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Glen E. Frost

Attorney at Law *
Certified Public Accountant **
Certified Financial Planner®
Master of Laws in Taxation
Every Tax Problem has a Solution

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
Phone:  (410) 497-5947
Fax:      (888) 235-8405

Pages: << 1 2 3 4 5 6 7 8 9 10 11 ... 35 >>

09/05/18

Permalink 12:19:57 pm, by dmerritts Email , 1312 words   English (US) latin1
Categories: News

Coming Out of the Dark of International Tax Avoidance



By Eli S. Noff, Partner and Peter Palsen


Jakarta, Indonesia - 1990


The aroma of my strong Java coffee blended with the smell of the dark teak paneling of the conference room of my client’s office. I glanced at my U.S.-citizen client and then back to the two bankers who had traveled to Indonesia to promote an investment in an offshore fund. Before the meeting, I had made my client aware that the U.S. Congress had only a few years earlier enacted a punitive rule to discourage U.S. tax residents from making such investment(s).

The junior banker made the pitch. Credit-worthy assets, liquid market, strong history of returns, and (whisper) tax exemption. My client then looked to me, and I dutifully asked the bankers if they were aware of "the rule." Rather than responding to me, the senior banker turned back to my client and said: "I think the real question is whether you ever intend to return to the United States."

The Present


I have often reflected on this initial exposure to the darkness of international tax avoidance. Subsequently, I have been confronted with similar situations involving:

  • Assets or shares held nominally by foreign relatives or other parties
  • Foreign trust arrangements (including charitable trusts and foundations)
  • Code-numbered offshore bank accounts
  • Offshore annuity, insurance or derivative products

  • To be clear, the vast majority of foreign investment(s) are not illicit. Many people are introduced to offshore financial arrangements in the context of "asset protection." However, in light of the substantial penalties that can be applied, the term can become ironic if the investment is willfully not disclosed for tax purposes.

    The statutory penalties associated with FBAR (Foreign Bank Account Report) and international informational report non-compliance can be catastrophic. Civil willful FBAR penalties may generally be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation. The non-willful penalties may be $10,000 per violation. Each unreported account on each year's FBAR may be considered a violation. In addition, various penalties may be imposed with respect to information reports which are delinquent (such as IRS Forms 5471, 3520, 3520-A, and 8938). Combined penalties can exceed the value of the non-compliant offshore assets.

    Why More People are Coming out of the Dark


    The common denominator in most non-disclosed offshore arrangements is secrecy. The latest IRS report on the compliance gap (i.e., the measurement of unpaid taxes) states that the large majority of the individual tax gap comes from omitting income on a filed return - versus abjectly not filing a return. The report cites "visibility" as a significant factor in the omission of income, noting that the level of non-compliance is around ten times higher for information not subject to substantial information reporting (such as a Form 1099).

    The secrecy that often underpins tax avoidance transactions is under pressure from a number of fronts:

  • Substantial efforts underway globally to compel financial institutions and intermediaries to identify and disclose offshore clients and their transactions.
  • Enforcement against tax shelter promoters, resulting in disclosure of client information
  • The emergence of public disclosures of private information (e.g., leaks like the Panama papers)
  • Cyber-attacks, including ransomware threatening to disclose website activity and other user data
  • Increased enforcement efforts to track cryptocurrency and other digital fund transfers

  • In addition to the erosion of secrecy discussed above, several other factors are contributing to the increase in people deciding to disclose previously-unreported foreign assets:

  • The publicity and success of the IRS voluntary disclosure programs (discussed below)
  • Increased pressures on foreign financial institutions to avoid holding dark assets
  • The transfer of wealth to a generation who do not want to be burdened by tax avoidance risk

  • Many people find their way into tax avoidance arrangements without bad intent (and often without good advice). Some have become U.S. tax residents while holding foreign assets that were never before subject to U.S. tax. Some U.S. tax residents inherited assets that have never been disclosed. Others might have relied on promoters to more fully advise them of the tax risks.

    In these and other cases, asset owners often would like to become fully compliant. However, they realize that the disclosure process is irreversible and can depend to some extent on the mercy of a large government organization.

    How to Come Out of the Dark


    The IRS has issued substantial guidance and programs to allow delinquent account holders to become compliant and avoid the harsh statutory penalty framework previously discussed.

    Generally, one of the first steps to evaluate the best path to disclosure is an assessment of willfulness. Many federal court rulings have focused on this salient determination, and the initial process should involve meeting with a qualified attorney to align the specific facts to the prior rulings. In the FBAR context, willfulness has been found to include reckless conduct and willful blindness - both an expansion of the common definition of willful. Furthermore, the IRS has designated certain foreign financial institutions and promoters whose participation can create a presumption of willfulness.

    The initial process should also consider the primary IRS programs for managing disclosure:

  • The Offshore Voluntary Disclosure (OVDP) - Set to expire September 28, 2018
  • Streamlined Domestic and Offshore Procedures
  • Delinquent Submission Procedures (DSP)

  • OVDP


    OVDP was designed for use by taxpayers who were willful with respect to their FBAR and informational reporting non-compliance. This program culminates with a contract to close the matter, which contract can generally not be reopened unless there was fraud or a misrepresentation of material fact.

    The main requirements of the program are: (1) file the last eight years of delinquent FBARs (2) amend the past eight years of returns to include the unreported foreign income, and (3) pay a 27.5% penalty on the highest balance in the offshore accounts (or other non-compliant offshore assets) in the 8-year period. The penalty may be as high as 50% if the taxpayer holds an account at one of the IRS-designated promoter financial institutions.

    Streamlined Domestic and Foreign Offshore Procedures


    The Streamlined procedures are available only to those who can demonstrate reasonable cause that their actions were not willful in their failure to file their FBARs and delinquent information reports. This procedure requires amendment of the past three years of returns along with preparation of the past six years of FBARs. While the Domestic and Offshore procedures share this look-back period, they vary in material ways.

    The Domestic procedure may only be used if the past three years of returns have already been filed. Furthermore, this procedure carries a 5% penalty on the highest year-end balance of the non-compliant offshore accounts.

    The Offshore procedure may only be used by taxpayers who have been living outside the U.S. for at least 330 days in one of the past 3 years. Thus, delinquent returns may be filed using this procedure. Furthermore, this procedure does not carry with it a penalty.

    Delinquent Submission Procedures


    This process is reserved for taxpayers who fail to file an international informational report with the IRS to acknowledge the ownership interest in the offshore account but have no additional unreported income to report. If the taxpayer has reasonable cause, penalties can be avoided.

    Conclusion


    The window is rapidly closing on the current version of IRS Offshore Voluntary Disclosure Program. Given the high stakes that can be involved, U.S. taxpayers who have unreported offshore financial accounts or assets should contact an experienced attorney to engage in confidential discussions of their options.

    About the Authors


    Peter Palsen (with the Jakarta client) serves individual and corporate clients nationally as an international tax Principal with Biegel-Waller LLP. Peter can be reached by phone at 443-539-1656 or by email at peter.palsen@biegelwallerllp.com

    Eli Noff, Esq. CPA, is a tax controversy Partner at Frost & Associates, LLC, where he represents individuals and businesses with international tax matters, tax collection issues, federal and state examinations and appeals, IRS criminal investigations, and matters before the federal and state tax courts. If you need assistance please reach out to us today for a free consultation.

    08/31/18

    Permalink 11:17:39 pm, by jjbisnar Email , 672 words   English (US) latin1
    Categories: News

    Six Things to Know When You Owe the IRS

    IRS Collections Help

    Owing money to the Internal Revenue Service can be stressful and overwhelming. It can cause even more concern when you don't have the money to pay. But, what many are not aware of is that they have options to pay off the debt gradually, or if they are eligible, at a substantially reduced amount. Since people are not aware of these options, they try to evade or ignore a powerful agency. Sooner or later, the IRS will catch up with you and you might find yourself in a deeper debt.

    Here are six things to know when you owe money to the IRS:

     

    1. Do not ignore IRS notices.

    The notices that come from the IRS are computer-generated. Never ignore these notices. It is important that you respond to the IRS each time you get the notices. Many people get in deeper trouble because they ignore these notices.

     

    2. Be sure to consult a tax expert before you approach the IRS.

    Talk to a tax expert to prepare for your interview with the IRS. An expert will be able to advise you about how to present yourself and how to tell if the IRS officer is trying to take advantage of you. It is also important to remember that collection interviews with IRS officers can be an intimidating experience. It would be in your best interest to have a tax attorney on your side when you engage with the IRS.

     

    3. Always remember that you have "due process" rights.

    What this means is that the IRS, just because it's a federal agency endowed with a lot of power, can confiscate your assets and personal property such as your bank account, car or business. Under the law, they are required to give you proper written notice and the opportunity to challenge their assertions. Also, when you are in the process of challenging the IRS claim, no one can initiate or continue collection activity against you. Even if you take the IRS to court, they can't collect a penny from you until the judge adjudicates the case and hands down a decision.

     

    4. The IRS is not always right.

    The IRS might make its own determination and send you notices. However, that does not necessarily mean the agency is always right. It is a fact that the IRS can be wrong sometimes with regard to how much you owe. The IRS does make mistakes from time to time. So, do not take what they say for granted. Do your own math, consult a tax professional or tax attorney to determine for yourself. Doing so may end up saving you a lot of money.

     

    5. You won't go to prison if you don't pay the IRS what you owe.

    It's extremely rare in the United States to see someone actually go to jail for being unable to pay his or her taxes. However, you could go to jail if you try to cheat the tax collector with actions such as claiming deductions that don't exist and filing fraudulent returns. But, you cannot go to prison simply because you are unable to pay what you owe to the IRS.

     

    6. You do have options when you cannot pay.

    Those who owe taxes to the IRS have a number of options available. For example, you may be able to negotiate an installment payment where you typically pay off your debt in three years. In some cases, bankruptcy might be the best option for you. You may be able to discharge tax debt by filing a Chapter 7 bankruptcy. In some other cases, you may be able to work out an Offer in Compromise. This is where, under certain conditions and circumstances, the IRS will accept a smaller payment to settle a larger tax debt.

     

    If you owe the IRS money and have questions about your options, call our experienced Maryland tax lawyers to explore your options. We can help you work out a strategy that fits your needs while making sure that the correct procedures are followed.

    08/30/18

    Permalink 03:46:15 pm, by dmerritts Email , 405 words   English (US) latin1
    Categories: News

    Be Cautious When Choosing A Tax Preparer: Two Maryland Tax Preparers Guilty of Filing False Returns

    By Glen Frost, Managing Partner and Mary Lundstedt, Esq., Associate

    The Comptroller’s Field Enforcement Division and the Criminal Investigations Division of the Maryland Attorney General’s Office, working in tandem, investigated and prosecuted two more Maryland tax preparers—resulting in guilty pleas. On July 24, 2018, Maryland Attorney General Brian E. Frosh and Comptroller Peter Franchot announced that two tax preparers operating in the Baltimore area pleaded guilty to filing false tax returns.


    Both Maryland officials report that Michael Anegbode pleaded guilty to three counts of filing false income tax returns. Anegbode was sentenced to three years’ probation and ordered to pay restitution in the amount of $48,808. Uwagbale Oigbokie pleaded guilty to two counts of filing false tax returns. He faces two years’ probation and must pay $81,712 in restitution.


    According to officials, these preparers cheated on two levels. First, they prepared returns for their clients which included false information in order to minimize their clients’ tax liability and increase their refunds. Next, the preparers filed false personal income tax returns for themselves—omitting fees which they earned by preparing and filing their clients’ false returns. Attorney General Frosh, stated:


    "They cheated twice. They falsely understated the taxes owed by their clients, and then they did not report the fees that they earned themselves."

    In recent years, the Comptroller’s office has increased its efforts to combat tax fraud. Maryland’s Taxpayer Protection Act of 2017 expanded the role of the Comptroller’s Field Enforcement Bureau by adding admissions and amusement tax, income tax, and sales and use tax to the list of laws within enforcement agents’ jurisdiction. Furthermore, the Comptroller now regularly publishes and updates lists—on its publicly accessible website—of suspended tax preparers. Listed tax preparers are suspended from their return filing privileges upon the Comptroller’s finding that it has received a "high volume of questionable returns" from the preparers. In February of 2018, Comptroller Franchot stated:


    "My top-notch Questionable Return Detection Team is vigilant in rooting out returns that try to cheat the state and steal money from hardworking Marylanders."


    Along with the announcement of the two guilty pleas, the Comptroller gives every indication that its efforts will remain strong. Franchot emphasized that, "[o]ur Field Enforcement officers will continue to vigilantly investigate those who try to cheat our state and I want to thank the Attorney General’s Office for its partnership and its efforts prosecuting these cases."


    If you have questions about this development or need help with tax matters, please contact Frost & Associates, LLC today.

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    * Licensed to practice in Maryland, Florida, and the District of Columbia. May represent taxpayers nationwide in IRS disputes.
    ** Licensed in Maryland

    10480 Little Patuxent Pkwy, Ste. 400
    Columbia, MD 21044
    (410) 497-5947
    © 2018 Glen E. Frost