Why Is It Better To Hire A Tax Attorney Instead Of Your Tax Preparer For Your OVDI Submission

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A common question we hear a lot: 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 OVDI or do I hire you?

CPA’s prepare tax returns and there are a lot of CPA’s and other tax professionals who a great in preparing tax returns.

A taxpayer will provide them with information and tax documents and a return will be generated for filing with the IRS. This process I refer to as “compliance”.

But a tax attorney will focus on “representation” – meaning that the cases taken on by the attorney are when the IRS is questioning a return or making other civil or even criminal inquiries of a taxpayer.

A tax attorney being familiar with the “representation” aspect, knows who to speak to at IRS and how to best present your case. A tax attorney can also devote full attention to your attention at any time since the tax attorney’s workload is not jammed like the CPA’s workload during tax season who is busy with tax return preparation and more focused over meeting filing deadlines and therefore cannot provide the needed attention to your case.

Speaking of civil and criminal inquiries, a taxpayer who engages a tax attorney also gets the benefit of attorney-client privilege. This benefit allows that taxpayer to freely discuss with his attorney any matters or issues without the threat of these communications being disclosed to the government or anyone else. You do not get this level of privilege when dealing with non-attorneys.

But I would have to say that the biggest factor is that with the tax attorney there is no conflict of interest. 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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

The Story Of Bradley Charles Birkenfeld And How Because Of His Actions No Longer Can Foreign Accounts Be A Secret.

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If you have undisclosed foreign accounts you have an important decision to make. That decision being – when do you start disclosing your foreign bank accounts and foreign income and how should you disclose?

Many people thought that forever they can keep their foreign accounts a secret – not just from their creditors and spouses but also from the IRS.

Well thanks to a man called Bradley Charles Birkenfeld, no longer can these foreign accounts be a secret.

Birkenfeld, an American citizen who grew up in Boston and was educated at the American Graduate School of Business in Switzerland, was an up-and-coming banker rising through the ranks of Switzerland’s greatest bank, UBS. Working at UBS in Geneva, Switzerland, as a private banker offering wealth management services, his principal job responsibility over his 5-year tenure at UBS was to solicit wealthy Americans to move their assets to the bank, enabling them to hide their funds due to Switzerland’s strict banking secrecy laws and thus avoid paying U.S. taxes.

Birkenfeld was living the high life with UBS going to UBS sponsored events like art shows and yacht races in the United States to attract wealthy people as potential clients. The events gave its Switzerland-based bankers, who essentially behaved as salesmen offering the product of a Swiss tax haven, a chance to network with the rich in order to cement deals, which was illegal under U.S. banking laws.

One of Birkenfeld’s wealthiest clients was billionaire California real estate developer, Igor Olenicoff. Birkenfeld arranged for him to transfer $200 million to UBS and for Olenicoff to have these funds accessible via credit cards supplied to him by UBS. Birkenfeld then introduced Olenicoff to other bankers at UBS who helped him create off-shore companies to hid his assets and evade taxes.

Olenicoff subsequently pleaded guilty to tax evasion and paid a $52 million fine, but avoided a jail sentence. Apparently the U.S. Department Of Justice (DOJ) had their sites on a bigger target – that being Birkenfeld.

In 2005 Birkenfeld resigned from UBS. That is when he approached DOJ and informed the DOJ of UBS’ business practices.

At the same time, Birkenfeld wanted to take advantage of a new federal whistleblower law, the Tax Relief and Health Care Act of 2006, that could pay him up to 30% of any tax revenue recouped by the IRS as a result of Birkenfeld’s information.

Birkenfeld also wanted immunity from prosecution for his part in UBS’s transactions.

Essentially Birkenfeld wanted to have his cake and eat it too!

When Birkenfeld saw that the DOJ was not meeting his demands, he contacted the Securities and Exchange Commission (SEC), the IRS, and the U.S. Senate.

You would think with all of this information Birkenfeld would receive praise and gratitude by the Federal government. Instead, in May 2008, Birkenfeld was arrested in Boston when he deplaned from Switzerland. He was arraigned at the U.S. District Court, Southern District of Florida. The DOJ prosecutor in the case justified the prosecution of Birkenfeld by claiming he failed to be forthcoming about his clients, specifically, Igor Olenicoff. Eventually Birkenfeld agreed to plead guilty to a single count of conspiracy to defraud the United States. Birkenfeld was sentenced by a U.S. District Judge to 40 months in prison and paying a $30,000 fine.

Since Birkenfeld blew the whistle on the UBS tax evasion scandal, in 2007 UBS avoided prosecution by agreeing to pay a fine of $780 million to the U.S. government.

Additionally, UBS paid $200 million for settlement with the SEC to avoid a trial on UBS’ alleged conduct that the company facilitated the ability of certain U.S. clients to maintain undisclosed accounts in Switzerland and other foreign countries, which enabled those clients to avoid paying taxes related to the assets in those accounts.

Finally to avoid additional fines, UBS agreed to provide the names of all Americans who had offshore accounts with UBS.

In the wake of the UBS scandal, the erosion of Switzerland’s fabled bank secrecy culminated when Switzerland officially signed on October 15, 2013 a treaty called the Convention on Mutual Administrative Assistance in Tax Matters. By Switzerland signing the treaty, they no longer could be a tax haven for offshore assets. The U.S. had won its war against Switzerland!

This then set the stage for the IRS’ worldwide campaign to break into foreign financial institutions and uncover U.S. accountholders.

So what ended up becoming of Birkenfeld? Birkenfeld was able to get his sentence commuted and ended up serving about 32 months. In September 2012, the IRS Whistleblower Office awarded Birkenfeld $104 million as a whistleblower. After serving a 32 month jail sentence – that equates to daily compensation of about $105,000.00.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

The IRS Knows Where U.S. Offshore Tax Evaders Live And Bank!

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The U.S. Government Accountability Office (GAO) has just released its report: “IRS’s Offshore Voluntary Disclosure Program (OVDP): 2009 Participation by State and Location of Foreign Bank Accounts”. In this report the GAO studied the make-up of all 10,533 applicants to the IRS 2009 Offshore Voluntary Disclosure Program which was open for enrollment during eight months in 2009.

California had the most participants in the 2009 OVDP (2,524 or 24%) followed by New York (1,844 or 18%) and then Florida (1,022 or 10%). Combined these three states make up 52% of all 2009 OVDP participants.

As for where these accounts are located, the top six countries are:

Country

Number Of Applicants

Percentage

Switzerland

5,427

42%

United Kingdom

1,058

8%

Canada

556

4%

France

528

4%

Israel

510

4%

Germany

484

4%

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Targets Americans Living In Israel!

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Americans with Israeli bank or other financial accounts could face a tough tax season in 2014 if they do not come forward and disclose their assets to the IRS.  Recently, Israeli banks have come under increased scrutiny by the IRS in regards to disclosing the accounts of their American clients.  In particular, three Israeli banks- Bank Hapoalim, Bank Leumi and Mizrahi Tefahot- are under investigation by the Department of Justice.  To avoid prosecution, many other Israeli banks will begin turning over information as early as July 2014.

The prompt release of U.S. accountholder information by Israeli banks is a result of the IRS’s efforts to fully implement the 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders.  Lack of compliance, banks were warned, would limit their ability to do business in America.  FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks.

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000. As the IRS cracks down on offshore accounts and on suspected fraud from overseas, Israel faces extra scrutiny. A recent report issued by the Government Accountability Office found that 4% of the accounts reported worldwide through this program were in Israel, making it the fifth most likely destination for overseas bank accounts.

Israeli banks have increased their efforts to identify clients who are United States citizens and report them to the IRS. A series of prosecutions against American citizens trying to avoid reporting their accounts in Israel and against tax preparers who advised their clients to use Israel as a tax shelter helped drive home the point.  Accordingly, Israeli banks have been urging their American account holders to come forward and disclose their assets under the Offshore Voluntary Disclosure Initiative (OVDI).  In December 2013, Bank Leumi, the largest commercial Bank in Israel, sent out a letter to their American clients to come forward under the program.

Increased enforcement has impacted a wide circle of Americans, mainly Jewish, with ties to Israel. It includes not only those who have immigrated to Israel, or made aliyah, as adults, but also children of American citizens who are citizens themselves but may have never even visited the United States. The law is also relevant to any American who has opened an account in Israel in the past for use during visits to Israel or to help manage rental income in Israel.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Guidance Issued On Bitcoin Tax Reporting Requirements

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Bitcoin has been in the news frequently lately, particularly since the collapse of the Japanese-based Bitcoin exchange, Mt. Gox.  Bitcoin is a digital currency and peer-to-peer payment system created in 2009. Since 2009, the use of bitcoins has expanded significantly.  Bitcoins can be bought and sold for various currencies, generally through a series of online exchanges where participants can bid on bitcoins from individuals or buy them at market price from companies.

The unique characteristics of Bitcoin as a digital currency left many questions about tax reporting requirements, such as whether users of Bitcoin must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).  U.S. taxpayers who have an interest in, or signatory or other authority over a foreign financial account, such as a bank account, securities or other similar foreign accounts must file an FBAR if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year. As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported. For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

Prior to the Internal Revenue Service’s release of Notice 2014-21 on March 25, 2014, we did not know whether the IRS would treat a virtual currency as currency or property. The IRS has now said – treat it as property. [IRS Information Release IR-2014-36 and Notice 2014-21].  I think that is a good answer. After all, Bitcoin is not used as the currency of any government and generally, are convertible to a currency of a government. For example, you can buy Bitcoin with U.S. dollars and convert it back to U.S. dollars.

So, what does it mean that Bitcoin is property? Here are a few tax examples.

• If you mine Bitcoin, you generate income equal to the value of the Bitcoin when mined. And if you are doing this as a business, you’ll also owe self-employment tax. [See Q&A 8 and 9 of Notice 2014-21].

• If you buy Bitcoin so you can use it instead of dollars, you’ll have some extra recordkeeping to handle. For example, you bought 1 Bitcoin (BTC) when it was worth $700. You later use half of that BTC to buy goods and at that time, 1 BTC is worth $800. You have a $50 gain. A few months later, you use the remaining .5 BTC to buy goods and at the time, 1 BTC is worth $1,000, you will report a gain of $150. The tax principle here is that if your wealth has increased and you cash out that wealth (realize it), you have income. When you can use something you paid $700 for to buy $900 of goods, you have income of $200. This is the same result you’d have if you had converted the Bitcoin back to dollars right before making the purchase of the goods in dollars. [See Q&A 6 and 7 of Notice 2014-21]

• Your employer pays you in Bitcoin. You’ll have income equal to the value of the Bitcoin on the day you receive it. And, yes, the employer will include this income in your W-2. Same answer if you are instead a contractor; it will be included in the Form 1099 your employer gives you. [See Q&A 10-14 of Notice 2014-21]

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  The knowing omission of such income can result in a minimum fine of $10,000 and/or potential incarceration of at least 1 year besides the standard civil penalties associated with the increase in tax and interest thereon.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

U.S. taxpayers who have bitcoins would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing bitcoins.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Commissioner Announces The Agency Is On Track To Meet FATCA Deadline Of July 1, 2014 To Enforce Compliance Of Foreign Banks To Disclose U.S. Account Holders To IRS

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Last week, IRS Commissioner, John Koskinen, announced that the agency is right on track in implementing the non-discretionary legislative mandates of the Foreign Account Tax Compliance Act, which is more commonly known as FATCA. The significance of this law enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, requires foreign financial institutions to tell the IRS about accounts owned by U.S. citizens. Those banks who fail to comply will be subject to 30% withholding on U.S. sourced investments.  With this information, the IRS can do a much better job of combating offshore tax evasion. The Commissioner stated that it is the agency’s goal to make it more and more difficult for Americans to hide their money in a tax haven to avoid paying taxes.  FATCA withholding goes into effect July 1, 2014.

Foreign banks will not want their returns from U.S. investments to be subject to any withholding by the IRS; therefore, if a foreign bank is to keep its U.S. account holders, they will now report U.S. account holders directly to IRS to be in compliance with FATCA.

The net that the IRS has cast will catch not only those wealthy taxpayers with fancy lawyers and accountants but also any average U.S. taxpayer who has undisclosed foreign bank accounts and unreported foreign income.  The Commissioner affirmed that no longer will any U.S. taxpayer be able to hide their money in foreign countries and avoid paying their fair share to support the operations of the government.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and elsewhere in California qualify you for OVDI.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

2013 U.S. Expat Tax Updates for Americans Living Abroad

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As expats begin the task of gathering documents for their U.S. tax return preparation, here are some important updates to keep in mind.

Foreign Earned Income Exclusion (“FEIE”)

The Foreign Earned Income Exclusion is a valuable tax benefit that adjusts for inflation each year. For tax year 2013 the FEIE was $95,100 and for tax year 2014 it jumps to $97,600. This means you deduct the first $97,600 you earn. For some expats this exclusion alone could eliminate your entire U.S. tax liability. However, it’s important to remember that you must qualify as an expat to beeligible for this exclusion. You qualify via one of two residency tests: the Physical Presence test (“PPT”) or the Bona Fide Residence test (“BFR”). Many expats qualify by the PPT, which requires you to earn foreign income and be outside the U.S. for 330 of any 365 day period. Note that this is not a calendar year, but a rolling 365-day period. To qualify using the BFR, you must be overseas for at least one year and have no intentions of returning to the U.S.

Foreign Housing Exclusion

This is another exclusion available to expats to reduce U.S. tax liability. With this exclusion, you can deduct a certain amount of your housing expenses. For tax year 2013 the base deduction is $15,616 (it is tied to the FEIE each year). Your exclusion amount is prorated based on the number of days you are abroad. Now, if you happen to live in one of the many cities that the IRS deems to have a ‘higher cost of living,’ your exclusion will be even higher. Here is a sample of the increased allowances for some popular cities:

Sydney, Australia – $32,782
Mexico City, Mexico – $47,900
Seoul, Korea – $56,000
Dubai, United Arab Emirates – $57,164
Montreal, Canada – $60,600
London, United Kingdom – $88,200
Hong Kong, China – $114,300
Tokyo, Japan – $117,100

For a complete list of cities with higher allowances, click here: http://www.irs.gov/pub/irs-pdf/i2555.pdf

Foreign Account Tax Compliance Act (“FATCA”)

If you haven’t heard about FATCA yet, this year you certainly will. FATCA was created to uncover tax cheats hiding U.S. money in offshore accounts. Currently individuals with offshore assets are required to file FATCA Form 8938 if their assets exceed specific thresholds. This form is included with the Form 1040 filing and substantial penalties will be charged by the IRS where the IRS finds you omitted this form. Starting in July 2014, FATCA will require foreign financial institutions to report on the accounts of their American clients. What does this mean? Basically, there is no place for one to hide. If you have offshore assets exceeding the thresholds, you need to report them or your foreign financial institution will! The Form 8938 filing thresholds for expats are as follows:

• Single Filing: $200,000 on the last day of the year or $300,000 at any point during the year
• Married Filing Jointly: $400,000 on the last day of the year or $600,000 at any point during the year

FBAR (Foreign Bank Account Report)
There is a new process for filing your FBAR. The old way of paper filing Form TD 90-22.1 is history. You now need to file FBAR electronically to the US Treasury Department via FinCEN Form 114. The deadline is still the same—June 30th and there are no extensions.

You must file FBAR if you have foreign bank accounts totaling $10,000 or more. Note that this is an aggregate amount over all your accounts and even if you had $10,000 in the accounts on only one day, you will need to file FBAR. Penalties for failing to file can be steep, so if you are required to file, don’t miss the deadline!

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Note that the filing threshold is different for the FBAR than for Form 8938 and the FBAR is filed separately from your Form 1040.

Foreign Tax Credit

If you paid or accrued foreign taxes to a foreign government on foreign source income that is still subject to U.S. tax, you may be able to take either a credit or itemized deduction for those taxes. The IRS allows the foreign tax credit so that you are not doubly taxed on the same income.

Taken as a deduction, the foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes reduce your tax liability. Most of the time, it is more advantageous to take foreign income taxes as a tax credit.

To claim the foreign tax credit, you need to fill out IRS Form 1116 unless the amount of credit you are claiming is $300 or less ($600 if married filing a joint return).

The laws regarding the foreign tax credit are complex and the application of the foreign tax credit can vary depending on various factors. For example, if you have foreign sourced qualified dividends or capital gains or capital losses that will affect the amount of foreign tax credit you can take.

Also, the U.S. has different tax treaties with other countries that may limit your foreign tax. The tax treaty with each country specifically addresses the type of income for which the tax credit is available and the rate limitation. For example, the tax treaty with the United Kingdom does not allow a tax credit for foreign taxes paid with respect to interest income. Also, the tax treaty with India caps the foreign taxes paid to 15%.

But in all cases, if the foreign income is not recognized on your U.S. tax return, you cannot claim as a foreign tax credit the taxes paid to the foreign county on said income.

Obamacare

In 2014 Obamacare (otherwise known as the Affordable Care Act) came into effect. While this doesn’t impact your 2013 taxes, you need to be aware of the future impact it can have on you.Obamacare requires that every American hold the minimum essential healthcare coverage—those who don’t will pay a penalty on their taxes. If you qualify as an expat (via the PPT or BFR) you are exempt from Obamacare. If you do not qualify (i.e. you are on a shorter-term assignment or haven’t been abroad long enough yet) or you are ineligible for a qualifying U.S. expatriate healthcare policy, you may be subject to the tax. The penalty for 2014 is the greater of $95 per adult and $47.50 per child OR 1% of your family income (defined as income over and above the filing threshold). If you return to the U.S. after being abroad, you will be required to enroll in a qualified policy in order to avoid the tax.

Staying abreast of the latest tax updates is critical for expats, as these updates can certainly save you money and help avoid costly oversights. If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Warning: Beware Email Phishing Scheme Falsely Claiming to be from the Taxpayer Advocate Service

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From time to time the IRS issues consumer warnings on the fraudulent use of the IRS name or logo by scammers trying to gain access to consumers’ financial information in order to steal their identity and assets. When identity theft takes place over the Internet,it is called phishing.

Suspicious e-Mail/Phishing

Phishing (as in “fishing for information” and “hooking” victims) is a scam where Internet fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. Current scams include phony e-mails which claim to come from the IRS Taxpayer Advocate’s Office which lure the victims into the scam by telling them that their case has been forwarded to the Taxpayer Advocate’s Office.

How The Scam Works

Victims will receive an email that appears to be from the IRS Taxpayer Advocate Service and includes a bogus case number.The fake emails may include the following message: “Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

Recipients are directed to click on links that supposedly provide information about the “advocate” assigned to their case or that let them “review reported income.” The links lead to web pages that solicit personal information.

The Taxpayer Advocate Service (“TAS”) is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The TAS never initiates contact with taxpayers by email, texting or any social media. A taxpayer must contact the TAS directly in order to secure assistance and receive communications from the TAS.

To Report Fraud

Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. You may also report the fraudulent misuse of the IRS name, logo, forms or other IRS property by calling the IRS toll-free fraud hotline at 1-800-366-4484.

What You Should Do If You Really Do Have Tax Issues?

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles and California know exactly what to say and handle the IRS. Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with one of our tax attorneys in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

KahnTaxLaw on the ESPN Mr. Credit show – March 27, 2014

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Topics Covered:

1. Protect yourself: Scammers targeting taxpayers, including recent immigrants, throughout the country.
2. Types of audits that the IRS conducts and deadline to finish an audit.
3. Top 10 “red flags” that could increase the chance you’ll be targeted for an audit.
4. Will the IRS punish me if I hire a tax attorney? Should I use a national tax practitioner?

Listen to the podcast:

Top Ten Red Flags That Could Trigger An IRS Audit

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The IRS randomly selects tax returns for audit each year.

What sets off alarms at the IRS? Well for one thing it pays to keep in mind these 10 “red flags” that could increase the chance you’ll be targeted for an audit.

1. High income. The audit rate for 2011 tax returns, which was about 1.11% overall, shot to 3.93% for taxpayers with income of $200,000 or more. That’s almost one out of every 25 returns. The IRS tends to chase the “big money,” and while that’s no reason to earn less, you should realize that higher income exposes you to a greater audit risk.

2. Unreported income. The IRS computers match up the income listed on W-2 and 1099 forms with the income reported on individual returns. You’re likely to draw IRS scrutiny if you don’t report all of your taxable income or if you underreport the total, even if an omission is inadvertent. Check your tax forms to ensure the information is correct.

3. Large charitable gifts. Besides providing personal satisfaction, deductions for charitable gifts can offset highly taxed income on your return. But the IRS may become suspicious if the amount you deduct is disproportionate to your income. In particular, make sure that deductions for gifts of property are legitimate and include an independent appraisal when required.

4. Home office deductions. If you qualify, you can write off your direct costs of using part of your home as an office, plus a percentage of everyday living expenses such as property taxes, mortgage interest, utilities, phone bills, insurance, etc. But the basic rule is that you must use the office “regularly and exclusively” as your principal place of business. Simply doing work at home when your main office is elsewhere won’t cut it.

5. Rental real estate losses. Generally, “passive activity” rules prevent investors from deducting losses on rental real estate. But a special exception allows a loss deduction of up to $25,000 for “active participants,” subject to a phase-out between $100,000 and $150,000 of adjusted gross income (AGI). Another exception applies to qualified real estate professionals. The IRS may zero in on taxpayers claiming losses under either exception.

6. Travel and entertainment expenses. This is often a key audit target. IRS agents particularly look for self-employed individuals and other business owners who claim unusually large write-offs for travel and entertainment expenses and meals. Note that the tax law includes strict substantiation rules that must be followed in order to deduct any of these expenses.

7. Business use of cars. Another area ripe for abuse by taxpayers is the use of a vehicle for business purposes. The annual amount you can claim via depreciation deductions for the vehicle, based on percentage of business use, is limited by so-called “luxury car” rules. IRS agents have been trained to ferret out taxpayer records that don’t measure up. Another red flag is a claim for 100% business use of a vehicle, especially if another vehicle isn’t available for personal use.

8. Hobby losses. As a general rule, you can deduct expenses for a hobby only up to the amount of the income it produces. You normally can’t claim a loss for the activity, unless your involvement rises to a level of a bona fide business. Usually, an activity is presumed not to be a hobby if you show a profit in any three out of the past five years, but the IRS can refute this presumption.

9. Foreign bank accounts. The IRS has started clamping down on taxpayers with offshore accounts in “tax havens” in which banks do not disclose account information. Failure to report foreign income can trigger steep penalties and interest. If you have foreign bank accounts, make sure you properly report the income when you file your return.

10. Cash businesses. If you operate a small business in which you’re largely paid in cash—for example, if you own a car wash, restaurant or bar, or a hair or nail salon—the IRS is more likely to examine your return. Past history indicates that cash-heavy taxpayers may underreport their income or, in some cases, not report any income at all. Accordingly, the IRS remains on high alert.

These red flags don’t mean you should shy away from claiming the tax breaks you rightly deserve. But when the IRS knocks on your door you need to be prepared.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people minimize or avoid adjustments from IRS audits. Working with a tax attorney is the best bet for minimizing adjustments that would create liability to the IRS.