Friday, March 30, 2012

Penalty Relief for the Unemployed and Greater Accessibility to Installment Agreements

The IRS has announced, in IR-2012-31 (3/7/12), a significant expansion of its “Fresh Start” initiative that was begun last year to assist financially distressed taxpayers by providing new penalty relief to the unemployed and making installment agreements more accessible. Now, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the dollar threshold for taxpayers eligible for installment agreements has been doubled to help more people qualify for the program.

Under the new Fresh Start provisions, a six-month grace period on failure-to-pay penalties will be made available to eligible wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure-to-pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012. The penalty relief will be available to wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year and to self-employed individuals who experienced a 25% or greater reduction in business income in 2011 due to the economy. Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A (available on to seek the 2011 penalty relief.

This penalty relief, however, is subject to income limits. A taxpayer's income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. Penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

In its announcement, the IRS pointed out that the failure-to-pay penalty is generally half of 1% per month with an upper limit of 25%. It advised that, under these new relief provisions, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year's filing deadline. The IRS cautioned, however, that it is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3% on an annual basis. The IRS further cautioned taxpayers to file their returns on time by April 17 or file for an extension because failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5% per month (with a 25% cap).

With respect to installment agreements, the IRS announced that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. Under the new Fresh Start provisions, Taxpayers who owe up to $50,000 in back taxes will be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum. Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may pay down their balance due to $50,000 or less to take advantage of this new payment option.

In its announcement, the IRS advised that, although under the new installment agreement provisions penalties are reduced, interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments. Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on and following the instructions.

Wednesday, March 28, 2012

IRS Releases FY 2011 Data Book

WASHINGTON — The Internal Revenue Service today released the 2011 IRS Data Book, a snapshot of agency activities for fiscal year 2011 – Oct. 1, 2010, to Sept. 30, 2011. During the year, the IRS collected $2.4 trillion and processed more than 234 million tax returns.

In addition to information on taxes collected and returns processed, the report also includes information about enforcement, taxpayer assistance, and the IRS budget and workforce, among others. 

Taxpayers e-filed more than 133 million business and individual income tax returns, including 77 percent of all individual income tax returns.

Refunds Issued
More than 119 million individual income tax returns, about 83 percent of all individual returns, resulted in refunds, totaling almost $338 billion.

The IRS examined 1.1 percent of all individual income tax returns and 1.5 percent of corporation income tax returns (excluding S corporation returns).

Taxpayer Assistance
The IRS provided taxpayer assistance through 319 million visits to and assisted nearly 83 million taxpayers through its toll-free telephone helpline or at walk-in sites.

Switzerland is nearing deals with the United States and Germany over hidden offshore accounts

Swiss Banks still Draw Rich despite Secrecy Blows

ZURICH (Reuters) - Swiss bankers are on the defensive with their secretive industry under sustained attack for sheltering tax dodgers.

Zurich overtook Tokyo as most expensive according to a new ranking by the Economist Intelligence Unit because of the soaring Swiss franc. The currency is up 30 percent since 2008, despite a cap imposed last year by the central bank, because investors view it as a safe haven in global economic turmoil.

The same factors make the country's banks attractive despite the gradual erosion of bank secrecy: political stability and neutrality, low government debt and an economy which has been relatively resilient through the financial crisis.

Although Swiss banks - especially the country's biggest UBS have shared in the pain of the crisis, they have retained an image for solidity, particularly in contrast to their euro zone rivals, bolstered by new capital rules that are the world's strictest.

Monday, March 26, 2012



In March 2012, the Florida legislature passed a rather unique piece of legislation aimed specifically at a new type of tax fraud software moving into the United States. The software is known as "Automated Sales Suppression Device," "Zapper," or "Phantom-ware."

The purpose of the software is to suppress the cash sales from the business's accounting records – at the cash register level. The sales are simply eliminated from the system and the user of the software pockets the cash. You can imagine this practice is not only tempting for morally questionable business owners, but that it would also be highly fraudulent for federal income tax and state sales tax purposes as well. The software might be used by an unscrupulous business owner or even an employee (turning the cash register into his personal ATM machine).

Upon signature by the Governor, Section 213.295, Florida Statutes, will be created to criminalize Zappers. After the approved legislation becomes law, a person who knowingly sells, purchases, installs, transfers, possesses, utilizes, or accesses any automated sales suppression device is guilty of a felony of the 3rd degree. It is expected that the Governor will sign this piece of legislation and, unlike like most of the other sales and use tax legislation approved by the Florida Legislature, this statute will take effect immediately after it is signed.

Posted By James Sutton on Mar 26, 2012 12:40pm EDT

Florida Passes Captive Insurance Legislation

The Florida Legislature has passed HB 1101, an omnibus insurance bill that has carried language to allow Florida to become a Captive Insurance domicile state. A captive insurance company is a business or a group of businesses that form their own insurance subsidiary to finance their retained losses in a formal structure.

Captive insurance companies are established with the specific objective of financing risks emanating from their parent group or groups. The adopted language would allow for captive insurance companies to provide commercial insurance only on their own risks and does not allow for captive insurance companies to provide workers compensation, health, homeowners, and private passenger auto insurance.

Florida’s captive insurance laws have been antiquated serving as a regulatory barrier to the formation of captive insurers in this state.

The newly adopted language would allow Florida to compete nationally with other states for captive insurance business. There are approximately 37 other states that have adopted legislation to allow for captive insurance companies.

Thursday, March 22, 2012

Bank Deposit Reporting Rule Reciprocal For Tax Treaty Partners?

Information gleaned from a controversial Internal Revenue Service regulation that would require U.S. banks to report interest on deposits held by nonresident aliens could lay the groundwork for reciprocation as the United States continues its efforts to build cooperation with other countries to stop global tax evasion, IRS Commissioner Douglas Shulman told a House subcommittee March 21.

“This regulation lays the groundwork for some reciprocation” Shulman said at a hearing on IRS's fiscal year 2013 budget request before the House Appropriations Subcommittee on Financial Services and General Government.  

Shulman mentioned reciprocation in that context, but said such reciprocation would only occur with countries with which the United States already has tax treaties.

The commissioner stressed that the main goal of the nonresident alien bank deposit interest regulation is to collect the information. “We don't have the intention of endangering taxpayers.

Shulman said he worries that federal budget cuts could start to erode tax enforcement and voluntary compliance.

Wednesday, March 21, 2012

Australian Tax Prosecution Figures - 2011

Almost 1,200 people were prosecuted and convicted for tax and superannuation offences in Australia last year, new figures show.

The statistics were released by Tax Commissioner Michael D'Ascenzo, who said that: “The ATO's use of sophisticated data matching technology is helping to close the net around those exploiting the tax and super systems.”

In total, 48 people were prosecuted and convicted of serious tax crime offences, with sentences ranging from three months to nine years and 11 months. Six of these convictions occurred under Project Wickenby, a cross-agency task force established in 2006 to prevent the promotion of or participation in illegal offshore structures.

From its launch to January 31, 2012, Project Wickenby has resulted in AUD1.26bn (USD1.32bn) in tax liabilities raised, and AUD597.14m in tax collected. 65 people have been charged under the project with serious offences, with 22 people convicted.

1,149 people and 370 companies were prosecuted and convicted for other tax offences in 2011. Such offences included failing to lodge a tax return, providing false and misleading information, or receiving a fee for preparing an income tax return when not being a registered tax agent.
As part of its Compliance Program the ATO is also increasing its focus on non-complying taxpayers in the goods and services tax (GST) system. Last year’s budget provided AUD337m in funding for this project over the next four years. The emphasis is on identifying people who do not lodge their business activity statements, and detecting businesses that over-claim entitlements or deliberately under-report taxable supplies that they make. In 2011, the ATO prosecuted 545 individuals and 211 companies for over AUD12.55m worth of GST offences.

Also increased is the ATO’s scrutiny of businesses deliberately not reporting cash income. Over 1.9m small businesses were evaluated against the ATO's risk detection systems during 2011. Last year, the ATO prosecuted 41 individuals and nine companies for over AUD3.22m worth of cash economy offences.
Commenting on the figures, D'Ascenzo said:
“People deliberately committing tax evasion are often caught by the sharing of information between government departments and other third parties. Cooperation across government departments has led to increased intelligence sharing and improved information gathering which is driving our data matching capabilities to new levels."

"We use advanced technology to bring together information from a range of government departments and other third parties to cross check personal and business records such as car registrations and supply orders for businesses. The ATO also undertakes risk profiling to identify people and businesses that may have not declared all their earnings or overinflate their deductions."
"We can see how personal and business claims compare to other tax payers. If alarms are raised the ATO investigates those claims and taxpayer records more closely."


Strong Demand For BVI Structures

The British Virgin Islands office of leading international offshore law firm Ogier has noted that its involvement in a number of global transactions over recent months is reflective of the strong demand of late for BVI-based corporate structures.

Recent high-profile transactions involving BVI structures have included:
  • Canadian-based financial institution Scotiabank’s USD1bn acquisition of a 51% stake in Colombia’s Banco Colpatria Red Multibanca Colpatria S.A., that country’s fifth largest financial group, representing Scotiabank’s largest ever-international takeover;
  • UK private equity group CVC Capital Partners’ purchase of a 51% controlling stake in Virgin Active - the fitness chain part of Richard Branson’s Virgin Group, valued at GBP900m;
  • Australian-listed diversified services company UGL Limited’s GBP77.5m acquisition of the trading operations of UK-listed property services company DTZ; and,
  • NYSE-listed global agri-tech provider, Monsanto Company’s acquisition of Beeologics, a start-up that researches and develops biological tools for targeted pest and disease control.
“The array of blue-chip companies, geographies and industry sectors covered by these deals underscore Ogier BVI’s capabilities as a trusted advisor to international business on all types of corporate transactions,” said Ray Wearmouth, Managing Partner, Ogier BVI.

“Ogier’s involvement in these arrangements also represent the continued confidence of the global financial community in the BVI as a stable and high-quality jurisdiction for structuring multi-national transactions,” he added.

Italy's New Weapon In War On Tax Evasion

The Italian Revenue Agency’s Director, Attilio Befera, has announced that its new, revamped ‘redditometro’ – the computer data system which compares taxpayers’ income declarations with their spending habits – is now expected to be fully operational by June this year.
Befera has already pointed out that the Agency’s new ability to crosscheck taxpayers’ spending against declared incomes as the weapon that might win the government’s war on tax evasion. He has previously expressed the hope that, as taxpayers become more aware of the armoury now at the government’s disposal, they will be more willing to become tax-compliant voluntarily.

The ‘redditometro’ has been long in its experimental stage, but Befera explained that, as the system needed to be “sound and easy to use”, the Agency has wanted to take the time to make sure it worked well and there would be no problem when it finally went into operation.
It will look at whether a taxpayer’s declaration of taxable income is coherent with his or her overall spending capacity, as against the previous ‘redditometro’ which was based upon the possession of certain assets, such as yachts or large cars. The new system will be able to trace individuals' expenditure in more than 100 different categories to find disparities between spending and declared incomes.

The categories of spending are divided into seven areas. For example, under the category of housing are included first and second residences, mortgages, restructuring work undertaken, and furniture purchased; while information on a taxpayer’s social security contributions and insurance policies are also collected, as are recreational pursuits and a family’s education spending.
Spending capacity is based upon actual, not estimated, expenditure, and it is said that the system will be able to compare the data of over 22m families or around 50m individuals. The system’s methodology is also able to differentiate between eleven different categories of family unit including couples or singles and families with children, together with the region of Italy in which the taxpayer resides.

Most recently, simulations have been made by inserting typical taxpayer examples into the system. From the first results, it has been seen that, in many cases, the difference between the taxpayers’ lifestyle and declared income reached over 20%; the level which will, when the system is operational, mean a taxpayer will be contacted for further information.
In addition, it has been suggested that the ‘redditometro’ could also be extended to cover the taxable incomes of artisans and other individuals in business. In that case, the Agency could be able to discover, not only unpaid amounts of individual income tax (IRPEF), but also value-added tax, the regional tax on production (IRAP) and social security and welfare payments.

Owe The IRS? TaxMasters Bankruptcy Shows Why Not To Get Help From TV Pitchmen !

If you’ve got problems paying the Internal Revenue Service, don’t look for help from the ads on late night cable television. That’s one of the lessons from an SEC filing Friday by TaxMasters Inc., disclosing the publicly-traded company will file for voluntary bankruptcy.

As ABC reported last April, even after Houston-based TaxMasters had been accused of deceptive business practices by the attorneys general of Texas and Minnesota, it continued to buy millions of advertising on CNN, FoxNews and other cable channels.

The ads featured Patrick Cox, the red-bearded TaxMasters CEO, assuring potential clients that his staff of tax pros, including former IRS agents, had helped “many good people just like you.”

Moreover, this is just the latest bankruptcy by a “tax resolution” service that advertised heavily—and made allegedly exaggerated claims–on cable TV. JK Harris & Co., a South Carolina-based firm which once operated hundreds of locations in dozens of states, filed for bankruptcy last October after being sued by both states and unhappy customers.

Last December, it ceased operations and went into liquidation, leaving 5,400 active clients in the lurch. Harris’ former clients, including those who won legal judgments against it, aren’t likely to see any money from the liquidation.

If you have a Tax Problem, call us at Marini & Associates, PA  888 882 9243, we are experiance Tax Attorneys!

Supreme Court Denies Review of Employment Tax Case

The Supreme Court denied review March 19 of an Eighth Circuit case where a Minnesota man was convicted of failing to account for and pay employment taxes, sentenced to four years in prison, and fined $75,000 (McLain v. United States, U.S., No. 11-937, 3/19/12).

The U.S. Court of Appeals for the Eighth Circuit affirmed a U.S. District Court for the District of Minnesota judgment that convicted and sentenced Francis Leroy McLain, who managed a temporary staffing agency for nurses that failed to file either a Form 941, Employer's Quarterly Federal Tax Returns, or pay employment taxes between 2002 and 2005.

At trial, McLain asserted that the staffing agency, Kirpal Nurses, was not required to account for or pay employment taxes because the nurses were independent contractors.

Tuesday, March 20, 2012

Employment Tax Non-Payment Case - Supreme Court Denies Review

The Supreme Court denied review March 19 of an Eighth Circuit case where a Minnesota man was convicted of failing to account for and pay employment taxes, sentenced to four years in prison, and fined $75,000 (McLain v. United States, U.S., No. 11-937, 3/19/12).

The U.S. Court of Appeals for the Eighth Circuit affirmed a U.S. District Court for the District of Minnesota judgment that convicted and sentenced Francis Leroy McLain, who managed a temporary staffing agency for nurses that failed to file either a Form 941, Employer's Quarterly Federal Tax Returns, or pay employment taxes between 2002 and 2005.

At trial, McLain asserted that the staffing agency, Kirpal Nurses, was not required to account for or pay employment taxes because the nurses were independent contractors.

A Tax Return Filed With the U.S. Virgin Island Is NOT a FILED RETURN

A notice of deficiency issued by the IRS to a U.S. citizen who claimed to be a bona fide resident of the U.S. Virgin Islands for the tax years at issue was valid; therefore, the court had jurisdiction. The notice of deficiency had been issued after it was determined that the individual did not qualify for the income exclusion under Code Sec. 932(c)(4) and that he should have filed returns and paid taxes to the IRS.

The individual’s claim that the IRS failed to follow the procedural rules of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (P.L. 97-248) by not issuing a notice of final partnership administrative adjustment (FPAA) instead of the notice of deficiency, was rejected because: (1) the company did not file a federal partnership return with the IRS; and (2) the company was not a partnership for federal tax purposes.

The filing of a partnership return with the Virgin Islands Bureau of Internal Revenue (BIR) did not constitute a filing of a partnership return with the IRS, even though the BIR used the same forms as the IRS, because the returns were filed to comply with Virgin Islands filing obligations, rather than any obligation under the tax laws of the United States. 

The company was not a federal partnership because it was a foreign entity. The “check-the-box “regulation, which allowed an entity to be classified for both federal and Virgin Islands tax purposes, did not govern because the tax years at issue were prior to the effective date for the regulation. 

The Tax Court held that partnership returns filed with the Virgin Islands tax authorities did not satisfy the “substantial compliance” standard because they did not purport to be Federal returns (criterion 2 of Beard) and were not an attempt to satisfy the requirements of Federal tax law (criterion 3 of Beard). 
(G.C. Huff, 138 TC –, No. 11Dec. 58,982)

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Chief Counsel to Follow ‘Bluebook' Citation in Tax Court

The IRS Office of Chief Counsel March 13 issued a notice (CC-2012-007) stating that The Bluebook: A Uniform System of Citation is the source for citation to be used in legal work, including U.S. Tax Court documents.

Note that case citations should be to the official reporter that is listed in T1 of the Bluebook, such as the United States Reporter or to the United States Tax Court Reports, rather than the document reprinted in a commercial service, such as Commerce Clearing House or Prentice Hall. If a case is not reported in an
official reporter, the citation should be to the slip opinion. In addition to citing to the slip opinion, a
parallel citation may be included to Westlaw or Lexis.
The Bluebook provides that short form citations to the Code, statutes, and Treasury regulations should cite to the section preceded by a section symbol. In Counsel documents, subsequent citations after the first full citation to the Internal Revenue Code and to the applicable regulations should instead be made to section numbers. For example, “section 61” may be used in citing to I.R.C. § 61 and “section 1.61–1” may be used in citing to Treas. Reg. §1.61-1.

Taxmasters files for Bankruptcy Protection

Taxmasters files for bankruptcy protection.

Maybe now they can actually settle for Pennies on the Dollar?    

Friday, March 9, 2012

Bearer Notes - Non Deductible, Ordinary Income Rates and Not Qualify as Portfolio Debt.

Notice 2012-20 provides guidance relating to the portfolio interest exception, the short term debt exception under section 1.6049-5(b)(10), and the excise tax under section 4701 in connection with the repeal of section 163(f)(2)(B)(the bearer debt repeal).
Notice 2012-20 will be published in the Internal Revenue Bulletin 2012-13, dated March 26, 2012.
Issuers of debt obligations that are required to be in registered form but are not issued in registered form are subject to the disallowance of interest deductions under section 163(f) and the imposition of an excise tax under section 4701. Any gain on the sale or other disposition of such an obligation is generally treated under section 1287 as ordinary income rather than capital gain, and, under section 165(j), no deduction is permitted for any loss sustained. In addition, the exception from tax for U.S. source, portfolio interest received by a nonresident alien or foreign corporation under section 871(h) and section 881(c) (portfolio interest exception) is generally not available with respect to interest paid on debt that is not issued in registered form (bearer debt).

The foregoing rules generally do not apply with respect to bearer debt that complies with the foreign-targeting rules of section 163(f)(2)(B) and the regulations thereunder. However, section 502 of the HIRE Act generally eliminated the various exceptions for foreign-targeted bearer debt, effective for obligations issued after March 18, 2012. As a result of this change in law, with respect to obligations issued after March 18, 2012, the portfolio interest exception will be available only for obligations issued in registered form.

Tax on Foreign Business With One Telecommuter Affirmed by New Jersey Appeals Court

Applying the New Jersey Corporation Business Tax Act to a foreign corporation that employs one employee to telecommute full-time from her New Jersey residence does not violate the federal Constitution, the Superior Court of New Jersey Appellate Division held March 2 (Telebright Corp. Inc. v. Director, New Jersey Division of Taxation, N.J. Super. Ct. App. Div., No. A-5096-09T2, 3/2/12).

Addressing the due process clause, Judge Susan Reisner said, “[t]axing a business based on its employing one full-time employee in the taxing state does not violate the Due Process Clause.” She added the corporation, Telebright Corp. Inc., “has sufficient ‘minimum connection' with this State to permit taxation consistent with the Due Process Clause.”

Thursday, March 8, 2012

Senate Accepts Levin Tax Havens Measure to Combat Offshore Tax Abuses

The Senate adopted an amendment to the surface transportation bill (S. 1813) by voice vote March 8 that would prohibit foreign financial institutions from having access to the U.S. financial system if they are found to be aiding tax evasion.

Under Section 311 of the Patriot Act, Treasury can take a range of measures against foreign governments or financial institutions that engage in money laundering. The senators’ amendment gives Treasury the same tools to combat foreign governments or financial institutions that significantly impede U.S. tax enforcement. For example, Treasury could prohibit U.S. banks from accepting wire transfers or honoring credit cards from banks found to significantly hamper U.S. tax enforcement efforts.

Modifications made earlier in the day to the amendment (S. Amdt 1818) by Sen. Carl Levin (D-Mich.) made the amendment more amenable to senators of both parties by saying Treasury could stop the transactions of tax havens and financial institutions that “significantly impede” U.S. tax enforcement.

The final version of the amendment also added language noting that if a jurisdiction or financial institution is cooperating with the United States, that fact may be favorably considered in evaluating whether it is significantly impeding enforcement. Staff said the amendment would raise $900 million over 10 years.

“Each year the United States loses literally tens of billions of dollars from people using offshore tax havens to dodge their tax obligations,” Levin said on the Senate floor.

A final vote on the measure is expected on March 13, 2012. Then it is off the the Republican controlled House of Representatives, where is may not receive such a warm reception.

It’s time to put an end to offshore tax abuses that allow tax cheats to profit at the expense of honest taxpayers,” said Whitehouse. “I’m proud to support Senator Levin’s amendment, which will give the U.S. Treasury greater powers to crack down on offshore tax abusers and the banks that aid them.”

Stay tuned... Same Tax Times... Same Tax Channel!

Tuesday, March 6, 2012

Success of Florida Boat Sales/Use Tax Cap

Florida took in nearly 10 times as much sales tax revenue on sales of tax-capped boats as the state projected in the first year of implementation of the Maritime Full Employment Act, which was signed in 2010.

That’s according to a study released by the Florida Yacht Brokers Association and the Marine Industries Association of South Florida.

The new law puts an $18,000 sales-and-use tax cap on boats purchased or brought into Florida. The new sales-and-use tax cap generated in excess of $13.46 million in direct sales tax revenue for the state, compared with a $1.5 million first-year loss that a Florida legislative staff analysis had projected.

Thomas J. Murray and Associates Inc. conducted the initial research and subsequent survey.
Prior to July 1, 2010, all boats sold and or delivered in Florida were subject to a 6 percent sales-and-use tax unless they were specifically exempt. A new 34-foot powerboat that cost $400,000, for example, would cost $24,000 more in taxes.

Among the survey’s findings:

• The average sales price for post-cap transactions in Florida was $907,002 — nearly double the pretax value of closings that took place in Florida prior to the cap.

• In the post-cap era, transactions for which either no sales tax was paid or the closing was conducted out of state dropped from 21.5 percent in the pre-cap era to an estimated 12.8 percent after the sales tax cap was implemented.

“The results of our survey research demonstrate beyond a doubt that setting a reasonable tax basis for high dollar purchases provides an incentive for more boats to be purchased, provisioned and kept plying the waters of Florida,” FYBA spokesman Jeff Erdmann, owner of Bollman Yachts of Fort Lauderdale, said in a statement. “More boats sold and registered in Florida means more business and jobs for Floridians.”

A little over a year ago, there was no caps on sales tax and rather than pay the tax, people would offshore register their yachts rather than pay Florida Sales Tax on them. With a cap, Florida is receiving badly need income they did not receive prior to the cap being put into effect. It was a good move and long overdue.

Monday, March 5, 2012

FBAR Non-Filers Beware: Either Tax Fraud OR Filing a False Tax Return Can Result in Deportation

Recently the Supreme Court held in Kawashima v. Holder (Feb. 21, 2012) that filing a false tax return in violation of IRC Section 7206(1) as well as other criminal tax offenses are aggravated felonies which can result in deportation of a resident alien.

Background, Mr. and Mrs. Kawashima were legal residents of the United States having moved to Los Angeles from Japan in 1984. According to an article in the Los Angeles Times they opened several sushi restaurants in the West San Fernando Valley area of Southern California. They were accused of violating various criminal tax laws, and in 1997 Mr. Kawashima pled guilty to a single count of violating Internal Revenue Code (IRC) Section 7206(1) (filing a false tax return). Mrs. Kawashima pled guilty to IRC Section 7206(2) (aiding and assisting in the filing of a false tax return). The tax loss was around $245,000. This would have included interest and penalties so the actual tax would have been much lower. It is possible that the Kawashimas pled guilty to charges under IRC Section 7206 to avoid the IRS bringing tax evasion charges under IRC Section 7201. Tax evasion carries a maximum penalty of 5 years, and a $250,000 fine; whereas filing a false tax return "only" has a penalty of $100,000 and 3 years in prison.

Neither the 9th Circuit opinion, nor the Supreme Court opinion stated whether they served any jail time, but according to the Los Angeles Times they repaid the full amount due to the IRS. The Kawashimas probably assumed that their tax problems ended there, but in 2001 the Immigration and Naturalization Service (INS), as it was then known, brought removal proceedings, against the Kawashimas seeking their deportation alleging that they had committed an "aggravated felony." These proceedings were brought pursuant to 8 USC § 1227(a)(2)(A)(iii) (stating that "[a]ny alien who is convicted of an aggravated felony at any time after admission is deportable"). An aggravated felony is defined in 8 USC Section 1101(a)(43)M)(i) as any offense that "involves fraud or deceit in which the loss to the victim or victims exceeds $10,000."

The Kawashimas argued that filing a false tax return was not an aggravated felony. They relied on a related section of the law which specifically states that the commission of tax fraud pursuant to IRC Section 7201 is an offense which may lead to deportation. From that the Kawashimas criminal tax lawyers concluded that Congress intended that the only tax crime which would qualify for deportation is tax fraud, and not any other lesser tax crime.

Unfortunately for the Kawashimas in a divided 6-3 opinion the Supreme Court disagreed, clearing the way for the Kawashimas deportation. In her dissent, Justice Ginsburg pointed out that as a policy matter the majority made a bad choice because it would discourage immigrants from pleading guilty to tax crimes since in addition to any jail time they would be exposed to being deported.

Criminal tax lawyers will need to advise their alien clients of this distinct possibility as one of the many factors to take into account when deciding whether or not to plead guilty to any tax crime. The concern for FBAR (foreign bank account report) non-filers is that without regard to whether or not failure to file an FBAR is a deportable offense individuals who do not file FBARs generally have filed false tax returns by checking the "no box" on Schedule B signifying they don't have a foreign bank account when in fact they do.

If you have been contacted by the IRS Criminal Investigation unit, or have any criminal or civil tax problems contact the tax litigation attorneys at Marini & Associates, P.A. for a confidential consultation.

Unique Identification Number Allows IRS to Identify Foreign Entities

A new IRS Webpage on how to file tax forms related to foreign interests using a unique reference identification number (URI) is designed to allow the Internal Revenue Service to more easily identify a taxpayer's foreign entities and compare their activities, or lack of activities, from year to year.

Beginning with U.S. federal tax returns filed for the 2012 tax year, taxpayers who file a Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), a Form 8858 (Information Return of U.S. Persons With Respect to Foreign Disregarded Entities), or Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships), must provide the URI or employer identification number for all foreign entities reported on the forms.

Implementation of URIs could pose varied obstacles for taxpayers who are unprepared.

FinCEN postpones mandatory FBAR e-filing

The IRS does not permit electronic filing of US income tax returns for preparers living outside the US. It remains to be seen if they will apply the same rule to FBAR forms. For 2011 FBAR forms should be manually filed as in the past. Failure to file FBAR forms on time may result in substantial penalties.

IRS Criminal Investigations Unit obtains 94 Percent Conviction Rate.

According to Rick Raven, deputy chief of IRS investigations, the cases that IRS's criminal investigations unit sends to the tax division have ended up in a 94 percent conviction rate, making it the highest rate of conviction in law enforcement.
Offshore tax evasion is taking up a lot of the unit's time, Raven says. More international banks are under investigation than at any time in the history of IRS Criminal Investigation, he says. More than 300 investigations of individuals with ties to international banks are under way, with IRS looking for hidden money overseas.
Criminal Investigation (CI) investigates  potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.
IRS Criminal Investigation (CI) is comprised of approximately 4,100 employees worldwide, approximately 2,700 of whom are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
The Criminal Investigation strategic plan is comprised of three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related and Counterterrorism Financial Crimes. These three programs are mutually supportive and encourage utilization of all statutes within CI’s jurisdiction, the grand jury process and enforcement techniques to combat tax, money laundering and currency crime violations. CI must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance and promote public confidence in the tax system.

Friday, March 2, 2012

Even Rich Heirs Deserve A Fair Shake From The IRS -

The IRS wants to tax the Sonnabend estate on a Rauschenberg that can't legally be sold, on the grounds that law-abiding heirs can always sell on the black market. Huh?

It appears that Sonnabend’s heirs sold off works by Jeff Koons, Roy Lichtenstein, Andy Warhol and Cy Twombly to pay estate taxes of $331 million to Uncle Sam and $140 million to New York State.

But they couldn’t even consider selling what might have been the most famous piece in her collection — “Canyon” by Robert Rauschenberg— because the collage contains a stuffed bald eagle and selling it would be a criminal offense, punishable by a year in federal pen.

Given that restriction, the Sonnabend estate tax return (and three different appraisers the estate hired) valued the work at $0. The IRS says it is worth $65 million and is demanding an additional $29 million in tax and an $11.7 million “gross valuation misstatement” penalty from the estate.

To read more go to:

Winter 2012 Statistics of Income Bulletin Now Available

WASHINGTON — The Internal Revenue Service today announced availability of the winter 2012 issue of the Statistics of Income Bulletin, which features preliminary data for 143 million individual income tax returns filed for tax year 2010.

The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis.  Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue of the SOI Bulletin also includes articles on the following:

  • Individual income tax rates and shares. Taxpayers filed 140.5 million returns for tax year 2009. Of those, nearly 82 million (or 58 percent) were taxable, which means that, at the return level, the taxpayer reported total income tax greater than zero. Adjusted gross income (AGI) reported on taxable returns was almost $6.8 trillion, while total income tax was $866 billion.
  • Split-interest trusts. Charitable remainder trusts, charitable lead trusts and pooled income funds reported $8 billion in gross income and $121.2 billion in end-of-year assets for filing year 2010.
  • Domestic private foundations. For tax year 2008, domestic private foundations reported $526.5 billion in total assets and $49.7 billion in total revenue.  These foundations distributed $42.8 billion in contributions, gifts and grants to the charitable sector.     
  • Unrelated business income tax returns. For tax year 2008, tax-exempt organizations filed more than 42,000 unrelated business income tax returns and reported $10.3 billion in gross unrelated business income.  
  • Personal wealth. In 2007, an estimated 2.3 million U.S. adults had gross assets of $2 million or more, holding more than $12 trillion in combined net worth. The study used information reported on federal estate tax returns.
  • Projections of federal tax return filings. The IRS expects that over 239 million tax returns will be filed during calendar year 2012, of which more than 145 million will be from individuals.

The Statistics of Income Bulletin is available for download at Printed copies of the Statistics of Income Bulletin are available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).

IRS Working to Issue Final Rules on FATCA by End of Summer.

The government hopes to issue final regulations under the Foreign Account Tax Compliance Act by the end of the summer, Treasury Deputy Assistant Secretary for International Tax Affairs Manal Corwin said March 1.

In addition, the government will be working to “operationalize” government-to-government information sharing agreements under FATCA, she said at the USA Branch of the International Fiscal Association conference.

The United States, France, Germany, Italy, Spain, and the United Kingdom jointly announced they were working toward such agreements Feb. 8, the same day the Internal Revenue Service issued nearly 400 pages of rules that individual banks could use to report U.S.-owned accounts to IRS.
Corwin stressed the government-to-government agreements are not exceptions, but an alternative approach, to FATCA.

She said the United States is currently in discussions with many other jurisdictions on a similar approach.

Thursday, March 1, 2012

Swiss banking secrecy laws have been further eased, with parliament passing a law on tax cooperation and backing - in principle - a special deal with the United States.

In a lengthy and at times passionate debate which included discussion of some two dozen proposed amendments, the House of Representatives voted 113 to 58 on Wednesday to pass the government’s proposed law on administrative assistance in taxation matters.

The new law replaces a previous regulation for assistance on tax matters and is based on standards set out by the Organization for Economic Co-operation and Development (OECD).

Previously, Switzerland had differentiated between tax evasion and fraud, allowing only for providing assistance in cases of fraud. In a blow to banking secrecy in 2009 it agreed to lift this legal distinction.

The accord would allow for administrative assistance to be provided to the US in matters involving grouped requests for information, based on a suspicious “pattern of behaviour” by people or financial institutions. US tax authorities would not have to provide names or addresses of its suspects in order to receive assistance.

For more information go to:

FinCEN Seeks Comments on Strengthening and Clarifying Customer Due Diligence Requirements

VIENNA, Va. – The Financial Crimes Enforcement Network (FinCEN) today issued an advance notice of proposed rulemaking (ANPRM) to solicit public comment on a wide range of questions pertaining to the possible application of an explicit customer due diligence (CDD) obligation on financial institutions, including a requirement for financial institutions to identify beneficial ownership of their accountholders.

"The explicit requirement that a financial institution know its customers, and the risks presented by its customers, is basic and fundamental to both serving those customers and implementing a program that protects a financial institution from abuse by illicit actors," said FinCEN Director James H. Freis, Jr. “The comments we receive will help us balance the information needs of law enforcement with the responsibilities placed on the financial industry.”

This includes a requirement for financial institutions to identify beneficial ownership of account holders.

FinCEN's press release is at