Tax Problem Attorney Blog

In February I noted that two clients with offshore bank accounts at HSBC had been indicted for FBAR (Foreign Bank Account Report) violations and related tax evasion charges. Last week Clare Baldwin reported through Reuters news service that some tax attorneys had been contacted regarding their clients’ undisclosed foreign bank accounts held at HSBC. Apparently letters had come from Department of Justice prosecutor Kevin Downing who has been taking the lead in FBAR prosecutions notifying the tax lawyers that their clients were the target of a criminal tax investigation by the IRS. HSBC moved quickly to distance itself from its clients. A spokesman for HSBC was quoted in the same Reuters article as saying that HSBC “fully supports government moves for appropriate disclosure by its citizens" and "does not condone or assist tax evasion.”

A few days ago Lynnley Browning of the New York Times quoted anonymous sources that;

At least two American clients of HSBC, which is based in London, are aiding federal prosecutors by turning over account details, names of bankers and internal memorandums and other confidential documents regarding HSBC’s offshore private bank, according to one person briefed on the matter.

If the UBS criminal tax prosecution is any guide, this means that over the course of the coming months HSBC will be handing over its clients’ names and account records to the IRS ; at which point they will face the prospect of tax evasion charges, and stiff civil penalties which can range to more than 50% of the balance in the offshore bank accounts.

Clients who have foreign bank accounts at HSBC may still be able to avoid criminal tax evasion charges by taking advantage of the IRS voluntary disclosure policy, and coming forward, but it is clear that time is running out.

If you would like to consult with an experienced tax litigation attorney regarding FBARs, voluntary disclosure, or other tax problems contact the tax lawyers at Brager Tax Law Group, A P.C.

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

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UBS Swiss Bank account owners who did not make a voluntary disclosure to the IRS last year breathed a sigh of relief when the lower house of the Swiss Parliament voted against amending the U.S. Swiss Tax Treaty to allow the handover of the names of U.S. holders of Swiss bank accounts who are suspected of tax evasion by the IRS. The story has more twists and turns than a John Grisham novel, most of which I have previously blogged about. To summarize briefly:

• A report by a disgruntled ex-employee of UBS led to the indictment of Bradley Birkenfeld a former UBS Swiss banker. Revelations by Birkenfeld led in turn to the indictment of UBS which paid 750 million dollars to the IRS to settle the criminal case. UBS turned over the names of 250 holders of offshore bank accounts.
• 150 of these UBS Swiss bank account owners are under active investigation by the IRS Criminal Investigation Division (CI), and the tax attorneys at the Department of Justice
• Approximately 10 individuals (including some at banks other than UBS) have already pled guilty to various charges including the filing of false documents, failure to file an FBAR, and tax fraud
• The IRS filed a John Doe summons demanding from UBS the names of all its clients who were U.S. citizens or residents
• In high level diplomatic negotiations the case was settled with UBS agreeing to turnover the names of approximately 4,450 UBS Swiss bank account owners.
• A decision by a Swiss Court earlier this year ruled that certain accounts could not be turned over under Swiss law despite the agreement with the IRS
• On June 3rd the upper house of the Swiss Parliament ratified a Treaty amendment which would overturn the Swiss Court decision

Although the Swiss lower house refused to ratify the Treaty amendment things are not over yet. The Swiss lawmakers are expected to go back to the bargaining table to see if the issue can be resolved. Further developments are expected by June 18th—the end of the Swiss parliamentary session.

If you have an offshore financial account, whether it is a Swiss bank account, or an offshore account in another country call the tax litigation lawyers at Brager Tax Law Group, a P.C. to find out about your options.

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

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A couple of weeks ago I was at the ABA Tax Section Meeting which as I mentioned previously gathered tax lawyers from around the country. Since I spent most of my time at meetings involving FBARs (Foreign Bank Account Report TD F90-22.1), I missed another meeting. It turns out that (according to published reports) Janet Johnson, the Internal Revenue Service deputy division counsel for criminal tax stated that that the IRS Criminal Investigation (CI) unit would subpoena accountants in criminal tax cases. By itself that’s hardly surprising since criminal tax attorneys have known for many years that IRS special agents routinely interview the tax preparer, and the accountant can wind up as the lead witness against his own client.

The part that was surprising was that she stated the government would issue a grand jury subpoena even to a Kovel accountant, i.e. one that was retained by a tax attorney for the purpose of assisting the tax attorney in advising the client.

In an ominous note Johnson stated , “Whether or not that accountant comes to testify can be very serious for the accountant. The grand jury may decide he is part of the problem.”

If you have a tax problem, or are a CPA who has a client with a tax problem feel free to contact the tax lawyers at Brager Tax Law Group, A P.C. for a consultation.

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Posted In: Miscellaneous Tax Information , Offshore Bank Account Problems , Tax Fraud , Tax Litigation and Tax Controversy , Tax Preparer Penalties

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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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In a move designed to remind people of their duty to report offshore bank accounts and file Foreign Bank Account Reports (FBARs), federal prosecutors are beginning another wave of UBS tax evasion prosecutions just ahead of the April 15 tax-filing deadline. This newest wave reportedly includes accounts significantly larger than in previous cases. One tax lawyer has been quoted as saying that his client’s Swiss bank account held between $10 and $50 million.

In a separate announcement on Monday, April 5th, IRS Commissioner Doug Shulman said the IRS is still sifting through 15,000 records on foreign bank accounts that it received from individuals who took part in the IRS tax amnesty program. The IRS is looking for patterns in the records to identify other offshore banks and advisors that helped individuals hide funds in foreign financial accounts, and may have committed tax fraud. That area will be “the next wave” of the investigation, according to Shulman. Some tax attorneys have speculated that HSBC and Credit Suisse are the next ones on the IRS hit list.

Although the IRS tax amnesty program for unreported offshore income ended in October, it is not too late to make a voluntary disclosure of your offshore bank accounts, and possibly avoid criminal tax fraud charges. For more information contact the tax attorneys at Brager Tax Law Group, A P.C.

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The Internal Revenue’s (IRS ) tax lien filing polices were in the Taxpayer Advocate’s 2009 Report to Congress listed as the second most serious tax problem facing taxpayers today. This is not a big surprise to those tax lawyers who deal with IRS tax collection problems on a regular basis. I often tell clients that the most difficult objective is to try and get the IRS to release a tax lien prior to making full payment of a delinquent tax liability.

The Taxpayer Advocate’s Report details how the IRS files tax liens without regard to whether or not the taxpayer has assets, and despite the fact that in many instances the filing of a tax lien does not protect the IRS, and only exacerbates the taxpayer’s inability to pay. The Report also points out that the Internal Revenue Manual puts obstacles in the path of their employees who decide not to file a tax lien-- requiring managerial approval, and documentation of any decision not to file a tax lien.

One would only hope that the IRS tax Collection Division takes serious note of the criticisms by the Taxpayer Advocate, and that it not continue to file tax liens as method of punishing taxpayers; however, the IRS responses to the Report make clear that Congressional action will be necessary for any significant tax lien relief.

Taxpayers with tax problems must therefore continue to explore other avenues of relief including offers in compromise, installment payment agreements, audit reconsideration, and bankruptcy to resolve their tax problems.

If you have tax problems call the tax lawyers at Brager Tax Law Group, Inc. for a consultation.

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

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UBS has agreed to reveal the names and account information of 4,450 U.S. persons who are owners of UBS Swiss bank accounts who the Internal Revenue Service (IRS) believes have committed tax fraud. Clearly Swiss bank secrecy has more holes than Swiss cheese. The names will be revealed under the following procedure. UBS will notify its customers who are on the list that their names are to be turned over to the IRS. Those Swiss bank account owners who believe that doing so is in violation of Swiss law will be entitled to a decision from the Swiss Federal Tax Authority (SFTA) as to whether the turnover is legal. The Swiss have committed to processing any requests by the IRS so that the first 500 UBS Swiss bank accounts will be turned over within 90 days of the formal request by the IRS to the Swiss, and the last of the Swiss bank account names are to be turned over within one year.

Of course the names of who is on the list has not been disclosed, nor have the criteria for which Swiss bank accounts will be on the list been revealed. No such information is expected for 90 days. Clearly the intent is that some of the Swiss bank account owners who are not on the list, but don’t know they are not on the list will be motivated to participate in the IRS tax amnesty program which closes September 23rd.

Our tax attorneys are counseling many clients on the ins and outs of the IRS voluntary disclosure program. If you have a foreign bank account, and are interested in finding out more, please contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

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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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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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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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As pointed in my previous blog post the hearing in the IRS effort to enforce its John Doe Summons in the UBS Offshore Bank Account case had been delayed by mutual agreement with a status conference to be held on Wednesday, June 29th. According to an article by Tom Brown published by Reuters, at the status conference the parties announced that no settlement had been reached in the highly watched case in which the Internal Revenue Service seeks to obtain the names of 52,000 UBS offshore account holders who the IRS believes may have committed tax evasion, and who probably failed to file foreign bank account reports (FBARs). Judge Gold, the federal district court judge presiding over the case stated that “absent a signed settlement agreement” no requests for delay would be considered, and that trial of the UBS case would proceed to trial on Monday, August 3rd.

If you have a Swiss financial account, or an offshore account outside the United States, now is the time to consult with a tax attorney to find out whether or not you should make a voluntary disclosure, and participate in the IRS tax amnesty program.

If you have further questions, feel free to arrange a consultation with the tax litigation attorneys at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , 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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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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The hearing on the John Doe summons enforcement case brought by the IRS to obtain the names of 52,000 UBS clients who may have committed tax fraud through the use of offshore financial accounts has been delayed. The key phrase is MAY have committed tax fraud. Generally, under the terms of the existing treaty with Switzerland, the IRS must have evidence of tax fraud or tax evasion before the Swiss will turn over offshore bank account information. The IRS currently lacks the necessary information.

The hearing which was scheduled to begin on Monday was postponed based upon a joint request by the IRS and UBS in order to give them more time to negotiate a resolution. A status conference has been set for July 29th.

The IRS announced on Sunday that any settlement would require that UBS turn over the information on a “significant number” of individuals with Swiss bank accounts at UBS. According to an article in Timesonline by Christine Seib, there was speculation the IRS would insist on between 7,000 and 19,000 names.

As my readers know, persons subject to U.S. jurisdiction with signature authority over, or a financial interest in, an offshore financial account must report that offshore financial account to the IRS on TD F 90-22.1 Foreign Bank Account Report (FBAR) form.

The key question that remains is whether the announcement suggests that individuals with secret foreign bank accounts should take advantage of the current tax amnesty, or continue to hope that UBS will not be forced to turn over the names.

Given the potential for criminal tax penalties, as well as civil penalties for tax fraud; not to mention an FBAR penalty of 50% of the balance in an offshore bank account, this question can only be answered after consultation with a knowledgeable tax attorney who knows all the facts of your case.

If you would like a consultation with a tax litigation attorney at the Brager Tax Law Group, please give us a call.

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The Swiss government has threatened to seize UBS Swiss bank account records that belong to U.S. citizens rather than allow that information to fall into the hands of the Internal Revenue Service (IRS). The Swiss made the statement in a court filing in the UBS summons lawsuit pending in District Court in Miami, Florida.

Does this mean that U.S. taxpayers who have offshore accounts, and who committed tax fraud or tax evasion can sleep more easily at night? Maybe. The Swiss and the IRS are engaged in a high stakes poker game. No one knows how it is going to turn out. Even if the IRS doesn’t get the information in this so-called John Doe summons case there are numerous other ways it can come to the attention of the IRS. For example, most tax fraud comes to light when an unhappy spouse or employee turns informant. Last year the story broke of how a bank employee at LGT in Lichtenstein was bribed by German officials to turn over secret offshore bank account records, which the Germans in turn handed over to the IRS.

U.S. citizens and residents who have Swiss bank accounts at UBS have a lot at stake. Even if they paid the bulk of their taxes they could be liable for Foreign Bank Account Report (FBAR) penalties equal to 50% of the balance in their account.

If you have an offshore bank account at UBS or anywhere else in the world, now is the time to consult a tax lawyer to understand your options, and see if the IRS tax amnesty makes sense for you. If you would like a consultation with the tax litigation attorneys at Brager Tax Law Group, A P.C. please call us.

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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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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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The U.S. Treasury has announced an agreement with Switzerland to amend the Swiss U.S tax treaty to allow the U.S. to more easily locate those engaged in tax fraud and tax evasion. The Swiss – U.S. treaty would be amended to comply with Article 26 of the Organization for Economic Co-operation and Development (OECD) Model Income Tax Convention. Treasury Secretary Tim Geithner stated "This Administration is committed to reducing offshore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules. "This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion."

The treaty must still be approved by the Swiss Parliament. At this point it is not known what effect this will have on the UBS summons enforcement action in Florida in which the Internal Revenue Service is attempting to obtain the names of over 50,000 UBS customers with offshore accounts who may have committed tax fraud or tax evasion.

If you have a Swiss financial account or other offshore bank account, the deadline is June 30th for filing an FBAR with the IRS. If you need to make a voluntary disclosure under the IRS Tax Amnesty, contact the tax controversy attorneys at Brager Tax Law Group, A P.C.

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In an address to the Organization for Economic Co-Operation and Development (OECD) on June 2, 2009, IRS Commissioner Douglas Shulman announced renewed IRS efforts to combat international tax fraud and tax evasion.

Shulman promised to create an inhospitable climate for tax evasion and offshore secrecy by continuing and expanding cooperation with G-20 heads of state, who pledged in unity this April to act against tax havens that impede legitimate tax enforcement. He hopes to enhance information reporting on offshore account holders, increase tax withholding on U.S. citizens with foreign bank accounts in countries deemed "tax havens," double tax penalties for failure to file FBARs, and allow the IRS more time for investigation by increasing the statute of limitations from three years to six years.

The IRS’ effort to eliminate tax fraud and tax evasion is supported by the expansion of President Obama’s 2010 budget. The budget provides funds for increased reporting on cross-border wire transfers, which would allow the IRS to gather information and target individuals who transfer money to and from offshore accounts. Also included is funding for 800 new employees who will deal specifically with international tax enforcement.

In his address to OECD, Commissioner Shulman promised, “If you are a U.S. taxpayer holding overseas assets, you must pay your taxes or we will be very focused on finding you. It’s as simple as that.”

If you have an offshore bank account and have not filed an FBAR, you may wish to consult with a tax attorney at Brager Tax Law Group, A P.C. to understand whether or not you have a tax problem.

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

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The Internal Revenue Service (IRS) has issued FAQs related to its offshore tax amnesty. As I have previously documented on March 23rd, the IRS announced a “tax amnesty” for owners of Swiss and other offshore accounts who failed to file TDF 90-22.1 (Report of Foreign Bank and Financial Account) a/k/a an FBAR. Under the offshore voluntary disclosure program a taxpayer who makes a voluntary disclosure in a timely manner can limit his penalties to 20 per cent of the highest balance in his offshore accounts during the 6 year lookback period, and avoid criminal tax penalties, along with the 75 per cent civil tax fraud penalty. In addition he must pay the income tax due for the last 6 years, plus a 20 per cent accuracy penalty under IRC Section 6662, along with interest.

The terms of the offshore voluntary compliance program as announced left many questions unanswered. Although the FAQs fills in some holes in the offshore tax amnesty program it still leaves gaps. For me the FAQ answers several key questions:

1. How is the 6 year lookback period calculated?

Under the tax amnesty taxpayers are responsible for the 2003 to 2008 tax years.

2. Are “quiet disclosures” acceptable?

No. Taxpayers must make a “noisy disclosure” by contacting the IRS Criminal Investigation Division. Filing amended income tax returns and FBARs is not sufficient.

I will try and post additional information over the next few days.

I would point out, however, that the FBAR FAQs still leaves unanswered the question of whether, under appropriate circumstances, the IRS will negotiate lower FBAR penalties under previously issued FBAR guidelines.

If you have a UBS bank account, or any offshore bank account, and would like further information about the IRS voluntary disclosure program, contact the tax problem attorneys at Brager Tax Law Group, A P.C.

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

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According to a report on Reuters, UK, Manhattan District Attorney Robert Morgenthau said New York State investigators are looking for more cases like the one in which London-headquartered Llyods agreed in January to forfeit $350 million to the United States and New York in connection with faking records related to clients from Iran.

Morgenthau said he was going to Washington to work on expediting the investigations. Although it appears that the New York investigations are centered on money laundering violations by banks and financial institutions, it is probable that evidence will be uncovered relating to individuals with offshore accounts; and such information will be turned over to the IRS, triggering tax fraud and FBAR violation investigations.

Morgenthau's biography highlights that as a U.S. Attorney, he prosecuted tax fraud cases.

If you have an offshore bank account, you should contact a tax litigation attorney to discuss the current IRS "tax amnesty" before the deadline in September passes.

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

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Tax litigation in the United States Tax Court (Tax Court) would be affected by proposed changes to the Tax Court’s Rules of Practice and Procedure (Tax Court's Rules). Several of the changes are intended to conform the Tax Court’s Rules with the Federal Rules of Civil Procedure which govern tax litigation in the District Courts. For example, Tax Court Rule 71 would be changed to limit the number of interrogatories served to 25.

The Tax Court has requested public comments on the proposed amendments. Written comments must be received by May 27, 2009.

If you have a tax controversy matter which you haven’t been able to resolve contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

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Posted In: Tax Litigation and Tax Controversy

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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 revised Form 90-22.1, Report of Foreign Bank and Financial Accounts, also known as an “FBAR.” Although the FBAR was released in October, it is only required to be used for FBAR filed after Dec. 31, 2008. The purpose of an FBAR is to report a financial interest in, signature authority, or other authority over one or more financial accounts in foreign countries. Failure to file an FBAR can result in criminal tax penalties as well as onerous civil tax penalties. The civil tax penalties can be as high as 50% of the highest balance in an unreported foreign bank account. The FBAR is due on June 30th of each year, and is not filed with the tax return. Instead it is filed with the IRS office in Detroit, Michigan. However, individual filers must check the box on Schedule B of Form 1040 indicating that they have a financial interest in, or signatory over an offshore bank account.

The FBAR has been in the news a great deal lately in light of the IRS’ stepped effort to combat offshore tax evasion. This increased focus on ensuring that U.S. citizens report their offshore bank accounts to the IRS can be seen in several recent developments including the signing of a new tax treaty with Lichtenstein, the indictment of UBS banker Bradley Birkenfeld and the IRS pursuit of holders of UBS Swiss bank accounts. According to published accounts Birkenfeld , who has pled guilty to various tax crimes, is naming names of individuals who held “secret” Swiss bank accounts.

Given the increased probability of being charged with tax fraud or tax evasion U.S. citizens would be well advised to consult a tax attorney to determine whether a voluntary disclosure to the IRS would be the best strategy.

Should you need advice on these issues or any other tax problems contact the tax lawyers at Brager Tax Law Group, A P.C.

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Posted In: Tax Litigation and Tax Controversy

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On Dec. 8, 2008 Lichtenstein entered into a tax treaty, which will allow the Internal Revenue Service ("IRS") access to foreign bank account information even though there is no evidence of tax fraud. The treaty, which is known as a Tax Information Exchange Agreement (TIEA), will provide the United States with access to banks and other information needed to enforce U.S. tax laws. The TIEA will apply in both civil and criminal tax cases. The TIEA provides that information will be provided without regard to whether or not the conduct being investigated would constitute tax fraud under Lichtenstein law. Nor is there any requirement that there be a tax fraud investigation under way in the United States.

The type of information available to the IRS is very broad. For example, the TIEA contemplates Lichtenstein to provide the following non-exclusive types of information:

1. Information held by banks and other financial institutions including nominees and trustees acting in an agency or fiduciary capacity;
2. Information regarding the ownership of companies, including information on all persons in the ownership chain
3. In the case of trusts, information on the trustees, settlers and beneficiaries;
4. In the case of foundations, information on the founders, members of the foundation council, and beneficiaries.

The TIEA permits the Internal Revenue Service not just to obtain documents, but also to arrange for Lichtenstein officials to take the depositions of witnesses. The TIEA contemplates that IRS officials may be present at these depositions.

The TIEA will apply to information related to 2009 and later years. However, it will allow for the furnishing of documents created prior to Jan. 1, 2009 provided that it is related to an investigation for years after 2008. Indeed the appendix to the TIEA gives the following example: “…if assistance is requested with respect to a taxpayer’s bank transactions occurring after December 31, 2008, and documents such as, but not limited to, a signature card for the account in question were executed prior to January 1, 2009 the parties would exchange the documents.”

Given the significant criminal tax problems, as well as civil tax problems that could arise from the IRS obtaining information regarding unreported income secreted in offshore bank accounts, it would be a good time for U.S. citizens with “secret” accounts to consult with a tax attorney to see how these tax problems should be dealt with. One way is through a voluntary disclosure. However, voluntary disclosures are not without risks, and all of the facts and circumstances need to be considered.

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Posted In: Offshore Bank Account Problems , 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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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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Swiss banks have long held a reputation for being the place to go for secrecy. The mystique may, however be crumbling. Last month a District Court judge in Miami, Florida granted an Internal Revenue Service John Doe summons request. The court ordered UBS to turn over records with the names of US taxpayers who requested their accounts be kept hidden from the IRS. Undoubtedly the IRS believes that these taxpayers may have committed tax evasion by failing to report income. U.S taxpayers who have foreign bank accounts are generally required to report income from those accounts on their U.S. tax returns. In addition, they are required to declare the existence of these offshore bank accounts on their tax returns, and they are required to file Form TDF 90-22.1. Failure to file the Form TDF 90-22.1 can result in both criminal tax penalties, and civil tax penalties. The criminal tax penalties can result in a fine of not more than $ 250,000, or five years in prison, or both. 31 U.S.C. 5322(a).

The IRS has long had a voluntary disclosure program which provides some assurances to taxpayers who wish to go confess their sins to the IRS, before the IRS knows they have comitted tax fraud . It is questionable whether taxpayers who are clients of UBS meet the requirements of the voluntary disclosure program. Nevertheless there still may be room for avoiding tax evasion charges.

Still the civil tax penalties can be quite onerous. For willful violations occurring prior to October 23, 2004, a penalty not to exceed the greater of an amount equal to the balance of the account at the time of the violation (not to exceed $100,000) or $25,000.

For willful violations occurring after October 22, 2004, the maximum penalty is increased to the greater of $100,000, or 50 percent of the amount equal to the balance of the account at the time of the violation. 31 USC 5321(a)(5).

If you have questions regarding the IRS voluntary disclosure program, or have any other tax problems, contact the IRS tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Tax Fraud , Tax Litigation and Tax Controversy

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Michael Fuller, an accountant from Florida, and Carl Perry, a food broker from Greenville, South Carolina, were sentenced on May 5, 2008 in federal court for tax evasion. Fuller was found guilty by a jury in July of 2007 and Perry pleaded guilty in May 2007 for conspiracy to defraud the United States pursuant to 18 U.S.C. 371. United States Circuit Judge William Wilkins sentenced Fuller and Perry to twelve months and one day in prison and three years probation, respectively.

Fuller and Perry committed tax evasion during a period from the late 1990's till 2001. According to the Department of Justice, Perry used offshore accounts and other entities, which were set up by Fuller, to hide income from the Internal Revenue Service (“IRS”). A credit card was also set up with another offshore bank which was funded with Perry’s untaxed income. Fuller filed false income tax returns and other documents with the IRS to hide their tax evasion scheme.

If you have been accused of tax evasion contact the Southern California tax lawyers at Brager Tax Law Group, A P.C.

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

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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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A Southern California tax return preparer, Matthew Carl Berry, was convicted of one count of conspiracy to defraud the IRS pursuant to 18 U.S.C 371, and three counts of filing false federal income tax returns. According to the indictment among other things Berry prepared false documents to be used in IRS tax audits. According to the press release issued by the Department of Justice Tax Division’s criminal tax attorneys, Berry prepared fraudulent tax returns by claiming mortgage interest deductions for taxpayers who did not own homes. Berry faces up to 5 years imprisonment, and a fine of up to $250,000 for the conspiracy conviction, and another three years for the criminal tax convictions for filing false income tax returns. Berry could also be subject to civil tax preparer penalties pursuant to Internal Revenue Code § 6694.

If you have concerns about exposure to criminal tax fraud penalties or civil tax fraud penalties contact the tax dispute lawyers at Brager Tax Law Group, A P.C.

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

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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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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 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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Chief Judge of the United States Tax Court John Colvin announced the other day that the Tax Court has adopted amendments to the Tax Court’s Rules of Practice and Procedure. Most of these changes are effective as of March 1, 2008. However, the rules relating to remote access to electronic files will be effective at some point in the future on a date to be announced by the Tax Court. For most taxpayers the Tax Court is the only place for a tax controversy to be heard by independent judge, and not the Internal Revenue Service. It is where the bulk of federal tax litigation occurs.

In the past when a Tax Court Petition was filed the Tax Court’s rules required that the taxpayer list his or her social security number along with his address. Due to privacy concerns new U.S. Tax Court Rule 20(b) provides for the submission of a separate statement with the taxpayer’s social security number. That statement will not, however, be part of the Court’s file, and hence not available to the general public. New Tax Court Rule 27 directs all parties including the IRS to redact taxpayer identification numbers, dates of birth, names of minor children and financial account numbers in filings with the Tax Court.

In addition U.S. Tax Court Rule 27(b) provides for internet access to case documents to the parties and their counsel.

Although the U.S. Tax Court is located in Washington, D.C. it holds hearings around the United States including Los Angeles, San Francisco, San Diego, and Fresno, California.

If you have a tax dispute with the IRS, and need tax litigation or tax controversy help please contact the Southern California tax lawyers at Brager Tax Law Group, A P.C. We handle cases not only in the United States Tax Court, but also the federal district courts, and the United States Court of Federal Claims.

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Posted In: 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 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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