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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

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Permalink 09:56:25 pm, by admin Email , 729 words   English (US) latin1
Categories: News

FBAR from an Examiner's Viewpoint: A Quick Look at How the IRS Assesses Penalties

For the Internal Revenue Service, the difference between tens of thousands of dollars all comes down to three letters that make up one important prefix: non. As the IRS looks at untimely filed Reports of Foreign Bank and Financial Accounts (FBAR), the question that determines how much tardy reporters will be penalized boils down to one question: was the failure to timely file the FBAR a willful or non-willful action?


In order to assist IRS examiners in their quest to impose proper penalties, the IRS issued a set of interim guidelines on May 13, 2015. The interim guidelines took effect the same day of their issuance and will continue to operate until their scheduled inclusion into the Internal Revenue Manual on or before May 13, 2016. The guidelines have been warmly received by tax law practitioners for the help they offer in understanding how the IRS will implement their FBAR compliance program.


The guidelines direct IRS examiners to find cases of non-willfulness in situations where the failure to file was due to reasonable cause and when the account holder later filed a complete, thorough and correct FBAR. It is important to recognize that to be categorized as a non-willful violation, the account holder must fulfill both parts of the non-willful “test.” First, the account holder must adequately show that the failure to file was because of some reasonable cause. Second, the account holder must also file a late, yet complete and correct, FBAR. Both parts of this “test” must be met before an examiner may find the violation non-willful and impose the lesser of the penalties that the IRS is authorized to assess.


As may be expected, the penalty for a willful failure to report carries a much larger fine. If an account holder is found to have willfully failed to file a timely FBAR, he or she may be penalized per account at a rate of $100,000 or 50% of the account balance as of the last day for timely filing an FBAR, whichever is greater.


Prior to the implementation of the interim guidelines, it appeared that an examiner’s typical response to a failure to file would be the maximum penalty permitted annually per account and according to whether the failure was considered willful or non-willful. Since the introduction of the guidelines in May, however, examiners have been assessing penalties after a diligent review of circumstances on an account-by- account basis.


The independent review of each account encourages examiners to take a more comprehensive view of the factors behind an untimely-filed FBAR. Examiners review factors such as account balances, and whether the account holder’s conduct warrants assessing stiffer penalties. For example, in order to find that an account holder committed a willful violation, examiners will question whether there was “a voluntary, intentional violation of a known legal duty” and, of equal importance, whether the facts exist that would result in a reasonable inference that an account holder intended to willfully fail to file an FBAR. Other factors, such as the account holder’s history of penalties for FBAR violations and history of criminal tax convictions may also be considered when determining whether violations will be categorized as willful or non-willful.


Use of the new guidelines has resulted in shift in how examiners assess penalties. In most cases under the new guidelines, most willful violators will be fined 50% of the annual highest aggregate balance of all FBAR-eligible and unreported accounts during the years when the accounts were under examination. In such cases the fine cannot exceed 100% of the aggregate.

Non-willful violators with multiple unreported accounts are now typically assessed one annual penalty of $10,000 per year under examination. Depending on the circumstances, the $10,000 penalty may be issued per year for each year under examination, or may be limited to one fine of $10,000 for one year. Non-willful penalties are capped at 50% of the annual highest aggregate balance on all FBAR-eligible and unreported accounts during the years when the accounts were under examination.

To avoid an FBAR penalty, US citizens and residents with foreign bank accounts must timely file an FBAR if, at any point during the year preceding the filing deadline, the accounts held over $10,000. If you believe that you fall under the FBAR reporting requirements, or would like to receive more information on how to avoid or mitigate IRS assessed penalties for FBAR violations, contact Frost & Associates today.




Permalink 10:04:29 am, by admin Email , 422 words   English (US) latin1
Categories: News

A Grim Outlook for Michael Grimm

Twenty years, to three years, to eight months. That was the time that former U.S. Representative Michael Grimm faced for tax related charges originally outlined in a 21 count indictment brought against him in April 2014 that he promised to “fight tooth and nail” until his eventual exoneration. Grimm, a Republican from New York, managed to rack up a number of federal charges during his time as partial owner of a small restaurant in New York City called Healthalicious. The charges include mail, wire, and health care fraud, as well as filing false business and personal tax returns, among others.


It was in the well-known New York boroughs such as Brooklyn and Manhattan that Grimm helped to build his business, Healthalicious, and later win a seat representing the 11th Congressional district . It is also where Grimm developed and employed the schemes that resulted in the eventual charges against him and, ultimately, a crumbling career. From 2007 until 2010, Grimm was a partial owner and manager of Healthalicious, a fast food restaurant for the health conscious. It was during this time that Grimm engaged in the fraudulent tax practices charged in his indictment.


During his time with Healthalicious, Grimm is accused of under-reporting over $1 million in wages and sales. In addition, Grimm is alleged to have paid workers in cash in order to reduce payroll, federal and state tax obligations. Other charges in the extensive indictment include lying under oath (Grimm stated that he did not pay employees in cash during a deposition for a civil matter relating to labor practices at Healthalicious) and impeding the Internal Revenue Service. The ex-Marine and former FBI fraud investigator kept up his elaborate scheme by working two books for the restaurant—one with his actual payroll numbers, and the other with doctored numbers, for use by payroll processing companies, accountants and agencies.


Grimm initially pleaded not guilty to all of the charges brought against him. The “political witch hunt,” as he referred to it, began in April 2014 with claims of innocence, wound its way to an eventual guilty plea in December 2014, and culminated in his sentencing earlier this month. The turning point occurred last December when Grimm pleaded guilty to one count of aiding and assisting the preparation of a false tax return. Despite pleading guilty to this one count of tax fraud, U.S. Attorney Loretta Lynch confirmed that Grimm admitted to “conduct underlying every charge filed against him.”

supervised release. Grimm will also be required to serve 200 hours of community service and pay restitution to tax authorities.


Permalink 12:17:11 am, by admin Email , 689 words   English (US) latin1
Categories: News

Uber: Driving the Discussion on Worker Reclassification

Remember a world without the accessibility and ease of Uber? Founded in 2009, Uber has brought the convenience of ridesharing to consumers in cities around the world.  At the same time, Uber has grown into a giant thorn in the side of two very distinct entities: your local taxi company, and the tax system that struggles to regulate this growing market for share businesses.


The increasing popularity of niche online marketplaces extends beyond Uber.  Take Airbnb, for example.  This thriving share site provides an alternative to the traditional hotel room by connecting local hosts to consumers looking for a vacation or short-term rental.  The underlying idea behind these concepts is the same: connect the consumer to convenience-providing share businesses.


While the guy at the bar may welcome the simplicity of catching a ride home through Uber, the tax system does not appreciate the increased popularity of Uber, Lyft, or the other share businesses cropping up online.   Trying, and failing, to apply a framework that is not fitted to an online share market comes with a large price tag.   Cities across the country witnessed this as uncollected taxes began slipping away as consumers opted for rooms found on Airbnb in lieu of a traditional hotel room.


The reason for the loss was simple. When consumers book hotel rooms online, a portion of the final charge for the room goes towards a hotel tax.  The rate for the tax varies depending on the state in which the hotel is located, and is usually added on at the final checkout stage. With Airbnb, however, hotel tax was not automatically charged at checkout.  Instead, individual hosts were expected to both know about, and pay, the requisite hotel taxes on their rentals.


Unsurprisingly, many Airbnb hosts were unaware that their participation with the share site meant that they were supposed to pay hotel taxes just as is required of a Hilton or Marriott hotel.  Recognizing this loss in revenue, as well as the uneven playing field that hotels faced when pitted against Airbnb rentals, some cities shifted the tax burden to the share website. In top destination locations such as Washington D.C., Portland and San Francisco (among others), Airbnb has agreed to routinely pay hotel taxes straight to the city in lump sums.  The decision not only places Airbnb on better legal footing, but also promises millions more to the cities in which the agreements are in effect.


While agreements like the ones Airbnb has been working out around the country are nice bandaids for the time being, the tax structure as it currently stands is not equipped to handle the exploding market for online business share models.  The problem is not confined to the inequitable distribution of taxes within the hotel business, or even vacation rentals generally.  Other issues include how to define the employment status of individuals, such as the Uber driver, who provide the service behind a share business.


California recently tried to untangle the confusion surrounding employment classification for share business service providers in the state.  Rejecting Uber’s argument that their drivers are considered independent contractors, California deemed drivers to be employees of the company. Uber appealed this decision, recognizing the impact that the employee versus independent contractor distinction will have on their business.  The change in status comes with a large tax impact: if drivers are considered employees, Uber will be responsible for collecting a slew of taxes from their service providers, such as income and unemployment taxes.  Of equal concern is the possibility of significant back taxes and penalties that could be imposed following the reclassification of drivers from independent contractor to employee.


It is important for business owners to put serious thought into how employees are classified.  Changing the status of workers from independent contractors to employees opens business owners up to the possibility of a worker reclassification audit. Contact Frost & Associates today if you are concerned that you may be at risk for an audit.   Our attorneys will review the matter and see if you are eligible for the Voluntary Classifications Settlement Program (VCSP) or evaluate your other options.

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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