IRS ‘Dirty Dozen’ List Warns People About Offer in Compromise ‘Mills’ - Call M&A for Real & Experience Tax Attorneys!

WASHINGTON – The Internal Revenue Service continued its “Dirty Dozen” tax scams with a warning for people to watch out for predators using tax-related schemes ranging from fake charities to scams targeting seniors and immigrants.

The IRS continues to see a group of ruses by dishonest people who trick others into doing something illegal or which ultimately causes them harm. Predators encourage otherwise honest people to do things they don’t realize are illegal or prey on their good will to take something from them.

Here are five of this year’s “Dirty Dozen” scams. 1. Fake charities, 2. Immigrant/senior fraud 3. Seniors beware, 4. Offer In Compromise ‘Mills’ and 5. Unscrupulous Tax Return Preparers. 

Offer In Compromise ‘Mills’ 

Offer in Compromise mills contort the IRS program into something it’s not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.

“We’re Increasingly Concerned That People Having Trouble Paying Their Taxes Are Being Duped Into Misleading Claims About Settling Their Tax Debts For ‘Pennies On The Dollar’,” Said IRS Commissioner Chuck Rettig. 

The IRS urges people to take a few minutes to review information on IRS.gov to see if they might be a good candidate for the program and Avoid Costly Promoters Who Advertise On Radio And Television.”

The IRS Reminds Taxpayers To Beware Of Promoters Claiming Their Services Are Needed To Settle With The IRS, That Their Tax Debts Can Be Settled For “Pennies On The Dollar” 
or That There Is A Limited Window Of Time To Resolve Tax Debts Through (OIC).

An “offer,” or OIC, is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. However, some promoters are inappropriately advising indebted taxpayers to file an OIC application with the IRS, even though the promoters know the person won’t qualify. This costs honest taxpayers money and time.

Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. 

Companies Advertising On TV Or Radio
Frequently Can’t Do Anything For Taxpayers ...

For more information about Tax Relief Companies see the information on fake charity scams on the Federal Trade Commission web site detailing how Tax relief companies use the radio, television and the internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. 

The truth is that most taxpayers don't qualify for the programs these fraudsters hawk, their companies don't settle the tax debt, and in many cases don't even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don't provide refunds, and leave people even further in debt.

The majority of tax settlement companies charge their clients an initial fee that can easily run anywhere between $3,000 to $6,000, depending on the size of the tax bill and proposed settlement. In most cases, this fee is completely nonrefundable. This fee quite often mysteriously mirrors the amount of free cash the client has available. This is generally the amount of cash the company says it will save the client in tax payments.

Clients have also complained to the Better Business Bureau (BBB) and the Federal Trade Commission (FTC) that some of these firms have not produced any of the promised results and, in fact, the organization was a scam. Many firms also materially misrepresent their fees to clients, perhaps charging them initially with a lower fee before coming back for more once they are deeply involved in the process.

Have a Tax Problem?    

 

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Contact the Tax Lawyers at 

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or Toll Free at 888-8TaxAid (888 882-9243).

 

 



New $25,000 Penalty for Not Reporting SMLLC with Foreign Owner Now Being Assessed by the IRS

In a December 2016 post, Foreign Owned Domestic Disregarded Entities Must Report Under New Regs. we discussed that the IRS has now issued final regulations and they treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner, but only for the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A. 

These changes were intended to provide IRS with improved access to information that it needs to satisfy its obligations under U.S. tax treaties, tax information exchange agreements and similar international agreements, as well as to strengthen the enforcement of U.S. tax laws. TD 9796, 12/12/2016; Reg. § 1.6038A-1, Reg. § 1.6038A-2, Reg. § 301.7701-2. These regulations are effective December 13, 2016.

For Tax Years Beginning After December 31, 2017,
The TCJA Act Increased The Penalty To $25,000 From $10,000
For Each Return That Must Be Filed.

For US tax purposes, a limited liability company (LLC), that has a single owner (Single Member LLC, or SMLLC) and is not classified as a corporation is generally disregarded as separate from its owner (a Disregarded Entity). The economic activities of the SMLLC are attribute to the owner of the LLC for tax purposes, as if the LLC did not exist. 

This concept allowed a foreigner to use a SMLLC to conduct certain economic activities in an “anonymous” manner prior to TCJA 2017.

Foreigners have traditionally used SMLLCs to do the following activities, without having to declare anything in the United States:

• Maintain bank accounts in the United States in the name of a company, yet with the same tax benefits as an individual investor.
• Conduct international trading business using the United States as a hub.
• Hold property with limited personal liability and without publishing the name of the final beneficiary in public records.
• Legally compartmentalize a series of financial and/or real estate investments in different entities without creating a new taxpayer for each separate investment.
• Being a subsidiary of a foreign company doing any of the activities previously mentioned, etc.

In preparation for exchanging more information with other countries, at the end of 2016 Congress revised the law so that SMLLCs were no longer considered transparent for purposes of reporting on their international transactions and foreign ownership. Beginning with the 2017 tax year, SMLLCs with foreign owners and reportable transactions needed to:

1. Apply for a taxpayer number, for which it may be necessary that the ultimate beneficial owner list their taxpayer number (ITIN) or apply for one.
2. Identify and report the LLC’s direct and indirect foreign owners, including the ultimate beneficial owner(s).
3. Break down “reportable” transactions between the LLC and its owner(s) and/or other “related parties.”
4. Report the total value of the LLC’s assets.
5. Maintain books and records subject to audit.

Foreign-owned Corporations were already subject to filing form 5472, and the requirements for SMLLCs are basically the same with one important exception. The definition of “reportable transactions” was expanded for SMLLCs to include not only things such as payments and loans, but also capital contributions and distributions. Therefore, it can easily be that Form 5472 and the corresponding information will have to be presented by each SMLLC every year.

The civil penalty for failing to file a Form 5472, even if the non-filing was unintentionally, was increased from $10,000 for the 2017 fiscal year to $25,000 in 2018. 

The penalty is also applied whenever an incomplete, or late form is filed. Because a separate form 5472 is required for each “related party” in each year that there is a reportable transaction, the penalty can easily multiply for each transaction which the SMLLC has with each “related party.” In addition, failure to maintain updated books to verify transactions constitutes an additional $25,000 penalty. 

Both penalties increase by $25,000 each month that non-compliance continues in case the breach is not resolved within 90 days after the tax authority sends the notice of a penalty. If the LLC does not pay the penalty, the tax lien could be extended to the assets of the LLC even if they are transferred to another owner and in some cases, be enforceable against the owners of the LLC.

 Have an Un-Filed Form 5472 Tax Problem

For a SMLLC? 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

 for a FREE Tax Consultation Contact US at 

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243).
 

Inability to Use Tax Software Properly Does Not Constitute "Reasonable Cause"

The court of claims In ALL STACKED UP MASONRY, INC. v. U.S., 26 AFTR 2d 2020-XXXX, (Ct Fed Cl), 10/22/2020 held that “Taxes are what we pay for civilized society.” Compania General De Tabacos de Filipinas v. Collector, 275 U.S. 87, 100 (1927) (Taft, C.J.). For good reason, there are few lawful justifications for failing to pay one's taxes. 

Plaintiff All Stacked Up Masonry, Inc. (“All Stacked Up”), a corporation, believes it has such an excuse. It brings this suit to challenge penalties and interest assessed by the Internal Revenue Service (“IRS”) following its failure to file the appropriate payroll tax documents and its failure to timely pay payroll tax liabilities for multiple tax periods.

All Stacked Up filed its Complaint seeking a refund of $95,590.67, the amount it previously paid to the IRS in tax penalties and interest for the periods ending December 31, 2013, through December 31, 2015. All Stacked Up asserts that its failure to comply with its tax obligations should be excused due to “reasonable cause” and thus, the penalties and interest it paid should be refunded. 

The basis of All Stacked Up's assertion of reasonable cause involves an injury suffered by the owner, Sean Spraungel. 

This Injury Caused All Stacked Up To Delegate Tax Preparation Responsibilities To An Employee, Who Could Not Properly Operate The Tax Preparation Software. 

The Employee's Failures Left All Stacked Up
Noncompliant With Its Tax Obligations.

Although Spraungel may have suffered significant injuries after falling on ice, and other employees of the corporation may have experienced user difficulties in operating tax preparation software, these excuses cannot establish “reasonable cause” necessary to abate tax penalties assessed by the IRS. 

Furthermore, even if All Stacked Up could show reasonable cause for failing to file a return or pay the taxes owed, part of All Stacked Up's claim would nevertheless be barred by the applicable three-year “look-back” period.

For the reasons set forth above, the Court hereby GRANTS the United States' motion to dismiss, (ECF No. 11), pursuant to RCFC 12(b)(6), and DISMISSES All Stacked Up's Complaint without prejudice. The Clerk is directed to enter judgment accordingly.

Have IRS Tax Problem?

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

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)