Verni Tax Law

Expat Taxes, FBAR, IRS Payments, News, OVDI, OVDP

FBAR Collections Ten Billion and Counting

IRS Releases 2016 Offshore Voluntary Compliance Statistics

On October 21, 2016 the IRS released the latest statistics on Taxpayers who have made disclosures under the Offshore Voluntary Disclosure Program (OVDP) or by using the Streamline Procedures.

According to the News Release, a total of 55,800 taxpayers have come into compliance since 2009, resulting in the collection of approximately $9.9 billion in taxes, interest and penalties.

An additional 48,000 Taxpayers have made disclosures using the Streamlined Procedures, paying $450 million in taxes, interest and penalties.

In its News Release, the IRS implies that IRS detection is inevitable for those who fail to come forward.

The foregoing is based upon Taxpayer information received by the IRS through a number of initiatives including:

(i) inter-governmental agreements (IGA’s) executed between the U.S. and its international partners under FATCA providing for the exchange of Taxpayer financial information;

(ii) Taxpayer information provided by institutions participating in the Swiss Bank Program;

(iii) criminal prosecution of Foreign Financial Institutions, institution relationship managers, bank officers, attorneys and other facilitators;

(iv) information gathered in response to the issuance of a John Doe Summons;

(v) Taxpayer information obtained from IRS “Whistleblowers;” and

(vi) Taxpayer information gathered through IRS participation in various international task forces.

For those who elect to proceed under the Streamline Procedures, the bar to establish “non-willfulness” has been raised. The IRS will no longer accept Taxpayer applications under the Streamlined Procedures unless the Taxpayer provides a “narrative statement of facts,” pays the tax due, and submits the required information returns.

This statement must clarify why the particular party failed to disclose offshore assets. Accordingly, a request for relief that fails to contain a detailed explanation, in all likelihood, will result in a denial of relief. Similarly, a statement that the Taxpayer was unaware of the filing and reporting requirements will not meet the threshold for non-willfulness.

Finally, taxpayers, who self prepared their returns and who answered “no” to questions 7a and 7b on Schedule B pertaining to the existence of an interest in or signatory authority over a foreign financial account, will find it difficult, if not impossible, to establish “non-willfulness.”

https://www.irs.gov/uac/newsroom/offshore-voluntary-compliance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance

October 24, 2016/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, OVDP

Money Laundering Is Tax Evasion

Money Laundering and Tax Evasion

Money laundering and tax evasion are closely related. The IRS has used money laundering statutes to help cut down on tax evasion. Money laundering may be seen as willful tax evasion. Hiding money will off course lead to not paying taxes on the same.

What is Money Laundering?

Money laundering is a common occurrence today. Global concern surrounding this nefarious activity is based upon the theory that failure to report and account for this activity erodes the economic base of national economies. Individuals and organizations involved in criminal activity attempt to obscure the illegal source of the funds in an effort to avoid detection from law enforcement officials.

These funds commonly referred to as “dirty money” are the by-product of illegal activities such as drug and human trafficking, gambling, elaborate fraud schemes, and terrorism. Historically, criminals have utilized foreign financial institutions for purposes of “washing” dirty money through legitimate enterprises in order to avoid the scrutiny of taxing authorities.

Recent Global initiatives in combating money laundering including criminal prosecution, and the imposition of stiff criminal penalties have heightened foreign financial institution awareness and willingness to cooperate with authorities. Moreover, new reporting requirements, mutual exchange of information agreements and coordination of local, national and global law enforcement agencies will make it more difficult for individuals to avoid detection.

How does money laundering work?

The main objective behind money laundering is to obscure the illegal source of the funds, thereby enabling the criminal to use the money without detection. The process is complex as it involves several financial transactions which may be carried out through various financial outlets in various countries. There are so many ways in which individuals hide money derived from criminal activities to avoid detection. Some of them are:

Depositing a large sum of money earned illegally in small amounts in a financial institution under different fake names.
Depositing a large sum of money earned illegally in small amounts by using various bearer instruments like money orders.
Creating a Trust or Corporation or a non-profit organization or an account under a different name in a different country and moving large sums of money there.

The hidden money is then accessed through debit cards, credit cards, money orders or cash withdrawals. Check this article “Caribbean based investment advisors and an attorney” to see how Caribbean based investment advisors and an attorney colluded in their efforts to helping US Citizens hide money abroad.

Tax Evasion

Tax evasion is the wilful attempt to evade or defeat the assessment of taxes or the payment of taxes. The act of evasion occurs when a taxpayer either willfully fails to report his or her income as required by law, or having reported the income, engages in conduct that either hinders or defeats any attempt by the IRS in collecting the tax owed. In the latter case, the taxpayer prevents IRS from collecting by moving assets around under different ownership. An example would be: A taxpayer reports his income and has a tax liability. He has the money to pay the liability but instead, he closes all his bank accounts and moves the money to a different account under a different name. This is a clear indication of wilful tax evasion. For more on Tax evasion, check IRS Tax Crimes handbook.

Is money laundering therefore tax evasion?

In the U.S., money laundering is tax evasion but not all tax evasion is money laundering. According to IRS, money laundering is tax evasion in progress if the underlying conduct violates income tax laws and Bank Secrecy Act. If you are a U.S. citizen/ permanent resident, the law requires you to report your income and pay taxes on the same.

As a U.S. taxpayer, when you are involved in money laundering, it is obvious that you are hiding the money in question. The reason may be because the money is from criminal activities you are involved in and you do not want your cover to be blown. In this case, you want to hide the dirty source of your money through laundering to be able to spend it without worrying about the IRS and the tax consequences. Alternatively, the main reason behind your hiding the money may be because you are actually running away from paying your taxes. Either way, this is tax evasion engineered through money laundering. It does not matter if the income is legal or illegal, you have to pay your taxes or else the IRS will somehow catch up with you some day. It is even worse when your income is from criminal activities since there may be additional consequences for the underlying crime. I think this is why individuals who engage in criminal activities choose to launder their money to avoid detection by the government for the fear of facing criminal prosecution. While doing so, they are evading their responsibility to pay taxes.

Is there a way out of this money laundering mess?

You may have been involved in money laundering and off course tax evasion in the process and may be you are tired of hiding. Your question may be “can I really make it right? Is there really a clean way out?” While there is no guarantee of avoiding criminal prosecution, there is still a chance to make it right. This is by getting into the OVDP (Offshore Voluntary Disclosure Program). You have to get a pre-clearance letter from the IRS to be accepted into the OVDP. You do this by providing all information on all foreign financial accounts, filing amended income returns for all the years in question etc. Once approved, you will be able to enter into “Closing Agreement” with the IRS which means that the IRS will not revisit the matter again.

The Closing Agreement may differ from one case to another since one size does not fit all. This sounds easy, right? It may seem so but the whole process requires a careful evaluation of all the facts. If you need help walking through this, contact The Law Office of Anthony Verni . We can help you evaluate your situation and devise the best strategy to follow.

February 25, 2016/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, Tax Audit

Tax Controversy: What to Do When You Get An Audit Letter

The phrase “tax controversy” is used in the legal profession to define tax disputes that originate between the IRS or a state tax agency and a Taxpayer, usually, but not always, originating from an audit.

Legal services offered as part of a typical tax controversy matter can include assistance with audits, appeals, and Tax Court litigation as well as negotiated settlements.

While the odds of getting audited are lower than 1%, there is still a chance that the IRS will serve you with an audit letter, particularly where tax issues are flagged on the Taxpayer’s return. So what do you do when you receive an audit letter and are facing a tax controversy?

Ask “Why me?”

The IRS may know exactly why you’ve been targeted, but just because you receive a tax audit letter does not automatically mean you are guilty of tax evasion or some other tax related crime.

Many times people are audited because the IRS doesn’t have enough information about them and is merely seeking clarification. In other case, a Taxpayer maybe selected randomly. With most Taxpayers, the IRS has access to all their information, like their total wages and how much mortgage interest they paid. However, returns filed by self-employed people and the wealthy tend to have a lot more self-reported items that the IRS may question.

Review your return to ensure it is accurate and only provide the information the IRS specifically asks for to avoid broadening the scope of the audit to other years.

Get Your Ducks in a Row

Once you have reviewed your return and determined, with the help of a tax controversy specialist, the necessary information the IRS is seeking, begin compiling that information.

The IRS can audit you for taxes up to three years, so it is important to save documentation of your business or personal expenses as they relate to your taxes. For example, if you are being audited because you wrote off 100% of your car usage as a business expense, get your mileage log and other evidence that the car was used only for business purposes all in one place.

Be Efficient in Your Response

The most surefire way to avoid the negative ramifications of a full blow audit is compliance. This doesn’t mean you roll over and give in to the IRS. Instead it means that you seek a qualified tax attorney to assist you in preparing the documents and information the IRS is seeking and conduct due diligence to ensure that you are complying with their requests. Once you have done your due diligence, respond to the IRS promptly and courteously

As the adage goes, ignorance is bliss, but in the case of an IRS audit, ignoring the letter will only make things worse. The IRS will give you a certain deadline to respond, make sure to meet this deadline in order to avoid larger consequences like civil penalties or possibly criminal action.

If you have a tax controversy, either related to your personal or business, please see the help of a qualified tax attorney to guide you through the process of dealing with the IRS.

October 16, 2015/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, Tax Returns

Expatriate Tax Advice: What Are the Filing Requirements for U.S. Expats?

What U.S. Expats Need to Know About IRS Filing Requirements

Many expatriates have questions about how to handle their taxes while living abroad. There are many things to consider such as: Do I have to file U.S. income tax return? What about state taxes? And what if any income taxes can I deduct?

The U.S. tax code can be complicated and confusing for expatriates. It is always best to consult an experienced tax attorney to reduce your tax burden and to also help you understand your rights and responsibilities.

It is important to understand that no matter where you live in the world, as a United States Citizen or a Permanent Legal Resident you are required to file an annual return with the Internal Revenue Service (IRS) if you meet the minimum income requirements. In 2014, the minimum income requirement for a single person less than 65 years of age was $10,150. A married couple both under 65, filing jointly, faced a minimum income requirement of $20,300. The United States does have treaties with several countries that may reduce the total amount you owe.

When it comes to U.S. state tax returns each state sets its own rules. The rules can be complicated and it is best to consult a professional when it comes to filing state returns. States like California, New Mexico, Virginia, and South Carolina have very strict rules when it comes to filing state returns after moving abroad.

Filing Requirements for U.S. Expats

Another area of confusion for expatriates is whether their income might qualify for the Foreign Earned Income Exclusion (FEIE). The IRS qualifies you as eligible for the Foreign Earned Income Exclusion (FEIE) if you fall into one of three categories:

You are citizen of the US who qualifies as a bona fide resident of another country for a period of time containing one entire tax year.
You are a resident alien of the US whose home country has an income tax treaty with the US. Additionally, you must be a bona fide resident of another country for a period of time containing one entire tax year.
You are a citizen or resident alien of the US whose physical absence from the US constitutes a minimum of 330 days out of any 365.

There may also be deductions for any taxes you have paid to your country of residence.

As with any matter involving the U.S. Tax Code there are many pitfalls to trying to figure out what you can legally deduct from your income and how you can minimize your risks of an audit. It is best to consult an experienced tax attorney before filing your taxes. A consultation will help reduce your risk of mistakes on your tax returns and avoid costly audits.

September 18, 2015/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, Tax Returns

Publication 519: What You Need to Know

What You Need to Know About IRS Publication 519

Publication 519 is provided by the Internal Revenue Service (IRS) to assist in tax preparation for both resident and non-resident aliens. Among other things Publication 519 helps you to determine whether you are a resident, non-resident alien or if you fall under both classifications; what income may be subject to tax; how income of aliens is taxed; and where, when and how you should file your income tax forms.

Your first step, for tax purposes, should be to determine if you are a resident or non-resident alien. If you qualify as both resident and non-resident in the same year, you have what is referred to as dual status. If you are married, you may also have a choice of treating your non-resident spouse as a resident alien. Your status is determined by either the “Green Card” test or the “Substantial Presence” test. However, even if you do not meet the requirements of either test you may be able to choose to be treated as a United States resident for part of the year.

After you have determined your residency status, your next step is to determine what income is subject to taxes. As a Resident alien, income is generally subject to tax treatment in the same manner as a U.S. citizen. Non-resident aliens are generally subject to U.S. taxes only on income earned from U.S. sources. However, not all income from U.S. sources is subject to income tax.

How Your Income is Taxed

Resident and non-resident aliens are taxed in different ways. Resident aliens are generally taxed in much the same way as U.S. citizens.

What this means is that the residents alien’s worldwide income is subject to U.S. tax and must be reported on his/her tax return. The same graduated tax rates that apply to U.S. citizens will apply to a resident alien.

Income for a non-resident alien will be divided into two categories:

Income that is effectively connected to a United States trade or business; and
income that is not effectively connected to a United States trade or business.

The difference between the two categories will be the rate in which the income is taxed. The effectively connected income is subject to the same graduated rates discussed above. The non-effectively connected income is taxed at a flat 30% rate.

As you can see, Publication 519 is a complicated document that also refers to several other IRS publications. When it comes to figuring out which tax status is right for you and which, if any, income is subject to U.S. taxes it is best to consult an experienced tax lawyer.

An experienced tax lawyer can help you to minimize your taxes and reduce the risk of costly audits. They will also help you wade through the complexities of the U.S. tax code.

September 16, 2015/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes

Doubling Down: How an International Tax Lawyer Can Save You From Double Taxation

How Tax Lawyers Can Help Prevent Double Taxation Confusions

The notion of an international tax attorney conjures up images of Grand Cayman and John Grisham’s “The Firm,” but the need for a tax lawyer who specializes is international tax issues is for more than just high rollers and fictional characters.

The problem facing most business owners or individuals in the international tax realm is the burden of double taxation. From small business owners to retirees, international tax implications require that you have a top-notch professional on your team, ready to protect you from the IRS and to prevent you from being taxed twice.

The global markets have made it easy to work, invest and sell goods across borders. For small business owners, the opportunity to reach new markets has never been easier. With that ease of access, however, comes a bevy of new and different tax laws. The Department of the Treasury has issued several rulings which allow businesses to protect their assets and save on taxes.

International tax planning for privately owned businesses is unique. It is different than the foreign tax planning used by publicly traded companies. Offshore tax planning for a large company like Google does not necessarily apply to the small American business selling internationally. Think of sites like Etsy, Amazon and Kindle, where Americans can sell goods in foreign countries. The country where the business originates may want to claim a sales tax, while the country where the transaction occurred may claim a transaction tax. This results in a major problem for small businesses.

The “problem” for small business is double taxation. When income is earned in a foreign country, income tax is paid to the foreign country. Next, taxes are paid to the U.S.

For business owners, the solution is simple. The IRS has approved “dual resident corporation” which eliminates double taxation. It also allows for a simple tax return, allows for tax savings for foreign operating losses, and waives the requirement to file the complex Form 5471. A seasoned international tax attorney can walk you through the process of setting up a dual resident corporation and apply for a tax ruling with the IRS. Business owners who plan to sell internationally would be wise to seek this option.

While it may be common for business owners to encounter international tax issues, the issues of taxation are becoming increasingly common for the growing number of U.S. citizens living and retiring abroad.

Retiring abroad has many advantages, however, lowering your tax bill typically isn’t one of them. If you earn income in your adopted country, you may be able to exclude up to $97,600 from U.S. in 2015 by claiming the Foreign Earned Income Exclusion. This law enables you to avoid paying taxes to two countries on the same income. Be sure to let your tax lawyer know the details of your new home abroad. Some countries base their tax systems on residency, not citizenship. Without the help of an international tax lawyer you may be subject to double taxation. The U.S. has tax treaties with many foreign countries to prevent double taxation, but you may still have to file a tax return, in both your country of residence and the United States.

September 10, 2015/by Anthony N Verni, Attorney at Law, CPA

Expat Taxes, FBAR

Finding an FBAR Lawyer to Help Avoid Criminal Charges

How to Find a Good Tax Attorney

You’ve discovered you have to file the Foreign Bank Account Report but are having trouble finding an FBAR attorney. As you search across the web, it may seem as though there are attorneys for any number of issues, except this specific one.

If you’re looking for an FBAR lawyer, but having trouble finding the right person for your case, you aren’t alone. In fact, there is actually no such thing as an “FBAR lawyer”. FBAR is simply shorthand for a Foreign Bank Account Report which must be filed with the IRS.

The Report of Foreign Bank and Financial Accounts (FBAR) requires taxpayers with accounts totaling more than $10,000 to file an annual report with the U.S. Treasury. For taxpayers with offshore accounts totaling more than $50,000 during 2011, a brand new requirement came into effect – Form 8938 (Statement of Foreign Financial Assets).

With the full enforcement of the Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, all foreign banks began requiring their U.S. account holders to disclose their social security numbers and other information. Banks do this to both protect themselves, and to report U.S. account holders who have foreign accounts to the IRS. But the IRS knows that most people aren’t willfully evading taxes. The creation of the Offshore Voluntary Disclosure Initiative, offers reduced civil penalties for taxpayers who come forward with unreported accounts and can ensure that you don’t face FBAR criminal penalties.

Given the recent publicity surrounding FBARs, and the civil and criminal penalties associated with the failure to file an FBAR, individuals with offshore accounts and tax issues are on the hunt for an FBAR attorney. Stop searching for an “FBAR attorney” and focus your search on a premier tax attorney.

If you don’t come forward and disclose your foreign assets, you could face a civil FBAR penalty of $10,000 per account, per year. You read that right. That means if you have 5 years and 20 accounts in each year, you could face a $1M FBAR penalty, even if all those accounts combined only held $11,000. Tack on the potential criminal penalties, and you’ll wish you had spent a little time and money up-front talking to a tax professional.

You don’t need just any tax attorney, though. With the aggressive nature of the IRS audit process and the possibility that criminal charges can be brought for failure to file FBAR, you should seek out a tax attorney with both tax litigation and criminal tax skills to help you navigate the murky waters of IRS disclosure.

This is not an area of the law you want to try to go it alone. Seek out a qualified tax attorney with experience litigating and handling the IRS. If you choose to go alone, or choose to ignore the filing requirement altogether you could face thousands in civil penalties and jail time.

September 4, 2015/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, FBAR

No 5th Amendment Privilege in Submission of Foreign Bank Accounts Records

The US District Court for the District of New Jersey has applied the required records doctrine to documents required to be maintained under the US Bank Secrecy Act (BSA), and thus rejected taxpayers’ argument that they can refuse to produce such documents by invoking their privilege against self-incrimination under the Fifth Amendment to the US Constitution (United States of America vs. Eli Chabot and Renee Chabot, Civ. No. 14-3055 (FL W), 3 October 2014).

On May 12, 2012, Eli and Renee Chabot, appeared in front of the IRS to testify. The Chabots, on the advice of counsel, asserted their Fifth Amendment privilege and refused to answer any IRS questions about foreign bank accounts.

On June 20, 2012, the IRS issued another summons, requesting the parties to give testimony and produce extensive documents about foreign bank accounts. On July 13, 2012, the Chabots’ counsel advised the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege, and declined to produce the requested documents.

The US District Court stated that the required records doctrine applies if the following requirements are met:

-The purposes of the government inquiry must be essentially regulatory

-Information is to be obtained by requiring the preservation of records of a kind that the regulated party has customarily kept

-The records must have assumed public aspects that render the records at least analogous to public documents

In the case of the Chabots, the Court determined that the required records doctrine prevented the taxpayers from asserting their Fifth Amendment privilege, and the court granted the IRS’s petition to enforce its summons served on the taxpayers.

April 17, 2015/by Anthony N Verni, Attorney at Law, CPA

Criminal Tax Prosecutions, Expat Taxes, IRS Payments, News

Tax Resolution Firms – Scams and Scoundrels

There are many reasons why clients with Tax issues with the IRS should avoid the use of Tax Resolution firms.

The “Tax Resolution Company“, a relatively recent development, has become a serious problem for consumers in our country and is not dissimilar to those companies that promise to solve your credit card debt, student loans, or help you save your home from foreclosure.

The Tax Resolution business model looks something like this:

Tax resolution firms typically advertise heavily and/or may have a significant organic presence on leading search sites, offering to settle Federal tax obligations for a fraction of the amount owed. These claims are for the most part false
Tax resolution companies typically claim to have tax attorneys, CPAs, and enrolled agents within their employ, when in many cases, no such personnel exist or professional licenses are merely “parked” for appearance purposes
The principals of many tax resolution companies are rarely, if ever, disclosed in any organization document filed with either the state of incorporation or with any state where the Firm conducts business. Ownership is usually in the form of a limited liability company whose members include either other entities or individuals (spouses, relatives, etc.) who have nothing to do with the firm. There are two reasons for this. One is to limit liability. The second reason is to prevent the client from uncovering prior unfavorable history about the Firm’s undisclosed principals
Tax Resolution Companies may also attempt to pass themselves off as either a non-profit consumer group or a Christian business. This is simply another tactic to suck the consumer in
A taxpayer who calls the Tax Resolution Firm is generally greeted by a high-pressure salesperson, who has neither the tax knowledge nor the experience to appropriately assess a particular tax situation. This should be the first signal to run! These individuals will say anything to force you to part with your hard earned money since their compensation is strictly commission based
Tax resolution firms take large retainers, typically $5,000-$10,000.

The settlement of any tax debt for less than its face value is based upon a myriad of factors, including but not limited to, the financial condition of the taxpayer and collectability, the number of years remaining on the statute of limitations for collections, and whether the tax debt was created based upon the IRS filing of substitute returns.

While reputable Tax Resolution Firms do exist, there are other reasons why hiring a reputable tax attorney is always the preferred choice.

First, Enrolled Agents and CPAs cannot litigate tax cases. A reputable tax lawyer who is also a certified public accountant, and/or who has an LLM in tax law is the best combination of credentials to look for. Tax attorneys focus their practices on tax law and are trained in the art of advocacy. Most tax attorneys also focus their continuing legal education on relevant tax topics and actively participate in organizations focusing on tax matters.
Next, attorneys are licensed professionals, and as such, are subject to disciplinary authority of their state bar. Tax Resolution Firms are not subject to any professional licensure or professional regulation. An aggrieved client’s only recourse is to file a complaint with the relevant State Attorney General’s Office, the Federal Trade Commission, or to file a lawsuit against the Firm.
Finally, communications between a client and his attorney are privileged. This generally means that neither the attorney nor the client can be forced to divulge those communications, unless the privilege has been waived. No such privilege exists in the case of communication between an accountant, enrolled agent, or other Tax Resolution personnel and the client.

For the above reasons, any client looking to settle a tax debt for less than its face value should steer clear of any business operating under the Tax Resolution Firm model and hire a reputable tax attorney.

April 10, 2015/by Anthony N Verni, Attorney at Law, CPA