uncommon for those promoting tax scams or frivolous tax arguments to associate their argument with a fundamental right and legitimate tax structures. Such an approach can give the frivolous tax argument an air of legitimacy by association and the strength of the fundamental right can cause a layperson to have questions about the extent of rights such as the freedom of speech or religion. In the case of the Church of Compassionate Service, their argument was that a taxpayer could take a religious oath of poverty and become “minister” in their organization. The minister’s income would then flow into the church, operating as a “corporation sole”, thereby relieving the “ministers” of any income, and thus, the obligation to pay or file taxes. The church would then return the money to the “ministers”. The church did not hold religious service or otherwise have any members beyond the “ministers”.

Can I stop filing taxes and paying taxes on religious grounds?
While an attorney or tax professional cannot offer tax advice regarding your specific circumstances without first scrutinizing your tax and financial records, the vast majority of people will not be able to successfully rely on a tax minimization argument like the one above. In fact, for nearly all taxpayers advancing an argument of this type would be considered frivolous. Advancing a frivolous tax argument can potentially be punished by a fine of $5,000, any other accuracy-based civil or criminal tax consequences, a penalty for an erroneous refund, and a civil fraud penalty.

There are extremely limited circumstances where a “corporation sole” argument could withstand scrutiny – chiefly when a bona fide religious leader holds property in the entity for the benefit of the religious organization. But, consider that as early as 1980, the courts had already announced that this type of tax scheme would not be applicable for the majority of filers. In United States v. Peister, the argument that a taxpayer was not liable to file or pay tax after taking an oath of poverty and becoming minister of a church of his own founding was rejected by the courts. In separate 1985 and 1986 cases criminal tax convictions were upheld against defendants who utilized religious entities to avoid tax obligations. In the 1987 case Svedahl v. Commissioner, a $5,000 penalty under § 6673 – Frivolous Tax Arguments – was imposed after defendants argued that purported church entities shielded their income from taxation. In the 2013 Berryman case it was noted that, “[c]ourts have repeatedly rejected similar [corporation sole] arguments as frivolous, imposed penalties for making such arguments, and upheld criminal tax evasion convictions against those making or promoting the use of such arguments.”

What violations and crimes are associated with the failure to file taxes?
Even without advancing a frivolous tax argument, failing to file taxes can constitute a crime or violation.. If this occurs you could be guilty of violating a number of provisions of the tax code including:

  • IRC 6651: It is a violation of the tax code to fail to file or pay taxes. Section (a)(1) discusses the failure to file which can be punished by a penalty of 5 percent, if the failure is for less than a month, or an additional 5 percent per a month thereafter – up to a 25 percent penalty in the aggregate.
  • IRC 6031: this section of the tax code makes it mandatory to file a partnership return. Failures to file these returns is addressed by IRC 6031.
  • IRC 6699: Addresses the failure to file for an S Corporation.

Failing to file taxes by itself, can lead to tax problems including fines and penalties. When those filing failures are further exacerbated by frivolous tax arguments and attempts to conceal the unfiled and unpaid taxes, facing criminal tax charges become increasingly likely. If you have failed to file taxes or are otherwise looking to correct past problems while minimizing the costs of coming back into compliance contact us online or call 800-380-TAX-LITIGATOR today.

currency

Each and every year April 15th brings fear and dread for millions of Americans who fear that they will face a hefty tax liability. Some may even choose to put off the filing by requesting an extension prior to the filing deadline, but the fact remains that the tax will have to be reported and paid at some point. However, for some, their tax return may contain an unexpected surprise: a significant tax refund.

But, if you didn’t expect to receive anything back or if you expected to have to pay, proceed with caution. The refund may be the product on an IRS error. Although the original mistake may be the fault of the IRS, you can still face an audit and other serious tax consequences.

Why are tax refunds issued?
When tax liabilities are exceeded by the tax payments a refund is due. Sometimes a refund is caused by excessive tax withholding. According to the IRS, in 2004, 77% of filed returns triggered a refund. The average refund for that year was $2,100. However, some refunds were significantly higher than this amount. If you receive a refund that doesn’t match your tax return it may indicate that a mistake has been made by the IRS.

You should expect a notice from the IRS within a few days of receiving the refund. If the amount is out of line with what you expected, it is prudent to hold on to the funds and not to spend them until you receive this notice that should explain the refund. If the explanation does not match the refund, you may need to return some or all of the money to the IRS. If you fail to do so the IRS can pursue you for the inadvertently disbursed funds, with interest.

A Mistaken Tax Windfall Can Result in a Prison Sentence
Consider the infamous case of, a Laguna Beach, California man, Stephen McDow who was mistakenly issued an IRS tax refund of $110,000. Mr. McDow found the refund deposited in his Citibank account after the rightful recipient, 67 year old Michelle D., mistakenly provided the IRS with her former bank account number that had been closed in or about 2005. After Mr. McDow received the money, he claimed he thought it was an answered prayer and spent the money to resolve past debts including student loans and expenses from a foreclosure.

Mr. McDow was charged with one felony count of theft of lost property. The potential sentence for the crime was enhanced by the fact that the property was worth over $65,000. Despite the fact that Mr. McDow may not have thought he stole anything he faced a 4 year prison sentence. It pays to be cautious and to wait for an explanation prior to spending a larger than expected refund. In the end, Mr. McDow’s family loaned him the funds to pay back Michelle D, and he was sentenced to 60 days in jail, and 18 months of probation. However if these resources had not been available, the consequences could have been even more severe.

An audit often comes after the refund
This case is clearly an outlier but errors of this type can and do occur and taxpayers must be wary. This is because many people assume that the issuing of a refund indicates approval or, at least, some level of review by the IRS. In reality, the audit can often follow the refund. In fact, in most situations, the IRS has up to 3 years to audit your return. Even if your return has been reviewed and the IRS has corrected math errors, an audit can still occur.

Rely on our experience to resolve your tax problems
The Brager Tax Law group is dedicated to assisting individuals and business with serious tax problems including those caused by an erroneous refund. We can advocate on behalf of the taxpayer and negotiate with the IRS to resolve the issue. To schedule a confidential and initial consultation call 800-380 TAX LITIGATOR or contact us online today.

prisoner

Temporary employment agencies have become a more prevalent part of the American work experience since the 2007 financial crisis and the difficult economic times that followed. While on one hand, temporary employment agencies can provide workers with an entry point into a new industry, on the other hand they require payment for their placement services that could otherwise be used to pay the worker a higher wage or to hire additional workers. Furthermore, when the temporary agency acts as the worker’s employer, certain duties and acts are required of the employer. Failure to satisfy these tax duties can lead to criminal prosecution and result in a prison sentence or significant monetary penalties.

How can an employer satisfy their obligation regarding business trust fund taxes?

Trust fund taxes are probably most familiar within the context of how a business withholds payroll tax from its employees’ paychecks every pay period. While the exact deductions on your paystub are likely to differ, commonly found ones include those for federal income tax, Social Security and Medicare taxes (FICA), state and local taxes, and voluntary deductions including an IRA or 401(k).

For the federal tax withholdings, the employer is acting as a trustee for the US government by holding these government-owned funds until it pays them over to the government. The important take-away here is that the money is not the employer’s – it belongs to the government. Other duties the employer may have include:

  • Maintaining compliance with workers’ compensation contributions and laws that may be applicable.
  • Providing, as per agreed-upon contractual terms, benefits and fringe benefits to which the employee is entitled. This can include sick pay, vacation pay, retirement plans, life insurance policies, and other benefits.
  • Collecting , accounting for and paying over of Social Security and Medicare taxes (FICA) and federal unemployment taxes (FUTA).
  • Filing quarterly payroll tax return with the IRS.

Can a business be penalized for failures to collect, account for and paying over trust fund taxes?
Yes, a business and its principals can face serious civil and criminal tax consequences for failing to satisfy their duties regarding payroll taxes. In fact, this is exactly what occurred to a family who ran two different temp agencies in Massachusetts. Each of the four family members were sentenced for their tax crimes. The sentences included:

  • Margaret Mathes — was sentenced to 80 months in prison and three years of supervised release.
  • Bosea Prum — The daughter of Ms. Mathes, Ms. Prum was sentenced to two years in prison and three years of supervised release.
  • Sam Pich — Bosea Prum’s brother-in-law was also sentenced to two years of prison and three years of supervised release.
  • Thaworn Promket — Ms. Prum’s husband faces one year and a day in prison and three years of supervised release.

All of the defendants pleaded guilty to conspiracy to defraud the IRS and mail fraud. They also pleaded guilty to structuring their monetary transactions solely for the purposed of avoiding tax reporting requirements. In addition to the charges that were common to all defendants, Ms. Prum also pled guilty to the filing of false employment tax returns and other offenses. Mr. Pich pled guilty to 17 counts of assisting in the filing of false employment tax returns. Pruomket pled guilty to an additional two counts of structuring and seven counts of filing false employment tax returns.

Aside from the prison sentences imposed, the defendants also owe more than $6 million in workers’ compensation fees and employment taxes. Ms. Mathes and Ms. Prum have been ordered to pay $100,000 within the next 45 days. Ms. Prum and Mr. Promket also ran into trouble with their personal taxes and have been ordered to pay back more than $500,000 to resolve underpayments of tax.

Rely on our experience resolving payroll tax issues
Problems with collecting, accounting for and paying over payroll trust fund taxes can lead to serious tax problems. The Brager Tax Law Group is dedicated to correcting Federal and California payroll tax issues and other serious tax concerns. To schedule a confidential consultation, call 800-380-TAX LITIGATOR or contact us online.

Taxes

It is not uncommon for many people to want to get done with their taxes as quickly as possible and not devote a moment beyond what they have to. If they complete their own taxes using computer software or an online program, they may rush through the process and fail to read and understand what is being asked. This can lead to failure to make required disclosures, submitting erroneous information to the IRS, and other tax problems. Even if you work with a tax preparer, rushing through the process can still land you in a difficult situation should you fail to disclose all sources of income, submit incomplete tax documents, or fail to provide the tax preparer with all of the information he or she will need to complete your taxes accurately. These failure can result in a tax audit which may reveal further noncompliance with the US Tax Code and additional penalties.

At the Brager Tax Law Group, one of our goals is to provide taxpayers with the information they need to avoid preventable mistakes. Because our practice is focused on helping clients through difficult tax problems we have seen some of the common mistakes filers make because they are rushing through the return or otherwise fail to provide complete and accurate information.

You did not include all sources of income
The failure to report all sources of income is one of the top reasons why individuals end up facing a tax audit. In some instances, the reporting failure may be attributed to an independent contractor position where, rather than a W-2, the worker receives a 1099. The worker may not initially recognize the additional tax burden 1099 status can entail. When the larger than expected tax bill comes due, there can be a strong temptation to “fix” the tax problem by failing to disclose the 1099 income. However, the IRS has systems and procedures in place to catch these instances where the numbers provided by the taxpayer simply do not add up.

In other instances the failure to report foreign income or foreign accounts may lead to a tax audit. The US is one of only a handful of countries that taxes its citizens and green card holders on their worldwide income regardless of where it was earned. In recent years the IRS has significantly stepped up its efforts at detecting and prosecuting offshore tax evasion. If you also hold foreign financial accounts to which an FBAR of FATCA disclosure duty apply, the risks of detection and an audit or criminal investigation become even more pronounced.

You use only whole, round numbers in your filings
While working in powers of tens and using nice, round even numbers makes the math easy to handle, such an approach immediately raises a red flag because the odds of such figures are, at best, implausible. Real life is messy. Rarely will your net earnings, withholdings and deductions equal rounded numbers. Such acts make it easy for the IRS to identify that you did not provide accurate information on your tax return. Aside from facing criminal or civil consequences for providing false or inaccurate tax information, the IRS may also decide to launch an audit to uncover additional wrongdoing.

You take excessive deductions
Tax deductions are intended to prevent taxpayers from paying taxes on certain expenditures. However certain deductions, such as the home office deduction, attract suspicion because it is so commonly abused. Furthermore, excessive deductions are also a common reason for triggering an audit. Some people may think, “How will the IRS know what deductions are legitimate?” However, the IRS does have a general idea because it can compute the average deduction for a filer with similar income levels and circumstances. If your claimed deductions depart significantly from the average, the IRS agent may decide to inquire further through an audit.

Understanding Random Audits
The random audit is also a means through which some people come under additional scrutiny and tax problems are uncovered. Therefore, it is essential that you provide accurate tax information for each and every year where the duty to file taxes exists. If you fear that past filings may subject you to a future audit or you are already facing a tax audit, call the Brager Tax Law Group at (800) 380-TAX LITIGATOR or contact us online today.

HSBC

The 2010 release of internal HSBC Switzerland communications made during the early to mid-2000s led to uncovering countless acts and attempts to conceal client assets and income by the bank. Some of the alleged practices revealed by this initial leak included:

  • The bank would arrange to provide clients with bricks of cash. The cash was often in foreign currencies that would be of little practical value in Switzerland.
  • Proactive and aggressive marketing of schemes providing tax-free growth.
  • The bank agreed to conceal certain black accounts from the client’s domestic taxing authority.
  • Providing accounts to known criminals and other high-risk individuals.

This data breach resulted in revealing the identity of taxpayers who had failed to comply with their tax filing obligations or who failed to file the Report of Foreign Banking Accounts (FBAR) as required by the Banking Secrecy Act (BSA). Some of these noncompliant taxpayers ended up facing onerous civil tax consequences or criminal tax prosecution. While the first HSBC data leak seems to be in the rearview for most, data leaks and data breaches that reveal the identity of account holders can occur at any financial institution at any time.

Data breaches can happen at any financial intuition
Despite undoubtedly facing close scrutiny and the implementation of remedial measures following the first data leak, HSBC acknowledged that a second data breach occurred in November 2013. This second breach, like the first, was perpetrated by a bank insider with access to customer files and records. The information involved in the 2013 leak included client Social Security numbers, names, and other personally identifying information. All financial, business and government institutions are vulnerable to leaks facilitated by insiders.

Furthermore, in recent days Kaspersky Labs, a reputable IT security firm, revealed that the Carbanak organized crime syndicate has penetrated security at more than 100 banks in more than 30 countries. While the gang has only focused on stealing funds from the banks, the backdoors they install or exploit to gain access to the bank systems may end up being exploited by future attackers. Furthermore, the gang could eventually shift tactics and leverage the existence of secret accounts to extort additional assets the individual controls.

What penalties can be imposed for FBAR violations?
Penalties for a failure to disclose foreign accounts on the FBAR (FinCEN Form 114) can result in harsh consequences. A willful failure to disclose a foreign financial account can result in a civil penalty of the greater of 50% of the account balance or $100,000. A willful failure is a voluntary or intentional disregard of a known legal duty. If the failure to disclose the account is interpreted as a non-willful failure, then a penalty of $10,000 per an undisclosed account for every year where it went undisclosed will apply. In some circumstances accuracy related penalties, tax fraud charges, and penalties for underpayment of tax can also be imposed.

OVDP can correct problems created by nondisclosure of foreign accounts
The Offshore Voluntary Disclosure Program (OVDP) can lead to a more favorable disposition of your offshore tax concerns or offshore tax problems. In general, the OVDP program permit a noncompliant taxpayer to come forward and disclose the existence of foreign accounts. In exchange for coming forward voluntarily the IRS typically agrees to forego a criminal prosecution. Furthermore, the penalties that can be imposed following a voluntary disclosure are significantly less severe than those that can be imposed following a civil action or a criminal tax prosecution.

Rely on the Brager Tax Law Group when Facing Offshore Tax Issues
If you are facing offshore tax issues involving FBAR or FATCA disclosures, you could be facing serious criminal tax consequences. Even if you have not been already been detected, international information sharing agreements and data breaches can result in your identity being revealed to the IRS at any time. Working with an experienced tax professional can result in the charges against you being resolved more favorably than if you had taken no action or attempted to defend against a criminal prosecution alone. To discuss your matter, call (800) 380 TAX LITIGATOR or contact us online today.

Taxes

While many people think that a criminal tax situation is something that cannot happen to them unless they had the intent to defraud the government, the truth is that criminal tax charges can be triggered by even a slight misstep. Mistakes on your taxes that are perceived as willful misstatements by an IRS agent, and accountant or tax preparer malpractice are but a couple of the common ways that well-meaning taxpayers find themselves facing serious criminal penalties including a federal prison sentence.

In short, the things an average person does not know about tax law or tax crimes can hurt them when faced with an IRS audit or criminal investigation. A tax lawyer can help a taxpayer by providing context for any actions or inactions that might be misinterpreted by the agent, and negotiate a more favorable outcome.

Indicators of Tax Fraud
IRM 25.1.2 provides guidance for IRS agents in investigative techniques to be used in identifying tax fraud. One of the methods utilized by agents is to look for and identify indicators, or “badges” of fraud. The IRS has developed lists of these badges of fraud regarding a taxpayer’s income, expenses and deductions, financial books and records kept, income allocations, the taxpayer’s conduct, and the methods of concealment utilized. In brief, the listed indicators of fraud for each category include:

  • Income – Signs of fraud include entire sources of income being omitted, unexplained increases in net worth, expenditures substantially exceed income, no explanation for the source of certain bank deposits, concealing accounts or assets, excessive dealing in cash, and cashing checks considered income at check cashing services.
  • Expenses or Deductions – Claiming dependency status for independent, deceased, or non-existent individuals, claiming false deductions, and claiming business deductions that are actually personal expenses are all considered badges of fraud.
  • Books & Records – Keeping multiple sets of books, irregularly numbering invoices, making false entries in the records, failing to keep records, providing false receipts, and engaging in nonstandard accounting practices can all lead to tax problems.
  • Allocations of Income – If income or profits are distributed to fictitious individuals, the IRS will consider this a sign of fraud.
  • Taxpayer Conduct – Rude or abusive behavior toward the agent, making false statements, incomplete disclosures, failure to follow the advice of an accountant, backdated documents, submission of a false W-4 and other similar acts are all considered badges of fraud.
  • Methods of Concealment – Placing assets in the names of others, transferring property in anticipation of tax bills, secret transactions, transactions outside the typical course of business, and reservation of rights or interests in purportedly transferred property are all considered to be as badges of fraud.

The foregoing is not a comprehensive list of all items considered badges of fraud by the IRS, but it does indicate the types of issues they are looking for.

What actions by the IRS agent may reveal a pending investigation?
If you are already in contact with an IRS agent, certain actions may tip you off that an investigation may soon follow. While it is good practice to contact a tax attorney immediately upon contact with an IRS agent, you should do so immediately if one of the following scenarios occurs:

  • You have been selected for a random audit and you know that the relevant tax years contain false statements or understatements of income.
  • An agent contacts you seeming particularly concerned about your goals for a transaction and what you hoped to accomplish rather than the form of the transaction itself.
  • You have been audited and in regular contact with an IRS agent. The agent then disappears for weeks at a time and will not return your calls.
  • You have been pursued by an IRS agent requesting that you satisfy a tax debt. You call the agent and he or she will not return your calls.
  • Your accountant, bank or financial institution informs you that your records have been subpoenaed.

While these scenarios do not cover every scenario that should raise an alarm, they do give a good sense of the types of events and scenarios that should trigger concern by a taxpayer. If you find yourself in one of the above situations or in similar circumstances, contact the Brager Tax Law Group immediately. Our tax professionals will work to protect you. Contact us by calling (800) TAX LITIGATOR or contact us online.