Articles Posted in Tax Litigation and Tax Controversy

Tax Piles
Periodically, the Brager Tax Law Group surveys tax preparers and/or taxpayers on a variety of issues. Our most recent survey targeted tax preparers and their interaction with the IRS in a number of areas, including disclosure programs, FBARs and marijuana businesses.

The survey contained several quantitative questions with a scale from 1 to 5 with 1 as poor and 5 as excellent. The lowest scoring statement was respondents’ experience in getting a response from the IRS within a few business days, which scored only 1.96. The highest score was on respondents’ experience in participating in the Offshore Voluntary Disclosure Program, which scored 3.20. Overall interactions with the IRS scored 2.79.

No survey respondents have been contacted by the IRS subsequent to filing amended returns as part of the Offshore Streamlined Procedure submissions.

Taxes Concept on File Label in Multicolor Card Index. Closeup View. Selective Focus.

Are you behind in filing your tax return? If you have not filed a tax return for one or more years, you could be facing some steep penalties and interest on your past due tax returns and payments. Penalties for failure to file and interest on back taxes can quickly becoming a large financial burden. Consider this information from our IRS tax specialists at Brager Tax Law Group to limit your penalties for failure to file and reduce your debt to the IRS.

IRS Tax Penalty for Failure to File

First of all, if you do not owe taxes, failing to file by the deadline is not penalized by the IRS. It is only when you owe taxes and do not file a return by the deadline that you can be penalized. The standard IRS penalty for failure to file is charged at the rate of 5% per month up to 25%. However, if fraud is involved, the penalty can be significantly higher at 15% per month up to 75% of the taxes owed.

3d man thinking with red question marks over white background

When you are notified that you have been chosen for a tax return audit, you may not be sure what to do next. How do you prepare for an intense inspection of your tax documents and ensure you can answer any questions the tax auditor may have? Hiring a tax attorney can be the best way to prepare for this in depth look at your tax situation. Here are a few benefits of having an experienced tax that understands all aspects of the tax law on your side.

Tax Attorneys Versus CPAs

Your first thought may be to hire an accountant or CPA to help you prepare for a tax return audit. While an accountant may understand the tax code, they may not be educated in defending clients in an audit situation. A tax attorney has not only the tax knowledge needed to help you prepare for the audit, they can also help negotiate on your behalf during the audit and defend you if necessary in subsequent litigation. You have someone on your side that can interpret the law in your best interest and protect your assets and freedom if there are any issues uncovered during the audit.

Concept of businessman thinking with arrows coming from tax

Tax season is difficult enough. When living abroad, it can become even more complicated. As a U.S. citizen, you must file a tax return with the IRS, regardless of where you are living in the world. You also may need to pay and file taxes in the country where you live. Here are a few of the tax considerations that may affect you while you are living or working abroad.

Worldwide Income

Your tax return must include all your income, whether or not it was earned on U.S. soil. Income earned in a foreign country is taxable by the IRS and must be claimed on your tax return. It may also be taxed by the country where it is earned, causing a double taxation situation. However, you may be able to deduct the tax that you pay to another country. But this can be tricky. Number one, it must be considered deductible by the IRS, which can depend on the country where you are living. Secondly, you must be able to prove you paid the taxes – this can be difficult due to the difference in tax years, and documentation available in various countries.

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

Depressed businessman sitting under falling papers
Bankruptcy Appellate Panel Finds in Favor of the Taxpayer in Late-Filed Taxes Discharge Question

In the previous blog post we set forth the facts in a bankruptcy proceeding where the IRS argued that taxes filed even one day past assessment would result in the nondischargeability of the debt in bankruptcy. In this post we will examine the Bankruptcy Appellate Panel’s (BAP) analysis and issued guidance in the proceeding In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015).

Bankruptcy Court Found the Tax Debts Were Dischargeable

USA passport, compass and foreign coins sit on a map of Europe for an international travel concept.
One’s failure to understand the obligations and duties one holds under the U.S. Tax Code can always result in significant additional penalties and interest on any unsatisfied tax debt. Aside from these serious penalties, a proposed provision contained within the pending 2015 highway & transit funding bill, aka the Surface Transportation Reauthorization and Reform Act of 2015, would introduce new consequence on top of fines and penalties for certain taxpayers with “seriously delinquent taxes.” This new measure would permit the IRS to submit a list of individuals who are subject to non-renewal, cancelation, and restrictions on their U.S. passports.

The Bill has been passed by both the House, and the Senate, but there are still impediments to its final implantation. A provision in the bill authorizes the U.S. government to revoke, deny, or limit one’s U.S. passport if the person owes more than $50,000 in “seriously delinquent tax debt.” This $50,000 threshold includes all penalties and interest that may be added on due to a taxpayer’s failure to satisfy a tax debt that is due and owing. However, the tax enforcement provisions regarding the cancelation of one’s passport can only be utilized after the IRS has filed a lien or a levy against the taxpayer. The Bill provides that if the provision passes, it will go into effect on the first day of 2016.

Many groups are likely to be effected by these harsh potential new penalties. However, few groups are likely to be as affected as the 8 million strong American expatriates already grappling with FATCA and other offshore account compliance initiatives. Facing FATCA or other tax penalties and failing to address the matter before January 1st could lead to dire circumstances for expats due to potential passport cancelation. While the $50,000 threshold seems like it would be difficult to reach, penalties and interest can add up much more quickly than the average taxpayer would imagine.

Small Business
Small business owners are the dedicated and hardworking individuals that make our economy strong and our country great. On the whole, many small business owners lack the resources or processes and procedures to ensure that they and their company remains fully compliant with all tax obligations. Unfortunately for owners of small businesses, the IRS is aware of this fact and pursues small businesses and small business owners for perceived tax obligation failures aggressively.

The best advice for small business owners is to be particularly meticulous regarding one’s tax filings and, if applicable, foreign account disclosures under FBAR and FATCA. However, the acts by some small business owners are so egregious as to necessitate tax enforcement actions that can result in enormous fines and a potential federal prison sentence.

From Respected Communications Industry CEO to Tax Fraud Felon