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Posted by: Taxlitigator | August 5, 2014

IRS Methods of Indirectly Determining Taxable Income

There are various audit and investigative techniques available to corroborate or refute a taxpayer’s claim about their business operations or nature of doing business. IRS audit or investigative techniques for a cash intensive business might include an examiner determining that a large understatement of income could exist based on return information and other sources of information. The use of indirect methods of proving income, also referred to as the IRS Financial Status Audit Techniques (FSAT), is not prohibited by Code Section 7602(e).

INDIRECT METHODS OF DETERMINING TAXABLE INCOME. Indirect methods include a fully developed Cash T, percentage mark-up, net worth analysis, source and application of funds or bank deposit and cash expenditures analysis. However, examiners must first establish a reasonable indication that there is a likelihood of underreported or unreported income. Examiners must then request an explanation of the discrepancy from the taxpayer. If the taxpayer cannot explain, refuses to explain, or cannot fully explain the discrepancy, a FSAT may be necessary. Common FSATs include:

• The Source and Application of Funds Method is an analysis of a taxpayer’s cash flows and comparison of all known expenditures with all known receipts for the period. This method is based on the theory that any excess expense items (applications) over income items (sources) represent an understatement of taxable income. Net increases and decreases in assets and liabilities are taken into account along with nondeductible expenditures and nontaxable receipts. The excess of expenditures over the sum of reported and nontaxable income is the proposed adjustment to income.

The Source and Application of Funds Method is typically used when the review of a taxpayer’s return indicates that the taxpayer’s deductions and other expenditures appear out of proportion to the income reported, the taxpayer’s cash does not all flow from a bank account which can be analyzed to determine its source and subsequent disposition, or the taxpayer makes it a common business practice to use cash receipts to pay business expenses.

Sources of funds are the various ways the taxpayer acquires money during the year. Decreases in assets and increases in liabilities generate funds. Funds also come from taxable and nontaxable sources of income. Unreported sources of income even though known, are not listed in this computation since the purpose is to determine the amount of any unreported income. Specific items of income are denoted separately. Specific sources of funds include the decrease in cash-on-hand, in bank account balances (including personal and business checking and savings accounts), and decreases in accounts receivable; increases in accounts payable; increases in loan principals and credit card balances; taxable and nontaxable income, and deductions which do not require funds such as depreciation, carryovers and carrybacks, and adjusted basis of assets sold.

Application of funds are ways the taxpayer used (or expended) money during the year. Examples of applications of funds include increases in cash-on-hand, increase in bank account balances (including personal and business checking and savings accounts), business equipment purchased, real estate purchased, and personal assets acquired; purchases and business expenses; decreases in loan principals and credit card balances, and personal living expenses. Determining the beginning amount of cash-on-hand and accumulated fund for the year is important. See IRS IRM 4.10.4.6.8.3 for possible defenses the taxpayer might raise regarding the availability of nontaxable funds.

• The Bank Account Analysis compares total deposits with the reported gross income. for all accounts, whether designated as personal or business. The examiner will review the taxpayer’s business and personal bank accounts (including investment accounts); i.e., statements, deposit slips, and canceled checks, etc. looking for unusual deposits (size or source), the frequency of deposits, deposits of cash, specific deposits that do not follow the taxpayer’s normal routine or pattern, nontaxable deposits such as loans and transfers, commingling of personal and business activities, and cash-backs when a deposit occurs.

The examiner will attempt to total the deposits and reconcile deposits of nontaxable funds and transfers between accounts focusing on transfers in, out, and between accounts as previously unknown accounts may be identified. Checks deposited by the taxpayer but later returned by the bank (e.g., the maker of the check did not have sufficient funds in the account to pay the check) are categorized as nontaxable transactions. Nontaxable funds, transfers-in, and returned deposits need to be subtracted from total deposits to get “taxable deposits.” The examiner will determine disbursements by adding the opening bank balance to the total deposits and then subtracting out the ending balance.

To the extent possible, cancelled checks will be reviewed to determine whether nondeductible expenditures (personal expenses, investments, payments on asset purchases, etc.) are included with business expenses and if so, the amount. If cancelled checks are unavailable, transactions will be traced from the bank statement to the check register and the original document. Significant commingling of accounts may warrant a more in-depth analysis by the examiner. When nondeductible expenditures are deducted from the total disbursements the remainder should approximate the deductible business expenses on the tax return (other than non-cash expenses such as accruals and depreciation).

If the analysis results in the identification of excess deposits over the reported gross income, the excess represents potential unreported income. If specific transactions or deposits can be identified as the source of the understatement, the examiner may assert a specific item adjustment to income supported by the direct evidence of excess deposits. If the specific transactions or deposits creating the understatement are not identified, an adjustment to taxable income may be made based on the circumstantial evidence. If the business expenditures paid by check are less than the deducted business expenses on the return, then the taxpayer may be overstating expenses, paying expenses by cash (unreported income), or paying expenses from an undisclosed source of funds. If the analysis indicates significant commingling of funds, then the internal controls are weak and the books and records may be unreliable.

• The Bank Deposits and Cash Expenditures Method is distinguished from the Bank Account Analysis by the depth and analysis of all the individual bank account transactions, and the accounting for cash expenditures, and a determination of actual personal living expenses. The Bank Deposits and Cash Expenditures Method computes income by showing what happened to a taxpayer’s funds based on the theory that if a taxpayer receives money it can either be deposited or it can be spent . This method is based on the assumptions that proof of deposits into bank accounts, after certain adjustments have been made for nontaxable receipts, constitutes evidence of taxable receipts; expenditures as disclosed on the return, were actually made and could only have been paid for by credit card, check, or cash. If outlays were paid by cash, then the source of that cash must be from a taxable source unless otherwise accounted for and it is the burden of the taxpayer to demonstrate a nontaxable source for this cash.

The examiner will consider whether there are unusual or extraneous deposits which appear unlikely to have resulted from reported sources of income? The examiner may limit the examination to large deposits or deposits over a certain amount. However, the identification of smaller regular deposits may be indicative of dividend income, interest, rent, or other income, leading to a source of investment income. An item of deposit may be unusual due to the kind of deposit, check or cash, in its relationship to the taxpayer’s business or source of income. An explanation may be required if a large cash deposit is made by a taxpayer whose deposits normally consist of checks. Also, a bank statement noting only one or two large even dollar deposits, in lieu of the normal odd dollar and cents deposits, would be unusual and require an explanation.

Many taxpayers, due to the nature of their business or the convenience of the depository used, will follow a set pattern in making deposits. Deviation from this pattern may be reason for more in depth questioning. Bank statements or deposit slips which indicate repeat deposits of the same amount on a monthly basis, quarterly or semi-annual basis may indicate rental, dividend, interest or other income accruing to the taxpayer.

The examination of deposit slips may indicate items of deposit which appear questionable due to the location of the bank on which the deposited check was drawn. It is common practice when preparing a deposit slip to list either the name of the bank, city of the bank or identification number of the bank upon which the deposited check was drawn. If an identification number is used, the name and location of the bank can be determined by reference to the banker’s guide. In all cases, if the location of the bank on which the check for deposit was drawn bears little relation to the taxpayer’s business location or source of income, it may indicate the need for further investigation.

The examiner should identify all loan proceeds, collection of loans, or extraneous items reflected in deposits. If loan proceeds are identified, the examiner may request the loan application documents to verify the source and amount of the nontaxable funds and attempt to determine whether such information is consistent with other information; i.e., cash flows, assets, anticipated gross receipts, etc.

If repayments of loans are identified, the examiner will request the debt instruments to establish that a loan was made, the terms of the debt, and the repayment schedule. Before an examiner can reach any conclusion about the relationship between deposits and reported receipts, transfers and re-deposits must be eliminated. For example, if a taxpayer draws a check to cash for the purpose of cashing payroll checks and then re-deposits these payroll checks, the examiner would be incorrect if total deposits were compared to receipts reported without adjusting for this amount. The taxpayer has done nothing more than redeposit the same funds in the form of someone else’s checks.

• The Markup Method produces a reconstruction of income based on the use of percentages or ratios considered typical for the business under examination in order to make the actual determination of tax liability. It consists of an analysis of sales and/or cost of sales and the application of an appropriate percentage of markup to arrive at the taxpayer’s gross receipts. By reference to similar businesses, percentage computations determine sales, cost of sales, gross profit, or even net profit. By using some known base and the typical applicable percentage, individual items of income or expenses may be determined. These percentages can be obtained from analysis of Bureau of Labor Statistics data or industry publications. If known, use of the taxpayer’s actual markup is required.

The Markup Method is similar to how state sales tax agencies conduct audits. The cost of goods sold is verified and the resulting gross receipts are determined based on actual markup. The Markup Method is often used when inventories are a principal income producing factor and the taxpayer has nonexistent or unreliable records or the taxpayer’s cost of goods sold or merchandise purchased is from a limited number of sources such that these sources can be ascertained with reasonable certainty, and there is a reasonable degree of consistency as to sales prices.

• The Net Worth Method for determining the actual tax liability is based upon the theory that increases in a taxpayer’s net worth during a taxable year, adjusted for nondeductible expenditures and nontaxable income, must result from taxable income. This method requires a complete reconstruction of the taxpayer’s financial history, since the government must account for all assets, liabilities, nondeductible expenditures, and nontaxable sources of funds during the relevant period.

The theory of the Net Worth Method is based upon the fact that for any given year, a taxpayer’s income is applied or expended on items which are either deductible or nondeductible, including increases to the taxpayer’s net worth through the purchase of assets and/or reduction of liabilities. The taxpayer’s net worth (total assets less total liabilities) is determined at the beginning and at the end of the taxable year. The difference between these two amounts will be the increase or decrease in net worth. The taxable portion of the income can be reconstructed by calculating the increase in net worth during the year, adding back the nondeductible items, and subtracting that portion of the income which is partially or wholly nontaxable.

The purpose of the Net Worth Method is to determine, through a change in net worth, whether the taxpayer is purchasing assets, reducing liabilities, or making expenditures with funds not reported as taxable income. The use of the Net Worth Method of proof requires that the government establish an opening net worth, also known as the base year, with reasonable certainty; negate reasonable explanations by the taxpayer inconsistent with guilt; i.e., reasons for the increased net worth other than the receipt of taxable funds. Failure to address the taxpayer’s explanations might result in serious injustice; establish that the net worth increases are attributable to currently taxable income, and; where there are no books and records, willfulness may be inferred from that fact coupled with proof of an understatement of taxable income. But where the books and records appear correct on their face, an inference of willfulness from net worth increases alone might not be justified. The government must prove every element beyond a reasonable doubt, though not to a mathematical certainty.

BE PREPARED. Circumstances that might support the use of an indirect method include a financial analysis that cannot be easily reconciled – such as if the taxpayer’s known business and personal expenses exceed the reported income per the return and nontaxable sources of funds have not been identified to explain the difference; irregularities in the taxpayer’s books and weak internal controls; gross profit percentages change significantly from one year to another, or are unusually high or low for that market segment or industry; the taxpayer’s bank accounts have unexplained deposits; the taxpayer does not make regular deposits of income, but uses cash instead; a review of the taxpayer’s prior and subsequent year returns show a significant increase in net worth not supported by reported income; there are no books and records (examiners should determine whether books and/or records ever existed, and whether books and records exist for the prior or subsequent years. If books and records have been destroyed, the examiner will attempt to determine who destroyed them, why, and when); no method of accounting has been regularly used by the taxpayer or the method used does not clearly reflect income as required by Code section 446(b).

When considering an indirect method, the IRS examiner will look to the industry or market segment in which the taxpayer operates, whether inventories are a principle income producing activity, whether suppliers can be identified and/or merchandise is purchased from a limited number of suppliers, whether pricing of merchandise and/or service is reasonably consistent, the volume of production and variety of products, availability and completeness of the taxpayer’s books and records, the taxpayer’s banking practices, the taxpayer’s use of cash to pay expenses, expenditures exceed income, stability of assets and liabilities, and stability of net worth over multiple years under audit.

Practitioners often consider performing one or more of the foregoing indirect methods before commencement of an IRS examination for taxpayers operating a “cash intensive” business. Better to know before the audit begins than to be surprised about some unusual or undisclosed financial activity during the examination.

For every IRS examination, the advice is the same . . . prepare, prepare, prepare and learn to expect the unexpected.

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Posted in Uncategorized | Tags: abate, ATG, bank secrecy act, criminal tax, examination, Financial Status Audit Techniques, irs, irs audit, irs examination, tax, tax controversy, tax disute, tax enforcement, tax evasion, tax examination, tax fraud, voluntary disclosure

Posted by: Taxlitigator | July 31, 2014

FIRST TIME ABATE of IRS Penalties

The Internal Revenue Manual (IRM) contains a Penalty Handbook intended to serve as the foundation for addressing the administration of penalties by the IRS. It is the “one source of authority for the administration of penalties. . .”[1] and provides a “fair, consistent, and comprehensive approach to penalty administration.” As such, the IRM is often the first stop for IRS examiners attempting to determine whether conduct should be subjected to further review and, potentially, civil penalties. Under the “First Time Abate” procedures of the IRM the IRS is to eliminate certain penalties if the taxpayer has not previously been required to file a return or if no prior penalties have been assessed against the taxpayer within the prior 3 years

Objectives in Penalty Administration. Similar cases and similarly-situated taxpayers are to be treated in a similar manner with each having the opportunity to have their interests heard and considered. Penalty relief is to be viewed from the perspective of fair and impartial enforcement of the tax laws in a manner that promotes voluntary compliance. Penalties encourage voluntary compliance by defining standards of compliant behavior, defining consequences for noncompliance, and providing monetary sanctions against taxpayers who do not meet the standard.[2]

In this regard, the objective of penalty administration is to be severe enough to deter noncompliance, encourage noncompliant taxpayers to comply, be objectively proportioned to the offense, and be used as an opportunity to educate taxpayers and encourage their future compliance.[3]

IRM Approach to Penalty Administration. The IRM’s approach to penalty administration provides:

Consistency: The IRS should apply penalties equally in similar situations. Taxpayers base their perceptions about the fairness of the system on their own experience and the information they receive from the media and others. If the IRS does not administer penalties uniformly (guided by the applicable statutes, regulations, and procedures), overall confidence in the tax system is jeopardized.

Accuracy: The IRS must arrive at the correct penalty decision. Accuracy is essential. Erroneous penalty assessments and incorrect calculations confuse taxpayers and misrepresent the overall competency of the IRS.

Impartiality: IRS employees are responsible for administering the penalty statutes and regulations in an even-handed manner that is fair and impartial to both the government and the taxpayer.

Representation: Taxpayers must be given the opportunity to have their interests heard and considered. Employees need to take an active and objective role in case resolution so that all factors are considered.[4]

Relief Due to Reasonable Cause. Many penalties may be avoided based upon a determination that reasonable cause existed for the positions maintained within a return. Reasonable cause is based on a review of all relevant facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations.[5] Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that they exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.[6]

Examiners are to consider various factors in determining penalty relief based on reasonable cause. What happened and when did it happen? During the period of time the taxpayer was non-compliant, what facts and circumstances prevented the taxpayer from filing a return, paying a tax, and/or otherwise complying with the law? How did the facts and circumstances result in the taxpayer not complying? How did the taxpayer handle the remainder of their affairs during this time? Once the facts and circumstances changed, what attempt did the taxpayer make to comply?

Death, serious illness, or unavoidable absence of the taxpayer may establish reasonable cause for filing, paying, or delinquent deposits. Information examiners consider when evaluating a request for penalty relief based on reasonable cause due to death, serious illness, or unavoidable absence includes, but is not limited to, the relationship of the taxpayer to the other parties involved, the date of death, the dates, duration, and severity of illness, the dates and reasons for absence, how the event prevented compliance, if other business obligations were impaired, and if tax duties were attended to promptly when the illness passed, or within a reasonable period of time after a death or return from an unavoidable absence.[7]

Explanations relating to the inability to obtain the necessary records may constitute reasonable cause in some instances, but may not in others. Reasonable cause may be established if the taxpayer exercised ordinary business care and prudence, but due to circumstances beyond the taxpayer’s control, they were unable to comply. Relevant information includes, but is not limited to, an explanation as to why the records were needed to comply, why the records were unavailable and what steps were taken to secure the records, when and how the taxpayer became aware that they did not have the necessary records, if other means were explored to secure needed information, why the taxpayer did not estimate the information, if the taxpayer contacted the IRS for instructions on what to do about missing information, if the taxpayer promptly complied once the missing information was received, and supporting documentation such as copies of letters written and responses received in an effort to get the needed information.[8]

Reliance on Advice. In certain situations, reliance on the advice of others may justify relief from penalties. Relevant information regarding a request for abatement or non-assertion of a penalty due to reliance on advice includes, but is not limited to, a determination of whether the advice in response to a specific request and was the advice received related to the facts contained in that request and if the taxpayer reasonably relied upon the advice. The taxpayer is entitled to penalty relief for the period during which they relied on the advice. The period continues until the taxpayer is placed on notice that the advice is no longer correct or no longer represents the IRS’s position.

The IRS is required to abate any portion of any penalty attributable to erroneous written advice furnished by an officer or employee of the IRS acting in their official capacity.¹⁴ Administratively, the IRS has extended this relief to include erroneous oral advice when appropriate. Relevant inquiries include: Did the taxpayer exercise ordinary business care and prudence in relying on that advice? Was there a clear relationship between the taxpayer’s situation, the advice provided, and the penalty assessed? What is the taxpayer’s prior tax history and prior experience with the tax requirements? Did the IRS provide correct information by other means (such as tax forms and publications)? What type of supporting documentation is available?

Reliance on the advice of a tax advisor generally relates to the reasonable cause exception in Code Section 6664(c) for the accuracy-related penalty under Code Section 6662^.[9] However, in certain situations, reliance on the advice of a tax advisor may provide relief from other penalties when the tax advisor provides advice on a substantive tax issue.

First Time Abatement. The IRS Reasonable Cause Assistant (RCA) is a decision-support interactive software program developed to reach a reasonable cause determination within the IRS.[10] The IRS will use the RCA after normal case research has been performed, (i.e., applying missing deposits/payments, adjusting tax, or researching for missing extensions of time to file, etc.) for the Failure to File (FTF), Failure to Pay (FTP), and Failure to Deposit (FTD) penalties.

RCA provides an option for penalty relief known as the “First Time Abate” for the FTF, FTP, and/or FTD penalties if the taxpayer has not previously been required to file a return or if no prior penalties (except the Estimated Tax Penalty) have been assessed on the same account in the prior 3 years.[11] A penalty assessed and subsequently reversed in full will generally be considered to show compliance for that tax period. If the RCA determines a “First -Time Abate” is applicable, the taxpayer will be advised that the penalty(s) was removed based solely on their history of compliance, that this type of penalty removal is a one-time consideration available only for a first-time penalty charge, and that any future (FTF, FTP, FTD) penalties will only be removed based on information that satisfies the previously mentioned reasonable cause criteria.[12]

Summary. Civil tax penalty administration pending any potential comprehensive tax reform must continue to promote and enhance voluntary compliance. Penalties should only be imposed in proportion to the misconduct. Penalties should not be asserted for the purpose of raising revenue or offsetting the costs of tax benefits nor merely to punish behavior without also promoting compliance.

Most taxpayers attempt to comply with their filing and payment obligations under the Code. Others comply because of a concern for the imposition of penalties. Somewhere in between are taxpayers who are subjected to penalties for conduct they failed to realize was somehow wrongful. In most situations, the IRS has the experience and dedicated staff to make the proper determination.

The penalty provisions set forth within the Code must retain the discretion of the IRS to appropriately punish those most deserving and not punish what are, at most, an inadvertent foot-faults. Those who appropriately respect their obligations to our system of taxation should be cautioned and educated about their present and future tax compliance without having to waltz through an almost unintelligible legislative minefield of civil tax penalties.

[1] Internal Revenue Manual (IRM) 20.1.1.1.1 (11-25-2011). Refer to IRM 9.1.3, Criminal Investigation – Criminal Statutory Provisions and Common Law, for Criminal Penalty provisions.

[2] Penalty Policy Statement 20-1 (IRM 1.2.20.1.1; June 29, 2004)

[3] IRM 20.1.1.2.1 (11-25-2011)

[4] IRM 20.1.1.2.2 (11-25-2011

[5] IRM 20.1.1.3.2 (11-25-2011)

[6] IRM 20.1.3.2.2 (11-25-2011) .

[7] IRM 20.1.1.3.2.2.1 (11-25-2011)

[8] IRM 20.1.1.3.2.2.3 (11-25-2011)

IRC § 6404(f) and Treas. Reg. 301.6404–3

[9] IRC § 6404(f) and Treas. Reg. 301.6404–3

[10] IRM 20.1.1.3.6.1 (11-25-2011)

[11] Id.

[12] Id.

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Posted by: Taxlitigator | July 2, 2014

OVDP & Streamlined Procedures: Expect the Unexpected!

The IRS recently announced Streamlined Filing Compliance Procedures in an effort to encourage U.S. taxpayers to come into compliance with their reporting and filing requirements associated with varying interests in foreign financial accounts and assets. The streamlined procedures require the filing of original (for non-residents) or amended (for residents) tax returns. Such tax returns must not only report whatever foreign source income was generated in each of the applicable tax years but must also properly report any U.S. source income and deductions for each of the applicable tax years.

For eligible U.S. taxpayers residing outside the United States, all penalties will be waived under the streamlined procedures. For eligible U.S. taxpayers residing in the United States, the only penalty under the streamlined procedures will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue (all income tax related penalties associated with the non-U.S. source income will be waived).

Feel Lucky? The streamlined procedures do not limit the civil penalties otherwise associated with the reporting of U.S. source income. IRS Offshore Voluntary Disclosure Program (OVDP) Frequently Asked Question 7.1 provides “The offshore penalty structure only resolves liabilities and penalties related to offshore noncompliance. Domestic portions of a voluntary disclosure are subject to examination.”

Further, the streamlined procedures do not provide protection from a possible criminal prosecution referral. However, the IRS Voluntary Disclosure Practice set forth in IRS Internal Revenue Manual (IRM) 9.5.11.9 would seem to provide a pass from a criminal referral if the appropriate “bells and whistles” set forth in IRM 9.5.11.9 are followed (a “truthful, timely, complete” disclosure, “willingness to cooperate”, “taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable,” etc. ).

IRM 9.5.11.9 further provides:

It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended. This voluntary disclosure practice creates no substantive or procedural rights for taxpayers as it is simply a matter of internal IRS practice, provided solely for guidance to IRS personnel. Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.
A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.

Am I “non-willful”? For purposes of the streamlined procedures, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are more “non-willful” than not. The issue is whether the IRS will agree. Be cautious when certifying non-willful status to the government.

The government may have or subsequently receive information that does not support such status. All relevant facts and circumstances must be carefully analyzed before making a determination regarding the submission of a “non-willful” certification requesting participation in the Streamlined Filing Compliance Procedures.

Will They Actually Inquire Regarding the “Non-Willful” Certification? The IRS has indicated it will review each certification of non-willful status seeking participation in the streamlined procedures.

The source of funds held in the foreign account may be an important factor. If the source of funds in the account was from unreported income, the situation can become somewhat problematic. However, having inherited funds in a foreign financial account, without more, might not be considered deserving of non-willful status by the IRS. The IRS has expressed an intention to treat taxpayers consistently and numerous individuals having inherited funds in an undeclared foreign account have been subjected to the stated OVDP penalty.

Deposits and withdrawals to the foreign account can reveal intentions and knowledge of various individuals involved. In reviewing the “non-willful” certification, the government can be expected to inquire about the manner in which deposits and/or withdrawals were made to/from the foreign account(s); the mechanics of how deposits/withdrawals were made; the form in which deposits/withdrawals occurred (i.e. cash, check, wire, travelers’ check, etc.); amounts of each withdrawal/deposit; when such deposits/withdrawals occurred; where such deposits/withdrawals occurred; whether there were there limitations on the amounts that could be deposited/withdrawn; and documents received when a deposit/withdrawal occurred (i.e. receipt, credit memo, debit memo, etc.)?

Additional considerations regarding someone being “non-willful” often include whether the existence of the account was disclosed to the return preparer or others; whether the account was at some point moved to another foreign financial institution; whether the taxpayer’s advisors had some degree of knowledge about the account; the perceived degree of financial and business sophistication and education of the taxpayer; whether foreign entities were involved as accountholders; documents provided to open the account [i.e. U.S. or foreign passport(s), identification card, etc. – note that it might not be a good fact for a taxpayer having dual passports to open an account with their non-U.S. passport]; communications, if any, with others that occurred regarding bank secrecy, taxation, and/or disclosure of any foreign accounts; failure to seek independent legal advice about how to properly handle the foreign bank account and instructions or advice received regarding holding or receiving mail from the bank, etc. Further questions often lay within the responses to each of the foregoing questions.

Lastly, in reviewing the non-willful certification under the streamlined procedures, resident taxpayers should anticipate the government inquiring as to whether the foreign accounts remain open and if not, where the funds were transferred when the account(s) were closed. Some resident taxpayers closed accounts and transferred the funds directly to a domestic account. Others closed accounts and transferred the funds through various means to other foreign accounts.

Will the IRS Interview the Taxpayer? Further questions often lay within the responses to each of the foregoing questions. An interview by an IRS examiner (in person or by phone) should be anticipated in most cases and are more likely with respect to resident taxpayers.

Those directly involved in creating and maintaining the foreign account and assets are the only ones capable of determining whether determining non-willful status. If such status is not supported by sufficient objective facts, consider other methods of coming into compliance, including the OVDP.

Civil vs. Criminal Resolution? Certainly the overwhelming majority of tax disputes result in a civil resolution. However, taxpayers frequently ask about the difference between a civil vs. criminal tax case. Often, the difference between a civil resolution and a criminal tax prosecution can be found within the misstatements of a taxpayer or their representative.

If there are material possibly intentional misstatements set forth in the non-willful certification, the taxpayer might anticipate exposure to the extensive criminal enforcement powers of the U.S. government. The IRS form certification required to be signed by the taxpayer under the streamlined procedures provides “I recognize that if the Internal Revenue Service receives of discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to [IRS] Criminal Investigation.”

Resolution of a civil case may be limited to a payment to the government of taxes, interest and possibly penalties. Resolution of a criminal case may include a period of incarceration (affectionately referred to as “Club Fed”) followed by a payment to the government of taxes, interest and possibly penalties.

A lengthy criminal tax investigation often destroys families and businesses. Looking back, every criminal tax defendant at some point asks themselves why they didn’t previously do things appropriately when they had the opportunity to avoid the criminal process.

What to Do ? Now is the time to take a deep breath, carefully analyze all relevant facts and available information. Once a taxpayer makes a submission under either the Streamlined Filing Compliance Procedures, the taxpayer may not participate in OVDP. Similarly, a taxpayer who submits an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures.

Taxpayers currently participating in an IRS OVDP who meet the eligibility requirements for the Streamlined Filing Compliance Procedures should consider requesting transitional treatment if they are comfortable and have a sufficient factual basis to certify their “non-willful” status. They are not required to affirmatively opt out of the OVDP and will retain the ability to resolve their issues within the OVDP or opt out at a later date if the IRS does not agree with their non-willful certification.

Taxpayers not currently participating in an OVDP who meet the eligibility requirements for the streamlined procedures should likewise consider requesting streamlined treatment if they are comfortable and have sufficient factual basis to certify their “non-willful” status.

Non-resident taxpayers might be better positioned to achieve their goal of a non-willful, no penalty resolution under the streamlined procedures. Their “foreign” account is actually in their own neighborhood; it is only “foreign” in the sense that it is located outside the territorial boundaries of the United States. The existence of the account does not, by itself, somehow represent an acknowledgment of tax non-compliance by the non-resident taxpayer. The streamlined procedures seem to represent the first attempt by the government to acknowledge that at some point, non-resident taxpayers become residents of their home state, emotionally even if perhaps not technically.

If there are any uncertainties or potentially difficult factual scenarios involved, consult with experienced counsel. Taxpayers will sleep better if they get it right, somehow get into compliance and move on in life . . .

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Posted in Uncategorized | Tags: FBAR, FBAR penalty, Financial Status Audit Techniques, FinCEN Form 114, foreign account, Form TD F 90-22.1, internal revenue service, irs, irs audit, OVDI, OVDP, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, tax controversy, tax fraud, voluntary disclosure

Posted by: Taxlitigator | June 26, 2014

Critical Links – 2014 OVDP & Streamlined Filing Compliance Procedures

The IRS recently announced an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP).

For eligible taxpayers residing outside the U.S., the revised Streamlined Filing Compliance Procedures provide that all penalties will be waived. For eligible taxpayers residing in the U.S., the revised Streamlined Filing Compliance Procedures provide that the only penalties will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.

Changes to the OVDP include requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application. Further, the offshore penalty increases from 27.5% to 50% if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that the financial institution where the underlying financial account is maintained is under investigation by the IRS or the Department of Justice. Further, beginning on August 4, 2014, any taxpayer having an undisclosed interest in an account maintained at certain listed foreign financial institutions listed at irs.gov will be subject to a 50% miscellaneous offshore penalty if they submit a pre-clearance letter to the IRS Criminal Investigation.

The IRS has provided significant guidance regarding the modifications to the OVDP and the revisions to the Streamlined Filing Compliance Procedures. Important links to this information include:

IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate (FS-2014-6, June 2014). IRS offshore voluntary disclosure programs are designed to encourage taxpayers with undisclosed offshore assets to become current with their tax liabilities. The latest series of voluntary programs began in 2009. Overall, the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties. Highlights of the different variations of the IRS offshore efforts since 2009 are discussed at http://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate

IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance (IR-2014-73, June 18, 2014). On June 18, 2014, the IRS announced major changes in its OVDP, providing new options to help both taxpayers residing overseas and those residing in the United States. The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 OVDP. The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was “non-willful.” http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance

Offshore Income and Filing Information for Taxpayers with Offshore Accounts (FS-2014-7, June 2014). U.S. citizens, resident aliens and certain nonresident aliens are required to report worldwide income from all sources including foreign accounts and pay taxes on income from those accounts at their individual rates. Taxpayers with undisclosed accounts should consider options available under the expanded streamlined filing process or the Offshore Voluntary Disclosure program. Filing and reporting requirements are generally discussed at http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts

Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets. The implementation of FATCA and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments. Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS describes various options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments. http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets

STREAMLINED FILING COMPLIANCE PROCEDURES EXPLAINED

Streamline Filing Compliance Procedures. The procedures described below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations. These procedures will be available for an indefinite period until otherwise announced. http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

U.S. Taxpayers Residing Outside the United States. Streamlined procedures for non-residents are referred to as the Streamlined Foreign Offshore Procedures. Eligibility, description of the scope and effect of the procedures as well as submission instructions are available at http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

Certification by U.S. Person Residing Outside of the U.S. Persons residing outside the United States applying for the new streamlined procedures must complete and submit the “non-willful” certification statement available at http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf

U.S. Taxpayers Residing in the United States. Streamlined procedures for non-residents are referred to as the Streamlined Domestic Offshore Procedures. Eligibility, description of the scope and effect of the procedures as well as submission instructions are available at http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

Certification by U.S. Person Residing in the U.S. Persons residing in the United States applying for the new streamlined procedures must complete and submit the “non-willful” certification statement available at http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf

STREAMLINED FILING COMPLIANCE SUBMISSION PROCEDURES

Delinquent FBAR Submission Procedures. Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax but (1) have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1), (2) are not under a civil examination or a criminal investigation by the IRS, and (3) have not already been contacted by the IRS about the delinquent FBARs, should follow the procedures described at http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures

Delinquent International Information Return Submission Procedures. Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who (1) have not filed one or more required international information returns, (2) have reasonable cause for not timely filing the information returns, (3) are not under a civil examination or a criminal investigation by the IRS, and (4) have not already been contacted by the IRS about the delinquent information returns should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file. As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion. If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures. Additional required information is discussed at http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures

FREQUENTLY ASKED QUESTIONS – OVDP and Transition Guidance for Eligible Taxpayers Desiring to Switch to the Streamlined Procedures

Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers. FAQs Effective for OVDP Submissions Made On or After July 1, 2014 are available at http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised

Transition Rules Frequently Asked Questions. FAQs regarding OVDP participants applying for the new streamlined procedures are available at http://irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs

REVISED OVDP VOLUNTARY DISCLOSURE LETTER

Offshore Voluntary Disclosure Letter. Taxpayers participating in the OVDP are required to submit the Offshore Voluntary Disclosure letter available at http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf

Offshore Voluntary Disclosure Letter Attachment. Taxpayers participating in the OVDP are required to submit the attachment to the Offshore Voluntary Disclosure letter available at http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf

5. UPDATED INFORMATION REGARDING ONGOING GOVERNMENT INVESTIGATIONS OF FOREIGN FINANCIAL INSTITUTIONS

List of Foreign Financial Institutions or Facilitators. Beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation: an event has already occurred that constitutes a public disclosure that either (a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person; (b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or (c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator. Examples of a public disclosure include, without limitation: a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator. A list of foreign financial institutions or facilitators meeting this criteria is available at http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators

REVISED FREQUENTLY ASKED QUESTIONS REGARDING THE MODIFIED OVDP

The Disclosure Period. For calendar year taxpayers the voluntary disclosure period is the most recent eight tax years for which the due date has already passed. The eight year period does not include current years for which there has not yet been non-compliance. The years involved in an OVDP disclosure are identified in FAQ #9 available at http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

Requesting Pre-Clearance into the OVDP. For the OVDP, pre-clearance may be requested as follows: 1.Taxpayers or representatives send a facsimile to the IRS – Criminal Investigation Lead Development Center (LDC) with: (a) identifying information (name, date of birth, social security number and address) and (b) an executed power of attorney (if represented) at (267) 941-1115 to request pre-clearance before making an offshore voluntary disclosure. In the case of jointly filed returns, if each spouse intends to apply for OVDP, each spouse should request pre-clearance. Criminal Investigation will then notify taxpayers or their representatives via fax whether or not they are cleared to make an offshore voluntary disclosure. Taxpayers deemed cleared should follow the steps outlined below (FAQ 24) within 45 days from receipt of the fax notification to make an offshore voluntary disclosure. Pre-clearance does not guarantee a taxpayer acceptance into the OVDP. Taxpayers must truthfully, timely, and completely comply with all provisions of the OVDP. Taxpayers or representatives with questions regarding pre-clearance may call the IRS CI OVDP hotline at (267) 941-1607. For all other offshore voluntary disclosure questions call the IRS OVDP Hotline at (267) 941-0020. Additional information is available at FAQ #23 http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

FBAR Form to use for the OVDP. Taxpayers must file FBARs electronically. Taxpayers who are unable to file electronically may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or (if calling from outside the United States) 1-703-905-3975 to determine possible alternative for timely reporting. Taxpayers may rely on FBAR guidance that was applicable for the calendar year that is being reported (e.g., IRS Announcement 2010-16 or IRS Notice 2010-23) in determining their FBAR reporting obligations. Additional information is available at FAQ #44 http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

Special Requirements for the OVDP Power of Attorney. In addition to being authorized to represent the taxpayer for tax years within the voluntary disclosure period, the power of attorney must specifically authorize representation of the taxpayer for income tax, civil penalties and FBARs. A sample is available at http://www.irs.gov/pub/irs-utl/f2848-ovdp.pdf

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Posted in Uncategorized | Tags: 2014 OVDP, criminal tax, FBAR, FinCEN Form 114, Form TD F 90-22.1, FS-2014-7, IR-2014-73, IRS FAQ, OVDI, OVDP, OVDP certification, Streamlined Domestic Offshore Procedures, streamlined filing compliance procedures, Streamlined Foreign Offshore Procedures, tax, tax dispute, tax penalty, voluntary disclosure

Posted by: Taxlitigator | June 24, 2014

IRS OVDP OPT OUT vs. TRANSITION TO THE NEW STREAMLINED PROCEDURES?

The Internal Revenue Service recently announced significant changes in IR-2014-73[i] regarding their offshore voluntary compliance programs, providing new options to help both resident and non-resident U.S. taxpayers whose failure to disclose their offshore financial accounts was non-willful.

The expanded 2014 streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States. The changes include:

1. Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;

2. Eliminating the required risk questionnaire;

3. Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue (all income tax related penalties will be waived).

Eligibility for the Streamlined Procedures. Taxpayers currently participating in an IRS Offshore Voluntary Disclosure Program (OVDP) who meet certain eligibility requirements can request a transition to the new streamlined procedures. Taxpayers using either the Streamlined Foreign Offshore Procedures[i] or the Streamlined Domestic Offshore Procedures[ii] will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

Certification of “Non-Willful” Conduct. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the OVDP and should consult with their professional tax or legal advisers. The streamlined procedures offer no protection from whatever consequences might arise in a later civil examination and/or criminal tax investigation.

The government carries the burden of proving willfulness into the courtroom where “willfulness” has generally required demonstrating that the government prove the taxpayer’s actions were as a result of a “voluntary, conscious and intentional” act by the taxpayer. Taxpayers considering the streamlined procedures should carefully review the recent court decisions in United States v. Williams, No. 10-2230 (4th Cir. 2012) and United States v. McBride, No. 2:09-cv-00378 (D. Utah 2012) on the issue of determining “willfulness” for assertion of the more significant “willful” FBAR penalties (of up to 50% of the account balance, per year).

Further,on May 29, 2014 in United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, 2014), the jury returned a verdict finding Mr. Zwerner “willful” and thus liable for an FBAR penalty equivalent to 50% of the high balance in his foreign financial account for three of the four years at issue. Essentially, the assessed FBAR penalties upheld by the jury aggregate $2,241,809 on an offshore account that had an apparent high balance of $1,691,054 during the years at issue.

While post-trial arguments were pending in Zwerner, the case settled with Mr. Zwerner agreeing to 50% FBAR penalties assessed against him for 2004 and 2005 in the amounts of $723,762 and $745,209 respectfully, plus interest of $21,336.11 and $20,947.52 respectively, plus statutory penalties that accrued under 31 U.S.C. Section 3715(e)(2) on the FBAR penalty assessments for 2004 and 2005 of $128,016.64 and $125,685.11 respectively.

The jury verdict in Zwerner represents a significant win for the government in their efforts to encourage certain U.S. persons having undisclosed interests in foreign financial accounts to come into compliance with the applicable filing and reporting requirements.

Coordination with the OVDP. Once a taxpayer makes a submission under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, the taxpayer may not participate in the OVDP. Similarly, a taxpayer who submits an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures.

A taxpayer will be considered to be currently participating in an OVDP for purposes of possibly receiving transitional treatment if: (1) before July 1, 2014, he has mailed to IRS Criminal Investigation his OVDP voluntary disclosure letter and attachments as described in OVDP FAQ 24, and (2) as of July 1, 2014, he has either: (a) remained in OVDP but not yet completed the OVDP certification process where a Form 906 Closing Agreement has been fully executed by the IRS, or (b) opted out of OVDP, but not yet received a letter initiating an examination and enclosing a IRS Notice 609.

A taxpayer who, as of July 1, 2014, has completed the OVDP certification process where a Form 906 Closing Agreement has been fully executed by the IRS will not be considered currently participating in an OVDP and thus will not be eligible for transitional treatment. A taxpayer whose case has been removed from OVDP by the IRS is no longer participating in OVDP and thus is not eligible for the transitional treatment described in the Transition Rule FAQs.

Each request for transitional treatment from the OVDP to the Streamlined Procedures will be reviewed by an IRS examiner, their Manager and, perhaps, by a central review committee (to assure consistent treatment) to determine whether the taxpayer is eligible for transitional treatment, the taxpayer’s certification of non-willfulness is complete, and the available information is consistent with the certification.

There are no appeal rights within OVDP, including the determination of whether the taxpayer qualifies for transitional treatment. If the IRS does not agree that the taxpayer is entitled to transitional treatment, the case remains governed by the terms of the OVDP in which the taxpayer is participating. In these circumstances, if the OVDP miscellaneous offshore penalty is unacceptable to the taxpayer, the taxpayer may then opt out of the OVDP and choose to have the case resolved in an examination process.

For OVDP participants who receive transitional treatment, all other terms of the OVDP in which the taxpayer is currently participating will continue to apply, including, but not limited to, the OVDP disclosure period (currently 8 tax years) remains the same; execution of a Form 906 Closing Agreement is required; payment of accuracy-related, failure-to-file, and/or failure-to-pay penalties, if applicable, are required; and the alternative mark-to-market PFIC resolution will continue to be available.

Note that non-OVDP participants eligible for the streamlined procedures would only be required (1) to file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) for their most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). Further, they would avoid all applicable accuracy-related, failure-to-file, and/or failure-to-pay penalties whereas transitional OVDP participants would have to file returns for the additional 5 years and their returns for all eight years would remain subject to applicable accuracy-related, failure-to-file, and/or failure-to-pay penalties.

OVDP Opt Out vs. Transition to the Streamlined Procedures? Taxpayers currently participating in an OVDP who meet the eligibility requirements for the streamlined procedures should consider requesting transitional treatment if they are comfortable and have a sufficient factual basis to certify their “non-willful” status. They are not required to affirmatively opt out of the OVDP and will retain the ability to resolve their issues within the OVDP or opt out at a later date if the IRS does not agree with their non-willful certification.

Taxpayers not currently participating in an OVDP who meet the eligibility requirements for the streamlined procedures should likewise consider requesting streamlined treatment if they are comfortable and have sufficient factual basis to certify their “non-willful” status.

If there are material possibly intentional misstatements set forth in the non-willful certification, the taxpayer might anticipate exposure to the extensive civil and criminal enforcement powers of the U.S. government. Often, the difference between a civil resolution and a criminal tax prosecution can be found within the misstatements of a taxpayer or their representative.

All relevant facts and circumstances must be carefully analyzed before making a determination regarding the submission of a “non-willful” certification requesting transition to the recently announced Streamlined Filing Compliance Procedures. The source of funds held in the foreign account may be an important factor. If the source of funds in the account was from unreported income, the situation can become somewhat problematic. However, having inherited funds in a foreign financial account, without more, might not be considered deserving of non-willful status by the IRS. The IRS has expressed an intention to treat taxpayers consistently and numerous individuals having inherited funds in an undeclared foreign account have been subjected to the stated OVDP penalty.

Lastly, in reviewing the non-wilful certification under the streamlined procedures, taxpayers should anticipate the government inquiring as to whether the foreign accounts remain open and if not, where the funds were transferred when the account(s) were closed. Some taxpayers closed accounts and transferred the funds directly to a domestic account. Others closed accounts and transferred the funds through various means to other foreign accounts. Further questions often lay within the responses to each of the foregoing questions.

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[i] See U.S. Taxpayers Residing Outside the United States, Eligibility for the Streamlined Foreign Offshore Procedures, http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

[ii] U.S. Taxpayers Residing in the United States, Eligibility for the Streamlined Domestic Offshore Procedures, http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

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Posted in Uncategorized | Tags: badges of fraud, bank secrecy act, carl zwerner, criminal tax, FBAR, FBAR penalty, FinCEN Form 114, foreign account, Form 906 Closing Agreement, Form TD F 90-22.1, irs, irs audit, IRS Criminal Investigation, irs examination, non-willful, offfshore voluntary disclosure, opt out, OVDI, OVDP, OVDP certification, OVDP opt out, OVDP voluntary disclosure letter, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Streamlined Procedures, tax enforcement, voluntary disclosure, willful, willfulness, zwerner

Posted by: Taxlitigator | June 22, 2014

IRS Changes Streamlined OVDP Reducing FBAR Penalty Exposure!

U.S. taxpayers with previously undisclosed interests in foreign financial accounts and assets continue to analyze and seek advice regarding the most appropriate methods of coming into compliance with their U.S. filing and reporting obligations. Many are pursuing participation in the IRS offshore voluntary disclosure program (the OVDP, which began in 2012 – modeled after similar programs in 2009 and 2011).

The Internal Revenue Service announced major changes in IR-2014-73[i] regarding their offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas and those residing in the United States. The changes are anticipated to provide thousands of people a new avenue to come into compliance with their U.S. tax obligations.

The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 OVDP. The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful.

Balanced against the modified programs is the government’s ongoing effort to combat the misuse of offshore assets. The IRS, working closely with the U.S. Department of Justice, continues to investigate foreign financial institutions that may have assisted U.S. taxpayers in avoiding their tax filing and payment obligations. In addition, on July 1, 2014 the new information reporting regime resulting from the Foreign Account Tax Compliance Act (FATCA) will go into effect. Thousands of foreign financial institutions will begin reporting to the IRS foreign accounts held by US taxpayers. Since the launch of the first OVDP in 2009, more than 45,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.

STREAMLINED PROCEDURES. There have been key expansions in the streamlined procedures to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts. The original streamlined procedures announced in 2012 were available only to non-resident, non-filers. Taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire.

Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
Eliminating the required risk questionnaire;
Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

Eligibility for the Streamlined Procedures. Taxpayers using either the Streamlined Foreign Offshore Procedures[ii] or the Streamlined Domestic Offshore Procedures[iii] will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

STREAMLINED FOREIGN OFFSHORE PROCEDURES. Taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must: (1) meet the “applicable non-residency requirement” (for joint return filers, both spouses must meet the applicable non-residency requirement) and (2) have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct. For this purpose, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”). Taxpayers will satisfy the “applicable non-residency requirement” if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days. Under IRC section 911 and its regulations, which apply for purposes of the procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents. Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).

If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the OVDP or its predecessor programs) may still use the streamlined procedures.

Effect of Streamlined Foreign Offshore Procedures. Taxpayers eligible to use the Streamlined Foreign Offshore Procedures must (1) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.

A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined below will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties. Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to failure-to-file and failure-to-pay penalties or accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful. Any previously assessed penalties with respect to those years, however, will not be abated. Further, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

STREAMLINED DOMESTIC OFFSHORE PROCEDURES. Taxpayers seeking to use the Streamlined Domestic Offshore Procedures must: (1) fail to meet the applicable non-residency requirement described above above (for joint return filers, one or both of the spouses must fail to meet the applicable non-residency requirement described above); (2) have previously filed a U.S. tax return (if required) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed; (3) have failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset, and (4) such failures resulted from non-willful conduct. For this purpose, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Effect of Streamlined Domestic Offshore Procedures. A taxpayer who is eligible to use these Streamlined Domestic Offshore Procedures and who complies with all of the applicable instructions will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties. The Title 26 miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.

A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered FBAR period if the asset should have been, but was not, reported on an FBAR (FinCEN Form 114) for that year. A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset should have been, but was not, reported on a Form 8938 for that year. A foreign financial asset is also subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset was properly reported for that year, but gross income in respect of the asset was not reported in that year. A foreign financial asset may include financial accounts held at foreign financial institutions; financial accounts held at a foreign branch of a U.S. financial institution; foreign stock or securities not held in a financial account; foreign mutual funds; and foreign hedge funds and foreign private equity funds.

Compliance with the Streamlined Domestic Offshore Procedures. Domestic taxpayers seeking to use the streamlined procedures must:

For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with any required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return. Delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) may not be filed using these procedures.
Include at the top of the first page of each amended tax return “Streamlined Domestic Offshore” written in red to indicate that the returns are being submitted under these procedures.
Complete and sign a statement on the Certification by U.S. Person Residing in the U.S. certifying: (1) that they are eligible for the Streamlined Domestic Offshore Procedures; (2) that all required FBARs have now been filed (see instruction 9 below); (3) that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct; and (4) that the miscellaneous offshore penalty amount is accurate (see instruction 5 below). The taxpayer must maintain their foreign financial asset information supporting the self-certified miscellaneous offshore penalty computation and be prepared to provide it upon request. They must submit an original signed statement and attach copies of the statement to each tax return and information return being submitted through these procedures. Copies should not be attached to FBARs. Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the streamlined procedures.
Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. Submit payment of the Title 26 miscellaneous offshore penalty (5 percent penalty).
For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures. The delinquent FBARs must be filed electronically at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.”
Various additional items referenced in the Specific Instructions for the Streamlined Domestic Offshore Procedures.[iv]

GENERAL TREATMENT UNDER THE STREAMLINED PROCEDURES. Receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not conclude in the signing of a closing agreement with the IRS. Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. As such, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate.

ADDITIONAL INFORMATION IS AVAILABLE AT:

IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate, http://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate

Offshore Income and Filing Information for Taxpayers with Offshore Accounts http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts

IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance

Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets http://www.irs.gov/Individuals/International-Taxpayers/Options-Available-For-U-S–Taxpayers-with-Undisclosed-Foreign-Financial-Assets

STREAMLINED PROCEDURES

Streamline Filing Compliance Procedures http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

U.S. Taxpayers Residing Outside the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

U.S. Taxpayers Residing in the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

Certification by U.S. Person Residing Outside of the U.S. http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf

Certification by U.S. Person Residing in the U.S. http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf

SUBMISSION PROCEDURES

Delinquent FBAR Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures

Delinquent International Information Return Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures

FREQUENTLY ASKED QUESTIONS

Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised

Transition Rules Frequently Asked Questions http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs

VOLUNTARY DISCLOSURE LETTER

Offshore Voluntary Disclosure Letter http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf

Offshore Voluntary Disclosure Letter Attachment http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf

**************************************

[i] IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance, IR-2014-73, June 18, 2014

[ii] See U.S. Taxpayers Residing Outside the United States, Eligibility for the Streamlined Foreign Offshore Procedures, http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

[iii] U.S. Taxpayers Residing in the United States, Eligibility for the Streamlined Domestic Offshore Procedures, http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States.

[iv] http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

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Posted in Uncategorized | Tags: badges of fraud, bank secrecy act, carl zwerner, cash business, FBAR, FBAR mitigation, FBAR penalty, FinCEN Form 114, foreign account, Form TD F 90-22.1, Kostinan, offfshore voluntary disclosure, OVDI, OVDP, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, tax controversy, tax dispute, tax enforcement, tax evasion, tax examination, voluntary disclosure, zwerner

Posted by: Taxlitigator | June 19, 2014

IRS Makes Major Changes to Offshore Voluntary Disclosure Program !

The Internal Revenue Service announced major changes in IR-2014-73 regarding their offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas and those residing in the United States. The changes are anticipated to provide thousands of people a new avenue to come into compliance with their U.S. tax obligations.

The changes include an expansion of the streamlined filing compliance procedures announced in 2012 and important modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP). The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful.

“This opens a new pathway for people with offshore assets to come into tax compliance,” said IRS Commissioner John Koskinen. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”

Balanced against the modified programs is the government’s ongoing effort to combat the misuse of offshore assets. The IRS, working closely with the U.S. Department of Justice, continues to investigate foreign financial institutions that may have assisted U.S. taxpayers in avoiding their tax filing and payment obligations. In addition, on July 1, the new information reporting regime resulting from the Foreign Account Tax Compliance Act (FATCA) will go into effect. Thousands of foreign financial institutions will begin reporting to the IRS foreign accounts held by US taxpayers.

The current Offshore Voluntary Disclosure Program was launched in 2012 and is the successor to prior voluntary programs offered in 2011 and 2009. Since the launch of the first program, more than 45,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.

STREAMLINED PROCEDURES. The changes make key expansions in the streamlined procedures to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts.

The original streamlined procedures announced in 2012 were available only to non-resident, non-filers. Taxpayer submissions were subject to different degrees of review based on the amount of the tax due and the taxpayer’s response to a “risk” questionnaire.

The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States.

The changes include:

Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;

Eliminating the required risk questionnaire;

Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

OVDP MODIFIED. Modifications to the OVDP include:

Requiring additional information from taxpayers applying to the program;

Eliminating the existing reduced penalty percentage for certain non-willful taxpayers in light of the expansion of the streamlined procedures;

Requiring taxpayers to submit all account statements and pay the offshore penalty at the time of the OVDP application;

Enabling taxpayers to submit voluminous records electronically rather than on paper;

Increasing the offshore penalty percentage (from 27.5% to 50%) if, before the taxpayer’s OVDP pre-clearance request is submitted, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or Department of Justice.
Full details of the changes to both the streamlined procedures and OVDP can be found on IRS.gov.
Related Items:
Offshore Voluntary Disclosure Program
Statement of IRS Commissioner John Koskinen
FS-2014-6, IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate
FS-2014-7, Offshore Income and r Taxpayers with Offshore Accounts

WHERE ARE WE NOW re THE OVDP ? Taxpayers who have yet to come into compliance must immediately review the foregoing IRS releases. Many will significantly benefit from the modifications to the streamlined procedures and the OVDP. Others should view these changes in light of the substantial amount of information flowing into the government and that is soon to arrive as a result of FATCA implementation. All should immediately get into compliance and view this as an immediate opportunity to overcome their fear of certain uncertainties that previously existed. All should be aware that certain decisions might be required before the July 1, 2014 implementation of FATCA.

Taxpayers who have an OVDP application in process, must determine whether the recent changes to the IRS program may provide a benefit.

ADDITIONAL INFORMATION IS AVAILABLE AT:

Offshore Income and Filing Information for Taxpayers with Offshore Accounts http://www.irs.gov/uac/Newsroom/Offshore-Income-and-Filing-Information-for-Taxpayers-with-Offshore-Accounts

STREAMLINED PROCEDURES

Streamline Filing Compliance Procedures http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

U.S. Taxpayers Residing Outside the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

U.S. Taxpayers Residing in the United States http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-in-the-United-States

Certification by U.S. Person Residing Outside of the U.S. http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf

Certification by U.S. Person Residing in the U.S. http://www.irs.gov/pub/irs-utl/CertUSResidents.pdf

SUBMISSION PROCEDURES

Delinquent FBAR Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures

Delinquent International Information Return Submission Procedures http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-International-Information-Return-Submission-Procedures

FREQUENTLY ASKED QUESTIONS

Transition Rules Frequently Asked Questions http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs

VOLUNTARY DISCLOSURE LETTER

Offshore Voluntary Disclosure Letter http://www.irs.gov/pub/irs-utl/OVDIntakeLtr.pdf

Offshore Voluntary Disclosure Letter Attachment http://www.irs.gov/pub/irs-utl/OVDIntakeLtrAttach.pdf

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Posted in Uncategorized | Tags: bank secrecy act, DoJ, examination, FBAR, FinCEN Form 114, foreign account, Form TD F 90-22.1, irs, IRS OVDP, offfshore voluntary disclosure, offshore bank, OVDP, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, tax evasion, voluntary disclosure

Posted by: Taxlitigator | June 16, 2014

Reminder: 2013 FBAR Filing Due by June 30, 2014

U.S. persons having a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account may be required by the Bank Secrecy Act to report their interest in the account to the IRS by electronically filing by June 30, 2014, a Financial Crimes Enforcement Network Form 114, “Report of Foreign Bank and Financial Accounts” (FBAR). This form replaces TD F 90-22.1, the previously used FBAR form. A U.S. person may have a reporting obligation even though the foreign financial account does not generate any income.

If a U.S. person had such a financial interest or signature authority at any time during calendar year 2013, the FBAR must be received by the Department of the Treasury on or before June 30, 2014. The FBAR is not filed with the federal income tax return. The granting by the IRS of an extension to file federal income tax returns does not extend the due date for filing an FBAR. The June 30th filing date may not be extended.

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. income tax liability and a filing requirement in 2014. The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get one additional day because the normal June 15 extended due date falls on Sunday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. Nonresident aliens who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income. See IR-2014-52 for additional details available on IRS.gov.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

FBAR filers report their foreign accounts by (1) completing boxes 7a and 7b on Form 1040 Schedule B; box 3 on the Form 1041 “Other Information” section; box 10 on Form 1065 Schedule B; or boxes 6a and 6b on Form 1120 Schedule N and filing the FBAR, satisfies the account holder’s reporting obligation. Even if all relevant information is not available, the FBAR should be filed with as much information as is available; the FBAR can be later amended (by checking the “Amended” box in the upper right corner of the first page of the FBAR) when the additional or new information becomes available. Also, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 (Revised December 2013) if the aggregate value of those assets exceeds certain thresholds. See the instructions for Form 8938 on irs.gov for details.

A United States person having a financial interest in or signature authority over a foreign financial account must file an FBAR if the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. A United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the U.S. or under the laws of the U. S.; and trusts or estates formed under the laws of the United States.

The term “person” includes an individual and legal entities including, but not limited to, a limited liability company, corporation, partnership, trust, and estate. A U.S. resident includes an alien residing in the United States. To determine whether the U.S. person is a resident of the U.S., look for guidance in the residency tests set forth in 26 U.S.C. §7701(b).

A single-member LLC, which is a disregarded entity for U.S. tax purposes, is a U.S. person for FBAR filing purposes since the tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement (FBARs are required under Title 31, not under any provisions of the Internal Revenue Code).

FINANCIAL ACCOUNT. A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).

FOREIGN FINANCIAL ACCOUNT. A foreign financial account is a financial account located outside of the United States. For example, an account maintained with a branch of a United States bank that is physically located outside of the United States is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account. A “foreign country” includes all geographical areas outside the United States, the commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

FINANCIAL INTEREST. A U.S. person has a financial interest in a foreign financial account for which:

(1) the U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person; or

(2) the owner of record or holder of legal title is one of the following: (a) An agent, nominee, attorney, or a person acting in some other capacity on behalf of the U.S. person with respect to the account; (b) A corporation in which the U.S. person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock; (c) A partnership in which the U.S. person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital; (d) A trust of which the U.S. person: (i) is the trust grantor and (ii) has an ownership interest in the trust for U.S. federal tax purposes [See 26 U.S.C. § 671-679 to determine if a grantor has an ownership interest in a trust]; (e) A trust in which the U.S. person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year, unless the trust, a trustee of the trust, or agent of the trust: (i) is a U. S. person and (ii) files an FBAR disclosing the trust’s foreign financial accounts.; or (f) Any other entity in which the U.S. person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

SIGNATURE AUTHORITY. Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. Other authority exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.

There are specified exceptions to the “signature authority only” filing requirement for officers or employees of certain types of banks and entities. FinCEN Notice 2013-1 extended the due date for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity, to June 30, 2015.

ELECTRONIC FILING OF THE FBAR. On June 29, 2011, the Financial Crimes Enforcement Network (FinCEN) announced that all FinCEN forms must be filed electronically with certain exceptions. However, the FBAR was granted a general exemption from mandatory electronic filing through June 30, 2013. E-filers will receive an acknowledgement of each submission.

On September 30, 2013, FinCEN posted, on their internet site, a notice announcing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form). FinCEN Form 114 supersedes TD F 90-22.1 (the FBAR form that was used in prior years) and is only available online through the BSA E-Filing System website. The system allows the filer to enter the calendar year reported, including past years, on the online FinCEN Form 114.

The FinCEN system also offers an option to “explain a late filing,” or to select “Other” to enter up to 750-characters within a text box where the filer can provide a further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program. Information regarding and registration for e-filing of an FBAR is available at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

VERIFICATION OF FBAR FILING. Ninety days after the date of filing, the filer can request verification that the FBAR was received. An FBAR filing verification request may be made by calling 866-270-0733 and selecting option 1. Up to five documents may be verified over the phone. There is no fee for this verification.

Alternatively, an FBAR filing verification request may be made in writing and must include the filer’s name, taxpayer identification number and the filing period. There is a $5 fee for verifying five or fewer FBARs and a $1 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury. The request and payment should be mailed to: IRS Enterprise Computing Center/Detroit, ATTN: Verification, P.O. Box 32063, Detroit, MI 48232

NO EXTENSION OF TIME TO FILE FBAR. There is no extension of time available for filing an FBAR. Extensions of time to file federal tax returns do NOT extend the time for filing an FBAR. If a delinquent FBAR is filed, attach a statement explaining the reason for the late filing.

FAILURE TO FILE THE FBAR. The failure to timely file the FBAR can be subject to civil penalties and possibly criminal sanctions (i.e., imprisonment). The civil penalties might be $10,000 per year but a willful failure to file could be subject to civil penalties equivalent to the greater of $100,000 or 50% of the balance in an unreported foreign account, per year, for up to six tax years. Penalties might be avoided if there is reasonable cause for the failure to timely file the FBAR.

RECORD KEEPING REQUIREMENTS. Persons required to file an FBAR must retain records that contain the name in which each account is maintained, the number or other designation of the account, the name and address of the foreign financial institution that maintains the account, the type of account, and the maximum account value of each account during the reporting period. The records must be retained for a period of 5 years from June 30th of the year following the calendar year reported and must be available for inspection as provided by law. Retaining a copy of the filed FBAR can help to satisfy the record keeping requirements.

SEPARATE REPORTING REQUIREMENTS BY U.S. TAXPAYERS HOLDING FOREIGN FINANCIAL ASSETS (FORM 8938). Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. The Form 8938 filing requirement does not replace or otherwise affect the requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements .

Assistance regarding the electronic filing of an FBAR is available at BSAEFilingHelp@fincen.gov or through the BSA E-Filing Help Desk at 866-346-9478. The E-Filing Help Desk is available Monday through Friday from 8 a.m. to 6 p.m. Eastern Time.

Help in completing an FBAR is available by telephone at 866-270-0733 (toll-free within the U.S.) or 313-234-6146 (from outside the U.S., not toll-free) from 8 a.m.—4:30 p.m. Eastern time, or by sending an e-mail to FBARquestions@irs.gov. Additional information, including Frequently Asked Questions, is available at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/FAQs-Regarding-Report-of-Foreign-Bank-and-Financial-Accounts-(FBAR)—Filing-Requirements#FR5

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Posted in Uncategorized | Tags: badges of fraud, bank secrecy act, credit suisse, criminal tax, examination, FBAR, FinCEN Form 114, foreign account, Form TD F 90-22.1, irs, irs audit, offfshore voluntary disclosure, OVDI, OVDP, tax enforcement, tax examination, UBS, voluntary disclosure

Posted by: Taxlitigator | May 29, 2014

Zwerner: Jury Determines 150% FBAR Penalty Applies – Excessive Fines Clause to the Rescue??

U.S. taxpayers with previously undisclosed interests in foreign financial accounts and assets continue to analyze and seek advice regarding the most appropriate methods of coming into compliance with their U.S. filing and reporting obligations. Many are pursuing participation in the current IRS offshore voluntary disclosure program (the OVDP which began in 2012), modeled after similar programs in 2009 and 2011.

Taxpayers participating in the ongoing 2012 OVDP generally agree to file amended returns and file FBARs for eight tax years, pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20 percent of any income tax deficiency and an “FBAR-related” penalty (in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) of 27.5 percent of the highest account value that existed at any time during the prior eight tax years.

QUIET DISCLOSURES. There remain alternatives to the OVDP, including the voluntary disclosure practice of the IRS set forth in Internal Revenue Manual 9.5.11.9 [see Example 6(A) – a letter from an attorney which encloses timely amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns) and which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full), Section 4.01 of the Criminal Tax Manual for the U.S. Department of Justice, and Section 3, Policy Directives and Memoranda, Tax Division of the U.S. Department of Justice. These practices and policies provide protection from a criminal investigation and prosecution but do not determine the outcome of any civil examination proceedings.

Despite various potential risks of not coming into compliance through the OVDP, some continue to disclose their offshore accounts outside the OVDP in a “quiet disclosure” by simply filing amended income tax returns for all or some of the tax years otherwise covered by an offshore program, and report previously unreported income – whether such income is associated with the previously unreported accounts or otherwise. At the same time, taxpayers attempting a quiet disclosure typically file late Forms 90-22.1, Report of Foreign Bank and Financial Accounts (FBARs), if they had not previously filed FBARs, or amended FBARs, if they had, to disclose the previously unreported offshore accounts.

BSA FILING REQUIREMENTS. Under the Bank Secrecy Act, U.S. persons must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by noting the account on their income tax return and by filing the FBAR. Civil penalties for willful failure to comply with the reporting requirements of Section 5314 can be imposed under 31 U.S.C. § 5321(a) (5). For violations involving the willful failure to report the existence of an account, the maximum amount of the penalty that may be assessed under Section 5321(a) (5) is the greater of $100,000 or 50 percent of the balance in an unreported foreign account, per year, for up to six tax years.

U.S.A. vs. CARL R. ZWERNER –

On June 11, 2013, the government filed a Complaint to collect multiple civil FBAR penalties in the amount of $3,488,609.33 (as of June 13, 2013) previously assessed against Carl R. Zwerner of Coral Gables, Florida for his alleged failure to timely report his financial interest in a foreign bank account, as required by 31 U.S.C. § 5314 and its implementing regulations. [United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013)].

Mr. Zwerner is an 87 year old man who authorized his tax counsel in 2008 to contact IRS Criminal Investigation and make a voluntary disclosure. Mr. Zwerner disclosed the existence of his offshore account (including income generated by the account) on his timely filed 2007 tax return and paid the tax owed.

On February 10, 2009, Mr. Zwerner’s prior tax counsel contacted IRS Criminal Investigation Division (CID) on a hypothetical basis (without disclosing the identity of Mr. Zwerner). On February 17, 2009, IRS CID issued a letter stating that no criminal action would take place, but the identity of the client had not been disclosed at the February 10, 2009 meeting. Mr. Zwerner was then advised by his tax counsel that his voluntary disclosure had occurred and he should file the amended returns for tax years 2004, 2005 and 2006. On or about March 27, 2009, Mr. Zwerner filed amended tax returns and the FBARs for 2004, 2005, and 2006, and paid the tax and interest owing.

Mr. Zwerner’s tax returns were not under audit at the time of his voluntary disclosure. Following up on this traditional voluntary disclosure, at some point in 2010 the IRS began an audit of Mr. Zwerner’s returns. In the course of that audit, Mr. Zwerner advised the IRS agent of his prior voluntary disclosure.

Mr. Zwerner appears to have come into compliance under the then applicable voluntary disclosure practice set for in the IRS’s Internal Revenue Manual 9.5.11.9, Example 6(A) at a time when there was no formal program regarding the voluntary disclosure of previously undisclosed interests in offshore financial accounts. Unfortunately, IRM 9.5.11.9 only speaks to the voluntary disclosure being a factor considered by the IRS in the determination of a referral for criminal prosecution by the Tax Division of the U.S. Department of Justice. It has no formal impact on any IRS civil penalty determination although, historically, a timely voluntary disclosure has received favorable consideration in the civil penalty arena as well.

The $3,488,609.33 (as of June 13, 2013) assessed by the government represents 50% of the high balance of his account at the time of the violations for EACH year, as follows: (a) 2004 – $723,762, assessed on June 21, 2011; (b) 2005 – $745,209, assessed on August 10, 2011; (c) 2006 – $772,838, assessed on August 10, 2011; and (d) 2007 – $845,527 assessed on August 10, 2011.

The IRS asserted a 75% civil income tax fraud penalty for tax years 2004, 2005 and 2006. Following the audit, the income tax civil fraud penalty was abated in the U.S. Tax Court for 2006, by IRS Appeals for 2004 and 2005, and was not even asserted by the IRS for 2007.

BURDEN OF PROOF. The government carries the burden of proving willfulness into the courtroom. Taxpayers should carefully review the recent court decisions in United States v. Williams, No. 10-2230 (4th Cir. 2012) and United States v. McBride, No. 2:09-cv-00378 (D. Utah 2012) on the issue of determining “willfulness” for assertion of the more significant “willful” FBAR penalties (of up to 50% of the account balance, per year). Although the underlying facts in each case were not the best, the courts might not lightly view those with considerable financial resources who fail to inquire about their potential reporting requirements associated with various interests in foreign financial accounts.

JURY DETERMINES 150% FBAR PENALTY APPLIES. The jury trial in Zwerner began on May 19, 2014 in the Federal District Court for the Southern District of Florida. Today, the jury returned a verdict finding Mr. Zwerner “willful” and thus liable for an FBAR penalty equivalent to 50% of the high balance in his foreign financial account for each of the years 2004, 2005 and 2006 years as previously assessed by the government. The jury determined Mr. Zwerner was not “willful” as to the year 2007.

Essentially, the assessed FBAR penalties upheld by the jury aggregate $2,241,809 on an offshore account that had an apparent high balance of $1,691,054 during the years at issue.

Many have been wondering what unique facts may have led the government to pursue what many believe to be unconstitutionally excessive multiple year, 50 percent FBAR penalties against Mr. Zwerner. Heightened tax enforcement efforts and increased penalties for non-compliance must be coupled with ongoing efforts to encourage taxpayers to voluntarily come into compliance. The perception of fairness (or unfairness) in the process can have a significant impact on the decisions of millions of other U.S. taxpayers presently contemplating whether to come into compliance with their filing and reporting requirements.

By previously trying to voluntarily come into compliance through the filing of amended returns and original FBARS, he was subjected to an IRS audit, then became ineligible for the 2011 OVDI and is now subjected to multiple year, 50 percent FBAR penalties. It should be noted that taxpayers entering a criminal plea in matters involving FBAR violations typically receive a single year 50 percent FBAR penalty based on the highest account value for the applicable tax years.

This is a significant win for the government in their efforts to encourage certain US persons having undisclosed interests in foreign financial accounts to come into compliance with the applicable filing and reporting requirements . . .

THE EXCESSIVE FINES CLAUSE TO THE RESCUE? To many, pursuing multiple year, maximum penalties following submission of amended returns and delinquent FBARs appears punitive. The Excessive Fines Clause of the Eighth Amendment and relevant Supreme Court case law support a conclusion to the effect that a civil penalty or forfeiture is unconstitutional if the penalty or forfeiture is at least in part “punishment” and such punishment is grossly disproportionate to the conduct which the penalty is designed to punish. The touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality – the amount of the penalty must bear some relationship to the gravity of the offense that it is designed to punish.

The judge in Zwerner will hear arguments on June 6 whether the penalties violate the constitutional prohibition against excessive fines. Many will continue to watch U.S.A. vs. Carl R. Zwerner before making any decision to pursue any form of voluntary disclosure regarding previously undisclosed interests in a foreign financial account.

MOVING FORWARD. Recent events support the conclusion that the system is far more important than any single U.S. taxpayer; the IRS and those representing the IRS must remain objective and conduct themselves with the highest degree of integrity at all times.

The case involving Mr. Zwerner represents more than an effort to collect civil FBAR penalties from Mr. Zwerner. The Answer filed on behalf of Mr. Zwerner asserted instances where the IRS agent conducting the audit attempted to “mislead and bolster his position for the FBAR penalty,” displayed an “unrealistic aggression” towards Mr. Zwerner, and asserts that Mr. Zwerner signed a letter dated August 9, 2010 admitting to “willful misconduct” in failing to file FBARs but neglected to disclose that the letter was actually dictated by the agent coercing Mr. Zwerner into signing it as “the only way he would be able to obtain a reduction of the penalties that might otherwise apply.” If any of the foregoing allegations of agent misconduct are true, the Government is pursuing the wrong person involved in the underlying audit.

Worldwide respect for the integrity of the U.S. system of tax administration depends, at least in part, upon how the Government continues to treat those who pursue some type of timely and truthful voluntary compliance with the filing and reporting requirements associated with their foreign financial accounts. A system of tax administration based in large part on voluntary compliance cannot ignore the potential impact associated with the manner in which those who voluntarily comply, even if in a somewhat awkward fashion (but before any contacts by the Government), are treated.

Heightened tax enforcement efforts and increased penalties for non-compliance must be coupled with ongoing efforts to encourage taxpayers to voluntarily come into compliance. The perception of fairness (or unfairness) in the process can have a significant impact on the decisions of millions of other U.S. taxpayers presently contemplating whether to come into compliance with their filing and reporting requirements.

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Posted in Uncategorized | Tags: badges of fraud, bank secrecy act, carl zwerner, cash business, compliance, credit suisse, examination, FBAR, Financial Status Audit Techniques, Fincen, Fincen 114, FinCEN Form 114, foreign account, Form TD F 90-22.1, fraud, irs, irs audit, offfshore voluntary disclosure, OVDI, OVDP, tax dispute, tax enforcement, tax evasion, tax examination, tax fraud, tax return, UBS, voluntary disclosure, zwerner

Posted by: Taxlitigator | May 17, 2014

PROTECTING PRIVILEGES DURING AN IRS EXAMINATION

A better-equipped IRS has been able to ferret out potentially sensitive issues in a manner often compromising the relationship between a taxpayer and his own tax representative.

If there are potentially sensitive issues, the taxpayer should be interviewed by counsel to determine whether there is a need to fully preserve potentially privileged information. In turn, counsel should consider engaging the accountant to coordinate the examination on behalf of the taxpayer. Under the doctrine of United States v. Kovel,1 the investigative accountant may be clothed with an extension of the attorney’s privilege.

If asked, the taxpayer will often state that he gave everything to his return preparer and that he doesn’t understand why the return preparer failed to appropriately report it. Remember, clients do not make mistakes. Better to get this cleared up between the taxpayer and counsel than to have the taxpayer make such statements(if untrue) to the government. Counsel’s engagement of the accountant should be in writing, and should indicate that the accountant is acting under the direction of counsel in connection with counsel’s rendering of legal services to the client.

Under a Kovel arrangement, communications between the accountant and the client are confidential and are made solely for purposes of enabling counsel to provide legal advice; the accountant’s work papers are held solely for counsel’s use and convenience and subject to counsel’s right to demand their return; and the accountant is to segregate his work papers, correspondence, and other documents gathered during the course of the engagement and designate those documents as property of counsel.

The statutory privilege for civil “tax advice” to a federally authorized tax practitioner set forth in IRC section 7525 is not available when truly needed the most — when a civil tax proceeding moves into the criminal arena. It also may not be available in some state-related tax proceedings or in nontax civil litigation. However, if the accountant is appropriately engaged by counsel under Kovel, the common-law attorney-client privilege should apply to all communications rendered in furtherance of the legal services being provided to the client, both during the investigative stages of the audit and, if necessary, during any subsequent civil or criminal litigation. This privilege does not extend to the actual return preparation. The critical inquiry is often whether counsel should retain the taxpayer’s prior accountant or a new accountant.

Some representatives prefer to engage a new accountant to avoid the necessity of delineating between non-privileged communications (communications preceding counsel’s engagement of the accountant), and privileged communications appropriate communications following counsel’s engagement of the accountant). However, the particular facts and circumstances should be fully explored by counsel before making a determination regarding the engagement of the investigative accountant to assist counsel.

1United States v. Kovel, 292 F.2d 18 (2d Cir. 1961).

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Posted in Uncategorized | Tags: abatement, ATG, badges of fraud, criminal tax, examination, Financial Status Audit Techniques, irs, irs examination, kovel, privilege, tax controversy, tax dispute, tax enforcement, tax penalty, voluntary disclosure

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PROTECTING PRIVILEGES DURING AN IRS EXAMINATION

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