On February 12, 2014, the United States District Court granted the United States’ motion for summary judgment which entitled the US to foreclose upon a taxpayer’s properties for back payroll and income taxes.
In US v. DeSerio, a couple owned two properties in Cornville, Arizona. The couple owed outstanding federal employment, unemployment, and income tax liabilities covering multiple tax years from the early 1990s through 2007. In the aggregate the couple owed the IRS over 1 million in back taxes. The IRS utilized the powers authorized in IRC §6321 and §6322 and filed a notice of federal tax lien in favor of the United States. The notice of federal tax lien attached to all of the taxpayers property rights including two Arizona properties owned solely by the taxpayer.Continue Reading...
The IRS has been decimated by budget cuts. Yet, despite its budget, the IRS has collected more in revenue. One reason for the increase in revenue was because the IRS focused on higher income earners. The other reason for the increase of revenue was the expanded utilization of correspondence audits. Correspondence audits occur by mail and focus on a specific schedule or line-item rather than the entire tax return. These IRS audits are cheaper than office and field audits and can target taxpayers of all income classes.
The issues that are addressed through the correspondence audit often involve Schedule A issues such as the deduction of medical expenditures, home mortgage interest, unreimbursed employee expenses and charitable donations. If you itemize your deductions, as opposed to taking the standard deduction, then you would file a Schedule A with your 2013 Form 1040. Therefore, you should be aware of IRS tax audits pertaining to Schedule A.
This is a follow up to my September 23, 2013 article about Beanie Babies creator, Ty Warner, and his tax evasion plea.
U.S. citizens and residents are required to disclose foreign accounts with an aggregate balance of greater than $10,000.00 by filing an FBAR (Form TD F 90–22.1) with the IRS. The FBAR is an information return and does not report a tax liability. Taxpayers report on Schedule B of their US income tax return (Form 1040), income generated from offshore foreign accounts.
As part of the plea agreement, Warner agreed to pay a $53.6 million in back taxes for failing to file FBARs and report more than $3.1 million in income. Warner faced jail time, 46 to 57 months, but only received probation and community service. The U.S. Justice Department has decided to appeal the billionaire’s sentence.
I was surprised with the sentence considering recent celebrity cases such as Lauryn Hill who went to jail for three months for failing to pay about $1 million in taxes. Although the Hill case was not about an offshore tax haven, it’s ostensibly not as egregious as the Ty Warner case. According to prosecutors, Warner’s activity was egregious. Prosecutors alleged that Warner failed to tell his accountants and the IRS about the earned income and the existence of the UBS account.
In 2009, the IRS initiated a series of offshore voluntary disclosure initiative programs. Each program was designed to settle with taxpayers who failed to report offshore income and file FBARs. Each offshore initiative, with the exception of the 2012 OVDI program, which was open ended, seemed like it was the taxpayers last chance or the government would prosecute them for tax evasion.
Generally speaking, if you got to the IRS before they got to you, then you could participate in the offshore disclosure program. Once cleared by the IRS Criminal Investigation Unit, you would:
- disclose all of your foreign bank accounts for the previous eight years;
- file 8 years worth of delinquent income tax returns and FBARs;
- pay all income tax owed plus interest on the understatement;
- pay an accuracy related penalty, 20%, on the taxes owed; and
- pay a penalty in the amount of 27.5% based on the highest aggregate balance in the previous eight years. In consideration for the foregoing, the IRS would not prosecute you for tax evasion.
I believe the lenient sentence terrifies DOJ which is why they had to appeal this case. DOJ is concerned that a slap on the wrist for such a large, high profiled case will not send the right message to others with offshore tax havens. The IRS has been cracking down on offshore tax evasion and Warner’s case has been cited as one of the largest cases. DOJ faces the precedent that if you’re wealthy and write a check to pay back taxes, then you could avoid jail time.
I will keep you posted on DOJ’s appeal of Mr. Warner’s tax evasion case as news develops!Continue Reading...
If you are struggling because of taxes you can’t pay, the weight of the IRS looming over your shoulder can be heavy. Before you let tax problems get you down, you need to know that you have options. Below is a non-exhaustive list of tax relief options. With one of these tax relief options, you can make that tax debt manageable.
File an Offer in Compromise
One of the ways I help my clients overcome tax debt is by helping them file an offer in compromise. The IRS may accept less than what you owe on one of several grounds: (1) doubt as to liability; (2) doubt as to ability to collectibility; or (3) to promote effective tax administration in exceptional circumstances or to avoid an economic hardship.
(1) Doubt as to Liability
With a doubt as to the liability offer, you are questioning the validity of the amount owed. When filing your doubt as to liability offer, you must disclose evidence in support of your position. The amount of your offer would depend upon the degree of doubt found in your particular case. Other alternatives to a Doubt as to Liability offer include the following: applying for an audit reconsideration, amending your tax return, applying for innocent spouse relief, or filing a claim for refund and request for penalty abatement.
(2) Doubt as to Collectability
The doubt as to collectability offer in compromise (OIC) is what tax relief companies are promoting. The doubt as to collectability offer in compromise is based on your ability to pay and not what you owe. The IRS will review your personal and business balance sheet (assets and liabilities) and your personal and business monthly income and expenses (income statement). Based on your balance sheet and income statement, the IRS will determine your reasonable collection potential. If the IRS believes that it will not be able to collect the back taxes owed in full, then it may settle for an amount that is less than what is owed. Therefore, you can owe a lot in taxes, but if your reasonable collection potential is a little, then the IRS may settle your tax debt.
While the IRS reviews the OIC, you’re required to make partial payments to IRS. If you make a lump-sum offer (which include single payments as well as payments made in five or fewer installments upon acceptance of the offer), then you must make a down payment of 20% of the amount of the offer with the application. For periodic payment offers, you must comply with your proposed payment schedule while the offer is being considered.
(3) Effective Tax Administration
With an Effective Tax Administration (ETA) offer, you are acknowledging to the IRS that you owe the tax and have the ability to pay, but if you pay, then you will face a hardship. The ETA offer is the most subjective and difficult offer in compromise to get approved.
The offer in compromise is not a one size fits all option. For example, an offer in compromise can provide the IRS with additional time to collect a back tax. If you plan on filing a tax motivated bankruptcy, then prematurely filing an offer in compromise can lengthen the time that taxes are considered a priority claim. Priority claims must be paid in full in a bankruptcy plan and are considered non-dischargeable.
The other problem I see with offer in compromises is that individuals and businesses offer too much to the IRS. There are various techniques that can lower the amount in a tax settlement.
Tax relief companies make it sound like filing an offer is easy, but it’s not. Sure completing any tax form is easy, but there is an analysis that must occur before filing the tax return. If everyone was capable of settling their taxes for less than what was owed, then there would be no incentive to timely pay your taxes.
If you feel that an Offer in Compromise is the best solution for your tax debt problem, I can help you determine the amount to offer and help improve your chances of approval.
Suspending IRS Collection Due to Economic and Other Hardships
Many tax relief companies have been advertising for CNC status (also known as currently not collectible and Status 53) which is advantageous in a limited number of circumstances. Typically, I do not recommend CNC because it won’t eliminate your tax problem. Rather, if the IRS grants CNC, then your account would be placed in forbearance and the IRS would cease all collection activity. Although your account is temporarily closed, interest and penalties will continue to accrue. Furthermore, IRS enforcement action such as, levies, garnishments, seizures, etc., can begin at any time before the expiration of the 10-year limitations period to collect. Therefore, the IRS will monitor your account and may request that you provide an updated financial disclosure.
Another problem with currently not collectible status is that the IRS will file a tax lien. A tax lien can spell disaster for certain occupations, bankers, stock brokers, financial planners etc. Additionally, if you are planning to borrow money in the future, i.e. buy a home, business loan, etc., then the filing of a tax lien can destroy your chances.
In order to apply for CNC status, a financial disclosure is necessary. If you do not have assets with equity or an ability to pay, then the IRS will consider temporarily closing your file.
I can help you determine if currently not collectible is the right option or if a better option is available. Most of the time, there is a better option than CNC.
Set up an Affordable Payment Plans
If you just need a little more time to pay your tax debt, I can help you set up an affordable monthly payment plan with the IRS. An IRS payment plan can help stop wage garnishments, bank levies, or seizing assets. As long as you make your payments as agreed, the IRS will sit back and happily collect their money.
The key to setting up a payment plan is making the monthly amount large enough to satisfy the IRS, but small enough to fit into your budget. I can help you determine what amount this is, then help you set up that payment plan, so that you can stop the IRS from collecting.
Innocent Spouse Relief
When you file a joint return, you are jointly and severally liable for all of the tax, additions to tax, interest, and penalties associated with the return. When applying for innocent spouse relief, you are asking the government to let you off the hook from the liability. There are three different types of relief: 1) innocent spouse relief, 2) separation of liability relief, and 3) equitable relief. Each type of relief has requirements that must be satisfied to receive relief from joint and several liability.
Having the IRS grant innocent spouse relief is not easy. The application requires a thorough investigation of the facts and law. I help you with filing a claim for innocent spouse relief and appealing the IRS’s denial of innocent relief administratively and in US Tax Court. My representation includes helping both the requesting and non-requesting spouse.
Eliminating Tax Penalties
The IRS will assess penalties on taxpayers, but what many taxpayers don’t know is that the IRS also has an extensive list of reasons that those penalties can be abated. Before you assume that you have no choice, consider whether or not you are eligible for penalty relief.
The IRS will abate penalties upon showing reasonable cause and not willful neglect. The IRS provides examples of reasonable cause such as ignorance of the law, mistake, forgetfulness or undue hardship, natural disasters, casualty, fire, death, serious illness or the inability to obtain records. You can even qualify for abatement if you were given poor written or oral advice from your tax adviser or directly from the IRS. I like to view reasonable cause as meaning anything that impaired your ability to timely file and timely pay your taxes.
Other tax penalties such as civil tax fraud have a different standard such as proving that you did not intentional evade taxes at the time of filing the return. Unlike a failure to file or failure to pay penalty (non-intentional), civil fraud has criminal implications. The moment that an IRS agent is considering civil fraud, you must seek counsel or, if you are a CPA or EA, seek counsel from a tax attorney. .
If you are facing a tax penalty, talk to me. You may be surprised that you qualify for a tax penalty abatement. Don’t assume that you have no choice before you pursue legal help.
Bankruptcy and Tax Debt Relief
As a last resort, you may want to consider bankruptcy as an option to resolve your back taxes. Filing a bankruptcy petition serves to place a “stay” on further IRS collection actions. Certain taxes that cannot be paid from the bankruptcy estate may be discharged. There are specific time periods that determine if you can discharge your taxes. Generally speaking, you can discharge income taxes, not payroll trust fund taxes or excises taxes, that came due 3 years before filing for bankruptcy, as long as it has been at least 2 years since you filed, and 240 days since the taxes were assessed. These rules become incredibly complicated based on provisions that toll, extend the period of limitations, whether or not the government has filed a federal tax lien, and each financial circumstance to determine how the rules would be applied in bankruptcy.
I can help determine if bankruptcy is a viable option and, if so, assist you with the timing of when to file a bankruptcy petition. In some cases, dealing with the IRS administratively and in bankruptcy is necessary.
If you are a bankruptcy attorney, certified public accountant, or enrolled agent that requires assisting your client with a tax motivated bankruptcy or are an individual or business that is need of counsel to deal with tax debts, I can help.
Tax problems should not take over your life. As an experienced tax relief attorney, my goal is to help you manage and resolve your tax problems. Contact me, attorney Todd S. Unger, today to begin taking steps towards true tax relief. You can eliminate the weight of the IRS on your shoulders with the right advice.
The 2014 filing season has officially begun. If you have not filed in years or are looking for a tax preparer, then you must read this blog.
I have not filed a tax return in years!
If you have not filed in years, do not put off another year of filing. The failure to file a tax return is costly and exposes you criminally.
First, you may be owed a tax refund from the government. The IRS has a statute of limitations period which is the later of three years from the due date plus extensions or two years from when the tax was paid. Therefore, you can lose your tax refund by not filing timely.Continue Reading...
Matters that touch on failure to pay income taxes have received a lot attention with tax authorities stepping up efforts to net those who conceal their financials. According to the Chicago Tribune, Beanie Babies, the founder of Try Warner was sent for a two-year probation term with 500 hours of hard work after pleading guilty of hiding a colossal amount of untaxed money in a Swiss bank.
While the U.S. District Judge lauded Warner for his benevolence and charity work, he was alive to the fact that bypassing the federal tax law was a serious matter that cannot be condoned. Warner could be seen taking notes as the judge read the ruling and only stood to apologize for his conduct that denied the nation millions in tax revenue. The philanthropist said it was regrettable of the mistake that would later cost him his respect and was sorry for his actions or inaction.Continue Reading...
According to the IRS, the overall revenue collected from tax audits increased year in FY 2013. The 2013 increase in revenue is in spite of the fact that tax examinations decreased.
The IRS budget has been on the decline since 2010. The decreased budget has been the catalyst for the IRS to focus on high income taxpayers. The IRS believes it can get more bang for the buck by going after high net worth taxpayers.Continue Reading...
Answer: Yes! This is a question that that I’m always asked around tax season and the tax extension deadlines.
Putting aside that it is a misdemeanor to fail to file a tax return and a felony for the willful failure to file a tax return, it can be financially devastating to not file on time.
One of the biggest IRS penalties is the failure to file a tax return by its due date plus extensions. The failure to file penalty runs at 5% per month up to maximum of 25% of the total tax due. For example, if the tax return is reporting a balance $100,000.00 and its five months late, the IRS will assess an additional $25,000.00 in tax penalties. Therefore, by filing the return timely, you would avoid criminal exposure and the costly failure to file penalty.
In addition to the failure to file penalty, the IRS would assess the failure to pay penalty on the amount owed plus statutory interest. The failure to pay penalty is assessed at .5% per month up to a maximum of 25% for the late payment of tax. The failure to file penalty is reduced by the failure to pay penalty when both penalties run concurrently. If the government issues a notice of intent to levy and you do not pay within 10 days from the notice, then the penalty increases to 1% per month. Therefore, if you have any money available, even if the amount is less than what is reported, then submit the funds with your tax return. That way, you reduce the exposure to the failure to pay penalty which is based on the amount of back taxes owed.
In addition to the tax penalties and the taxes owed, the IRS assesses statutory interest on both the tax reported and the tax penalties assessed. In the aggregate, penalties and interest could inflate your back taxes by 55%-75%. Therefore, by timely filing and paying what you can, you can significantly reduce the amount of back taxes owed.
The disadvantage of filing a tax return without payment is that the IRS collection cycle will begin. However, if you are proactive, you can negotiate for additional time to pay taxes, request an IRS payment plan, place your account in forbearance (i.e. currently not collectible, CNC, or Status 53), apply to settle your tax debt for less than what is owed (i.e. offer in compromise or OIC), or propose to the IRS another alternative that would resolve your back taxes.Continue Reading...
Be Careful in the 2013 Tax Season…
A recent criminal conviction serves as a reminder that you must be careful when hiring a tax return preparer to prepare your 2013 tax return.
Verlean Hollins, a Chicago tax preparer plead guilty to aiding and assisting in the preparation of 3,200 false federal income tax returns. Hollins admitted that during the 2009 through 2011 tax season, she filed 3,193 income tax returns in which she falsely claimed the eligibility of higher education tax credits for her clients.Continue Reading...
Yes. Although it’s the business entity that accrued and is liable for payroll taxes, interest, and tax penalties, the government can hold an individual personally liable for back payroll taxes by assessing the Trust Fund Recovery Penalty.
Employers are statutorily required to deduct and withhold an employee’s federal income, Social Security, and Medicare taxes. See IRC 3102(a) and 3402(a). Additionally, employers are required to match the employee’s share of social security and Medicare taxes. The withheld income tax and the employee’s share of social security taxes are referred to as the trust fund taxes. The employer’s share of social security taxes and Medicare taxes are excluded from the trust fund tax definition.Continue Reading...