Tax Problem Attorney Blog

IRS Offshore Bank Account Amnesty Program Heavy Handed

March 30, 2009 | by Dennis N. Brager

The other day I blogged about the new Internal Revenue Service (IRS) tax amnesty for holders of Swiss and other offshore bank accounts who make a voluntary disclosure. I called it a “break.” Upon further reflection I think that the tax amnesty is a blunt instrument rather than the scalpel that was needed. Consider these two examples:

Mr. E.Z. Going sold his business six years ago, paid tax on the sale, and put the proceeds of $1,000,000 in a Swiss bank account because he was concerned about potential lawsuits against him, and he had been told that putting your assets in an offshore bank account will help protect assets from frivolous lawsuits. Each year he has trading losses, and over the next six years he loses about $300,000. In addition, over that period he withdrew another $100,000 to pay for his daughter’s college education, leaving $600,000. He didn’t give too much thought to mentioning the existence of the account to his Certified Public Accountant (CPA) since he was losing money, not making money. If he makes a voluntary disclosure, E.Z. Going will be subject to a penalty of $200,000-20% of the high balance in the account.

In contrast take a look at Mr. Tax Fraud. Mr. Tax Fraud owns a restaurant, and every year for the past six years he has skimmed a little over $150,000 per year in cash, and not reported it on his tax return. Instead he travels several times each year with the cash in a suitcase to Switzerland. Mr. Tax Fraud has been advised by his friendly UBS banker to set up a trust in Lichtenstein to further disguise the ownership of the offshore bank account. Each year the Swiss bank account earns some interest, and as a result by 2008 he has $1,000,000 in the account. If he makes a voluntary disclosure Mr. Tax Fraud will pay the same $200,000 penalty.

IRS Offers Break on FBAR Penalties for Offshore Bank Account Holders

March 26, 2009 | by Dennis N. Brager

The Internal Revenue Service (IRS) has issued guidelines for resolving the civil tax penalties related to offshore bank accounts for individuals who make voluntary disclosures. Generally it will require:

• Payment of all taxes and interest for the previous six years.

• Assessment of an accuracy penalty under Internal Revenue Code Section 6662 or a delinquency penalty for all years • An FBAR penalty of 20% of the highest account balance during the six year period.

IRS Seeks to Proceed in Robert Allen Stanford Collection Due Process (CDP) Hearing

March 23, 2009 | by Dennis N. Brager

Earlier this year Robert Allen Stanford became infamous when he was accused by the Securities and Exchange Commission (SEC) of engaging in a gigantic fraud. It turns out that Robert Allen Stanford also has massive tax problems. According to a Motion to Intervene filed by the Internal Revenue Service (IRS) in the SEC matter, Stanford and his wife Susan Stanford owe the IRS over $226, 000,000 for the 1999 through 2003 tax years. In addition they may owe additional taxes for other years. The IRS has already filed tax liens against the Stanfords for 2002 and 2003, however, the Stanfords’ filed a petition in the United States Tax Court (Tax Court) to dispute the amount of the tax owed. The Stanfords’ petition to the Tax Court for 2002 and 2003 was an appeal from a collection due process (CDP) hearing. The federal tax liens, are fully effective, however, upon filing by the IRS, and if the Stanfords had a prior opportunity to dispute the amount of the tax due then they would not be entitled to another chance due so in the CDP hearing. The entire tax lien and tax levy process was slowed when the District Court in the SEC case issued a general order barring creditors from proceeding with claims against the Stanfords. The IRS motion seeks to allow it to move forward with tax litigation and collection against the Stanfords.

If you have tax liens, or tax levies please call the tax controversy lawyers at Brager Tax Law Group, A P.C.

California State Board of Equalization (BOE or SBE) Proposes Amendments to Resale Certificate Regulation

March 18, 2009 | by Dennis N. Brager

The California State Board of Equalization (BOE or SBE) has scheduled a public hearing on an amendment to Regulation 1668, Sales for Resale. According to the BOE the purpose of the amendment is clarify the acceptable language in purchase orders taken by a seller in support of a valid resale certificate.

One method of overcoming the presumption in California sales tax law that any sale of tangible personal property is subject “at retail” and therefore subject to sales tax is to obtain a valid resale certificate from the purchaser at the time of the sale. Regulation 1668, Sales for Resale provides that if a purchaser wants to issue a blanket resale certificate, it may do so, and state on the resale certificate “see purchase order.” The purchase order then has to state that the sale was for resale.

Under the proposed amended regulation the purchaser can use the phrase “non taxable,” “taxable = no” or other similar terminology on the purchase order to indicate that the sale is for resale.

IRS Office of Professional Responsibility (OPR) Has New Director

March 17, 2009 | by Dennis N. Brager

Effective April 1, 2009 the Internal Revenue Service (IRS) Office of Professional Responsibility (OPR) will have a new Director- tax controversy attorney Karen Hawkins, Esq. Having known Karen professionally for a number of years I am confident that she will bring a well needed dose of practicality to OPR. Karen has worked tireless in many areas of tax litigation including most notably the innocent spouse arena where she successfully persuaded Congress to pass legislation clarifying (someone would say expanding) the availability of judicial review for innocent spouse cases under IRC Section 6015(f).

OPR has the responsibility for enforcing standards of competence, integrity and conduct for tax attorneys, CPAs, and enrolled agents who practice before the IRS. It enforces Circular 230, the rules and regulations which govern tax lawyers, CPAs, enrolled agents and others who practice before the IRS. Tax lawyers, CPAs and enrolled agents who violate Circular 230 are subject to discipline which may include suspension of practice before the IRS, and/or monetary fines.

Tax practitioners may run afoul of OPR if, for example, tax preparer penalties are imposed against them pursuant to IRC Section 6694 which provides for monetary penalties against tax preparers for various types of incorrect tax returns. Sometimes tax preparers agree to pay what in some instances is a small penalty under IRC Section 6694 rather than fight to have it set aside. This is generally a mistake since agreeing to an IRC Section 6694 penalty will almost always lead to an investigation by OPR, and possibly a suspension from practice.

Marion Barry’s Tax Fraud Problems Continue

February 19, 2009 | by Dennis N. Brager

The Internal Revenue Service (IRS) has moved to revoke Marion Barry’s probation. In late 2005, Marion Barry, former mayor of the District of Columbia, pled guilty to criminal tax charges of failing to file a tax return in violation of Internal Revenue Code Section 7203. He was sentenced to three years probation, and as a condition of said probation was ordered to file his tax returns. Nevertheless, Marion Barry failed to file his 2005 income tax return. In 2007, the IRS moved to revoke his probation, but the Court denied the government’s motion since the judge ruled that there was no proof that the failure to file was willful. According to the IRS, Barry subsequently promised to file his returns, but continued to fail to do so.

The IRS has now filed a new motion to revoke Barry’s probation since not only has he failed to file his 2005 return, he didn’t file his 2007 return either. In response to these allegations Barry has responded that he has been on dialysis, and that he has been too distracted to focus on his tax returns. According to an article on MSNBC.com Marion Barry finally filed his 2007 tax return on Feb.17, 2009. No mention of the missing 2005 return. In an interview with Bruce Johnson of WUSA9 News Barry called the federal prosecutors “vicious” and said they would “do anything to get at him.” Take a look at the video for more of what Marion Barry had to say about his tax problems.

It will be interesting to see if his tax lawyers are able to convince the judge not to revoke his probation.

UBS To Name U.S. Tax Fraud Clients

February 19, 2009 | by Dennis N. Brager

UBS AG, has agreed to pay $780 million in order to avoid prosecution for conspiring to commit tax fraud in violation of 18 USC 371. UBS entered into a deferred prosecution agreement. The exhibits are here and here. As part of the deferred prosecution agreement, UBS admitted that it participated in a tax fraud scheme, and that UBS bankers facilitated U.S. taxpayers in establishing accounts at UBS in a way intended to conceal the U.S. taxpayers’ ownership in the accounts. It appears that the amount of the settlement might have been higher, but for the current financial crisis, and the input of the Federal Reserve Bank of New York.

Most importantly, for U.S. clients concerned about their own exposure for tax evasion, or tax fraud, UBS agreed to provide the identities and account information of some of its United States clients. The exact scope of the disclosure is set forth in a letter between UBS and the Department of Justice, but that letter is under court seal. Ominously, the information filed against UBS referred to some of the 20,000 U.S. account holders as “unindicted co-conspirators.”

It seems clear that not all of the names of U.S. account holders are being turned over. The agreement does not end the summons enforcement action pending against UBS requiring it to disclose offshore bank accounts of U.S. clients. Indeed, the agreement provides that UBS is not prohibited from continuing to assert its defenses in the summons enforcement proceeding. There has been some speculation that UBS is only turning over the names of about 250 clients that are known to have committed “tax fraud or the like” under Swiss law.

Koko Taylor Sings the Tax Problem Blues

February 18, 2009 | by Dennis N. Brager

The United States Tax Court has upheld a ruling by the Internal Revenue Service (IRS) turning down Koko Taylor’s offer in compromise, and allowing the IRS to proceed with a tax levy against all of her property and income. It also upheld the tax lien filed against her. Koko Taylor is a well known blues singer sometimes called the “Queen of the Blues.” The Tax Court opinion by Judge Paige Marvel details Koko’s rise from a poor orphan to a successful professional recording artist with a performing career spanning some 50 years.

Koko Taylor fell behind on her obligations to the IRS, and incurred tax debt of about $300,000 as of September 2006. To make a very long story short Koko’s tax lawyers filed for a collection due process (CDP) hearing with the IRS, and submitted three different offers in compromise including an effective tax administration offer in compromise. In the last offer in compromise, Koko’s tax attorneys proposed that she pay $125,000 and 50% of her annual net income should it exceed $125,00 per year.

The IRS rejected her offer in compromise, and the Tax Court agreed with the rejection of the offer in compromise. Let’s keep in mind that Koko Taylor was 80 years old, and her only substantial asset was her home valued at around $240,000—after taking into account its so-called “quick sale value.” She also was an insulin dependent diabetic, and had two heart attacks as well as high blood pressure. The IRS called these conditions “not uncommon for someone her age.” The IRS further determined that Taylor could pay her taxes in full without economic hardship even though that meant she would have to sell her home, continue to perform into her 80s, and live on a budget of $3,300 per month. Part of Koko’s tax problems were no doubt exacerbated by her continuing failure to stay current on her estimated tax payments which allowed the IRS and the Tax Court to rule against her on technical grounds. Nevertheless, the case represents a graphic demonstration that the so-called kinder and gentler IRS is not currently in evidence, and illustrates the difficulties of obtaining an offer in compromise. It is these difficulties which require a tax expert to navigate these treacherous waters.

UBS Offshore Account Tax Problems Continue

February 18, 2009 | by Dennis N. Brager

According to a report on CNBC.com the Senate Permanent Subcommittee on Investigations will be holding further hearings on the Internal Revenue Service (IRS) attempts to obtain the names of thousands of UBS clients who may have committed tax evasion through the use of Swiss Bank accounts. The hearing is scheduled for Feb. 24th, and the Subcommittee will announce on Feb. 20th the names of the witnesses who have been asked to testify.

As we noted in a previous post, in June of last year a judge in Miami, ordered UBS to turn over a list of its American clients who held offshore accounts at UBS. Although UBS said it would cooperate almost 8 months later the records have not been turned over. Apparently the IRS is trying to ratchet up the pressure on UBS to turn over its records.

Taxpayers who have Swiss bank accounts, whether at UBS or elsewhere are well advised to consult with a knowledgeable tax attorney to determine whether or not they should consider turning themselves in to the IRS pursuant to its voluntary disclosure program in the hope of avoiding tax fraud or tax evasion charges.

Golfer Jim Thorpe Charged with Tax Fraud

February 17, 2009 | by Dennis N. Brager

According to Reuters News Service, criminal tax charges have been filed by the Internal Revenue Service (IRS) against Professional Golfer Jim Thorpe. The information that was filed with the District Court in Orlando, Florida alleges that Jim Thorpe failed to file or pay his taxes for 2002, 2003 and 2004. According to the IRS during those 3 years Thorpe’s taxes totaled about $1.5 million on income of over $5.2 million. Failure to pay taxes or file an income tax return is a violation of Internal Revenue Code Section 7203, punishable by 1 year in jail. In addition, the IRS alleged that for one of the years Thorpe failed to file his corporate income tax return. Thorpe could go to jail for seven years if convicted on all 7 counts.

Thorpe has pled not guilty and his attorney released a statement saying that he did not willfully violate the tax laws. It is true that mere negligence will not result in tax evasion or tax fraud charges. However, from the IRS filing it appears that the IRS has some strong evidence that Thorpe didn’t just overlook his tax problems. The IRS says that it had investigated him once before for possible criminal tax violations in the mid-90s, and he got off the hook by claiming he got confused because he had two accountants and thought they were filing the returns. Also his accountant had advised him of the need to pay estimated taxes, but he only paid in a few thousand dollars. While he wasn’t paying his taxes he was spending money like water-including the purchase of a $2 million home. Most juries don’t like to hear that, and getting him off the hook will be a tough job for his tax attorney.

It is worth noting that one of the witnesses against Thorpe will likely be his accountant, and of course there is no accountant-client privilege in criminal tax cases. One reason why those with potential tax fraud problems should not be giving sensitive information to their accountants.