What Should You Do When Your Swiss Bank Sent You A Letter That Your Foreign Account Is To Be Disclosed To the IRS?

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Since the last quarter of 2013, an increasing number of U.S. taxpayers with accounts in Swiss banks have received letters from Swiss Banks regarding participation in the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). The Program was established by the Department Of Justice (“DOJ”) and along with the provisions of the Foreign Account Tax Compliance Act (“FATCA”) has been ratified by the Swiss Parliament thus conferring a legal obligation on all 106 Swiss Banks to comply. If you have a Swiss bank account and received one of these letters, pay close attention to this blog.

Letters from Swiss Banks: What They Usually Say

In these letters from Swiss Banks, the taxpayers are typically advised (sometimes with the somewhat offensive phrase “as you almost certainly know”) of the fact that their Bank will participate in the Program and disclose the taxpayer’s accounts in Switzerland. Then, the letters typically discuss three issues.

First, the letters from Swiss Banks ask the taxpayer to confirm whether he has already properly disclosed their Swiss bank accounts to the IRS. Some banks, like Banque Cantonale Vaudoise (“BCV”) even go as far as asking the taxpayers to confirm that other international tax compliance forms, such as Forms 5471, 3520 and, surprisingly, PFIC From 8621, have also been filed with the IRS. Other banks just ask for some sort of documentation that everything has been properly declared to the IRS.

Second, the letters from Swiss Banks ask the taxpayers are asked to verify if his Swiss bank accounts were disclosed as part of the official IRS Offshore Voluntary Disclosure Program (“OVDP”).

Third, the letters from Swiss Banks inform the taxpayers with undisclosed Swiss Bank accounts about the existence of the OVDP and encouraging you to enter into the OVDP, obtaining more information about the OVDP from the Bank, and, finally, offering to provide the necessary bank statements for the taxpayer to enter the OVDP. Some banks (for example, Nue Privat Bank) will even later offer to supply the tax information (though, these reports should be approached with a great deal of skepticism because these statements could contain a number of mistakes, such as failure to recognize the application of PFIC rules). Most letters from Swiss Banks also provide space for the taxpayers to express their consent to the disclosure of their undisclosed Swiss bank and financial accounts to the IRS.

Consequences for U.S. Taxpayers Who Received Letters from Swiss Banks

It is difficult to overstate the great impact that these letters from Swiss Banks may have on the taxpayer’s position. I want to concentrate on two most important effects of the letters from Swiss Banks. First and foremost, they provide notice to the taxpayer about the requirement to disclose their Swiss bank and financial accounts (and, in case of BCV and some other banks, other foreign assets such as business ownership) to the United States. Even if a taxpayer simply did not know about the FBAR requirement in the past, his behavior as a result of receiving these letters from Swiss Banks will now be subject to scrutiny – failure to act on these letters for a long time and willful disregard of them may change the taxpayer’s position from non-willful to willful, subjecting him to draconian FBAR willful penalties, including opening the possibility of criminal penalties to be applied.

Second, upon fulfilling the Notice requirement with these letters, the Swiss banks are free to disclose certain information to the IRS under the US-Swiss FATCA treaty. Once the IRS receives such information from the Swiss Banks, the exposed U.S. taxpayers most likely will not be able to participate in the OVDP.

Hence, once the taxpayers receive these letters, time becomes a crucial factor, because, if the decision to enter the OVDP is made by these taxpayers, it should be implemented as soon as possible.

What Should You Do Upon Receipt of Letters from Swiss Banks?

Your initial response to the letters from Swiss Banks may determine the entire course of your case.

1. Consult an OVDI/FBAR Tax Attorney

The first and most crucial step is not to panic and contact an OVDI/FBAR tax attorney who specializes in the voluntary disclosure of the foreign bank and financial accounts as well as other assets.

I want to emphasize that you need to contact an experienced OVDI/FBAR tax attorney, not an accountant. Offshore voluntary disclosure is a legal issue and its venue should be determined by an attorney, not an accountant. I have seen too many cases where accountants horribly mishandled their clients’ cases (on both strategic and tactical issues) because the accountants overstep the limitations of their profession and enter the world of legal advice.

The geographic location of your OVDI/FBAR tax attorney should not matter; a much more important factor should be the attorney’s experience in the case and you personal feeling of trust. If the attorney immediately advises you to enter the OVDP program without even considering the facts of your case, consider it a red flag and seek second opinion.

2. Try to Obtain As Much Information As Possible While Preparing for the Initial Consultation

During the initial consultation, the attorney will have no choice but to rely on you for the initial information required to assess the state of your case. So, try to get as much information as possible regarding your foreign bank accounts while preparing for the initial consultation. You should not have to wait for the foreign bank account statements or bring your originally filed U.S. tax returns in order to have a productive initial consultation.

3. Retain an OVDI/FBAR Tax Attorney to Handle Your Case According to the Proposed Strategy

After the initial consultation, you should have a pretty good idea of what your options are. Think about these options and the attorney’s recommendations, but not take too much time to do so (remember, time is of the essence in these cases). Make your decision and retain an OVDI/FBAR tax attorney that you like for your case.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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. The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California have helped numerous U.S. taxpayers with the voluntary disclosure of their foreign bank and financial accounts as well as other foreign assets. Let us qualify you for OVDI.

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.

U.S. Citizens And Permanent Residents Living Abroad Have No Where To Hide From IRS

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It is quite easy for U.S. Citizens and permanent residents (green card holders) who reside in a country other than the U.S. to either forget or not be aware of their U.S. tax obligations. The rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same even if you do not live in the U.S. Citizens and permanent residents of the U.S. like U.S. Citizens are taxed on their worldwide income. Your income is reportable even if you did not receive a form W-2 or Form 1099.

The increased attention by the U.S. government on its overseas citizens might have caught your attention especially with the introduction of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, requires U.S. withholding agents to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents. FATCA withholding goes into effect July 1, 2014.

You may be thinking that you are already paying taxes in the country where you are now living and therefore not obligated to pay taxes to the U.S. as well. But U.S. tax law requires U.S. Citizens and permanent residents (green card holders) to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

If you have been delinquent with your taxes, living overseas does not provide relief from your obligations. Given the increased efforts on the part of the U.S. government to discover delinquent U.S. taxpayers worldwide and the increased pressures on foreign governments and financial institutions imposed by FATCA, it is in your best interest to comply voluntarily before the IRS discovers your delinquency.

You should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  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 San Francisco, Los Angeles, San Diego and elsewhere in California qualify you for OVDI.

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.

It’s A Small World After All – Number Of FATCA Compliant Countries Continues To Grow

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Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. As of this blog posting, the U.S. has entered into intergovernmental Agreements (“IGA’s”) with 32 countries for the implementation of FATCA.

The 32 countries with IGA’s already in place are:

Australia Estonia Isle of Man Netherlands
Austria Finland Italy Norway
Belgium France Jamaica Spain
Bermuda Germany Japan Switzerland
Canada Gibraltar Jersey United Kingdom
Cayman Islands Guernsey Luxembourg
Chile Hungary Malta
Costa Rica Honduras Mauritius
Denmark Ireland Mexico

Countries which are close to having an IGA in place are:

Bahamas Cyprus New Zealand Slovak Republic
Brazil India Panama Slovenia
British Virgin Islands Indonesia Peru South Africa
Bulgaria Kosovo Poland South Korea
Columbia Kuwait Portugal Sweden
Croatia Latvia Qatar
Curacao Liechtenstein Romania
Czech Republic Lithuania Singapore

Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 Diego, San Francisco and elsewhere in California qualify you for OVDI.

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.


When Do You Need to Hire a Tax Attorney?

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In a world of CPA’s, tax preparers, enrolled agents, bookkeepers and accountants, it can be confusing to know when to hire a tax attorney. After all, you’re not hiring a tax lawyer to prepare your annual income tax return. So when and why would you need a tax attorney’s services?

IRS And State Tax Disputes

First and foremost, you need a tax lawyer if you have a dispute with the Internal Revenue Service (IRS) or any State Tax Agency.

Most tax disputes arise in the form of an audit of one or several past tax returns. If the IRS notifies you of an audit, you should hire a tax attorney immediately.

Your tax lawyer can communicate with the IRS on your behalf, be present during your audit and help negotiate a settlement, if necessary. Having experienced legal counsel helps ensure that you don’t overpay as a result of your audit.

In some instances, taxpayers ignore letters and warnings from the IRS because they’re scared or don’t know how to respond. In those cases, the IRS may have no choice but to threaten you with criminal charges for tax evasion. If you learn that you’re the target of an IRS criminal investigation, you’ll want to hire a tax lawyer—and do it quickly.

Your tax lawyer can reassure the IRS that you’re taking its investigation seriously, work with the IRS in an effort to help you avoid criminal charges and represent you in court if you are charged with a tax crime.

Complex Legal Tax Issues

A tax lawyer’s help can also be invaluable if you’re facing a complicated legal tax situation. This might include instances where:

You’re starting a new company and are trying to decide between the various ways to structure your company
You’re the executor of an estate and need advice regarding whether and how much is owed in estate taxes
You want to challenge the IRS on a tax decision or appeal an audit
You receive a Collections Notice telling you that tax is due and/or threatening collection action
You want to sue the IRS
You think or know that you’ve committed tax fraud

Questions to Ask When Interviewing Tax Lawyers

At your initial meeting, you’ll want to share the specifics of your situation and then ask the lawyer about their experience handling similar matters. Know that lawyers are bound by strict confidentiality rules. Even if you end up hiring a different attorney, the lawyers you meet with cannot share the information they learned with the IRS or anyone else.

Some questions to consider asking during your initial consultation:

How long have you been practicing law?
Do you just practice tax law, or do you also work in other areas of practice?
Have you previously handled tax situations similar to mine?
What’s your assessment of my situation? What works for me and against me?
If I hired you, what course of action would you recommend?
Do you charge a flat fee or hourly rate, or do you use some other billing structure?
Can you estimate my total legal fees?

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 Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent 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.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Israel Becomes The 28th Country To Sign FATCA Accord

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Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. The U.S. has entered into intergovernmental Agreements (“IGA’s”) with 27 countries for the implementation of FATCA.

On May 1, 2014 it was reported that Israel signed the FATCA Model 1 Accord which requires Israeli financial institutions to report information about U.S. customers’ accounts to the Israeli tax authorities, who will then send that information to the IRS. The news comes only a day after the indictment of a former senior vice president of an Israeli bank, widely believed to be Bank Mizrahi, for conspiring to conceal the existence of undeclared accounts owned and controlled by U.S. customers in Israel.

This makes Israel the 28th country to join the ranks of those countries cooperating with the U.S. in disclosing U.S. accountholders to the IRS.

The 27 countries with IGA’s already in place are:

Australia Finland Isle of Man Mexico
Bermuda France Italy Netherlands
Canada Germany Japan Norway
Cayman Islands Guernsey Jersey Spain
Chile Hungary Luxembourg Switzerland
Costa Rica Honduras Malta United Kingdom
Denmark Ireland Mauritius

Countries which are close to having an IGA in place are:

Austria Estonia Liechtenstein Qatar
Belgium Gibraltar Lithuania Slovenia
Brazil Jamaica New Zealand South Africa
British Virgin Islands Kosovo Poland South Korea
Croatia Latvia Portugal Romania
Czech Republic

Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 Diego, San Francisco and elsewhere in California qualify you for OVDI.

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.

Be Careful Of What You Say To Your Accountant

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Most States recognize an accountant-client privilege where if you tell your accountant something the accountant should not be compelled to reveal what was discussed to the government or third parties. A major exception where this privilege does not apply is where the discussion involves potential criminal actions or criminal issues. In the tax field this could be where you are hiding money offshore, failed to disclose foreign bank accounts, did not report all worldwide income on your income tax returns or filed false returns with overstated deductions.

But thanks to attorney-client privilege, if you tell your lawyer about any of these problems, the IRS cannot make your lawyer talk or produce any documents or notes made by your lawyer. The theory behind the privilege is to encourage clients or potential clients (in both civil and criminal cases) to be forthcoming with their lawyers and get the advice needed to make an informed decision.

Because an accountant may still be needed to resolve your tax matter that has criminal repercussions or criminal exposure in sensitive tax matters, there is a tool that the tax attorney uses to extend the umbrella of the attorney-client privilege to the accountant. That tool is called a Kovel letter, named after a famous case of United States v. Kovel. The way this works is that your tax lawyer hires the accountant. The legal effect is that the accountant is still doing your tax accounting and return preparation but reporting as a subcontractor to your lawyer. Properly executed, it imports attorney-client privilege to the accountant’s work and communications.

If you are fence-sitting and can’t decide whether to disclose your past foreign account noncompliance to the IRS or if and how you should come forward to the IRS to correct previously filed false tax returns, you should not have discussions with your accountant about these issues. Instead speak with a tax attorney whom you can be forthcoming with and have the protections of confidentiality and exemption from disclosure to the government or other third parties.

Even if you end up not engaging that attorney, your conversation is still protected.

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.

Accountant vs. Tax Attorney: When and Why To Use Them

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When it comes to taxes, you can never be too careful or too organized. Though, if you run a small business, you’re likely going to need help along the way to ensure you’re being careful and organized enough. Businesses may turn to either a professional accountant or tax attorney for help. Despite what you may think, hiring a tax professional is not just for big business! Forming a working relationship with a tax pro can keep you out of hot water with the IRS and take some of the stress off of tax time. Adding a tax professional should be part of your business operating expense—consider it insurance you shouldn’t live without!

There are different types of tax professionals. Commonly, businesses rely on accountants and tax attorneys. How do you know which type of professional is the best fit for your needs? Let’s take a look at the differences between the two professions and how to choose the right one for your tax needs.

Accountants

You’re probably most familiar with accountants during tax season. But the truth is a qualified accountant can help with much more than just filing your tax return. If you run a small business, it’s a good idea to form a relationship with an experienced accountant so you have someone to call on with tax or accounting questions. This is also true if for personal taxes if you have expenses, income and deductions beyond a simple return.

There are several educational choices for accountants:

  • Tax preparer certification: Some states allow a tax preparer certification which trains individuals to prepare basic personal taxes. You may be most familiar with tax preparers from places like H&R Block and other kiosk tax-preparation services.

  • 2-year accounting degree: Technical colleges often offer a 2-year degree in general accounting. Graduates may hold a certification or Associate degree in accounting.

  • 4-year accounting degree: Accountants may choose to receive a Bachelor’s degree from a 4-year university.

  • Certified Public Accountant: The CPA designation must be earned by passing a rigorous examination. CPAs also hold a license from their state of practice and are held to a high standard of practice and accounting knowledge.

When interviewing accountants, ask exactly what duties they are able to perform based in their degree and licensure level. If you’re looking for help preparing taxes and filing the correct forms, a general accountant may suit your needs.

However, if you need help with financial planning, asset management or audit assistance, a CPA may suit better. There may be a cost difference between the type of accountant you choose; however, don’t let cost dissuade you from getting the help that you need to adhere to tax laws.

Keep in mind that accountants are not well-trained in the legal aspects of tax law. If you’ve become involved in legal proceedings with the IRS, your accountant may be able to help prepare necessary information, but only a tax attorney can guide you through the court system.

Tax Attorney

Tax attorneys are lawyers with a Juris Doctor (JD) degree and admission to the state bar, who also have specific education and experience in tax law. Like accountants you will also find that there are different levels of tax attorneys.

There are several educational and professional choices for tax attorneys:

  • Holding An Active Certified Public Accountant License: Implies the ability to handle duties of an accountant, as well as those of a legal tax advisor.

  • Master Of Laws Degree In Tax (LL.M.(Tax)): Having an extra year of law school after earning the JD which is devoting solely to tax education.

  • Board Certified In Tax Law By Their State Bar: Some states allow an attorney to earn recognition as a legal specialist in their field of law. Requires passing a competency test in tax law and has a minimum number of years practice in tax law.

Tax attorneys understand the finer details of tax law which can be helpful if you’re ever involved in an IRS action. Commonly, tax attorneys can assist with:

  • Estate planning or filing estate related tax returns

  • Business start-ups that have a complicated entity or tax requirements

  • Payroll/employee taxation issues for business with multiple employees

  • International business and tax laws

  • Filing a law suit against the IRS

  • IRS lawsuits against you

  • Criminal IRS investigations against you

  • Representation for tax fraud accusations against you

If your business has any legal issues with the IRS, you may want to consider a tax attorney for assistance. A tax attorney can help resolve many tax-related problems. They negotiate on your behalf and are trained to analyze complicated tax information and formulate a plan for resolving your case. Because tax laws change every year, tax attorneys are also invested in constant learning to stay abreast with all the changes. If you feel your business tax situation is above what an accountant can tackle, the next step is to find a tax attorney best suited for you and best qualified to resolve your situation.

If you are facing a potential proceeding in the U.S. Tax Court, check to see that the tax attorney is admitted to the U.S. Tax Court and inquire of that lawyer’s experience in filing a Petition with the Court, negotiating with the IRS Office Of Appeals or IRS Area Counsel and litigating the case in trial should a pre-trial settlement not be reached.

If you are facing a criminal investigation or you have been indicted for tax crimes by the Federal government, check to see that the tax attorney is admitted to the Federal District Court where you live and is knowledgeable about the criminal judicial process and is experienced in defending and litigating criminal cases in the Federal District Court.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent 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.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

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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.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. effectively handle criminal tax defense against criminal income tax issues prosecuted by the IRS. The IRS is the world’s most powerful collection agency, with tremendous resources, and its Criminal Investigation Division (CID) is ruthless. Its goal is singular: to conduct a thorough investigation of the taxpayer who has engaged in tax fraud so that he can be criminally prosecuted.

A criminal investigation differs from an audit. With an audit, the IRS attempts to determine whether you have calculated your tax liability correctly. With a criminal investigation, the IRS seeks to mount a case against you so that the U.S. Department Of Justice can prosecute you and hold you out as an example to others as to what will happen if you cheat the government.

The IRS Criminal Investigation Process

The IRS criminal investigation process is serious business. CID is composed of federal agents (called “Special Agents”), who are highly trained financial investigators that carry a gun and wear a badge. Unlike your typical police department, CID conducts a very thorough investigation which may last years while they interview your family, friends, co-workers, employees, and business associates, and bankers, among others, to acquire evidence as to the extent of the tax evasion or tax fraud that may have occurred.

A criminal tax violation conviction results in severe consequences, and in addition to monstrous fines, including the cost of prosecution and jail time. Each count can result in five years in jail and it could spell financial, personal and social ruin. Compounding the situation is that often a taxpayer will not know when he is subject to an IRS criminal investigation until it is in its late stages at which time they surely have made incriminating admissions if they were not represented by competent counsel.

Signs that You May Be Subject to an IRS Criminal Investigation:

(1) An IRS Revenue Officer abruptly stops pursuing you after he has been requesting you to pay your IRS tax debt, and now does not return your calls. The agent might be getting ready to refer your case to the CID to investigate previous or current tax evasion or crimes you may have committed within the collection process. (i.e., making false statements, hiding income or assets).

(2) An IRS Revenue agent has been auditing you and now disappears for days or even weeks at a time. After a case is referred to the CID, both the Collection and Examination Divisions put things on “pause” because they do not want to jeopardize a successful criminal prosecution. CID is incredibly resourceful and tactful. To better position yourself against them, it is best to obtain an experienced IRS tax attorney as early as possible where criminal tax exposure is apparent in your fact pattern (like where you know you cheated on the return that is under audit). This is true even if your case is only at the civil investigation stage.

(3) Your bank informs you that your records have been summoned by the CID or subpoenaed by the U.S. Attorney’s Office.

(4) Your accountant is contacted by Special Agents, or has been subpoenaed to appear before a grand jury and told to bring your tax records. Unfortunately, the “accountant-client privilege” simply does not protect you in a criminal case and any statements made to your accountant can be used against you in a criminal investigation, either through the “discovery” process leading to trial or where the accountant is called as a witness during criminal tax trial.

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.

What Is The Difference Between Tax Fraud And A Simple Mistake?

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In most tax audits the IRS is only interested in collecting the taxes owed, plus interest along with a few penalties. Perhaps the IRS might impose a negligence penalty or a late filing penalty. However, if during the tax audit the IRS suspects that you have committed tax fraud they can impose a civil tax fraud penalty. The civil tax fraud penalty is equal to 75% of the tax owed, plus interest on the penalty. Worse yet the IRS tax auditor might ask the tax fraud referral specialist to look at your case to see if it should be sent to the IRS Criminal Investigation Division (CID) for criminal tax prosecution.

 

Tax crimes include filing a false tax return, tax evasion, filing false documents, failure to collect employment taxes, failure to pay taxes, and failing to file a tax return. The penalties for criminal tax fraud are very serious. They range up to 5 years in jail, plus fines of up to $500,000, plus the costs of prosecution for each separate tax crime. Once the criminal tax case is completed CID will refer the case back to the IRS Examination Division where the taxes will be assessed, and the IRS can be expected to add on the civil tax fraud penalty, on top of any criminal tax fraud fines.

 

Generally tax fraud or tax evasion involves an intentional wrongdoing. Mere carelessness is not tax fraud. “Badges Of Fraud” commonly used by taxpayers to deceive or defraud the IRS include the following:

Badges of Fraud – Income

  • Omissions of specific items where similar items are included.
  • Omissions of entire sources of income.
  • Unexplained failure to report substantial amounts of income determined to
    have been received.
  • Substantial unexplained increases in net worth, especially over a period
    of years.
  • Substantial excess of personal expenditures over available resources.
  • Bank deposits from unexplained sources substantially exceeding reported
    income.
  • Concealment of bank accounts, brokerage accounts, and other property.
  • Inadequate explanation for dealing in large sums of currency or the
    unexplained expenditure of currency.
  • Consistent concealment of unexplained currency, especially in a business
    not calling for large amounts of cash.
  • Failure to deposit receipts to business account, contrary to normal
    practices.
  • Failure to file a return, especially for a period of several years
    although substantial amounts of taxable income were received.
  • Covering up sources of receipts by false description of source of
    disclosed income and/or nontaxable receipts.
  • Substantial overstatement of deductions.
  • Substantial amounts of personal expenditure deducted as business expenses.
  • Claiming fictitious deductions.
  • Dependency exemption claimed for non-existent, deceased, or
    self-supporting persons.
  • Loans of trust funds disguised as purchases or deductions.
  • Keeping two sets of books or no books.
  • False entries or alterations made on the books and records; backdated or
    postdated documents; false invoices, applications, or statements, other false
    documents, or applications.
  • Failure to keep adequate records, concealment of records, or refusal to
    make certain records available.
  • Variances between treatments of questionable items on the return as
    compared with books.
  • Intentional under or over footing of columns in journal or ledger.
  • Amounts on return not in agreement with amounts in books.
  • Amounts posted to ledger accounts not in agreement with source books or
    records.
  • Journalizing of questionable items out of correct amount.
  • False receipts to donors by exempt organizations.
  • Distribution of profits to fictitious partners.
  • Inclusion of income or deductions in the return of a related taxpayer,
    when difference in tax rates is a factor.
  • False statement, especially if made under oath, about a material fact
    involved in the examination.
  • Attempts to hinder the examination. For example, failure to answer
    pertinent questions, repeated cancellations of appointments, or refusal to
    provide records.
  • The taxpayer’s knowledge of taxes and business practice where numerous
    questionable items appear on the returns.
  • Testimony of employees concerning irregular business practices by the
    taxpayer.
  • Destruction of books and records, especially if just after examination was
    started.
  • Transfer of assets for purposes of concealment or diversion of funds
    and/or assets by officials or trustees.
  • Patterns of consistent failure over several years to report income fully.
  • Proof the return was incorrect to such an extent and in respect to items
    of such character and magnitude as to compel the conclusion the falsity was
    known and deliberate.
  • Payment of improper expenses by or for officials or trustees.
  • Willful and intentional failure to execute plan amendments.
  • Backdating of applications and related documents.
  • Making false statements on EP/EO determination letter applications.
  • Use of false social security numbers.
  • Submission of false Form W-4.
  • Submitting a false affidavit.
  • Attempts to bribe the examiner.
  • Inadequacy of consideration.
  • Insolvency of transferor.
  • Assets placed in other names.
  • Transfer of all or nearly all of debtors’ property.
  • Close relationship between parties to the transfer.
  • Transfer made in anticipation of a tax assessment or while the
    investigation of a deficiency is pending.
  • Reservation of any interest in the property transferred.
  • Transaction not in the usual course of business.
  • Retention of possession.
  • Transactions surrounded by secrecy.
  • False entries in books of transferor or transferee.
  • Unusual disposition of the consideration received for the property.
  • Use of secret bank accounts for income.
  • Deposits into bank accounts under nominee names.
  • Conduct of business transactions in false names.

 Badges of Fraud – Expenses or Deductions

  • Substantial overstatement of deductions.
  • Substantial amounts of personal expenditure deducted as business expenses.
  • Claiming fictitious deductions.
  • Dependency exemption claimed for non-existent, deceased, or
    self-supporting persons.
  • Loans of trust funds disguised as purchases or deductions.

 Badges of Fraud – Books and Records

  • Keeping two sets of books or no books.
  • False entries or alterations made on the books and records; backdated or
    postdated documents; false invoices, applications, or statements, other false
    documents, or applications.
  • Failure to keep adequate records, concealment of records, or refusal to
    make certain records available.
  • Variances between treatments of questionable items on the return as
    compared with books.
  • Intentional under or over footing of columns in journal or ledger.
  • Amounts on return not in agreement with amounts in books.
  • Amounts posted to ledger accounts not in agreement with source books or
    records.
  • Journalizing of questionable items out of correct amount.
  • False receipts to donors by exempt organizations.

Badges of Fraud – Allocations of Income

  • Distribution of profits to fictitious partners.
  • Inclusion of income or deductions in the return of a related taxpayer,
    when difference in tax rates is a factor.

Badges of Fraud – Conduct of Taxpayer

  • False statement, especially if made under oath, about a material fact
    involved in the examination.
  • Attempts to hinder the examination. For example, failure to answer
    pertinent questions, repeated cancellations of appointments, or refusal to
    provide records.
  • The taxpayer’s knowledge of taxes and business practice where numerous
    questionable items appear on the returns.
  • Testimony of employees concerning irregular business practices by the
    taxpayer.
  • Destruction of books and records, especially if just after examination was
    started.
  • Transfer of assets for purposes of concealment or diversion of funds
    and/or assets by officials or trustees.
  • Patterns of consistent failure over several years to report income fully.
  • Proof the return was incorrect to such an extent and in respect to items
    of such character and magnitude as to compel the conclusion the falsity was
    known and deliberate.
  • Payment of improper expenses by or for officials or trustees.
  • Willful and intentional failure to execute plan amendments.
  • Backdating of applications and related documents.
  • Making false statements on EP/EO determination letter applications.
  • Use of false social security numbers.
  • Submission of false Form W-4.
  • Submitting a false affidavit.
  • Attempts to bribe the examiner.

Badges of Fraud – Methods of Concealment

  • Inadequacy of consideration.
  • Insolvency of transferor.
  • Assets placed in other names.
  • Transfer of all or nearly all of debtors’ property.
  • Close relationship between parties to the transfer.
  • Transfer made in anticipation of a tax assessment or while the
    investigation of a deficiency is pending.
  • Reservation of any interest in the property transferred.
  • Transaction not in the usual course of business.
  • Retention of possession.
  • Transactions surrounded by secrecy.
  • False entries in books of transferor or transferee.
  • Unusual disposition of the consideration received for the property.
  • Use of secret bank accounts for income.
  • Deposits into bank accounts under nominee names.
  • Conduct of business transactions in false names.

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.

Badges of Fraud: What Sets the Alarms Off at the IRS?

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A new client once came to me saying she had made an error in preparing her tax return and inadvertently took a deduction to which she was not entitled. “Will I go to jail if I’m audited?” The answer of course, is no. If that were the case, you might as well surround the country in barbed wire and imprison all of us. After all, I’m sure almost everyone in this country has made an error or misunderstood a tax law and claimed a deduction they shouldn’t have or failed to report some income because the reporting document got lost in the mail or misplaced.

But some taxpayers go too far. Their tax returns read like a fiction novel. Therefore, IRS auditors have been trained to spot the hot issues which usually are present with dishonest taxpayers.  These hot issues are called by the IRS as the “Badges Of Fraud” which could result in your case being referred to the IRS Criminal Investigation Division (CID).

 The Badges Of Fraud include:

  • understatements of income;
  • inadequate records;
  • failure to file tax returns;
  • implausible or inconsistent explanations of behavior;
  • concealment of assets;
  • failure to cooperate with tax authorities;
  • engaging in illegal activities;
  • attempting to conceal illegal activities;
  • dealing in cash; and
  • failure to make estimated tax payments.

If you have any of these tax problems and you are audited by the IRS you may need to engage a tax fraud attorney. Actions you take during the course of a tax audit can turn a run of the mill tax controversy into a tax fraud case. For example, lying or giving evasive answers to IRS investigators, delaying tactics, and other actions designed to mislead IRS agents are all indicia of tax fraud.

The penalties for criminal tax fraud are very serious. They range up to 5 years in jail, plus fines of up to $500,000, plus the costs of prosecution for each separate tax crime. Once the criminal tax case is completed CID will refer the case back to the IRS Examination Division where the taxes will be assessed, and the IRS can be expected to add on the civil tax fraud penalty, on top of any criminal tax fraud fines.

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.