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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 03:45:23 pm, by dmerritts Email , 1364 words   English (US) latin1
Categories: News

IRS Actively Targeting Taxpayers for Passport Denial/Revocation - Notice CP508C

By: Eli S. Noff, Esq., CPA, Partner & Mary Lundstedt, Esq., Associate

The IRS is now actively in the process of issuing Notices CP508C to hundreds of thousands of U.S. taxpayers—placing all notified taxpayers’ passports in serious jeopardy. Several news outlets this week report that the U.S. State Department confirms that it has already acted on its part in the process and denied passports to an undisclosed number of taxpayers. Reports also confirm that the IRS has already successfully collected over $11.5 million from over 200 taxpayers trying desperately to avoid passport denial. Passport denials are alarming enough—but the same authority used to deny passports also grants the IRS and the U.S. State Department the power to work in tandem to revoke a passport, as well. Concerned taxpayers should not wait to travel abroad before carefully considering their circumstances.

Who’s at Risk?

Enacted in 2015, the Fixing America's Surface Transportation Act (FAST Act) provided that the State Department must deny a passport application by any individual certified by the IRS as having a “seriously delinquent tax debt.” Additionally, the FAST Act authorizes the State Department to revoke a passport held by an individual with seriously delinquent tax debt. The certification process itself is governed by Internal Revenue Code (I.R.C.) §7345, which also provides taxpayers a limited right to judicial review.

Again, a taxpayer is at risk of passport denial or revocation if they are certified as having “seriously delinquent tax debt.” The elements of a “seriously delinquent tax debt,” are as follows:

1. It is an unpaid, legally enforceable federal tax liability of an individual.

2. The liability must be assessed.

3. The liability must exceed $50,000.

4. The IRS must have filed a notice of federal tax lien under I.R.C. §6323, or levied under §6331 with respect to the liability.

On the other hand, under I.R.C. §7345(b)(2), “seriously delinquent tax debt” does not include: (1) a liability being paid timely pursuant to an installment agreement or an offer-in-compromise, and (2) a liability for which a collection due process (CDP) hearing or innocent spouse relief request is pending. Besides these statutory exceptions the IRS currently exercises discretion, subject to change, to exclude additional categories of liability listed in Internal Revenue Manual (I.R.M.) sections (12-20-2017) and These categories include:

1. Debt that is currently not collectible (CNC) due to hardship

2. Debt that resulted from identity theft

3. Debt of a taxpayer in bankruptcy

4. Debt of a deceased taxpayer

5. Debt that is included in a pending Offer in Compromise

6. Debt that is included in a pending installment agreement

7. Debt of taxpayers in a Disaster Zone

8. Debt with a pending adjustment that will full pay the tax period

The Certification Process

Until recently, the mechanics of the certification process, and any potential for reversal of it, were rather obscure. On April 5, 2018, the Chief Counsel's Office provided advice in Notice CC-2018-005 to Chief Counsel attorneys who handle I.R.C. §7345 passport actions. The Notice shed light on the matter, detailing both the certification and reversal processes for “seriously delinquent taxpayers,” as well as the procedures for the judicial review of certifications.

Per Notice CC-2018-005, it is clear that the IRS is relying “on automated systems to identify every module (electronic record of tax liability) on an individual's account with an unpaid assessed tax liability that is not statutorily excepted from the definition of seriously delinquent tax debt or otherwise in a category excluded from certification.” Once identified, according to the Notice, the systems will total the amount of unpaid liabilities; if the resulting total exceeds the statutory threshold, then the taxpayer will be identified as having a seriously delinquent tax debt. The Notice clarifies that under these circumstances, a Transaction Code (TC) 971 Action Code (AC) 641 will then post to each module.

The next part of the process, according to the Notice CC-2018-005, is that the Small Business/Self Employed Commissioner will make the certification, and the IRS will provide the list of all certified individuals to the State Department. Upon receipt of this list, the State Department will not issue a passport to a listed individual, and it may revoke an already-issued passport, except as necessary for return travel to the United States. Notice CC-2018-005 also states that along with the certification, the IRS will notify individuals of their certification by issuing them Notice CP508C by regular mail. Among other things, the Notice CP508C will inform the individual of the right to judicial review in a federal district court or the Tax Court. Many taxpayers have already received the Notice CP508C, a sample of which is attached herein.

Certification Reversal

Reversing the certification is required under three circumstances. I.R.C. §7345(c) requires reversal of certification when:

Certification is found to be erroneous,

The seriously delinquent tax debt is fully satisfied, or

The debt ceases to be a seriously delinquent tax debt due to an exception under I.R.C. §7345(b)(2).

Additionally, according to Notice CC-2018-005, certification reversal will also result when the debt falls into one of the discretionary exclusion categories listed in IRM sections and “either entirely or in combination with the circumstances listed in section 7345(c), or the taxpayer enters a combat zone or participates in a contingency operation within the meaning of section 7508(a).”

Once a certified module is qualified for reversal, a TC 972 AC 641 will be posted to it, according to Notice CC-2018-005. Certification “will not be reversed until all modules covered by it have been fully satisfied or otherwise meet the criteria for reversal,” the Notice clarifies. After the TC 972 AC 641 is posted, the IRS will concurrently provide notice of the reversal to both the taxpayer and the State Department. The taxpayer will be notified in a CP508R Notice by regular mail.

Guidance re Judicial Review of Certifications

Any certified individual may bring a civil action to determine the validity of the certification or whether the certification should have been reversed. Such action may be filed in either a federal district court or against the Commissioner in the Tax Court. Note that if an action is filed in both federal district court and the Tax Court, the court where the first action was filed has sole jurisdiction. Furthermore, if the court finds an erroneous certification, or that certification should be reversed, the court may order the IRS to notify the State Department.

Additionally, Notice CC-2018-005 states that the Tax Court has proposed adding a new Title XXXIV to its Rules of Practice and Procedure. Generally, the proposed rules would:

1. Describe the court's jurisdiction,

2. Specify the title and content of a petition,

3. Require the filing of an answer, and

4. State when the case is deemed at issue.

The proposed rules would also require, according to Notice CC-2018-005, that a petition include a copy of the CP508C Notice.

Notice CC-2018-005 further identifies and discusses three issues that are expected to be raised by petitioners in certification challenges (ones that the Code fails to specifically address). Specifically, it anticipates challenges to the underlying liabilities, the statute of limitations for bringing an action, and the scope and standard of review.

First, Notice CC-2018-005 emphasizes that judicial review under I.R.C. §7345 does not include review of the amount of the liability. Secondly, since I.R.C. §7345(e) lacks a specific period of limitations within which a certification action may be brought, the Notice explains that a period of six-years will apply. Thus, individuals will have six years from the issuance of a certification notice to bring an action. Finally, as I.R.C. §7345(e) also fails to specify the scope or standard of review for certification actions, the Notice cites 5 U.S.C. §706(2)(A) in that “review should be limited to the Service's records and whether the certification or failure to reverse the certification was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Significantly, the Notice advises that for certification actions arising in Tax Court, I.R.C §7482(b)(1) places appellate venue in the U.S. Court of Appeals for the District of Columbia Circuit.

Be Proactive

Taxpayers with “seriously delinquent tax debt” and wishing to maintain their passport privileges are well advised to consult with a tax professional for reaching an arrangement with the IRS to prevent certification or achieve reversal of an existing certification.

If you have questions or concerns about tax debt and passport privileges, contact Frost & Associates, LLC today.


Permalink 04:22:04 am, by jjbisnar Email , 551 words   English (US) latin1
Categories: News

A Guide to International Tax Planning


While operating in multiple jurisdictions, the company must obey all the laws including tax laws of those countries. This means if the company operates in more than one country, it must pay the appropriate taxes from these countries. For companies, the tax issue is a financial headache and can be real legal and international tax issues are even more.

International Taxation

Globalized business world of this era, many businesses are dealing with the extremely complex issues related to international taxation. When the profits are derived and commercial activities occur in abroad, then the company or business owe taxes in all those locations. International tax law or ignorance does not exempt the company from paying taxes and applicable penalties (civil and sometimes criminal) for not obeying the tax duties. To learn more about international tax implications go here.

What Actions Subject to foreign Taxes

There are various cooperate actions that could be subjected to international taxes. What these actions exactly include depends on the country where the business is operating. The following corporate activities make the company responsible for the taxes in countries outside of the United States if the company:

· Selling the products abroad.

· Have employees outside of the United States.

· Having business office located other than the United States.

· Maintain Offshore bank accounts.

· Finalizing the large deal in the country other than the United States.

· Owing to the property outside the United States.

Minimizing the International Tax Liability

Whether it is a small international startup or a giant multinational, every business must be responsible for paying the international taxes and can force the international tax treaties and laws to lessen the tax burden that they pay ultimately. To minimize the international tax liability of the company, international tax planning is very important. Discussion of tax options that are related to the other countries is also included in the international tax planning. These options include the location where the company is operating and aligning the business decisions and interests with those requirements. In many businesses, it is considered that savings can be significant if the international tax plan is implemented carefully.

Transfer Pricing

It’s a very increasing and common controversial way to minimize the international tax burden of the company through transfer pricing. It refers to special lower (often lower) used while assigning the profit of the company to several tax jurisdictions where its subsidiaries are operated using the range of intra-company transactions. Today, this is often done by companies to transferal the income to low tax or no tax jurisdiction. Thus reducing the overall tax liability.

This can be considered abuse when transfer pricing is done in steps to the intercompany transaction which has no economic reasoning but just to make sure that maximum profit is made in the low-income tax jurisdictions. Some foreign tax entities and IRS use this to recover taxes “saved” and penalties as well. Prior to using the transfer pricing as an international tax planning, it’s better to discuss all the legal issues involved with the international tax lawyer.

International Tax and M&A

International acquisitions and mergers include a number of complicated legal issues, but implications of international tax rank as the most important one. In fact, even sometimes such tax considerations may make or break the deals.



Permalink 11:29:14 am, by dmerritts Email , 615 words   English (US) latin1
Categories: News

United States v. Garrity: Clarifies Standard of Proof and Establishing Willfulness in FBAR Context

By: Eli Noff, Partner and Mary Lundstedt

On April 3, 2018, in United States v. Garrity, the U.S. District Court for the District of Connecticut considered the Government's suit to reduce to judgment a willful Report of Foreign Bank and Financial Accounts (FBAR) penalty and determined that: (1) the burden of proof is preponderance of evidence, and (2) proof of reckless conduct is sufficient to establish willfulness.1 Now, even the standard of proof required for civil tax fraud is higher than that required for proving a willful FBAR violation.

.S. taxpayers with foreign financial accounts, exceeding $10,000, must annually disclose this information on the FinCEN Form 114, Report of Foreign Bank Accounts and Financial Accounts. Statutory civil penalties for failing to file the FBAR can be daunting, ranging from $10,000 per account, and per year, for non-willful violations, and up to the greater of $100,000 or 50% of the account balances per year for willful violations. If the IRS finds willfulness, criminal penalties may apply, including a $500,000 fine and/or 10 years imprisonment.

On February 20, 2015, the U.S. Government brought suit against the estate of Mr. Paul Garrity, Sr. (Defendants), to collect the FBAR penalty for Mr. Garrity's alleged willful failure to timely report his financial interest in a foreign bank account for the 2005 calendar year, as required under 31 U.S.C.S. §5314. The court was tasked with deciding both the standard of proof required and the proof required to show the element of willfulness.

First, the court considered 31 U.S.C. §5321, which allows the Treasury to bring suit to recover an FBAR penalty. Noting that "[a]s Congress did not specify the legal standard the Court should apply in a 'civil action' brought by the Secretary under section 5321,"2 the court set the standard here. The court cited Herman & MacLean v. Huddleston,3 for the well-established principle that preponderance of the evidence is generally the standard in civil suits for monetary damages. The Garrity court further stated that the fact that "[d]efendants may be liable for a substantially larger sum of money for a willful FBAR violation than if the Government had pursued a civil tax fraud action does not warrant a higher standard of proof."4

After establishing the standard of proof, the court addressed the element of willfulness-distinguishing between civil and criminal approaches. Defendants argued that to satisfy the willful element of an FBAR penalty, the Government must prove that Mr. Garrity intentionally violated 31 U.S.C.S § 5321, and that reckless conduct is insufficient to meet intent. The Garrity court disagreed, citing Safeco Insurance Company of America v. Burr5, which observed that:

It is different in the criminal law. When the term 'willful' or 'willfully' has been used in a criminal statute, we have regularly read the modifier as limiting liability to knowing violations . . . . Civil use of the term, however, typically presents neither the textual nor the substantive reasons for pegging the threshold of liability at knowledge of wrongdoing.6

As such, the Garrity court ruled that the element of willfulness in FBAR cases requires only evidence of reckless conduct.

After Garrity, the Government will have a much easier time proving that a willful FBAR penalty exists against a taxpayer. This case is just another in a series of victories for the IRS in asserting and sustaining significant FBAR penalties. Additionally, with the IRS recently deciding that the Offshore Voluntary Disclosure Program (OVDP) will end September of 2018, taxpayers are running out of time to come into compliance and take advantage of the mitigated penalty framework provided in OVDP.

If you have tax questions or concerns about FBAR penalties and your foreign accounts, contact Eli Noff at Frost & Associates, LLC at 410-497-5947.

1 United States v. Garrity, No. 3:15-cv-00243-MPS (D. Conn. Apr. 3, 2018).

2 Garrity, No. 3:15-cv-00243-MPS at 3.

3 459 U.S. 375, 387 (1983).

4 Garrity, No. 3:15-cv-00243-MPS at 6.

5 551 U.S. 47.

6 Safeco, 551 U.S. at 57, n. 9.

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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