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How to Relinquish Citizenship for Tax Purposes
Before you relinquish your U.S. citizenship in order to avoid paying taxes, be advised that some taxpayers will be subject to an expatriation tax, also known as the “exit tax” upon renunciation of citizenship. The IRS will effectively act as though you sold all of your worldwide assets in a taxable transaction the day before you expatriated.  Long-term capital gains tax rates are currently as high as 23.8%, including the net investment income tax, so plan your expatriation will the help of a tax attorney.

How to Relinquish Citizenship

Both U.S. citizens and green card holders are considered U.S. taxpayers, and each category of taxpayers has different rules for relinquishing their tax citizenship. Citizens must officially relinquish their citizenship, shown by a certificate of loss of nationality or by a U.S. court’s cancelation of a naturalized citizen’s certificate of naturalization.

What is the Exit Tax Charged to Expatriates?
Some taxpayers may be attracted to the idea of expatriating in order to reduce their tax liability, but the “exit tax” that must be paid upon renunciation of citizenship can complicate those plans. This exit tax, also known as the expatriation tax, treats the taxpayer as though he or she has sold all assets at fair market value the day before expatriation. Obviously, this could result in an enormous tax bill for some taxpayers.

Covered Expatriates Under the Exit Tax

Only “covered expatriates” are subject to this tax. Three categories of taxpayers could be considered “covered expatriates”.

The Value of Attorney Client Privilege with Your Tax Lawyer
Attorney client privilege is a concept from the law of evidence that protects communications made between a client and his or her attorney. A client can claim this privilege to prevent the attorney from being forced to testify or produce evidence that is protected under this rule. This encourages the client to be forthcoming with all the information the attorney needs to represent the client’s interests.

Communications with accountants and tax preparers may also be privileged, but these privileges are much more limited than the attorney client privilege. There are situations where accountants and tax preparers can be forced to testify as a witness against their own clients.

Attorney Client Privilege Offers the Most Protection

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

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

HSBC
The 2010 release of internal HSBC Switzerland communications made during the early to mid-2000s led to uncovering countless acts and attempts to conceal client assets and income by the bank. Some of the alleged practices revealed by this initial leak included:

  • The bank would arrange to provide clients with bricks of cash. The cash was often in foreign currencies that would be of little practical value in Switzerland.
  • Proactive and aggressive marketing of schemes providing tax-free growth.

tax-law-nominee-220x180.jpgEach year, LexisNexis honors a select group of blogs that set the online standard for a given industry. I’m honored that my blog is one of the nominated candidates for the Top 20 Tax Law Blogs of 2011, featured on the LexisNexis Tax law Community.

Each comment is counted as a vote toward my blog, so I invite your comments to support my nomination. To submit a comment, visitors need to log on to their free LexisNexis Communities account. If you haven’t previously registered, you can do so for free by following this link.

Click here and you will be led to the announcement post on LexisNexis Tax Law Blog Nominees. The comment box is at the very bottom of the blog nomination page. You will only need to fill in your name and type in Tax Problem Attorney Blog with your comments in the comment box.The comment period for nominations ends on November 18, 2011.

Last week I blogged that UBS and the IRS had announced a preliminary settlement to the lawsuit seeking the names of 52,000 U.S. persons with Swiss bank accounts at UBS who the IRS suspects of tax evasion, and failing to file foreign bank account reports (FBARs). The failure to file a TDF 90-22.1 a/k/a an FBAR can result in a penalty of 50% of the balance in the offshore bank account. UBS and the IRS were expected to file final settlement papers with Miami Federal District Court Judge Gold by Friday August 7th. However, on Friday the parties told Judge Gold that they needed until Wednesday, Aug. 12th to finalize a settlement which most tax attorneys including myself believe would involve UBS turning over the names of additional Swiss bank account owners.

Once a list is turned over an offshore bank account owner whose name is on the list would no longer qualify for the IRS tax amnesty program, and would potentially be subject to both civil and criminal tax fraud charges, as well as the 50% FBAR penalty.

Time may be of the essence for holders of UBS Swiss bank accounts. We strongly recommend consulting immediately with a knowledgeable tax lawyer to find out more about the terms of the IRS voluntary disclosure program.

The Internal Revenue Service (IRS) increased the number of tax audits of small and medium size corporations between fiscal year 2005, and 2007 according to a report by TRAC. The number of tax audits for corporations with assets of less than $5 million increased by 41%, and tax audits for corporations with assets of between $5 million and 10 million increased by 24%. Tax audits of corporations with assets from $10 to $50 million in assets rose by 29%. On the other hand IRS tax audits of the largest corporations, those with assets over $250 million, dropped by 38%. The number of tax audits for those corporations with between $100 million and $250 million dropped by 31%. Some see this as a sign that the IRS is cracking down on small businesses while it is easing up on the largest companies. However, the IRS says that in fact the IRS doesn’t need to audit as many large corporations because of the success of the IRS pre-filing agreement programs.

Whatever the merits of the argument, small and medium size business need to be aware of the increased risk of a tax audits

If your small or medium size business has an IRS, SBE, FTB or EDD tax audit, and you need help contact the Los Angeles, California tax dispute attorneys at Brager Tax Law Group, A P.C.