Thursday, September 26, 2013

IRS Reverses Decision and Allows Bank Leumi Clients to Make Voluntary Disclosures!

On Monday, March 11, 2013, we postedThe IRS Revokes Amnesty to US Taxpayers With Israeli Bank Accounts...They Must be Feeling Faclept;" where we discussed that the Internal Revenue Service sent faxes to tax attorneys nationwide informing them that clients who were previously accepted into its criminal amnesty program for those who disclose once-secret offshore accounts, have “upon further review” been disqualified.

Now the IRS has done a U-turn and now allows previously disqualified US taxpayers back into the offshore Voluntary Disclosure program. In a change of policy, the IRS informed dozens of US expatriates with undeclared bank accounts in Israel they can re-join the Offshore Voluntary Disclosure Program (OVDP). The individuals concerned are clients of Bank Leumi.

The IRS is not explaining as to why the Bank Leumi clients were excluded from the OVDP or why they are being re-admitted to it. A likely reason is that the IRS officer who examined their OVDP applications did not realize they were already known to the IRS as non-compliant. Clients of other Israeli banks who have been excluded from OVDP are now hoping to be re-admitted.

Have unreported income from an Israeli Bank?
Felling a Bit Faclept?
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888 882-9243 begin_of_the_skype_highlightingend_of_the_skype_highlighting).



Tuesday, September 24, 2013


The IRS has begun applying automatic penalties to late-filed Form 5472's.

We knew that since 2009 the IRS has automatically assessed a $10,000 penalty for late-filed Forms 5471's - Information Return of US Persons With Respect to Certain Foreign Corporations. However,
we have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5472's. 

Upon further investigation, we discovered that the IRS has updated its IRM 20.1.9, Penalty Handbook, International Penalties on March 21, 2013 to now include and Automatic Assessment of this $10,000 Penalty for Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.

The Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code), is filed as an attachment to the U.S. income tax return by the due date of that return, including extensions. If the reporting corporation’s income tax return is not timely filed, Form 5472 nonetheless must be timely filed at the campus where the return is due. When the income tax return is ultimately filed, a copy of Form 5472 must be attached.

The IRM 20.1.9, Penalty Handbook, International Penalties also provides:

  1. Pattern Letter for Failure to File Form 5472 ( Form Letter) See Exhibit 20.1.9-8     
  2. Penalty Assertion   ( (03-21-2013) An initial penalty is asserted on Form 8278 using PRN 625 when the examiner determines that a U.S. corporation that is 25 percent foreign-owned during a taxable year has had transaction(s) with a related party and:   
    • Has failed to timely file Form 5472,
    • Has filed a Form 5472 which is inaccurate or incomplete, or
    • Has failed to maintain records of transactions with related parties.
  3. Penalty Computation ( (03-21-2013) Initial Penalty—The initial penalty is $10,000 for each failure during a taxable year of a reporting corporation to:                    
    • Timely file a separate Form 5472 with respect to each related party with which it had a reportable transaction during such taxable year,
    • Maintain the required records relating to a reportable transaction, or
    • In the case of records maintained outside the U.S., meet the non-U.S. record maintenance requirements.
  4. Continuation Penalty—If any failure continues more than 90 days after the day on which the notice of such failure was mailed to the taxpayer (90-day period), additional penalties will apply. The continuation penalty is $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of the 90-day period. These additional penalties are also asserted on Form 8278 using PRN 701 (prior to January 2013, PRN 619 was used for this continuation penalty).       

Reasonable Cause     

Our Experienced Tax Attorneys at M&A have extensive experience with obtaining waivers of penalty based upon "Reasonable Cause" and have been able to get automatic assessments of the $10,000 Penalty for Form 5471's, waived after their assessment or at Appeals!
Has your Company been assessed an
Automatic $10,000 Penalty for Form 5472?

Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243)

S Corporation Shareholder Compensation - How Much Is Reasonable?

A shareholder-employee’s compensation from an S corporation is often subject to IRS scrutiny because S corporation flow-through income enjoys an employment tax advantage over that of sole proprietorships, partnerships and LLCs. This advantage finds its genesis in Revenue Ruling 59-221, which held that a shareholder’s undistributed share of S corporation income is not treated as self-employment income. In contrast, earnings attributed to a sole proprietor, general partner or many LLC members are subject to self-employment taxes.

As employment tax rates have climbed, this advantage of operating as an S corporation has become magnified. Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize their salary in favor of distributions, which are also not subject to payroll or self-employment tax.

So how does a taxpayer or more likely his advisor dertermine what is "reasonable compensation" for an owner/employee of an S Corporation?

What's a Reasonable Salary?

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly.  However, if cash or property or the right to receive cash and property did go the shareholder, a salary amount must be determined and the level of salary must be reasonable and appropriate.

There are no specific guidelines for reasonable compensation in the Code or the Regulations. The various courts that have ruled on this issue have based their determinations on the facts and circumstances of each case.

For tax advisers, the Eighth Circuit’s decision should reinforce the lessons taken home from the original Watson decision. The IRS is taking a formal, quantitative approach towards determining reasonable compensation, so to adequately advise our clients, we must be prepared to do the same thing. At a minimum, in setting the compensation of our S corporation shareholder-employee clients, you should  consider the following:
  1. Nature of the S Corporation’s Business. It is no coincidence that the majority of reasonable compensation cases involve a professional services corporation, such as law, accounting, and consulting firms. It is the view of the IRS that in these businesses, profits are generated primarily by the personal efforts of the employees, and as a result, a significant portion of the profits should be paid out in compensation rather than distributions.
  2. Employee Qualifications, Training and Experience, Duties and Responsibilities, and Time and Effort Devoted to Business. A full understanding of the nature, extent, and scope of the shareholder-employee’s services is essential in determining reasonable compensation. The greater the experience, responsibilities and effort of the shareholder-employee, the larger the salary that will be required.
  3. Compensation Compared to That of Non-shareholder Employees or Amounts Paid in Prior Years. Here, common sense rules the day. In Watson, a CPA with significant experience and expertise was paid a smaller salary than recent college graduates. Clearly, this is not advisable.
  4. What Comparable Businesses Pay for Similar Services. Tax advisors should review basic benchmarking tools such as,, Robert Half, and Bureau of Labor Statistics wage data to determine the relative reasonableness of the shareholder-employee’s compensation when compared to industry norms.
  5. Compensation as a Percentage of Corporate Sales or Profits. Tax advisors should utilize industry specific publications such as the MAP to determine the overall profitability of the corporation and the shareholder-employee’s compensation as a percentage of sales or profits. Whenever possible, comparisons should be made to similarly sized companies within the same geographic region. If the resulting ratios indicate that the S corporation is more profitable than its peers but paying less salary to the shareholder-employee, tax advisors should determine if there are any differentiating factors that would justify this lower salary, such as the shareholder’s reduced role or the corporation’s need to retain capital for expansion. If these factors are not present, an increase in compensation to the industry and geographic norm provided for in the publications is likely necessary.
  6. Compensation Compared With Distributions. While large distributions coupled with a small salary may increase the likelihood of IRS scrutiny, there is no requirement that all profits be paid out as compensation. Though the District court in Watson re-characterized significant distributions as salary, it permitted Watson to withdraw significant distributions in both 2002 and 2003. Perhaps the court was content to re-characterize just enough distributions to ensure that Watson’s compensation exceeded the Social Security wage base in place for the years at issue.  
There has never been a case where the courts have reclassified distributions to salary in excess of the Social Security wage base. This approach makes sense, because once compensation equals the Social Security wage base, the payroll tax savings on the shareholder-employee’s remaining distributions amount only to the 2.9% Medicare tax.

Watson, in many respects, was a precedent-setting case in the S corporation reasonable compensation arena, as it shed much-needed light on the methodology the IRS and the courts will employ to determine an amount of reasonable compensation and thereby provided an analytical approach tax advisers can follow when guiding their clients.

Need Defendable S Corporation Tax Advice?
Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243 begin_of_the_skype_highlightingend_of_the_skype_highlighting). 





When You Need a Tax Attorney not a tax resolution firm?

Reprint of Blog Post - AnthonyParent:
This is a true story: In 2011, “Steve,”  a taxpayer in New York City, is in serious trouble with the IRS. He searches the internet for an “IRS tax attorney.” He makes the mistake of believing a tax resolution firm in California are attorneys (because they claim to be). He gives them $32,000 to solve his tax problem. Two years later, his tax balances have gone up, his situation is now much much worse:

Steve is now facing
Criminal Charges for


There is big money to make off the misery of taxpayers with income tax problems. 

IRS tax debt relief companies have huge marketing budgets. According to our research, some of them are spending upwards to $18,000 a pay-per-click advertising IRS debt relief services — per day. That means, in order to hit their profits margins  and pay their staff something, they must take in $50,000 a day in new revenue in order to keep the lights on.

So how are they going to get money form you? What questions can you ask to keep yourself safe from making a huge mistake? 

1. Are they promising you anything to get you to sign up?

Here’s what you need to know about taxes. If you agree with the tax debt, you can only reduce the amount owed if you don’t have the money. There is no magic wand. If I could lower my tax automatically by hiring myself, I would. 

Some scam companies actually make cold calls to people with tax liens. I’ve posed as one of my clients just to hear what they would say. Here’s some choices lies I heard over the years:
· Your federal tax lien amount can automatically be cut in half. 

· You can reduce your payroll taxes by up to 70% by requesting a penalty abatement in a case where penalties only constitute 20% of the total debt.

· The centralized IRS appeals is located right next door to this firm so that they have special insider access to the best deal.

Sometimes the answer to a tax problem, is cleaning up a mess, getting and staying into current compliance and then finding a repayment solution you can live with. And actually that’s a pretty good resolution if you think about it.  

2. Are they giving you nearly unlimited time to pay your fee?

Here’s the thing. If you owe money to the IRS, you are not a great credit risk. Sorry to be the one to tell you that. So if a company is  extending payment terms to you for years, you should really be wondering why. Are they really doing you a favor? Are they really investing all of this work to resolve your case in a few months even though you only paid a fraction of your fee, and even though your credit risk, for this unsecured debt is terrible?  

Or could it be, they simply file a power of attorney with the IRS and make a few phone calls and then tell you to fill out a form 433a, without guidance or any sense of urgency? Could it be that because you haven’t invested much into your case, they aren’t going to either?  
Because if that’s all they did, even if you only made a handful of payments, they would still make money. The thing is, your tax problem got bigger and it will be more difficult and more expensive to repair delay and mistakes made. 

When people are serious about getting real help for solving a tax problem, guess what, coming up with that legal fee is not going to be easy. It is going to be a commitment they are making to their selves that they are serious.
Our firm demands, rightfully so, to be paid an adequate compensation for their skills& experience. In order to get the best, you got to be prepared to secure the best by producing payment, not promises. 
Coming up with the legal fee necessary to secure competent legal representation is something that may require asking a friend or family member for some help. If a friend or family member won’t take a chance on you, if you are that poor of a credit risk to people who know you, then why should a legitimate tax law firm — who actually has to pay money for the best legal talent — take a gamble on you?  

3. If they claim to be attorneys, who is the attorney of record?

And this is what did in “Steve” above. He had a tax problem situation with real criminal exposure. And he was told their legal team of attorney would give him the best legal advice. Thing is, there was never any legal team. And he could have found this out simply by looking for the name of just one attorney on the firm’s website. Or he could have refused to hire them until he actually spoke with an attorney who was actually license to practice law.  

If Steve name to us in 2011, we would have stopped everything and put him into the domestic voluntary disclosure program. This would have removed the threat of any criminal prosecution and we would have worked with the IRS to figure out his balance and a settlement structure for the balance. Instead, the California firm, just let Steve dangle in the wind, never getting the case moved, never stopping the IRS criminal investigations from pursuing Steve. 

The thing is, is that we would have charged Steve $35,000 in 2011. Just $3000 more than the scam outfit charged. And by now, his problem would be behind him. But instead, we have to charge more and we have fewer options. 

Have a Tax Problem...Hire a Tax Attorney!

Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243). 







Friday, September 20, 2013

Stat Notice or Form 870?

We are closing the appeal of an audit that's been ongoing for several years.  

The issue is that the income of a Foreign Corporation, owned by the taxpayer's foreign relative, is being attributed to the US taxpayer for the year 2010. 

This foreign Corporation had a large gain from the sale of an asset in 2008, which was recognized in installment payments over three years from 2008 – 2010. 

At appeals we discovered that in 2010 this same Foreign Corporation also had losses, which were not reflected in the taxpayer's original return nor scheduled as an adjustment on the form 4549A during the Audit.  

One solution is to have the case transferred back to the revenue agent, who is not enamored with our taxpayer.

The Appeals Officer wants to close our appeal with a Form 870 which provides that: 

“Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are so entitled.” 

The issue here is whether by signing the form 870, the taxpayer has agreed to the amount of income from the foreign Corporation which is attributed to him for 2010 and therefore is foreclosed from filing an amended 2010 Form 1040x to reflect this loss? 

The other solution is to close the case at appeals with a statutory notice of deficiency and then file an amended form 1040x to reduce the additional assessed income, generated by the foreign Corporation, by the 2010 loss which was not taken into account during the audit. 

Would you go with the stat. notice or the Form 870?


Whistle Blower Leaks Offshore Financial Records of 550 Canadians!

As we posted on May 6, 2013 Whistleblower Exposes Massive Offshore Corruption! discussing the release this of an investigation by the International Consortium of Investigative Journalists into off-shore holdings of people and companies in more than 170 countries and territories hiding trillions of dollars in income and assets. Now we come to discover that the names of 550 Canadians have been found in these 2.5 million recently leaked records from offshore financial centers.  The files include personal and financial details relating to those linked to companies and trusts in the South Pacific and Caribbean.

One of the most infamous names is Toronto-based Peter Sabourin, whose name appeared 1,449 times in the files. Found liable for fraud at several Ontario Superior Court trials in 2007, Sabourin now owes more than CAD32 million to his investment victims and is still being investigated by Ontario Provincial Police.    

There is going to be some civil and criminal exposure for some of those Canadians named in this list "EY."

Secret Foreign Investments Keeping You Awake at Night?

Want to get right with the IRS?
(or Canada Revenue Agency)
Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243). 


CBC News

Cottage Country Now

Wednesday, September 18, 2013

Cayman Banks to Disclose US Taxpayer's Information to the IRS!

We originally posted on August 26, 2013, Caymans Makes It Tougher for Wealthy to Hide Money! Were we discussed that the Cayman Islands, known as a haven for wealthy Americans seeking to stash cash overseas without scrutiny from the U.S. government, is about to become less secret.

United States’ taxpayers are required to report offshore financial holdings. This includes bank accounts, certificates of deposit, offshore brokerage accounts and even some life insurance products. Reporting is done annually on a Report of Foreign Bank and Financial Accounts, more commonly known as an FBAR form. (Depending on how those assets are held, there may be a host of other forms required as well.)
While some people think of secret numbered Swiss bank accounts when thinking about offshore finances, many Americans have accounts, hedge fund holdings and insurance products in the Cayman Islands.

Coming directly on the heels of the IRS’ agreement with Switzerland to access Swiss bank records, the United States and the Cayman Islands have reached a similar accord. The Caymans becomes one of the newest countries to sign on to the Foreign Account Tax Compliance Act (FACTA). Congress passed FATCA in 2010 to require foreign banks and financial institutions to provide information about accounts with ties to the United States.

Quickly, the traditional bank secrecy jurisdictions such as the Cayman Islands are becoming more transparent. At the same time, the IRS is getting much better at ferreting out unreported foreign accounts.

In lieu of individual banks and other financial firms directly reporting to the IRS, the Cayman government negotiated to be the collector of information. They will then provide the information to the IRS.

The automatic reporting provisions of FATCA and the agreement with the Cayman Islands begins next year. Banks will be required to do a look back to catch anyone who simply elected to close their account or transfer their money in anticipation of the new law.
Do you have an Unreported Account in
the Cayman Islands or Elsewhere?
 Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation at:
Toll Free at 888-8TaxAid (888 882-9243).

Tuesday, September 17, 2013

2 New FATCA FAQ's Posted on IRS Website.

We originally posted on Friday, July 19, 2013, IRS Launches New FATCA Web Page. Now 2 new FATCA frequently asked questions (FAQs) documents have been posted on
  1. The first set of FAQs  is focused on FATCA registration system questions.  
  2. The second set of FAQs deal with FATCA issues involving qualified intermediaries and, separately, address issues involving registration and IGAs.
The FATCA web page now contains:

FATCA Registration System – Overview
Registration System Resource Materials
General System Questions
FATCA Account Creation and Access
Registration Status and Account Notifications
Expanded Affiliated Groups (EAG)
Registration Updates
Global Intermediary Identification Number (GIIN) – Overview
GIIN Format

Need FATCA Help?

Contact the Tax Lawyers
of Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243).  

Monday, September 16, 2013

TIGTA - Shows That IRS Violated the Restrictions on Directly Contacting Taxpayers 11.5% of the Time!

A review of the IRS Office of Appeals, which resolves disputes between the agency and taxpayers, found officials did not always follow proper procedures when dealing with taxpayers or their legally designated representatives.

A review of a statistical sample of 96 of 72,239 cases closed by Appeals between October 1, 2011 and September 30, 2012, showed that Appeals personnel are generally involving the power of attorneys in case activities. 
However, the documentation in case activity records in the ACDS (Appeals Centralized Database System) and in the physical case files that we were able to obtain did not always show that Appeals personnel adhered to procedures that help ensure compliance with the direct contact provisions of the I.R.C. and that taxpayers obtain appropriate and effective representation. 
Specifically, we identified the following conditions in 11 of the 96 cases reviewed.
  • In 2 cases, Appeals personnel attempted to contact the taxpayer directly by telephone instead of contacting the representative designated on the power of attorney in the ACDS or Integrated Data Retrieval System.  There was no evidence indicating the power of attorney was delaying the process or that Appeals personnel contacted their manager for approval to contact the taxpayer as required by direct contact provisions of the I.R.C.
  • In 9 cases, there was no evidence that copies of taxpayer correspondence were sent to the power of attorney identified on the ACDS or Integrated Data Retrieval System.   For 6 of the 9 cases, this occurred as part of the initial contact.  IRS policy requires that all original     correspondence be sent to the taxpayer and a copy sent to the taxpayer’s authorized representative, unless the taxpayer has indicated otherwise on Form 2848.
o      For 6 of the 9 cases, this occurred as part of the initial contact.  IRS policy requires that all original correspondence be sent to the taxpayer and a copy sent to the taxpayer’s authorized representative, unless the taxpayer has indicated otherwise on Form 2848.

 For of the 9 cases, neither the documentation in the hard copy case files nor the case activity records in the ACDS showed that copies of the taxpayer correspondence were mailed to the power of attorneys.
o      For 5 of the 9 cases, Appeals personnel did not document in the ACDS case history narratives whether copies of taxpayer correspondence were sent to the power of attorneys.  Although we were unable to obtain the hard copy case files for these cases, Appeals guidelines require that all key actions be documented in the ACDS. 
When the sample results are projected to the population, we estimate that the deviations may have Negatively Affected 8,277 Taxpayers.
Moreover, the deviations also leave the IRS vulnerable to a greater risk of taxpayers seeking to recover monetary damages from the IRS if they believe its personnel are intentionally disregarding the direct contact provisions of the I.R.C.

We tell our clients that if IRS contacts them directly, even after we have filed our Power of Attorney, they should be polite and advise them that they are represented by Marini & Associates, P.A and then give them our phone number and ... Say Nothing Else!

IRS Troubling You?

Contact the Tax Lawyers at
Marini & Associates, P.A.
for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243 begin_of_the_skype_highlighting 888 882-