Tax Disputes

Tom Daschle Has Tax Problems

February 2, 2009 | by Dennis N. Brager

According to CNN former Sen. Tom Daschle, President Barack Obama’s nominee for secretary of Health and Human Services has some tax problems. CNN says he failed to pay taxes on a car and driver he had been loaned by a wealthy friend, and failed to disclose it on his tax return. At first it was not clear why he should have reported it on his tax return since it sounded more like a gift. However, a later report by The Wall Street Journal says that the car and driver was provided to him by InterMedia Advisors LLP, an investment firm specializing in buyouts and industry consolidation where Daschle served as chairman of the firm’s executive advisory board after he left the Senate. That should have been reported, but there might be a partial offset as an employee business expense, and the firm should have included it on his W-2, or included it on his Form 1099 if he was an independent contractor.

If you have tax problems you can call our tax attorneys whether or not you are a former senator.

IRS Taxpayer Advocate Issues Report

January 9, 2009 | by Dennis N. Brager

Nina Olson, the National Taxpayer Advocate, issued her annual report to Congress in which she lists the 20 most serious tax problems as required by Internal Revenue Code (IRC) § 7803(c)(2)(B)(ii)(III). They are:

1. The Complexity of the Tax Code

2. The IRS Needs to More Fully Consider the Impact of Collection Enforcement Actions on Taxpayers Experiencing Economic Difficulties

Madoff Ponzi Schemes, Securities Fraud and the Internal Revenue Service

January 6, 2009 | by Dennis N. Brager

Once investors get over their initial shock that they were being bilked by Bernard Madoff in a massive Ponzi scheme they will be looking for ways lessen the impact. One of those ways is through the tax laws. Our tax attorneys have identified at least two possibilities. The first is that investors may be entitled to a theft loss pursuant to Internal Revenue Code Section 165. Unfortunately the year the loss can be deducted will probably be the subject of a tax dispute. Generally theft losses are deductible in the year of discovery. However, if there is still a possibility of recovery the deduction may need to be deferred.

Another idea is filing amended income tax returns for the last three years, taking the position that the payments received which had been reported as capital gains, dividends or interest were in fact a return of capital, and therefore non-taxable. This position is supported by Greenberg v. Commissioner, a 1996 case decided by the United States Tax Court. The Internal Revenue Service (“IRS”) believes, however, that the rule in Greenberg only applies in limited situations. IRS Legal Memorandum ILM 200305028. It is likely that those who file amended returns will be subjected to a tax audit, and that barring a change of heart by the Internal Revenue Service will need to hire a tax litigation attorney to assist them.

Generally the tax law allows only three years from the date the original tax returns were filed to file amended returns. For most taxpayers this means that if they act quickly they can file amended returns for 2005, 2006, and 2007.

Independent Contractor or Employee Brochure Release by IRS

October 30, 2008 | by Dennis N. Brager

The Internal Revenue Service (IRS) has released IRS Publication 1779 with guidance for workers to help them determine whether they are employees or independent contractors. Interestingly IRS Publication 1779, which is only two pages does not specifically mention the 20 factor test set forth in IRS Revenue Ruling 87-41, 1987-1 C.B. 296. Instead it groups various factors into three categories-Behavioral Control, Financial Control and Relationship of the Parties. For example under the category Behavioral Control it states that “if you receive extensive instructions on how work is to be done this suggests you are an employee.”

While the publication appears to be aimed at workers rather than employers, an employer could be lulled into a false sense of security by relying on the publication since among other things it fails to mention that even though an employer does not actually exercise control, if the employer maintains the legal right to control the worker those workers may well be employees.

Nor does the publication mention that Section 530 of the Revenue Act of 1978 also known as the “safe harbor rules” allows employers to treat individuals as independent contractors even if they do not qualify under the common law rules. For more information on that topic see our article Independent Contractor Treatment for Workers is Broadly Available.

UCLA Tax Controversy Institute Taxpayer Advocate Panel

October 13, 2008 | by Dennis N. Brager

On Oct. 28th I will be moderating a tax controversy panel at the 2008 UCLA Tax Controversy Institute. The panel will include Steve Sims, Taxpayer Advocate, Franchise Tax Board, Todd Gilman, Taxpayer Advocate, State Board of Equalization, Michelle Mosley, Taxpayer Advocate, Employment Development Department, Dorothea T. Curran, Local Taxpayer Advocate, Internal Revenue Service (Los Angeles).

Other tax panels include:

Innocent Spouse

Expect IRS Payroll Tax Crackdown

September 10, 2008 | by Dennis N. Brager

According to the Government Accountability Office (GAO) the Internal Revenue Service (IRS) hasn’t been doing a very good job collecting payroll taxes. Payroll taxes are amounts that employers withhold from employee wages for federal income taxes, Social Security, and Medicare (so called trust fund taxes) as well as the employer’s matching contributions. The willful failure to pay these payroll taxes is a violation of the criminal tax law, a felony punishable by up to 5 years in jail under Internal Revenue Code (IRC) Section 7602.

The GAO study found that over 1.6 million businesses owed over $58 billion dollars in uncollected payroll taxes. The GAO concluded that the IRS didn’t file tax liens quickly enough, and that it didn’t go after the owners of businesses for the trust fund recovery penalty (TFRP) fast enough. The report also suggested that the IRS wasn’t seizing business assets often enough, pointing out that there were only 667 seizures in fiscal 2007, down from over 10,000 in 1997. The report was a rather scathing indictment of the IRS, and various U.S. Senators were quick to jump on the “bash the IRS bandwagon.” Senator Norm Coleman called on the IRS to “ratchet up its efforts” to recover billions in unpaid payroll taxes, and to hold “tax cheats” accountable.

The IRS responded that among other efforts it is developing and testing streamlined procedures to file injunctions against business with repeat payroll tax problems, and shut them down quickly. Apparently this would include employers whose principals were previously assessed a trust fund recovery penalty, as well as those who have operated multiple entities with payroll tax problems.

Taxes Problems for Actor Paul Hogan

July 31, 2008 | by Dennis N. Brager

Australian actor Paul Hogan, better known as Mick Dundee from the popular Crocodile Dundee movies, apparently has tax problems in Australia. He recently filed a motion in the Central District of California to fight a move by the Australian Tax Office (ATO) to have the Internal Revenue Service (IRS) collect information about his personal finances.

The IRS issued five summonses to three U.S. banks for transaction information on Paul Hogan’s personal and business accounts from 1997 through 2006. Tax attorneys for Hogan claim the summonses are not authorized under the U.S.-Australian income tax treaty and the summonses have not been issued for an authorized purpose under Internal Revenue Code section 7602. Hogan claims none of the businesses in question operate with or in Australia and that he was a resident of the United States six out of the nine years under investigation.

The ATO began their investigation in 2006 after reports surfaced that Hogan and his business partner John Cornell committed tax fraud in Australia by hiding millions of dollars in film royalties in offshore trusts and companies they owned in Chile and the Netherlands Antilles.

Innocent Spouse Relief Granted by Tax Court

June 13, 2008 | by Dennis N. Brager

The United States Tax Court (Tax Court) granted innocent spouse relief to Chrystina Nihser, overturning a decision by the Internal Revenue Service (IRS) . Nihser v. Commissioner, T.C. Memo 2008-135. Ms. Nihser had applied for innocent spouse relief under Internal Revenue Code § 6015(f), so called “equitable relief.” This is, in my view, the most difficult type of innocent spouse relief to obtain.

In ruling that the IRS had abused its discretion in not granting innocent spouse relief, the Tax Court applied the eight-factor balancing test of Rev. Proc. 2000-15, 2001-C.B. 448. One of the eight factors is whether or not the requesting spouse suffered “abuse” at the hands of the non-requesting spouse, and the case contains a lengthy discussion of what constitutes “abuse” for the purposes of determining whether equitable innocent spouse relief is available. The Tax Court held that something less than physical abuse may qualify. The Tax Court looked to the medical literature to create at least a partial list of the factors deemed to be psychologically abusive. It determined that a psychologically abusive spouse is one who may: (1) isolate the victim; (2) encourage exhaustion by, for example, intentionally limiting food or interrupting sleep; (3) behave in an obsessive or possessive manner; (4) threaten to commit suicide, to murder the requesting spouse, or to cause the death of family or friends; (5) use degrading language including humiliation, denial of victim’s talents and abilities, and name calling; (6) abuse drugs or alcohol, including administering substances to the victim; (7) undermine the victim’s ability to reason independently; or (8) occasionally indulge in positive behavior in order to keep hope alive that the abuse will cease.

Based upon these factors the Tax Court decided that Ms. Nihser had been abused, and in part because she met that test, the IRS had abused its discretion in failing to grant her request for innocent spouse relief.

Innocent Spouse Relief Available Despite Incomplete Adminstrative Record

June 10, 2008 | by Dennis N. Brager

The United States Tax Court (Tax Court) has held that in innocent spouse cases under Internal Revenue Code (IRC) § 6015 it will consider evidence at trial that was not part of the administrative record. Porter v. Commissioner, 130 T.C. No. 10 (2008). The innocent spouse ruling in Porter was consistent with the Tax Court’s earlier ruling in Ewing v. Commissioner, 122 T.C. 32 (2004), vacated on unrelated jurisdictional grounds 439 F.3d 1009 (9th Cir. 2006).

Ms. Porter submitted a Form 8857, Request for Innocent Spouse Relief to the IRS. Ultimately, the IRS granted innocent spouse relief as to a portion of the tax liability, but denied innocent spouse relief with respect to the remainder. Ms. Porter filed a Petition with the Tax Court to dispute the Internal Revenue Service’s unfavorable determination. When she got to the Tax Court, the IRS tried to prevent Ms. Porter, who was not represented by a tax attorney, from presenting all of her evidence. The IRS tax attorneys argued that judge could only here evidence that had previously been submitted to the IRS. The Tax Court held that in cases where someone is requesting innocent spouse relief, he or she is entitled to a trial de novo. That is she is entitled to present all of her evidence without regard to whether it was previously provided to the IRS.

If you believe that you may be entitled to innocent spouse relief contact the tax attorneys at Brager Tax Law Group, A P.C.

Tax Fraud Scheme Alleged by IRS

June 5, 2008 | by Dennis N. Brager

The Internal Revenue Service (“IRS”) is alleging a massive tax fraud scheme by two European bankers. They have been indicted by a federal grand jury for conspiracy to defraud the IRS pursuant to 18 U.S.C 371. According to the indictment among other things Bradley Birkenfeld, a former USB banker and US citizen, and Mario Staggl, a Liechtenstein citizen and resident, assisted an unnamed United States real estate developer in evading United States income taxes on approximately $200 million of assets held in offshore bank accounts.

The defendants allegedly committed tax fraud by falsifying Swiss Bank documents, by falsifying IRS Forms W-8BEN, by failing to issue IRS Forms 1099, by failing to prepare IRS Forms W-9, and by failing to adhere to the terms of the Qualified Intermediary Agreement with the IRS. The Qualified Intermediary Agreement was a voluntary agreement made between the Swiss Bank and the IRS in 2001 to which the Swiss Bank agreed to identify and document any customers who received reportable United States source income, as well as file appropriate tax documents with the IRS. This agreement was a departure from previous Swiss Bank secrecy laws which concealed bank information for US clients from the IRS. The defendants helped their US clients conceal their ownership of the accounts therefore evading the Swiss Banks obligation to report that information to the IRS.

According to the press release issued by the Department of Justice Tax Division the defendants marketed their services to wealthy United States clients by claiming that Swiss and Liechtenstein bank secrecy was impenetrable and could help their clients evade United States income taxes. The conspirators allegedly assisted their US clients in preparing false IRS documents, advised their clients to destroy any records of offshore bank accounts, and facilitated the filing of false IRS tax returns.