Foreign Accounts & Quiet Disclosures

There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.

This principle holds true with respect to the reporting of foreign bank accounts.  Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time.  But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.

There are some who want to get back on the grid without having to pay hefty penalties.  They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years.  This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.

According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify.  The IRS is taking tips from GAO on how to detect more of these quiet disclosures.

More Aggressive Collection Trend at IRS

In a report released publicly this week, the Treasury Inspector General for Tax Administration (TIGTA) stated that taxpayer satisfaction should be a factor in measuring the effectiveness of the IRS Collections Department.  I like to think the IRS will also be concerned with the satisfaction levels of taxpayers’ representatives.  In all my years of practice, I have never been asked about how satisfied I was with the interactions I had with a call center employee.  I have never been asked to complete a satisfaction survey at the conclusion of a revenue officer case.  But, maybe things are going to change.

Although they would have you believe otherwise, based on my experience, the IRS is primarily concerned with collecting revenue.  Afterall, just how effective would Collections be if they focused mainly on customer satisfaction?  The report doesn’t seek to conceal this fact.  Here are some interesting statistics that caught my eye:

  • The average dollars collected per revenue officer was 14 percent higher in Fiscal Year (FY) 2011 than in FY 2009.
  • The dollars collected through installment agreements in FY 2011 were 32 percent higher than the amount collected in FY 2009.
  • Overall, the total dollars collected in FY 2011 were 20 percent higher than the amount collected in FY 2009 even though there were fewer revenue officers on staff.

This is not the best news for those with unpaid taxes.  When revenue officers go about collecting dollars, they do so through asset seizures, wage garnishments, bank levies, etc.  So the fact that this statistic is on the rise, I think tells us something about the aggressiveness of IRS collections, especially because they’re doing it with fewer people these days.

Long Holiday Weekends for IRS This Year

Now that tax season is over for the on-time filers, many IRS employees can relax just a little.  And for at least 5 additional days this year they actually can relax at home . . . without pay.  Bloomberg apparently got its hands on an internal IRS memorandum informing IRS employees which days have been scheduled as furlough days this year.

The IRS furlough dates are:

  • May 24
  • June 14
  • July 5
  • July 22
  • August 30

These furlough dates were chosen to coincide with the federal holidays already on the calendar, so we will be looking at several four and five-day IRS closures throughout the rest of 2012.  I say five days because the IRS often shuts down early the day before a holiday, sometimes for computer maintenance, and sometimes so they aren’t disturbed during their potlucks.  I’ve always thought that “computer maintenance” was code for holiday party or potluck, but that’s just my slightly jaded opinion.

The IRS, as well as many other federal government agencies, is resorting to furloughs in reaction to budget reductions that took effect earlier this year.  Acting IRS Commissioner, Steven Miller, explained his reasoning for the agency-wide closures:

We came to a decision that balances our primary mission to serve the taxpayers and considers the effect on employees. We settled on having uniform furlough dates for everyone and closing down agency operations entirely. This way, the IRS can gain additional cost savings on utilities and other services in our work locations.

According to Miller, the closures will affect all local taxpayer assistance centers and call centers.  IRS.gov should be up, but the availability of online services such as Transcript Delivery Service and other IRS practitioner tools is unknown.  And, if necessary, there may be an additional two furlough days coming in August and September.  Plan your vacations accordingly.

Is There a "Tax Cheat" Demographic?

A recent study by the National Taxpayer Advocate Service (TAS) might help you figure out your chances of getting audited.  Or at least it could help you decide if you’re a high audit risk or low audit risk.  The new TAS report attempts to define the “tax cheat” demographic.

The highest concentration of “tax cheats” (and, therefore, the highest concentration of IRS auditors) are found in the Los Angeles, San Francisco, Atlanta, Houston, and Washington D.C.  metropolitan areas.  And there are some communities in California that seem to be especially attractive to the IRS, namely, Beverly Hills and Newport Beach.

TAS also confirmed what we have known for a long time: self-employed taxpayers are more likely to be targeted in a tax audit than wage earners.  There are even certain industries that tend to be audited more, like construction and real estate rental.

Finally, according to the TAS report, tax cheats tend to congregate in groups.  Apparently they are a social animal.  A tax cheat is often a member of one or more of the following groups:

  • civic leagues
  • fraternal societies & clubs
  • trade associations
  • labor unions

I guess if you are a self-employed Shriner with rental properties in Newport Beach, you’re pretty much screwed.

Boston Marathon Tax Relief

Did you file your tax return yesterday? If not, did you file an extension to file? While your typical tax extension is only an extension to file your actual tax return, but not an extension to pay the tax owed, the Internal Revenue Service announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s Boston Marathon explosions.

Smartly, the IRS is allowing geographic and disaster related tax relief. This tax relief applies to all individual taxpayers who live in Suffolk County, Massachusetts. Since the marathon was both a national and international event, the tax relief also applies to victims, families, first responders, others impacted by Monday’s Boston Marathon tragedy who live outside of Suffolk County and other taxpayers whose tax preparers were adversely affected by the tragic events.

“Our hearts go out to the people affected by this tragic event,” said IRS Acting Commissioner Steven T. Miller. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

Under this specific tax relief program, the IRS will allow eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. Normally, non-filing and non-payment IRS penalties are severe and crushing. Under this tax relief program, no filing and payment penalties will be due as long as the tax returns are filed and the payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

Unlike other IRS tax relief programs, generally, no specific action is necessary for this program. The IRS will automatically provide this extension to anyone living in Suffolk County. However, action is needed for impacted and qualified taxpayers who reside outside of Suffolk County. Eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 beginning Tuesday, April 23, and identifying themselves to the IRS before filing their tax return or making their tax payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

"irs.gov is not responding"

This is the error message I kept getting when I tried to navigate around the IRS website today.  I don’t know enough about computers to say for sure what is going on, but I would guess the problem is too much internet traffic from last minute filers and refund seekers.

Happy Tax Day! – April 15, 2013

The most useful bit of advice I could give today is this: if you’re not 100% prepared to file your taxes, don’t throw your forms together at the last minute.  File an extension!  Enough said.

File an extension using Form 4868.

Birkenfeld Was an Anomaly

The IRS is still not doing enough to attract whistleblowers and to move whistleblower cases along towards a resolution.

After the IRS awarded Bradley Birkenfeld $104 million for blowing the whistle on UBS last September, I wondered if there would be an increase in whistleblower cases, and there was.  But it was short-lived.  2012 actually saw a total of only 332 tips, down from 472 in 2009.  I also wondered if the Birkenfeld case represented a new era for the IRS Whistleblower Office and if we would continue to see handsome, timely payouts.  Well, if there have been payouts, the IRS isn’t making them public.  A private whistleblower award is almost pointless because it doesn’t spark the desire in others to come forward and it does nothing to deter would-be tax cheats.  So if we’re not hearing about awards, chances are they aren’t happening.

The IRS is a revenue collecting machine and the idea that “you have to spend money to make money” applies just as much to the IRS as it does in the business world.  The IRS understands this reality.  When the IRS pleads for more money for staffing they tend to cite the statistic about how the IRS is able to collect something like $194 for every dollar spent.  Why can’t they embrace this philosophy in other departments of the IRS?  They will collect more in the long term through voluntary compliance if they would just fix what is wrong with the Whistleblower Office.

IRS Records Prove AROD is a Bad Guy in Boston

According to a recent Boston Globe review of Internal Revenue Service (IRS) filings New York Yankee Alex Rodriguez is a bad guy. A Boston news source depicting a Yankee as a bad guy is hardly surprising. What interests me, as a tax attorney, is that the basis for hatred for Rodriguez this time is not baseball related; it is based on IRS records. According to the Boston Globe, nonprofit organizations are generally expected to donate 65 to 75 percent of their revenues to their designated charitable causes. The remainder of their revenues are supposed to be used to pay their necessary expenses and reasonable salaries of nonprofit employees. This was not the case for Rodriguez’s non-profit organization, according to the Globe.

In 2006, Rodriguez hosted a charity poker tournament that helped the A-Rod Family Foundation raise $403,862 for charity. How nice! However, according to IRS reports, barely 1 percent of the money raised were actually paid to charity. Specifically, only $5,000 was paid to Jay-Z’s Shawn Carter Scholarship Fund and only $90 was paid to a Little League baseball team in Miami; how charitable. The not for profit organization subsequently stopped submitting financial reports to the IRS, and was then stripped of its tax-exempt status. Again, AROD is a bad guy … no shocker … just surprised the revelation was tax based.

Tax Day is Around the Corner; Are You Prepared?

Happy Tax Day! Come Monday April 15, 2013, your tax returns are due. Have you prepared? While many people filed their tax returns well before the April 15 deadline because they gave the government an interest free loan and are due a refund; many other people delay filing their tax return or never file a tax return. These people dread Tax Day because they know that they’re going to owe a tax debt once they actually do file their tax return. So they believe it’s better to not even file. This is not the correct approach.

If you are in the group of people who procrastinate filing their return or do not file your tax returns in fear of a tax debt, given the present Internal Revenue Service (IRS) collection regulations, this needs to be the year you fix your tax problem. If you have a filing requirement, you need to either file a tax return or an extension to file by April 15. Simply ignoring your filing requirement will likely cost you more money in the long-run as failure to file monetary penalties are severe.

Eventually, the IRS is likely to catch up with your shenanigans. If you had sufficient income requiring you to file a tax return, such income was likely reported to the IRS. Once your income is reported, even if you don’t file a tax return, the IRS may eventually file a return on your behalf by using the reported income and minimum deductions to assess a liability against you.  Even if your income isn’t reported, taxing entities have been known to use other means to estimate your income to assess a liability against you.

You’re legally allowed to file an extension to file, so use it if you’re not ready to file your tax return. This is a simple procedure. Many taxpayers fail to file a timely tax return. Or, alternatively, they elect to pay undue taxes by claiming the standard deduction simply for the purpose of meeting the tax day deadline because they don’t think they have the time to itemize and calculate the deductions and credits they are entitled to claim. While an extension to file is not an extension to pay, filing an extension and properly preparing your tax return will likely save you money.  You must file your extension by April 15. If needed, filing an extension will generally allow you until October 15, 2013, to properly prepare your tax return.

So you filed your tax return or you are about to file your tax return, and you owe a non-disputed tax debt… what do you do now? Can you pay the debt? If you can afford to pay the debt owed, paying the debt is usually the least costly option after penalties and interest are factored into the equation. But if you’re like most people who end up owing a tax debt, you likely were not expecting to owe a tax debt and it’s simply another debt you cannot afford to pay.

If this is the case, there is one thing to keep in mind: the IRS is not your friend when you owe a tax debt, they are like any other creditor, they need as much money from you as they can get, as quickly as they can get it. Even with the public relations blitz over the past couple years of a kinder, gentler IRS, keep this in mind as your financial situation needs to control the final resolution of the tax debt. Too often I hear from people owing tax debts who agreed to some outrageous payment plan because the IRS required such payment based on their liability owed and disregarded their actual financial situation.

Therefore, it’s important to know your financial limitations. If you truly cannot pay your tax debt, there are options available to you. However, you need to have an organized and systemic presentation of your circumstances to get the appropriate resolution to your tax headache. While the IRS will likely pressure you to pay your debt in full within 90 – 120 days or make payments including penalties and interest over the next five to six years, there are other options available which include petitioning for non-payment of the debt, to settling the debt for less than the amount owed. The point is that there are options available to you and the key is to file your return, and then address the debt within your financial limits, do not ignore it. And, if you need professional assistance, call the tax relief attorneys at Montgomery & Wetenkamp toll free at (800) 454-7043 for your free consultation. We can help you resolve your tax debt.

Wesley Snipes Released from Prison

Perhaps one of the most high-profile celebrity tax crime stories of our time is coming to a conclusion.  Wesley Snipes was released from prison last week after serving about 28 months behid bars in Pennsylvania.  He will now be on house arrest until July 19th under the careful watch of the New York Community Corrections Office.

It is no surprise that TMZ was the first to report the conclusion of Snipes’ prison term.  TMZ follows celebrity tax problems like nobody’s business.  Even the LA Times cited TMZ as its source for this bit of news.

Celebrity tax problems are common, but most of them surface once the IRS files a Notice of Federal Tax Lien (FTL).  A tax lien is a public record that puts creditors on notice that the IRS has an interest in a taxpayer’s property as security against the past due tax debt.  A FTL is considered a “passive collection tool,” and in no way does it implicate the taxpayer criminally.  What made the Snipes case somewhat unique is that he was prosecuted criminally and he actually served time in prison.