What’s the Difference Between Tax Fraud and Tax Negligence?

For many reasons — some of which are justified and necessary, and others that frankly do not make sense and obfuscate rather than clarify — the Internal Revenue Code (IRC) is an excessively complex set of volumes, which contain laws enforced by the IRS (published as Title 26 of the United States Code/USC).

Partly due to this inherent complexity — and also because the web is riddled with incomplete, misleading or outright wrong “advice” on tax controversies— there continues to be significant confusion around two fundamentally separate concepts: tax fraud and tax negligence.  

What is Tax Fraud?

According to the IRS, tax fraud is “an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing.” To make things even clearer, let’s drill down into each aspect of this definition.

  • An intentional wrongdoing…” The IRS does not believe that ignorance of the law is a defense. Taxpayer’s have a legal obligation to be informed. However, as will be described in the section on tax negligence, the IRS may, at its discretion (or the appeals division and/or U.S. Federal Court’s discretion if necessary), take into consideration that an act or attestation was done without illicit intent. While this will not erase any penalties and interest, it will avoid criminal prosecution.
  • “…on the part of a taxpayer…” This means that blaming your accountant, bookkeeper, parent, spouse, “financial wizard next-door-neighbor” or anyone else for the information on your tax returns is not an option. The IRS doesn’t care if taxpayers went through their return line-by-line, or if they scanned and signed it. If their name is on it, then they’re accountable.
  • “…with the specific purpose of evading a tax…” This means that the IRS doesn’t consider all errors or omissions on a tax return (or any other submitted tax-related document) as fraudulent. The intentional wrongdoing noted above must be associated with an attempt to evade tax. It’s not like a college exam where all wrong answers count towards the final grade.
  • “…known or believed to be owing.” This is a very important part of the definition that can be easily overlooked. The IRS doesn’t care if a taxpayer intentionally attempted to evade taxes that, in fact, it turns out they did not owe. As long as they believed they owed taxes, and attempted to evade paying them, the IRS will classify that action as tax fraud.  

The penalties for tax fraud are severe and can include having to pay all of your tax owing plus interest, plus 75% of the evaded amount. And while jail time is not the norm, it does indeed happen. It is not a false threat.

What is Tax Negligence?

As noted above, the IRS takes the position that ignorance of tax laws and filing requirements is not a defense. However, in some cases, taxpayers submit incorrect information without a willful attempt to evade taxes. In these situations — which the IRS assesses on a case-by-case basis — a charge of tax negligence may be levied.

Keep in mind that tax negligence does not mean that the IRS “forgives” the mistake. It simply means that they cannot justify an investigation that may ultimately turn into criminal prosecution. Taxpayers who commit tax negligence will be responsible for paying their full tax liability, plus interest and penalties (which is usually an additional 20% of the tax owing).  

Learn More

If you have received a letter, phone call or visit from the IRS — or if you are concerned that information provided to the IRS was incorrect, or if you know that it was incorrect — then contact the Law Offices of Jeffrey B. Kahn, P.C. today. All communication is protected by attorney-client privilege, and we have three decades of experience making sure that taxpayers are treated fairly by the IRS.

Also, be sure to check out our FREE eBook to learn what you need to do if you owe taxes to the IRS:

4 Costly Myths Taxpayers Have About the IRS’s Offshore Voluntary Disclosure Program (OVDP)

People who have undisclosed income in offshore accounts can — and frankly, should — take advantage of the IRS’s Offshore Voluntary Disclosure Program (OVDP).

As the term suggests, the program allows taxpayers to voluntarily disclose all foreign accounts and fully clear their tax liability (including taxes owed, interest and penalties), instead of risk getting flagged in the future and paying much steeper price. While the IRS treats each case individually, penalties for failing to report offshore accounts start at 50 percent of the balance. Furthermore, if there is suspected fraud or tax evasion, criminal prosecutions can commence.  

Although the OVDP has been around since 2009, there remains a significant amount of misinformation and misunderstanding regarding how it works — and just as importantly, how it doesn’t work. Here are four costly OVDP myths that persist:

Myth #1: Taxpayers are better off informing the IRS of undisclosed offshore accounts by amending their tax returns vs. using the OVDP.

Fact: Taxpayers who provide any disclosure of unreported foreign assets must be prepared to provide supporting information, such as bank statements. As such, reporting outside the OVDP is a categorical mistake that will not “fly under the radar screen.” The IRS can and will use the new information to develop a case against a taxpayer, which may (and likely will) lead to severe civil penalties and/or criminal prosecution.

Myth #2: Once a taxpayer enters into the OVDP, it is not possible to dispute the findings levied by the IRS after their investigation.

Fact: While remaining in the OVDP, taxpayers may contest and challenge the IRS’s findings. Agents can make mistakes, and some financial statements and other data may be open to interpretation.

Myth #3: Taxpayers who enter the OVDP expose themselves to having all of their tax returns open to examination.

Fact: The normal statute of limitations to examine a tax return is three years. However, it can be extended to six years in cases where there has been a substantial omission of income. And in cases where the IRS can show fraud, there is no statute of limitations.

Myth #4: Taxpayers who enter the OVDP must be prepared pay a penalty of 50 percent of the value of their undisclosed foreign assets.

Fact: The minimum penalty taxpayers are exposed to outside the OVDP is 50 percent of the balance (or value) of their undisclosed foreign assets. However, within the OVDP the maximum is 27.5 percent. This means taxpayers who wisely take advantage of the OVDP — while it is still being offered — will keep at least 72.5 percent of their foreign assets.

Moving Ahead

Buoyed by the Panama Papers and other high-profile investigations and revelations, the IRS is aggressively cracking down on taxpayers with undisclosed foreign assets. If this scenario applies to you — regardless of your motives for failing to disclose — the smartest and best thing you can do is consult with an attorney. Contact the Tax Law Offices of Jeffrey B. Kahn today to learn more about the OVDP and how it may benefit you. We can help you contact the IRS and proactively provide disclosure rather than risk having the IRS contact you.

For more information about how to deal with the IRS if you have offshore bank accounts, download our FREE eBook today:

The Consequences Of Violating The Five-year Probationary Term After Getting An Offer In Compromise

The IRS offers a program called an Offer In Compromise (“OIC”). An OIC allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.

With a properly completed application for an Offer In Compromise and required financial disclosures, the IRS will consider your ability to pay, income, expenses and asset equity. Only when it can be shown that the amount offered represents the most the IRS can expect to collect within a reasonable period of time will the IRS approve an OIC.

What people do not realize is that if your OIC is accepted, you are subject to certain terms over the next five years that if any term is violated the IRS reserves the right to revoke your OIC and thus put you back to where you originally started subtracting the payments made under the OIC and adding the accrual of more penalties and interest to the current date.

So it is important that anyone with an accepted OIC be aware of these terms and follow compliance:

1. You must comply with all provisions of the internal revenue laws, including requirements to timely file tax returns and timely pay taxes for the five year period beginning with the date of acceptance of the OIC and ending through the fifth year, including any extensions to file and pay. This is what I refer to as the “Five-year Probationary Period”.

2. Youmust promptly pay any liabilities assessed after acceptance of the OIC for tax years ending prior to acceptance of the OIC that were not otherwise identified in your application for an OIC.

So if your OIC included the Form 1040 liability for 2015 and later after your OIC was accepted you got audited for 2015 and that audit resulted in a liability, you would need to promptly pay that liability or else face a revocation of your OIC.

Likewise, if your OIC covered only individual income taxes and you were later assessed with unpaid employment taxes of a business, the failure to pay those new liabilities could result in a revocation of the OIC.

If the OIC was being submitted for joint tax debt, and one of the taxpayer-applicants does not comply with future obligations, only the non-compliant taxpayer will be in default of the OIC. This situation could occur where husband and wife who filed joint income tax returns and jointly secured an OIC later gets divorced and one party defaults on the OIC terms listed above.

An accepted OIC will not be defaulted solely due to the assessment of an individual shared responsibility payment made against another liable taxpayer. This situation could occur where two business owners have personal liability for unpaid employment taxes of the business and one of the owners defaults on the OIC terms listed above.

Now if you find that you cannot keep up with any of these terms, early intervention by your tax counsel with the IRS may still prevent your OIC from getting revoked. Once you receive a final determination by IRS that your OIC is revoked, any new OIC that may now be submitted will be based on your then current financial situation which if it has since improved would lead to an even higher Offer amount with no credit for what was paid under the prior OIC.

Why You Should Not Let Your Guard Down In An IRS Audit Under The National Research Program

Certain tax returns that are selected for audit by the IRS each year are selected as part of the National Research Program (“NRP”).  The goal of this program is to design and implement a successful strategy to collect data that will be used to measure payment, filing and reporting compliance and to deliver the data to the IRS Business Operation Divisions to meet a wide range of needs including support for the development of strategic plans and improvements in workload identification. The IRS will also use the NRP to analyze taxpayer compliance and to assess the effectiveness of compliance programs and treatments in use by the IRS.  Data for analysis will include amounts reported by taxpayers on their tax returns and the corrected amounts that were determined by examiners.

While the information gathered from these audits gets fed into IRS’ Big Data Analytics, taxpayers should keep in mind that these are still real audits that will likely result in changes the taxpayer’s account that once assessed by IRS will result in additional liability by the taxpayer for which the IRS will pursue collection.  Since these audits will follow the same audit guidelines for any individual income tax return, it is important to note the general procedures that will apply.

Types of IRS Examinations

  1. Campus Examinations are the simplest form of an examination. They are correspondence exams addressing simple problems like substantiation that can be resolved easily by correspondence and/or telephone. An examination under NRP would not be conducted in this fashion as not enough information would be collected in this type of audit.
  2. Area Office Examinations may be conducted for slightly more complicated issues such as small business returns and more complex non-business returns. Area Office Examinations may be conducted by correspondence, office interview or even by a field examination, depending on type and complexity of the return. In all cases, the taxpayer is asked to provide supporting documentation of questionable items. Business returns will always examined an office or field interview rather than a correspondence examination. It is in this type of an environment that an audit under the NRP would occur.
  3. Field Examinations are the most complex civil examination. The examining agent will be a revenue agent, as opposed to an officer auditor. He or she will be better trained and will have more experience. A Field Examination consists of examination of a taxpayer’s books and records at the taxpayer’s place of business or where the books, records or source documents are maintained. The agent will review the taxpayer’s entire return and all documentation related to that return. The agent may be assisted by a technical specialist such as a “technical advisor” if the return presents a special issue such as valuation. Unlike, office auditors, revenue agents spend considerable time preparing for the examination. Prior to the examination, the revenue agent will review any prior examination reports from the same taxpayer. This may lead to scrutiny of recurring issues or inclusion of other years’ returns in the examination. Of course, the revenue agent will also look at the return for unusual or questionable items.  . It is in this type of an environment that an audit under the NRP would occur.

What Should You Do?

An audit under the NRP is no different than any other type of IRS audit.  A poorly conducted audit can result in large additional tax adjustments and penalties and interest up to as much as 100% of the adjustment. Most local tax preparers are not equipped to represent you in an audit before the IRS. Using a tax attorney to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax attorney can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision. Also, because your representative would deal directly with the agent, usually the audit can be completed without the need for the taxpayer to appear before the agent.

Why Contacting Your Congressman Will Usually Never Help You Resolve Your Tax Problems

Although being a constituent of your elected Congressman gives you reason to voice your concerns about agenda under your Congressman’s consideration, don’t think that just because you have personal tax problems that your Congressman will come to the rescue or be able to cut any bureaucratic tape.

It is true that every elected official has employees who do what is known as constituent service, helping people with thorny problems that may involve a federal agency. Most often, the problems they hear involve Social Security benefits, federal disability filings, veterans’ benefits and mortgage issues. Immigration requests involving small-business employees and newly married couples are common, too.  But when it comes to the Internal Revenue Service, your Congressman’s office will typically hand off you compliant or problem to the Office Of The Taxpayer Advocate for further processing and stay out of the loop.

Taxpayer Advocate Service

Congress created the Taxpayer Advocate Service in 1996 so for at least one thing that Congressman would not need to deal with their constituents’ tax problems directly.  You do not need to go through your Congressman to get to the Taxpayer Advocate Service but there are some important things and limitations you should be aware if you choose to contact the Taxpayer Advocate Service directly.Each state has at least one Local Taxpayer Advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. In California the offices at located in Fresno, Laguna Nigel, Los Angeles, Oakland, Sacramento, San Diego and San Jose.

Twice a year the National Taxpayer Advocate will independently submit reports to Congress.The first report, due by June 30, contains the objectives of the Taxpayer Advocate for the coming fiscal year (starting October 1). The second one, due by December 31, reports on activities of the Taxpayer Advocate during the fiscal year, including his or her initiatives to improve taxpayer services and IRS responsiveness, and a summary of at least 20 of the Most Serious Problems facing taxpayers.The National Taxpayer Advocate delivers these reports to the Senate Committee on Finance and the House Committee on Ways and Means with no prior review or comment from the Commissioner, the IRS Oversight Board, the Secretary of the Treasury, any other Treasury officer or employee, or the Office of Management and Budget.

Here are three things every taxpayer should know about the Taxpayer Advocate Service:

  1. Although the Taxpayer Advocate Service is an independent organization within the IRS, it is no substitute for independent legal and tax representation.
  2. While the Taxpayer Advocate Service attempts to help taxpayers whose problems are causing financial difficulty, this office has no power on its own to remedy your problems and must still deal with the appropriate department of the IRS.
  3. The Taxpayer Advocate Service will not get involved where you have not tried to resolve your tax problem through normal IRS channels.

You should also keep in mind that every taxpayer when interacting with the IRS enjoys the following rights referred to as the “Taxpayer Bill Of Rights”:

    • The Right to Be Informed.
    • The Right to Quality Service.
    • The Right to Pay No More than the Correct Amount of Tax.
    • The Right to Challenge the IRS’s Position and Be Heard.
    • The Right to Appeal an IRS Decision in an Independent Forum.
    • The Right to Finality.
    • The Right to Privacy.
    • The Right to Confidentiality.
    • The Right to Retain Representation.
    • The Right to a Fair and Just Tax System.

What Should You Do?

Now don’t get me wrong.  The Office Of The Taxpayer Advocate can be helpful in introducing change and improvements to how the IRS operates and they report directly to Congress with their suggestions.  But when you need independent and aggressive representation where all options are considered and you need an approach that “thinks outside the box”, your interests would likely be best served by exercising your right to retain the representation of your own tax counsel.

Where’s My Refund? Filed your tax return and still have not received your refund check from the IRS?

Getting Ready For The 2017 Tax Filing Season

IRS Giving Taxpayers To April 18, 2017 To File 2016 Individual Income Tax Returns.

The Internal Revenue Service announced that it can start accepting 2016 income tax returns onMonday, January 23, 2017.  Returns filed before that date (by paper or electronically) will be held in suspense by the IRS. Since the IRS will begin processing tax returns on January 23rd there is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.  Nevertheless, it makes sense to start organizing your information early and so when the IRS filing systems open on January 23rd, you are ready to submit your tax return right away.

The IRS expects that more than 153 million individual tax returns will be filed in 2017 and that at least 80% of the tax returns will be prepared electronically using tax return preparation software.

April 18thFiling Deadline

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15thdate.  The reason why is that in 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday – April 17. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation. Be careful though with regards to the filing deadlines for 2016 State Individual Income Tax Returns as not all States may follow Federal law when it comes to the filing deadline and for those who do not, the filing deadline would be Monday, April 17, 2017.

Refunds in 2017

Choosing e-file and direct deposit for refunds remains the fastest way to file an accurate income tax return and receive a refund.The IRS still anticipates issuing at least 90%of tax refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers that could cause delay.Under the Protecting Americans from Tax Hikes (PATH) Actwhich takes into effect this 2017 Tax Filing Season, the IRS is required to hold refunds for tax returns which include a claim of the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15, 2017. Also consider that it would still take several days for these refunds to be released and processed through financial institutions, and factoring in weekends and the President’s Day holiday, taxpayers claiming these credits may not have actual access to their refunds until the week of Feb. 27th.

The status of your tax refund can be checked directly with IRS by using the Where’s My Refund? ‎on IRS.gov and the IRS2Go phone app.

Renewal Reminder for Individual Taxpayer Identification Numbers (ITINS) ITINs are used by people who have tax-filing or payment obligations under U.S. law but are not eligible for a Social Security number. Under a recent change in law, any ITIN not used on a tax return at least once in the past three years will expire on January 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) will also expire on that date.

This means that anyone with an expiring ITIN and a need to file a tax return in the upcoming filing season should file a renewal application in the next few weeks to avoid lengthy refund and processing delays. Failure to renew early could result in refund delays and denial of some tax benefits until the ITIN is renewed.

An ITIN renewal application filed now will be processed before one submitted at the height of tax season from mid-January to February. Currently, a complete and accurate renewal application can be processed in as little as seven weeks. But this timeframe is expected to expand to as much as 11 weeks during tax season, which runs from mid-January through April.

Time Limits For Keeping Your Tax Records

Even though your 2016 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years. And if you do get selected for audit, it would be best for you to exercise your right to hire tax counsel to represent you in the audit to minimize your contact with the IRS and to assure that you are entitled to claim all benefits that you are eligible under the tax law for your situation.


District Court Sets Low Standard For Willfulness In Failing To File FBAR

Until just recently, not much has come out of the Courts defining that line between nonwillful and willful when it comes to not filing Foreign Bank and Financial Accounts Reports (“FBAR”).  But now we have a recent U.S. District Court case out of California which has vast repercussions on anyone who has undisclosed foreign bank accounts regardless of whether they came forward in a Voluntary Disclosure Program or the Streamlined Procedures.

U.S. v. Bohanec

Weeks ago a Federal District Court in California in the case of U.S. v. Bohanec, 2016 WL 7167869, 118 AFTR 2d ¶ 2016-5537(DC CA 12/8/2016)determined that the taxpayers’ failure to timely file a Foreign Bank and Financial Accounts Report (“FBAR”) was willful.  The tax law provides that U.S. citizens with accounts outside the U.S. must disclose those accounts on an FBAR if the aggregate amount is at least $10,000. 31 U.S.C. 5314. The reason the term “willful” is important is that if the failure is not willful, the penalty is set at $10,000 per violation but if the failure to disclose is considered “willful”, the penalty goes up to the greater of $100,000 or 50% of the highest account value for the year.

In 2010 the Bohanecs entered into the Offshore Voluntary Disclosure Program For Undisclosed Foreign Bank Accounts (“OVDP”). The Bohanecs’ submission was submitted under penalty of perjury, representing that the only undisclosed foreign bank accounts were in Switzerland and the source of funds deposited were after-tax earnings from a camera business operated by the taxpayers.  However, the IRS discovered that they did not even disclose all of their foreign accounts – leaving out accounts in Mexico and Austria. The IRS also discovered that the taxpayers’ statements that the funds were all from income duly reported and on which taxes were paid was untruthful.The Bohanecs were ultimately rejected by IRS for the OVDP and their case ultimate went to Federal Court where the only issue before the Court was whether the Bohanecs’ failure to file a 2007 FBAR was willful.

The Bohanecs asserted that “willfulness” encompasses only intentional violations of known legal duties, and not reckless disregard of statutory duties. The only cases the Bohanecs cited to support their argument that “willful” means that a defendant must have knowledge and specific intent Ratzlaf v. United States, (S Ct 1994) 510 U.S. 135 (structuring) and United States v. Eisenstein, (CA 11 1984) 731 F.2d 1540 (felonious failure to file currency transaction reports).  But the Court distinguished these criminal cases in that the Bohanecs case was a civil matter.

Court’s Holding.

The courtnoted that 31 USC 5321(a)(5) does not define willfulness but rejected the Bohanecs’ argument, concluded that the term “willful” included “reckless” for purposes of FBAR.The court said that, where willfulness is an element of civil liability, the Supreme Court generally understands the term as covering “not only knowing violations of a standard, but reckless ones as well.” (Safeco Ins. Co. of America v. Burr, (S Ct 2007) 551 U.S. 47) “Recklessness” is an objective standard that looks to whether conduct entails “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” (Safeco) Several other courts, citing Safeco, have held that “willfulness” under 31 USC 5321 includes reckless disregard of a statutory duty. See Williams, (CA 4 2012) 110 AFTR 2d 2012-5298 and Bussell, (DC CA 2015) 117 AFTR 2d 2016-439.

The court then went on to consider the issue of standard of proof. It said that the Supreme Court has held that a heightened clear and convincing burden of proof applies in civil matters “where particularly important individual interests or rights are at stake.” (Herman & MacLean v. Huddleston, (S Ct 1983) 459 U.S. 375) Such interests include parental rights, involuntary commitment, and deportation. The lower, more generally applicable preponderance of the evidence standard applies, however, where “even severe civil sanctions that do not implicate such interests” are contemplated. (Herman) The court here said that the monetary sanctions at issue here did not rise to the level of “particularly important individual interests or rights.” Accordingly, the court said, the preponderance of the evidence standard applied.

Following what I consider to be a strict liability approach, the Court concluded that IRS proved by a preponderance of the evidence that the Bohanecs were at least recklessly indifferent to a statutory duty, for the following reasons:

  1. The Bohanecs were reasonably sophisticated businesspeople as an exclusive Leica camera dealer with customers around the world.
  2. The Bohanecs were at least reckless, if not willfully blind, in their conduct with respect to their Swiss UBS account and their reporting obligations regarding the account. The Bohanecs never provided UBS with their home address, and never told anyone other than their children of the existence of the UBS account, including the tax preparers the Bohanecs hired to help them file tax returns. The Bohanecs never asked a lawyer, accountant, or banker about requirements regarding the UBS account and never used a bookkeeper or kept any books once the UBS account was opened.
  3. The Bohanecs’ representations that they were unaware of or did not understand their obligations were not credible. The Bohanecs directed customers to deposit payment into the Swiss account and made several transfers and withdrawals from the Swiss account to other foreign accounts.
  4. The Bohanecs’ credibility was further undermined by their conduct with respect to their application to participate in the OVDP when they made several misrepresentations under penalty of perjury.

What Should You Do?

Should the taxpayers appeal this case, who knows how the 9th Circuit will rule.  It will also take years before the Appeals Court disposes of such an appeal but for now we have much clearer guidance of the “strict liability approach” the Court seems to follow.  Taxpayers who have entered into the Streamlined Program whose case is weak on showing nonwilfullness have a huge risk of being picked by IRS and losing the favorable status offered by the Streamlined Procedures where the IRS feels that the non-willful standard is not met.  Such taxpayers will not then be able to enter into OVDP and can face the same battle as the Bohanec’s.  Likewise, anyone who has not come forward in voluntary disclosure and the issue of nonwilfullness is questionable would still have the opportunity to come forward under OVDP.  Keep in mind that any submission must be complete or else like the Bohanecs, the IRS will reject the settlement and look to assess the full penalties provided by law.You should talk with your counsel and be proactive with the IRS for any original submission or amendment so that you have the lowest risk possible to secure or keep the benefits you sought in Voluntary Disclosure.

IRS 2017 Tax Deductions

IRS Announces 2017 Inflation Adjusted Tax Benefits

It is hard to believe that we are just two months away from the year of 2016 and as always towards the end of each calendar year the IRS announces next year’s annual inflation adjustments. You can check for more than 50 tax provisions, including the tax rate schedules, and other tax changes for tax year 2017 in Revenue Procedure 2016-55. The tax year 2017 adjustments generally are used on tax returns filed in 2018.

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

Offshore Compliance Programs For Taxpayers With Undisclosed Foreign Bank Accounts Generate $10 Billion andMore Than 100,000 U.S. Taxpayers Come Back into Compliance In Reporting Foreign Accounts;IRS Urges People to Take Advantage of Voluntary Disclosure Programs

The IRS announced on October 21, 2016 that 55,800 taxpayers have come into the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties.

What that means is that the IRS has collected a combined $10 billion with 100,000 taxpayers coming back into compliance.  Furthermore, as the IRS continues to receive more information on foreign accounts, it will be more difficult for U.S. taxpayers to avoid detection and to maintain that they were non-willful in not complying with the U.S. tax laws.

Under the Foreign Account Tax Compliance Act (FATCA) and the network of inter-governmental agreements (IGAs) between the U.S. and other countries, automatic third-party account reporting has entered its second year. Also, more information also continues to come to the IRS as a result of the Department of Justice’s Swiss Bank Program. As part of a series on non-prosecution agreements, the participating banks continue to provide information on potential non-compliance by U.S. taxpayers.

OVDP offers taxpayers with undisclosed income from foreign financial accounts and assets an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign financial accounts and assets now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

The IRS also developed the Streamlined Filing Compliance Procedures to accommodate taxpayers with non-willful compliance issues. Submissions have been made by taxpayers residing in the U.S. and from those residing in countries around the globe. The streamlined procedures have resulted in the submission of more than 96,000 delinquent and amended income tax returns from the 48,000 taxpayers using these procedures. A separate process exists for those taxpayers who have paid their income taxes but omitted certain other information returns, such as the Report of Foreign Bank and Financial Accounts (FBAR).

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5% and 10 times more than the 5% rate offered in the expanded streamlined procedures.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or you are in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”), you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.