OVDP Ended Sept. 28 - So Now What?

We originally posted on March 13, 2018 IRS to End OVDP Sept. 28 - Last Chance for Taxpayers With Undisclosed Foreign Assets! where we discussed that the Internal Revenue Service announced in IR-2018-52 that it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018.

The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017. 

The IRS will maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system.

1. Voluntary Disclosure

Taxpayers who willfully failed to report income and assets will no longer be able to use OVDP but should be able to comply through updated IRS compliance procedures. The IRS is in the process of reviewing the Internal Revenue Manual (“IRM”) Voluntary Disclosure Practice. Taxpayers who want more information about IRS's Voluntary Disclosure Practice can click Internal Revenue Manual (IRM) 9.5.11.9. Taxpayers who made non-willful mistakes or omissions on their tax returns should file amended returns or delinquent returns as soon as possible. 

2. Streamlined Filing Compliance

FAQ#6.

Are there any changes to the Streamlined Filing Compliance Procedures with the closure of the 2014 OVDP?

No. The Streamlined Filing Compliance Procedures will remain available after the 2014 OVDP closes. The IRS encourages taxpayers who have offshore compliance issues and meet all of the qualifications of the Streamlined Filing Compliance Procedures to use these procedures while they are available.  Only taxpayers that can certify under penalties of perjury that their conduct was non-willful may use the Streamlined Filing Compliance Procedures.

3. Delinquent FBAR Submission

FAQ#9.

Will the delinquent FBAR submission procedures and the delinquent international information return submission procedures remain available after the 2014 OVDP closes?

Yes.  The delinquent FBAR procedures and the delinquent international information return procedures will remain available for eligible taxpayers after September 28, 2018. Both procedures are for taxpayers that have information reporting failures but no tax noncompliance

4. Late Returns With Reasonable Cause Statement

Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

• have not filed one or more required international information returns,
• have reasonable cause for not timely filing the information returns,
• are not under a civil examination or a criminal investigation by the IRS, and
• have not already been contacted by the IRS about the delinquent information returns

should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.

 

You Should Rectify Any Unreported Offshore Accounts NOW!

As the IRS continues to combat offshore tax avoidance and evasion using: 

• FATCA Information
• 150 Offshore Banks Turning Over Names To The IRSyour radio 
• Data Mining
• whistleblower leads,
• civil examination and
• criminal prosecution.

Click How Will the IRS Know About My Foreign Account? to learn the answers about "How will they (IRS) know about my Foreign Account?;" that noncompliant US taxpayers ask when they are considering how (or whether) to come clean and inform the IRS about their previously undisclosed foreign financial accounts.

1,545 TAXPAYERS

Have Been Indicted Related To International Activities

Through The Work Of IRS

Criminal Investigation Since 2009.

The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations related to undisclosed foreign financial assets. 

 

 Do You Have Undeclared Income From An Offshore Banks

 or Financial Advisors?

 

 

Is Your Name Being Handed Over to the IRS?

  

Want to Know Which Remaining IRS Program is Right for You? 

 

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

 

 

The IRS Whistleblower Reward Program

The IRS estimates that the United States loses $450 billion per year to tax evasion. In 2006, Congress enacted legislation providing robust incentives for whistleblowers to report tax fraud.  Under 26 USC § 7623(b), the IRS is required to issue an award to tax whistleblowers of 15% to 30% of proceeds collected from tax fraud or tax underpayments

 

Who can get an award?

 

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) - Whistleblower Rules.

 

The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000.

The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court.

The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) - Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million. 

If a whistleblower meets the requirements above, the whistleblower may be able to receive 15% to 30% of proceeds collected from tax fraud or tax underpayments.

 

To discuss potential representation in a tax fraud whistleblower case, click here. 

Want a Reward of Between 15- 30% of
Underpaid IRS Tax Liabilities for

Blowing the Whistle on a Tax Cheat? 
_____

____

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

for a FREE Tax Consultation

at: www.TaxAid.com or www.OVDPLaw.com

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

 

US Taxpayers Are Receiving Automated $10,000 Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help!

On June 21, 2016 we posted  US Taxpayers Are Receiving Automated $10,000 Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help! where we discussed that we have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5471 & 5472's. The Internal Revenue Service imposes an automatic penalty of $10,000 whenever an individual or company is late in filing an information return disclosing their interest in a foreign corporation, regardless of whether there is any associated underreported of income or tax deficiencies.

Now in a recently updated International Practice Unit (IPU), IRS has explained the Code Sec. 6679 penalty for certain U.S. persons that are required to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, but fail to file, fail to file on time, or file an incomplete form. The IPU includes, among other things, insight as to what constitutes reasonable cause for failing to file.

IPUs are not official IRS pronouncements of law or directives and cannot be used, cited, or relied upon as such. Nonetheless, they identify strategic areas of importance to IRS and can provide valuable insight as to how IRS examiners may audit a particular issue or transaction.

U.S. persons including businesses with at least a 10 percent interest in a foreign corporation or who are officers of a foreign corporation in which any U.S. person owns or acquires a 10 percent interest are required to file a Form 5471 with their tax return to disclose their ownership.

The IRS has begun to automatically applying the $10,000 penalty for each Form 5471 and Forms 5472 that was filed after the due date. 

There are ways to defend against these automatic assessments and request penalty abatement. There are four defenses that you should consider when assess the penalty for filing an international information return after the due date.

1. Follow the Delinquent Information Return Procedure - First, the taxpayer can file through the Service's procedures for delinquent international information returns. This procedure is appropriate for taxpayers who can establish reasonable cause for their failure to file or whose failure to file has caused no or nominal tax non-compliance. This procedure cannot be used, however, if the taxpayer is already under audit or investigation or has otherwise been contacted by the Service about the delinquent information returns. Under this procedure, the taxpayer files the delinquent returns with a statement of the facts establishing reasonable cause for the failure to file. In the "Frequently Asked Questions" section, the Service explains that taxpayers with tax noncompliance can use this procedure, but that the Service may impose penalties if it does not accept the taxpayer's reasonable cause explanation.
2. Ask for a First-Time Offender Abatement (FTA) - Generally, an FTA can provide penalty relief if the taxpayer has not previously been required to file a return or has no prior penalties (except the estimated tax penalty) for the preceding three years with respect to the same IRS  File (IRM §20.1.1.3.6.1). With respect to a Form 5472 late-filing penalty, the IRM provides for an FTA if an FTA was applied to the taxpayer's related Form 1120 late-filing penalty or no penalty was assessed on the related Form 1120 (IRM §21.8.2.20.2).
3. Reasonable Cause Defense - Under Section 6038 of the tax code, which lays out the information reporting requirements for individuals and businesses with an interest in foreign corporations and the penalties for delinquent filing, penalties may be abated if a reasonable cause exists for the failure to file. However, neither the statute nor the applicable regulations define a reasonable cause standard for the abatement. Treasury Regulations Section 301.6651-1(c) provide a definition of what constitutes reasonable cause for failure to file corporate income tax returns and says that "if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to reasonable cause." and
4. Statute of Limitations - Though a $10,000 penalty may discourage some from filing in international information return after the deadline, there is a greater exposure to not late filing and information return and that is that the statute of limitations for tax returns which is generally three years does not apply for returns that are missing the information reports and the statute remains open indefinitely. Under the indefinite statute of limitations, not only can the IRS make adjustments to items related to the international information returns, but they also can examine any other area on the tax return. 

A Category 2 filer is a U.S. citizen or resident who is an officer or director of a foreign corporation in which a USP has acquired, in one or more transactions:

• . . . stock which meets the 10% stock ownership requirement (described below) with respect to the foreign corporation, or
• . . . an additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation.

For purposes of both Categories 2 and 3, the stock ownership threshold is met if a USP owns 10% or more of the (i) total value of the foreign corporation's stock, or (ii) total combined voting power of all classes of stock with voting rights. (Reg. § 1.6046-1(a), Reg. § 1.6046-1(c) ). A USP is treated as having acquired stock in a foreign corporation when the person has an unqualified right to receive it. (Reg. § 1.6046-1(f)(1))

A Category 3 filer is:

• . . . A USP who acquires stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation,
• . . . A USP who acquires stock which, without regard to stock already owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation,
• . . . A person who is treated as a U.S. shareholder under Code Sec. 953(c) with respect to the foreign corporation,
• . . . A person who becomes a USP while meeting the 10% stock ownership requirement with respect to the foreign corporation, or
• . . . A USP who disposes of sufficient stock in the foreign corporation to reduce his or her interest to less than the 10% stock ownership requirement. (Code Sec. 6046, Reg. § 1.6046-1(c))

There are a number of exceptions to the filing requirement for Category 2 and 3 filers, including when multiple persons are required to file Form 5471 and applicable schedules with respect to the same foreign corporation for the same period (in which case the form may be jointly filed).

Guidance for examiners. IRS examiners are instructed to determine whether a taxpayer who is required to file Form 5471 in fact filed a timely and accurate form. As noted above, the Form 5471 is due when the USP's income tax return is due, with extensions (and taking into account if the last day for filing was a weekend or legal holiday), and must be filed with that return. If one was not timely filed, or it wasn't complete, then penalties may be asserted unless the failure was due to reasonable cause.

While identifying Forms 5471 that were required, but not filed, for the exam year(s), examiners are instructed to consider reviewing whether similar failures occurred in earlier tax years. The IPU notes that the related income tax returns for the prior years are not required to be under exam to assess penalties under Code Sec. 6679.

There are ways to defend against these automatic assessments and request penalty abatement. These four defenses should be considered when your receive a $10,000 penalty for filing an international information return after the due date.

Has  Your Company  Been Assessed an
Automatic $10,000 Penalty for a Late Form 5471 or 5472?

Contact the Tax Lawyers at 

Marini & Associates, P.A.

for a FREE Tax Consultation

at www.TaxAid.us or www.TaxLaw.ms

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

 

 

Former Colorado Resort Owner, Race Car Driver, Sentenced To Prison Again

According to DoJ, a Scottsdale, Arizona man, who formerly resided in Pagosa Springs, Colorado, was sentenced on October 9, 2018 in the U.S. District Court for the District of Colorado to 18 months in prison for filing a false tax return.

According to court documents, William Whittington, 68, filed a false 2010 individual income tax return, on which he underreported income received from his offshore accounts and through the payment of his personal expenses by an entity over which he exercised managerial control.

From 2010 to 2012, Whittington directed that the Springs Resort & Spa, in Pagosa Springs, Colorado, a business managed by Whittington and family members at the time, pay over $1 million of his personal expenses.

The Total Additional Tax Due For Those 3 Years, 2010 Through 2012, Based On Whittington’s Failure To Report The Payment Of The Personal Expenses As Income Is $364,994.00.

 From 2003 to 2010, Whittington failed to report $9.7 million in investment income generated through two offshore bank accounts in Liechtenstein. Combined with the tax loss from the resort payment of his personal expenses, Whittington’s fraudulent conduct created a $1.8 million tax loss.


Whittington is a competitive racecar driver, whose team won the 1979 24 Hours of Le Mans.

Whittington was previously sentenced to prison in 1987 for evading income tax and importing multiple tons of marijuana. See United States v. Whittington, 918 F.2d 149 (11th Cir. 1990).

Some People Never Learn!

In addition to the term of imprisonment imposed, U.S. District Court Judge Robert E. Blackburn ordered Whittington to serve one year of supervised release.

Whittington paid approximately $1.8 million in restitution to the Internal Revenue Service as a condition of his plea agreement.

 

 

Do You Have a Tax Problem?

 

  

Contact the Tax Lawyers of

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

 

Wealthy People Pay Enought Taxes - Top 3% Paid Majority of Taxes in 2016

Individual income taxes are the federal government’s single biggest revenue source. In fiscal year 2018, which ended Sept. 30, the individual income tax is expected to bring in roughly $1.7 trillion, or about half of all federal revenues, according to the Congressional Budget Office.

If past statistics can offer any guidance, in 2016, $1.44 trillion income taxes were paid by 140.9 million taxpayers reporting a total of $10.2 trillion in adjusted gross income, according to data recently released by the Internal Revenue Service.

Bloomberg looked into the 2016 individual returns data in detail for some additional insights illustrated in the charts below:

Progressive Paying

Source: IRS

The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent). The top 50 percent of all taxpayers paid 97 percent of total individual income taxes. In other words, the bottom 50 percent paid 3 percent. Which small percentile of tax payers also paid 3 percent or more? You might have guessed it. It is the top 0.001 percent, or about 1,400 taxpayers. That group alone paid 3.25 percent of all income taxes. In 2001, the bottom 50 percent paid nearly 5 percent whereas the top 0.001 percent of filers paid 2.3 percent of income taxes. The individual income tax system is designed to be progressive — those with higher incomes pay at higher rates, while the indentation, or the reduction in the steepness of the “progressivity” curve, is visible at the highest levels.

The average tax rates paid by the very wealthiest has fallen in recent years from a peak of 24.1 percent in 2013 to 22.9 in 2016 and was a full four percentage points below the 26.9 percent that the top 1 percent paid on average. To put these numbers in perspective, the top 0.001 percent of taxpayers consists of 1,409 returns, the top 1 percent equals 1.4 million returns and the top 50 percent is half of the total 140.9 million returns.

The most extensive rewrite of the U.S. tax code in more than 30 years, known as TCJA act, was signed in law into early 2018. Individuals may start to feel the effects of last year’s tax overhaul when they file their returns in April. Estimates show the law’s biggest benefits go to top earners.

Need Advice On How To Cut Your Taxes? 

 

 Get Experienced Tax Advice

 

  

Contact the Tax Lawyers of

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

 

Skin Care Owner May Need "Frownies" Cream After 2nd Conviction for Tax Fraud

According to DoJ. a Germantown, Ohio businessman who controlled the operation of an anti-aging skincare business in Dayton, Ohio was sentenced to 33 months in prison following his November 2017 conviction by a federal jury on seven counts of filing false corporate, individual, and private foundation tax returns.

 

According to court documents and evidence presented at trial, James Wright, 63, ran the day-to-day operations of B&P Company, Inc. (B&P), which manufactured and sold an array of skincare products, including Frownies, a wrinkle reduction product endorsed by celebrities.  Wright’s great-grandmother invented Frownies in 1889 and the product has been sold by his family ever since.  Beginning in the late 1990s, Wright formed a series of entities that he used to divert money from B&P to himself and members of his family.

Instead of receiving a salary from B&P, Wright incorporated a company called The Remnant, Inc., to which B&P paid “management fees.” Wright caused the preparation of false corporate tax returns for The Remnant on which he fraudulently deducted personal expenses, including rent, utilities, and pool and lawn care for his residence.  Wright also used funds from The Remnant’s bank accounts to pay rent for one of his daughters in New York and California.  Wright paid personal expenses directly out of B&P’s bank accounts as well.  He directed employees of B&P to use corporate funds to pay for the rent and utilities at an apartment rented by his mother as well as rent for his daughter in New York.

 

In 2004, Wright applied to the IRS for non-profit status for a private foundation called Fore Fathers Foundation.  Wright caused B&P to make donations to the foundation and then used more than $170,000 of the foundation’s funds over a seven-year period to pay for high school and college tuition for all five of his children. 

According to the testimony at trial, these payments constituted acts of self-dealing that Wright was required to disclose on the foundation’s tax returns and pay excise taxes on.  When Wright filed the foundation’s 2003 through 2009 returns however, he falsely reported that he had not engaged in acts of self-dealing and failed to pay the excise taxes due on the distributions.

 

The evidence at trial established that Wright had a long history of interactions with the IRS.  In 1998, Wright pleaded guilty to tax evasion for using trusts to conceal income from the IRS.

 

In addition to the term of imprisonment, U.S. District Judge Walter H. Rice ordered Wright to serve one year of supervised release and pay $146,404 in restitution to the IRS.

 

 

Want to Cut Your Taxes?

 

Get Experienced Tax Advice

 

 

Contact the Tax Lawyers of

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

 

 

 



IRS' Collection Upheld Even Though Taxpayer Issued Check Directing Application of Payment

The majority of the Tax Court has determined that IRS didn't abuse its discretion in declining to apply proceeds of a levy as the taxpayers requested because the payment via levy wasn't voluntary.

 

While the taxpayers had submitted a check to IRS, which would have been considered voluntary and which they would have been free to designate as applying to a certain tax year, the check ultimately bounced when IRS levied on the bank account, so no payment was made.

 

The Court also found no abuse of discretion in IRS's rejection of the taxpayers' proposed installment agreement. (Melasky, (2018) 151 TC No. 9). 

 

The taxpayers argued that their 2011 check should be treated as a voluntary payment toward their 2009 liability because that check was written and accepted before the levy.
 

The Tax Court, however, rejected this argument. The Court, citing case law, reasoned that a payment by check is a conditional payment, subject to the condition subsequent that it be paid upon presentation to the drawee and that there was accordingly no "payment" in this case on Jan. 27, 2011 when the check was written and there was sufficient funds to cover the check , because later when IRS presented the check for payment, it wasn't honored as a result of insufficient funds. Accordingly, the taxpayers weren't entitled to direct the application of payment because no payment occurred.

 

 

The Court also rejected the taxpayers' argument for an equitable exception on account of the fact that the check was dishonored due to an IRS levy, finding no case law or other support for this argument, and further finding that IRS didn't cause the check to bounce but such was rather the result of the taxpayers' chronic failure to pay their taxes.

With respect to IRS's rejection of the installment agreement, the Court found that IRS didn't abuse its discretion. IRS provided two reasons for its rejection, taxpayers' failure to liquidate the equity in their assets as requested, and offering a monthly payment less than they could pay, either of which would be an independently sufficient basis for its rejection. The taxpayers were repeatedly instructed to liquidate the equity in their assets, and despite having received multiple extensions, failed to do so.

The Court also found that IRS reasonably concluded that the taxpayers would be able to rely on distributions from the trust to pay a portion of the living expenses. In so holding, the Court rejected the taxpayers' arguments to the contrary, including that it would constitute a violation of fiduciary duty for Mrs. Melasky to make distributions to herself.

There were two concurring opinions. The first concurrence strenuously disagreed with the dissent, and the second generally emphasized the limited scope of the majority opinion.

A strongly worded dissent opined that the taxpayers' payment should have been considered made on Jan. 27, 2011 and thus voluntary, reasoning that there were sufficient funds in the account at that time and that the check bounced on account of IRS's later actions.

 

Do You Have a Tax Problem?

 

  

Contact the Tax Lawyers of

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