Articles Posted in Miscellaneous Tax Information

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The IRS announced that effective Oct. 1, 2016, it will rarely conduct Appeals Conferences in person. More specifically, Internal Revenue Manual (IRM) 8.6.1.4, blandly entitled “Conference Practices,” provides that ALL conferences will be held by telephone except under certain specific enumerated circumstances. Those circumstances are as follows:

  • There are substantial books and records to review that cannot be easily referenced with page numbers or indices
  • The ATE [that’s Appeals Team Employee, aka Appeals Officer, or Settlement Officer] cannot judge the credibility of the taxpayer’s oral testimony without an in-person conference

Retirement Jar
The Taxpayer Advocate is a tireless champion of taxpayer rights. The Taxpayer Advocate is required by law to issue reports to Congress. Her most recent mid-year report was recently released. One of her issues was that the IRS continues to levy on retirement accounts even though the IRS guidance to its revenue officers is “insufficient to protect taxpayer rights.” As her report points out, the IRS has identified three steps which MUST be taken before a Notice of Intent to Levy can be issued on a retirement account such as IRA Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA, and Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans). These steps are:

  1. Determine what property (retirement assets and non-retirement assets) is available to collect the liability;
  2. Determine whether the taxpayer’s conduct has been flagrant; and

Close up of a yellow pencil erasing the word, 'Bankruptcy.' Isolated on white.
The Internal Revenue Code and the Bankruptcy Code are each complex laws, but when they intersect things can get quite confusing, and seemingly inconsequential facts can have serious legal consequences. In a recent unpublished opinion, In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015), the Bankruptcy Appellate Panel (BAP) provided some guidance as to the effect the non-filing of a tax return or the filing of a tax return post-assessment can have on one’s eligibility for discharge through bankruptcy. While the court did not provide a bright-line rule, it did provide an explanation as to the applicable standards regarding what constitutes a “return” for purposes of a bankruptcy discharge. Taxpayers and their bankruptcy and tax attorneys can consider and apply the announced standard to gain a better insight into the impact their non-filing may have on contemplated bankruptcy proceedings. Of course the story may not be over, and the IRS may still appeal the BAP ruling.

Providing further clarity and a rejection of the harsh consequences imposed by a literalist approach and the IRS-advocated positions, the court also addressed a number of other arguments regarding the proper definition of a “return” and the analytical framework when determining a taxpayer’s eligibility for a bankruptcy discharge. In doing so the BAP rejected an approach that had gained favor in other courts. In doing so the BAP refused to follow other courts which had interpreted tax and bankruptcy law in a way which would make a tax debt nondischargeable whenever a tax return is filed even one day late. It also rejected the IRS position that once the IRS makes an assessment in the absence of a filed tax return that tax debt is non-dischargeable even though the taxpayer subsequently files a tax return.

The Taxpayers Failed to File Their Tax Returns for Multiple Tax Years

Taxes
If you were to ask people about the things that they should do every single year, they are likely to mention visiting the doctor for a physical, taking their car in for preventative maintenance, and maybe even a tradition that the person spearheads every year. It is unlikely, however, the individual will mention their yearly duty to file and pay taxes. While taxes are due each and every year, they are typically something that we prefer not to dwell on, unless forced to. In fact, many people will not even consider taxes until days before the due date when the media is saturated with messages about tax filing. As tax attorneys we work to provide strategies that mitigate the risk or consequences of civil or criminal tax exposure. The simplest one is to file your tax return on time!

Nearly all citizens and green card holders have an obligation to file taxes

Nearly all US citizens or legal permanent residents, have an obligation to file taxes due to their level of income or for other reasons. For instance for the 2014 tax year, an individual under age 65 who is filing as single would have an obligation to file taxes if he or she makes $10,150 or more. The same would apply to a married couple filing jointly if they earn more than $20,300 a year. In some cases even smaller amounts of income can require the filing of a tax return. In short, the income thresholds to trigger a tax reporting obligation are not high and apply to almost all US citizens and green card holders.

tax preparer.jpgTax scams have likely been around for as long as taxes have been collected. In light of the significant penalties, fines, prison sentences and other consequences that can be imposed for tax non-compliance issues, taxpayers have good reason to be apprehensive or nervous if they are contacted by someone claiming to represent the Internal Revenue Service (IRS). Thus, if you are contacted by an IRS agent, it is always prudent to verify their identity, the fact that they are employed by IRS, and request a callback number at the IRS where the agent can be reached. Furthermore, if you are contacted by an individual claiming to represent the IRS or the US government, an experienced tax professional can often more readily recognize the signs of a tax scam.

At the Brager Tax Law Group we recognize that well-meaning taxpayers can face serious consequences if they are taken in by a tax scam. This post will identify and discuss a number of the more common tax scams and their consequences as identified by the IRS.

Tax preparer fraud can result in new tax problems

The IRS’ tax lawyer, who failed to disclose multiple conflicts of interest.

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While having an attorney-client relationship with the benefit plan’s promoter, the tax attorney wrote several opinions for prospective plan participants. These opinions pertained to a benefit plan’s qualification under Internal Revenue Code section 419A. The tax lawyer later became a co-trustee of the plan, and during his tenure, he represented individual participants before the IRS concerning their tax problems. The plan’s promoter was paying him throughout this time.

The tax attorney, who was not identified, never advised any of his clients of the conflicts and failed to obtain informed consents from any of the parties involved. The conflicts arose when the attorney agreed to represent multiple parties with opposing interests, to become the co-trustee of the plan and to receive compensation from the promoter. His obligations to other parties and his own self-interest limited his ability to represent each of his clients successfully. Because they were unaware of the conflicts, the clients were unable to seek alternative legal counsel.

The attorney has agreed to cooperate in the investigation, recognized his violations and will take additional continuing education ethics classes over the next two years. The IRS’ OPR Director Karen L. Hawkins reminded attorneys that informing clients of conflicts of interest “is not a mere nicety.” She continued, “Taxpayers who pay handsomely for tax advice and representation have a fundamental right to expect competent and diligent representation unfettered by a practitioner’s responsibilities or obligations to someone else, or by the practitioner’s self-interest.”

Those who violate Circular 230 are subject to monetary penalties, censure, suspension and disbarment. Not just tax attorneys, but also enrolled agents, and CPAs are subject to the provisions of Circular 230, and therefore must avoid representing conflicting interests, unless appropriate conflict waivers are obtained.
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Brager Tax Law Group appreciates all the votes that came in for our Tax Problem Attorney Blog and is proud to announce that Tax Problem Attorney Blog has been named one of the top 20 Tax Law Blogs by LexisNexis.

The voting isn’t over, though. Brager Tax Law Group is asking for your vote once again in the selection of the Top Tax Law Blog of the year. You will need to be registered in order to vote. If you haven’t previously registered, follow this link to create a new registration or use your sign in credentials from your favorite social media site. Registration is free and does not result in sales contacts.

Then follow this link to VOTE and check the box Tax Problem Attorney Blog. tax-law-topblog-220x180.jpg

The IRS Office of Professional Responsibility (OPR) alleged that Joseph Kozelsky did not file timely tax returns for 2001 through 2007 and did not timely pay his federal tax liability. As a result of his tax problems he was disbarred from practice before the Internal Revenue Service. Mr. Kozelsky didn’t help himself very much, since he failed to respond to the IRS’s complaint within 30 days. As a result the facts alleged by the IRS were deemed admitted, and the administrative law judge (“ALJ”) issued an order that Mr. Kozelsky engaged in disreputable conduct and should be disbarred.

The IRS publishes rules for professionals practicing before the IRS, and those rules are set forth in Circular 230. We have previously published an article on the procedures involved in an OPR disciplinary matter. Circular 230 includes rules for individuals preparing tax returns, providing tax advice, and representing individuals before the IRS. Failure to timely file tax returns constitutes disreputable conduct under Circular 230 and subjects the offender to sanctions. In the case of Mr. Kozelsky, the IRS proposed disbarment from practice before the IRS and the ALJ presiding over the case agreed and ordered disbarment on November 17, 2010 since Mr. Kozelsky failed to respond to the OPR’s complaint.

If no appeal is filed within 30 days of the ALJ’s default order, the default order becomes final. Since Mr. Kozelsky appealed the ALJ decision to the IRS’s Appellate Authority on December 23, 2010, 6 days after the 30 day deadline, his appeal was not considered, and his disbarment became final.

Enrolled Agents are subject to the same Circular 230 rules as CPAs, and in a separate case, an Enrolled Agent was also disbarred from practice before the IRS. OPR filed a complaint against Susan Tomsha-Miguel alleging her failure to file timely tax returns, she failed to respond within 30 days, and the ALJ presiding over the case entered a default judgment for the IRS. The ALJ determined that the appropriate sanction was disbarment from practice before the IRS. In addition to CPAs and Enrolled Agents, Circular 230 rules and sanctions regarding failure to file tax returns also apply to tax attorneys (see post titled “Attorney Disbarred under Circular 230 Rules for Failure to File Tax Returns”).
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Tax lawyers representing a man accused of failing to file business income tax returns told the judge that obsessive-compulsive disorder was responsible for their client’s tax problems, the Calgary Herald reported.

Business tax debt can sink a business; frequent issues tax attorneys are called to deal with include payroll tax problems and tax audits.
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That’s not to say OCD is involved in the majority of the cases. But in this case, the man blames the condition for his inability to file business income tax returns. He faces 60 days in jail and a $10,000 fine if convicted of disobeying a court-issued compliance letter. The company, Harvest Brewing, is accused of not filing returns in 2004 and 2005. His attorney said Ronald Thomsen’s personal taxes are up to date because they are easy to file and the taxes are deducted right from his pay.

But when it comes to the business taxes, his client’s medical condition prevents him from dealing with the paperwork. The business taxes were about $45,000 a year in the five years prior to the years in question. However, Canada Revenue Agency does not know how much is now owed because they haven’t received any documentation in years. The business’s accountant has told Thomsen she would have the outstanding taxes filed by May but he has refused to turn over the paperwork.

That refusal is part of the medical condition, according to his tax attorneys.
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