Tax Problem Attorney Blog

Articles Posted in Tax Litigation and Tax Controversy

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
61-year-old Albert Hee, former CEO of Waimana Enterprises, Inc. was once considered a successful and respectable businessman. Mr. Hee’s various companies were in the business of building out and providing rural broadband access to people in the Hawaiian Islands. The companies were highly successful and did extensive business with the United States government including several particularly lucrative contracts.

However, Mr. Hee appears to have lost sight of the proper bounds between personal funds and money and assets that belong to the company. Perhaps motivated by loyalty or duty to his family or for other reasons, Mr. Hee treated his companies as if they were his personal expense account. Some of the actions by Mr. Hee alleged at trial included:

  • Mr. Hee paid his wife and children a full-time salary with benefits despite performing little to no work for or with the company. The compensation was worth greater than $1.67 million.
  • Mr. Hee purchased a $1.3 million home near a college campus with company funds. He allowed his children to use the home as a rental property while maintaining that the home would be used for business meetings and company retreats.
  • Mr. Hee used company funds to pay for his children’s college expenses.
  • Mr. Hee attended twice-weekly massages that he called “health consultation services” while running up a $96,000 bill.
  • Mr. Hee used company cash to pay personal credit cards.
  • Company money was used to pay for family trips and vacations. These expenses were concealed as business and stockholder meetings.

Mr. Hee’s acts involved the misuse of company money and then lying about the improper use. Mr. Hee failed to report the additional income from his company and did not pay tax on these funds.
Businessman Found Guilty on Tax Fraud Charges
After more than 9 years of litigation and proceedings regarding Mr. Hee’s tax filings, he was convicted on tax fraud and other charges in July. Mr. Hee was convicted of interference with the administration of the tax code and six counts of filing false returns. Mr. Hee was found guilty of having filed false tax returns for 2007 through 2012, and of obstructing the IRS from 2002 through 2012. While Hee’s lawyer attempted to shift blame for the payments to the accountants, the jury apparently did not find such an explanation plausible and returned their guilty verdict on the second day of deliberation. Mr. Hee now faces up to three years of imprisonment and up to $250,000 on each charge. Mr. Hee’s scheduled sentencing date is October 26, 2015.
Facing Tax Fraud Charges?
If you are facing tax fraud or other serious tax charges, the stakes are simply too high to face an experienced and aggressive prosecutor from the federal government alone. Working with a dedicated and strategic legal team, can help keep the prosecutor on his toes, and protect your procedural and substantive legal rights. To discuss how our experienced and aggressive tax professionals can provide options for you call the Brager Tax Law Group at 800-380-TAX-LITIGATOR or contact us online today.

IRS File Drawer Label Isolated on a White Background.

No taxpayer wants to receive news of a tax deficiency, tax audit, or other bad news from the IRS; however, it may turn out that the only thing worse than receiving bad news from the IRS is not receiving notice that you need to take action to correct a past tax filing or past tax mistake. Almost invariably, the longer a taxpayer takes to fix his or her underpayment of tax or outstanding tax bill the greater the amount of interests and penalties he or she is likely to pay. Thus, while it may be painful to receive notice of a tax lien or other adverse action by the IRS, not receiving the notice in a timely manner is worse.

Unfortunately for more than 24,000 taxpayers, a report from the Treasury Inspector General’s Office shows that problems in the tax lien process do occur.

When Can the IRS File a Tax Lien & What is Its Impact?
The filed federal tax lien represents the government’s notice to the world of its claim to your property because you have failed to satisfy a tax obligation that was due and owing. The lien against your property can be applied to any type of property including personal belongings, tangible and intangible assets, and real estate. However, a tax lien is only filed against the taxpayer when at least three facts are true.

First, the taxpayer has a tax obligation that the IRS has assessed on its books. Second, the IRS has sent a Notice and Demand for Payment informing the taxpayer of the amount owed to the government, and third ten days have passed and the IRS has not been paid. When these items are all true a lien in favor of the IRS arises automatically, and the IRS may file a Notice of Federal Tax Lien. At this point, with the filing of the tax lien, what was previously a private matter between the IRS and the taxpayer now becomes part of the public record with all of its attendant bad consequences.

What Effect Does a Federal Tax Lien Have?
A federal tax lien isn’t only a claim against the property you currently may own, it is also a claim against property you may come to possess in the future. The Notice of Federal Tax Lien is intended to give notice to your creditors regarding your status. Furthermore, it allows the federal government to establish the priority of its claim ahead of other creditors against you.

A collateral effect of a federal tax lien is a hit to your credit score and an easily accessible public record of your tax deficiency. The hit to your credit score is likely to make securing a loan, mortgage, or financing more difficult. Employers, landlords, and other individuals may not view such action favorably and you may face adverse actions from these individuals.

What can a Taxpayer Do When Facing Federal Tax Lien?
A taxpayer facing a federal tax lien has a number of options to approach the matter. However, every tax situation and IRS collection situation is unique and action should not be taken without a careful analysis of the surrounding facts and circumstances. Options taxpayers have to satisfy their federal tax lien include:

  • Pay the tax in full – This option is the most direct, but it is inappropriate if you believe that the tax lien is erroneous or otherwise incorrect. However, if you believe that the amount due and owing is correct and you do not wish to challenge any penalties, you may pay the IRS via electronic payment, a credit or debit card, or with a check in-person or through the mail.
  • Apply for an installment agreement or an offer in compromise – For taxpayers who want to pay their taxes, but are unable to pay the amount in full one of these programs may provide the flexibility to discharge the tax debt. An installment agreement can allow a taxpayer to arrange for a payment plan. An application for an offer in compromise can be filed if the taxpayer will not be able to pay the liability in full during the collection statute of limitations pursuant to strict IRS guidelines.
  • Appeal the IRS decision – Most IRS collection actions are subject to appeal to the IRS Office of Appeals. The main options for appeal are the Collections Due Process (CDP) and the Collections Appeal Process (CAP).
  • Request additional time – Taxpayers may ask the IRS to delay collection and report the account as uncollectable due to a significant financial hardship. Even if collection is delayed under this provision, penalties and interest will continue to accrue.

Taxpayers who fail to take action regarding a tax lien face a host of consequences including the seizure of his or her property to satisfy the tax debt. However, you do have options. To discuss your potential options to handle a tax lien call the tax professionals of the Brager Tax Law Group at 800-380-TAX-LITIGATOR or contact us online.

Audit Character Meaning Validation Auditor Or Scrutiny

The U.S. Tax Code is, essentially, in a constant state of flux. While there are certain bedrock principles, such as the obligation to file and pay taxes, particularities regarding both substantive and procedural handling of tax issues can change with time. Decisions made by judges, changes to the Internal Revenue Code by acts of Congress, and IRS interpretations of the statutory law can all effect how the Code is administered. In some cases, some of these sources of guidance for the tax code may disagree resulting in uncertainty and confusion.

Taxpayers must remain aware of their ever-changing tax obligations and the consequences for their noncompliance. Taxpayers who fail to keep abreast of important changes in the tax code and its procedures risk subjecting themselves to significant tax penalties or even criminal tax charges.

How Long Does the IRS Typically Have to Conduct a Tax Audit?
The IRS is typically authorized to audit a taxpayer’s tax return filing for up to three years for its filing. However, it has long been held that the IRS may audit for up to six years in instances where a substantial understatement of income has been detected. A substantial understatement of income is defined as a taxpayer who fails to include more than 25 percent of his or her income. While this concept seems straightforward enough, what it means to omit a quarter or more of income, exactly, has been the subject of significant litigation and subsequent legislative action.

U.S. Supreme Court Restricted Some IRS Tax Audits to 3 Years in 2012
In U.S. v. Home Concrete & Supply, LLC the United States Supreme Court (USSC) significantly restricted the IRS’ ability under §6501(e)(1)(A) to audit for up to six years. This case concerned a taxpayer who “omit[ted] from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return.”

In Home Concrete, the taxpayer made overstatements regarding the basis of property that was sold. The overstatement of basis resulted in tax returns that understated the sale proceeds in an amount greater than 25 percent. The Fourth Circuit Court of Appeals held that the “taxpayers’ overstatements of basis, and resulting understatements of gross income, did not trigger the extended limitations period. “ Meaning that while the IRS would have been able to audit within the three-year period, it was not entitled to audit in these circumstances after that time had elapsed. The IRS appealed and the Supreme Court granted certiorari. The Supreme Court affirmed the lower court’s decision concluding that §6501(e)(1)(A) does not apply to an overstatement of basis that results in an understatement of income.

Congress Changes the Law Overruling the Supreme Court’s Decision
Since Congress retains the right to legislate when displeased by a court decision not based on Constitutional grounds, it sometimes attempts to change or otherwise alter the law so that Congress’ goal is accomplished. Following the decision in U.S. v. Home Concrete & Supply Congress changed the language in the Internal Revenue Code. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 added the following language to the tax code: An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.

This change in the U.S. Tax Code’s language applies to all returns filed after July 31, 2015. Additionally, previously filed tax returns for which the statute of limitations is still open under existing law is also subject to this change. Taxpayers who filed with a reliance on the old language regarding overstatements of basis resulting in an understatement of income of more than 25 percent are now be subject to an expanded audit window of up to six years. Furthermore, these taxpayers are likely subject to penalties due to the understatement.

Facing an IRS Tax Audit in Los Angeles or Elsewhere?
The tax law is in a perpetual state of flux. Seemingly small changes to language in the Code can have significant impacts on taxpayers. If you or your small business is facing a tax audit by the IRS or California state tax authorities, the stakes are too high to go it alone. Contact the experienced tax professionals of the Brager Tax Law Group by calling 800-380-TAX-LITIGATOR or contact us online today.

Handcuffs arrests dollar currency crime human hand

As many tax controversy attorneys can state, tax problems can lead to major issues including a tax audit and even criminal tax charges. Even though tax problems are typically serious matters there are certain tax crimes that stand out even among serious offenses. Tax Evasion and tax fraud involving the use of stolen identities and stolen personal information is not only one of those crimes that can be punished particularly severely, it is also a major enforcement focus for both the Department Of Justice and the IRS. Taxpayers facing tax fraud or tax evasion charges should consult a tax lawyer before admitting anything to federal agents or prior to taking any action on the tax problem.

Queen of Tax Fraud Likely to Spend Decades in Prison
In a widely-reported tax conviction, Rashia Wilson was sentenced to more than two decades in prison due to her part in an identity theft and tax fraud scheme. While tax sentences are often harsh, this sentence stood apart in severity perhaps due to her other weapons charges, and her apparent propensity to brag and challenge law enforcement officials over social media. In one online posting, Ms. Wilson wrote:

“I’M RASHIA, THE QUEEN OF IRS TAX FRAUD… I’m a millionaire for the record, so if U think indicting me will B easy it won’t, I promise you! U need more than black and white to hold me down N that’s to da rat who went N told, as if 1st lady don’t have da TPD under her spell. I run Tampa right now.”

However, law enforcement officials were undeterred by these remarks and as part of “Operation Rainmaker”, they identified, arrested and charged Ms. Wilson and others. Also contributing to Ms. Wilson’s harsh sentence was her more than 40 previous arrests. Ms. Wilson appealed her sentence of 21 years, but to no avail. Ms. Wilson is currently serving her time at the Aliceville Federal Correctional Institute in Alabama.

27 Year Tax Fraud Sentence Shows the Severe Consequences of a Tax Charge
Ms. Wilson is not alone in having received a harsh sentence. James Lee Cobb III, also engaged in a scheme in which he claimed income tax refunds intended for other taxpayers. Mr. Cobb pleaded guilty to collecting more than 7,000 Social Security numbers that he then used to fraudulently obtain tax refunds. In all, Mr. Cobb admitted to stealing at least $1.8 million in tax refunds. For his crimes Mr. Cobb was sentenced to 27 years in prison.

Stolen Identity Return Fraud is a Major Tax Enforcement Focus
Both of the individuals discussed about engaged in the same type of fraud: Stolen Identity Return Fraud (SIRF). SIRF is a major tax enforcement priority not only because it is a major crime engaged in by both petty crooks and international criminal organizations. Left unchecked, this problem has the potential to disrupt the orderly administration of the U.S. Tax Code. In its most basic permutation, SIRF crimes involve the use of stolen personal identifiers to obtain a fraudulent tax refund. Typically the perpetrator of the fraud will file the fraudulent return early in the tax season when there is a high likelihood that the real taxpayer has not yet filed. The perpetrator of the fraud then directs the refund to a mailbox he or she controls or can access. Alternatively, the individual may use an electronic funds transfer to another account.

SIRF is widespread. The Department of Justice believes that from May 2008 to May 2012, more than 550,000 taxpayers had their identity stolen for use in SIRF. However, the DOJ touts significant success in combating this problem. Aside from the convictions discussed above, the DOJ has also secured convictions or guilty pleas in recent tax matters including:

  • May 11, 2015– The DOJ issued a press release regarding the guilty plea of a Raleigh, South Carolina man who used others’ Social Security numbers along with false information to obtain tax refunds.
  • May 12, 2015– A D.C. man was sentenced to more than three years in prison for his role in a SIRF scheme. More than $1.1 million in fraudulent refunds were requested.
  • June 1, 2015– After federal agents charged Alabama woman Teresa Floyd, she admitted her guilt as part of a SIRF scheme. Floyd faces up to two years in prison for aggravated identity theft charges and up to 10 years for the conspiracy charges. She also faces significant monetary penalties.

SIRF may be a major problem, but federal investigators from the IRS and DOJ have taken notice and are cracking down. The Brager Tax Law Group is dedicated to assisting taxpayers facing serious tax problems and tax charges. We can provide strategic advocacy for taxpayers charged with serious tax crimes. To schedule a reduced-rate tax consultation call us at 800-380-TAX-LITIGATOR today or contact us online.

warning irs audit conceptual road sign over sky

The IRS and Department of Justice have cracked down on tax fraud and tax evasion regardless of its form. However, in recent announcements the Department of Justice has revealed its targeted enforcement focus on business payroll tax fraud, offshore tax fraud including non-compliance with FATCA & FBAR, Stolen Identity Tax Return Fraud (SIRF), and other forms of tax fraud. Beyond the enforcement focus, Acting Assistant Attorney General Caroline Ciraolo revealed that the Department of Justice’s Tax Division averages around 6,000 active matters. These cases are worked by approximately 340 attorneys, who are successful in more than 95 percent of the cases they prosecute.

In light of such odds, many taxpayers may hope that time alone will cure their tax problems. However betting on the statute of limitations is a risky proposition complicated by the fact that the actions you take can extend the time for charges to be brought by years. However knowing approximately how long you may be required to prove the source of income or the propriety of deductions can bring some peace of mind. However, no action can substitute for a conservative and meticulous handling of all your tax filing, payment, and disclosure obligations by a tax professional.

How Long Does the IRS Typically Have to Bring a Tax Audit?
The basic rule for the IRS’ ability to look back into the past and conduct a tax audit is that the agency has three years from your filing date to audit your tax filing for that year. However, taxpayers who fail to include all sources of their income may face a longer time period. That is, taxpayers who omit greater than 25 percent of their total income are subject to a six year lookback window. However, the foregoing is contingent on the taxpayer not voluntarily agreeing to an extension of time for the IRS to audit. The IRS may, and often does, request additional time to complete its audit. Because every tax situation is unique, if you find yourself the recipient of such a request it is wise to seek the advice of an experienced tax attorney.

Can Allegations of Serious Wrongdoing Affect the Time the IRS has to Investigate?
Unfortunately for taxpayers accused of engaging in tax fraud the time limit for how long the IRS has to assess additional taxes and penalties is unlimited – though it becomes increasingly less likely for the IRS to open as a civil tax audit as the allegedly wrongful acts become more remote in time. Under Section 6531(2) of the U.S. Tax Code, the IRS has six years from the time the tax return is filed or from the last willful act that prevented the filing of a tax return from bringing a criminal tax charges. However, it can be difficult to pinpoint when, exactly, the last willful act occurred. Furthermore, in criminal tax matters the statute of limitations will be tolled by one’s status as a fugitive or if the accused is outside of the United States.

The time the IRS has to assess a tax liability should not be confused with the time it has to collect a tax liability. Generally speaking the IRS has 10 years from the date of assessment to collect the liability. That 10 year period is subject to numerous circumstances which will cause the extension of the 10 year period including offers in compromise, requests for collection due process hearings, bankruptcy, and absence from the United States. In addition, if the IRS files suit to reduce the tax lien to judgment it can extend the time it has to collect. Indeed the IRS takes the position in the Internal Revenue Manual that it may collect against the taxpayer’s real or personal property indefinitely!

The Brager Tax Law Group is dedicated to providing strategic tax advice for serious tax problems. To schedule a tax consultation with one of our tax professionals call 800-380-TAX-LITIGATOR today or contact us online.