March 2009 Archives

IRS Offshore Bank Account Amnesty Program Heavy Handed

March 30, 2009,

The other day I blogged about the new Internal Revenue Service (IRS) tax amnesty for holders of Swiss and other offshore bank accounts who make a voluntary disclosure. I called it a “break.” Upon further reflection I think that the tax amnesty is a blunt instrument rather than the scalpel that was needed. Consider these two examples:

Mr. E.Z. Going sold his business six years ago, paid tax on the sale, and put the proceeds of $1,000,000 in a Swiss bank account because he was concerned about potential lawsuits against him, and he had been told that putting your assets in an offshore bank account will help protect assets from frivolous lawsuits. Each year he has trading losses, and over the next six years he loses about $300,000. In addition, over that period he withdrew another $100,000 to pay for his daughter’s college education, leaving $600,000. He didn’t give too much thought to mentioning the existence of the account to his Certified Public Accountant (CPA) since he was losing money, not making money. If he makes a voluntary disclosure, E.Z. Going will be subject to a penalty of $200,000—20% of the high balance in the account.

In contrast take a look at Mr. Tax Fraud. Mr. Tax Fraud owns a restaurant, and every year for the past six years he has skimmed a little over $150,000 per year in cash, and not reported it on his tax return. Instead he travels several times each year with the cash in a suitcase to Switzerland. Mr. Tax Fraud has been advised by his friendly UBS banker to set up a trust in Lichtenstein to further disguise the ownership of the offshore bank account. Each year the Swiss bank account earns some interest, and as a result by 2008 he has $1,000,000 in the account. If he makes a voluntary disclosure Mr. Tax Fraud will pay the same $200,000 penalty.

In addition, Mr. Fraud will have to pay the back taxes (which Mr. E.Z. Going has already paid in a timely manner), plus interest, and a 20% penalty on the additional tax due. However, Mr. Fraud has skated on the 75% tax fraud penalty, as well as other penalties related to the non-filing of Forms 3520. Furthermore, he dodged potential penalties for the transporting currency, and failure to file the appropriate reports. Mr. E.Z. Going was never at risk for any of these tax penalties. Clearly, Mr. Tax Fraud is getting a much better deal.

It is very unfortunate that the IRS has failed to take into account these very different circumstances in structuring its tax amnesty.

Determining how to proceed in light of the new tax amnesty definitely requires a tax lawyer to avoid making a bad situation worse.

If you would like help with your offshore bank accounts, or other tax problem contact the tax litigation attorneys at Brager Tax Law Group, A P.C.

IRS Offers Break on FBAR Penalties for Offshore Bank Account Holders

March 26, 2009,

The Internal Revenue Service (IRS) has issued guidelines for resolving the civil tax penalties related to offshore bank accounts for individuals who make voluntary disclosures. Generally it will require:

• Payment of all taxes and interest for the previous six years.
• Assessment of an accuracy penalty under Internal Revenue Code Section 6662 or a delinquency penalty for all years
• An FBAR penalty of 20% of the highest account balance during the six year period.

In the case of inherited accounts, or other accounts that the taxpayer did not cause to be opened the penalty may be reduced to 5% if other qualifications are met.

Under the settlement initiative taxpayers will not be assessed tax fraud penalties under IRC Section 6651(f) or IRC Section 6663. These tax fraud penalties are 75% of the unpaid tax. In addition the taxpayer would not be liable for the full amount of the FBAR penalties which can equal to 50% of the account balance per year!

This offer is only open to taxpayers who make voluntary disclosures by September 23, 2009. Taxpayers must fully cooperate with the IRS in any civil or criminal investigation in order to take advantage of these terms. Taxpayers can expect detailed questions from the IRS regarding how they came to open their offshore bank accounts, and will be required to name names. We expect that the IRS will use this information to open tax audits of taxpayers who do not come forward.

One area that will need to be evaluated is whether or the IRS will offer the favorable settlement terms to taxpayers who unbeknownst to the taxpayer have already been outed. Normally if the IRS is already aware that a taxpayer has a foreign bank account any subsequent disclosure will not be considered a voluntary disclosure, and could still leave the taxpayer open to both civil and criminal tax penalties.

We are working with our clients to initiate and perfect voluntary disclosures to the IRS where appropriate. If you have an offshore bank account, or any other tax problem contact the California tax lawyers at Brager Tax Law Group, A P.C.

IRS Seeks to Proceed in Robert Allen Stanford Collection Due Process (CDP) Hearing

March 23, 2009,

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Earlier this year Robert Allen Stanford became infamous when he was accused by the Securities and Exchange Commission (SEC) of engaging in a gigantic fraud. It turns out that Robert Allen Stanford also has massive tax problems. According to a Motion to Intervene filed by the Internal Revenue Service (IRS) in the SEC matter, Stanford and his wife Susan Stanford owe the IRS over $226, 000,000 for the 1999 through 2003 tax years. In addition they may owe additional taxes for other years. The IRS has already filed tax liens against the Stanfords for 2002 and 2003, however, the Stanfords' filed a petition in the United States Tax Court (Tax Court) to dispute the amount of the tax owed. The Stanfords’ petition to the Tax Court for 2002 and 2003 was an appeal from a collection due process (CDP) hearing. The federal tax liens, are fully effective, however, upon filing by the IRS, and if the Stanfords had a prior opportunity to dispute the amount of the tax due then they would not be entitled to another chance due so in the CDP hearing. The entire tax lien and tax levy process was slowed when the District Court in the SEC case issued a general order barring creditors from proceeding with claims against the Stanfords. The IRS motion seeks to allow it to move forward with tax litigation and collection against the Stanfords.

If you have tax liens, or tax levies please call the tax controversy lawyers at Brager Tax Law Group, A P.C.

California State Board of Equalization (BOE or SBE) Proposes Amendments to Resale Certificate Regulation

March 18, 2009,

The California State Board of Equalization (BOE or SBE) has scheduled a public hearing on an amendment to Regulation 1668, Sales for Resale. According to the BOE the purpose of the amendment is clarify the acceptable language in purchase orders taken by a seller in support of a valid resale certificate.

One method of overcoming the presumption in California sales tax law that any sale of tangible personal property is subject “at retail” and therefore subject to sales tax is to obtain a valid resale certificate from the purchaser at the time of the sale. Regulation 1668, Sales for Resale provides that if a purchaser wants to issue a blanket resale certificate, it may do so, and state on the resale certificate “see purchase order.” The purchase order then has to state that the sale was for resale.

Under the proposed amended regulation the purchaser can use the phrase “non taxable,” “taxable = no” or other similar terminology on the purchase order to indicate that the sale is for resale.

Making sure to obtain a qualified resale certificate is one way to alleviate a variety of sales tax problems. If your company has sales tax problems contact the sales tax lawyers at Brager Tax Law Group, A P.C.

IRS Office of Professional Responsibility (OPR) Has New Director

March 17, 2009,

Effective April 1, 2009 the Internal Revenue Service (IRS) Office of Professional Responsibility (OPR) will have a new Director— tax controversy attorney Karen Hawkins, Esq. Having known Karen professionally for a number of years I am confident that she will bring a well needed dose of practicality to OPR. Karen has worked tireless in many areas of tax litigation including most notably the innocent spouse arena where she successfully persuaded Congress to pass legislation clarifying (someone would say expanding) the availability of judicial review for innocent spouse cases under IRC Section 6015(f).

OPR has the responsibility for enforcing standards of competence, integrity and conduct for tax attorneys, CPAs, and enrolled agents who practice before the IRS. It enforces Circular 230, the rules and regulations which govern tax lawyers, CPAs, enrolled agents and others who practice before the IRS. Tax lawyers, CPAs and enrolled agents who violate Circular 230 are subject to discipline which may include suspension of practice before the IRS, and/or monetary fines.

Tax practitioners may run afoul of OPR if, for example, tax preparer penalties are imposed against them pursuant to IRC Section 6694 which provides for monetary penalties against tax preparers for various types of incorrect tax returns. Sometimes tax preparers agree to pay what in some instances is a small penalty under IRC Section 6694 rather than fight to have it set aside. This is generally a mistake since agreeing to an IRC Section 6694 penalty will almost always lead to an investigation by OPR, and possibly a suspension from practice.

If you are a tax preparer, tax lawyer, enrolled agent, or CPA facing tax preparer penalties, or in investigation by OPR contact the tax controversy attorneys at Brager Tax Law Group, A P.C.