A Federal Court in California has authorized the IRS to summon the FirstCaribbean International Bank (FCIB) for information on American account holders who may hold offshore accounts there. The Barbados-headquartered bank, on which the authority was made to serve the summons, was identified by the Department of Justice as the Canadian Imperial Bank of Commerce FirstCaribbean International Bank .

In response, the bank through its Director of Corporate Communications in Barbados, Debra King has issued a statement saying they “are committed to complying with all laws and regulatory requirements". King further added, "It is our intention to cooperate with authorities in accordance with the respective laws of all jurisdictions involved". At the same time, the bank has communicated with US bank Wells Fargo, their correspondent bank to “understand the nature of the order”.

King’s response was copied to the Managing Director Nigel Holness in the bank’s head office in Kingston. It is unclear how the Jamaican branches of the bank will be affected by the order. The summons by the IRS seeks records of FCIB's United States correspondent account at Wells Fargo NA and allows the IRS to identify US taxpayers who hold interests in financial accounts at FCIB and other financial institutions that used FCIB's Wells Fargo correspondent account both presently and in the past.

The summons was issued by the Court arising from a petition by the US government and is known as a John Doe summons, the name commonly given to a summons on unknown persons who may have violated internal revenue laws.

FCIB is based in Barbados and has branches in 18 Caribbean countries. Although FCIB itself does not have US branches, it maintains a correspondent account in the US at the San Francisco-based Wells Fargo Bank NA.

In support of the summons, IRS agent Cheryl R. Kiger lodged a declaration stating that the IRS discovered US taxpayers were using FCIB to help them keep their offshore accounts undetected by the IRS and avoid paying US federal income tax on money placed in those offshore accounts. The Justice Department said Kiger's declaration describes her review of the information submitted by more than 120 FCIB customers who participated in the IRS's Offshore Voluntary Disclosure Programme.

Kiger’s declaration went on to say that many unidentified John Doe account holders "may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States".

Commenting on this matter, Kathryn Keneally, assistant AG for the Treasury Department’s Tax division said, “This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”

Most people get nervous when they receive a notice from the IRS. Have you had such an experience? Well, you’re not alone. A notice from the IRS normally entails asking you to pay more in taxes. Today I’m going to show you three things you should do when you receive an IRS notice.

First, do not ignore the notice as you will regret it later because ignoring an IRS notice will only make matters worse. So read the IRS letter or the IRS notice carefully. The IRS may only need some simple information which they are not clear about in your tax return. I’m going to assume the notice your receive from the IRS is a notice requesting for more money and not for some clarification information only. As you read the notice, make sure you note the agent's name and badge number as well as the information they provide when you call with your questions. And if you have questions, you should contact the number listed on the notice.

Now, if you agree with an IRS assessment, sign the letter and pay the amount. If you disagree fully or partially, send any additional forms and an explanation supporting your disagreement. If you owe the IRS, there may be penalties and interest on any balance due. The penalty and associated interest are generally included in the notice of error.

However, if you disagree with the IRS assessment and are able to show a lower amount of tax owed, the IRS will bill you for any associated penalty and interest. If you are unsure if the notice is accurate, you need to get advice from a tax professional like a tax attorney. The last thing you want to do is simply pay an IRS notice just to get the matter over with. But you should only pay if it is correct and you owe.

Make sure you keep a copy of any notices and your responses in your files for the tax year in question. It is a good idea to consult a tax attorney with a copy of your letter and your tax papers for the year in question.

One last thing – remember that the IRS does not communicate with you through electronic means such as sending notices via email. If you receive an email from the IRS, do not respond. You should forward such emails to phishing@irs.gov.

I hope I’ve given you some practical steps you can take when faced with the many types of tax return problems you may encounter today. In this article I’ll share two final tax return problems and their solutions. I’m continuing from my article that I wrote on Friday last week. To sum up that article, the question is what you should do when you still owe tax money even after requesting an installment payment and presenting your case before the Appeals office through a Request for a Collection Due Process. Today I’ll offer a solution to your predicament.

Suppose you have been slapped with a levy on your bank account or your wages have been garnished. The foremost thing I’d recommend you to do would be to contact the National Taxpayer’s Advocate, Nina Olsen’s office. Do this by writing a letter giving the name and address of your bank or employer who is levied and explain how the levy is causing you undue financial problems. The conclusion is that you are not able to meet basic living expenses with the levy still in place. Include the wage garnishment or bank levy letter as far as possible. At the same time, a detailed analysis of your income and expenses so that the Taxpayer’s Advocate will conclude that the levy is making life unreasonably difficult for you. The taxpayer’s Advocate has the authority to override the levy or garnishment by issuing a release of levy to your bank or employer.

Now suppose the IRS has put a lien on your property. This gives the IRS first charge over your property when it is sold or used as collateral. This makes it impossible to sell it or borrow any money against the property. You can challenge a lien through a Collection Due Process appeal. But you have to make your appeal within 30 days of receiving Letter 3172 which is the notice of notification of the lien. Use Form 12153 to file the appeal.

Here’s another tip to help you overcome the problem of tax liens standing in the way of obtaining financing. Apply for a little known procedure called the lien subordination. In the subordination process, the IRS agrees to release its lien or place it behind another creditor, such as a bank, if you can pay cash equal to the value of the lien. So this allows you to borrow up to the value of the lien (which is amount you owe in taxes) from a bank to pay off your taxes.

The final tax return problem I’d like to share is another very common one among many of my clients and that is enforced tax collection. Enforced tax collection means the IRS has the right to collect taxes that you do not pay. They do so by various means that tantamount to an involuntary payment on your part for example wage garnishment, bank account levy and lien on property. For each of these enforced collection methods there is a specific way to address them. Today I’ll share how you can solve these problems by taking the right steps for each of them.

Let’s start at the beginning of the process. Once you miss paying your taxes for any one year, you will usually be issued a notice from the IRS demanding payment. What follows is a series of notices and finally if your taxes are still unpaid, the IRS mails a final notice called a notice of intent to levy, IRS Letter 1058. The moment you are issued these notices, you should request for an installment payment to settle your taxes.
If even an installment payment is beyond your means to afford, you should apply for Uncollectible status. This means the IRS deems your case uncollectible for the time being. This does not absolve you from fulfilling your tax obligations nor does it mean penalties and interests stop being charged. It just means the IRS won’t collect from you because you are given some time to get your financial situation in order to pay off your taxes eventually.

To obtain uncollectible status, you need to fill up Form 433-A. In addition, you should also write a letter to the IRS center in charge of your file and explain your circumstances. Include a worksheet showing monthly net pay and your living expenses. The reader should be able to see that you have nothing left after paying bills.

Suppose you have not done the above and the IRS imposes a wage or bank levy on you, you should file a Request for a Collection Due Process hearing. You must file the Request within 30 days of receiving the IRS’ final notice i.e. IRS Letter 1058. Once you file the Request for a Collection Due Process hearing, the IRS cannot take any collection action until after your hearing which is conducted by the Appeals Office. The appeal also gives you the right to challenge any collection action on any appropriate ground, including challenging the underlying tax debt.

Now what if all the above steps still do not work? Read my coming article on Monday and I’ll reveal what else you can do.
Stay tuned.

The overwhelming fear of most taxpayers is that of an audit by the IRS. Actually, according to the IRS' own surveys of citizens, the "fear of audits and documentation is one of the top ten problems people have with the IRS." Today I’m going to give you the solution.

Most of those who undergo audits end up paying all or part of these improper assessments because they do not understand how to appeal the results or do not understand they have the right to appeal. When you receive an audit notice, you are given a description of the problem. It could be you allegedly did not submit the necessary documents to verify your deduction claims or you earned unreported income or your business is classified as a hobby by the IRS etc.

Whatever the case may be, I suggest you submit an affidavit to prove your case whether it be the deductions you claim, the business you conduct or the so-called income you earned. An affidavit is basically your oral testimony or your "word" and it can be legally sufficient to prove your claim. When you back up your claims for deductions with your own written statements, signed under penalty of perjury, those statements take the form of testimony, just as if given in a court of law. If your testimony in the affidavit is plausible, credible and trustworthy, it must be accepted. So your written affidavit enables you to claim and prove deductions you are entitled to claim even though you do not have receipt or canceled check to verify it.

The idea is to establish affirmative proof that the income claimed on your tax return is correct and complete. That’s where the affidavit comes in. An affidavit declaring that you reported all income on your return is an important part of disproving the IRS’ claim. And besides your affidavit, you should provide both bank records and employment records (like pay stubs) that relate to the income reported on the return.

If the contention of the IRS against you is that your business is a hobby and therefore not entitled to deduction of losses, you should also take the same approach to overcome this problem. Only this time, you use your affidavit to prove the profit motive. Most people are under the impression that your business must make money three out of the first five years in order to be considered a business. That is not true for the tax code does not stipulate that. What the tax code actually states is that if you do not earn a profit in three of five consecutive years, you must prove that your purpose and intent is to make a profit.

Now if your business does not make profit even after 5 consecutive years, the IRS will normally disallow claims for deductions. So the key is to prove you have the good faith intent to make a profit. All you have to do is provide proof that you took tangible steps to earn profit. This may be in the form of advertising, cutting expenses, attending seminars, hiring industry consultants etc.