Topics Covered:

1. Don’t Let The Recent Funding Cuts To IRS Give You A False Sense Of Complacency.

2. Target Los Angeles, California – Think You Can Hide From The IRS? 

3. Did You Receive A Letter From Your Foreign Bank, Urging You To Report Your Account To The U.S. Government Under FATCA?

4. Questions from our listeners:

a. I am a U.S. citizen and have resided in Germany for years and have not filed U.S. Returns. What can I do?

b. I am a U.S. citizen and have resided in Canada for years and have not filed U.S. Returns. What could happen if I do nothing?

c. Does giving up U.S. citizenship or my green card get me out of my U.S. filing obligations?

d. I am a U.S. citizen and reside in Mexico. I have filed U.S. returns annually, however I may have omitted some income or computed income incorrectly and omitted one or more international information returns. Can I rectify the issues with the streamlined program?

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 today will be my associate attorney Amy Spivey who will be calling in later in today’s show.

Don’t Let The Recent Funding Cuts To IRS Give You A False Sense Of Complacency.

With just weeks remaining before the new tax season opens, Congress walloped the IRS with $341 million in budget cuts. That’s in addition to earlier slashes to the IRS budget of more than $1 billion since 2010, resulting in nearly 13,000 employee layoffs.

Is that a wise choice or an act of spite toward an unpopular agency?

Congress touted that the cuts are much needed but to others it looks like something else – revenge. You see many in Congress are still fuming about this year’s earlier tax-exempt organization scandal and those missing Lerner emails. There are other members of Congress that are angry about reports of wasteful spending. And still there are other members of Congress that see this as a great opportunity to keep IRS from properly implementing pieces of the Affordable Care Act – yes, the same Act that Congress pushed through a few years ago, tasking the IRS with related administrative responsibilities.

Rep. Peter Roskam (R-IL), the newly elected Chair of the Oversight Subcommittee of the House Ways and Means Committee, earlier this year minced no words about the agency’s budget, referring to the IRS as a “rogue operation.” He said about the IRS and cuts to the budget, at the time “This is an effort to get this agency under control. They have not faithfully executed the law. They have not faithfully used the resources that they have been entrusted with, and we in the House are determined to get this right and to rein them in.”

So if Representative Roskam is right, the IRS by getting less funding will have no choice to run its operations more efficiently.

Will the IRS cuts paralyze the agency and allow taxpayers to slip through the system?

Now if you are still thinking that this latest move by Congress will paralyze the IRS, let’s put the amount of cuts in perspective.

Since fiscal year 2010, Congress has cut IRS funding by almost $1.2 billion, or 10%, forcing the agency to reduce its full-time, permanent workforce by 13,000 employees. This occurred even as the country added approximately 7 million new taxpayers. 

But let’s go back to 1995 – that’s almost 20 years ago. In 1995, the IRS had 114,064 workers to administer tax laws and process 205 million tax returns. By the end of 2013, staffing had fallen to 83,613 to administer a more complicated tax code and process 242 million tax returns and other forms. When I run these numbers I get 26% fewer IRS employees processing 20% more tax returns. Contrary to what Representative Roskam thinks, these statistics show the IRS doing an extraordinary job keep up with the functions it is charged with.

Additionally, the IRS may be one of the smarter investments for Congress. Treasury Secretary Jack Lew said last year that the IRS yields $6 in collections for every $1 it receives for tax enforcement. The IRS is already working with a smaller budget than it had five years ago — $11.3 billion in 2014 compared to $11.5 billion in 2009.

So what’s another $341 million cut in funding?

So in view of these numbers, what will another $341 million in cuts do to the IRS in 2015?

The IRS still has $10.95 billion to work with. This will bring the agency’s budget below the sequester level and below the level that was in place in fiscal year 2008. This funding level was still sufficient even then for the IRS to perform its core duties, including taxpayer services and the proper collection of funds. Taxpayers back in 2008 were still being audited, investigated, prosecuted, and levied. The IRS even started planning for its next major initiative to pursue taxpayers with undisclosed foreign bank accounts which over the last few years has resulted in the IRS collecting billions. 2015 should be no different. But don’t get me wrong, the IRS will still need to streamline and make better use of its budget as it now has less.

So how can the IRS do more for less?

Remember, the IRS is already yielding $6 in collections for every $1 it receives for tax enforcement. I know a lot of business people who would not mind having that rate of return.

1. More tax returns being electronically filed and electronically processed. About 150 million returns were filed in 2014 of which more than 96% were electronically filed. The IRS issued more than 61.6 million refunds for approximately $179.8 billion. The average dollar refund is about $3,000, and the IRS has directly deposited more than 52.7 million refunds to taxpayers thus far, a 0.7 percent increase over the same period last year.

2. Increase access to tax information through the internet. Each filing season, the IRS provides services to taxpayers to help them fulfill their tax obligations. Notably, the IRS has been working to meet taxpayers’ increasing demand for self-service and electronic service options. The IRS continues to improve and expand the amount of tax information and web services available to taxpayers through its website, IRS.gov. In 2013, taxpayers viewed IRS.gov web pages more than 450 million times and used IRS.gov to get forms and publications, find answers to their tax questions, and check the status of their refunds. Taxpayers used the “Where’s My Refund?” electronic tracking tool 132 million times in 2012 and 200.5 million times in 2013. For the 2014 filing season the IRS has several new digital applications that will further improve taxpayers’ interaction with the IRS.

The goal of the IRS is to get taxpayers to use a digital platform to get information and questions answered versus on having to rely on personnel staffed at calling centers to handle telephone inquiries.

As a result of these and other improvements to IRS.gov, and because there were no significant tax law changes enacted in 2013, the volume of phone calls to IRS’ toll-free lines is actually down somewhat this filing season. And with lower call volume – more savings to the IRS.

3. Going Paperless. The IRS generated $60 million in annual printing and postage savings by eliminating the printing and mailing of selected tax packages and publications, and by transitioning to paperless employee pay statements.

4. Reducing Office Space. In an effort to promote more efficient use of the Federal government’s real estate assets and generate savings, in 2012, the IRS announced a sweeping office space and rent reduction initiative that over two years is projected to close 43 smaller IRS offices and consolidate space in many larger facilities. The IRS reports that these measures will reduce annual rent costs by more than $40 million and reduce total IRS office space by more than 1.3 million square feet by the end of 2014.

The changes to go paperless and reduce office space by the IRS save the IRS $300 million annually. Remember the latest cut from Congress is $341 million. Maybe Congress did get this right?
Remember, the IRS is already yielding $6 in collections for every $1 it receives for tax enforcement. And the IRS is thinking of ways it can increase this leverage. So you may ask what is this IRS doing in this regard?
5. IRS Working With Other Federal Agencies. For example, the IRS criminal and civil enforcement organizations work with the U.S. Department of Justice Tax Division to shut down abusive tax schemes as quickly as possible in an effort to protect taxpayers from potential additional financial harm. Parallel civil and criminal investigations are an effective and aggressive IRS approach that halts these schemes quickly and permanently.  A civil injunction against the promoter stops the scheme and prevents additional ‘clients’ from investing.  In addition, IRS Criminal Investigation Division shares abusive tax scheme investor lists with the civil operating divisions to ensure investor tax returns are considered for audit.
Another example is the U.S. Department of Justice, Department of Treasury and Homeland Security entering into a joint effort to enforce the “National Money Laundering Strategy” to continue the nation’s efforts to dismantle corrupt money laundering schemes.
Not only does this spirit of cooperation exist within our borders but also extends into foreign countries.

6. IRS Working With Foreign Tax Agencies. International tax compliance is a top priority of the IRS. The IRS is vigorously pursuing tax cheats around the world, no matter how remote or secret the location. The IRS Criminal Investigation Division which is the law enforcement arm of the IRS, has an important role in the IRS’ service-wide international tax compliance efforts. The IRS Criminal Investigation Division is developing new ways to share information and foster cooperation among other U.S. government agencies and our foreign government counterparts. FATCA (a law passed by Congress which we will talk about later in the show) is playing a big part. Also, to enhance its international efforts the IRS Criminal Investigation Division has expanded its overseas presence by assigning attachés to key foreign embassies and consulates. Attachés establish strong ties with our foreign government and law enforcement partners working with them to gather and share information about possible financial crimes. The Criminal Investigation Division also actively participates in a number of international financial task force groups to investigate significant areas of noncompliance and criminal activity. These groups include INTERPOL, the Terrorist Finance Working Group (TFWG), the Financial Action Task Force (FATF), and the Organization for Economic Co-operation and Development (OECD).

Well it’s time for a break but stay tuned because if you live in Los Angeles we will be telling you the steps the Federal government is taking that could land you in an IRS audit or criminal tax 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

Target Los Angeles, California – Think You Can Hide From The IRS? 

Jeff says, If you live in Los Angeles listen carefully for what we have to say about the steps the Federal government is taking that could land you in an IRS audit or criminal tax investigation.

We have learned that the U.S. Attorney’s Office in Los Angeles is taking on a pilot project to pin-point their investigations to the wealthiest zip codes in the L.A. metro area. The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas. The government is looking for non-filers, persons engaged in on-line and virtual currency transactions and businesses cheating or delinquent on employment taxes.

Non-Filers

Jeff asks, Amy, what can you tell us about the government’s efforts to target non-filers?

Amy replies, When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers under the Automated Substitute For Return Program, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

Jeff asks, what does the government do before contacting a non-filer?

Amy replies, Before contacting a non-filer, the IRS will often attempt to identify the non-filer’s occupation, location of bank/savings accounts, sources of income, age, current address, last file return, adjusted gross income of last filed return, taxes paid on last filed return – amounts and methods of payment (withholding, estimated tax, pre-payments), number of years delinquent, and the non-filer’s standard of living.  They will search public records for evidence of additional unreported income, tax assessor and real estate records for assets held by the non-filer, and records of professional associations and business license bureaus for information on businesses being operated by the non-filer. They will also search sales tax returns and the state records to disclose corporate charter information including principals of any businesses that have failed to file returns. They will contact the last known employer to determine if the non-filer is still employed and the specific occupation of the non-filer.  

Jeff says, so essentially the IRS does all its due diligence first and then slaps a huge tax bill on the taxpayer.

Amy, that’s right but it could be even worse.

Jeff replies, how so?

Amy says, It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources.  In the most egregious cases or if the Special Agent discovers subsequent acts of tax evasion (false statements, refusal to make records available, etc.), criminal prosecution is recommended to the United States Attorney’s office.

Jeff says, that does make your tax problem a lot worse.

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.

On-line And Virtual Currency Transactions

Jeff asks, Amy tell us about the government’s interest in On-line And Virtual Currency Transactions.

Amy says, The increased use of on-line transactions with such services that include but are no limited to eBay and Craigslist and the increased use of virtual currencies such as Bitcoins have also raised interest by the Department Of Justice.

Jeff asks, why is that the case?

Amy says, Many people think of online auction sites, such as eBay and Craigslist, as virtual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knickknacks inherited from relatives. But if you’re a frequent or big-time seller, the government might consider your proceeds to be income and could come after you for taxes.

Jeff asks, how is the IRS able to track these sales?

Amy says, The tax law requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. With this information the IRS can now track your sales and make sure they are being reported on your individual income tax return.

Jeff asks, by using virtual currency such a Bitcoin, can taxpayers avoid IRS scrutiny?

Amy says, Before I answer that let me first discuss what Bitcoins are. Bitcoins, a widely used virtual currency, are an alternative to money online. Unlike regular money, Bitcoins are not backed by any government or company. The currency is circulated without intermediaries such as banks.

Jeff says, so the government believes that taxpayers are able to avoid reporting income using this currency?

Amy replies, it appears so. The IRS Criminal Investigation Division has committed a team of IRS Special Agents to master Bitcoin and other virtual currencies. The IRS knows that to use Bitcoins, one needs a virtual wallet along with private keys and public addresses. Unknown to many Bitcoin users is the fact that every Bitcoin transaction is included in a ledger called a block chain.

Jeff asks, what is the significance that every Bitcoin transaction is included in a block chain?

Amy replies, The IRS is simply accessing the block chain to review all Bitcoin transactions.  From that point, the IRS works its way back to the public address that was used in the Bitcoin transaction. While the public address itself does not identify the user, the IRS has been very clever in associating the public address with the identity of the Bitcoin user. Thus, Bitcoin and other cyber or crypto currencies do not provide the level of complete anonymity many have ascribed to crypto currencies.

Jeff says, the IRS recognizes that large amounts of virtual currency can change hands anywhere in the world instantaneously so the IRS is now focusing on the ability and likelihood that some users are committing tax evasion and tax fraud with virtual currencies.

Don’t let yourself become a target. 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.

Employment Taxes

Jeff says, The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government. That makes any failure to pay—or even late payment—much worse. 

Amy says, That’s true Jeff. In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

Jeff says, The practice the government is going after is sometimes called “pyramiding.” It occurs where a business makes minimal payments of its tax debts, and that attempts by the IRS to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a business and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

Jeff asks, Amy what can the IRS do?

Amy says, The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person.” The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

Jeff says, keep in mind that if the IRS is going after individuals, the IRS will still try to collect from the business that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

If you would like to checkout the ranking of LA zip codes that are being targeted by the Federal government, click here.

Did you receive a Letter from your foreign bank, Urging You To Report Your Account To The U.S. Government Under FATCA? If so stay tuned because after the break we are going to tell you what you need to do.

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.

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.

Did You Receive A Letter From Your Foreign Bank, Urging You To Report Your Account To The U.S. Government Under FATCA?

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

Jeff says, Amy, please tell our listeners what happened starting this past July.

Amy says, 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. Sometimes foreign banks request that the account holder submit an IRS Form W-9 or W-8BEN, which is generally required to be completed by U.S. account holders for tax reporting purposes.

Jeff asks, What is FATCA?

Amy says, 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”).

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.

Jeff asks, what are the consequences to the FFI if they fail to comply?

Amy replies, If an FFI refuses to do so or otherwise does not satisfy these requirements (and is not otherwise exempt), U.S.-source payments made to the FFI may be subject to withholding under FATCA at a rate of 30%.

Jeff replies, so essentially the cost to the bank of noncompliance is to be subject to a 30% haircut on its U.S. investments.

FATCA Implementation and FATCA Letter

Jeff asks, so going back to that July 1, 2014 date, how does that affect U.S. taxpayers?

Amy says, 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. Many FFIs are making a full effort to comply with FATCA. As part of this effort, FFIs around the world have been sending out “FATCA letters”. A FATCA letter is basically a letter from your bank or other financial institution which introduces FATCA to their customers and asks them to provide answers to a various set of questions aiming to find out information specific to FATCA compliance. Often, instead of asking all of these questions directly a FATCA letter would simply list out a series of forms that contain these questions such as IRS Forms W-9 and W-8BEN.

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.

Jeff asks, so what is the impact if a U.S. taxpayer receives a FATCA letter?

Impact of FATCA Letter on US Taxpayers with Undisclosed Accounts

Amy says, A FATCA letter may have a very profound impact on a U.S. taxpayer with foreign accounts which were not properly disclosed to the IRS (usually on the FBAR and/or Form 8938).

First, a FATCA letter puts the taxpayer on notice that he is required to report his foreign financial accounts and foreign income to the IRS. This may have a big impact on whether the taxpayer can later certify his non-willfulness for the purposes of the Streamline Filing Compliance Procedures.

Second, a FATCA letter starts the clock for the taxpayer to beat the bank’s disclosure of his account to the IRS. If the taxpayer intends to participate in the IRS Offshore Voluntary Disclosure Program (“OVDP”), it is imperative that he files his Pre-Clearance Request before the IRS finds out about his non-compliance with respect to his foreign accounts. If the latter occurs, the taxpayer may not be able to enter the OVDP.

In essence, receiving a FATCA letter forces the taxpayer to quickly choose the path of his voluntary disclosure under significant time pressure.

Potential Life-Altering Consequences

Jeff says, These letters are not something to balk at. Generally, receiving this letter is an indication that your foreign bank is preparing to release your information to the IRS. Once that is done, the government will look to see if your account ever had in excess of a $10,000 balance. If it did and you did not report it on an FBAR or on your federal income taxes, the case will likely be referred to the IRS Criminal Investigation Division. At that point, the government will begin to build a case against you.

Amy says, A U.S. citizen can be sentenced up to five years in prison for each year that they willfully failed to file an FBAR and can be penalized up to 50% of the balance of the foreign account for each year that they willfully failed to report (up to 250% of the account’s balance). The civil penalties alone can easily reach double the amount of the balance of the account in question.

Why You Should Do Something About it Before it’s Too Late

Jeff says, If you have received this type of letter from your foreign bank, it’s not 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.

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?

I am a U.S. citizen and have resided in Germany for years and have not filed U.S. Returns. What can I do?

U.S. persons including U.S. citizens or green card holders residing in Germany or any other foreign country who are not up to date with their U.S. filing obligations should consider the available amnesty programs in an effort to become tax-compliant. The updated streamlined procedures announced on June 18, 2014, now known as the Streamlined Foreign Offshore Program, require the filing of 3 years of past-due returns (with required disclosures and international information returns) plus 6 years of FBARs. The advantage of utilizing Streamlined Foreign Offshore Program is that civil penalties including tax related penalties or information return penalties will be waived. The only amounts due with the submission is the back taxes and interest for those last three years of amended income tax returns.

I am a U.S. citizen and have resided in Canada for years and have not filed U.S. Returns. What could happen if I do nothing?

The sharing of financial account information under FACTA between Canada and the U.S. becomes effective July 1, 2015 as Canadian financial institutions began their due diligence procedures in 2014. The financial information is provided to Canadian Revenue Authority who will then transmit such information to the IRS. IRS will then compare this information to what was reported on the U.S. income tax returns that were filed. Any mismatch will trigger an IRS examination.

If the IRS has initiated a civil examination of a taxpayer’s returns for any year regardless if the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use any of the available amnesty programs.

Civil penalties including those that are tax related (failure to file/pay/accuracy related), information return or FBAR related and potential criminal penalties could be significant if the normal assessment procedures applied.

Does giving up U.S. citizenship or my green card get me out of my U.S. filing obligations?

Absolutely not. Those who wish to wish to explore expatriation by giving up U.S. citizenship or their green card will have to timely file IRS Form 8854 and pay an exit tax that roughly equals 15% of the value of his or her assets.

I am a U.S. citizen and reside in Mexico. I have filed U.S. returns annually, however I may have omitted some income or computed income incorrectly and omitted one or more international information returns. Can I rectify the issues with the streamlined program?

The Streamlined Foreign Offshore Procedure is extended to amended returns for the 3 year period. The amended return feature is important as filing omissions such as the failure to include items in income or file various international information returns can come now under Streamlined Foreign Offshore Procedure without having to demonstrate a reasonable cause defense. The Streamlined Foreign Offshore Procedure is also extended to those who previously filed as a “quiet disclosure” outside of any amnesty program.

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 and Happy holidays!

Topics Covered:

1. IRS Agent Seduced Me, Then Didn’t Help Me With Audit, Oregon Man Claims.

2. Your worst nightmare: An IRS audit. What the tax man looks for.

3. Questions from our listeners:

a. I received an IRS Notice informing you that your return has been selected for examination. What should I do?

b. Why should I be concerned if an audit is poorly conducted?

c. How is using a tax attorney beneficial during an audit?

d. What does your firm do for an audit representation?

e. Why would I not want my original tax preparer to represent me in my appeal (or in my audit)?

f. How many years worth of returns are at risk during an audit?

g. What will happen if I do not respond to the taxing authorities audit notice?

h. What is the worst that can happen if I choose to represent myself in an audit?

4. Know What The IRS Is Looking To Attack By The Type Of Audit Being Conducted.

____________________________________________________________

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 today will be my associate attorney Amy Spivey who will be calling in later in today’s show.

IRS Agent Seduced Me, Then Didn’t Help Me With Audit, Oregon Man Claims

Vincent Burroughs who lives in Oregon was selected by the IRS for an audit of his tax returns. Little did he know that the IRS was going to clean him out in more ways than just his bank account.

Let me explain – maintaining a friendly but professional demeanor can be important to an audit or tax dispute. But having sex with a government agent for a better audit result – well not such a good idea. Yet a lawsuit involving an allegedly alluring—and demanding—female IRS agent suggests that sometimes facts and figures can become overwhelming. If you believe the plaintiff, Mr. Burroughs, passion it seems can overtake a tax audit.

Unlikely? I agree. Preposterous? Perhaps. But Mr. Burroughs filed a lawsuit against the IRS alleging that IRS Agent Dora Abrahamson threatened him with penalties in his tax audit if he did not – let’s say, come across. And in this lawsuit Mr. Burroughs was seeking punitive damages.

For a long time Mr. Burroughs said, he was making good money as a contractor. But when the economy hit the skids, his business dried up, quashing his hopes of becoming a full-time motorcycle racer. He got behind on his taxes — by about $20,000, he figured.

Then in August 2011, he was selected for an audit by the IRS. IRS Agent Dora Abrahamson was assigned to the audit. She allegedly told Burroughs that “she knew who he was, and that it was lucky for him that this was the case, and that they should meet”. Ms. Abrahamson allegedly flirted with him over the telephone and via text messages offering him massages and sent him a photo of herself in her underwear – not exactly IRS-approved business attire – and in a suggestive pose.

Mr. Burroughs maintains that he initially ignored her advances until September 2011. That’s when Ms. Abrahamson arrived at his home for an arranged audit meeting. Only she wasn’t dressed much like an IRS agent. Mr. Burroughs said she showed up dressed provocatively and proceeded to proposition him threatening a 40% tax audit penalty if she didn’t get what she wanted.

The interview with ABC News

Mr. Burroughs was interviewed by ABC News.

Like many other taxpayers, Mr. Burroughs said that when he found out he was being audited “he started shaking immediately. His heart rate went up. He was looking to cooperate with the IRS as much as he could.”

But IRS agent Ms. Abramson assured him that she was most eager to help out.

Mr. Burroughs stated, “She was sending me texts. Some of them made me feel like, I am lucky that she has got my audit, ’cause she is gonna help me. Then, some of them made me feel like, I think this girl wants something else.”

A week or so after the audit began, Mr. Burroughs said, he hadn’t gathered the papers he needed. He said Ms. Abrahamson asked about stopping by to give him a hand. He agreed.

So in September 2011, at 9:00 p.m. on a warm night in Eugene, Oregon, Mr. Burroughs said he opened his front door to IRS agent Dora Abrahamson. It was the first time the two ever met.

Mr. Burroughs said in the interview with ABC News that “she said she was going to do my paperwork. She came up the stairs, knocked on the door and I opened the door”.

That’s when the encounter allegedly occurred.

Mr. Burroughs described in greater detail what happened –“She just pushed me back, and I kind of went back, and I landed like that, and she immediately came over, got on top of me, started kissing on me. … [T]hen she leaned up and started tearing my shirt off.”

Mr. Burroughs said they then went into his bedroom.

That was Mr. Burroughs’ interview with ABC News. But let’s get back to the story and what happened after that encounter at Mr. Burroughs’ home.

Mr. Burroughs said that he received a call from Ms. Abrahamson informing him that she was stepping down from his audit due to a “conflict of interest”. A new IRS agent was assigned who came up with a report that Mr. Burroughs owed not the $20,000 he figured – but that Mr. Burroughs owed around $69,000!

Mr. Burroughs was not happy. He said, “somebody has to be accountable for what the IRS does, because they are unaccountable. They run with no leash on”.

Fifteen months go by . . .

Now not that the story isn’t already bizarre enough, but also raising eyebrows is the lack of formal protest. In the fifteen months that transpired after the encounter, Mr. Burroughs doesn’t seem to have made any form of complaint to the IRS or law enforcement in spite of his claims to have suffered much over the incident. But all that changed when, seemingly out of nowhere, in January 2013 he filed suit in the U.S. District of Oregon, Eugene Division (Burroughs v. Abrahamson et al (6:13-cv-00141-TC)). 

In his lawsuit, he says he suffered “anguish, humiliation, mental distress, depression, lost income, and loss of trust in governmental authority.” At the time of the encounter with Ms. Abrahamson, he was in an “exclusive relationship with another woman,” he said, and because of the demanding IRS agent, that relationship also suffered.

He calls Abrahamson’s behavior “persistent sexual harassment” and says, among other things, that she was negligent in “permitting her carnal desires to overcome her judgment that it was inappropriate to pursue a sexual relationship with a taxpayer she was auditing.” Her advances, the complaint alleged, “were an excessive intrusion on his person.”

In the lawsuit he was seeking unspecified punitive damages.  The lawsuit claimed that Ms. Abrahamson’s conduct caused the plaintiff distress and a rift in his relationship with a “significant other”.

The lawsuit also alleges that the government is liable for damages because IRS officials provided inadequate supervision. I guess Mr. Burroughs was expecting a ménage à trois?

Well if you are the subject of an IRS audit or are looking to avoid an IRS audit, you need to stay tuned.

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

Your worst nightmare: An IRS audit

You business is growing and you are prospering. Business is good. Life is good. Then the unbelievable happens, which turns your world upside down and pushes you into pure panic.

This panic mode is instantly brought on by receipt of an IRS audit letter.

Most of us don’t fear something exploding or catching on fire as much as we fear an IRS audit.

Of course, the best way to survive a tax audit and even to come out of it successfully is not to panic, but to prepare.

Amy, what are your thoughts on this?

Take it seriously

Even though IRS audits are fairly routine events, they should be taken with the utmost of seriousness.

In the event you receive an audit letter, you should immediately spring into action to ready yourself for the audit.

The IRS usually sets the time and place for the audit. If you try to put it off, any penalties and interest will just become that much bigger.

If you choose to represent yourself, you should amend your schedule to comply with their date. Think of not showing up for an audit the same as not showing up for trial in a courtroom. It is that serious.

Jeff, says that’s a good way of approaching this.

Now Amy, is there anything worse you could get from the IRS than a standard or routine IRS audit letter?

The really, really bad news

Amy replies, you can be investigated by the IRS through a civil tax audit (which is very serious) or through a criminal investigation (which is even more serious).

The criminal investigation arm of the IRS can come bearing badges and guns, as it is an investigation of fraud against the United States government.

In any such investigation, the IRS can (and probably will) obtain your bank records and other financial records, both business and personal.

Virtually all small businesses involve close ownership with profits or losses going ultimately to the business owner. This is why the IRS looks closely at your personal accounts.

Any instance of depositing unreported income in a bank account will probably show-up in an IRS audit.

Jeff asks, is there any difference in the audit selection process of small businesses based on who prepares the tax returns?

Amy replies, Small businesses which prepare their own tax returns (as opposed to going through a tax professional such as a CPA) are more likely to be audited.

Jeff asks, so why does the IRS exercise extra scrutiny over small businesses?

Why me?

Amy replies, The IRS especially scrutinizes the self-employed because the agency claims that most tax cheating is done in small businesses.

There is some logic to this because, in a self-employed business, there are many more opportunities to blur the difference between business expenses and personal expenses.

Also, many self-employed people put the idea of proper record-keeping and the cost of hiring accounting and tax professionals at the bottom of their priority list.

It is not uncommon for business owners to concentrate more on the operational side of the business than to properly accounting for the true business expenses and deductions.

Jeff states, Yes it is a statistical fact: Self-employed individuals are much more likely to get audited than regular employees.

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 asks, what does an IRS auditor look for when he or she audits you and your business?

What the tax man looks for

A tax auditor is looking for certain things when they audit you and your business.

The IRS training manuals note that the auditors are examining you and not just your business tax return.

Your lifestyle may be checked against your reported income to see if there is a discrepancy which shows skimming, diversion of funds or deception.

That mansion with the truckmount van parked out front may send up the wrong “economic reality” flag.

Jeff says, well I know a deduction aggressively examined by IRS is Travel and entertainment deductions. What can you tell us about that?

Amy replies, Travel and entertainment deductions in a business are usually suspect as some people try to deduct personal entertainment and meal “business” expenses.

You must be able to clearly explain the business relationship in a credible fashion.

Taking your friends out to the ballpark or taking the family on a vacation to that industry conference may not quite pass the litmus test of an audit.

Writing off your legitimate business entertainment expenses requires detailed explanation of the reason for the expense, as well as a receipt.

Jeff says, I know that for most business owners their business revolves around scheduling on their calendar. How does the IRS look at this?

Amy replies, Your calendars will undoubtedly be scrutinized to make sure there are no glaring gaps between possible work, vehicle or equipment usage and the income reported.

As an example: If you are claiming 100% business vehicle usage but your calendars do not confirm the times and locations of service stops, you may be open to an analysis of possible personal use of the vehicle.

Entries in a business diary or calendar help to justify an expense to an auditor as long as it appears to be reasonable.

Jeff says, I know that most business owners pay for business expenses using a credit card. How does the IRS look at this?

Amy replies, Business credit cards are also highly scrutinized as they have a high potential for misuse (such as use for a personal vacation or personal expenses).

Keep these only for legitimate business expenditures (places where company checks won’t do).

Too many times a small business owner says that they will “reimburse the business later” for that personal expense put on the business card.

Jeff, says well that routine just opens you up for closer inspection.

Professional help

Jeff says, if you have a tax professional representing you in an IRS audit, your representative may recommend that you not attend the actual audit conference. A tax professional knows how to handle the questions much better than you do and directly address the issues set forth in the audit letter.

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 answer your top questions on IRS audits.

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.

Top Questions On IRS Audits

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.

So Amy what questions have you pulled regarding IRS audits?

Amy to ask question and Jeff to respond.

1. I received an IRS Notice informing you that your return has been selected for examination. What should I do?

The fact that your return has been selected for examination, it does not mean or imply that that you have made an error or done something dishonest. Tax returns are selected for audit in a variety of ways including random sampling. The most important thing is not to panic and instead to reach out to a tax attorney for representation. Provide us with your audit letter and the subject tax returns so we may review your situation.

2. Why should I be concerned if an audit is poorly conducted?

A poorly conducted audit can result in large additional tax adjustments and penalties and interest up to as much as 100% of the adjustment. Most local tax preparers are not equipped to represent you in an audit before the IRS. Because we focus on tax representation, we can make sure that your audit is efficiently and effectively handled and attempt to pursue an audit result with little or no additional tax assessments. We can handle everything from simply submitting missing tax documents to representing you in front of an IRS examiner. Let us do the work for you.

3. How is using a tax attorney beneficial during an audit?

Using a tax attorney to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax attorney can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision.

4. What does your firm do for an audit representation?

Upon filing a Power Of Attorney Form with the IRS or State Tax Agency, we become the primary contact for the tax agency. You will still receive copies of all correspondence sent out by the tax agencies but you will not be receiving any calls or visits from the agent(s). In connection with the audit we will research any issues that are likely to come up, respond to the agent’s arguments by coming up with answers on your behalf, meet with the agent in person if required on your behalf, negotiate and settle taxes owed if you end up owing more money during the audit and cannot pay, and handle any unforeseen issues that may arise during the audit.

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.

5. Why would I not want my original tax preparer to represent me in my appeal (or in my audit)?

One of the most effective defenses to the imposition of penalties and the associated interest on the penalties available to Tax Counsel, is to argue that the taxpayer relied on a tax professional in the preparation of the return at issue. This creates a potential conflict of interest between you and your original tax preparer where your interest is to protect yourself financially and your original tax preparer’s motivation may be to protect his reputation with the IRS. It therefore becomes highly unlikely that even where appropriate to do so, your original tax preparer will throw himself under the bus by admitting his errors in preparing the returns at issue for your financial benefit to his possible detriment with the IRS including the possibility of preparer penalties and detriment to his professional reputation with the IRS. No such conflict exists where you engage Tax Counsel that did not prepare the returns at issue to prosecute your Appeal.

6. How many years worth of returns are at risk during an audit?

Ordinarily, the IRS has three years from a tax return’s due date or filing date, whichever is later. However, this limitation does not apply when there is an allegation of fraud, when no return was filed, or when the taxpayer is charged with a substantial omission or concealment of items of gross income. Because an audit conducted for one tax year can trigger other tax years and can result in scrutiny of other tax deductions not originally stated in the audit letter, you should take this matter seriously and engage an experienced tax attorney to represent you.

7. What will happen if I do not respond to the taxing authorities audit notice?

Because the taxpayer has the burden of proof to prove claimed deductions, failure to respond to an audit notice usually results in the denial of these deductions leading to the charge of additional taxes along with interest and penalties. If left unchecked, an ignored audit notice and failure to pursue any appeal will result in a final assessment. Once an assessment becomes final, the IRS will start the collection process action that can eventually lead to wage garnishments, liens, levies and seizure of property.

8. What is the worst that can happen if I choose to represent myself in an audit?

Tax agents are aggressive by nature and left unchecked could potentially reach a determination that is unreasonable and inconsistent with the applicable facts and circumstances of your case or their determination may be based on erroneous applications of law. An experienced tax attorney will be able counter a tax agent’s aggressive nature, deal with the complex technical issues that arise during an audit and be an advocate on your behalf as to any factual or legal issues that arise during the examination.

Using a tax attorney to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax attorney can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision.

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.

We have more on what you need to know about IRS audits so stay tuned. 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.

Know What The IRS Is Looking To Attack By The Type Of Audit Being Conducted

The IRS randomly selects tax returns for audit each year. Depending on what deductions you’ve taken and other characteristics of your tax return, your tax return can have a higher probability of being selected for an audit.

Here’s what you need to know about IRS tax audits. There are three types of audits:

Jeff to announce type of audit and Amy to explain.

Correspondence Audit:

This is the least severe type of audit. It involves the IRS sending a letter in the mail requesting more information about part of a tax return. For instance, the IRS may have questions regarding charitable deductions and request you send in receipts to substantiate your deduction. If you have the receipts or information it’s generally not an issue. If your tax return is legitimate and you have the data to back up any claims on your return, you may be able to handle the situation on your own.

Office Audit:

If the IRS has more questions about your return, then you’ll get a letter in the mail inviting you into an IRS office for the audit. The office audit is more serious, so you should always have a tax representation professional come with you or turn over the audit representation to him. A tax representation professional can gather information in advance of the meeting and make sure it is complete so that the office audit can be wrapped up with the IRS as quickly as possible. If the IRS still needs additional records, your representative can secure additional time to supply the missing information.

Field Audit:

This is the most serious type of audit and involves the IRS agent visiting you at your home or your business. The reason the field audit is more serious is the IRS agent will ask to see other things. The agent does not want to limit the audit to particular items. -While there are much fewer field audits than office or correspondence audits, I wouldn’t let any client go into a field audit without representation. It’s the most serious level of audit. If they are coming out to you, they are looking for something.

If any part of your return worries you and the IRS is breathing down your neck, you should bring in a tax representation professional to help curb any worries or fines. Taxpayers have a tendency because they have no experience dealing with the IRS to say way too much, give away too much and admit too much. You don’t want to give the agent information the agent has not asked for.

Jeff says, Using a tax law firm to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax law firm can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision.

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!