Tax Problem Attorney Blog

Even the IRS is Confused About Australian Superannuation Accounts

March 31, 2016 | by Dennis N. Brager

The other day our tax lawyers posted the materials we have received so far in response to our FOIA request regarding Australian Superannuation accounts and other foreign retirement plans. The most interesting thing we found was a series of emails between various technical specialists in the IRS’ Offshore Compliance Group, IPN OVDP Coordinator. (By the way if anyone knows what IPN stands for, please leave a comment on our Tax Problem Attorney Blog). These emails indicate that at least through early 2015 some IRS personnel, including those who were presumably in the best position to understand the intricacies of foreign retirement plans still had many questions. Because the emails are redacted, it is difficult to tell exactly who was in the dark. The emails may support an argument that there was reasonable cause for any failure to report income, file FBARs (Foreign Bank Account Reports, FinCEN Form 114), or file Forms 8938 related to foreign retirement plans including Australian Superannuation accounts.

For example, in an email dated November 21, 2014, a Technical Specialist-Foreign Entities IPN, IPN OVDP Coordinator in Tampa, FL includes the following comment:

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Brager Tax Law Group Receives FOIA Documents on Australian Superannuation Accounts and Other Foreign Retirement Plans

March 24, 2016 | by Dennis N. Brager

Our tax attorneys have had many clients with Superannuation accounts in Australia. For those of you not familiar with Superannuation accounts, these are the Australian version of our tax-favored retirement plans. These Superannuation accounts, sometimes referred to as Supers, can be very problematic for immigrants from Australia to the U.S., because they may or may not be subject to taxation in the U.S. The ownership of a Super may trigger the requirement to file an FBAR (Foreign Bank Account Report, FinCEN Form 114, formerly TDF 90-22.1) and/or Form 8938, Form 3520 or Form 3520-A. The proper treatment of a Super under U.S. tax law has been the subject of many articles on the internet and confusion abounds. Part of this confusion is because there are different types of Supers and, depending upon the facts and circumstances, the U.S. tax treatment may differ.

Over a year ago, one of our tax lawyers had a conversation with the IRS’ Offshore Voluntary Disclosure Program (OVDP) hotline to ask about the treatment of a Super. We were told that no Form 3520 was required. The person we spoke to was obviously reading from a script and, of course, we asked for a copy. Just as predictably, we were told that it was an “internal document,” and, therefore, we couldn’t get it. This led our tax lawyers to file a Freedom of Information Act (FOIA) Request in early April 2015, which was received by the IRS, appropriately enough, on April 15th. The substance of the request was as follows:

Please provide all documents, including internal guidance materials and training materials, that have not previously been published in the Internal Revenue Manual or on the IRS’ website (including but not limited to memoranda, staff manuals, Powerpoint presentations, videos and any other materials) concerning or related to the IRS’ treatment of Australian superannuation accounts (aka “ASAs”) or other non-U.S. deferred compensation arrangements or employee trusts (but not including Canadian arrangements or trusts) for purposes of United States taxation and information return filing under the Internal Revenue Code (26 U.S.C. §1, et seq.), the Bank Secrecy Act (31 U.S.C. §15, et seq.), the Offshore Voluntary Disclosure Program (aka the “OVDP”), the Offshore Voluntary Disclosure Initiative (aka the “OVDI”), the Streamlined Filing Compliance Procedures (aka the “SFCP”) and/or Transitional Treatment under OVDP/I, including any such documents used by or available to IRS personnel working at the IRS’ Offshore Voluntary Disclosure Civil Hotline at (267) 941-0020.

The Failure to File Taxes in a Timely Manner May Impact a Taxpayer’s Eligibility for Bankruptcy Discharge (Part Two)

February 23, 2016 | by Dennis N. Brager

Depressed businessman sitting under falling papers
Bankruptcy Appellate Panel Finds in Favor of the Taxpayer in Late-Filed Taxes Discharge Question

In the previous blog post we set forth the facts in a bankruptcy proceeding where the IRS argued that taxes filed even one day past assessment would result in the nondischargeability of the debt in bankruptcy. In this post we will examine the Bankruptcy Appellate Panel’s (BAP) analysis and issued guidance in the proceeding In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015).

Bankruptcy Court Found the Tax Debts Were Dischargeable

The Failure to File Taxes in a Timely Manner May Impact a Taxpayer’s Eligibility for Bankruptcy Discharge

February 17, 2016 | by Dennis N. Brager

Close up of a yellow pencil erasing the word, 'Bankruptcy.' Isolated on white.
The Internal Revenue Code and the Bankruptcy Code are each complex laws, but when they intersect things can get quite confusing, and seemingly inconsequential facts can have serious legal consequences. In a recent unpublished opinion, In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015), the Bankruptcy Appellate Panel (BAP) provided some guidance as to the effect the non-filing of a tax return or the filing of a tax return post-assessment can have on one’s eligibility for discharge through bankruptcy. While the court did not provide a bright-line rule, it did provide an explanation as to the applicable standards regarding what constitutes a “return” for purposes of a bankruptcy discharge. Taxpayers and their bankruptcy and tax attorneys can consider and apply the announced standard to gain a better insight into the impact their non-filing may have on contemplated bankruptcy proceedings. Of course the story may not be over, and the IRS may still appeal the BAP ruling.

Providing further clarity and a rejection of the harsh consequences imposed by a literalist approach and the IRS-advocated positions, the court also addressed a number of other arguments regarding the proper definition of a “return” and the analytical framework when determining a taxpayer’s eligibility for a bankruptcy discharge. In doing so the BAP rejected an approach that had gained favor in other courts. In doing so the BAP refused to follow other courts which had interpreted tax and bankruptcy law in a way which would make a tax debt nondischargeable whenever a tax return is filed even one day late. It also rejected the IRS position that once the IRS makes an assessment in the absence of a filed tax return that tax debt is non-dischargeable even though the taxpayer subsequently files a tax return.

The Taxpayers Failed to File Their Tax Returns for Multiple Tax Years

Unpaid Tax Debts? The IRS May Be Able to Revoke or Deny Your Passport in 2016

December 2, 2015 | by Dennis N. Brager

One’s failure to understand the obligations and duties one holds under the U.S. Tax Code can always result in significant additional penalties and interest on any unsatisfied tax debt. Aside from these serious penalties, a proposed provision contained within the pending 2015 highway & transit funding bill, aka the Surface Transportation Reauthorization and Reform Act of 2015, would introduce new consequence on top of fines and penalties for certain taxpayers with “seriously delinquent taxes.” This new measure would permit the IRS to submit a list of individuals who are subject to non-renewal, cancelation, and restrictions on their U.S. passports.

The Bill has been passed by both the House, and the Senate, but there are still impediments to its final implantation. A provision in the bill authorizes the U.S. government to revoke, deny, or limit one’s U.S. passport if the person owes more than $50,000 in “seriously delinquent tax debt.” This $50,000 threshold includes all penalties and interest that may be added on due to a taxpayer’s failure to satisfy a tax debt that is due and owing. However, the tax enforcement provisions regarding the cancelation of one’s passport can only be utilized after the IRS has filed a lien or a levy against the taxpayer. The Bill provides that if the provision passes, it will go into effect on the first day of 2016.

Many groups are likely to be effected by these harsh potential new penalties. However, few groups are likely to be as affected as the 8 million strong American expatriates already grappling with FATCA and other offshore account compliance initiatives. Facing FATCA or other tax penalties and failing to address the matter before January 1st could lead to dire circumstances for expats due to potential passport cancelation. While the $50,000 threshold seems like it would be difficult to reach, penalties and interest can add up much more quickly than the average taxpayer would imagine.

More Swiss Banks Enter Into Non-Prosecution Agreements While Offshore Penalties Soar

September 28, 2015 | by Dennis N. Brager

One of the top priorities for the IRS and Department of Justice has been the focus on offshore financial accounts held by U.S. taxpayers, and used to avoid or defeat the assessment of tax. Underscoring the need for an increased focus on offshore tax enforcement is a 2008 U.S. Senate report showing that the use of offshore accounts results in the loss of more than $100 billion in tax revenues each year. From the DOJ’s use of “John Doe” summonses to force credit card and financial companies to release information about account holders, to FATCA and the Swiss Bank program, the U.S. government is committed to identifying and prosecuting taxpayers who avoid their tax obligations.

What is the Swiss Bank Program?

At its core, the Swiss Bank program allows Swiss Banks to pay fines, promise changes in the bank’s behavior, and pledge compliance and cooperation with FATCA and other offshore tax enforcement efforts in exchange for a deferred prosecution or non-prosecution agreement with the U.S. government. The deferred prosecution agreement provides the bank with legal assurances that it will not face further consequences for its alleged illegal behavior. Under terms of the Swiss Bank Program banks must:

U.S. and Turkish Governments Will Share Tax Information Under FATCA

September 17, 2015 | by Dennis N. Brager

In yet another sign of the rapidly expanding reach of FATCA and the U.S. government’s increased access to account data from around the world, the Turkish government reached a reciprocal information sharing agreement with the United States government. The bottom-line here is that taxpayers holding undisclosed accounts and assets in Turkey are now significantly more likely to have those accounts identified and to be linked back to those accounts. Taxpayers who are linked to undisclosed foreign accounts and assets can face significant fines and penalties.

A taxpayer who fails to satisfy his or her FBAR disclosure obligation can face a $10,000 per year penalty for even an inadvertent error. If the government agent believes that your FBAR compliance failure was the product of willful conduct, penalties that equal the highest account balance are not uncommon. Similarly, failures to disclose assets and accounts under FATCA can lead to an initial separate $10,000 penalty followed by significantly more harsh consequences for continued noncompliance with FATCA.

The Reciprocal Agreement Between the Governments of the United States and Turkey

Treasury Inspector General: IRS mishandled 24,000 Tax Lien Notices

September 15, 2015 | by Dennis N. Brager

No taxpayer wants to receive news of a tax deficiency, tax audit, or other bad news from the IRS; however, it may turn out that the only thing worse than receiving bad news from the IRS is not receiving notice that you need to take action to correct a past tax filing or past tax mistake. Almost invariably, the longer a taxpayer takes to fix his or her underpayment of tax or outstanding tax bill the greater the amount of interests and penalties he or she is likely to pay. Thus, while it may be painful to receive notice of a tax lien or other adverse action by the IRS, not receiving the notice in a timely manner is worse.

Unfortunately for more than 24,000 taxpayers, a report from the Treasury Inspector General’s Office shows that problems in the tax lien process do occur.

When Can the IRS File a Tax Lien & What is Its Impact?

The Length of Time You Are Subject to an IRS Audit May Have Just Doubled

September 11, 2015 | by Dennis N. Brager

The U.S. Tax Code is, essentially, in a constant state of flux. While there are certain bedrock principles, such as the obligation to file and pay taxes, particularities regarding both substantive and procedural handling of tax issues can change with time. Decisions made by judges, changes to the Internal Revenue Code by acts of Congress, and IRS interpretations of the statutory law can all effect how the Code is administered. In some cases, some of these sources of guidance for the tax code may disagree resulting in uncertainty and confusion.

Taxpayers must remain aware of their ever-changing tax obligations and the consequences for their noncompliance. Taxpayers who fail to keep abreast of important changes in the tax code and its procedures risk subjecting themselves to significant tax penalties or even criminal tax charges.

How Long Does the IRS Typically Have to Conduct a Tax Audit?

Indian Government Agrees to FATCA & Tax Information Sharing with United States

September 9, 2015 | by Dennis N. Brager

Stack of Indian Rupee (isolated with clipping path)
On July 9, 2015, the United States and Indian governments announced that they had entered into a Foreign Account and Tax Compliance Act (FATCA) agreement. FATCA is a U.S. law that has been described by some as a “global banking law.” The reason for this characterization is because the law requires banks and other financial institutions located in foreign nations to take action. Foreign banks and financial institutions that fail to provide information required under FATCA can face up to a 30 percent withholding penalty. Such a significant penalty means that these foreign banks are highly likely to provide the U.S. government and its agencies like the IRS and the Department of Justice (DOJ) with foreign account information with links to U.S. citizens, permanent residents, and resident aliens.

Indian-Americans Living and Working in the United States: Beware of Undisclosed Foreign Accounts

For Americans holding assets or offshore accounts based in India, this news of an agreement between the nations may raise some alarm. FATCA appears to be a highly effective tool for the U.S. government in convincing or coercing foreign nations and entities to provide tax information. Americans holding or controlling assets or financial accounts in India must disclose these accounts if they have not already done so.