Tax Debt

Which is worse? A failure to file penalty or a failure to pay penalty?

February 18, 2015 | by Dennis N. Brager

US citizens, legal permanent residents, and other covered individuals have an obligation to file and pay taxes on all sources of worldwide income. If an individual does not satisfy his or her filing and payment obligations, he or she may be subject to penalties for a failure to pay taxes, the failure to file taxes, or both.

While the following article will address a number of the penalties which can apply for non-filed taxes or nonpayment of taxes, this article does not address when civil or criminal fraud penalties could apply. Furthermore, if the failure to file or pay includes the failure to report sources of foreign income or foreign accounts, additional problems are likely to arise. The experienced tax attorneys of the Brager Tax Law Group can discuss your concerns, identify legal problems and work to develop effective solutions to your tax compliance issues.

What are the consequences for failure to file taxes?

Is there an accountant-client privilege? Why should I work with a tax attorney?

February 13, 2015 | by Dennis N. Brager

Conversations between a CPA and his or her clients may or may not be shielded from disclosure to third parties. Whether the accountant-client privilege exists is a fact-specific inquiry where the fact that your disclosures may not have been confidential may not emerge until it is already too late. This is chiefly because federal law does not recognize a generalized privilege between accountants and their clients.

While a selection of states including Colorado, Missouri and Florida do recognize the privilege, the privilege will only apply in state courts or in federal courts that are applying state law. In federal courts applying federal law, only a limited statutory protection applies to accountant-client communications. In contrast, the attorney-client privilege is recognized by all 50 states and in the federal courts. Furthermore, additional confidentiality may be provided through the work-product doctrine.

What is the purpose of confidentially privileges?

Tax Evasion Conviction of Las Vegas Attorney Paul Wommer Upheld by 9th Circuit Court of Appeals

January 6, 2015 | by Dennis N. Brager

Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn’t committed “tax evasion” under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the “additions to the tax, additional amounts, and penalties provided by this chapter,” the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:

Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

IRC Section 6671(a) provides:

Collection Due Process (CDP) Hearing Requests Sent to the Wrong IRS Office Creates Tax Problems

January 17, 2014 | by Dennis N. Brager

For the IRS to issue a Collection Due Process or CDP Notice. The CDP Notice is required by Internal Revenue Code Section 6330. The CDP notice is generally issued by the IRS on either Form LT-11 or Letter 1058, and it is titled “Notice of Intent to Levy and Right to Request A Hearing.” These letters give a taxpayer, who owes the IRS money, 30 days to file a request for a hearing with the Internal Revenue Service’s Appeals Division. More on this in a moment.

If the taxpayer doesn’t request a Collection Due Process hearing IN WRITING within the 30-day period, then the IRS may immediately begin seizure of bank accounts, accounts receivable, or any other assets. The IRS may even seize someone’s home, although this requires a lot more paperwork, and the approval of a federal district court judge.

An IRS internal document known as an IRS Program Manager Technical Assistance recently provided information on what will happen if the request for a CDP hearing is mailed timely to an incorrect office. The short answer is that the CDP hearing will be denied, and the IRS is legally free to begin levies and seizures. However, a taxpayer in this situation is, generally, permitted an “equivalent” CDP hearing; however, an equivalent CDP hearing does not carry with it the right to appeal to the United States Tax Court. It is only a timely filed request for a CDP hearing that will be appealable to the Tax Court if the IRS Appeals decision is not to the taxpayer’s liking.

Important Offer in Compromise (OIC) Tip from a Senior IRS Collection Official

November 6, 2013 | by Dennis N. Brager

An Offer in Compromise (OIC) can be one of the best ways to avoid an IRS tax levy, and to reduce your tax debt if you have fallen far behind. Earlier this month I was speaking with a senior IRS collection official about Offers in Compromise, and he brought up an i Money Pic.jpg nteresting point. First, a little background. The IRS will allow taxpayers to reduce the amount of their tax debts if the IRS concludes that it is unlikely that the tax debt will be paid during the remaining time the IRS has to collect. This time period is referred to as the Collection Statute Expiration Date or CSED. If the tax can’t be paid during the CSED then the IRS may accept a settlement amount.

The IRS calculates this settlement amount, by adding the taxpayer’s net realizable equity in assets to the amount collectible from future expected income after payment of “necessary” living expenses. This is known as the reasonable collection potential or RCP. The amount collectible from future expected income is determined based upon the period over which the taxpayer proposes to make payments. If the payment period is from 1 to 5 months then the future income is determined over a 12 month period. On the other hand, if the taxpayer wishes to make payments over more than 5 months (up to a maximum of 24 months) then the future income is calculated over the entire 24 month period.

To take a simple example. Assume a taxpayer owes the IRS $300,000, and has assets of $25,000. In addition, she has monthly income, after necessary living expenses, of $2,000. If the taxpayer can pay the offer amount in 5 months or less than the RCP, the amount offered, would be $49,000 ($25,000 + 12 months x $2,000). On the other hand, if the taxpayer needs more than 5 months, then the RCP would be $73,000 (25,000 + 24 months x $2,000).

California Franchise Tax Board (FTB) To Issue 475,000 Tax Levies for Delinquent Tax Debts

June 27, 2012 | by Dennis N. Brager

If you or your clients have tax problems and owe California State income taxes, the Tax Man Cometh! The California Franchise Tax Board (FTB) is collecting delinquent tax debts through the Financial Institution Record Match (FIRM) program. FIRM uses automated data exchanges to locate bank accounts held by Californians who have tax debts. The FIRM program will match records on a quarterly basis in order to collect tax debts from both individuals and businesses. No financial institution doing business within the state of California is exempt from participating in the program. However, in rare cases temporary exemption or suspension of participation may apply. Banks that chose not to comply are subject to large fines each year. Accounts that are eligible for tax levies include checking and savings accounts, as well as mutual funds. FIRM is similar to the Financial Institution Data Match (FIDM) program, which is used to collect delinquent child support debt.

The FIRM program allows the FTB to use data obtained from banks to find assets and garnish bank accounts up to 100 percent of the amount owed. As of April, the FTB began to serve tax levies on the bank accounts of individuals who have delinquent balances, including penalties, interest, taxes and fees that have been identified through FIRM. With the help of the FIRM program, the FTB expects to issue 475,000 tax levies this fiscal year, a 75 percent increase from last year.

In order to avoid tax levies you or your tax lawyer should consider possible alternatives including installment agreements, offers in compromise and bankruptcies.

Data between FTB and FIRM can be exchanged in two ways. In the first method, information regarding open accounts is given directly to the FTB for the Board to match accounts with delinquent taxpayers. This method is only available to institutions that are unable to match the information against their own records. Institutions that do not qualify for the first method must match taxpayer information against their own records. Banks can choose to hire a third-party transmitter to aid in matching the data. Because the accuracy of the data is of the utmost importance, banks must verify matches from third-party services before submitting them to the FTB.

A 10-day holding period follows the issue of the tax levy to the bank. During this time, the taxpayer or a tax attorney on the taxpayer’s behalf may negotiate the amount due or, if financial hardship is creating tax problems, discuss payment options. If the FTB levied an account in error, they will delay the garnishment while they verify the mistake and then issue a garnishment release notice. If the bank has already issued the payment, the Board will return the payment.
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Felony Criminal Tax Prosecution Goes Forward

December 20, 2011 | by Dennis N. Brager

United States v. Quinn (D. KS 2011) is one of several recent felony tax prosecutions, not for tax evasion, but for violation of Internal Revenue Code Section 7202. IRC Section 7202 makes it a felony to willfully fail to collect, account for, or pay over any tax due. In this case Ms. Quinn failed to pay payroll taxes for 7 quarters between 2003 and 2005. She finally got around to paying them in 2010, apparently after the IRS had filed criminal tax charges against her. Ms. Quinn challenged the finding that she failed to pay employment and individual tax and argued that since she had subsequently paid the tax due the charges should be dismissed.

The court wrote in its opinion that a person has failed to pay taxes if they have not paid the amount due as of the due date, regardless of whether the taxpayer has subsequently paid. In Ms. Quinn’s case, she had recently paid the amounts due but this was not sufficient for the court to find her not guilty.

This does not mean that late payment of taxes will never prevent a criminal tax prosecution, and those who have not paid their taxes should seriously consider taking care of a tax problem before it turns into a criminal tax problem. Had Ms. Quinn gotten around to making full payment, or indeed even made good faith installment payments much earlier there is a chance that the case would never have gotten as far as it did.
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Tax Attorney Blames OCD for Failure to File Business Income Taxes

March 25, 2011 | by Dennis N. Brager

Tax lawyers representing a man accused of failing to file business income tax returns told the judge that obsessive-compulsive disorder was responsible for their client’s tax problems, the Calgary Herald reported.

Business tax debt can sink a business; frequent issues tax attorneys are called to deal with include payroll tax problems and tax audits.

That’s not to say OCD is involved in the majority of the cases. But in this case, the man blames the condition for his inability to file business income tax returns. He faces 60 days in jail and a $10,000 fine if convicted of disobeying a court-issued compliance letter. The company, Harvest Brewing, is accused of not filing returns in 2004 and 2005. His attorney said Ronald Thomsen’s personal taxes are up to date because they are easy to file and the taxes are deducted right from his pay.

But when it comes to the business taxes, his client’s medical condition prevents him from dealing with the paperwork. The business taxes were about $45,000 a year in the five years prior to the years in question. However, Canada Revenue Agency does not know how much is now owed because they haven’t received any documentation in years. The business’s accountant has told Thomsen she would have the outstanding taxes filed by May but he has refused to turn over the paperwork.

That refusal is part of the medical condition, according to his tax attorneys.
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“Little Fockers” Star has Tax Liens for $433K in Back Taxes to IRS, State of California Franchise Tax Board

March 23, 2011 | by Dennis N. Brager

The Detroit News is reporting that Hollywood actress Teri Polo, perhaps best known for playing alongside Robert De Niro and Ben Stiller in “Meet the Parents,” has a tax lien for $433,736.

The former Playboy pinup landed the role after a string of TV show appearances, including “The West Wing.” She is also appearing in “Little Fockers,” which is in theaters this year.

-The Internal Revenue Service filed a tax lien against Polo in August in Kent County Delaware in August 2009, claiming she owes $114,843.95 in income taxes from 2007.

California claims she owes $91,748 for taxes in 2005 and 2006, according to a tax lien filed in Los Angeles County in 2008.

-A second IRS tax lien in Delaware also claims she owes $227,144.48 in back taxes for 2005 and 2006.

Polo blames her tax problems on a costly divorce and being unable to work while raising two young children. She reportedly has reached a deal with the IRS to repay the tax debt.
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Wesley Snipes to Serve 3 Years for Failure to File Tax Returns

March 15, 2011 | by Dennis N. Brager

CNN reports Hollywood actor Wesley Snipes is off to serve a three-year prison sentence for failing to file tax returns.

While simple non-filing of tax returns doesn’t often result in criminal tax fraud charges being brought, in some cases, it may require being proactive, and consulting an experienced tax lawyer to prevent a tax problem from getting worse.

Prosecutors alleged Snipes has earned $40 million since 1999 but filed no returns because of his involvement with a tax resisters group. Snipes denied membership in such a group and blamed his tax problems on an adviser. Jurors believed his contention that advisers were at fault when they acquitted him of more serious felony tax fraud and conspiracy charges. Still three years in jail can hardly be considered a vindication.

The New York Times reported the star of “Blade” and “White Men Can’t Jump” will serve the sentence at a federal prison in Pennsylvania.
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