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Delinquent IRS Trust Fund Taxes Update

The Trust Fund Penalty for Delinquent IRS Trust Fund Taxes

Delinquent IRS Trust Fund Taxes Update. Avoiding the Trust Fund Recovery Penaly by properly classifying employees instead of independent contractorsIf you owe back payroll taxes, you should hire a capable Tax Attorney, who is experienced and familiar with the rules pertaining to the application of the Trust Fund Penalty. The IRS considers unpaid Trust Fund Taxes a serious matter and has made collection of these taxes a priority.

This is based upon two factors. First, as of September 2015, $59 Billion in payroll taxes remained outstanding.Second, approximately 69% of all taxes collected by the IRS are income taxes that are withheld from employers. The heightened scrutiny is evidenced by Assistant Attorney General, Caroline D. Ciraolo’s, statement made during a key note address at the American Bar Association’s 27th annual Philadelphia Tax Conference on November 2, 2016.

“Among our top priorities is civil and criminal employment tax enforcement. Employment tax violations represent $91 billion dollars of our country’s $458 billion dollar gross tax gap, and as of June 30, 2016 more than $59 billion reported on quarterly employment tax returns remained unpaid.”https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-caroline-d-ciraolo-delivers-keynote-address

In addition, recent prosecutions and convictions make clear that “the willful failure to comply with employment tax obligations is a crime – plain and simple.” https://www.justice.gov/opa/pr/nevada-business-owner-and-bookkeeper-sentenced-employment-tax-crimes.

The following is representative sample of criminal prosecutions and convictions for unpaid employment taxes.

  1. On October 26, 2016, Michigan owners of sixteen adult foster care homes were indicted for failure to pay employment taxes. From September 2010 through 2014, the owners withheld payroll taxes from their employee paycheck, but failed to file employment tax returns and also failed to pay over the trust fund taxes they collected.https://www.justice.gov/opa/pr/michigan-owners-sixteen-adult-foster-care-homes-indicted-failure-pay-employment-taxes
  1. On October 25, 2016, Kyle Archie was sentenced to 10 months in prison for failure to pay over employment taxes for the tax years 2003-2009 related several entities including Reno Rock, Inc., GKPA Inc. and D Rockeries, Inc. . https://www.justice.gov/opa/pr/nevada-business-owner-and-bookkeeper-sentenced-employment-tax-crimes
  1. On October 18, 2016 two West Virginian business owners pled guilty for failing to pay employment taxes. The defendants operated a construction business from July 2007 through 2010. The defendants also failed to pay over $490,000 in employment taxes for a prior business. https://www.justice.gov/opa/pr/west-virginia-business-owners-plead-guilty-failing-pay-employment-taxes
  1. On September 15, 2016 a North Carolina man pled guilty to failing to pay employment taxes. The defendant operated an audio business in Burlington, North Carolina. From 2008-2011 the defendant failed to pay over employment taxes withheld from his employees. Instead, the defendant used the trust fund taxes https://www.justice.gov/opa/pr/north-carolina-man-pleads-guilty-failing-pay-employment-taxes

In April of 2015 the IRS launched the Federal Tax Deposit X Coded Pilot Program.

The Program was designed to test the impact of alternate Alert treatments such as Soft Notices and Revenue Officer visits and identify which taxpayers benefit most from the alerts. In addition, In addition, the IRS plans to roll out Electronic Federal Tax Payment System (“EFTPS”) in 2017. According to the IRS, the EFTPS will modify the Federal Tax Deposit platform by creating a near real time system to identify variances in Federal Tax Deposits.  These initiatives are designed to improve collection case selection, assignment to agents, and enable the IRS to make data driven decisions regarding taxpayer contacts.

The takeaway here is that failure to pay Trust Fund Taxes can result in substantial penalties as well as imprisonment. If you have unpaid payroll taxes you should immediately contact a Tax Attorney.

© Anthony N. Verni, Attorney at Law, Certified Public Accountant

11/10/2016

 

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Michigan Man Pleads Guilty To Tax Obstruction

“ANOTHER KNUCKLEHEAD BITES THE DUST”

fbar penalties for tax evasion can include imprisionment if the IRS seeks to criminally prosecute youThe definition of a Knucklehead is“someone considered to be of questionable intelligence.”

On October 7, 2016 a Michigan business man plead guilty to tax obstruction for filing a false amended tax return for the tax year 2008. The guilty plea echoes the sentiments of Chief Richard Weber of the Internal Revenue Service, Criminal Investigation that: “There are no safe havens for hiding money in secret bank accounts around the globe.” The case also makes clear that substance will always prevail over form for purposes of determining the true beneficial owner of a foreign financial account or asset and whether the income from any such account or asset is subject to U.S. tax. The following case is just one of many examples of the pervasive use by U.S. Taxpayers of abusive offshore tax avoidance schemes and the consequences of getting caught.

On or about November of 2004,  Robert Rumbold (“Rumbold” or the “Defendant”), a manager of a trust account owned by his parents, transferred $2.6m from his parents’ account into Credit Suisse Bank AG in Switzerland. In order to evade income tax and to conceal the identity of the beneficial owner, the Defendant arranged for the account to be held in the name of Wisdom City Limited, a Hong Kong company. Although Wisdom City Limited was set up to be the named the account holder, the Defendant effectively controlled and was the beneficial owner of the account until December 2008, when Rumbold transferred control to a relative.

Rumbold failed to report any interest, dividends or capital gains received from the Wisdom City Limited Credit Suisse account on the Defendant’s personal tax returns for the tax years 2006-2008. The Defendant also falsely stated on each of his three tax returns that he did not have an interest in any foreign financial account.  In 2010 the Defendant amended his 2008 income tax return, where he once again failed to report the income generated from the foreign financial account and failed to make any disclosure concerning his interest in the Wisdom City Limited Credit Suisse account.

The takeaways from this case are the following:

  1. A U.S. Taxpayer’s worldwide income is subject to federal income tax;
  2. Depending upon the circumstances, a U.S. Taxpayer may have to comply with certain financial reporting requirements under the Bank Secrecy Act and FATCA and may be required to make other financial disclosures;
  3. Irrespective of the form, abusive offshore tax avoidance schemes (“tax schemes”) are devised for the purpose of carrying out two objectives: First, to conceal the true identity of the owner of any foreign financial account or other foreign financial asset; and Second, to conceal income derived from those foreign assets that is subject to tax by the United States;
  4. These tax schemes may include, but are not limited to, the use of foreign trusts, foreign corporations, offshore partnerships, limited liability companies, and international business companies. The tax schemes can also include using anon-resident alien or maintaining funds in a foreign attorney’s trust fund account in order to carry out a taxpayer’s nefarious plan;
  5. The element of intent in a criminal tax prosecution more often than not is proven by circumstantial rather than direct evidence. Therefore, it logically follows that the more elaborate the tax scheme is, the easier it will be to establish intent. . Remember! “If it walks like a duck and talks like a duck, it’s probably a duck;” and
  6. Taxpayers, attempting to game the system, by creating and/or participating in these knucklehead schemes will eventually find themselves in deep trouble due to recent global tax enforcement initiatives and the financial reporting requirements established under the Bank Secrecy Act, FATCA, the Common Reporting Standards and other protocols.

If you are the architect, principal or a participant in such a tax scheme, you are either aware or should be aware that what you are doing is illegal. If you do not think what you are doing is illegal, you are probably in a state of denial. You only need ask yourself: “Does it pass the smell test?”

Any path to redemption with the IRS involves taking personal responsibility, making a conscious decision to right the ship and thereafter taking remedial action.  Remember, you can generally recover from a financial setback. In contrast, imprisonment and the financial and emotional toll to you and your family may be insurmountable.

The immediate action should start with your speaking with a tax attorney to discuss your particular situation and evaluating whether making an offshore voluntary disclosure is a viable option for you.

© Anthony N. Verni, Attorney at Law, Certified Public Accountant   10/13/2016

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Finding an FBAR Lawyer to Help Avoid Criminal Charges

How to Find a Good Tax Attorney

FBAR Lawyer to help clients avoid Criminal Charges by the IRSYou’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.

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United States vs Simon in Failure to file FBARs

Failure to file FBARs as a Signatory Authority

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.Failure to file FBARs as a Signatory Authority to a foreign bank account is an offense punishable by law according the to the Bank Secrecy Act. 

The U.S. Court of Appeals for the Seventh Circuit affirmed the conviction of an Indiana CPA/Accounting professor by a U.S. District Court in United States vs Simon, 7th Cir, No. 11-01837. The conviction was based upon the taxpayer’s filing false income tax returns, failure to file FBARs (Foreign Bank Account Reports), mail fraud and financial aid fraud. One of the four FBAR counts related to Simon failure to file FBARs (reports on foreign bank accounts) for which he was a signatory for the years 2002 through 2007. During this time period he was the managing director of three foreign companies and had signatory authority over foreign bank accounts of these companies.  The companies included: The Simon Family Trust based in the Cook Islands, Elekta Ltd, a Gibralter company and JS Elekta, a Cyprus corporation.

Charges on Failure to File FBARs

Simon was charged with four counts of failure to file FBARs  related to foreign bank accounts according to 31 U.S.C. §§ 5314, 5322. For the years 2005 through 2007, Simon  conceded he was required to file a form TDF 90-22.1 now FinCEN Form 114 by June 30th for the foreign bank accounts aggregating more than $10,000 in the previous years. He also admitted that he failed to do so. However, Simon argued that he did not violate the law.

Simon’s defense

According to Simon, the IRS issued guidance in 2009 and 2010 that granted retroactive extensions for filing FBARs for the year 2008 and preceding years. This guidance was issued through IRS notices.  Taking the notices into consideration, Simon asserted that he filed the required FBARS prior to his indictment. He insisted that he did the filing within the deadlines set forth in the notices 2009‐62 and 2010‐23 and could therefore not face prosecution on failing to meet the original deadlines.

Government’s standing

The Government maintained that Simon’s crimes were complete before the IRS issued the notices. According to the government, Simon could not use the notices to exonerate himself from crimes he had already committed before the notices came into play. According to the Government,

“amendment of a regulation does not relieve the taxpayer of criminal liability for conduct that occurred before the amendment even when the amendment purports to have retroactive application.”

In addition, nothing in the notices promised relief from criminal liability for taxpayers who willfully failed to file FBARs. The only relief in the notices was that the IRS would not impose civil penalties for taxpayers whose failure to comply was non-willful.

Evaluation Points

  1. Setting up and using foreign corporations, trusts and other devices for purposes of hiding foreign funds never works and can be viewed as strong evidence of “willfulness” in an FBAR prosecution.
  2. Masking transfers from foreign corporate  and other third party accounts as “loans” can be used by the Government as strong evidence on intent in a criminal tax prosecution.
  3. The facts in the Simon Case involved a wilful failure to file FBARs.

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IRS to Modify OVDP to Accommodate Non-willful tax evasion

OVDP changes to accommodate non-willful tax evasion

The OVDP (Offshore Voluntary Disclosure Program) may face more modifications as IRS continues to focus on international tax compliance. The IRS Commissioner John Koskinen hinted on the upcoming modifications to the OVDP on June 3rd, 2014 before the IRS Council. His remarks give a ray of hope to U.S citizens and residents who have offshore bank accounts that have gone unreported. This may be because the OVDP has been previously centered on criminal prosecution and hefty penalties under Bank Secrecy Act. The modifications would consider the U.S. Citizens and residents who have resided in other countries for so long that their failure to comply with their tax obligations has not been intentional. The IRS looks to accommodate these tax payers by easing the penalty on them. This is aimed at encouraging them to report their offshore accounts and comply with their tax obligations.

OVD program focus on combating tax evasion

OVDP (Offshore Voluntary Disclosure Program) was put in place to curb global tax evasion. It was to provide an opportunity to U.S. Citizens and permanent residents living overseas or those with offshore accounts to comply with their tax obligations voluntarily. This would involve disclosing offshore accounts and paying a monetary penalty thus avoiding criminal prosecution. The program has been successfully and as such seen various modifications since its inception. Despite this, there are still many tax payers who have not tapped into the OVDP program. They may have been willing to comply with their tax obligations may be if the penalties were minimal and reduced chances of criminal prosecution. For more on help with OVDP program, click here.

IRS modification to include willful tax payers in OVDP

IRS is determined to ensure maximum cooperation of its taxpayers abroad through yet another possible modification of OVDP. The OVDP program has without a doubt targeted all taxpayers with offshore bank accounts without considering if the taxpayers were willful or non-willful tax evaders. In his remarks, the IRS Commissioner John Koskinen notes that they are considering whether their voluntary programs have been too focused on those willfully evading their tax obligations and not being accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. According to the IRS commissioner, some of the U.S. citizens have resided abroad for many years, perhaps even the vast majority of their lives. This is the driving factor behind the forthcoming foreseen possible modifications by the IRS to the OVDP.

The IRS, through its Commissioner, hinted on the possibility of giving these tax payers, whose non-compliance does not constitute willful tax evasion, the opportunity to come into compliance without having to face the type of penalties relevant for those who willfully hid their investments overseas. These tax payers might not have had the opportunity of coming into compliance that doesn’t involve the threat of substantial penalties.

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