August 2008 Archives

Disqualified Employment Tax Levy

August 22, 2008,

One of the important protections from the Internal Revenue Service ("IRS") is a taxpayer’s right to obtain a hearing with the IRS Appeals Division before an IRS collection officer can issue a tax levy. This hearing is known as collection due process, or CDP hearing. CDP hearings are permitted by virtue of Internal Revenue Code Section (IRC) Section 6330. Congress thought that some taxpayers were abusing the CDP hearing process to delay the collection of payroll taxes. As a result Section 8243(a) of the "Small Business and Work Opportunity Tax Act of 2007" amended IRC 6330(f) to permit a tax levy without first giving a taxpayer owing payroll taxes a pre-levy CDP notice if the levy is a “disqualified employment tax levy.” A “disqualified employment tax levy” is defined in IRC section 6330(h) as a tax levy served to collect the payroll tax liability of a taxpayer if that taxpayer or a predecessor requested a CDP hearing under IRC section 6330 for unpaid employment taxes arising in the two-year period prior to the beginning of the taxable period to be collected by the tax levy.

Earlier this year the IRS issued an internal memorandum intended as a temporary guidance to IRS revenue officers until the Internal Revenue Manual can be updated to reflect these changes. The memo is helpful in that it contains a chart to help determine whether a tax period is subject to the disqualified employment tax levy rules.

If you have a payroll tax problem contact California Certified Tax Specialist Dennis Brager for a consultation.

Innocent Spouse Relief Granted to Mayor Alioto's Wife

August 20, 2008,

Last month, the United States Tax Court (Tax Court) overturned an Internal Revenue Service ("IRS") ruling, and granted innocent spouse status to the widow of former San Francisco Mayor Joe Alioto. Alioto v. Commissioner of Internal Revenue, T.C. Memo. 2008-185. Innocent spouse relief was allowed pursuant to Internal Revenue Code (IRC) Section 6015(f)
which allows relief if “taking into account all the facts and circumstances it is inequitable to hold the individual liable.” One of the tests that the Tax Court, and the IRS looks at in determining whether an individual is entitled to equitable innocent spouse relief is whether payment of the tax would cause an economic hardship. It is sometimes difficult to convince the IRS that anyone living at anything above the poverty level is suffering economic hardship, and this case was no different.
At the time of trial, Mrs. Alioto had about $100,000 in a retirement account, and little else in the way of assets. She was earning about $121,000 per year. The IRS determined that no economic hardship would ensue if Mrs. Alioto was forced to pay the approximately $2 million dollars that she owed as a result of filing a joint income tax return with the Mayor. The Tax Court took a more liberal view of things holding that indeed she would suffer economic hardship, and went on to allow innocent spouse relief.

If you have a tax problem, and believe that you maybe qualify for innocent spouse relief contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

Tax Evasion by UBS and LGT Detailed in Senate Report.

August 1, 2008,

The U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations released its report Tax Haven Banks and U.S. Tax Compliance detailing widespread facilitation of tax evasion by UBS and LGT. LGT Bank, a leading Liechtenstein financial institution that is owned by and financially benefits the Liechtenstein royal family.

According to the report LGT allowed U.S. citizens to maintain billions of dollars in assets in accounts not disclosed to U.S. tax authorities; advised U.S. clients on the use of complex offshore structures to hide their ownership of assets, and arranging client accounts and assets to avoid reporting requirements that would otherwise disclose the accounts and assets to U.S. authorities. According to the report millions if not billions of dollars of income may have gone unreported, resulting in massive tax fraud. One technique was to set up a Liechtenstein trust to disguise the true ownership of the funds. Under U.S. tax law, the IRS generally views Liechtenstein foundations as foreign trusts.

U.S. persons with an interest in a foreign trust, including a Liechtenstein foundation, are required to disclose the existence of the trust to the IRS by filing Forms 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) and 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner). Form 3520 is due on or before the 90th day (or such later day as the Secretary may prescribe) after a reportable event. Internal Revenue Code § 6048. Form 3520-A must be prepared by the trustee and provided to trust beneficiaries to be filed with their returns by March 15 of the following year (assuming the trust has a calendar year-end). Trustees must supply copies of the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement to the U.S. owners and U.S. beneficiaries by the same deadline. While the Internal Revenue Code requires the trust to file the form, it also makes the U.S. owner responsible for ensuring that the form is filed and the required information furnished to U.S. owners and U.S. beneficiaries. The reporting obligations under Forms 3520 and 3520-A must be met even if a foreign government can impose penalties for disclosing financial information. See Internal Revenue Code, § 6677(d)(imposing tax penalties for failure to file a form 3520 or 3520-A even if a foreign jurisdiction would impose a civil or criminal penalty for disclosure). For more on the tax penalties for not reporting ownership of offshore accounts see our prior post.

Owners of foreign bank accounts or trusts may wish to consider attempting to avoid tax fraud charges through the IRS' voluntary disclosure program.

If you have tax problems contact the IRS tax attorneys at Brager Tax Law Group, A P.C.