IRS Now Targeting Taxpayers With Unreported Foreign Income And Undisclosed Foreign Bank Accounts

IRS Targeting Taxpayers With Unreported Foreign Income And Undisclosed Foreign Bank Accounts

IRS offshore cannabis bitcoin investigation

IRS Establishes New Criminal Investigation Group Using Big Data Analytics to Crack Down on Offshore, Bitcoin and Cannabis Tax Evasion

Warning: State Department May Deny Passport Renewals And Applications If You Owe The IRS

Taxpayers who are seriously behind on their taxes to the IRS are putting their passports in jeopardy!

Fixing America’s Surface Transportation Act

Under the Fixing America’s Surface Transportation Act (“FAST Act”), signed into law in December 2015, the IRS is required to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

Which Taxpayers Are Impacted By The FAST Act?

Taxpayers affected by this law are those with a “seriously delinquent tax debt”.  A taxpayer with a “seriously delinquent tax debt” is generally someone who owes the IRS more than $51,000.00 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy. The IRS announced that it is implementing this provision in the law staring January 2018.

How Can Taxpayers Avoid Notification To The State Department?

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

Taxpayers Not At Risk For Loosing Passport Privileges.

A passport will not be at risk under this program for any taxpayer: 

  • Who is in bankruptcy,
  • Who is identified by the IRS as a victim of tax-related identity theft,
  • Whose account the IRS has determined is currently not collectible due to hardship,
  • Who is located within a federally declared disaster area,
  • Who has a request pending with the IRS for an installment agreement,
  • Who has a pending offer in compromise with the IRS, or
  • Who has an IRS accepted adjustment that will satisfy the debt in full.

Also for taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

Timeframe And Process To Get IRS Clearance For Passport Renewal Or Application

When a taxpayer applies for a passport (either original issuance or renewal), the State Department, in general, will provide the applicant with 90 days to resolve their tax delinquency with the IRS before denying the application. If a taxpayer needs their passport to travel within those 90 days, the taxpayer must contact the IRS and resolve the matter within 45 days from the date of application so that the IRS has adequate time to notify the State Department.

The remedy for a taxpayer who believes that a certification to the State Department of a tax delinquency is erroneous or that the IRS incorrectly failed to reverse a certification because the tax debt is either fully satisfied or ceases to be a “seriously delinquent tax debt”, is to file an action in Federal District Court. However, taxpayers in this situation may be able to reach resolution within the IRS with the assistance of qualified tax counsel and thus avoid the delay and expense of bringing an action in Federal District Court.

What Should You Do?

If you have outstanding liabilities with the IRS or any State Tax Agency, protect yourself and preserve your right to travel by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Walnut Creek and elsewhere in California are highly skilled in handling tax matters and can effectively represent you at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

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.   Read more

Tools And Tactics That IRS Criminal Investigation Division Uses To Gather Information About You

A simple mistake, oversight, or your accountant’s malpractice may trigger an IRS criminal investigation. Specifically, unreported income, a false statement, the use of an impermissible accounting or banking service, or declaring too many deductions are things that could initiate an audit, which could then rise to the level of an IRS criminal investigation.

As you can imagine, the IRS Criminal Investigation Division (“CID”) uses a vast array of tools to investigate a suspected tax evasion case or while conducting a criminal investigation. If you think about it, every employee of the IRS has a single task of ensuring that the IRS tax collections are maximized. IRS Special Agents, who work on the criminal tax cases, are no different. If you file your taxes, their goal is to prove that you may have understated or omitted income or sources of income or you may have falsified sources of income or taken deductions or credits for which you do not qualify.

The tools that the IRS Special Agents have at their disposal include interviewing the suspect, summons, search warrants, and use of grand juries.

Should I talk to the IRS Special Agent during an IRS Criminal Investigation and what are my rights?

Since the IRS Special Agents conduct a criminal investigation, you have a right to remain silent and not incriminate yourself and the right to an attorney. At your first encounter, the IRS Special Agent will advise you of your rights. You should exercise them and ask for an attorney. The Special Agent is then required to terminate the encounter.

As you can imagine, nothing you say to a Special Agent is off-the-record! If you choose to disregard this advice, the IRS Special Agent will be more than happy to continue with the encounter. You’ll be surprised how people continue to dig themselves into a deeper hole even after all these warnings.

Interview with an IRS Special Agent

The “interview” is the most obvious and also the most common tool is the old fashioned approach of directly asking you if you are engaged in tax evasion. This interview can take place at your home or your place of business or both. When an IRS field officer comes to interview a subject suspected of tax evasion, that officer doesn’t just ask questions. They are also required to assess your standard of living as compared to the income shown on your tax return. In addition, the Special Agents have the legal authority to examine books and records and take your testimony under oath.

During the interview, the Special Agents (they travel in pairs so one can interview and the other takes notes) will find out about other persons who may have knowledge about your sources of income and if there is cash that you may not have disclosed to the IRS. One of the primary goals of the interview is to establish cash on hand because one of the common defenses is uncertainty about cash on hand. If they seem to always appear at the most inconvenient time, it is because they are required to timely obtain confessions or admissions from the subjects and witnesses who may have information about the case. These witnesses may include your spouse, friends, neighbors, your tax return preparer and others including others with whom you may have a business relationship like banks and brokerages.

I must mention here that the tax return preparer must also not talk to the IRS Special Agent without consulting an attorney. This attorney should be different than the attorney who is representing the person who is under IRS criminal investigation.

Methods of Proof that the IRS Special Agents Use to Prove Their Case

To prove tax evasion, the IRS Special Agents may use many different methods like:

  1. Specific Item Method: One or more specific transactions that the taxpayer engaged in were not full or accurately reported.
  2. Net Worth Method: Attributes taxable income to the difference between assets and liabilities.
  3. Expenditures Method of Proof: Taxpayers’ expenses are more than reported sources of income.
  4. Bank Deposits Method: In case of a business, IRS assumes that proof of deposits is a substantial evidence of taxable revenue receipts.
  5. Percentage Markup Method: IRS takes a big data approach and assumes that based on its analysis of a typical business.
  6. Unit and Volume Methods: Estimate receipts based on volume of business activity.

Needless to say, each of these methods has its own pros and cons and some defenses. The method that the IRS Special Agent applies depends on the circumstances of the case and in case of businesses, the type of business and the method of accounting employed by that business.

Typically in IRS criminal investigation cases, the Agents are tight lipped about the details of the case. For this reason, at the conclusion of the IRS criminal investigation, your attorney should request a conference with the Special Agents in charge of the investigation. Much can be gleaned from the line of questioning of the Agents.

IRS does give consideration to the fact that you voluntarily disclosed the information that the IRS asked and also your age, health and mental condition. Essentially, the IRS is weighing their chances of winning a case.

What Should You Do?

Whether and when to answer questions from the IRS, or whether to stand on your 5th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney lawyer is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.