How The IRS Can Make Your Business A Statistic

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The Collection Division of the IRS composes of Revenue Officers whose job is to collect outstanding IRS liabilities from taxpayers as quick as possible. These Revenue Officers have access to intelligence collected by other divisions of the IRS and they will scope out your financial moves, and garnish your wages and other sources of income, and seize houses, cars and bank accounts.

The most common sort of collection case involves a small business that has fallen behind in payment of withholding taxes. A Revenue Officer’s inventory is brimming with cases like these. Revenue Officers are told to go out and use a firm enforcement image in collecting the outstanding IRS liabilities and also be mindful of statistics compiled by the IRS to measure the Revenue Officer’s effectiveness. The IRS will maintain statistics on seizures of property, levies conducted and case status including the shut-down of a business. So when a business continues to ignore the IRS or the business is not paying its liabilities as quick as the Revenue Officer would like to see, that Revenue Officer will now change his stance from collecting the tax to making the business a statistic by shutting it down.

Feuer Trucking Company Shut Down

If you think I’m exaggerating, listen to this true story of how the Feuer Trucking Company of Yonkers, New York, was closed by IRS agents. Two and a half years ago prior, Feuer’s owner admitted to his employees that the company was hauling more red ink than anything else. Feuer was two million dollars in debt – and half a million of that was owed in back taxes to the IRS. The taxes plus the heavy interest payments marked Feuer for bankruptcy.

To save their jobs, many of the employees got together and offered the owner $25,000 for the company. The owner accepted. Feuer Trucking began repaying its debts both to its creditors and to the IRS, negotiating installment payments of $3,000 a week to pay off back taxes while it continued to pay current taxes. But because of the high interest rates and penalties the IRS was charging on the old taxes – 26% – the IRS debt was growing faster than Feuer could pay it off. It passed $800,000.

Just before Christmas the IRS struck. Revenue Officer Donald Raftery seized the $60,000 in Feuer’s bank account, and notified Feuer’s customers to pay their bills not to Feuer, but directly to the IRS. He also demanded a down payment of $400,000 on back taxes. Feuer didn’t have it. So the next day a squad of IRS officers backed up by a small army of U.S. marshals, swooped down on Feuer. Pay up the $851,000 in back taxes, the officers barked, or we will seize and sell everything. Of course, Feuer still didn’t have the money, so the IRS Revenue Officer tagged everything in the office for seizure – including desks, computers and file cabinets.

Feuer’s office manager confronted Revenue Officer Raftery. “Mr. Raftery, do you recall in July that I told you what we were worth? I spelled it all out to you in black and white on paper?” Raftery agreed that he knew that Feuer, which leases its trucks and building, had less than 10% of the $851,000 in assets.” The office manager then inquired, ‘Why did you take this action?”. But the office manager did not get a response back from the Revenue Officer who just shrugged his shoulders.

The IRS eventually returned Feuer’s computers and desks, but kept the $60,000 it had seized from the bank account. Even more devastating to Feuer, the IRS did not return its Interstate Commerce Commission license to operate. Without a license, the trucks couldn’t legally go anywhere. Feuer was out of business. The IRS had shut down a company that was paying current taxes and paying its employees. Fifty workers were added to the unemployment dole.

No matter how you add it up, you would think that the government is losing by closing the company down.

You would think that this headline report on the blind-siding of Feuer was a shocking expose of an IRS action that turned fifty taxpayers into welfare cases. But the Feuer case is not a story in which an IRS agent has careened out of control or the bureaucracy has mistakenly made a seizure that is not cost-effective for the government. In fact, the IRS never makes calculations of whether closing down a firm will add or subtract from the Treasury’s balance.

The Revenue Officers of the IRS Collection Division are among the most powerful people in government. Ten days after demanding payment the IRS can seize a taxpayer’s house, car, land, or business for subsequent sale at public auction. They can serve a levy on a third party, such as a bank, an employer, or anyone who owes the taxpayer money. If they suspect you might skip town without paying they can seize right away. All of this can be done without a court order. And if they so desire they can file a Notice of Federal Tax Lien at the local courthouse, which freezes a taxpayer’s title to property and puts the IRS at the head of the line of creditors.

It is highly unlikely that Revenue Officer Donald Raftery when he shut down Feuer Trucking Company got in hot water with his bosses. They probably toasted him with champagne. Besides generating all that good publicity for the IRS, Raftery racked up some marvelous statistics. He seized a bank account, tagged property, shut a business down, and closed the case. I guarantee that the Feuer case had been a thorn in the side of the local IRS office. Group managers hate over-age cases like the Feuer case. They have to regularly file reports on why they continue to carry them in their inventory and send those reports up the chain of command. This makes the chain of command very angry because an over-age case is not a nice clean statistic they can file to show what a good job they are doing – and what’s worse is an over-age case implies that the network has gone soft. So the word goes out to close cases and build statistics.

The IRS is a law unto itself.

Everything the IRS did to Feuer is legal and the shutting down of Feuer Trucking Company was completely consistent with IRS policy. This report was not a mortal blow against the IRS by unveiling its tactics against Feuer Trucking. Instead, you should think of the report as free publicity for the IRS, opportunely placed just after the week most folks got their W-2’s in the mail and started to look their 1040’s over. The message is this: The IRS is a law unto itself. Watch out!

Not every taxpayer is treated equally by the IRS. Each group manager is allowed incredible latitude in interpreting the collection manual, a freedom that gives rise to cavalier and arbitrary methods of enforcement. The IRS looks like an unbeatable army, with intelligence divisions scoping out your financial moves, cracking troops of auditors probing your returns for weaknesses, and a corps of revenue officers winning the property battle by seizing houses, cars, and bank accounts. It should be no surprise that some of the best Revenue Officers have spent time in military service.

The IRS Revenue Officer typically shows up to a taxpayer’s home or place of business when the taxpayer is in debt to the IRS. This Revenue Officer will also make a personal visit to a taxpayer’s home or place of business in tax cases where a taxpayer owes the IRS employment taxes. The IRS Agent who comes to a taxpayer’s home or place of business is not making the personal visit to take a taxpayer satisfaction survey. The sole purpose is to collect money for the IRS. Regardless of how civil and pleasant the Revenue Officer initially appears to be – remember they are not there to be your friend – they want your money.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you have outstanding liabilities with the IRS or any State Tax Agency, stand up to them by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Jeffrey B. Kahn, Esq. Discusses Taxes and the IRS On ESPN Radio – May 15, 2015 Show

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Topics Covered:
1. America’s Most-Wanted Swiss Bankers
2. Top Tax Sins That Could Land You In Jail Or Charged With Fraud Penalty

3. Five common myths about the dreaded tax audit

4. Questions from our listeners:
a. Can a state court determine who may claim a dependency exemption for a child?
b. My son was born on December 31. Can I claim him as a dependent and qualify for the child tax credit?
c. My child was stillborn. Can I claim my child as a dependent on my tax return?
d. If I claim my daughter who is a full-time college student as a dependent, can she claim her own personal exemption when she files her return?
Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

And today I have a special guest with me in the studio. In the spirit of Day Your Child To Work Day, my daughter Madison is here with me.
Say Hi Madison. Madison says Hi Dad!
Madison is five years old and this is her first time seeing her Dad work in the studio.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.
I have a lot to cover today in the world of taxes and helping me out will be my associate attorney Amy Spivey who will be calling in later.

America’s Most-Wanted Swiss Bankers

For decades, Switzerland has occupied an outsize role in the world of shady international finance. The country’s strict secrecy laws have made it the offshore banking destination of choice for U.S. tax evaders. The Swiss Bankers Association estimates that Swiss banks still hold at least $2 trillion that customers haven’t declared to tax authorities in their home countries. They say that you’re not a self-respecting Swiss bank if you don’t have some dodgy money floating around your system.

Since 2008 the U.S. Department of Justice and the IRS have been waging an uneasy war against Swiss banks that enable tax evasion. UBS Group and Credit Suisse Group have paid a combined $3.4 billion in U.S. fines, penalties and restitution. Wegelin, the country’s oldest bank, closed its doors entirely in 2013 after pleading guilty to conspiracy to evade taxes. In a break from long-standing policy, the government of Switzerland has pledged in recent years to share bank information with tax authorities around the world.

Despite these sweeping changes some of the biggest Swiss banks, are reluctant to take action against their employees. Credit Suisse—which in 2014 pleaded guilty to conspiracy to help Americans file false tax returns and agreed to pay the U.S. and New York state $2.6 billion—kept three indicted bankers on its payroll for almost three years after they were charged despite their failure to respond in court. Well that complacency ended last May when the New York State Department of Financial Services required the three bankers’ employment be terminated as part of a settlement.

At least 21 financial advisers in Switzerland under U.S. indictment remain at large, making them fugitives in the eyes of the American government. Their acts aren’t considered crimes under Swiss law so the country won’t extradite or prosecute them. Several still work in the Swiss financial industry, offering tax advice and other services. Some still have U.S. clients. And so far 50,000 Americans have voluntarily come forward disclosing their foreign accounts and reporting their foreign income to avoid criminal prosecution and reduced penalties.

What Should You Do?

If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Even for those who have lost money over the years, not being able to pay the entire fines from the OVDP is not an excuse — there are ways to negotiate payments. 

Well it’s time for a break but stay tuned because we are going to tell you the Top Tax Sins That Could Land You In Jail Or Charged With Fraud Penalty.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Top Tax Sins That Could Land You In Jail Or Charged With Fraud Penalty

Jeff continues: Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Amy states: It’s one thing to make an innocent mistake on your taxes, or to overlook a tax break that could lower what you owe the IRS. While such innocent mistakes will still cost you, they usually won’t invoke the ire of the IRS to pursue criminal prosecution or assess a Civil Fraud Penalty.

Amy continues: When you intentionally disregard tax law, however, such willful neglect will get you in real trouble. The IRS defines “willfulness” as a voluntary, intentional violation of a known legal duty, specifically your tax filing and payment responsibilities.

Jeff states: Such intentional tax violations could lead to tough penalties on top of the unpaid tax and interest added to it. In some cases, the IRS pursues intentional violations as criminal acts that could carry jail time.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff continues: So it’s not a good idea to think even think about neglecting your tax filing duties or fudging the entries a little or a lot. And in case you have any doubt as to what might be problematic, here are the top tax sins that could land you in very hot tax water.

Jeff to read off each sin and Amy to comment – Jeff may skip some of the sins or go through quickly to save time.

1. Not reporting all your earned income

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. When it comes to earned income — that’s your pay for work performed — not reporting payment generally isn’t an issue if all your money comes from wage or salary income. That amount is detailed on W-2 forms that must be attached to your Form 1040.

But if you’re an independent contractor, either as your full-time job or from side work in addition to your salaried position, it’s your responsibility to keep track of your earnings and let the IRS know the amount at tax time. When you’re paid more than $600 you should get a 1099-MISC from the client. And when your business accepts credit cards for payment, remember that each year your credit card merchant service provider will issue a 1099-K reflecting all the charge sales your business made. Don’t think of ignoring one of these forms. The IRS gets copies, too.

And even when you don’t get an earnings statement, it’s still your legal duty to report the income. Even without third-party tracking, the IRS will take a long look at your return if the numbers seem off.

2. Not reporting all your unearned income

Unearned income generally is investment income. In these cases, your banker, broker or the mutual funds that you bought directly will send you 1099-DIV or 1099-INT statements with your annual earnings. Again, don’t think you can “forget” to count one or more of these amounts. The IRS is copied on these statements, too.

3. Forgetting about foreign funds

Foreign financial accounts add another layer of complexity and potential costs if you fail to report them. The IRS has been on a mission for the last few years to halt hidden offshore accounts, significantly increasing its detection efforts and prosecuting owners of unreported accounts. And now starting with 2014 foreign banks are reporting interest and investment income to the IRS just like their domestic bank counterparts

The risk is even greater if you own a foreign financial account that must be disclosed under the Foreign Bank Account Report (FBAR) rules or the Foreign Account Tax Compliance Act (FATCA). A whole separate set of penalties applies here with a minimum amount of $10,000.00 per year per each account not disclosed.

4. Exaggerating deductions

Tax deductions are a great way to reduce your tax bill. They lower your income, which generally means your tax liability will be lower, too. Many taxpayers, however, are tempted to inflate the amounts that they claim on Schedule A.

The IRS, thanks to its automatic computer screening tool known as the discriminant information function (DIF), knows what the average deduction amount is for various income levels. If your claims are larger, you can bet your 1040 will be pulled for further review.

If you did indeed have an unusually large but legitimate charitable deductions, great. Claim those that you have receipts for and then show the IRS examiner your substantiating documentation. But if you’re just pumping up the amount on your own, you could face serious consequences.

5. Inflating self-employment expenses

This is the business counterpart to inflated individual itemized deductions. Here self-employed individuals bump up the business expenses they list on their Schedule C filings. This form filed by sole proprietors offers a way to claim a variety of business expenses that can reduce self-employment income and therefore the 15.3 self-employment tax. Among the expense categories are advertising costs, office supplies and other expenses, depreciation and Section 179 expenses, auto expenses and travel, meals and entertainment costs.

As you can see, there are lots of tempting opportunities to hike amounts to reduce taxable self-employment income. Were those stamps really for office mailings, or did you use them to send out personal holiday cards? What about that book? Was it really something that helps your run your company better or was it a volume you wanted for your personal bookshelf? 

6. Mixing business and pleasure

A specific section of Schedule C that’s prone to, shall we say, shady claims is the meals and entertainment line item. When properly claimed, a business owner can deduct some of the costs of taking a client out to eat and/or an entertainment venue. But sometimes business folk go out with friends and then write it off as a business expense.

That’s not to say that you can’t be friends with other business owners or even your clients. But when you’re picking up the check, you need to make sure that the dining etc. experience is really work related. You can’t just go out with a friend, ask “how’s your business going?” and then claim the evening as a business expense. Well, you can, but if the IRS catches on to your expense ruse, you’re in trouble.

This also could be a tax problem if you combine business and personal travel. While that’s totally acceptable to the IRS, you can’t claim the travel costs as a business expense if you actually spent more time lounging on the beach instead of meeting with new clients for your new line of bathing suits. 

Instead, make sure you know how to make the most of legitimate business entertainment expenses and travel expenses by hooking up with a tax professional. 

7. Sharing your home office

A home office isn’t an automatic red flag but that doesn’t mean you should be cavalier in claiming your work space. If the room or specific area in a room isn’t used regularly and exclusively for your business dealings, it does not qualify as a home office.

Yes, it’s easy to ignore those personal files in your desk drawer. After all, when you worked at a cubical for your employer you had personal stuff there. But technically, you are illegally claiming this deduction if you conduct personal tasks in your so-called office.

8. Not making a profit

Legitimate business owners want to make money, even if it means paying taxes. Other folks, though, set up operations that they fully intend to run at a loss for tax purposes. That is the textbook definition of a tax evasion scheme.

The IRS is wise to this and tries to limit such losses by requiring that a business eventually make a profit. According to the IRS time table, eventually means you must be in the black in three out of five years.

Your inability to do so will cost you. And if the IRS can show your bleeding bottom line wasn’t just due to a lack of business aptitude, but a willful intent to operate at a loss, you will be deemed to have committed a tax sin.

Jeff states: Remember, carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because after the break we are going to tell you the Five common myths about the dreaded tax audit.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

Five common myths about the dreaded tax audit

Amy states: Filing taxes is punishment enough without the vague threat of an IRS audit looming over our heads. For understandable reasons, the IRS insists on keeping the ins and outs of its auditing process on the murky side. After all, how will you catch the bad guys if you give them the rule book first? Here are a few common myths about the dreaded tax audit:

Amy to read off each myth and Jeff to discuss.

Myth #1: Only the wealthy get audited.

While it’s true that big businesses and the uber-rich are often targets of IRS tax probes, that doesn’t necessarily mean low- and middle-income workers are free and clear. The agency is increasingly relying on data mining and robo-audit systems to detect errors in tax returns, which has actually made it easier to go after small-fish taxpayers.

In 2013, the IRS audited more than 6.5 million taxpayers with an adjusted gross income of less than $1 million. And it audited fewer than 40,000 of those reporting $1 million or more.

One of the biggest reasons behind that discrepancy is the IRS’s move to pursue people who fraudulently claim the Earned Income Tax Credit, a juicy tax break worth an average $5,891 for a family of five earning less than $50,270 a year.  In 2012 alone, EITC fraud cost the government between $11.6 billion and $13.6 billion.

If you really look at the scrutiny of low- and middle-income wage earners, there is much more detailed scrutiny now than for those with investments and other sources of income. It just takes fewer resources to audit lower-income earners. And in all fairness to the IRS, Congress hasn’t been exactly generous with budgets.

And while the overall number of audits has been declining since 2010, the IRS has decreased the rate of millionaire probes more than other income brackets.  Auditing rates for the under-$200,000 income club fell by only 0.14% between 2011 and 2013, compared with a 1.63% decrease in the rate of audits of those making $1 million or more, according to the IRS.

Myth #2:  An audit means you’ll have an IRS agent knocking down my door

If the IRS’s computer system flags your tax return, you’d be hard-pressed to get an agent to pick up the phone, let alone make a house call. The traditional IRS audit and someone showing up on your doorstep is a thing of the past.

For starters, the IRS does not have the manpower. Thanks to rounds of budget cuts, the IRS has had to reduce staff by more than 8,000 employees since 2010 with no sign of relief yet.  Congress recently ordered the agency to slash another $526 million from its budget in 2014.

And while the agency’s funding and employee count decrease, more and more Americans are filing taxes each year, nearly 146 million in 2013 alone, up from 138 million five years ago.

Of the 6.5 million audits conducted last year, only 362,500, or 5.5%, resulted in an actual field visit. If your return is flagged, you’ll most likely get a letter in the mail seeking additional information. From there, you can either answer by return mail or call them directly or even better hire tax representation.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Myth #3: If I owe tax money, the IRS will be after me in a hurry

Rest assured, if IRS flags your return for suspicious activity, you will hear from them at some point — but probably not for a year or two…or more. The IRS actually has three to six years to go after questionable tax returns, and with personnel shortages, even taxpayers who willingly call them to sort out issues have a hard time getting them resolved.

Last year, more than 20 million phone calls to the IRS went unanswered, leaving just 61% of callers able to get through to a human being.

The IRS is under-funded and under-staffed. If a consumer calls the IRS, when they get through to a human being, they will likely just be told where to find the answer on the IRS website.

Myth #4: If I file for too many deductions and tax credits, I’m setting myself up for an audit

Tax credits and deductions are there for a reason: to ease the tax burden for workers who need it most. Don’t let the threat of an audit dissuade you from applying for tax credits and deductions you’re justifiably due.

Despite the IRS’s efforts to crack down on Earned Income Tax Credit fraud, it is actually one of the most commonly overlooked deductions. Twenty percent of eligible workers have missed out on the EITC, which is worth an average $5,891 for a family of five and $475 for single-filers without children.

Home-office deductions are another oft-cited target for the IRS. But it’s an overblown fear that hardly applies today, when there are more than 42 million Americans working as freelancers and independent contractors.

This was once the case, back when working from home was less common but with millions of home offices running today, the system is far more accommodating for home office users. The important thing to remember: Make sure you keep your receipts and documents and only deduct legitimate business expenses… which mean that the expense must be typical and necessary for your business.

The bottom line: If you’ve earned a tax credit or can justifiably claim a deduction, do it. Just make sure you’ve done the research and know what you need to back up your claim first.

Myth #5: I’ve got my tax refund so I don’t have to worry about an audit.

Even if your tax return was accepted and you cashed your refund check, you’re still fair game for auditors.

The IRS uses a special matching system that tracks each taxpayer’s W-2s, 1099s and 1040 forms. If it turns out that you’ve under-reported your income, the system will eventually catch up to you.

You could get your refund, and about one or almost two years later, if there’s a problem with your taxes, you’ll likely get a letter in the mail from the IRS.

As noted above, the IRS has three years to track you down, but in extreme cases of underreporting or tax evasion, they can basically come after you whenever they want.

And that’s not even the worst part. Any interest and penalties owed on your unpaid taxes will start accruing the day your taxes were due — not two years later when the IRS letter finally shows up in your mailbox. Two years of compounding interest and penalty charges will only add salt to the wound.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, so with my daughter Madison in the studio with me today I thought it would be appropriate for us to talk about dependents. What questions have you pulled from the kahntaxlaw inbox on this topic for me to answer?

1. Question: Can a state court determine who may claim a dependency exemption for a child?

Answer: Federal tax law determines who may claim a dependency exemption for a child. Even if a state court order allocates a dependency exemption for a child to a noncustodial parent, the noncustodial parent must comply with the Federal tax law to claim an exemption for the child. To claim an exemption for a child, the noncustodial parent must attach to the noncustodial parent’s return a copy of a release of claim to exemption by the custodial parent. The release may be on a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a document that conforms to the substance of that form.

2. Question: My son was born on December 31. Can I claim him as a dependent and qualify for the child tax credit?

Answer: Yes, if your child was born alive during the year and you meet the dependency tests, you may claim him as a dependent and take the full exemption.

3. Question: My child was stillborn. Can I claim my child as a dependent on my tax return?

Answer: You cannot claim a dependency exemption for a stillborn child.

4. Question: If I claim my daughter who is a full-time college student as a dependent, can she claim her own personal exemption when she files her return?

Answer: If you can claim an exemption for your daughter as a dependent on your income tax return, she cannot claim her own personal exemption on her income tax return. Your daughter should check the box on her return indicating that someone else can claim her as a dependent.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Chit Chat with Amy.

Thanks Amy for calling into the show. Amy says Thanks for having me.

And Madison thank you for being in the studio with me today. Well we are reaching the end of our show.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone and a great weekend!

 

Five common myths about the dreaded tax audit

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Filing taxes is punishment enough without the vague threat of an IRS audit looming over our heads. For understandable reasons, the IRS insists on keeping the ins and outs of its auditing process on the murky side. How will you catch the bad guys if you give them the rule book first? But because of the sense of mystery around the process, it’s an area of regulation often misunderstood by taxpayers.

Here are a few common myths about the dreaded tax audit:

Myth #1: Only the wealthy get audited.

While it’s true that big businesses and the uber-rich are often targets of IRS tax probes, that doesn’t necessarily mean low- and middle-income workers are free and clear. The agency is increasingly relying on data mining and robo-audit systems to detect errors in tax returns, which has actually made it easier to go after small-fish taxpayers.

In 2013, the IRS audited more than 6.5 million taxpayers with an adjusted gross income of less than $1 million. And it audited fewer than 40,000 of those reporting $1 million or more.

One of the biggest reasons behind that discrepancy is the IRS’s move to pursue people who fraudulently claim the Earned Income Tax Credit, a juicy tax break worth an average $5,891 for a family of five earning less than $50,270 a year.  In 2012 alone, EITC fraud cost the government between $11.6 billion and $13.6 billion.

If you really look at the scrutiny of low- and middle-income wage earners, there is much more detailed scrutiny now than for those with investments and other sources of income. It just takes fewer resources to audit lower-income earners. And in all fairness to the IRS, Congress hasn’t been exactly generous with budgets.

And while the overall number of audits has been declining since 2010, the IRS has decreased the rate of millionaire probes more than other income brackets.  Auditing rates for the under-$200,000 income club fell by only 0.14% between 2011 and 2013, compared with a 1.63% decrease in the rate of audits of those making $1 million or more, according to the IRS.

Myth #2:  An audit means you’ll have an IRS agent knocking down my door

If the IRS’s computer system flags your tax return, you’d be hard-pressed to get an agent to pick up the phone, let alone make a house call. The traditional IRS audit and someone showing up on your doorstep is a thing of the past.

For starters, the IRS does not have the manpower. Thanks to rounds of budget cuts, the IRS has had to reduce staff by more than 8,000 employees since 2010 with no sign of relief yet.  Congress recently ordered the agency to slash another $526 million from its budget in 2014.

And while the agency’s funding and employee count decrease, more and more Americans are filing taxes each year, nearly 146 million in 2013 alone, up from 138 million five years ago.

Of the 6.5 million audits conducted last year, only 362,500, or 5.5%, resulted in an actual field visit. If your return is flagged, you’ll most likely get a letter in the mail seeking additional information. From there, you can either answer by return mail or call them directly.

Myth #3: If I owe tax money, the IRS will be after me in a hurry

Rest assured, if IRS flags your return for suspicious activity, you will hear from them at some point — but probably not for a year or two…or more. The IRS actually has three to six years to go after questionable tax returns, and with personnel shortages, even taxpayers who willingly call them to sort out issues have a hard time getting them resolved.

Last year, more than 20 million phone calls to the IRS went unanswered, leaving just 61% of callers able to get through to a human being.

The IRS is under-funded and under-staffed. If a consumer calls the IRS, when they get through to a human being, they will likely just be told where to find the answer on the IRS website.

Myth #4: If I file for too many deductions and tax credits, I’m setting myself up for an audit

Tax credits and deductions are there for a reason: to ease the tax burden for workers who need it most. Don’t let the threat of an audit dissuade you from applying for tax credits and deductions you’re justifiably due.

Despite the IRS’s efforts to crack down on Earned Income Tax Credit fraud, it is actually one of the most commonly overlooked deductions. Twenty percent of eligible workers have missed out on the EITC, which is worth an average $5,891 for a family of five and $475 for single-filers without children.

Home-office deductions are another oft-cited target for the IRS. But it’s an overblown fear that hardly applies today, when there are more than 42 million Americans working as freelancers and independent contractors.

This was once the case, back when working from home was less common but with millions of home offices running today, the system is far more accommodating for home office users. The important thing to remember: Make sure you keep your receipts and documents and only deduct legitimate business expenses… which mean that the expense must be typical and necessary for your business.

The bottom line: If you’ve earned a tax credit or can justifiably claim a deduction, do it. Just make sure you’ve done the research and know what you need to back up your claim first.

Myth #5: I’ve got my tax refund so I don’t have to worry about an audit.

Even if your tax return was accepted and you cashed your refund check, you’re still fair game for auditors.

The IRS uses a special matching system that tracks each taxpayer’s W-2s, 1099s and 1040 forms. If it turns out that you’ve under-reported your income, the system will eventually catch up to you.

You could get your refund, and about one or almost two years later, if there’s a problem with your taxes, you’ll likely get a letter in the mail from the IRS.

As noted above, the IRS has three years to track you down, but in extreme cases of underreporting or tax evasion, they can basically come after you whenever they want.

And that’s not even the worst part. Any interest and penalties owed on your unpaid taxes will start accruing the day your taxes were due — not two years later when the IRS letter finally shows up in your mailbox. Two years of compounding interest and penalty charges will only add salt to the wound.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Top Ten Tax Sins That Could Land You In Jail Or Charged With Fraud Penalty

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Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

It’s one thing to make an innocent mistake on your taxes, or to overlook a tax break that could lower what you owe the IRS. While such innocent mistakes will still cost you, they usually won’t invoke the ire of the IRS to pursue criminal prosecution or assess a Civil Fraud Penalty.

When you intentionally disregard tax law, however, such willful neglect will get you in real trouble. The IRS defines “willfulness” as a voluntary, intentional violation of a known legal duty, specifically your tax filing and payment responsibilities.

Such intentional tax violations could lead to tough penalties on top of the unpaid tax and interest added to it. In some cases, the IRS pursues intentional violations as criminal acts that could carry jail time.

So it’s not a good idea to think even think about neglecting your tax filing duties or fudging the entries a little or a lot.

And in case you have any doubt as to what might be problematic, here are the top tax sins that could land you in very hot tax water.

1. Not reporting all your earned income

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. When it comes to earned income — that’s your pay for work performed — not reporting payment generally isn’t an issue if all your money comes from wage or salary income. That amount is detailed on W-2 forms that must be attached to your Form 1040.

But if you’re an independent contractor, either as your full-time job or from side work in addition to your salaried position, it’s your responsibility to keep track of your earnings and let the IRS know the amount at tax time. When you’re paid more than $600 you should get a 1099-MISC from the client. And when your business accepts credit cards for payment, remember that each year your credit card merchant service provider will issue a 1099-K reflecting all the charge sales your business made. Don’t think of ignoring one of these forms. The IRS gets copies, too.

And even when you don’t get an earnings statement, it’s still your legal duty to report the income. Even without third-party tracking, the IRS will take a long look at your return if the numbers seem off.

2. Not reporting all your unearned income

Unearned income generally is investment income. In these cases, your banker, broker or the mutual funds that you bought directly will send you 1099-DIV or 1099-INT statements with your annual earnings. Again, don’t think you can “forget” to count one or more of these amounts. The IRS is copied on these statements, too.

3. Forgetting about foreign funds

Foreign financial accounts add another layer of complexity and potential costs if you fail to report them. The IRS has been on a mission for the last few years to halt hidden offshore accounts, significantly increasing its detection efforts and prosecuting owners of unreported accounts. And now starting with 2014 foreign banks are reporting interest and investment income to the IRS just like their domestic bank counterparts

The risk is even greater if you own a foreign financial account that must be disclosed under the Foreign Bank Account Report (FBAR) rules or the Foreign Account Tax Compliance Act (FATCA). A whole separate set of penalties applies here with a minimum amount of $10,000.00 per year per each account not disclosed.

4. Exaggerating deductions

Tax deductions are a great way to reduce your tax bill. They lower your income, which generally means your tax liability will be lower, too. Many taxpayers, however, are tempted to inflate the amounts that they claim on Schedule A.

The IRS, thanks to its automatic computer screening tool known as the discriminant information function (DIF), knows what the average deduction amount is for various income levels. If your claims are larger, you can bet your 1040 will be pulled for further review.

If you did indeed have an unusually large but legitimate charitable deductions, great. Claim those that you have receipts for and then show the IRS examiner your substantiating documentation. But if you’re just pumping up the amount on your own, you could face serious consequences.

5. Inflating self-employment expenses

This is the business counterpart to inflated individual itemized deductions. Here self-employed individuals bump up the business expenses they list on their Schedule C filings. This form filed by sole proprietors offers a way to claim a variety of business expenses that can reduce self-employment income and therefore the 15.3 self-employment tax. Among the expense categories are advertising costs, office supplies and other expenses, depreciation and Section 179 expenses, auto expenses and travel, meals and entertainment costs.

As you can see, there are lots of tempting opportunities to hike amounts to reduce taxable self-employment income. Were those stamps really for office mailings, or did you use them to send out personal holiday cards? What about that book? Was it really something that helps your run your company better or was it a volume you wanted for your personal bookshelf?

6. Mixing business and pleasure

A specific section of Schedule C that’s prone to, shall we say, shady claims is the meals and entertainment line item. When properly claimed, a business owner can deduct some of the costs of taking a client out to eat and/or an entertainment venue. But sometimes business folk go out with friends and then write it off as a business expense.

That’s not to say that you can’t be friends with other business owners or even your clients. But when you’re picking up the check, you need to make sure that the dining etc. experience is really work related. You can’t just go out with a friend, ask “how’s your business going?” and then claim the evening as a business expense. Well, you can, but if the IRS catches on to your expense ruse, you’re in trouble.

This also could be a tax problem if you combine business and personal travel. While that’s totally acceptable to the IRS, you can’t claim the travel costs as a business expense if you actually spent more time lounging on the beach instead of meeting with new clients for your new line of bathing suits.

Instead, make sure you know how to make the most of legitimate business entertainment expenses and travel expenses by hooking up with a tax professional.

7. Sharing your home office

A home office isn’t an automatic red flag but that doesn’t mean you should be cavalier in claiming your work space. If the room or specific area in a room isn’t used regularly and exclusively for your business dealings, it does not qualify as a home office.

Yes, it’s easy to ignore those personal files in your desk drawer. Afterall, when you worked at a cubical for your employer you had personal stuff there. But technically, you are illegally claiming this deduction if you conduct personal tasks in your so-called office.

8. Using whole, rounded numbers

Yes, round numbers are easier to add and subtract. Yes, your tax software rounds entries. And yes, even the IRS says you can round your entries on your 1040 to whole dollars.

But when it comes to deductions and expenses, it tends to make the IRS think that you are making up amounts. Now some people add tip amounts so that meal checks come out to even numbers. But those people should still keep those receipts. Other financial transactions, however, rarely end in .00. And since when to all your business expense you are claiming on your tax return end in round hundreds or thousands? At best, all those rounded numbers make it look like you didn’t keep good records showing precise amounts. And that could encourage the IRS to take a closer look at all your entries.

9.  Improperly claiming a dependent

Sometimes determining just who is your tax dependent can be messy. There are lots of rules about relationships and support earned or provided and who lives for how long in your house. You also must have the Social Security number of the person regardless of relationship that gets put on the 1040.

Sometimes the confusion leads to an innocent mistake as to who is eligible to be listed as your tax dependent. Other times, though, folks knowing claim a person as dependent to get the added exemption amount or to claim the refundable Earned Income Tax Credit.

Faking dependents is not a good idea. The IRS knows this happens. It looks at who has and hasn’t been named before on your return. Plus, family situations often are messy enough without adding tax cheating to the mix.

10.  Not making a profit

Legitimate business owners want to make money, even if it means paying taxes. Other folks, though, set up operations that they fully intend to run at a loss for tax purposes. That is the textbook definition of a tax evasion scheme.

The IRS is wise to this and tries to limit such losses by requiring that a business eventually make a profit. According to the IRS time table, eventually means you must be in the black in three out of five years.

Your inability to do so will cost you. And if the IRS can show your bleeding bottom line wasn’t just due to a lack of business aptitude, but a willful intent to operate at a loss, you will be deemed to have committed a tax sin.

Remember, carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

How The IRS Is Connected To The Growing Sharing Economy.

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If you are earning income through entities like Uber, Lyft, Airbnb and others, beware the IRS will be verifying your reported income.

The Sharing Economy

On the internet, everything is for hire. Last night 40,000 people rented accommodation from a service that offers 250,000 rooms in 30,000 cities in 192 countries. They chose their rooms and paid for everything online. But their beds were provided by private individuals, rather than a hotel chain. Hosts and guests were matched up by Airbnb, a firm based in San Francisco. Since its launch in 2008 more than 4,000,000 people have used it—2,500,000 of them in 2012 alone. It is the most prominent example of a huge new “sharing economy”, in which people rent beds, cars, boats and other assets directly from each other, coordinated via the internet.

You might think this is no different from running a bed-and-breakfast, owning a timeshare or participating in a car pool. But technology has reduced transaction costs, making sharing assets cheaper and easier than ever—and therefore possible on a much larger scale. The big change is the availability of more data about people and things, which allows physical assets to be disaggregated and consumed as services. Before the internet, renting a surfboard, a power tool or a parking space from someone else was feasible, but was usually more trouble than it was worth. Now websites such as Airbnb, RelayRides and SnapGoods match up owners and renters; smartphones with GPS let people see where the nearest rentable car is parked; social networks provide a way to check up on people and build trust; and online payment systems handle the billing. I call these websites “sharing economy facilitators”.
As the sharing economy continues to grow, so do the associated tax problems. The IRS obviously is interested in folks who earn money using their autos as on-call car services or rent their homes to out-of-towners.

Duty To Report Income

Except as otherwise in the Internal Revenue Code, gross income means all income from whatever source derived (IRC Sec. 61). So whether your work in the sharing economy is you only job or a secondary job, you need to report your income from that work on your income tax return.
Remember you are not an “employee” of the sharing economy facilitators; you are an “independent contractor”.  As such, there is no withholding of any taxes from your checks; you are responsible for all taxes – Self Employment taxes and income taxes – on your net earnings.  Uber spells this out, sort of, on their site:

“You pay taxes as an individual—there’s no need to register as a business. File taxes as you normally would, and we’ll send you a 1099 form that you will use to report the income you made driving with Uber.”

You will report your net income from your Uber activitiy, (i.e., what you are paid minus any associated expenses),  on Schedule C and the Schedule C “bottom line” will show up on line 12 of your Form 1040.  (“Business income or (loss). Attach Schedule C or C-EZ”.)

The net income from your activity with the sharing economy facilitator is subject to Self Employment taxes, (Social Security and Medicare), at a 15.3% rate.  Now you will get to deduct one-half of these Self Employment taxes on your Form 1040 but if you consider that you still have income taxes to pay as well, the effective tax rate can easily exceed 30% and you will also have your state’s income tax on top of that.

So whether you are using your personal car for business or part of your residence as a “B&B”, you will need to have good personal records of your expenses. In a situation where you are using your personal car for business you typically can deduct either “actual” costs for the percentage of business use, (though cell phone and food probably are not pertinent) or you can deduct mileage at a standard rate for business use. If you go the “simple” route and deduct mileage instead of “actual” expenses your Schedule C would consist of exactly 2 lines so it’s not very hard – but you will loose out on a lot of deductions.

Why The IRS Likes The Sharing Economy

Unlike traditional transactions where two parties directly deal with each other and nothing is reported to the IRS, sharing economy facilitators who connect the two parties, collect the money from the paying party and transmit the revenue to the service provider will report the sale to IRS using Form 1099. The IRS now has a tool by which they can match up the amount of income you report on your tax return and if the Form 1099 amount is greater, you can be sure that the IRS will catch this and send you a tax bill.

How About Money Collected For Special Projects?

Money collected for special projects via crowd-sourcing sites also is generally viewed by Uncle Sam as taxable income, regardless of whether it’s for a movie or a recipe. There is no tax benefit even to contributions to help out folks in need.

No tax break for donors – Setting up online money-collection sites like GoFundMe to help out folks who’ve encountered a catastrophe is today’s equivalent to the donation jar at the neighborhood grocery. Just that those dollars, since the crowd funding money is given directly to the individuals, not to IRS-approved 501(c)(3) organizations that pass it along, tax laws regarding charitable gifts say that the donors can’t deduct the gifts as itemized tax deductions.

Income to recipients – Now you would think that the money the recipient of the crowd-sourcing account do not have any tax worried as the Internal Revenue Code says that gifts are not taxable income to the recipients. But IRS is treating these funds received as taxable income and after matching the recipient’s tax return to the Form 1099 reported by the company running the crowd-sourcing account the IRS will generate a tax bill where the reported income is understated. It does not matter that the money received was used for the purpose intended when setting up the account. So until the IRS issues any definitive guidance or a Court weighs in on this issue, beware.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

National Football League Is Giving Up Its Tax-exempt Status

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With all the distractions of deflated footballs, player misconduct and the safety of the game, the NFL is volunteering to give up its tax-exempt status.

The NFL As A Non-profit Entity.

The National Football League (“NFL”) which you figure makes millions in revenue every year is recognized by the IRS as a tax-exempt entity and does not pay income taxes as any for-profit-company would.

Section 501(c)(6) of the Internal Revenue Code provides for the exemption from  tax entities which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Those entities are specifically:

  1. business leagues,
  2. chambers of commerce,
  3. real estate boards,
  4. boards of trade and
  5. professional football leagues.

It’s obviously notable that only professional football leagues are included here, as opposed to all sporting leagues.

It seems inconceivable that the NFL is not “engaging in a regular business of a kind ordinarily carried on for profit”.  How are their efforts to maximize profits any different than those of Major League Baseball, the National Basketball Association or the National Hockey League?

Well professional football leagues were not always included in this list.  This change dates back to 1966, when the tax code was amended to give a professional football league tax-exempt status in order to facilitate the merger of the NFL and the old American Football League. Now keep in mind that even though the NFL has been granted tax-exempt 501(c)(6) status, the 32 teams inside the league are subject to taxes as for-profit businesses.

Let’s Look At The Stats!

In order to have a tax-exempt status, the NFL must be run as a charitable foundation. In 2012, they gave away a meager $2.3 million. Almost all of it–$2.1 million– went to the NFL Hall of Fame. Oh by the way, last time I checked the price of Adult admission to the Hall of Fame was $24.00 ($17.00 for a child). The average admission price (including free admission museums) for all museums in the United States is $8.00.

In 2012, NFL commissioner Roger Goodell was paid $29.5 million to run the organization. More crazy: Goodell’s salary is 1/10th of what the NFL claimed in total assets for 2012– $255 million. Even crazier: Goodell made 15 times what the NFL donated to other charities. Extremely crazier: the NFL only made charitable donations equaling one-one hundredth of their annual income.

The NFL’s most recent Form 990 filed with the IRS ended on March 31, 2012. They claimed revenue of $255 million, up from $240 million in 2011. So, if you were concerned, things are good. The NFL has assets of over $822 million.

Under “grants”– meaning donations to other non profit organizations, the NFL did increase the number from just over $900,000 to $2.3 million. Generous right? However: their total salaries increased by $27 million to a total of over $107 million.

Here’s the best part: after all that, thanks to creative thinking, the NFL claims it finished the year in the red with negative $316 million.

What else did they spend money on? Well, for one thing, new office construction cost $36 million.

Just to put all this in perspective: going by numbers in Forbes, Goodell would come in at around number 28 of the highest paid CEOs in 2012. He made more than the heads of FedEx, AT&T, Heinz, Ford Motors, Goldman Sachs, as well as Rupert Murdoch.

Going back to whether the NFL should get to keep its tax-exempt status, the important thing here is that WE THE PEOPLE through our politicians in Washington D.C. granted the NFL this tax exemption, even if it was decades ago. This is no different that us granting the NFL’s anti-trust exemption for negotiating television broadcast contracts. As a result, should that exemption be revoked if the NFL blacks out its fans, forces fans to pay for personal seat licenses, extorts public money from municipalities by threatening to move teams, etc.? Up until now the NFL may technically be a “nonprofit,” but is it really acting in the public interest?

A “Tax Hail Mary Pass” Doomed To Fall Short Is Now A Game Ending Completion.

Citing this issue as a “distraction”, NFL Commissioner Roger Goodell said in statement on April 28, 2015 that the league is giving up its status as a tax-exempt organization.

In a statement sent out to the NFL’s 32 team owners and Representatives Paul Ryan (R-Wisc.) and Sander Levin (D-Mich.) of the House Ways and Means Committee, Goodell outlined the voluntary move, saying it would not make a “material difference to our business”. Note that he now refers to the NFL as a business.

The move, first reported by the Sports Business Journal, would allow the NFL to no longer be forced to disclose compensation figures for its top officials, including Goodell. Note that now he can make even more money without worrying about disclosing it.

Robert McNair, chairman of the NFL’s finance committee and owner of the Houston Texans, released a statement regarding the decision stating that “the income generated by football has always been earned by the 32 clubs and taxable there. This is the case whether the league office is tax exempt or taxable. The owners have decided to eliminate the distraction associated with misunderstanding of the league office’s status, so the league office will in the future file returns as a taxable entity”.

So now there is no confusion, starting with the 2015 tax year the NFL will file income tax returns as for-profit-corporation and as a privately-held corporation its executives need not disclose their compensation, the business’ revenues or any other financial information to the public.

It should be noted that major league baseball and basketball surrendered their tax-exempt status long ago. The only other two major sports organizations that have similar tax-exempt status are the National Hockey League and the Professional Golfers Association. It’s just a matter of time before this issue becomes a distraction to them too.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California resolve your IRS tax problems to allow you to have a fresh start.

Jeffrey B. Kahn, Esq. Discusses IRS Criminal Tax Investigations and Undisclosed Foreign Bank Accounts On ESPN Radio – April 24, 2015 Show

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Topics Covered:

    1. Lessons learned from the criminal tax evasion Conviction of Rashia Wilson a/k/a “Queen Of IRS Tax Fraud”.
    2. What should you do where you have undisclosed foreign bank accounts and unreported foreign income?
    3. Understanding the IRS Criminal Investigation Process and what signs to be on the lookout for that you may be subject to an IRS Criminal Investigation.
    4. Questions from our listeners:
      • When would I need to hire a tax attorney?
      • What constitutes IRS and State Tax Disputes that a tax attorney should be involved?
      • What constitutes Complex Legal Tax Issues that a tax attorney should be involved?
      • What questions should I ask when interviewing tax lawyers?
      • My CPA who I have been going to for years has never told me that I had to report my foreign income. Now that I know I have to report my foreign income and disclose my foreign bank accounts, do I accept my CPA’s offer to represent me in OVDP or do I hire you?

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Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

I have a lot to cover today in the world of taxes and helping me out will be my associate attorney Amy Spivey who will be calling in later.

The story of Rashia Wilson of Tampa, Florida also known as the “Queen Of IRS Tax Fraud”.

You know that crime doesn’t pay. Despite using money from crime to temporarily fund a lavish lifestyle, Rashia Wilson of Tampa, Florida, learned her lesson the hard way before a Federal District Court Judge in the summer of 2013 when she was sentenced to 21 years of prison for Tax Fraud and Weapons Charges. She is also ordered to pay restitution of more than $3 million.  Rashia committed tax fraud by stealing personal information from taxpayers and using it to file tens of thousands of fraudulent returns, cheating taxpayers out of millions. You know identity theft is still prevalent today and stopping identity theft and refund fraud is a top priority for the IRS. Last year the IRS initiated 1,492 identity theft related criminal investigations, an increase of 66% over the previous year. But let’s get back to Rashia who stole more than $3 million dollars from the Federal government.

How Rashia Spent Her Millions

Although Rashia still claimed food stamps during her fraud, she used the ill-gotten gains to fund a lavish lifestyle which included:

  • $90,000 on an Audi A8.
  • $30,000 on her son’s first birthday party, which included carnival rides for children to play on.
  • Designer handbags from Prada, Gucci and Louis Vuitton.
  • Jewelry, including a custom-made necklace spelling out her name in jewels, which she wore in a photograph that showed her posing with stacks of money.
  • High end electronic goods, including large flat-screen TVs.

At the time of sentencing Rashia was just 27. When she is released 21 years later, her children, currently all in elementary school, will all have graduated from high school. Her youngest child will be 23.

While Rashia was briefly able to cash in on her crimes before landing a record prison sentence, the details of her spree read like a “What Not To Do” map when stealing from the government. If you’re one of those folks pondering how best to stay out of jail, take a lesson from Rashia and heed these few tips:

Lesson 1 – Don’t steal. That should be obvious but clearly, it’s not. Stealing from the government – in particular, identity theft – is on the rise and as a result, the IRS put identity theft to commit tax fraud at the top of its list. In this scheme, thieves like Rashia access your personal information including your name, address and Social Security number to fraudulently file a tax return and claim a refund without your consent. Rashia gleaned much of the information she used to file fraudulent returns from medical records: in addition to printouts of medical records, investigators found thousands of ID numbers at her home.

Lesson 2 – If you did steal, don’t talk about it. Rashia had a big mouth. She liked to talk about herself and her money. She also liked to throw it around. She used the millions she stole from others to finance a showy lifestyle, including as I said earlier $30,000 on her 1-year-old’s birthday party, and $90,000 on a 2013 Audi (which she bought using money orders). Rashia wanted to show off. And that’s exactly how she caught the eye of investigators. Her behavior prompted the U.S. District Judge to remark at her sentencing, “She knew what she was doing was wrong. She reveled in the fact that it was wrong.”

Lesson 3 – If you did steal, don’t expect your privacy settings on Facebook or use of a fake name to protect you. I don’t care what you think you know about privacy settings, when you put something out there on Twitter or on Facebook, it’s not protected. As a taxpayer, that means you should avoid posting personally identifying information like tax ID numbers and your address. And you should certainly avoid posting photos of yourself surrounded by stacks of cash.

In addition when you sign up for Facebook, the terms of use indicate that “Facebook users provide their real names and information” and you agree that “you will not provide any false personal information on Facebook.” Apparently, this is about the only rule that Rashia followed. She used her real name to create a personal page on Facebook where she regularly bragged that she couldn’t be arrested and teased the police, posting entries like:

I’M RASHIA, THE QUEEN OF IRS TAX FRAUD… I’m a millionaire for the record, so if you think indicting me will be easy it won’t, I promise you! You need more than black and white to hold me down. I have the Tampa Police Department under my spell. I run Tampa right now.

Now we are on the radio so I have cleaned up the lyrics and put in proper grammar. But in case you’re wondering, Rashia isn’t college educated. Or high school educated. Or even middle school educated. She failed the 5th and 6th grades and that’s as far as she got. Her lack of education didn’t hold her back from blasting authority figures on Facebook. Turns out, the authorities were paying attention.

Investigators worked for two years to gather evidence against Rashia and a host of other fraudsters as part of Operation Rainmaker so dubbed because of the amount of money that was raining down. Included in that group was Rashia’s boyfriend, Maurice “Thirst” Larry, and a friend, Marterrence “Quat” Holloway.

Prosecutors said Rashia wasn’t just a queen, but also bragged about being the “first lady” of tax fraud.

Lesson 4 – Don’t assume that your luck won’t run out. Born into poverty to a coke addict and a father in prison, Rashia quickly took to a life of crime. She dropped out of school in the 7th grade. Since then, she has been arrested 40 times and held felony convictions for grand theft and burglary, but never did any time in a state prison. She came to believe that her streak would continue, bragging to practically everyone that she would never do any time. Well Rashia your streak ended July 2013.

Well it’s time for a break but stay tuned because we are going to tell you What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy.

So Amy it has been about one year since the U.S. put down the hammer on Credit Suisse getting the bank to plea guilty to aiding and abetting U.S. Taxpayers for tax evasion. Please tell us what happened.

Amy Responds: You are right Jeff. Credit Suisse Group AG became the first financial institution in more than a decade to plead guilty to a crime on May 19, 2014 when the Swiss bank admitted it conspired to aid tax evasion and agreed to pay $2.6 billion to settle a long-running probe by the U.S. Justice Department. Then Attorney General, Eric Holder, in announcing the charges, said the bank engaged in an “extensive and wide-ranging” scheme to help U.S. taxpayers hide assets.

Jeff asks: Has any other bank suffered a similar fate as Credit Suisse?

Amy responds: Actually another Swiss Bank, UBS, also had to pay a $780 million fine in 2008 and release information on its U.S. accountholders.

Jeff replies: You would think that after Credit Suisse’s rival UBS fell prey to the U.S. that Credit Suisse would have cleaned up its act but instead Credit Suisse continued to take steps that hindered investigators, the filing said. Credit Suisse didn’t conduct a thorough inventory of the accounts its managers oversaw, and some managers helped clients move their assets to other offshore banks so they would remain hidden to the U.S.

Jeff asks: Do these big wins by the U.S. against UBS and Credit Suisse accelerate the momentum to break Swiss Bank Secrecy Laws that historically fostered tax evasion?

Amy replies. The momentum is stronger. Roughly a dozen Swiss banks are still subjects of criminal investigations by U.S. authorities and all of Switzerland’s 106 banks are taking part in a self-reporting program run by the U.S. Justice Department.

Jeff states: Don’t think that only Swiss banks are being targeted. This momentum is spreading to other countries. For example Federal prosecutors have negotiated a multibillion-dollar settlement with French bank BNP Paribas to end an investigation into alleged evasion of sanctions and the Department Of Justice is investigating other foreign banks all over the world.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: The penalties for not disclosing foreign bank accounts are very harsh. A taxpayer who willfully has not disclosed foreign bank accounts to the IRS must pay a miscellaneous Title 26 offshore penalty the greater of $100,000 or 50% of the total balance of the foreign account.

Jeff asks: When is a taxpayer deemed “willful”?

Amy replies: Well for the government to show willfulness, the government must prove that a taxpayer voluntarily and intentionally violated a known legal duty. In this case that duty is to disclose foreign bank accounts and report foreign income.  Jeff states: One thing the government looks at is how you completed the bottom of Schedule B of your income tax return in answering the question – do you have any foreign bank accounts? Answer “No” when you should have answered “Yes” and the government will use that response in charging that you voluntarily and intentionally violated your legal duty.

Jeff says, well I would think that most people never even paid attention to the bottom of this schedule. Does that mean every taxpayer would be willful?

Amy replies: Not really because there are many other factors that the government must consider to prove that the taxpayer knew or should have known about his failure to report worldwide income and disclose foreign accounts.

Jeff states: Now there is a different penalty structure if a taxpayer is non-willful. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation – that is $10,000.00 per account/per year. And the government is not limited just to one year. The government can go back 6 years. And considering that the non-willful penalty is $10,000.00 per account/per year, this amount can expand rather quickly.

Jeff states: Let me illustrate this for you. Let’s say over the last 6 years you have 5 undisclosed foreign bank accounts. That would equate to 5 violations per year which at $10,000.00 per violation amounts to $50,000.00. Then multiply that by 6 and you are now looking at an FBAR penalty of $300,000.00 regardless of how much you have in the foreign accounts.

Jeff comments: And besides these penalties, criminal fines of up to $500,000 and/or 10 years in prison are possible.

So Amy, if one is in this situation what is your advice?

Amy responds: You should see tax counsel as soon as possible. The IRS has special programs in place that allow non-compliant taxpayers to come forward and avoid criminal prosecution and be subject to a lower amount of penalties.

Jeff states: And if you are in this situation you will want to avail yourself of one of these programs. The major program is called the 2014 Offshore Voluntary Disclosure Program. Like the 2009, 2011 and 2012 programs that preceded it, taxpayers must file up to 8 years of amended returns and up to 8 years of FBAR’s. Taxes on the unreported income, interest and a 20% penalty on the taxes seem reasonable.

Jeff continues: But the sticking point for many is the IRS program’s counterpart to the FBAR penalty. Currently, the program’s penalty is 27.5% of the highest aggregate account balance in the undisclosed offshore accounts. For many, that is a crushing penalty, and for that reason many taxpayers have still refused to come forward taking the gamble that even with the new reporting required by foreign banks they can remain undetected.

Jeff asks: So what is another option?

Amy replies: Fortunately, starting with July 1, 2014 the IRS has issued new Streamlined Procedures in its Voluntary Disclosure Program that certain taxpayers could qualify of a 5% FBAR penalty and in some cases all FBAR penalties can be waived.

Jeff states, PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because as I promised we are going to tell you What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

So to avoid the same fate as Rashia Wilson, you need to understand the IRS Criminal Investigation Process and What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

Jeff says the IRS criminal investigation process is serious business and is run by the Criminal Investigation Division known as “CID”.

Jeff states: CID is composed of federal agents (called “Special Agents”), who are highly trained financial investigators that carry a gun and wear a badge. Unlike your typical police department, CID conducts a very thorough investigation which may last years while they interview your family, friends, co-workers, employees, and business associates, and bankers, among others, to acquire evidence as to the extent of the tax evasion or tax fraud that may have occurred.

Jeff asks why should any one have a serious concern over a criminal tax violation?

Amy responds: A criminal tax violation conviction results in severe consequences, and in addition to monstrous fines, including the cost of prosecution and jail time. Each count can result in five years in jail and it could spell financial, personal and social ruin.

Jeff states: Compounding the situation is that often a taxpayer will not know when he is subject to an IRS criminal investigation until it is in its late stages at which time they surely have made incriminating admissions if they were not represented by competent counsel.

Jeff says: PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Four Signs that You May Be Subject to an IRS Criminal Investigation – Amy to read each sign and Jeff to discuss.

Amy says Sign #1 An IRS Revenue Officer abruptly stops pursuing you after he has been requesting you to pay your IRS tax debt, and now does not return your calls. Jeff is this a good sign?

Jeff responds: The Revenue Officer might be getting ready to refer your case to the CID to investigate previous or current tax evasion or crimes you may have committed within the collection process. (i.e., making false statements, hiding income or assets).

Amy says Sign #2 An IRS Revenue agent has been auditing you and now disappears for days or even weeks at a time. Jeff tell me about what this sign means?

Jeff responds: After a case is referred to the CID, both the Collection and Examination Divisions put things on “pause” because they do not want to jeopardize a successful criminal prosecution. CID is incredibly resourceful and tactful. To better position yourself against them, it is best to obtain an experienced IRS tax attorney as early as possible where criminal tax exposure is apparent in your fact pattern (like where you know you cheated on the return that is under audit). This is true even if your case is only at the civil investigation stage.

Amy says Sign #3 Your bank informs you that your records have been summoned by the CID or subpoenaed by the U.S. Attorney’s Office. Jeff if this happens what should one do?

Jeff responds – you have to hire an experienced criminal tax defense attorney right away.

Amy says Sign #4 Your accountant is contacted by Special Agents, or has been subpoenaed to appear before a grand jury and told to bring your tax records. Jeff does the accountant-client privilege prevent the accountant from disclosing anything?

Jeff responds: Unfortunately, the “accountant-client privilege” simply does not protect you in a criminal case and any statements made to your accountant can be used against you in a criminal investigation, either through the “discovery” process leading to trial or where the accountant is called as a witness during criminal tax trial.

Jeff states: As you can imagine, the IRS Criminal Investigation Division uses a vast array of tools to investigate a suspected tax evasion case or while conducting a criminal investigation. If you think about it, every employee of the IRS has a single task of ensuring that the IRS tax collections are maximized. IRS Special Agents, who work on the criminal tax cases, are no different. If you file your taxes, their goal is to prove that you may have understated or omitted income or sources of income or you may have falsified sources of income or taken deductions or credits for which you do not qualify.

Jeff asks: Should a taxpayer talk to the IRS Special Agent during an IRS Criminal Investigation and what are the taxpayer’s rights?

Amy replies, Since the IRS Special Agents conduct a criminal investigation, you have a right to remain silent and not incriminate yourself and the right to an attorney.

Jeff states: At your first encounter, the IRS Special Agent will advise you of your rights. You should exercise them and ask for an attorney. The Special Agent is then required to terminate the encounter. As you can imagine, nothing you say to a Special Agent is off-the-record! If you choose to disregard this advice, the IRS Special Agent will be more than happy to continue with the encounter. You’ll be surprised how people continue to dig themselves into a deeper hole even after all these warnings.

Jeff states: The “interview” is the most obvious and also the most common tool is the old fashioned approach of directly asking you if you are engaged in tax evasion. This interview can take place at your home or your place of business or both. When an IRS field officer comes to interview a subject suspected of tax evasion, that officer doesn’t just ask questions. They are also required to assess your standard of living as compared to the income shown on your tax return. In addition, the Special Agents have the legal authority to examine books and records and take your testimony under oath.

Amy states: During the interview, the Special Agents (they travel in pairs so one can interview and the other takes notes) will find out about other persons who may have knowledge about your sources of income and if there is cash that you may not have disclosed to the IRS.

Jeff states: One of the primary goals of the interview is to establish cash on hand because one of the common defenses is uncertainty about cash on hand. If they seem to always appear at the most inconvenient time, it is because they are required to timely obtain confessions or admissions from the subjects and witnesses who may have information about the case. These witnesses may include your spouse, friends, neighbors, your tax return preparer and others including others with whom you may have a business relationship like banks and brokerages.

Jeff states: A simple mistake, oversight, or your accountant’s malpractice may trigger an IRS criminal investigation. Specifically, unreported income, a false statement, the use of an impermissible accounting or banking service, or declaring too many deductions are things that could initiate an audit, which could then rise to the level of an IRS criminal investigation.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, what questions have you pulled from the kahntaxlaw inbox for me to answer?

Ken from San Diego asks When Would I Need to Hire a Tax Attorney?

Well Ken I can understand that in a world of CPA’s, tax preparers, enrolled agents, bookkeepers, accountants and tax relief companies, it can be confusing to know when to hire a tax attorney. After all, you’re not hiring a tax lawyer to prepare your annual income tax return. You should think of using an attorney to resolve tax controversies which involve IRS And State Tax Disputes or for tax planning that involves Complex Legal Tax Issues.

Amy asks Jeff, What Constitutes IRS and State Disputes That A Tax Attorney Should be involved?

Most tax disputes arise in the form of an audit of one or several past tax returns. If the IRS notifies you of an audit, you should hire a tax attorney immediately.

Your tax lawyer can communicate with the IRS on your behalf, be present during your audit and help negotiate a settlement, if necessary. Having experienced legal counsel helps ensure that you don’t overpay as a result of your audit.

In some instances, taxpayers ignore letters and warnings from the IRS because they’re scared or don’t know how to respond. In those cases, the IRS may have no choice but to threaten you with criminal charges for tax evasion. If you learn that you’re the target of an IRS criminal investigation, you’ll want to hire a tax lawyer—and do it quickly.

Your tax lawyer can reassure the IRS that you’re taking its investigation seriously, work with the IRS in an effort to help you avoid criminal charges and represent you in court if you are charged with a tax crime.

Amy asks Jeff, What Constitutes Complex Legal Tax Issues That A Tax Attorney Should be involved?

A tax lawyer’s help can also be invaluable if you’re facing a complicated legal tax situation. This might include instances where:

      • You’re starting a new company and are trying to decide between thevarious ways to structure your company
      • You’re theexecutor of an estate and need advice regarding whether and how much is owed in estate taxes
      • You want to challenge the IRS on a tax decision or appeal an audit
      • You receive a Collections Notice telling you that tax is due and/or threatening collection action
      • You want to sue the IRS
      • You think or know that you’ve committed tax fraud

Diane from Newport Beach asks, What Questions Should I Ask When Interviewing Tax Lawyers

At your initial meeting, you’ll want to share the specifics of your situation and then ask the lawyer about their experience handling similar matters. Know that lawyers are bound by strict confidentiality rules. Even if you end up hiring a different attorney, the lawyers you meet with cannot share the information they learned with the IRS or anyone else.

Some questions to consider asking during your initial consultation:

      • How long have you been practicing law?
      • Do you just practice tax law, or do you also work in other areas of practice?
      • Have you previously handled tax situations similar to mine?
      • What’s your assessment of my situation? What works for me and against me?
      • If I hired you, what course of action would you recommend?
      • Do you charge a flat fee or hourly rate, or do you use some other billing structure?
      • Can you estimate my total legal fees?

Sanjay from La Jolla asks: My CPA who I have been going to for years has never told me that I had to report my foreign income. Now that I know I have to report my foreign income and disclose my foreign bank accounts, do I accept my CPA’s offer to represent me in OVDP or do I hire you?

Taxpayers looking to come forward in a Voluntary Disclosure Program to report unreported foreign income and undisclosed foreign bank accounts would be best served by a tax attorney who was not involved in the preparation of the originally filed false tax returns. This is because the tax attorney does not have a conflict of interest and can present your case in the most favorable manner. This is especially important if you are looking to apply in the new Streamlined Procedures announced by IRS. The best way to explain this is by example – if a great defense is that you relied on your tax preparer to tell you whether you had to report your foreign accounts and foreign income, do you think your tax preparer will put himself under the bus to save you from the IRS – chances are not. A tax attorney who had no involvement in the preparation of your returns can make these arguments thus truly serving your best interests.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Well we are reaching the end of our show.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!

Jeffrey B. Kahn, Esq. Discusses Undisclosed Foreign Bank Accounts And The IRS On ESPN Radio – April 10, 2015 Show

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Topics Covered:

1. Ty Warner, Beanie Babies Creator, Convicted For Not Disclosing Foreign Bank Accounts.

2. Don’t Believe The Deadly Myths Of FATCA Non-Enforcement.

3. The New And Improved IRS Streamlined Procedures For Taxpayers With Undisclosed Foreign Bank Accounts.

4. Questions from our listeners:

     a. What should I look for in finding the best FBAR/OVDP attorney for my situation?

     b. Is it better to hire a sole practitioner to get a one-on-one attorney relationship or a firm with OVDP attorneys who take a team approach?

     c. Should someone hire a local general law firm or look for OVDP attorneys with a potentially wider depth of experience?

     d. Should someone hire a big law firm that does a bit of everything or a tax resolution firm that specializes in nothing but tax resolution?

     e. Should someone hire an OVDP law firm that will use an outside OVDP CPA or a law firm that has a built-in dedicated OVDP-specific accounting department?

Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

April 15th is a day that many people fear but in case you have an undisclosed foreign bank account, your fear has only just begun. And filing an extension for your tax return will only put off the inevitable. But there is hope as I am devoting the entire show today to educate you about this problem and the solution to resolve it.

Ty Warner, Beanie Babies Creator, Convicted For Not Disclosing Foreign Bank Accounts

The Rise And Fall Of Beanie Babies

Ty Warner, the creator of Beanie Baby dolls, wasn’t afraid to take risks. Beanie Babies first appeared in 1993, triggering a craze for the plush toys fashioned into bears and other animals. He ignored the naysayers after Beanie Babies flopped during their initial debut, and pressed forward with a product he believed in more than anyone else. One reason why the toys easily supplanted other fads at the time such as Ninja Turtles and Cabbage Patch dolls was partly because of Mr. Warner’s strategy of “deliberate scarcity”. He rolled out each one—Spot the Dog, Squealer the Pig—in a limited quantity and then retired it.

At the height of the Beanie Babies craze, Mr. Warner was shipping more than 15,000 orders per day to retailers. This explosion of sales made him rich. Forbes recently put his net worth at $2.6 billion. And when Mr. Warner would suddenly change product designs, collectors and wannabe entrepreneurs would snap up the $5.00 plushes and resell them on eBay at mark-ups topping 1,000%! Some people would take extreme measures to secure these rare editions. In 1999, Jeffrey White, from West Virginia, shot and killed a co-worker at a lumberyard after an argument over Beanie Babies.

Three years into the Beanie Babies craze, Mr. Warner boarded a plane bound for Zurich, where he would make the biggest mistake of his life. In 1996, at UBS, one of Switzerland’s largest banks, he opened a secret account invisible to the IRS. The exact amount he deposited is unknown, but by 2002 it had grown to $93 million. To keep the account’s existence from prying eyes, including those of his own accountants, he signed a “hold mail” form that instructed the bank not to send any mail related to the account to the United States and to destroy any documents in his file when they became five years old.

The money Mr. Warner stashed in Switzerland remained there, compounding tax-free, for the next dozen years. And each time Warner got to the part on his Federal individual income tax return that asks if the taxpayer has any foreign accounts, he checked the box that said no.

And over these same dozen years his net worth skyrocketed thanks to his 100% ownership of Ty Inc. In 1998, Ty Warner claimed that his company had $700 million in profits in 1997. If true, that would have made it more profitable than his two top competitors at the time, Hasbro and Mattel, which reported $560 million in combined profits that year.

But you know the old saying – “What goes up also goes down”. Prices for Beanie Babies eventually crashed and collections, which some people insured for thousands of dollars, became worthless.

Ty Warner’s Tax Problems

Mr. Warner’s hubris eventually got the best of him, too; and in October 2013 he pleaded guilty to tax evasion. The 69-year old billionaire broke down crying in U.S. District Court in October 2013 as he pleaded guilty to one count of tax evasion for hiding $25 million in income in secret Swiss bank accounts.

He admitted to the Court in his plea that in late 2002, he moved $93 million to Zürcher Kantonalbank so he could evade paying $5 million in taxes due to the IRS. That’s a painful omission, not only drawing the tax evasion charge but huge FBAR penalties too. In Ty Warner’s case the FBAR penalty will exceed $53 million.

But it does not stop there because these numbers while being staggering, also tie into criminal penalties. A tax evasion conviction carries up to 5 years in prison and a $250,000 fine.

On January 14, 2014 Ty Warner the mastermind behind Beanie Babies—still considered the most successful toy launch in U.S. history—and is among the richest people in America, was sentenced by U.S. District Court Judge Charles P. Kocoras. Mr. Warner said to the Judge, “I never realized that the biggest mistake I ever made in life would cost me the respect of those most important to me.”

The judge noted “Mr. Warner’s private acts of kindness, generosity, and benevolence are overwhelming.” He further lauded Warner for already paying a civil penalty of $53 million (which amounts to just 2% of the billionaire’s estimated net worth), plus back taxes. In so in lieu of the four-year-plus prison term recommended by federal guidelines, Judge Kocoras sentenced Ty Warner to two years of probation, 500 hours of community service, and a $100,000.00 fine.

Crime Doesn’t Pay

You know that the amount Ty Warner saved in income taxes by stashing money overseas was almost laughably small for a billionaire: just $5 million. He wound up having to fork over 16 times that to the feds. Listen to these numbers:

$93 million
Amount in Swiss account in 2002

$107 million
Account value in 2008

$5 million
Taxes saved

$80 million
Civil penalties, interest, and back taxes paid

Beanie Babies are still wonderful toys and, if you’re like most people who have them, yours are in mint condition because you once thought they would make you rich. The good news: Those animals will make a wonderful gift for a local hospital or police station, where they will provide comfort to people too young to remember that there was a time when Beanie Babies drove people to madness and its creator to the IRS. 

Well it’s time for a break but stay tuned because we are going to tell you the Deadly Myths Of FATCA Non-Enforcement you should not believe.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states: Amy and I have been looking forward to provide you with this special edition show where we are devoting this full hour to undisclosed foreign bank accounts. The penalties for non-disclosure can be catastrophic and jail-time is possible. Protect yourself.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Don’t Believe The Deadly Myths Of FATCA Non-Enforcement.

This May Be Your One Last Opportunity to Avoid Criminal Prosecution and Increased Civil Penalties!

Jeff states: Since July 1, 2014, the most feared U.S. legislation regarding international tax enforcement – Foreign Account Tax Compliance Act (“FATCA”) – is being implemented by most banks around the world. As part of this compliance, foreign banks from around the world are sending letters to account holders that they believe have, or had, a U.S. tax nexus (or other U.S. connection) requesting information to determine whether such account holders have disclosed their foreign bank accounts to the IRS. The letters from foreign banks generally require an account holder to disclose whether the account has been declared to the IRS through the filing of a Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”) form and/or a Form 1040 personal income tax return, participation in the various IRS Offshore Voluntary Disclosure Programs, or otherwise.

Jeff asks Amy: What Else Can You Tell Us About FATCA?

Amy replies: FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by U.S. persons with undisclosed offshore accounts. There are two parts to FATCA – U.S. taxpayer reporting of foreign assets and income on Form 8938 and reporting by a Foreign Financial Institution (“FFI”) of foreign bank and financial accounts to the IRS.  It is the latter that is resulting in FFI’s sending out that dreaded letter to suspected U.S. account holders requesting U.S. taxpayer identification and information (referred hereafter as the “FATCA letter”).

Amy continues: FATCA generally requires an FFI to identify certain U.S. accountholders and report their accounts to the IRS. Such reporting is done either through an FFI Agreement directly to the IRS or through a set of local laws that implement FATCA.

Deadly Myths.

Jeff states: As foreign banks march towards the implementation of FATCA, there are still many people who subscribe to any one or all of the deadly myths that could find themselves facing potentially crippling circumstances after July 1, 2014.

Jeff to read off each myth and Amy to respond.

Myth 1: No action required now.

This is false. As of July 1, 2014 all FFI’s must have implemented a FATCA Compliance Program to comply with its country’s Intergovernmental Agreement (“IGA”) with the United States. FFI’s must self-certify their FATCA status to their withholding agents by providing certification of compliance issued by the IRS. Failure to do so results in a 30% withholding tax imposed on their U.S investments.

Myth 2: Best to “wait and see” for a foreign country’s enabling legislation.

This is false. Wishing this to be the case does not make this so. To be clear, registration and reporting are distinct functions under FATCA. All FATCA registration is directly with the IRS and is occurring now. The truth is, a foreign country’s enabling legislation is simply intended to provide the legal framework for compliance with, not avoidance of FATCA (and other automatic tax information exchange agreements), and the development of the regulatory framework for operating the agreement.

Myth 3: IRS registration may breach confidentiality.

This is false. Withholding agents already require W-8s from all FFI’s to avoid withholding liability. This is a long-established practice and the Form W-8 has simply now been revised to include FATCA status. This procedure is no different than domestic banks requiring your social security number to open an account so it can issue a 1099 each year to the IRS reporting the interest income you earned.

Myth 4: Model 1 or Model 2 IGA’s displace U.S. Treasury Regulations.

This is false. They both work in tandem. A FFI is treated as FATCA-compliant, and not subject to FATCA withholding tax, to the extent it complies with its obligations under the IGA. The U.S. Treasury regulations are incorporated by reference into the IGA. Under the IGA, the foreign country is bound to use U.S. Treasury definitions to the extent those definitions are not defined by the IGA, and importantly, the foreign country is not permitted to use any other definition in local legislation that would “frustrate the purposes” of the IGA.

Myth 5: There is no person charged with the responsibility that a foreign bank complies with the IGA.

This is false. Under the IGA a FATCA Responsible Officer (FRO) must be appointed who is (a) as an officer of the registered deemed-compliant FFI with sufficient authority to ensure that the FFI meets the applicable registration requirements and (b) who certifies that the FFI will comply with its continuing FATCA obligations.

FRO’s have serious compliance responsibilities under FATCA. In fact, FATCA compliance revolves around the FRO, like Sarbanes Oxley compliance revolves around the CFO. Especially in the context of a FFI that does not typically have any staff, the role is even more essential. It’s a fallacy and wishful thinking that FROs can be lax or “lite” under the IGA. The IRS has consistently expressed its expectations that FRO’s deliver robust FATCA compliance and high-quality FATCA information from either procedure. Whoever says otherwise has not been paying attention and we all know how this story ended for Switzerland.

Jeff asks Amy, So what is the Truth About FATCA?

Amy replies, Whether out of lack of knowledge, preparedness or self-interest, those who are propagating these myths are not doing themselves or their U.S. clients any favors. As of July 1, 2014, FATCA went into full effect, which means that FFI’s now have to report the required FATCA information to the IRS. FFI’s around the world have been sending out “FATCA letters”. These letters typically include IRS Forms W-9 and W-8BEN for the U.S. customers to complete and return to the bank. The information furnished by the customer to the bank would then be used by the bank to report information on the customer’s foreign accounts to the IRS. If the customer refuses to answer the questions or provide the necessary forms, the financial institution would often close the account and report it as a “recalcitrant account” to the IRS. So either way, you will be reported to the IRS.

Jeff states: Why You Should Do Something About It Before It’s Too Late

Until the government receives your name and account information and chooses to act on that information, you have the opportunity to avoid the possibility of time in a federal prison and reduce the potential civil penalties for failing to report your foreign account. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in one of the IRS’s Voluntary Disclosure Programs.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because after the break we are going to tell you about The New And Improved IRS Streamlined Procedures For Taxpayers With Undisclosed Foreign Bank Accounts.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team. And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

You are listening to a special edition show where we are devoting this full hour to undisclosed foreign bank accounts. The penalties for non-disclosure can be catastrophic and jail-time is possible. But the IRS has provided programs to come clean and avoid the worst-case scenario.

The New And Improved IRS Streamlined Procedures For Taxpayers With Undisclosed Foreign Bank Accounts

Jeff states: On June 18, 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations and would largely waive these penalties if taxpayers come forward and show that they didn’t hide the money on purpose.

Amy states: Separate from United States income tax returns, many U.S. persons are required to file with the U.S. Treasury a return commonly known as an “FBAR” (or Report of Foreign Bank and Financial Accounts; known as FinCEN Form 114), listing all non-US bank and financial accounts. These forms are required if on any day of any calendar year an individual has ownership of or signature authority over non-US bank and financial accounts with an aggregate (total) balance greater than the equivalent of $10,000.

Jeff states: The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes.

Amy states: Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation—and each year you didn’t file is a separate violation. By the way the IRS can go back as far as 6 years to charge you with violations.

Jeff states: Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment.

Jeff continues: More and more taxpayers find themselves facing the awkward combination of failing to report interest on foreign bank accounts and failing to file FBAR’s. Even if the unreported income is small, the combination of amending tax returns to report it plus quietly filing past-due FBAR’s is a classic “quiet disclosure”. The IRS advises against them and says it can prosecute taxpayers who do it anyway.

Amy states: What the IRS wants taxpayers to do is to join the 2014 Offshore Voluntary Disclosure Program. Like the 2009, 2011 and 2012 programs that preceded it, taxpayers must file up to 8 years of amended returns and up to 8 years of FBAR’s. Taxes on the unreported income, interest and a 20% penalty on the taxes seem reasonable.

Amy continues: But the sticking point for many is the IRS program’s counterpart to the FBAR penalty. Currently, the program’s penalty is 27.5% of the highest aggregate account balance in the undisclosed offshore accounts. For many, that is a crushing penalty, and for that reason many taxpayers have still refused to come forward taking the gamble that even with the new reporting required by foreign banks under FATCA they can remain undetected. Fortunately, starting with July 1, 2014 the IRS has issued new procedures in its Voluntary Disclosure Program that certain taxpayers could qualify of a 5% FBAR penalty and in some cases all FBAR penalties can be waived.

Jeff states: PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states Under the streamlined procedures, taxpayers will be required to certify that the failure to report all income, pay all tax, and submit all required information returns, including FBAR’s (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

Jeff asks Amy: What Constitutes Non-Willful Conduct?

Amy replies: The key to qualification in this new procedure is to prove that your past actions or inactions can be considered to be non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence or mistake, or conduct that’s the result of a good-faith misunderstanding of the requirements of the law.  The application of this standard will vary based on each person’s facts and circumstances so it is something that has to be evaluated on a case-by-case basis.

Jeff states: If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.   Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Amy continues: Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (“OVDP”) or its predecessor programs) may still use the streamlined procedures.

Jeff states: The Streamlined Procedures are classified between U.S. Taxpayers Residing Outside the United States and U.S. Taxpayers Residing in the United States.

Jeff continues: Both versions require that taxpayers certify that their conduct was non-willful; file 3 years of back tax returns reflecting unreported foreign source income; File 6 years of back FBAR’s reporting the foreign financial accounts; and Calculate interest each year on unpaid tax.

Jeff continues: For U.S. Taxpayers Residing Outside the United States who apply to the streamlined program, the IRS is waiving the OVDP penalty.

Jeff continues: For U.S. Taxpayers Residing in the United States who apply to the streamlined program, the IRS is imposing a 5% OVDP penalty (applied against the value of the undisclosed foreign income producing accounts/assets).

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

Continuing with the theme of today’s special edition show on non-disclosure of foreign bank accounts, Amy what questions have you pulled for me to answer?

Amy replies, these questions are from an anonymous listener who has undisclosed foreign bank accounts.

Amy asks: What should I look for in finding the best FBAR/OVDP attorney for my situation?

Jeff replies: I have learned key insights from years of taking cases over where prior OVDP attorney-client relationships have failed. I have also picked up terrific feedback from our past and present clients.  Because of this, I think I am uniquely qualified to know what types of questions you need to ask to find the right OVDP attorney for you.

Amy asks: Is it better to hire a sole practitioner to get a one-on-one attorney relationship or a firm with OVDP attorneys who take a team approach?

Jeff replies: The advantage of the team approach is that your case should benefit well from the collaboration of your law firm. The advantage of a one-on-one attorney relationship is that you deal with the same attorney who personally knows your case. Both these advantages have merit and are important which is why at the Law Offices Of Jeffrey B. Kahn, P.C. we follow a hybrid of these two approaches whereby your case is supported by a team of professionals yet you have direct access to me as the leading tax attorney making sure the your case is proceeding smoothly and that you gain all the possible benefits and best possible outcome.

Amy asks: Should someone hire a local general law firm or look for OVDP attorneys with a potentially wider depth of experience?

Jeff replies: A local general law firm is not going to have the depth of OVDP experience that we do. Yet, we know that many people prefer to hire locally even though after the initial conference, information and documents are exchanged through the mail, fax and internet. That is why I am available to meet with clients in multiple locations in California for client convenience and gain reassurance that my team and I will help you through your offshore issue.

For our worldwide clientele, many of them are already accustomed to and comfortable with having fairly in-depth business relationships with people remotely; and with the Law Offices Of Jeffrey B. Kahn, PC they get the added reassurance of having an OVDP firm who — more than likely — has successfully handled a case just like theirs before.

Amy asks: Should someone hire a big law firm that does a bit of everything or a tax resolution firm that specializes in nothing but tax resolution?

Jeff replies: Bigger does not necessarily mean better. There is a rather steep learning curve to OVDP, so hopefully any law firm you interview will be honest with you about their level of expertise and won’t bill you for their time to get up-to-speed.

The Law Offices Of Jeffrey B. Kahn, P.C. has taken over many OVDP cases where a client had hired a previous OVDP attorney. And routinely we see mistakes someone made that the OVDP attorneys billed their clients for. And then to correct those mistakes — yep they charged their clients for that too. In contrast, we do not look to create work to justify a higher bill. It is in our best interest to get your case resolved as effectively as possible. This is especially important with any cases under the new streamlined procedures as the IRS does not consider your application to the program complete until the full Civil Package is filed. We recognize this and look to turn around this package as quick as possible.

Amy asks: Should someone hire an OVDP law firm that will use an outside OVDP CPA or a law firm that has a built-in dedicated OVDP-specific accounting department?

Jeff replies: From my experience, one of the last things you want is your OVDP attorney to be acting as a mere liaison between an OVDP examiner and a client’s CPA. We strongly prefer our clients to use our own team at the Law Offices Of Jeffrey B. Kahn, P.C. for two reasons:

1. Shouldn’t the attorney who will be negotiating where the numbers on an amended tax return came from actually know where they came from? If the attorney is merely the proxy for the CPA, then there could be missed opportunities of tremendous value.  Small changes in tax treatment can have huge consequences. Did you know that foreign-earned income or PFIC tax reporting requires the highest level of tax knowledge, and that many experts, even experts at the IRS will disagree about legal conclusions — even when facts are similar?

2. As mentioned before, for streamlined OVDP cases, it is important to get the Civil Package completed as soon as possible. Your accountant will likely be busy with regular tax season work and therefore not have the time to attend to your situation. Your accountant may also be part of the problem preventing you from attaining nonwillful status. Remember, until the Civil Package is filed you are not protected if the IRS finds you out first.

The OVDP attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. know not just the tax code but get to know your facts well enough to persuade the IRS to find the most favorable tax treatment for you – and in the case of the streamlined procedures it is for you to be deemed as non-willful.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Well we are reaching the end of our show.

Thanks Amy for calling into the show. Amy says Thanks for having me.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!

What Are The Pros And Cons Of Going On Extension?

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It’s that time of year again…tax season. For many small business owners, taxes top the list of business-related concerns. In fact, the National Federation Of Independent Business (“NFIB”) Small Business Economic Trends survey, released earlier this year, revealed that 20% of businesses cite taxes as their biggest problem.

With April 15th fast approaching, more and more small business owners are tossing around the idea of filing for a much-needed tax extension. While filing for an extension might seem like the way to go during the hustle and bustle of tax season, there are a few things small business owners should consider before deciding to file for a six-month extension: 

Extra time to file doesn’t mean extra time to pay. 

An extension will change the tax filing deadline from April 15 to October 15, but you still have to pay the tax you owe by the April 15th deadline.

If you don’t, you’ll have to pay interest on the unpaid amount plus an extra 0.5% in penalties for every month you’re late. However, the penalties for not filing on time are much higher than the penalties for not paying on time; 5% for each month or part of a month you’re late, up to 25%.

That being the case, if you need extra time to finish up your tax return, don’t hesitate to file for an extension. In an effort to avoid needing to file an extension, implement a payroll system you can rely on to automate tax filings and maintain compliance in accordance with ever-changing state and federal regulations. 

You can’t be sure exactly how much you owe without first completing your tax return. 

And, while filing for an extension gives you an additional six months to finish your tax return, you still have to pay the amount owed by April 15th; meaning you’ll have to do some heavy estimating.

If you miscalculate the amount of tax owed, you’ll have to pay the necessary penalties and fees. If you paid less than 90% of the tax you owed, you’ll end up owing a penalty of 0.5% of the unpaid amount every month until you pay the balance.

To avoid unnecessary penalties, the IRS has a Form 1040-ES that includes a worksheet you can use to calculate your estimated tax payments but given the complexities of the tax law and ever-changing rules, it is best to seek a professional tax advisor to ensure the accurate calculation of taxes owed. 

It will make acquiring a new loan difficult. 

If you think you might need a loan sometime in the near future, you might want to think twice before filing for an extension. For starters, a recently filed tax return is usually a required financial document when seeking a loan or other forms of credit from a bank.

Banks use recent tax returns to gauge compliance. While filing for a tax extension doesn’t necessarily raise any red flags, not having your tax return in hand does little for your cause. 

Your potential refund will take longer. 

As a small business or startup, you might be due a tax refund from the IRS; that is once you file your taxes. Filing for a tax extension also means having to wait awhile longer to claim your tax refund. If you wait to file your taxes until October, you won’t see that money until the fall.

Extending the filing of your tax return extends the period of time that the IRS can select your tax return for audit.

Generally the IRS has up to three years after the filing deadline of your tax return to select it for examination or audit.  So if you timely file your 2014 tax return by April 15, 2015, the IRS will have until April 15, 2018 to audit your 2014 tax return.  However, if you file an extension of your 2014 tax return, the IRS will now have until October 15, 2018 to audit your 2014 tax return.

Filing an extension where your prior years’ tax returns are currently under examination.

Since the IRS has a three-year window to audit tax returns, if your 2012 or 2013 tax returns are currently under examination, it is probably a good idea to file an extension for 2014.  This way, the scope of the audit is not expanded to the 2014 tax year as you now would have until October 15, 2015 to file your 2014 tax return.  The IRS cannot force you to file a tax return before its filing deadline so if your audit is completed before October 15th, you may delay or even avoid 2014 being examined by IRS.

Filing an extension where you are currently on a payment plan with the IRS.

A condition of any payment plan established with the IRS for your back tax liabilities is that you do not create any new liabilities.  If you expect to owe for 2014 and you file your tax return no later April 15th with an unpaid balance, the IRS computers will automatically default your payment plan putting you back to square one.  But if you file an extension for 2014, you could possible delay this action by IRS for at least another six months which may be enough time for you to put away extra funds so that when you file 2014 you can include full payment of the balance due and avoid default.

If seeking a payment plan or Offer In Compromise for your back taxes, don’t file an extension and file no later than April 15th. 

Where you owe back taxes to the IRS, it’s usually a good idea to include all tax years in your proposal which could be a payment plan or Offer In Compromise.  Only existing liabilities from filed tax returns may be wrapped into any proposal.  A liability from a 2014 tax return that has yet to be filed will not be included in your proposal and when it now comes time to file, you will need to include full payment.  Otherwise, you now defaulted what was previously set up.

And if you have foreign bank accounts ….

Filing for an extension on your income tax return does not extend the June 30th deadline to file your Report Of Foreign Bank Accounts (“FBAR”) using FinCEN Form 114 with the U.S. Department Of Treasury.

Don’t Take The Chance And Lose Everything You Have Worked For. 

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. 

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Jeffrey B. Kahn, Esq. discusses IRS and taxes on the April 5, 2015 radio show “Talking Money with Mr. C” on 760AM KFMB in San Diego

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Issues discussed:

  1. When is traveling a legitimate business expense?
  2. What are the Pros/Cons of doing a tax extension?
  3. How liable am I for my spouse’s tax mistakes?