Tax Problem Attorney Blog

I just returned from an ABA meeting of tax lawyers in Washington, D.C. It seemed like all of the tax attorneys (or at least the tax litigation attorneys) could find nothing to talk about, but Foreign Bank Account Reports, i.e. TDF 90-22.1 (FBARs),voluntary disclosures, and offshore bank accounts. Over a period of two days I spend at least 8 hours in formal meetings with other tax lawyers talking about FBARs, and more hours over drinks and food talking about FBARs. The main theme was that the rules surrounding tax amnesty are being enforced more harshly than many tax attorneys had hoped would be the case. A few highlights of what I heard, the good, the bad, and the ugly:

• 225 revenue agents have been assigned to conduct civil tax audits in voluntary disclosure of offshore bank account cases
• IDRs (Information Document Requests) can be expected in most offshore bank account cases within the next few weeks
• The goal of IRS management is to close a “substantial portion” of the tax audits by the end of 2010
• IRS has started to identify taxpayers who made quiet voluntary disclosures of their offshore bank accounts, and these cases will be worked as “full blown” civil tax audits—meaning these taxpayers are potentially subject to multiple 50% FBAR penalties
• It is too soon to tell how post Oct. 15th voluntary disclosures will be treated for civil tax purposes—speculation continues to center on 25 to 35 per cent
• IRS has rolled out a “third generation” IDR which the IRS believes is more streamlined
• Basis issues will be negotiable, i.e. if basis information is unavailable revenue agents will likely accept reasonable alternatives, e.g. value security as of 1/1/2003
• Even if a timely 2008 FBAR was filed, if the highest offshore bank account value was in 2008, the 20% penalty will be calculated based upon 2008 value
• Revenue Agents do not “currently” have the authority to waive de minimus violations – there is no such thing as being half pregnant.

If you have a foreign financial account call the tax litigation lawyers at Brager Tax Law Group, A P.C. to get more information on voluntary disclosures and FBARs.

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Posted In: Offshore Bank Account Problems , Tax Debt , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy , Tax Preparer Penalties

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Filing a false tax return in violation of Internal Revenue Code (IRC) Section 7206 can result in deportation of a resident alien, i.e. a green card holder, according to the 9th Circuit Court of Appeals. Kawashima v. Holder (9th Cir. 2010). In a long running case Mr. Kawashima pled guilty to subscribing to a false tax return in violation of IRC Section 7206(1). His wife pled guilty to aiding and assisting in the filing of a false tax return in violation of IRC Section 7206(2).

Generally green card holders can be deported for committing an “aggravated felony.” Tax fraud or tax evasion in violation of IRC section 7201 is specifically defined by the immigration laws as an aggravated felony. Aggravated felonies also include any offence that involves fraud or deceit which exceed a loss to the victim of more than $10,000. The Kawashimas argued that since tax fraud was specifically defined as an aggravated felony Congress meant to exclude all other tax crimes including filing a false tax return. The 9th Circuit disagreed, holding that under the plain language of the statute not only was tax evasion a removable offense, but so was filing a false tax return.

This is just another reminder that the collateral consequences of a criminal tax conviction can reach far beyond the potential prison time.

If you or a loved one has been accused of civil or criminal tax evasion contact the tax lawyers at Brager Tax Law Group, a P.C. for a consultation.

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Posted In: Tax Disputes , Tax Fraud

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A Los Angeles, California man pled guilty to one count of failing to file a Foreign Bank Account Form TDF 90.22-1 (FBAR) pursuant to the Bank Secrecy Act 31 USC 5314. This is the fourth person with a UBS Swiss bank account to plead guilty to tax evasion charges. John McCarthy admitted that he skimmed funds from his business, and sent it to an offshore bank account at UBS held in the name of his Hong Kong corporation. According to the plea agreement it was UBS, and his Swiss lawyers who came up with this idea that created all of McCarthy’s offshore tax problems. The IRS found out about McCarthy when UBS turned over his name as part of the criminal tax case against UBS that was resolved earlier this year. The maximum penalty that the Court can impose is five years in prison; a fine of $250,000, or twice the amount of gross gain or loss from the offense whichever is greater. Sentencing hasn’t yet occurred. In addition, McCarthy agreed to civil FBAR penalties equal to 50% of the highest year balance in the account will be imposed, along with a 75% civil tax fraud penalty.

Most interesting to me about the case is that the IRS is reaching lower down the food chain. The amount of the unpaid tax was somewhere between $200,000 and $400,00 spread over a 5 year period. Assuming a 33% tax rate this suggests unreported income of as little as $120,000 per year. While this is hardly chicken feed, it shows the IRS willingness to prosecute medium size tax evasion cases.

If you have a foreign financial account, or any kind of tax problem contact the tax lawyers at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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On Wednesday, the UBS offshore tax evasion case moved one step closer to UBS disclosing the names of persons the IRS believes have committed tax fraud and/or failed to file TD F-90-22.1, Foreign Bank Account Report (FBAR). The IRS announced that it had “initialed a settlement” with the Swiss government to settle the suit seeking the names of 52,000 U.S. persons with offshore UBS bank accounts. The terms of the settlement has not yet been disclosed, but most tax attorneys believe that it will require UBS to provide the names of thousands of Swiss bank account holders. The IRS has said that the terms will not be disclosed until final signatures have been obtained on the settlement, and that could occur as early as next week.

Some tax lawyers speculate that it will be only the names of the largest UBS account holders that will be disclosed, but I tend to disagree. Any settlement would have to provide the Swiss with a fig leaf to argue that they had not compromised their privacy laws. One way of doing this would be to loosen the interpretation of tax fraud under Swiss law, and provide the names of individuals who engaged in some activity suggesting they were covering up the existence of the offshore account. For example, holders of numbered accounts, or accounts held in the name of dummy corporations or trusts, or perhaps dual citizens of the U.S. and other countries who did not use their U.S. passports to open the accounts.

Once the settlement terms have been announced it is unknown how quickly names of UBS Swiss bank account holders will be turned over. However, once the IRS has the names it will be too late for those individuals to participate in the IRS tax amnesty, and receive the benefits of the offshore voluntary disclosure program.

If you have questions about the FBAR tax amnesty or have other tax problems feel free to contact the tax controversy lawyers at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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On Friday it was announced that UBS and the Internal Revenue Service had reached a settlement in the IRS lawsuit against UBS. The lawsuit sought to require UBS to turn over the names of 52,000 U.S persons with Swiss bank accounts at UBS. The IRS believes that the owners of some of these offshore accounts failed to file foreign bank account reports (FBARs), and may also have engaged in tax fraud. Settlement negotiations have been ongoing, and apparently those discussions have focused on how many offshore account holder names will be turned over to the IRS. The terms of the deal have not been announced, and the parties have agreed not to reveal the details at this time. The final settlement papers are due to be filed on August 7th, at which point I expect that the IRS will reveal how many offshore account holders names will be turned over.

This puts the holders of offshore financial accounts at UBS in a precarious position. Once UBS turns over the information those folks will no longer be eligible to make a voluntary disclosure under the IRS tax amnesty program, and will subject the owners of these Swiss bank accounts at risk for the 50% FBAR penalty, possible criminal prosecution for tax evasion, and a pile of other tax problems.

UBS Swiss bank account holders would be well advised to speak with a tax attorney to decide whether or not to participate in the tax amnesty because the window may be closing very shortly.

The former IRS tax attorneys at Brager Tax Law Group, A P.C. are ready to advise offshore bank account holders of their options.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The past few months have been filled with contention from the Swiss government and UBS in response to the Internal Revenue Service’s (IRS) “John Doe Summons,” which seeks to have UBS turn over the names of their US account holders. So far, UBS has been unwilling to provide the names of all but 250 or so Swiss bank accounts holders. UBS officials argue that disclosing names is a violation of Swiss law.

Several days ago Department of Justice (DOJ) filed a legal brief arguing that its summons to obtain offshore bank account information is enforceable under both US and Swiss law. DOJ points out that Swiss secrecy laws provide disclosure exceptions for certain circumstances – such as when providing information to an “authority,” and if approved by a UBS “regulator.” The fact that the law explicitly states there are exceptions, and that a person who violates this law can be exonerated in certain circumstances, leads the DOJ to conclude that Swiss law permits UBS to release the names of US taxpayers with offshore accounts.

Without commenting on the merits, it would seem that those with Swiss bank accounts have two basic choices:

1 - They can wait until the case is resolved, hoping that the IRS loses and UBS Swiss bank accounts remain secret. This option carries the risk of prosecution for criminal tax fraud and onerous civil tax penalties for failure to file foreign bank account reports (FBARs) in the event that the IRS prevails; or

2 - They can come forward now while the IRS still has its tax amnesty program, and protect themselves from criminal tax charges. Before coming forth under the tax amnesty program anyone with an offshore bank account, whether held at UBS or elsewhere, should consult with a knowledgeable tax attorney to determine if a voluntary disclosure is right for them.

If you have a UBS or other offshore bank account and have questions about avoiding tax evasion charges, or would like more information about the IRS Amnesty program, or have any other tax problems, contact the tax litigation attorneys at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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When the Internal Revenue Service (IRS) released its FBAR tax amnesty FAQs it stated that there would be no standard list of questions asked of foreign bank account holders who made a voluntary disclosure. The Wall Street Journal reported that at least one tax attorney has stated that his clients have been asked 30 standard questions. None of the questions are particularly surprising and are in line with questions our clients have been asked under the IRS’ previous voluntary compliance initiative (VCI). Nevertheless no-one who is filing for the FBAR tax amnesty should consider answering them without a tax attorney present, and maybe not even then. The questions appear designed to probe for signs of tax evasion, or tax fraud, as well assure the IRS that all Foreign Bank Account Reports Form 90-22.1 (FBARs) being filed are accurate. More troubling to tax preparers is that some of the questions are also designed to see if the tax preparer was complicit in the non-filing which could expose him or her to tax preparer penalties, or even criminal tax charges. It seems a CPA or other tax preparer who prepared the original tax returns must consider very carefully whether he has a conflict of interest before he represents that person in making a voluntary disclosure.

According to the Wall Street Journal those questions were:

• Is it your statement that the tax payers are willing to comply with the IRS and make a good faith arrangement to pay all taxes, penalties, fees and interest?
• Where are the funds held regarding the disclosure?
• Do you have any records? If not, whom are you working with at the bank? (Note: If the taxpayer is a UBS client and if they don't have the records, IRS will attempt to assist them in record retrieval).
• When was the account opened?
• How was the account opened?
• Who assisted you with the account opening?
• Who told you about the bank and how to initiate opening of the account?
• Do you have a trust set up relating to the account or the funds?
• How did you deposit money into the account?
• How did you withdraw money from the account?
• Did you have any credit or debit cards associated with the account?
• How did you correspond with the bank? Do you have records relating to the correspondence?
• Who is your current point of contact at the bank?
• Did you ever meet face to face with anyone from the bank? If so, where? When?
• Did you travel outside of the U.S. to conduct business relating to your account and or tax activities?
• Where was your bank statements sent?
• Who has ownership of the account? Is it a joint account?
• What is the source of the funds?
• Do you have tax returns?
• Have you prepared amended tax returns? If so, have you submitted them to the IRS?
• Who prepared your returns?
• When were your returns prepared?
• Did they know about the issues discussed today?
• Did you file FBARs? If not, why not?
• (For those who inherited the account) when did you take control of this account? And, all the related questions a 'yes' answer makes us ask.
• Did you trade US and/or foreign securities with this account? If yes, describe the mechanism for doing that (buy/sell orders, etc.)?
• Did you file returns?
• Do your or have you directly or indirectly controlled any foreign entities? Did you file the required returns for them?
• For UBS clients in particular – Have you been notified that the US requested information relating to your accounts?
• What countries do you have accounts in?

If you have questions about the questions, feel free to contact the tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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I have been speaking a lot lately to the Internal Revenue Service’s (IRS) FBAR (Foreign Bank Account Report) tax amnesty hotline to obtain answers to the many practical questions that have arisen under the IRS FBAR Tax Amnesty a.k.a. Voluntary Disclosure Program. One question I have had is, “Where in the country will the civil tax audits under the tax amnesty program take place?” The agent that I spoke with at the tax amnesty hotline told me the current belief among IRS employees is that the tax audits will be centralized. Twenty revenue agents have undergone tax amnesty training in New York, and additional revenue agents will be trained — probably in California.

According to what I was told, the tax amnesty revenue agents have only just begun looking at civil tax audits, and these are for voluntary disclosures that were made before the IRS issued its tax amnesty guidelines. My guess is that voluntary disclosures being filed now will not undergo a civil tax audits by the IRS for another 6 months.

If you are considering a voluntary disclosure under the IRS tax amnesty program, contact the tax attorneys at Brager Tax Law Group, A P.C. for a consultation. No one should consider contacting the IRS without first having spoken with a qualified tax litigation attorney who understands all of the details of your case.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The IRS has just issued new FAQs related to the tax amnesty for failing to file Foreign Bank Account Reports (FBAR). There are 21 new FBAR FAQs. I wanted to make them available as quickly as possible so haven’t had much time to think through all of their implications. However, a major disappointment is FBAR FAQs # 34 and 35. They say that the IRS will not negotiate the 20 percent offshore financial account penalty as part of the FBAR voluntary disclosure process. The IRS says that if any part of the penalty structure is unacceptable, the case will follow the standard audit process. According to the IRS, “At the conclusion of the examination all applicable penalties (including information return and FBAR penalties will be imposed)…” For a recap of potential FBAR and other penalties see my prior post. If the taxpayer disagrees with the imposition of the penalties then the taxpayer may go to the IRS Appeals Division.

It is unfortunate that the IRS has chosen to take this draconian stance with respect to the FBAR amnesty. It makes the decision to come forward much more difficult.

Our tax litigation attorneys are currently advising clients with FBAR problems on how to best proceed. If you would like a consultation contact the tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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According to CNN former Sen. Tom Daschle, President Barack Obama's nominee for secretary of Health and Human Services has some tax problems. CNN says he failed to pay taxes on a car and driver he had been loaned by a wealthy friend, and failed to disclose it on his tax return. At first it was not clear why he should have reported it on his tax return since it sounded more like a gift. However, a later report by The Wall Street Journal says that the car and driver was provided to him by InterMedia Advisors LLP, an investment firm specializing in buyouts and industry consolidation where Daschle served as chairman of the firm's executive advisory board after he left the Senate. That should have been reported, but there might be a partial offset as an employee business expense, and the firm should have included it on his W-2, or included it on his Form 1099 if he was an independent contractor.

If you have tax problems you can call our tax attorneys whether or not you are a former senator.

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Posted In: Tax Debt , Tax Disputes

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Nina Olson, the National Taxpayer Advocate, issued her annual report to Congress in which she lists the 20 most serious tax problems as required by Internal Revenue Code (IRC) § 7803(c)(2)(B)(ii)(III). They are:

1. The Complexity of the Tax Code
2. The IRS Needs to More Fully Consider the Impact of Collection Enforcement Actions on Taxpayers Experiencing Economic Difficulties
3. Understanding and Reporting the Tax Consequences of Cancellation of Debt Income
4. Employment Taxes
5. IRS Process Improvements to Assist Victims of Identity Theft
6. Taxpayer Service: Bringing Service to the Taxpayer
7. Navigating the IRS
8. IRS Handling of ITIN Applications Significantly Delays Taxpayer Returns and Refunds
9. Access to the IRS by Individual Taxpayers Located Outside the United States
10. Customer Service Within Compliance
11. Local Compliance Initiatives Have Great Potential But Face Significant Challenges
12. Customer Service Issues in the IRS’s Automated Collection Syste (ACS)
13. The IRS Should Proactively Address Emerging Issues Such as Those Arising From “Virtual Worlds”
14. Suitability of the Examination Process
15. The IRS Correspondence Examination Program Promotes Premature Notices, Case Closures, and Assessments
16. The Impact of IRS Centralization on Tax Administration
17. Incorrect Examination Referrals and Prioritization Decisions Cause Substantial Delays in Amended Return Processing for Individuals
18. Inadequate Files Management Burdens Taxpayers
19. The IRS Miscalculates Interest and Penalties But Fails to Correct These Errors Due to Restrictive Abatement Policies
20. Inefficiencies in the Administration of the Combined Annual Wage Reporting Program Impose Substantial Burden on Employers and Waste IRS Resources

Tax Problem 21 was an update of a previous item. According to the National Taxpayer Advocate the IRS’s private tax debt collection initiative is failing In most respects.

More detail on some of these tax problems in future blog posts. For the moment you may wish to check out the post at ataxingmatter describing the National Taxpayer Advocate's previous criticisms of the private tax debt collection initiative here.

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

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Posted In: Miscellaneous Tax Information , Tax Debt , Tax Disputes

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Once investors get over their initial shock that they were being bilked by Bernard Madoff in a massive Ponzi scheme they will be looking for ways lessen the impact. One of those ways is through the tax laws. Our tax attorneys have identified at least two possibilities. The first is that investors may be entitled to a theft loss pursuant to Internal Revenue Code Section 165. Unfortunately the year the loss can be deducted will probably be the subject of a tax dispute. Generally theft losses are deductible in the year of discovery. However, if there is still a possibility of recovery the deduction may need to be deferred.

Another idea is filing amended income tax returns for the last three years, taking the position that the payments received which had been reported as capital gains, dividends or interest were in fact a return of capital, and therefore non-taxable. This position is supported by Greenberg v. Commissioner, a 1996 case decided by the United States Tax Court. The Internal Revenue Service ("IRS") believes, however, that the rule in Greenberg only applies in limited situations. IRS Legal Memorandum ILM 200305028. It is likely that those who file amended returns will be subjected to a tax audit, and that barring a change of heart by the Internal Revenue Service will need to hire a tax litigation attorney to assist them.

Generally the tax law allows only three years from the date the original tax returns were filed to file amended returns. For most taxpayers this means that if they act quickly they can file amended returns for 2005, 2006, and 2007.

If you have a tax problem call certified tax specialist Dennis Brager.

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Posted In: Miscellaneous Tax Information , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service (IRS) has released IRS Publication 1779 with guidance for workers to help them determine whether they are employees or independent contractors. Interestingly IRS Publication 1779, which is only two pages does not specifically mention the 20 factor test set forth in IRS Revenue Ruling 87-41, 1987-1 C.B. 296. Instead it groups various factors into three categories—Behavioral Control, Financial Control and Relationship of the Parties. For example under the category Behavioral Control it states that “if you receive extensive instructions on how work is to be done this suggests you are an employee.”

While the publication appears to be aimed at workers rather than employers, an employer could be lulled into a false sense of security by relying on the publication since among other things it fails to mention that even though an employer does not actually exercise control, if the employer maintains the legal right to control the worker those workers may well be employees.

Nor does the publication mention that Section 530 of the Revenue Act of 1978 also known as the “safe harbor rules” allows employers to treat individuals as independent contractors even if they do not qualify under the common law rules. For more information on that topic see our article Independent Contractor Treatment for Workers is Broadly Available.

If you are an employer and the IRS or the California Employment Development Department (EDD) has challenged your treatment of workers as independent contractors, or you have other payroll tax problems, contact the tax problem attorneys at Brager Tax Law Group for assistance.

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Posted In: Payroll Tax Audits , Payroll Tax Problems , Tax Disputes , Tax Litigation and Tax Controversy

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On Oct. 28th I will be moderating a tax controversy panel at the 2008 UCLA Tax Controversy Institute. The panel will include Steve Sims, Taxpayer Advocate, Franchise Tax Board, Todd Gilman, Taxpayer Advocate, State Board of Equalization, Michelle Mosley, Taxpayer Advocate, Employment Development Department, Dorothea T. Curran, Local Taxpayer Advocate, Internal Revenue Service (Los Angeles).

Other tax panels include:

Innocent Spouse
Independent Contractor Audits and
Criminal Tax Audits

If you would like to attend contact UCLA at www.uclaextension.edu/taxcon08

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Posted In: Miscellaneous Tax Information , Tax Disputes

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According to the Government Accountability Office (GAO) the Internal Revenue Service (IRS) hasn’t been doing a very good job collecting payroll taxes. Payroll taxes are amounts that employers withhold from employee wages for federal income taxes, Social Security, and Medicare (so called trust fund taxes) as well as the employer’s matching contributions. The willful failure to pay these payroll taxes is a violation of the criminal tax law, a felony punishable by up to 5 years in jail under Internal Revenue Code (IRC) Section 7602.

The GAO study found that over 1.6 million businesses owed over $58 billion dollars in uncollected payroll taxes. The GAO concluded that the IRS didn’t file tax liens quickly enough, and that it didn’t go after the owners of businesses for the trust fund recovery penalty (TFRP) fast enough. The report also suggested that the IRS wasn’t seizing business assets often enough, pointing out that there were only 667 seizures in fiscal 2007, down from over 10,000 in 1997. The report was a rather scathing indictment of the IRS, and various U.S. Senators were quick to jump on the "bash the IRS bandwagon." Senator Norm Coleman called on the IRS to “ratchet up its efforts” to recover billions in unpaid payroll taxes, and to hold “tax cheats” accountable.

The IRS responded that among other efforts it is developing and testing streamlined procedures to file injunctions against business with repeat payroll tax problems, and shut them down quickly. Apparently this would include employers whose principals were previously assessed a trust fund recovery penalty, as well as those who have operated multiple entities with payroll tax problems.

If your business has payroll tax problems you are at risk of the IRS putting you out of business, and assessing the trust fund recovery penalty resulting in owners, and officers having substantial personal tax liability. If you would like assistance in dealing with these, and other types of tax problems contact the Los Angeles California tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Payroll Tax Audits , Payroll Tax Problems , Tax Debt , Tax Disputes

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Australian actor Paul Hogan, better known as Mick Dundee from the popular Crocodile Dundee movies, apparently has tax problems in Australia. He recently filed a motion in the Central District of California to fight a move by the Australian Tax Office (ATO) to have the Internal Revenue Service (IRS) collect information about his personal finances.

The IRS issued five summonses to three U.S. banks for transaction information on Paul Hogan’s personal and business accounts from 1997 through 2006. Tax attorneys for Hogan claim the summonses are not authorized under the U.S.-Australian income tax treaty and the summonses have not been issued for an authorized purpose under Internal Revenue Code section 7602. Hogan claims none of the businesses in question operate with or in Australia and that he was a resident of the United States six out of the nine years under investigation.

The ATO began their investigation in 2006 after reports surfaced that Hogan and his business partner John Cornell committed tax fraud in Australia by hiding millions of dollars in film royalties in offshore trusts and companies they owned in Chile and the Netherlands Antilles.

Hogan currently lives in Santa Barbara, California and plans on returning to Australia this fall to film a movie. In an interview with Australia’s Network Ten, Hogan jokingly said, “I’ll be arrested the minute I land on the shore, of course, but I have a gun; so be warned.”

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

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Posted In: Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The United States Tax Court (Tax Court) granted innocent spouse relief to Chrystina Nihser, overturning a decision by the Internal Revenue Service (IRS) . Nihser v. Commissioner, T.C. Memo 2008-135. Ms. Nihser had applied for innocent spouse relief under Internal Revenue Code § 6015(f), so called “equitable relief.” This is, in my view, the most difficult type of innocent spouse relief to obtain.

In ruling that the IRS had abused its discretion in not granting innocent spouse relief, the Tax Court applied the eight-factor balancing test of Rev. Proc. 2000-15, 2001-C.B. 448. One of the eight factors is whether or not the requesting spouse suffered “abuse” at the hands of the non-requesting spouse, and the case contains a lengthy discussion of what constitutes “abuse” for the purposes of determining whether equitable innocent spouse relief is available. The Tax Court held that something less than physical abuse may qualify. The Tax Court looked to the medical literature to create at least a partial list of the factors deemed to be psychologically abusive. It determined that a psychologically abusive spouse is one who may: (1) isolate the victim; (2) encourage exhaustion by, for example, intentionally limiting food or interrupting sleep; (3) behave in an obsessive or possessive manner; (4) threaten to commit suicide, to murder the requesting spouse, or to cause the death of family or friends; (5) use degrading language including humiliation, denial of victim’s talents and abilities, and name calling; (6) abuse drugs or alcohol, including administering substances to the victim; (7) undermine the victim’s ability to reason independently; or (8) occasionally indulge in positive behavior in order to keep hope alive that the abuse will cease.

Based upon these factors the Tax Court decided that Ms. Nihser had been abused, and in part because she met that test, the IRS had abused its discretion in failing to grant her request for 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.

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Posted In: Tax Disputes , Tax Litigation and Tax Controversy

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The United States Tax Court (Tax Court) has held that in innocent spouse cases under Internal Revenue Code (IRC) § 6015 it will consider evidence at trial that was not part of the administrative record. Porter v. Commissioner, 130 T.C. No. 10 (2008). The innocent spouse ruling in Porter was consistent with the Tax Court’s earlier ruling in Ewing v. Commissioner, 122 T.C. 32 (2004), vacated on unrelated jurisdictional grounds 439 F.3d 1009 (9th Cir. 2006).

Ms. Porter submitted a Form 8857, Request for Innocent Spouse Relief to the IRS. Ultimately, the IRS granted innocent spouse relief as to a portion of the tax liability, but denied innocent spouse relief with respect to the remainder. Ms. Porter filed a Petition with the Tax Court to dispute the Internal Revenue Service's unfavorable determination. When she got to the Tax Court, the IRS tried to prevent Ms. Porter, who was not represented by a tax attorney, from presenting all of her evidence. The IRS tax attorneys argued that judge could only here evidence that had previously been submitted to the IRS. The Tax Court held that in cases where someone is requesting innocent spouse relief, he or she is entitled to a trial de novo. That is she is entitled to present all of her evidence without regard to whether it was previously provided to the IRS.

If you believe that you may be entitled to innocent spouse relief contact the tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service (“IRS”) is alleging a massive tax fraud scheme by two European bankers. They have been indicted by a federal grand jury for conspiracy to defraud the IRS pursuant to 18 U.S.C 371. According to the indictment among other things Bradley Birkenfeld, a former USB banker and US citizen, and Mario Staggl, a Liechtenstein citizen and resident, assisted an unnamed United States real estate developer in evading United States income taxes on approximately $200 million of assets held in offshore bank accounts.

The defendants allegedly committed tax fraud by falsifying Swiss Bank documents, by falsifying IRS Forms W-8BEN, by failing to issue IRS Forms 1099, by failing to prepare IRS Forms W-9, and by failing to adhere to the terms of the Qualified Intermediary Agreement with the IRS. The Qualified Intermediary Agreement was a voluntary agreement made between the Swiss Bank and the IRS in 2001 to which the Swiss Bank agreed to identify and document any customers who received reportable United States source income, as well as file appropriate tax documents with the IRS. This agreement was a departure from previous Swiss Bank secrecy laws which concealed bank information for US clients from the IRS. The defendants helped their US clients conceal their ownership of the accounts therefore evading the Swiss Banks obligation to report that information to the IRS.

According to the press release issued by the Department of Justice Tax Division the defendants marketed their services to wealthy United States clients by claiming that Swiss and Liechtenstein bank secrecy was impenetrable and could help their clients evade United States income taxes. The conspirators allegedly assisted their US clients in preparing false IRS documents, advised their clients to destroy any records of offshore bank accounts, and facilitated the filing of false IRS tax returns.

I would imagine that all of their clients are now meeting with their tax attorneys to see if they qualify for the IRS voluntary disclosure program so they can avoid criminal tax evasion charges.

If you have concerns about exposure to tax fraud schemes call the tax lawyers at Brager Tax Law Group, A P.C.

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Posted In: Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The 7th Circuit Court of Appeals refused to dismiss tax fraud charges leveled by the Internal Revenue Service (IRS) at the owner of a small business. United States v. Greve, 490 F.3d 566 (7th Cir. 2007). The case illustrates the perils of representing yourself in a civil tax audit involving significant omissions of income because one never knows when a civil tax audit can turn into a criminal tax problem. The facts were that Mr. Greve operated a snow plow business, and prepared his own tax returns. In preparing those tax returns he omitted a portion of his income. When the tax audit began he proceeded to confess his sins to the IRS tax auditor, but at the same time withheld significant information from her. In addition, he apparently provided false documents to the IRS in the course of the tax audit. To top it off he transferred his home into a trust shortly before the tax audit began.

After the tax audit was part-way done Greve got around to hiring a tax lawyer. The court’s opinion does not disclose whether the tax attorney had experience handling criminal tax problems. The tax attorney met with the IRS agent, and apparently received assurances that the tax audit would be “wrapped up pretty quickly” once certain requested documents were turned over. Behind the scenes, however, the IRS agent was meeting with the Tax Fraud Coordinator, and plotting a criminal tax case. After he was indicted, Greve attempted to have evidence supressed on the theory that his cooperation had been induced by false promises that if he cooperated the matter would be resolved without a referal to the IRS’ Criminal Investigation Divsion (CID). The Court did not see it that way. Although the IRS agent failed to inform Greve that she was considering referring the case for referral to CID the Court held she was not required to do so.

The Greve case illustrates a classic eggshell tax audit, and how treachorous the waters are for those who have omitted signficant income from their tax returns who are picked for a tax audit. For anyone in that situation representation by a skilled tax lawyer is critical.

If you have been picked by the IRS for a tax audit contact the tax lawyers at Brager Tax Law Group, a P.C.

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Posted In: Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The Ninth Circuit Court of Appeals in California upheld a decision of the United States Tax Court (Tax Court) denying innocent spouse relief pursuant to Internal Revenue Code § 6015. Generally spouses filing joint income tax returns are both liable for any taxes due. In certain circumstances, however, one spouse may be entitled to so-called innocent spouse relief. One of the keys to obtaining innocent spouse relief, however, is making the request in a timely manner. There are a number of different deadlines which must be met, or else innocent spouse relief will be lost. In Huynh v. Commissioner, T.C. Memo 2006-180 the taxpayer ran afoul of Internal Revenue Code § 6015(g)(2) . Not surprisingly the tax law requires that if a taxpayer wishes to claim innocent spouse relief it must be asserted in the same Tax Court case in which the taxpayer is disputing an income tax deficiency. However, Internal Revenue Code § 6015(g)(2) creates an exception if the innocent spouse claim was not an issue in the Tax Court proceeding. The exception to the exception, however, is that if the putative innocent spouse “participated meaningfully” in the proceeding than she can not later claim innocent spouse status.

The Tax Court noted that Mrs. Huynh participated in the prior tax deficiency proceeding by among other things, being present at meetings with the IRS’ Appeals Office, as well participating in pre-trial preparations, and settlement negotiations. Under these circumstances the Tax Court refines to allow Mrs. Huynh to later claim innocent spouse relief. Ms. Huynh was not represented by a tax attorney in either the first or second proceeding. Had she been properly advised by a tax attorney she would have raised her innocent spouse claim in the first proceeding.

If you believe you may be entitled to innocent spouse relief, contact California State Bar Certified Tax Specialist Dennis Brager, Esq.

Continue reading "Innocent Spouse Relief Not Permitted by Ninth Circuit" »

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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Tax lawyers from the Department of Justice are seeking to enjoin two tax return preparers from representing anyone before the Internal Revenue Service (IRS) , acting as tax preparers or engaging in any other tax related conduct. The IRS complaint also seeks an injunction barring the tax preparers from engaging in conduct which is subject to the tax preparer penalties of Internal Revenue Code § 6694. The injunction was requested pursuant to Internal Revenue Code § 7407 and Internal Revenue Code § 7408.

According to the IRS complaint the tax return preparers committed tax fraud by filing fraudulent tax returns, and fraudulent amended tax returns claiming deductions for bogus mining development costs. Interestingly the IRS complaint alleges that 7 of the customers who had fraudulent tax returns prepared were NFL football players. The IRS complaint does not reveal the names of the players, and there is no indication in the complaint that the players knew that tax fraud had been committed.

If you are a tax preparer who has been accused by the IRS of tax fraud, tax evasion or violation of the tax return preparer penalty rules under Internal Revenue Code § 6694 contact the Southern California tax lawyers at Brager Tax Law Group, A P.C. Our tax lawyers represent clients throughout California, including Orange County, the Inland Empire, San Bernardino County, and Riverside County including the cities of Newport Beach, Laguna Beach, San Juan Capistrano, San Clemente, Mission Viejo, Laguna Niguel, Laguna Hills, Dana Point, Huntington Beach, Long Beach, Costa Mesa, Anaheim and Santa Ana.

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Posted In: Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy , Tax Preparer Penalties

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Internal Revenue Code § 6672 provides that so-called responsible persons who willfully fail to pay corporate payroll taxes may be held personally responsible for the payment of the trust fund portion of these taxes. Internal Revenue Code § 6672 is sometimes referred to as the trust fund recovery penalty (TFRP). Who is a responsible person? As the court in Horovitz v. United States (WD PA 2008) explained: “responsibility is a matter of status, duty or authority.” The definition of responsible person is not limited to the person with the final say on which bills get paid, but includes others as well.

Horovitz illustrates the principle that more than one person can have liability for the trust fund recovery penalty. The CFO was deemed to be a responsible person since he had the full authority to sign checks, could hire and fire employees, signed payroll tax returns, was a corporate officer, and a 20% owner. The CEO was also held liable for the trust fund recovery penalty since he invested several million dollars in the business, owned 80% of the stock, had unlimited hiring and firing ability and check writing authority, and served as the CEO with day to day involvement in the business.

If you have payroll tax problems, and the IRS is threatening to impose the trust fund recovery penalty contact the Los Angeles, California tax litigation lawyers at Brager Tax Law Group, A P.C.

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Posted In: Payroll Tax Audits , Payroll Tax Problems , Tax Disputes

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In Kennedy v. Commissioner, T.C. Memo 2008-33, the United States Tax Court determined that the Internal Revenue Service (IRS) could not serve a tax levy on the taxpayer’s assets since it failed to send the collection due process (CDP) notice to the taxpayer’s last know address. Generally in order for the IRS to issue a tax levy it must first mail a Notice of Intent to Levy, and Right to Request Hearing, commonly referred to as a CDP Notice, pursuant to Internal Revenue Code § 6330. In Kennedy, the IRS mailed its notices to two different addresses. However, Mr. Kennedy never received them. Apparently this was because both addresses were incorrect. In fact the way Mr. Kennedy found out about the collection due process notice was when the IRS served a tax levy on his bank.

The Tax Court pointed out that Internal Revenue Code § 6330(a)(2) provides that the CDP notice must either be given in person, left at the person’s dwelling or usual place of business, or sent by certified or registered mail to the person’s last known address. Since the IRS failed to send the CDP notice to Mr. Kennedy’s last known address the CDP notice was invalid. By the time the case got to the Tax Court the IRS realizing this and had refunded the money seized by the tax levy. That, however, was not sufficient. In order for the IRS to serve any additional tax levies the Tax Court required that the IRS issue a new CDP notice, and give Mr. Kennedy an opportunity for a hearing first in the IRS’ Appeals Division, and then if Mr. Kennedy was not satisfied with the result he would be entitled to a brand new hearing in the Tax Court.

If you have received a tax levy, have tax debts, or other tax problems call the tax controversy lawyers at Brager Tax Law Group, A P.C.

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service (IRS) has released Publication 971 on Innocent Spouse relief pursuant to Internal Revenue Code § 6015. Generally, individuals who sign joint tax returns with their spouses are both jointly and severally liable for any taxes not paid with the return without regard to which spouse created the tax problem. Under the provisions of Internal Revenue Code § 6015, however, some spouses may be able to get out from under their tax problems. Publication 971 gives the IRS take on innocent spouse relief. If you want to read the opinions of our tax lawyers on innocent spouse relief you can see the innocent spouse articles on our website.

Publication 971 points out the time periods for filing for innocent spouse relief. Requests for innocent spouse relief must be filed on IRS Form 8857 no later than two years from the date the IRS first attempts to collect the tax due. IRS attempts to collect the tax due are limited to:

• The filing of a claim for by the IRS in a court proceeding, including a proof of claim in a bankruptcy proceeding.
• An IRS offset of a refund claim for a different year, as long as the IRS notified the taxpayer about her right to file for innocent spouse relief.
• The filing of a lawsuit by the IRS to collect the tax due
• The issuance by the IRS of a collection due process (CDP) notice pursuant to Internal Revenue Code §6330.

The California Franchise Tax Board (FTB) has similar rules to the Internal Revenue Service for taxpayers who are requesting innocent spouse relief for taxes owed to the State of California.

If you have a tax problem, and believe that you may be entitled to innocent spouse relief , and wish to have one our tax lawyers represent you please contact us.

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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The 10th Circuit Court of Appeals has reversed a decision of the United States Tax Court (Tax Court), and held that an Internal Revnue Service Appeals Officer was not impartial within the meaning of Internal Revenue Code (IRC) § 6330. Cox v. Commissioner, No. 06-9004 (2008), reversing, Cox v. Commissioner, 126 T.C. No.13 (2006). A taxpayer is generally entitled to a collection due process (CDP) hearing before an impartial Appeals Officer before the IRS may levy on his property. If the IRS files a tax lien the taxpayer is entitled to a hearing to contest the tax lien, but only after the tax lien has been filed. In Cox, the taxpayer had received a CDP hearing for the years 2000. In that hearing the Appeals Officer determined that he could not recommend an alternative to a levy since among other things the Coxes hadn’t paid their estimated taxes.

Subequently, the Coxes requested a CDP hearing with respect to the taxes they owed for 2001 and 2002. When the same Appeals Officer was assigned the CDP hearing the Coxes asked the case to be reassigned to a new Appeals Officer since, they argued, the Appeals Officer was not impartial because of his prior involvment. The IRS refused, and ultimately the Coxes appealed to the United States Tax Court. The Tax Court reviewed IRS Treas. Reg. § 301.6330-1(d)(2) which provides that even though an Appeals Officer has had prior involvement with the same taxpayers for a different tax year the Appeals Officer may still conduct the subsequent CDP hearing. The Tax Court upheld the IRS Regulation. On appeal, however, the 10th Circuit reversed. Arguably the 10th Circuit’s decision may be limited to the facts since in Cox the Appeals Officer had reviewed the 2001 and 2002 as part of his decision in the 2000 CDP hearing. In any event the Tax Court is not bound to follow the 10th Circuit’s ruling in cases that are not appealable to the 10th Circuit. Golsen v. Commissioner,54 T.C 742 (1970). It is not, however, unusual for the Tax Court to re-examine its decision where it has been reversed by a Circuit Court of Appeal even though it is not required to do so.

If you have IRS tax problems or California tax problems contact Los Angeles, California State Bar Certified Tax Specialist Dennis Brager.

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Posted In: Tax Debt , Tax Disputes

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The Internal Revenue Service (IRS) says that tax audits have increased during the fiscal year ended Sept. 30, 2007. For example the IRS audited 84% more returns of individuals with income of over $1 million dollars than the previous year. This amounted to a tax audit rate of almost 10%.Tax audits of individuals with income of $200,000 or more rose almost 30%. Overall the IRS conducted tax audits of more individuals than at any time since 1998.

Business also came in for an increased tax audit rate. S corporation tax audits were up 26%, and partnership tax audits were up by almost 25%.

Tax levies, and tax liens by the IRS were also a growth area, with the IRS filing 3.8 million tax levies and almost 700,000 tax liens during 2007

Contact Los Angeles, California Brager Tax Law Group, A P.C. if you or your business needs help with a tax audit, tax appeal or tax debt.

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service (IRS) has provided new instructions for persons who wish to file wrongful levy claims against the IRS pursuant to Internal Revenue Code § 6343(b). These instructions are set forth in IRS Publication 4528 (Rev. Nov. 2007). If the IRS were to take your property to pay taxes that someone else owed a wrongful levy claim is one of the ways to get your property back.

Why would the IRS seize your property to pay someone else’s taxes? Well it might just be a mistake, but that’s unlikely. One way it might happen is if a closely held corporation ran into IRS or California payroll tax problems. Perhaps the owner decided that rather than deal with this tax problem he would start another company; we will call it “Newco.” When the IRS gets wind of this if it determines that Newco is a transferee, nominee or alter ego of the original company (let’s call it “Oldco”) it will levy (that is seize) the assets of Newco to satisfy the payroll tax liability of Oldco.

Newco may have some defenses to the IRS levy. For example in some cases if Newco paid fair market value for the assets of Oldco it is possible that Newco may not be responsible for Oldco’s payroll taxes. In order to get the money back it would be appropriate to file a wrongful levy claim with the IRS. Another possible remedy is to file suit in United States District Court under Internal Revenue Code Section 7426(a)(1).

Perhaps the most important thing to know about a wrongful levy claim is that it must be made within 9 months of the seizure, so you need to act very quickly. If you think that the IRS has improperly served a levy on your property please contact the California tax lawyers at Brager Tax Law Group, A P.C.

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Posted In: Payroll Tax Problems , Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service (IRS) has issued FS 2008-10 warning taxpayers about tax fraud by tax preparers. The IRS points out that while most tax return preparers are honest a few are not, and that taxpayers need to be careful when choosing a tax return preparer. While it may seem like a tax preparer who’s willing to break the rules may save you some money in the long run it’s the taxpayer not the tax preparer who will pay the additional taxes, plus penalties and interest. As the IRS points out tax evasion or tax fraud is a felony punishable by years in prison, and a $250,000 fine.

A few of the IRS suggestions for finding a reputable tax preparer include:

Avoid preparers who base their fee on a percentage of the amount of the refund.

Review your return before you sign it and ask questions on entries you don't understand

Find out the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared

The IRS also states: “Reputable preparers will ask to see your receipts.” Here we have to disagree with the IRS. Many reputable tax return preparers DO NOT ask to see receipts; nor are they required to. Recent guidance, by the IRS with respect to tax return preparer penalties pursuant to Internal Revenue Code Section 6694 confirms this. See IRS Notice 2008-13. While it may be helpful for a tax return preparer to look at some of your receipts to get a sense of whether you are doing a good job with your recordkeeping looking at all your receipts will in most cases land you with a bill larger than necessary.

Brager Tax Law Group, A P.C. represents taxpayers who have had tax returns prepared improperly. We also represent tax return preparers including attorneys, CPAs and enrolled agents who have been accused of preparing improper tax returns for their clients. For more information contact California tax attorney Dennis Brager.

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Posted In: Tax Disputes , Tax Fraud

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The Internal Revenue Service (IRS) has long been required to send notices to a Taxpayer’s last known address. However, California state law has never specifically provided the address to which notices are sent, although according to the legislative history the California Franchise Tax Board (FTB) has as a matter of internal practice generally followed the IRS rules. New legislation which is effective on Jan. 1, 2008, now requires that the FTB send notices to a taxpayer’s last know address. Much like federal law the new state law defines “last know address” as the address that appears on the taxpayer's last return filed with the FTB, unless the taxpayer has provided to the Franchise Tax Board clear and concise written or electronic notification of a different address, or the Franchise Tax Board has an address it has reason to believe is the most current address for the taxpayer. Revenue and Taxation Code 18416(c).

TIP. If you move after you have filed your federal or state income tax returns it’s a good idea to notify both the IRS, and Franchise Tax Board, just in case they want to contact you. Who knows, sometimes they actually need your address to send you good news.

If you are undergoing a tax audit, and you move it would be foolhardy not to notify them. Why? This is one time when out of sight, out of mind it is not a good rule to rely on. If the IRS or the FTB sends a notice to your last know address, and you don’t get it because you have moved you are still responsible for responding in a timely fashion. If you don’t you could be subject to penalties, or lose various rights of appeal. In my practice I consistently meet with new clients who have lost their rights because they didn’t receive IRS and FTB notices because they moved, and didn’t notify the taxing agencies. On the other hand, Brager Tax Law Group has had great success helping clients who didn’t receive notices because the IRS failed to follow its own procedures in determining their last known address.

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Posted In: California Franchise Tax Board , Tax Disputes , Tax Litigation and Tax Controversy

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The Internal Revenue Service’s (IRS) Taxpayer Advocate Nina Olsen has released her 2007 Annual Report to Congress. It consists of two large volumes outlining:

• The Most Serious Problems Encountered by Taxpayers
• Key Legislative Recommendations, and Additional Legislative Recommendations
• Most Litigated Issues
• Case and Systemic Advocacy.

The Taxpayer Advocate’s Report has a great deal to say, and we will be commenting on many of those items over the next months. Number 9 on the list is tax preparer penalties, and the bypass of taxpayer representatives including tax attorneys, and CPAs. The Taxpayer Advocate’s Report criticizes the IRS for not doing more to enforce tax preparer penalties. She notes that only $2.8 million in penalties were assessed for FYE Sept. 2007. However, this is about a 50% increase over the prior year.

The Internal Revenue Service’s top tax attorney, IRS Chief Counsel Don Korb has already been quoted in IRS Notice, IR-2007-213 as saying that looking at the tax preparer penalty regulations will be a “top priority” for the IRS in 2008. It looks like a bumpy ride for tax preparers, tax attorneys, and CPAs in 2008.

If you are a tax preparer, tax attorney, or CPA who has been targeted by the IRS, contact California State Bar Certified Tax Specialist Dennis Brager.

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Posted In: Tax Debt , Tax Disputes , Tax Litigation and Tax Controversy , Tax Preparer Penalties

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The California Franchise Tax Board (FTB) has been given the green light by the California Legislature to disallow deductions for payments made for personal services if the payor fails to provide a Form 1099 or a W-2. For many years the California Revenue and Taxation Code has provided that the FTB may disallow any deductions for personal services if the individual making the payments fails to file the appropriate reporting forms when due. An identical statute applies to corporations. There was some concern that there were technical problems with the statute so the FTB sponsored a bill to “clarify” the statute. That bill became effective on January 1, 2008.

Note that the statute says “may” not must or will. This leaves some room for arguing that this discretion should not be exercised, perhaps because the failure to file the documents wasn’t willful, or was otherwise due to excusable neglect.

In addition to the deductions being disallowed taxpayers can be hit with a penalty of $50 for each form not filed. Perhaps that’s not much for each form, but for even a mid-size company it can add up pretty quickly. In addition the Internal Revenue Service (IRS) imposes a $50 penalty under Internal Revenue Code § 6721, and in cases of intentional disregard of the filing requirement the penalty goes to $100 per form.

If you have a California income tax audit or a IRS or California tax dispute, and you need tax representation call the Southern California tax lawyers at Brager Tax Law Group, A P.C. We represent clients with California tax problems in Los Angeles County, Orange County, Riverside County, and the rest of Southern California, and the country.

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Posted In: California Franchise Tax Board , Tax Disputes , Tax Litigation and Tax Controversy

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