Tax Problem Attorney Blog

Payroll Tax Problems best Handled by Experienced Business Tax Attorney

January 28, 2011 | by Dennis N. Brager

Our tax attorneys continue to see businesses struggle with payroll tax problems. Whether you have 3 employees or 300, or whether you have downsized in response to the struggling economy, payroll tax audits can cause serious legal and financial problems that can threaten the survival of a business.

The U.S. Department of Justice reports a recent case out of northern Virginia, in which a business owner was sentenced to 19 months in prison for failing to collect, account for, and pay to the Internal Revenue Service more than $200,000 in employee withholding taxes.

He was also ordered to pay $88,826.79 in restitution to the IRS.

The defendant was president of a computer software company. According to the government’s allegations, he failed to pay to the government employees’ withholdings for Social Security, Medicare and federal income taxes from December 2004 to June 2008.

The case was handled by the Justice Department’s Tax Division, the U.S. Attorney for the Eastern District of Virginia, and the Internal Revenue Service.
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FBAR Tax Amnesty–Round Two

January 25, 2011 | by Dennis N. Brager

The IRS is expected to launch a new offshore bank account tax amnesty very soon announced Steven Miller, IRS Deputy Commissioner for services and enforcement. He made the announcement at an American Bar Association Tax Section Meeting in Boca Raton, Florida. The program which is sometimes referred to as the offshore voluntary disclosure initiative allows taxpayers who failed to file FBARs, or to report income from foreign bank accounts avoid criminal tax evasion, and other criminal tax charges. It will also allow FBAR non-filers to avoid the steep 50% penalty imposed under the Bank Secrecy Act for failure to file an FBAR.

Miller warned, however, that the new offshore voluntary disclosure program will not be as generous as the previous program which ended on October 15, 2009. Under the prior program taxpayers who voluntary disclosed the existence of their offshore financial accounts had to pay the tax on the unreported income, plus interest, plus a 20% accuracy related penalty AND 20% of the highest balance in the offshore account. Miller did not disclose what the penalty structure would be under the voluntary disclosure program. Our tax lawyers believe that if the penalties under the new IRS offshore tax amnesty are too high it will discourage some taxpayers from coming clean.

Miller noted that the IRS received 15,000 disclosures under the first offshore voluntary compliance program, and has received another 3,000 voluntary disclosures since Oct. 15, 2009.
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Woman Convicted of Tax Evasion in Smallest Case Stemming from Government Crackdown on Offshore Accounts

January 20, 2011 | by Dennis N. Brager

Our tax attorneys noted a recent case in which a woman is accused of hiding $750,000 in an offshore bank account set up by her father with Swiss banking giant UBS AG.

Too often people think Swiss bank account problems only impact the very wealthy. In fact, they impact those in all walks of life. In many cases, those who are less well-versed in banking and tax laws may be more prone to exposing themselves to offshore tax fraud allegations.

The North Jersey Record reported that the 42-year-old woman’s 2005 tax return omitted interest, dividend and capital gains income from the Swiss account. The fund was reportedly opened in her name by her father. The government accuses her of using it to avoid IRS reporting requirements.

The Record reports her 67-year-old father admitted to opening UBS accounts in 1992 and 2000 and funding them with more than $1 million skimmed from his printing business. The tax evasion charges stem from the crackdown on offshore bank accounts announced last year by the U.S. Department of Justice and the Internal Revenue Service.

UBS, Switzerland’s largest bank, paid a $780 million fine and turned over the names of American account holders to the U.S. government in order to avoid prosecution.

This case is the smallest thus far brought to court by prosecutors. The defendant admitted to failing to report $9,942 in income on her tax return. She faces up to three years in prison at her sentencing Feb. 28. Her father faces up to five years in prison at his sentencing in March.
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Julius Baer Offshore Bank Account Information To Be Released

January 17, 2011 | by Dennis N. Brager

Rudolph Elmer, an ex Julius Baer executive turned over offshore bank account information to WikiLeaks today, according to Bloomberg News. According to the release, data on 2000 offshore bank accounts has been turned over, and WikiLeaks plans on making the data public; although it says it will take at least two weeks to verify the information, and release it.

We can be sure that the IRS will be reviewing that list, and seeing if Americans on it have filed timely Foreign Bank Account Reports (FBAR). Those U.S. persons who have a financial interest, or signatory authority over a foreign bank account are required to file a Foreign Bank Account Report on Form TDF 90-22.1 by June 30th of the following calendar year. Those that haven’t may find themselves the target of criminal tax fraud charges. Even if no criminal tax evasion charges are filed the IRS can impose a civil penalty which can reach 50% of the balance in the offshore account.

There may still be time for holders of Julius Baer offshore accounts to file a voluntary disclosure with the IRS in order to minimize the chances of criminal tax charges, and possible reduce the amount of the civil FBAR penalties.

FATCA Impacts Offshore Bank Accounts (Part II)

January 7, 2011 | by Dennis N. Brager

Since March of 2009 about 18,000 owners of offshore bank accounts have filed voluntary disclosures with the IRS. So what does FATCA mean to current holders of overseas financial accounts who have not filed FBARs (Foreign Bank Account Reports) on Form TDF 90.22-1, and who have not taken advantage of the IRS voluntary disclosure program? As pointed out previously the willful failure to file an FBAR can result in a civil penalty of 50% of the highest balance in the offshore bank account. The IRS can also bring criminal charges for failing to file an FBAR.

Many owners of Swiss bank accounts who were not at UBS decided not to take advantage of the previous tax amnesty which ended on Oct. 15, 2009 because they were afraid it would be too expensive. They hoped that the IRS wouldn’t find them, and that they would be protected by Swiss secrecy laws. Once FATCA becomes effective, however, the overseas financial institutions with agreements with the U.S. will request a waiver of the secrecy laws, and if the waiver is not forthcoming will close the account.

Why would a Swiss Bank (or for that matter a Panamanian Bank, an Israeli Bank, or Hong Kong Bank) enter into an agreement like this with the IRS? The problem may be illustrated by a hypothetical private Swiss bank which has two customers; one a U.S. taxpayer with an account of $5,000,000 and the other with a North Korean dictator which contains $500 million. If the Swiss private bank allocates 10% of the dictator’s portfolio to the U.S. stock market, and generates $5 million in dividends the U.S. companies paying the dividends will be required to withhold 30% ($1.5 million) on its payments to the Swiss bank on behalf of the Korean dictator. Guess what. Either the Swiss bank will close the account of the U.S. taxpayer, or it will enter into an agreement so that it is not subject to the withholding requirements.

FATCA Impacts Offshore Bank Accounts (Part I)

January 4, 2011 | by Dennis N. Brager

FATCA (Foreign Account Tax Compliance Act of 2009) could be one of the final nails in the coffin for offshore banks referred to as foreign financial institutions or FFIs. When I first heard about FATCA after it was passed in March of 2010 I didn’t pay much attention. After all the Swiss banks or other offshore bank accounts to the attention of the IRS.

In its simplest terms FATCA requires a 30 percent withholding tax on any “withholdable payment” made either to an FFI (e.g. an offshore bank) or certain other entities if it fails to comply with new reporting, disclosure, and related requirements. “Withholdable payment” includes U.S. source interest, dividends, rents, salaries, wages, premiums, annuities, compensation, as well as any gross proceeds from the sale or other disposition of property that can produce U.S. source interest or dividends.

Under the new requirements which are effective January 1, 2013 the 30% withholding applies unless the FFI enters into an agreement with the IRS to:

IRS Tax Problem Tips

December 21, 2010 | by Dennis N. Brager

I found the following tips to eliminate tax problems in an old file. Not sure if a tax lawyer came up with them, but thought I would pass them along.

* Always put staples in the right hand corner. Go ahead and put them down the whole right side. The extractors who remove the mail from the envelopes have to take out any staples in the right side.

* Never arrange paperwork in the correct order, or even facing the right way. Put a few upside down and backwards. That way they have to remove all your staples, rearrange your paperwork and re-staple it (on the left side).

Bust of Bogus Tax Relief Company in Beverly Hills a Reminder to those Dealing with the IRS to seek Advice of Qualified Tax Lawyer

October 31, 2010 | by Dennis N. Brager

Our tax attorneys noted the recent closure of American Tax Relief in Beverly Hills for fraud and misleading advertising that claimed the company could settle delinquent federal and state taxes for pennies on the dollar.

We reported recently on our Tax Problem Attorney Blog when Roni Deutch ran afoul of the California Attorney General for advertising that was allegedly misleading. Those facing charges for tax evasion need solid legal advice and should not be misled. A tax lawyer can save a client thousands of dollars by protecting their rights in disputes with the IRS. However, finding a reputable tax dispute law firm is a critical first step in the process.

The Los Angeles Times reports that the Federal Trade Commission accuses American Tax Relief of bilking 20,000 customers out of $100 million with false claims about the company’s ability to reduce their tax debt.

The FTC said the company used TV, radio and Internet advertising to claim it could settle tax debt with the IRS for less than what was owed. It also claimed it could remove tax liens, stop wage garnishments and successfully challenge bank and tax levies as well as property seizures and “unbearable monthly payments.”

The husband and wife couple had been operating the company for over a decade and charged upfront fees of up to $25,000. The company’s assets were frozen by a Chicago judge who issued a restraining order. And a receiver has been appointed to manage the company.

Despite earning more than $60 million form the business, the couple allegedly failed to pay their own taxes.

Investigators said the company provided an “essentially useless service” while pushing people further into debt instead of helping them address their tax problems with the IRS. The company charged thousands to client credit cards and stopped answering customer calls after receiving payment, according to investigators, who hope to recover restitution for the victims.

There has been no reports of whether either owner even had a law degree.
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IRS Files Summary Judgment in FBAR Case

October 29, 2010 | by Dennis N. Brager

In mid-October the IRS filed a summary judgment motion seeking FBAR (Foreign Bank Account Report, Form TDF 90-22.1) penalties of over $225,000 for a civil failure to file an FBAR. This is only the second civil FBAR case that I am aware of which didn’t involve an underlying non-tax crime. According to District Court documents Jon McBride held offshore accounts totaling in excess of $1,000,000. The case was filed in Utah in April of 2009, but the IRS had assessed the FBAR penalties about 18 months earlier. The facts, at least as recited by the IRS in its motion, are problematic for the defendant. Allegations include:

* Offshore Entities Set Up by a Firm which in its brochures specifically advised of the requirement to file an FBAR

* Funneling of Corporate Earnings Back to McBride and Others through the Use of Loans and Other Devices

IRS Loses Big in FBAR (Foreign Bank Account Report) Case

October 18, 2010 | by Dennis N. Brager

Last month the IRS lost a case (United States v. J. Brian Williams) in which it tried to impose the 50% penalty for willfully failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR). This appears to be the first case that has gone to court on FBAR penalties which did not involve someone who was also being charged with drug or other serious criminal charges, other than tax charges. J. Bryan Williams had already been convicted of tax fraud conviction, and the fact that on his federal income tax return Mr. Williams had checked the box on Schedule B stating that he did not have an interest in a foreign financial account.

The judge rejected these contentions stating that “…the Government fails to differentiate tax evasion from failing to check the box admitting the existence of a foreign bank account.” The court also noted that “a taxpayer’s signature on a return does not itself prove his knowledge of the contents, but knowledge may be inferred from the signature along with the surround facts and circumstances.”

The case is good news for those taxpayers who have entered the voluntary disclosure program, and are now believe that the FBAR penalty that the IRS seeks to impose is too high.