The seething rhetoric about those who fail to pay their fair share came in the wake of revelations that several major players in the American tech industry, including Apple, Amazon and Google, have engineered complicated frameworks to shift revenues away from the U.S. and the U.K. and into countries with lower corporate tax rates, even without conducting much more than token business in the low-tax nations.
]]> David Cameron, the British Prime Minister, was among the loudest voices for a new crackdown on international tax evasion and wrongful tax avoidance.Some of the proposals to curb tax evasion include creating a network of automatic information sharing among countries regarding those who fail to pay taxes as well as tightening the rules that allow companies to shift profits to countries with lower tax rates through legal gymnastics.
What does the summit proposal on taxes mean for individual American taxpayers and corporations? Some see it as relatively meaningless talk meant to appease a public fed up with corporate and individual greed. But, others believe true reforms could be coming - and this would mean not only more entanglement with the tax enforcement system for many, but also the potential criminalization of certain tax avoidance strategies that are already in use by many companies and individuals.
Source: The Christian Science Monitor, G8 wraps with progress on tax evasion - but not on Syria, Jason Walsh, June 18, 2012
]]>The ACA, otherwise known as Obamacare, takes full effect next year. In South Florida and across the nation, individuals and small businesses are trying to figure out how to respond to its many specific provisions.
]]> Much has been made of the so-called "individual mandate" for individuals to buy insurance if they are not already covered by an employer or under a family member's policy. It has now been over a year since the U.S. Supreme Court upheld that part of the ACA.It will be up to the IRS to determine who must pay tax penalties for failure to comply with requirement to have health insurance coverage. The penalties would not per large initially. But by 2016, they are due to rise considerably. For a single adult, the penalty would generally be $695 or 2 percent of income, whichever is greater.
But the ACA is a very complex law and the tax penalties also depend on the national average for premiums on the health insurance exchanges that are being set up in each state. These exchanges are essentially the shopping portals through which people without insurance are supposed to buy it.
The complexity grows when one considers the impact of the ACA on businesses. Employment taxes are already affected, as many employers have already started withholding higher Medicare taxes from high earners to help pay for Obamacare.
The IRS is of course the agency collecting these taxes. Implementation of the ACA will also require the IRS to collect information from businesses on which employees have insurance.
Businesses with 50 or more full-time employees must tell the IRS whether they offer those employees at least the "minimum essential coverage" required by the ACA. Businesses of this size face tax penalties if they not meet this requirement.
Small businesses with fewer than 50 full-time employees do not face these penalties. But there are plenty of potential tax issues for those businesses as well, such as the potential availability of tax credit for offering health insurance to employees.
Source: CNN Money, "IRS role in Obamacare," Jeanne Sahadi, May 28, 2013
]]>In a recent case in Tampa, a 29-year-old woman pleaded guilty to filing more than 150 false returns from a computer at her personal residence. She was sentenced last week to 5 1/2 years in prison. The convictions were for aggravated identity theft and theft of government property.
]]> The case was not a difficult one for investigators seeking to build a case for criminal tax fraud. The woman did not only use her own computer. She also used proceeds from the tax refund fraud to buy personal items. Those items — a Mercedes-Benz vehicle and expensive jewelry — were easily traced.Even in cases such as this, however, the role of a defense attorney is important. After all, even when prosecutors have lots of hard evidence, questions still need to be resolved about what the consequences for the crime will be.
In addition to prison time, consequences for tax fraud often include fines and the forfeiture of improperly gained assets. In this case, the sentence included forfeiture of jewelry worth in excess of $100,000 and the Mercedes-Benz.
Not all cases are as straightforward to investigate as this one was. That is why law enforcement authorities continue to seek more effective ways to share information about suspected identity theft linked to tax return fraud. The IRS is of course involved in these efforts as well.
Source: NewsTalkFlorida, "Tampa Woman Gets 5 1/2-Years For Tax-Fraud," June 5, 2013
]]>But when used rationally and responsibly, there is no doubt that a trail of data can illuminate a meaningful tale. Consider, for example, data from the IRS about criminal tax investigations.
These statistics point to criminal tax enforcement activities that are of interest to taxpayers in South Florida and across the nation.
]]> The statistics show that in the last three fiscal years, criminal tax investigations, prosecutions and convictions are all trending significantly up.Let's start with the number of investigations that were initiated by the IRS. That number is up from about 4700 in FY 2010 to more than 5100 in FY 2012.
Of course, not all criminal tax investigations lead to criminal tax charges. But the number of prosecution recommendations shows a substantial increase as well. In FY 2010, there were 3034 prosecution recommendations. By FY 2012, the number had risen to 3701.
Not surprisingly, the number of convictions was up also. It rose from 2184 in FY 2010 to 2634 in FY 2012.
Interestingly, among offenders sentenced for tax crimes, the percentage that went to prison remained quite stable. It was 81.5 percent in both FY 2010 and FY 2012, with only a very slight increase to 81.7 percent in FY 2011.
A full discussion of the causes of the increase in criminal tax prosecutions is beyond the scope of this post. But certainly the increase in tax refund fraud involving identity theft is one of the drivers of the overall increase.
Source: IRS.gov, "Statistical Data for Three Fiscal Years - Criminal Investigation (CI)"
]]>Depending on the crime of conviction, there are also often other sentencing alternatives available. These include house arrest, fines and community service.
In a recent Florida tax fraud case, a judge used sentencing discretion to give someone a break in a case involving tax fraud and identity theft. In federal court in Miami, a judge sentenced a Broward man to only 11 days of prison time for his part in a scheme in which he and two others submitted about 5,000 false tax returns.
]]> The 34-year-old man had been facing as much as a decade in prison time following his guilty plea to a charge of conspiracy to commit tax fraud. But the sentence the judge decided on was to six months of house arrest, in addition to the 11 days of prison time. The man will be monitored in his home during those six months through an electronic monitoring device.There are also several other parts of the sentence. The man must be more than $6,000 in restitution, as well as complete 240 hours of community service. He must also complete a GED.
The other two men who pleaded guilty in the case have not yet been sentenced. One man has pleaded guilty to wire fraud. The other has pleaded guilty to wire fraud and aggravated identity theft. They will not be sentenced until later this year.
Source: Sun Sentinel, "Broward man gets break in tax fraud case," Paula McMahon, May 25, 2013
]]>The immigration process can take a long time, however. And so, for tax and other purposes, it becomes important to know when someone is considered a U.S. resident for tax purposes. This is a particularly important question in South Florida, where the dynamics of immigration to the U.S. are so strong.
]]> For foreign-born people who have come to the U.S., one of the challenges is often the way the immigration process usually works. Many people come first as nonresident aliens. This is the status popularly known by the term "green card." People with this status typically don't become U.S. citizens until much later. And the tax obligations for a nonresident alien may be quite different from those for a citizen.There are also many potential complicating issues. For example, someone who has ties to both the U.S. and another country may face the possibility of double taxation. What happens then?
If the U.S. and the other country have a tax treaty in place, the criteria may contain criteria for resolving the issue of which country properly claims a taxpayer. These criteria may involve applying legal tests to serve as a "tiebreaker" between the two countries in claiming a resident for tax purposes.
And then there is the issue of U.S. requirements for filing the form to report foreign accounts. That form is formally known as the Report of Foreign Bank and Financial Accounts, but is widely known as the FBAR.
Source: "Where's Your Center of Vital Interests" Treaty Tie-Breakers," Bloomberg BNA, Edward Tannenbaum, May 7, 2013
]]>An example of this comes from a recent case involving a federal investigation into offshore accounts at HSBC, a huge multinational financial company based in Great Britain. Authorities were trying to determine whether HSBC India was engaged in a conspiracy to assist American taxpayers in concealing assets from the IRS in foreign accounts.
]]> Prosecutors charged a businessman in connection with this alleged conspiracy. The businessman man was from New Jersey. But the case has implications for taxpayers in South Florida and across the country.
Last week, a federal judge sentenced the man to a year of probation for conspiring with five others to conceal offshore accounts. He pleaded guilty about two years ago and had faced up to five years in prison. The man was able to avoid prison time because he cooperated with U.S. authorities in the wider investigation of HSBC.
The prosecution was widely publicized, however, and led to increased interest in the IRS's voluntary disclosure program for previously undisclosed foreign accounts. A federal prosecutor told the sentencing judge the IRS believes publicity about the case helped to encourage many other American taxpayers to participate in the program.
The program involves receiving amnesty from criminal prosecution in exchange for disclosing offshore accounts and making appropriate tax payments. This includes paying tax penalties, but it enables taxpayers to repatriate (bring back) assets to the U.S. without fear of criminal prosecution.
Source: "HSBC Client Avoids Prison for Hiding Offshore Accounts," Bloomberg, David Voreacros, May 22, 2013
]]>It doesn't have to be a medical diagnosis that stops people from filing their income tax returns every year. Unemployment is one siutation where people even become confused over the fact that even without a W-2, there is still a yearly requirement.
]]> Filling income taxes is something that rarely anyone wants to do and the process can be a job in itself with complex requirements where any little mistake can leave a taxpayer exposed to an audit. Forgetting about tax season one year or even another can lead to serious tax penalties that can quick add up.In many cases, missing one year of filing causes people to fear filing the next year. However, acting early is something that can help. A tax attorney is someone who can help. Tax penalties will not go away on their own, and the Internal Revenue Service is not an agency that is quick to forget.
Receiving a notice of a default can be a frightening experience. The number listed on the notice is often daunting and overwhelming, but it does not mean that it is the final number. Contrary to popular assumptions, the IRS is willing to negotiate in many cases. An attorney understands every available option and how to deal with tax collections from the federal entity.
Source: Reuters, "Coming clean on your taxes," Amy Feldman, May 14, 2013
]]>Law enforcement authorities have been seeking ways to respond more effectively to the problem. One of those, as we discussed in our April 4 post, is through an IRS pilot program that encourages more information sharing among state and federal agencies.
The Florida legislature has also addressed tax refund fraud in a recent bill. Earlier this month, both chambers of the legislature agreed on the final version of a bill intended to make it easier for authorities to bring criminal charges against people for the possession of certain unauthorized information.
]]> The information in question is identification information about other people, particularly Social Security numbers. People's names and dates of birth can be used in identity theft fraud as well. This information is sometimes stolen from medical records or other sources.Under previous state law, prosecutors had tended to hold off on bringing identity theft charges in some cases. This was because it can be hard to prove that merely having someone else's identification information indicates an intention to engage in fraud.
The bill passed by the Florida legislature eliminates the requirement that prosecutors prove fraudulent intent when pursuing charges against someone for unauthorized possession of other people's identification information.
Overall, the Florida legislature's action is one more skirmish in a long-running effort by state and federal authorities to reign in identity theft. Only part of this problem involves tax refund fraud based on identity theft. But tax fraud has been a big part of the problem and has been especially severe in Florida.
Source: "Tax fraud legislation awaits Scott's signature," The Tampa Tribune, Elaine Silvestrini, May 2, 2013
]]>Many taxpayers in South Florida and across the nation have done so. The results are reflected in a recent government report showing that the IRS has collected more than $5.5 billion under its various amnesty and disclosure initiatives.
]]> The report was prepared by the federal government's chief watchdog agency, the Government Accountability Office (GAO). More than 39,000 taxpayers have participated in the disclosure initiatives, the report estimated.In addition to formal participation in a program, there are also those taxpayers who have simply started reporting their offshore accounts by submitting the proper forms. The most basic of those forms is the FBAR, which stands for Report of Foreign Bank and Financial Accounts.
Taxpayers who start reporting their foreign accounts without going through an amnesty program could potentially still have to pay IRS tax penalties and interest for previous years. But the IRS would first have to determine that reporting should have begun earlier.
Overall, the number of people who are now reporting offshore accounts has virtually doubled in recent years to more than half a million accounts. Some of the increase is attributable to "quiet disclosure," in which taxpayers file amended tax returns. In other cases, taxpayers simply start reporting the foreign accounts for the first time.
Source: "39,000 Tax Cheats Come Forward Under New IRS Programs," The Huffington Post, Stpehen Ohlemacher, April 26, 2013
]]>The Bank Secrecy Act (BSA) uses a similar $10,000 threshold. Congress passed the BSA in 1970 in an effort to combat money laundering activities. It applies not only to banks, but to businesses. The law requires such steps as reporting cash payments of more than $10,000. The applicable IRS form is Form 8300.
]]> In a recent Florida case, state and federal regulators have been critical of a particular bank for allegedly failing to put in place proper controls to comply with the BSA and prevent money laundering. The bank involved is TransCapital Bank, based in Sunrise, Florida.The case has been going on for over two years. In late 2010, authorities issued a consent order to impose designated capital requirements. The order came from the Federal Deposit Insurance Corp. (FDIC) and the Florida Office of Financial Regulation.
Now authorities say the bank has not fulfilled these requirements and so is not sufficiently capitalized. The FDIC order has been modified to impose additional requirements. The order also criticized the bank’s BSA compliance practices.
The bank has 90 days to come up with an adequate compliance plan. And it must give its employees BSA rules training within 60 days. The amended order also calls upon the bank to bring in an independent auditor to review high-risk accounts dating back to the beginning from 2011.
Complying with regulatory requirements such as these can be financially burdensome for banks and businesses. Running afoul of regulators does therefore not imply an intention to engage in tax evasion, money laundering or other criminal activity. A case like this one, however, is a reminder that the government can be very insistent about a bank meeting its obligation to provide the required reports.
Source: “Regulators cite TransCapital Bank for weak anti-money laundering controls,” South Florida Business Journal, Brian Bandell, 4-26-13
]]>Taxpayers in South Florida and across the nation will be affected by how these issues are resolved. Many people rely to a great degree on their tax preparers, and the decisions made by those preparers can become issues in tax litigation.
]]> Meanwhile, H&R Block, one of the historic giants of the tax preparation industry, has had troubles of its own. Block is facing a class-action lawsuit brought by angry customers after a filing glitch by Block delayed their refunds..About 600,000 refunds were delayed by the glitch, which appears to have been caused by Block’s failure to update a key form to reflect a new IRS rule. The delays this error has caused in taxpayers’ receipt of refunds have been up to six weeks.
There have also been other negative effects. Parents of college students, in particular, have encountered problems trying to complete applications for financial aid in a timely manner.
In short, a long-established tax preparation stalwart with a historic brand has encountered serious problems. Block is trying to respond on several fronts. It is defending the class-action lawsuit. But it is also trying to win back its customers’ loyalty by offering $25 gift cards to clients who were affected by the filing glitch.
It remains to be seen whether this gesture is a savvy exercise in reputation management or too little, too late compared to the harm already done.
Source: “”Beleaguered H&R Block offers refund of its own: Gift cards for customers,” The Washington Times, David R. Sands, 5-3-13
]]>The term “hobby loss” is one that’s been around tax law for a long time. Over the years, the IRS has continued to be suspicious of tax deductions taken by taxpayers on activities that seem to be primarily pursued for pleasure, not profit.
To be sure, if a taxpayer has a legitimate tax deduction, it should be taken, without undue worry about an IRS tax audit. But taxpayers in Florida and across the country need to realize that the IRS has some very specific hobby loss rules.
]]> One rule of thumb, for example is that losses can be deducted only for two years out of a five-year period for new business. Keep in mind, however, that there may be exceptions to this general rule. If a taxpayer can show that the business is being run in a thoroughly professional way, the tax deduction for business losses may well be legitimate.There are a number of different factors that can indicate such professionalism. One strong indicator is that the taxpayer spends more time with the activity in question than with any other money-making activities. When a taxpayer makes a business the primary focus of his or her time and talent, that is strong evidence that it is not merely a hobby — despite the current losses.
Of course, as in so many tax-related matters, it’s also important to maintain good record keeping. If business records and accounts are separate from personal accounts, those are signs of seriousness on the part of the taxpayer when it comes to a particular activity.
Source: “Hobby losses could be sticky situation,” Florida Today, 5-1-13
]]>And, as with all IRS initiatives, the effect of across-the-board federal budget cuts on the whistleblower program remains unclear. We discussed that issue in our March 22 post.
In this post, let’s look at a specific whistleblower case. Last month, the IRS turned down an attempt by a former banker to claim a whistleblower award. In 2007, the man had given the IRS information about several businesses that he said evaded taxes. But the IRS said that the man did not qualify for a whistleblower award because no additional tax revenue was collected as a result of the information.
]]> The former banker did not see it that way. He brought suit last year against the IRS, arguing that the agency had kept him uniformed for years about the status of his whistleblower claim. He may also appeal the IRS’s rejection of his claim.The right to appeal a rejection of a whistleblower award to the U.S. Tax Court is one of the components of the 2006 reform of the whistleblower law. No appeal of this type has yet succeeded. But with Congressional critics scrutinizing the actions of how the IRS handles whistleblower claims, the agency is clearly not the only authority on subject.
Please visit our page on IRS tax collections.
Source: “IRS rejects reward claim by tax whistleblower,” Reuters, Nanette Byrnes, 4-18-13
]]>This is what happened in a recent Florida tax evasion case. Federal prosecutors brought criminal charges against an elderly woman from Palm Beach, contending she had failed to pay taxes on money that she had inherited from her husband. The money had been held in a Swiss bank account.
]]> The woman, now 79, contacted the IRS in 2009 regarding taxes on this money. But the IRS already knew about the case from information it had obtained from the Swiss banking giant UBS.Under pressure from the IRS, the woman pleaded guilty to tax evasion. She also paid over $21.6 million in back taxes and penalties to the agency.
The federal judge who handled the case, however, found it to be an exercise in overreaching by prosecutors. U.S. District Judge Kennedy Ryskamp said that the woman did not deserve a felony conviction. He sentenced her to a year's probation - and then promptly issued an order ending the probation.
The judge citicized prosecutors and said the woman deserves a presidential pardon to vindicate her.
Foreign bank accounts have of course been a big priority for the IRS and federal prosecutors in recent years. But that doesn't mean that every conceivable case of tax evasion should be persued.
Please visit our page on tax fraud.
Source: "Judge rips US tax evasion case against Fla. woman," The Miami Herald, 4-30-13
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