The USA practices worldwide taxation which means all US citizens are to report their income earned regardless of where they earn it. This means even if you own an overseas bank account, you have to declare any taxable asset inside. You also need to tick “yes” in schedule B to the question, “Do you have an interest in a foreign bank or financial account?” And if your bank balance is at least $10,000 at any time during the year, you must file a Foreign Bank and Financial Account Report (FBAR) by June 30 each year.

Once upon a time, bank secrecy laws in tax haven countries like Switzerland could protect your assets there. But since 2009, this has ceased to be so. That was the year UBS Bank of Switzerland was fined $780 million for abetting wealthy Americans in hiding their taxable assets in UBS bank accounts. After UBS, other banks like Credit Suisse and HSBC have been similarly targeted as the IRS spread their net to cover other financial institutions in other countries like the Cayman Islands, Hong Kong, India and Singapore, among others.

If you have been hiding income in overseas bank accounts, moving your assets and closing the accounts is not the answer. The same goes for quiet compliance i.e. correcting past tax returns and FBARs without drawing attention to what you were doing. While it is not illegal, the IRS warns against it. You should not just start declaring your overseas bank accounts and file FBARs from now onwards without rectifying the past. You risk drawing attention to your past misdeeds and being punished for it.

Disclosing and paying the penalties is still the best move.

Not declaring your foreign taxable assets or filing your FBAR can be considered tax evasion and fraud. The criminal statute of limitations is six years. Plus, the statute of limitations never expires on civil tax fraud. The penalty for failing to file a FBAR is $10,000 if you did not willfully neglect to file. If the offence is willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation. Each year you don’t file is considered a separate violation.

If you are convicted of tax evasion you face a jail term of up to five years and a fine of up to $250,000. If you falsely declare your foreign income, it carries a three year jail and a fine of up to $250,000. Failing to file a tax return can mean a one year prison term and a fine of up to $100,000. Failing to file FBARs can be punishable with fines up to $500,000 and prison for up to ten years.

Overseas Bank Accounts Tax is a post from: IRS Tax Problem Solver Blog - IRS Help

1. The taxes you are seeking to discharge must have first become due more than 3 years prior to filing bankruptcy. You count three years from the time the taxes fall due. For example, 2008 taxes don’t come due until April 15, 2009. So you start counting the 3 years from April 15, 2009. However, if you requested a filing extension for your 2008 taxes, then you don’t start counting until later than April 15, 2009. Taxes that are too recent to be discharged in bankruptcy are called priority taxes.

2. Only taxes that you have personally filed may be discharged. And you must have filed your tax returns at least 2 years prior to your bankruptcy petition. If you did not file your taxes for any one year, the IRS would file one for you called an SFR (Substitute for Return). An SFR doesn’t count. So if you didn’t file a tax return, then your back taxes for that year cannot be discharged by Chapter 7 bankruptcy.

3. Your taxes must have been assessed over 240 days prior to filing bankruptcy.

4. You must not have committed any fraud or evaded taxes before. Filing a tax return but not being able to afford to pay is not fraud.

The taxes you are seeking to discharge must be personal 1040 taxes and not employee withholding taxes. Employee withholding taxes are never dischargeable in bankruptcy. There are some undischargeable tax-related liabilities such as a lien on your property.

Now let’s consider Chapter 13 bankruptcy and how it may discharge your back taxes. Chapter 13 bankruptcy is a court-ordered payment plan to discharge your back taxes over a period of 3 – 5 years. Chapter 13 bankruptcy is a great way to handle back due priority taxes. While it’s true that you must pay your priority taxes in full during the term of the Chapter 13 plan, the great thing is that interest and penalties don’t continue to build up, and you enjoy automatic stay against the IRS i.e. the IRS cannot harass you for any of your back taxes so long as your Chapter 13 plan is in force. That means no wage garnishment, no levies etc by the IRS.

How Bankruptcy can Discharge Back Taxes is a post from: IRS Tax Problem Solver Blog - IRS Help

What happens when you file your tax return under the wrong status? Well, it would certainly have broad ranging effects. For example, it can affect the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return in the first place. The IRS views a wrongly filed status very seriously, so you should be careful to ensure your filing status is correct.

Basically, there are 5 categories of statuses namely Single, Married filing Separately, Married filing Jointly, Head of Household or Qualifying Widow (or widower) with Dependent Child. In my experience, the one that is subject to the most abuse is Head of Household. The penalty for filing under a wrong status is one half of one percent every month that the tax is underpaid, up to a total of 25% of the additional taxes due. Interest is compounded daily and the interest rate is changed quarterly, but is generally running around 4 to 5% per year.

So how can you make sure you always file under the correct status? Here are the guidelines given by the IRS:

1. Marital Status. Should you file as Married or Single? For most people, this would be quite straightforward but to some others, it might not be. For instance, if you are separated from your spouse and have begun divorce proceedings, you may be tempted to file as a Single taxpayer but you are still legally married until your divorce is official. Generally, you determine your marital status for the entire year based on your status on the last day of the year.

2. Single Filing Status. As I mentioned above, the Single filing status would apply if you are not married, divorced or legally separated according to state law.

3. Married Filing Jointly. A married couple may file a return together using the Married Filing Jointly status. And if your spouse passed away last year, you usually may still file a joint return for that year.

4. Married Filing Separately. If you and your spouse decide to file their returns separately, each person’s filing status would be classified as Married Filing Separately.

5. Head of Household. The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

6. Qualifying Widow(er) with Dependent Child. This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions.

7. Finally, if more than one filing status fits you, you should choose the one that allows you to pay the lowest taxes.

Wrong Filing Status is a post from: IRS Tax Problem Solver Blog - IRS Help

If you or your business has undergone an audit and you are dissatisfied with the result, you can make an appeal called an IRS reconsideration. This is allowed under Internal Revenue Code § 6404 (a). Furthermore, in Treasury Regulation 301.6404-1 it provides that the district director or the director of the regional IRS service center may abate any assessment, or unpaid portion thereof, if the assessment:

• is in excess of the correct tax liability
• is made subsequent to the expiration of the applicable period of limitations
• has been erroneously or illegally made

In the Internal Revenue Manual 4.13.1.4 it explains the procedures that must followed when evaluating an audit reconsideration request. According to the manual, the IRS must accept an audit reconsideration request if:

• The taxpayer has filed a tax return that shows the correct tax after the IRS had filed one for the taxpayer under Internal Revenue Code § 6020 (b)
• The taxpayer did not appear for an audit
• The taxpayer requests the abatement of an assessment based on information that was not previously considered that, if considered, would have resulted in a change to the assessment
• The taxpayer moved and did not receive the correspondence from the IRS
• The assessment remains unpaid or the IRS has reversed tax credits that the taxpayer is disputing
• The taxpayer has identified which adjustments is under dispute
• There was an IRS computational or processing error in assessing the tax

If you feel you have a valid cause to ask for reconsideration after your assessment, you should first obtain the auditor’s file (this is allowed under the Freedom of Information Act) to review how the auditor came to their decision regarding your tax debt. Next, you need to submit an audit reconsideration request in writing seeking the abatement of the excessive tax. In your request, specifically detail why you should be granted a reconsideration and appeal the original audit decision.

A reconsideration after assessment is given at the IRS’ discretion. Reconsideration requests will not be entertained if:

• the assessment was made as a result of a closing agreement under Section 7121 of the Internal Revenue Code or in which the tax liability was compromised under Section 7122 of the Internal Revenue Code;
• the assessment was made after final TEFRA administrative proceedings;
• the assessment was made as a result of the taxpayer entering into agreement on Form 870-AD, Offer of Waiver of Restrictions on Assessments and Collection of Deficiency in Tax of Acceptance of Overpayment;
• the assessment results from a final order of the United States Tax Court or other court. [IRM 5.1] 12.8 (06-17-1999)

IRS Reconsideration after Assessment is a post from: IRS Tax Problem Solver Blog - IRS Help

The Miccosukee Indians, a West Miami Dade tribe who number only about 600 members, have been at odds with the IRS because of their refusal to pay taxes on the distribution of profits from its casino operation off the Tamiami Trail. Without the extras, the tribe’s withholding taxes alone for 2000 to 2005 totaled $45 million, and individual members’ taxes amounted to $30 million for that period, according to the tax liens. This taxable amount of the tribe and its members are set to increase significantly because IRS examiners also are auditing the Miccosukee’s gambling distributions for the years 2006-2010, when payouts to each member were as high as $160,000 annually.

The Miccosukee Tribe contends that they do not have to withhold taxes on the gaming distributions and that individual members do not have to pay taxes on the income derived from the tribe’s bingo-style slot machines and poker. This is because the tribe consider themselves a sovereign nation within the United States. As the tribe’s chairman Colley Billie said, “The Miccosukee people will continue to pay all applicable lawful taxes, as they always have, and we will continue our efforts to find a fair and workable solution to this dispute. The Miccosukee people, however, will not be intimidated or coerced by these tax liens into surrendering tribal sovereignty or principles for which so many of our ancestors have paid a very high price in blood, lives, and tears.’’

In 2011, the tribe’s legal counsel wrote to the IRS that “the distributions at issue are not subject to federal income taxation and therefore not subject to federal reporting and withholding under applicable Supreme Court precedent.”

But most legal experts say that although the Miccosukee Tribe’s status as a sovereign nation means the entity itself is not subject to taxes, once the tribe distributes profits from its casino to members, they are individually responsible for reporting and paying income taxes on their annual tax returns, several legal experts say. In addition, the tribe itself must withhold taxes on the income and turn those deductions over to the IRS. These experts say those requirements are spelled out clearly in the 1988 Indian Gaming Regulatory Act and in the IRS tax code.

IRS Files $170m Tax Lien on Miccosukee Indians is a post from: IRS Tax Problem Solver Blog - IRS Help

Recently Warwick was presented with the key to her native East Orange at the city’s 150th anniversary celebrations when she sang in Red Bank.

According to the bankruptcy petition, Warwick has $25,500 in assets and $10.7 million in liabilities. Her publicist Kevin Sasaki, said in a statement that "due to several consecutive years of negligent and gross financial mismanagement" Warwick realized the "current necessity to file personal bankruptcy." What started off as a small tax liability in the 1990’s has snowballed into an insurmountable obstacle for the singer today.

Warwick’s assets include two fur coats and two sets of diamonds earrings that have a combined value of $13,000, gowns and everyday clothing worth $5,000 and artwork and paintings worth $5,000. The singer owes both federal and state taxes. According to the bankruptcy petition, Warwick owes $7 million to the federal government and $3 million to the state of California that reflects nine years of back taxes.

Warwick has thus far paid about $1m in back taxes but could not make her tax situation current due to the accumulation of interests and penalties. When she tried to negotiate a deal with the IRS and the California Franchise Tax Board for a payment plan the plans were rejected. When that happened, Warwick decided to file for Chapter 7 bankruptcy protection.

Warwick is the niece of vocalist Cissy Houston and cousin of the late Whitney Houston. She graduated from East Orange High School and started her singing career in gospel music. Her first single, "Don't Make Me Over" was released in 1962.

Dionne Warwick files Bankruptcy owing $10m in Back Taxes is a post from: IRS Tax Problem Solver Blog - IRS Help

The entire affair was highlighted by the Treasury Inspector General on Tax Administration’s (TIGTA’s) report on the IRS' targeting of conservative groups. President Obama reviewed the report and found that the "misconduct" by the IRS was "inexcusable", prompting the President to say, "Americans are right to be angry about it, and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives. The IRS has to operate with absolute integrity."

As a result, the Treasury secretary asked Miller to step down, to which he duly complied. President Obama commented, “It's important to institute new leadership that can help restore confidence going forward". At the same time, the President gave his assurance that the Treasury will adopt new measures to "make sure this kind of behavior cannot happen again" and that the IRS would begin implementing the TIGTA's recommendations immediately.

The investigations on the conservative groups began last year when the then IRS Commissioner Doug Shulman was still in charge of the agency and Miller was the Deputy Commissioner in charge of the division responsible.

In his report, the TIGTA said that the fault in this matter lied on "ineffective management" in the IRS. The report concluded that IRS managers had followed "inappropriate criteria" in dealing with tax cases resulting in "substantial delays" in processing applications for tax-exempt status, and made requests for "unnecessary information" such as lists of donors.

The “ineffective management” also includes following the criteria used by the IRS Determinations Unit to flag cases for audit. The TIGTA said the criteria were having words like "Tea Party", "Patriots" and "9/12" in their names or manifestos that focused on the government's fiscal policy and educating the public to "make America a better place to live" or criticized how the country was being run.

The IRS denied that the action to scrutinize conservative groups was influenced by any third party individual or group outside the IRS.

Acting IRS Commissioner Quits is a post from: IRS Tax Problem Solver Blog - IRS Help

An excerpt of the letter said, “Mr. President, the IRS has already publicly acknowledged it operated in a less than neutral and non-partisan way. We also now know that the target of their improper actions was much wider than political or Tea Party organizations. Will you take some immediate action to reassure Americans we are not in a new chapter of American history – repressive government rule?”

Graham’s letter claimed that the IRS also targeted the BGEA’s related international humanitarian organization, Samaritan’s Purse. According to Graham, the IRS notified both organizations in September last year that it was conducting a “review” of their activities for tax year 2010. Graham believes the review was part of an Obama administration effort of “targeting and attempting to intimidate us.”

Graham wrote in his letter, “While these audits not only wasted taxpayer money, they wasted money contributed by donors for ministry purposes as we had to spend precious resources servicing the IRS agents in our offices. I believe that someone in the administration was targeting and attempting to intimidate us. This is morally wrong and unethical – indeed some would call it ‘un-American.” In view of the IRS admission that it targeted Tea Party groups for added investigation, Graham said, “I do not believe that the IRS audit of our two organizations last year is a coincidence – or justifiable.”

The letter by Graham accuses the IRS of investigating the BGEA and Samaritan’s Purse because The Billy Graham Evangelistic Association urged voters to back “candidates who base their decisions on biblical principles and support the nation of Israel” during last year’s presidential race. The result of the audit was that the Graham organizations could keep their federal income tax exemptions but they were only informed of this after the November election last year.

The IRS review involving an IRS agent visiting the two agencies last October, came after the Billy Graham Evangelistic Association published newspaper ads in North Carolina backing a state constitutional amendment banning same-sex marriage. The amendment was passed in May.

IRS Targeted Nonprofit BGEA is a post from: IRS Tax Problem Solver Blog - IRS Help

The OVDP is well-known by now. The IRS has conducted a few OVDPs that give taxpayers with offshore taxable assets the opportunity to step forward and declare their income and avoid criminal prosecution. So this program is for those who have neglected declaring any of their offshore assets over the years. But not everyone with offshore taxable income is supposed to participate in the OVDP. You should evaluate whether you would owe any more US tax than you already paid. If not, the OVDP may not be for you. Why might you not owe more?

Suppose you failed to report earnings on a foreign account but also paid tax there and didn’t claim a foreign tax credit. This is how you may not owe any more taxes than what you have already paid. So by making both corrections on an amended tax return, you may be current in your tax obligations. In other words, your tax returns are wrong, but even if they were right you wouldn’t owe additional taxes.

Now if you have been reporting your income from offshore sources, you do not have to participate in the OVDP but you may still need to comply with the guidelines of FAQ 17. This is because FAQ 17 concerns another requirement besides submission of tax returns namely submission of Report of Foreign Bank and Financial Accounts (FBARs).

If you failed to file FBARs but reported all your income from foreign accounts, then you would need to take advantage of the second break from the IRS namely FAQ 17. According to the guidelines in FAQ 17, the IRS stipulates that if you just file 6 FBARs with a letter explaining that you didn’t know about FBARs and don’t owe any taxes, you won’t be penalized.

In any case it is advisable to consult a qualified and experienced tax attorney to draft your letter to the IRS explaining your ignorance of the FBAR requirement and any other document necessary. Call us if you need legal advice in this or any other matter. You can reach us at (813) 229 7100 for a free consultation.

IRS Break for Offshore Account Holders is a post from: IRS Tax Problem Solver Blog - IRS Help

In essence, there are 3 types of offers in compromise. Each of them depends on the circumstances you are in. They are:

1. When you cannot pay up your taxes in full before the deadline

For example, if you owe $30,000 in taxes to be paid in 1 month, but your income is only $35,000 a year, then you should apply for an Offer in Compromise. You might be able to get the IRS to allow you to pay a portion of your total taxes and forgive you of the rest.

2. When the tax amount is wrongly calculated or not entirely your liability

This may happen due to a calculation error or mix-up in identity. Under such circumstances, the IRS will allow you to pay only what is your rightful portion of the taxes.

3. When you cannot afford your taxes due to financial problems

If financial hardship prevents you from settling your tax dues, you can make an offer in compromise. But you have to prove that paying your debt would result in your inability to buy basic essentials like food, clothing, medicine and accommodation. Under these circumstances, the IRS may allow you to pay less than what you owe. But not all types of needs would qualify. The IRS will approve only very basic economic needs. Anything other than that would not get you an offer in compromise. But if you reside in Florida you can include the cost of caring for elderly family members as part of your basic needs. That is one of the areas where the Florida tax law differs from most other states.

Another thing to bear in mind is the amount to offer. Obviously the IRS would not approve your offer if it is too low. Generally, the minimum amount the IRS would consider is a combination of the value of your assets and the amount of money the IRS could collect from your future earnings. For example, if the total value of your assets is $30,000 and your future income available to the IRS is $12,500, then the minimum offer in compromise the IRS would accept from you would be $42,500.

What is an Offer in Compromise is a post from: IRS Tax Problem Solver Blog - IRS Help