Jeffrey B. Kahn, Esq. Discusses Taxes, Undisclosed Foreign Accounts and the IRS On ESPN Radio – February 20, 2015 Show

Topics Covered:

1. Even Grandmothers and Widows Are Not Safe From IRS Bank Account Seizures

2. FATCA and FBAR

3. The 5 Biggest, Best Homeowner Tax Breaks – Get Them While They Are Still Here!

4. Questions from our listeners:

a. I hear you say that you are Board Certified in Tax – what does that mean?

b. I am getting ready to file my 2014 which will have a balance due that I cannot pay in full. What can I do?

c. Why does the IRS file tax liens?

Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California. When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

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

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

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

Even Grandmothers and Widows Are Not Safe From IRS Bank Account Seizures

Ronald Malone and his wife Janet Malone of Dubuque, Iowa lived a simple life and enjoying their retirement. Shortly before Ronald’s death in October 2011, Ronald told his wife about a briefcase containing $180,000 cash that he accumulated from his job as a publishing executive and from gambling winnings and investment income.

After Ronald died, Janet who at the time was 68 years old, deposited this cash into her bank account in increments of anywhere from $5,800 to $9,000.

Unknown to Janet, these cash deposits were being reported by the bank to the IRS. The IRS having picked this up obtained a warrant to seize the funds in Janet’s bank account based on suspicion that the transactions were meant to avoid tax reporting requirements under the Bank Secrecy Act of 1970.

Well just a couple of weeks ago prosecutors charged Janet Malone with a criminal misdemeanor and she was arrested. It turns out that four years earlier her husband who must have been making cash deposits to the bank was warned by the IRS about continuing this practice. Ronald acknowledged to the IRS Special Agent at a meeting in his house that the small deposits amounting to $35,500 could be considered “structuring” (which is against the law) and signed a form confirming that he’d been warned about the practice. Janet was at the home for part of that meeting between the IRS Special Agent and Ronald, but she had not signed anything. Janet claims that she did not remember the details of the IRS agent’s 2011 visit with her husband because she was in a state of despair over her husband’s health who at that time was dying of cancer.

As part of the federal government’s dragnet surveillance of the civilian population, everyone’s banking activities are monitored for “red flag” activities. Under the Bank Secrecy Act of 1970, banks are required to report to the IRS transactions on every individual who deposits or withdraws more than $10,000 in cash to or from a personal bank account on a given day. These reports indicate the financial activities that took place and include the individual’s bank account number, name, address, and social security number.

People who know of this law and are seeking to avoid this level of reporting by the bank will often go to great lengths to make multiple deposits so that no single deposit will be greater than $10,000. This tactic is called “structuring”. The IRS thinking that Ms. Malone was making small deposits to evade this reporting requirement used its civil forfeiture power to seize Ms. Malone’s bank account.

That’s right – federal law enforcement agencies are invested with the power of civil forfeiture whereby the agency can take cash, cars and other property without charging the property owner with a crime. The property owner need not receive any advance warning or notice before the assets are seized by the federal government. The government need not prove that a person is guilty of a crime – only that he or she is suspected of committing a crime. This law was designed to catch terrorists, money launderers, drug lords and serious criminals – but it can also be used by the government against law-abiding businesses and law-abiding taxpayers.

The reason that the federal government does not have to read you your rights, or advise you that you can have a lawyer, or do any of the things that the constitution is supposed to provide, is that they don’t charge the person with the crime – they charge your money with the crime. And that crime that your money committed can carry a charge to you of up to one year in jail and a $250,000 fine.

Janet Malone is not the only person whose money got her into criminal trouble. A few weeks ago, I told you about Carole Hinders, another resident of Iowa and a 67 year old grandmother who operated Mrs. Lady’s Mexican Food in Arnolds Park, Iowa for 38 years. But despite her clean tax record, on May 22, 2013 while settling into a crossword puzzle with her grandchildren she was visited at her home by a pair of IRS agents who stated that they had closed her business bank account and seized all her money, which at the time was almost $33,000.

Even professionals could get into criminal trouble from how their money is deposited. The IRS seized $344,405 from Mason City, Iowa doctor Alireza Yarahmadi’s bank account last year after suspecting he made repeated cash withdrawals in increments below $10,000 to evade federal reporting requirements. Dr. Yarahmadi denied wrongdoing, saying he routinely transferred cash from his bank account to safe deposit boxes for safekeeping. His attorney said that Dr. Yarahmadi is an Iran native who is suspicious of banks because his family lost its savings after the 1979 revolution.

Eventually, the government dropped their charges against Ms. Hinders and Dr. Yarahmadi and returned their funds. Ms. Malone’s case is still pending and the IRS does not appear to have discontinued this practice.

Are There Any Safeguards In Place For The IRS To Follow So Things Like This Do Not Happen?

Critics say the IRS rarely investigates such cases to see if the business owner has legitimate reasons for making small deposits, such as an insurance policy that covers only a limited amount of cash.

Seizing assets without criminal charges is legal under a controversial body of law that allows law enforcement agents to seize cars, cash and other valuables they believe are tied to criminal activity. There is nothing illegal about depositing less than $10,000 cash unless it is done specifically to evade the reporting requirement. But often a mere bank statement is enough for investigators to obtain a seizure warrant. In one case, the IRS agent noted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring”.

The IRS made 639 of these seizures in 2012, compared to 114 in 2005. And only one in five was prosecuted as a criminal case. So you are probably thinking was the money from the other 80% of cases returned to its rightful owners?

Well it’s time for a break but stay tuned because we are going to tell you what the IRS is doing to uncover taxpayers with undisclosed foreign bank accounts.

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

BREAK

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

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

Chit chat with Amy

FATCA and FBAR

Jeff states: On a recent airplane trip from the Bay Area to Southern California, I sat beside a distinguished-looking elderly man. I initiated a conversation with him and found out he was a former judge now living in Mexico. We talked about everything, including taxation.

Jeff continues, The former judge admitted that he was an American citizen and he and some of his friends have problems sleeping because of Foreign Account Tax Compliance Act (FATCA). So, I asked him what about Foreign Bank Account Reporting (FBAR), as that was more serious than FATCA. But he had never heard about it. I wondered how many people are like the former judge and his friends who can’t sleep at night because of FATCA and who never heard of FBAR.

FATCA

Jeff asks Amy, please tell us what is FATCA all about?

Amy replies, FATCA was enacted in 2010 and the IRS has touted that FATCA has been successful so far. The IRS states they have collected US$6.5 billion and they reasonably believe that as much as $100 billion per year could be collected. The IRS is working with other countries that would like to use the U.S. model to improve their tax collection. The IRS will be working closely with the Organization for Economic Cooperation and Development (OECD) to implement Global FATCA (what many people are now calling GATCA); and also that the forms to request information from financial institutions would be standardized so that all countries would use the same forms, making it easy on the financial institutions. The IRS reasonably believes that FATCA can work, and given that the law has the effect of forcing compliance by every country, ultimately, everyone will benefit.

FBAR

Jeff asks Amy, how is the FBAR different from FATCA?

Amy replies, Keep in mind that an FBAR is different from FATCA and the requirements are also different. While impact of FATCA is to report you foreign income on your U.S. income tax returns, FBAR is an informational submission that must be filed with the Treasury Department if you have more than $10,000 in financial assets overseas. So, for FATCA, the financial institutions and the foreign governments will report to the IRS directly, but for FBAR, the taxpayers must self-report to the United States Treasury Department by June 30^th each year.

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

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

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.

Foreign Corporations

Jeff asks Amy, what about those taxpayers who instead of having their foreign bank accounts titled in their individual names instead have the accounts titled in a foreign corporation?

Amy replies, The IRS has a special interest in foreign corporations (i.e., corporations organized outside the United States). They are interested in shareholders with at least 10% ownership and directors of these foreign corporations. Foreign corporations are very important because that is where the big bucks are. They want U.S. citizens and green card holders who are 10% shareholders and directors (in said corporations) to provide information from the following sources annually: articles of incorporation, listing of directors, annual returns for the company filed with the registrar of companies and financial statements. While this information is filed for informational purposes only, the foreign corporations should file a tax return with the IRS. You should note that the requirement applies to partnerships and trusts also.

Those Who Gave Up U.S. Citizenship

Jeff asks Amy, are U.S. taxpayers giving up their U.S. citizenship to avoid FATCA?

Amy replies, The IRS has noted that a record number of Americans have given up citizenship recently and some may have done so with the intent to get around FATCA. But the news is bad, because the IRS is threatening that every one of those citizens will be thoroughly investigated with a view to seeing if they are trying to evade taxes.

Amy continues, The IRS warns that people with a certain amount of assets will be treated as if all the assets were sold and will be taxed as at the day when citizenship was given up. This will also apply to long-term green card holders. Also, if one has given up citizenship and spends more than 30 days in the United States in a calendar year, he may be taxed as if he were a citizen.

Bad Banks

Jeff asks Amy, does it matter which foreign bank a U.S. taxpayer has an account in?

Amy replies, The IRS has named about a dozen banks worldwide that are considered bad [meaning that they are or were under investigation by IRS and/or DOJ] – and if you have an account in one of those banks and failed to comply with your filing and tax-reporting obligations, you are very likely to have a problem with the IRS. Click here for a list of those banks that are under scrutiny by IRS.

Is The IRS Watching You?

Jeff asks Amy, is the IRS watching U.S. taxpayers who travel in and out of the country?

Amy replies, The IRS claims it can tell when people enter and exit the country, and lying on immigration forms and tax returns is a federal offence. There is even a website that the IRS uses that can be used to tell whenever people enter and exit the United States.

Amy continues, Be aware that the number of days spent in the U.S. is very important in determining your tax status. For citizens, if you spend more than 330 days outside the U.S. per year, you will not be required to participate in Obamacare, or the number of days spent abroad will affect the amount of foreign earnings you may be able to exclude from income, hence paying low or no tax to Uncle Sam. For green card holders, you have immigration issues, as well as tax issues if you spend more than a specified period outside the United States.

It’s A Small World After All.

Jeff states, The IRS says people may be able to run, but they can’t hide. The IRS says it is going to have agents all over the world, as they are going to work closely with foreign governments through the information exchange programs and the financial institutions.

Amy states, Also, the IRS is using Internet searches and social media like Facebook and LinkedIn to find tax dodgers, along with whistle-blowers. There will be GATCA, where other countries will be following the IRS path and these countries along with the U.S. are proposing one standard form that will be used to get information from financial institutions worldwide. So, if China wants information from Swiss banks, it will use the same forms to make the request as Jamaica or France.

Jeff states, The idea is to make it easier for the banks to retrieve information. So, we may be looking to one tax reporting system if the global tax agencies have their way and tax evasion worldwide may very well be a thing of the past in a few years’ time. Under that perspective full compliance with the IRS requirements is the best way forward.

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.

If you are a homeowner you will want to stay tuned because after the break we are going to tell you the 5 biggest best homeowner tax breaks you should be taking advantage of.

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.

The 5 Biggest, Best Homeowner Tax Breaks – Get Them While They Are Still Here!

Jeff states, Leaving off deductions you’re eligible for, such as mortgage interest and property taxes, is leaving money on the table and with tax reform revving up again on Capitol Hill, with the heads of key committees pledging to work toward a simpler and fairer tax code, Congress may be looking to tradeoff these tax breaks with lower tax rates. Sounds intriguing?

Jeff states: Homeownership can pay off big time if you itemize your deductions. Use these five tax breaks to cut what you owe Uncle Sam:

Jeff to read off each break and Amy to respond and discuss.

1. Home Office

Do you work at home? Collect a tax break either by using the simplified method explained below or doing some complicated calculations to claim your exact home office expenses. When you opt for the simplified method, you get $5 per square foot and can claim up to 300 square feet of office. That’s a $1,500 deduction!

The Fine Print:

• You can’t deduct a home office just because you head in there after dinner to read and answer emails from co-workers.
• You have to use your home office “substantially and regularly to conduct business.”
• Your home office doesn’t have to be in your home. A studio, garage, or barn can count as a home office.

Where You Claim it: Form 8829

2. Energy-Efficient Upgrades

Energy-efficiency home upgrades you made in 2014 can potentially cut your tax bill by up to $500, thanks to the residential energy tax credit. This tax credit lets you offset federal taxes dollar-for-dollar. You may be able to claim up to 10% of what you spent in 2014 on such items as insulation, a new roof, windows, doors or high-efficiency furnaces or air conditioners.

The Fine Print:

• There’s a $500 lifetime cap (meaning you have to subtract any energy tax credit you used in prior years).

Where You Claim it: Form 5695

3. Mortgage Interest Deduction

This is the mother lode of tax deductions. You typically can deduct the interest you pay on your home loan of up to $1 million (married filing jointly). You have to use your mortgage to buy, build or improve your home. Using a home equity line or mortgage for something else, like paying college tuition? It’s generally OK to deduct the interest on loans up to $100,000 (married filing jointly) as long as your home secures the loan.

The Fine Print:

• An RV, boat or trailer counts as a home if you can sleep and cook in it and it has toilet facilities.
• Second home loans count toward the $1 million loan limit.

Where You Claim it: Schedule A

4. Property Tax Deduction

The property taxes you paid to the state, the county, the city, the school district and every other government entity that reached into your pockets last year are usually deductible on your federal tax return. If your mortgage lender paid your property taxes, look on your annual escrow statement to see the exact amount paid.

The Fine Print:

• You can’t deduct assessments (one-time charges for things like streets, sidewalks and sewer lines).
• Keep a record of the assessments you paid. When you sell your home, you can generally use the cost of those assessments to reduce any tax you owe on your sale profit.

Where You Claim it: Schedule A

5. Private Mortgage Insurance

Did you put down less than 20% when you bought your home? If you did, your lender probably forced you to buy private mortgage insurance. Those monthly premiums are tax deductible, if you can clear a few hurdles.

If you have a Veterans Affairs, Federal Housing Administration or Rural Housing Service loan, you likely paid upfront mortgage insurance premiums at the closing table (they might have called it a guarantee fee). The deduction for those is pretty complicated.

You get to deduct a part of that upfront premium each year. To figure out how much to deduct, you first check to see which is shorter:

• The length of your mortgage
• 84 months (seven years)

If your mortgage lasts more than seven years, you divide the cost of that upfront mortgage premium by 84 months and then multiply by the number of months you paid it (so 12 months for a full year) to get your deductible amount.

If you mortgage lasts seven years or less, you divide by the number of months it lasts and multiply by the number of months you paid it.

The Fine Print:

• You have to have gotten your mortgage in 2007 or later.
• When adjusted gross income is more than $100,000 (married filing jointly) you start losing the private mortgage insurance deduction and it disappears completely when your adjusted gross income is more than $109,000.

Where You Claim it: Schedule A

What About Everything Else?

Jeff asks Amy, What about all the other home-related expenses you paid, but can’t deduct, like your new deck or the pipes you replaced?

Amy replies, Hang on to those invoices and receipts by scanning them (receipts fade over time) and storing them in a file or online. When you sell your home and you’re figuring out if you owe federal tax on the profits, you may be able to subtract the cost of the improvements you made from your home’s selling price.

Jeff states: You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes.

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

Jeff states, Many people benefit from tax breaks such as mortgage interest and property tax deductions, plus tax-free write-offs of up to $250,000 or $500,000 of home sale capital gains, depending on whether they file returns as singles or married couples. Renters get none of these.

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?

1. Carlos from Chula Vista asks: Hi Jeff I listen to your show all the time and hear you say that you are Board Certified in Tax – what does that mean?

An attorney who is Board Certified by the California Board of Legal Specialization in Tax Law must have demonstrated a broad based knowledge of statutes (primarily federal) dealing with the imposition and collection of taxes. The attorney must also have advised clients concerning their rights and responsibilities regarding taxes, the proper taxation transactions, and the procedure for contesting proposed and assessed taxes

To become Board Certified in Tax Law, an attorney must have:

1. Been licensed to practice law for at least five (5) years;
2. Devoted a required percentage of practice to tax law for at least five (5) years;
3. Handled a wide variety of tax law matters to demonstrate experience and involvement;
4. Attended tax law continuing education seminars regularly to keep legal training up to date;
5. Been evaluated by fellow lawyers and judges;

Passed a day-long written examination.

Initial certification is valid for a period of five (5) years. To remain certified, an attorney must apply for recertification every five years and meet practice, peer review and continuing legal education requirements for the specialty field.

The consumer can identify a Tax Law Board Certified attorney in one of many ways. A Tax Law Certified attorney is entitled to indicate certification on business cards and letterhead by stating “Board Certified-Tax Law”. The attorney may also display the certification in legal directories and telephone listings under “Attorneys-Board Certified.”

The California Board of Legal Specialization was created by, and operates under the authority of, the State Bar of California.

2. Barbara from Los Angeles asks: I am getting ready to file my 2014 which will have a balance due that I cannot pay in full. What can I do?

Here are four alternative options you may want to consider:

a. Additional Time to Pay Based on your circumstances, you may be granted a short additional time to pay your tax in full – usually 60 to 120 days. Taxpayers are granted this relief will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.

b. Installment Agreement You can apply for an IRS installment agreement before your current tax liabilities are actually assessed. Remember that the sooner you start making payments, the less in penalties and interest you will be paying to the IRS.

c. Pay by Credit or Debit Card You can pay your Federal taxes by credit or debit card. IRS accepts all major cards (American Express, Discover, MasterCard, or Visa). Keep in mind that there is no IRS fee for credit or debit card payments, but the third-party processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95. If following this option, do not add the convenience fee or flat fee to your tax payment.

d. Offer In Compromise An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances:

• Ability to pay;
• Income;
• Expenses; and
• Asset equity.

Beware that not everyone will qualify for an Offer in Compromise program so you will want to check first with a tax professional.

3. John from San Francisco asks: Why does the IRS file tax liens?

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

• Puts your balance due on the books (assesses your liability);
• Sends you a bill that explains how much you owe (Notice and Demand for Payment); and

You:

• Neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

The lien will impact you in the following ways:

• Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
• Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
• Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
• Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

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!