Taxation

Will your estate be subject to estate taxes?

2012-02-10T09:03:00.001-08:00

Will your estate be subject to estate taxes?

“Nothing is certain,” it’s said, other than “death and taxes.” While that may be so, it’s less clear how the near future will treat the nature of the taxes upon one’s death. The so-called “death tax” is the tax that must be paid by a decedent’s estate for privilege of passing the property he held at death on to one’s heirs. More exactly, as 26 USC 2033 reads:

“The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.”

In very general terms, if a decedent owned it at death, it’s part of his or her gross estate. Absent an exclusion amount, it will currently be taxed at 35%.

Thankfully, most taxpayers have an estate that is smaller than the “exclusion amount” — the amount that is excluded from being taxed on death. Presently, that amount is 5.12 million, as adjusted for inflation. This means that one dying with assets valued at less than that are not required to pay estate tax.

However, unless Congress agrees to change the existing law within the next year, the exclusion amount will drop from 5.12 million to 1 million. Consequently, many more Americans could be become subject to an estate tax liability. For those in southern California, where the fair market value of one’s home starts at around $400K and rapidly moves upwards, half or more of their exclusion amount will be used up just trying to pass the house to the kids.

The current uncertainty in the estate tax arena surrounds Congress’ perceived unpredictability. It’s not known whether it will extend the 5 million exclusion amount, decrease it or, as some recent candidates have mentioned, repeal the entire estate tax. This is a class warfare issue and many republicans and democrats have polar opposite views in this area.

There are a multitude of lawful strategies for avoiding or minimizing estate taxes, however, and that’s something our office may be able to help with.

http://www.klasing-associates.com/Estate-Planning/Types-of-Estate-Planning-Services.shtml

A sample of our services can also be found here:

http://www.klasing-associates.com/Estate-Planning/

How successful is the IRS in litigating “tax fraud schemes”?

2012-02-09T14:10:00.000-08:00

The short answer is that the IRS is very aggressive and more often than not successful when it investigates and chooses to prosecute those it uncovers as involved in promoting or participating in tax fraud schemes.

According to IRS website at:

http://www.irs.gov/compliance/enforcement/article/0,,id=106462,00.html

The IRS has incarcerated 75.9% (in 2009), 71.1% (in 2010), and 76.8% (in 2011) of those it investigated for being engaged in tax fraud schemes. Roughly, a tax fraud scheme is a scheme to avoid taxation that is promoted to the public as legal but in reality is an illegal investment vehicle, because it attempts to avoid or minimize applicable federal tax though non legal means. What is conspicuous by its absence in the previous report, however, is that these figures do not include those cases where the IRS has civilly settled with the taxpayer without resorting to criminally prosecuting truly guilty taxpayers. This is partly good news to taxpayer. In the past, our firm has successfully settled cases with the IRS in the taxpayer’s favor where criminal prosecution was a possibility but a purely civil result was obtained often without civil fraud penalties.

Once exposed by the IRS as one promoting tax fraud schemes, the IRS may very well make it public. This page, http://www.irs.gov/compliance/enforcement/article/0,,id=246525,00.html for example, lists a number of recent promoters who were convicted. If you have been involved with a tax fraud scheme that you know in your heart is fraudulent you should consider “coming clean” before the IRS comes knocking on your door at which point criminal prosecution exposure is much harder and riskier to mitigate.

For how our firm can help with domestic) tax evasion, see:

http://www.klasing-associates.com/Tax-Law/Tax-Evasion-Fraud-Representation.shtml

For how our firm can help with international tax evasion surrounding foreign accounts and income generating assets or businesses see:

http://www.klasing-associates.com/Tax-Law/International-Tax-Law.shtml

Hiding Assets Overseas? Good News and Bad News.

2012-01-30T09:16:00.000-08:00

There’s good news and bad news for taxpayers hiding assets from the IRS in foreign accounts or for taxpayers that have previously undisclosed / reported for tax purposes, foreign income generating assets.

The good news: the penalties are less if a taxpayer “comes clean” with the IRS voluntarily, and the IRS just reopened its “Offshore Voluntary Disclosure Program” (OVDP).

http://www.irs.gov/newsroom/article/0,,id=252162,00.html?portlet=108

The IRS is affording the tax evader opportunity to repent. In the words of the IRS Commissioner, “People need to come in and get right with us before we [the IRS] find you,” because “we are following more leads and the risk for people who do not come in continues to increase.”

More good news: Our office can help. For more information on disclosing both foreign and domestic income tax evasion voluntarily thus avoiding the risk of criminal prosecution,

For International and DomesticTax Evasion see:

http://www.klasing-associates.com/Tax-Law/FBAR-Compliance-and-Disclosure.shtml

http://www.klasing-associates.com/FBAR-Compliance-and-Disclosure-FAQ/

http://www.klasing-associates.com/Tax-Law/Previous-Voluntary-Disclosure-Program.shtml

For purely Domestic Tax Evasion see:

http://www.klasing-associates.com/Tax-Law/Tax-Evasion-Fraud-Representation.shtml

The bad: The FBAR penalty of the previous 2011 Offshore Voluntary Disclosure Program has been raised from 25% to 27.5%. However, some tax evaders – those with less than $75,000 in offshore assets or inherited accounts that they have taken no action in regards to – may still qualify for the 2011 OVDI program’s penalty at a lower level, either 5% or 12.5%. The current program has no scheduled end date but the penalties are expected to continue to increase over time. Don't delay - contact our office today!

The number one reason why a tax evader would want to “come clean” through this program is because if the IRS finds a taxpayer before her or she comes forward voluntarily, he or she will surely be in a world of hurt, facing draconian penalties often in a multiple of the value of the offshore asset and the very real possibility of criminal prosecution.

Bad Economy? The Gov Turns Up the Heat on Tax Evaders

2012-01-25T03:48:00.000-08:00

One strategy counties use for collecting revenue during hard economic times is increasing the pressure on those committing tax fraud and tax evasion. According to the Associated Press

(http://hosted.ap.org/dynamic/stories/E/EU_GREECE_TAX_EVASION?SITE=NVREN&SECTION=HOME&TEMPLATE=DEFAULT

Bankrupt Greece, for example, has come up with a list of some 4,000 persons who committed tax fraud/evasion, and it is hounding them for back taxes and penalties.

Greece’s outstanding national debt is approximately 78 billion, and it seeks 19.5 billion from tax evaders. If Greece officials were to collect all of this amount (which they won’t), they would nearly break even this year.

Because of California’s fiscal crisis, one wonders whether it will follow Greece’s lead in attempting to turn up the heat on those who have committed tax fraud.

The webpage for California’s “Franchise Tax Board” (https://www.ftb.ca.gov/online/fraud_referral/index.shtml)
describes tax fraud to include the following:

• Failing to report all income received.

• Claiming to be a resident of another state while residing in California.

• Making false or fraudulent claims for refunds.

• Not filing state income tax returns.

• Questionable tax practitioner practices.

• Opening and closing of new businesses to evade taxes.

• Preparing documents, books, and records that understate the true income or overstate the expenses of a business.

The federal government has already begun to redouble its efforts to fight tax fraud. (http://www.thefreelibrary.com/IRS+notice+2011-34%3A+Foreign+Account+Tax+Compliance+Act.-a0274114316);

In 2010, Congress passed a law known as FACTA (“Foreign Account Tax Compliance Act”) to fight tax evasion by U.S. taxpayers with foreign accounts. This Act applies to accounts beginning December 31, 2012. This act coupled with new 8938 filing requirements has made it even more difficult for U.S. citizens to hide assets in foreign countries.

See: http://www.natlawreview.com/article/reporting-foreign-financial-assets-form-8938-and-fbar

In short, we may see even further efforts, by both States and the federal government, to fight tax fraud as economic conditions continue to be less than favorable.

If you have undisclosed foreign accounts or income producing assets / entities, we can help, See:

http://www.klasing-associates.com/Tax-Law/FBAR-Compliance-and-Disclosure.shtml

http://www.klasing-associates.com/Criminal-Tax-Representation-FAQ/

http://www.klasing-associates.com/Tax-Law/International-Tax-Law.shtml

http://www.klasing-associates.com/Tax-Law/International-Tax-Law-FAQ.shtml

If you have committed domestic income tax evasion and want to amend prior returns to greatly reduce the risk of eventual criminal prosecution we can help, See:

http://www.klasing-associates.com/Tax-Law/Tax-Evasion-Fraud-Representation.shtml

I recommend Ted Kleinman; a superb CPA that specializes in foreign taxation

2011-12-21T16:38:00.000-08:00

I would like to acknowledge the work of Ted Kleinman CPA in working with me as a Kovel accountant on my most sophisticated voluntary disclosure involving foreign accounts, assets and multinational companies to date. His knowledge of foreign tax compliance requirements garnered over his 30 year career is superb. I plan on working with him closely for similarly situated clients in the future.

His website is as follows:

http://ustaxhelp.com/

Bad News for California Participants in the Federal (IRS) Voluntary Classification Settlement Program

2011-10-21T11:15:00.000-07:00

This positing is a follow up to my blog posting on 9/21/11 about the new IRS Voluntary Classification Settlement Program. Under this program if a taxpayer has misclassified a worker as an independent contractor (IC) when the worker in reality should have been classified as an employee the taxpayer for federal purposes can reclassify the IC as an employee on a go forward basis with specified minimal negative employment tax ramifications.

For more information on this IRS program go to: http://www.irs.gov/businesses/small/article/0,,id=246013,00.html and also see my blog posting on 9/21/11.

The logical question then becomes what would the state of California do if a California business participated in the IRS program. In California the agency responsible for proper employee classification is the Employment Development Department (EDD).

Jim Counts CPA CTFA out of Hemet CA is the EDD Liaison to the EDD for the Cal State Society of CPA’s Committee on Taxation and recently asked the EDD about what they will do if a business with a California worker was to participate in the IRS program.

Jim’s questions and the EDD’s complete responses are below.

Jim’s Questions:

1. What will the EDD do regarding a business that participates in the IRS Voluntary Classification Settlement Program?

2. Will the EDD accept EDD returns filed with the EDD when the business files under the IRS program? Or will they audit those businesses or what?

3. If the EDD was to allow no prior period reclassification then when would the EDD consider business under audit? When the worker applied for UI benefits (the business knowing EDD will audit the business) or not until EDD sends an actual notice wanting to audit?

The EDD Answers:

The Employment Development Department (EDD) welcomes voluntary compliance and does not automatically target those employers who attempt to voluntarily comply with the employment tax laws of California. At this time the EDD is not coordinating efforts with the IRS’s Voluntary Classification Settlement Program (VCSP). However, the employer is still subject to being selected for an audit under the currently established EDD audit selection criteria. (An employer is considered under audit when the employer is notified that the business has been selected by EDD for an employment tax audit.)

If an employer is selected for an audit, the EDD will follow the current audit guidelines and apply the laws under the California Unemployment Insurance Code (CUIC) on a consistent and uniform basis. The EDD currently does not have the legal authority to allow “no prior period reclassification.” If an employer does not correct prior periods to report the voluntarily reclassified workers to EDD and the employer is subsequently selected for an EDD audit, the employer will be assessed for any unreported and unpaid payroll taxes, plus any applicable penalties and interest. The fact that an employer enters into the IRS VCSP does not exempt them from being audited by EDD and does not provide any employment tax immunity under the CUIC with respect to the voluntarily reclassified workers for prior years.

The EDD recommends that employers voluntarily report the reclassified workers for the past period and pay the corresponding payroll taxes, which include Unemployment Insurance, Employment Training Tax, State Disability Insurance, and Personal Income Tax, plus penalty and interest. Employers may make a written request for a penalty waiver and explain the reasons why they did not previously report. The EDD will evaluate the facts of each individual penalty waiver request.

If an employer who participates in the IRS VCSP currently has an employer account number with the EDD, the employer can voluntarily amend their past reports/returns to include the reclassified employees’ wages and pay the amounts due. The employer should continue to include the reclassified employees’ wages on reports/returns filed prospectively with EDD. The EDD will follow the standard procedures to process these reports/returns and payments.

If an employer who participates in the IRS VCSP does not have an employer account number with EDD, they will be required to register in order to obtain one. Once they receive their account number they can file all the required reports/returns and make the appropriate payments. The EDD will follow the standard procedures to process all the reports/returns and payments.

Contact info:

http://www.klasing-associates.com/Contact.shtml

More info on Employment Tax Representation
http://www.klasing-associates.com/Tax-Law/Employment-Tax-Representation.shtml

More info on Audit Representation:
http://www.klasing-associates.com/Audit-Representation/
http://www.klasing-associates.com/Audit-Representation-FAQ/

More info on Appeal Representation:
http://www.klasing-associates.com/Tax-Law/IRS-Appeals-Representation.shtml
http://www.klasing-associates.com/IRS-Appeals-Representation-FAQ/

More info on Litigation Representation:
http://www.klasing-associates.com/Tax-Law/Tax-Litigation.shtml
http://www.klasing-associates.com/Tax-Litigation-FAQ/

The Importance of Keeping a Contemporaneous Time Log in Rental Real Estate When Claiming Real Estate Professional Status:

2011-09-27T17:55:00.000-07:00

Taxpayers who claim to be real estate professionals often face the loss of real estate professional status because of the lack of contemporaneous time logs for rental real estate activity under audit and subsequently appeal or where ultimately litigating the issue. Recently I was 100% sure I won a challenge to a client’s status as a real estate professional when my client and I were sitting with an appeals officer. He conceded the battle when I presented him with a mountains of evidence that I had the client bring to the appeal. After the client and I left thinking we had won, the agent apparently spent some time with IRS Chief Counsel's Office in deciding to go on the offensive once more... Grrrr....

I have a mountain of evidence that I'm prepared to present in tax court for this client if it comes to it...

My support is under:

Reg. §1.469-5T(f)(4) Methods of proof.—

The extent of an individual's participation in an activity may be established by any reasonable means. Contemporaneous daily time reports, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means. Reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period, based on appointment books, calendars, or narrative summaries.

The loosing case law in this area reads with tons of commentary similar to what follows: (I'm sure this is what chief counsel's office told the appeals officer)

His self-serving testimony and noncontemporaneous logs prepared in connection with his audit to support the time he purportedly devoted to the rental properties were insufficient to demonstrate that he qualified as a real estate professional. Moreover, the taxpayer failed to carry his burden of proof that during the two tax years at issue he performed more than half of his personal services in real property businesses in which he materially participated. Finally, he also failed to prove that he worked more than 750 hours a year in those real estate activities.—CCH.

Her uncorroborated estimates of time spent on rental activities were not reasonable and did not reflect the hours that she devoted to the activities. Moreover, the taxpayers did not materially participate in the operation of the excluded property because they did not spend the requisite amount of hours in the activity. Therefore, their trade or business relating to the property was a passive activity and the losses incurred were subject to passive loss limitations. —CCH

A married couple's rental real estate activities were passive and, therefore, their claimed loss was disallowed. The wife did not qualify as a real estate professional under Code Sec. 469(c)(7)(B)(ii) because she did not perform more than 750 hours of service in her real estate rental activities. One of the couple’s properties was rented for periods averaging less than seven days; that property was not a "rental activity" under Temporary Reg. §1.469-1T(e)(3)(ii)(A). Therefore, the time the taxpayer spent on that property was excluded for purposes of the 750-hour real estate professional test under Code Sec. 469(c)(7)(B)(ii)). Since the taxpayer only performed 679 hours of service on her other rental real estate activities during the tax year at issue, those other activities were per se passive under Code Sec. 469(c)(2).—CCH

I think the appeal (and litigation if necessary) will turn on how well the client can document the time spent including identifying time the service will try and cull out.... (investing, property hunting est.)

Contact info:

http://www.klasing-associates.com/Contact.shtml

More info on Audit Representation:

http://www.klasing-associates.com/Audit-Representation/

http://www.klasing-associates.com/Audit-Representation-FAQ/

More info on Appeal Representation:

http://www.klasing-associates.com/Tax-Law/IRS-Appeals-Representation.shtml

http://www.klasing-associates.com/IRS-Appeals-Representation-FAQ/

More info on Litigation Representation:

http://www.klasing-associates.com/Tax-Law/Tax-Litigation.shtml

http://www.klasing-associates.com/Tax-Litigation-FAQ/

The IRS's new Voluntary Classification Settlement Program

2011-09-21T15:18:00.000-07:00

The Internal Revenue Service today launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than risking a much more damaging IRS or EDD audit which are very prevalent where laid off subcontractors argue that they were really employees upon seeking unemployment.

This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities. The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

• Consistently have treated the workers in the past as nonemployees,

• Have filed all required Forms 1099 for the workers for the previous three years

• Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952. Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Full details, including FAQs, will be available on the Employment Tax pages of IRS.gov, and in Announcement 2011-64.

Background:

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. For taxpayers under IRS examination, the current CSP is available to resolve federal employment tax issues related to worker misclassification, if certain criteria are met. The examination CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows business and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.
In order to facilitate voluntary resolution of worker classification issues and achieve the resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS has determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes.

The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as nonemployees, and must have filed all required Forms 1099 for the workers for the previous three years. The taxpayer cannot currently be under audit by the IRS.

Furthermore, the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency. A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

EFFECT OF VCSP

A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for future tax periods. In exchange, the taxpayer will pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509 of the Internal Revenue Code; will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years. Additionally, a taxpayer participating in the VCSP will agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

APPLICATION PROCESS

Eligible taxpayers who wish to participate in the VCSP must submit an application for participation in the program. Information about the VCSP and the application will be available on www.irs.gov. Along with the application, the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848) should be provided. The IRS will contact the taxpayer or authorized representative to complete the process once it has reviewed the application and verified the taxpayer’s eligibility. The IRS retains discretion whether to accept a taxpayer’s application for the VCSP. Taxpayers whose application has been accepted will enter into a closing agreement with the IRS to finalize the terms of the VCSP and will simultaneously make full and complete payment of any amount due under the closing agreement.

This program does not address state agencies and state agencies are definitely a concern. Moreover, as I read the announcement the IRS has not consented to avoid going after the classification issue outside the employment tax arena. Qualifications of retirement plans, for instance. I also doubt the Department of Labor would agree that this solves any problems a taxpayer might have with them on this issue.

My take is that employers looking to go into this program are well advised to seek competent counsel on what other issues may arise under laws other than federal employment tax law if these individuals are treated
as individuals that had a true employment relationship with the employer.

Here are links to documents on the IRS’s website that describes the program:

IRS News Release IR-2011-95:

http://www.irs.gov/newsroom/article/0,,id=246203,00.html?portlet=7
IRS Announcement 2011-64:

http://www.irs.gov/pub/irs-drop/a-11-64.pdf

Form 8952:

http://www.irs.gov/pub/irs-pdf/f8952.pdf

Instructions for Form 8952:

http://www.irs.gov/pub/irs-pdf/i8952.pdf

Bad news for folks that still have undisclosed secret swiss accounts

2011-09-13T09:49:00.000-07:00

Recently an article in Reuters titled “U.S. Obtains Data From 10 Swiss Banks in Tax Dodging Probe” was reported on the Huffington Post. Here is the link.

http://www.huffingtonpost.com/2011/09/10/us-tax-dodgers-switzerland-probe_n_956693.html.

According to the article's author, 10 major Swiss banks under now under investigation by Depart of Justice and have already provided detailed statistical information to the US government concerning US citizens with secret accounts with them. The banks have until September 23 to hand over more specific information.

The Justice Department served a target letter in July on Credit Suisse, Switzerland's second-largest bank, notifying it that it was the focus of a criminal investigation. American authorities also are probing HSBC and smaller Swiss private banks and cantonal banks, including Basler Kantonalbank, Wegelin and Julius Baer .

It is highly likely that the U.S. citizens that refused and or failed to come forward in not one but two highly publicized voluntary disclosure programs that have the following three badges of fraud in their fact patterns will face criminal prosecution.

1. Unreported foreign income - this could consist on interest, dividends or capital gains related to investments in the foreign account, earnings in a foreign business, or foreign rental property.

2. Unfiled FBARS - or TDF 90-22.1

3. A failure to report the existence of the account under schedule B of their personal tax return.

It is important to note of the 24 reported cases where taxpayers were criminally prosecuted over a foreign account a pattern of skimming was also apparent. Skimming in this context is where the taxpayer commits income tax evasion by underreporting income on their U.S. returns, unusually by claiming false deductions, and then ships the underreported income to an offshore account in order to hide its existence.

If you still have not made a voluntary disclosure concerning your foreign account – it is still possible to come forward and report both your domestic and foreign non-compliance as long as the following is true.

1. All income is from legal sources. I.E. Illegal sources would be extortion, prostitution, drug sales est.

2. The government has not already received your name from a whistleblower or from its own sources. If you believe they might already have your name you still might be able to avoid criminal prosecution by coming forward before they act on the information they already have.

3. A whistleblower has not turned in your name

4. The IRS has not already opened up an audit against you.

You will not benefit from the penalty limitations of the previous two programs but you should be able to avoid a criminal prosecution.

The first step would be to obtain a pre-check on your social security number to see if you qualify.

Contact our offices if you would like to fully discuss this issue.

New articles posted to Findlaw.com

2011-09-12T09:18:00.000-07:00

I have just had a couple articles published on Findlaw.com

http://knowledgebase.findlaw.com/kb/2011/Aug/335991.html

http://knowledgebase.findlaw.com/kb/2011/Aug/369225.html

I thought I would share.

Approaching deadline with IRS could cost you a minimum of $10,000 if missed... Or much much Worse! Yikes...

2011-06-22T10:55:00.000-07:00

Report of Foreign Bank and Financial Accounts

We have a rapidly approaching deadline of June 30, 2011, just over a week away from the mailing of this e-mail. This deadline is different than the vast majority of IRS deadlines in that the FBAR or TDF 90-22.1 has to be RECEIVED rather than mailed to the IRS by that date. I.E. if you mail the TDF 90-22.1 on June 30, 2011 if will be late and subject to a $10,000 fine. It has to be in the IRS’s hands (Delivered) by June 30 2011.

This form could also result in penalties that could easily be a multiple of the funds offshore and could even result in criminal prosecution if the non filing of the form were found to be willful.

Background information
You may need to fill out Treasury Department Form 90-22.1 every year if you own, or have an interest in, any foreign bank accounts or other types of financial accounts based outside the United States. This report is separate from your income tax return, although the two reports can be interrelated.

Reporting Foreign Bank Accounts

You must report accounts you hold in foreign banks and other financial institutions if your total balance across all your accounts is $10,000 or greater at any time during the year. This is true both of accounts for which you are the owner and accounts over which you are not the owner but have authority to conduct transactions on behalf of the account owner.

Income generated inside of these foreign financial accounts is also reported on your income tax return in the year the income is earned. You'll report the foreign income based on the type of income being generated. For example interest and dividends would be reported on your Schedule B, capital gains on your Schedule D, and so forth. If you earn dividends or interest in these accounts, be sure to check the box in Part III Line 7a of Schedule B and indicate the country or countries where you have accounts. Additionally, any foreign taxes paid on your interest and dividends may qualify for the Foreign Tax Credit on Form 1116.

Additionally, report each foreign financial account you hold on Treasury Department Form 90-22.1 (PDF, 8 pages includes instructions). This form is pretty self-explanatory. You will provide information on all your financial accounts held in foreign countries, such as the name of the bank or financial institution where the account is held, your account number, and account balance. Be aware that the Foreign Bank Account Report is filed for each accountholder. Married couples would need to file separate reports, and accounts having multiple accountholders or persons with signature authority may have several persons or businesses reporting the same account on separate reports.

What Types of Foreign Financial Accounts are Reportable?

The following types of financial accounts would need to be reported on the Foreign Bank Account Report if you meet the filing requirement threshold:

· Bank accounts (checking and savings)

· Investment accounts

· Mutual funds

· Retirement and pension accounts

· Securities and other brokerage accounts

· Debit card and prepaid credit card accounts

· Life insurance and annuities having cash value

What types of bank accounts and financial accounts need to be reported to the Treasury is discussed in detail in 31 CFR Part 1010 and in the Treasury Department's explanation of their revisions to these regulations that were published on February 24, 2011 in the Federal Register (http://edocket.access.gpo.gov/2011/pdf/2011-4048.pdf). I refer you to that document for a very detailed analysis concerning what types of financial accounts are reportable.

When to File

Treasury Form 90-22.1 is due June 30th of each year to report foreign bank accounts owned in the previous year. The instructions for this form does not make this clear, but the foreign bank account report must be received by the Treasury Department by June 30th, instead of being postmarked by that date. Quoting from the Internal Revenue Manual section 4.26.16.3.7, "The FBAR is considered filed when it is received in Detroit, not when it is postmarked." (The Internal Revenue Manual is an internal document outlining how work is processed.)

What if you miss the filing deadline? You should file TD F 90-22.1 to report your foreign bank accounts even if you miss the June 30th deadline. Why? There are very stiff penalties for willfully failing to file this report.

Late filers should file their FBAR as soon as possible and should attach a brief explanation of why you are filing late. While there are stiff penalties for failing to file the form, those penalties could possibly be waived or reduced based on your particular situation. Under no circumstances should you not file Form TD F 90-22.1, since that would be a willful failure to fail. According to an IRS spokesperson in Washington, DC,

The law governing form TD F 90-22.1 "provides for a nonwillful penalty of up to $10,000 per violation for violations occurring after October 22, 2004. This penalty will be waived, however, if the person can show reasonable cause for the violation and if the person provides a late-filed [Form TD F 90-22.1] with the information that should have been reported earlier.

"IRS will consider the facts and circumstances of each case in determining whether penalties are appropriate. Persons who have not timely filed [Foreign Bank Account Reports] should attach a statement explaining why the [Form] was not timely filed."

In the time since I first sourced that hopeful-sounding quotation, the IRS has become increasingly austere in its enforcement of the foreign bank reporting requirements, and the IRS has started imposing very stiff penalties on taxpayers who have failed to file the FBAR and also failed to report their foreign-source income.

The IRS is currently conducting a voluntary disclosure initiative for people who need to file late foreign bank account reports and need to report previously undeclared foreign income. This Offshore Voluntary Disclosure Initiative has a deadline of August 31, 2011.

Persons who are considering this voluntary disclosure program should consult with a tax attorney before participating in this IRS program.

Where to File

Mail your completed and signed TD F 90-22.1 to the Treasury Department at the following address:

Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621

Do not mail TD F 90-22.1 with your tax return, and do not mail the form to the IRS.

You can, however, hand-deliver TD F 90-22.1 to any local office of the Internal Revenue Service, and they will forward the form to the Department of the Treasury for processing. Many US embassies will also accept your foreign bank account report, and they will forward it to the Treasury. FBARs cannot, as yet, be filed electronically with the Treasury.

Forms and Instructions

You can obtain TD F 90-22.1 (PDF, 8 pages) along with instructions for filling out the form from the IRS Website.

For more information see:

http://www.klasing-associates.com/Tax-Law/FBAR-Compliance-and-Disclosure.shtml

http://www.klasing-associates.com/FBAR-Compliance-and-Disclosure-FAQ/

David W. Klasing Esq. M.S.-Tax CPA

2372 Morse Ave.

Irvine, CA 92614

Phone: (949) 681-3502

Fax: (949) 681-3504

dave@taxesqcpa.net

10940 Wilshire Blvd, Suite 1600 PMB589

Westwood / L.A., CA 90024

Phone: (310) 492-5583

Fax: (310) 496-1963

www.taxesqcpa.net

Taxpayer's have the power to end an unannounced visit or contact by the IRS where the IRS bypasses the Taxpayer's Authorized Representative

2010-06-29T09:33:00.000-07:00

The problem:

Recently, at an IRS Stakeholder Liaison Meeting, a complaint was raised with the IRS by a Tax Practitioner and was reinforced by most of the Tax Practitioners in attendance, that it is quite common for IRS Revenue Agent's and Revenue Officer's to bypass the authorized representative designated on a Tax Payer's Power of Attorney with the IRS, and for the agent's to contact Taxpayer's directly, thus denying Taxpayer's of their right to representation.

For the twelfth year in a row, the Treasury Inspector General for Tax Administration (TIGTA), an organization charged with oversight of the IRS, has claimed an inability to provide an opinion on how well the IRS is complying with Internal Revenue Code restrictions on direct contact with represented Taxpayer's because of perceived limitations with the IRS’s computer systems. TIGTA claims that the evidence they have on representative bypass suggests the potential direct contact violations were rare in considering of the number of IRS enforcement personnel that routinely interact with taxpayers and their representatives each year.

The Solution:

By law, IRS Revenue Agents and Revenue Officer's are required to end an interview if a taxpayer requests to consult with a representative, and they may not bypass that representative, and approach the Taxpayer directly, without approval from their supervisor. This right is similar to an individual's right to end a Police interrogation until an attorney is present.

If you have authorized a Tax Professional to represent you, you have a right to have them present whenever you are approached by the IRS. If they call you, you are within your rights to refuse to continue the call without your representative being conferenced into the call. If they show up at your home or business, refuse them entrance until your authorized representative can be present. If they try to arrange a meeting, do not confirm the arrangements of the meeting without first making sure your representative can attend. The bottom line is that the IRS does not have the power to force you to speak with them without your representative being present. This is one great reason to have a retainer agreement and Power of Attorney in place with the Tax Law Office of David W. Klasing. We know the extent of the IRS's power and will protect your rights to representation and will never allow the IRS to force you to speak with them without the benefit of experienced Tax Counsel.

Why you should use a Tax Attorney for the Appeals Process

2009-07-06T13:14:00.000-07:00

Anyone that is licensed to practice before the IRS, including CPAs & EAs can represent a taxpayer in an IRS appeal. I am of the opinion that a Tax Attorney is better suited to represent a taxpayer before the IRS in an appeals proceeding because Tax Attorney's are legally trained and in a much better position to assess the relative strengths and weaknesses in a client's case.

Because the appeals process is the last step before litigation and it has been said that 70% of taxpayer's loose in tax court. It is really imperative that a client be represented as advantageously as possible in what is basically a negotiation with the IRS.

The IRS appeals officer is not likely to entertain a settlement offer for less than the amount that was established under IRS examination unless taxpayer's counsel has created some doubt as to the likelihood of the IRS prevailing at trial.

The strongest motivation on the appeals officer to settle are the "hazards-of litigation" and I am of the opinion that a tax attorney is in the best position to assess these hazards and use them to the client's advantage in attempting to settle the case. The IRS will not settle the case for less than the amount the IRS was originally seeking unless the client's Representative is able to show that there is substantial certainty either in law or fact as to the correct application to the whole record in the case.

To evaluate the settlement possibilities of a case properly, the Appeals officer is instructed to consider the following:
Probative value of the evidence likely to be presented
Credibility of witnesses (e.g., the taxpayer)
Availability of witnesses
Ability of the taxpayer to carry his burden of going forward with evidence
Likelihood that the evidence the taxpayer can present will carry his burden of proof
Doubt as to an issue of fact
Doubt as to a conclusion of law (e.g., the law in the circuit to which the case will be appealed or in which it will be tried)

Because of the factors the appeals officer is instructed to consider listed above, much of the Appeals officer's analysis focuses on the evidence available for presentation in court.

Of the Tax Professionals available to represent a taxpayer in the appeals process, the Tax Attorney is by far the better choice to represent a taxpayer because of the legal training one receives to become an attorney and the attorney's ability to best assess the relative strengths and weaknesses of the above factors. Moreover, attorney's are the only professionals that are trained in the art of legal persuasion and are therefore much more likely to arrive at an advantageous settlement of a client's tax assessment though the appeals process without incurring the expense of going to tax court or exposing the client to a 70% probability that they will loose in tax court because they are forced to bear the burden of proof that the IRS's examination findings are erroneous.

Please contact me if I can be of assistance.
Dave Klasing Esq. M.S.-Tax CPA
714 657-3310