The IRS has Turned your Accountant into their Policeman

Every business owner thinks he pays too much in taxes, and in reality, most actually do. These days your accountant has to "play it safe". This is not reducing your tax bill.

Many times a tax preparer's work on a typical return is subject to '+interpretations+' of the tax code. New legislation may force preparers who hope to lower a client's tax bill to be less aggressive with respect to these interpretations, or else they may risk substantially increased penalties.

Furthermore, if a tax preparer's client insists on an aggressive deduction, the preparer may include a form explaining the circumstances. This could eliminate the potential preparer penalty, but it is a certain red flag for the IRS.

This should anger taxpayers who feel strongly about particular deductions. What's more, these penalties do not apply to taxpayers preparing their own returns. This could prompt a taxpayer to tell a preparer: "who needs you; I'll do it myself". The remainder of this article explains why your accountant is reluctant to be aggressive anymore, and is less likely to give you the benefit of the doubt on tax deductions.

http://www.hg.org/article.asp?id=35591

Captive Insurance Plans, Want to Get Audited? - HG.org

Captive Insurance Plans, Want to Get Audited? - HG.org

The insurance industry have been conjuring ways to make life insurance premiums tax deductible. Over the years we have seen many schemes that have failed IRS scrutiny. Welfare benefit plans set up under I.R.C. section 419, 412(e) plans and Producer Owned Reinsurance Companies (PORCs) are all common examples.
When one scheme fails it isn’t long before a resourceful promoter comes up with a different product. Inevitably promoters find some lawyer or accountant to draft a favorable opinion letter and a new industry is born. In a few years, however, the IRS catches up and declares the arrangement to be a listed transaction and abusive tax shelter. As an expert witness I have never lost a case in this field. It is easy to beat the deep pockets of the insurance companies who provide product to these plans. Even though they have business owners sign fraudulent disclaimers saying that the owners will get their own tax advice. These disclaimers are then used when the inevitable happens, the IRS audits and the business owner sues the insurance company.
The latest entries seeking to find a way to make life insurance premiums deductible is a small business captive insurance company or CIC.

Captive Insurance Assistance

captiveinsuranceplans.wordpress.com

IRS Criminal Investigation Department Audits Section 79, Captive Insurance, 412i and 419 Scams

IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI's primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes.

First the IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.

http://www.hg.org/article.asp?id=35505

IRS Attacks FBAR Offshore Bank Accounts and Foreign Income

FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS

You may want to think about participation in the IRS' offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS?  Some clients think they are too small to be prosecuted. They are wrong.

To the average businessperson, only the people with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That's it.

But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.

To continue reading, click here

Section 79, captive insurance, 412i, 419, audits, problems and lawsuits

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April 24, 2012     By Lance Wallach, CLU, CHFC

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Captive insurance, section 79, 419 and 412i problems

WebCPA


The dangers of being "listed"
A warning for 419, 412i, Sec.79 and captive insurance

Accounting Today: October 25,
By: Lance Wallach

Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in
big trouble.

In recent years, the IRS has identified many of these arrangements as abusive devices to
funnel tax deductible dollars to shareholders and classified these arrangements as "listed
transactions."

These plans were sold by insurance agents, financial planners, accountants and attorneys
seeking large life insurance commissions. In general, taxpayers who engage in a "listed
transaction" must report such transaction to the IRS on Form 8886 every year that they
"participate" in the transaction, and you do not necessarily have to make a contribution or
claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties
($200,000 for a business and $100,000 for an individual) for failure to file Form 8886 with
respect to a listed transaction.

But you are also in trouble if you file incorrectly.

I have received numerous phone calls from business owners who filed and still got fined. Not
only do you have to file Form 8886, but it has to be prepared correctly. I only know of two
people in the United States who have filed these forms properly for clients. They tell me that
was after hundreds of hours of research and over fifty phones calls to various IRS
personnel.

The filing instructions for Form 8886 presume a timely filing. Most people file late and follow
the directions for currently preparing the forms. Then the IRS fines the business owner. The
tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS.
Many business owners adopted 412i, 419, captive insurance and Section 79 plans based
upon representations provided by insurance professionals that the plans were legitimate
plans and were not informed that they were engaging in a listed transaction.
Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section
6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from
these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A
penalties.

The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending
out notices proposing the imposition of Section 6707A penalties along with requests for
lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of
these taxpayers stopped taking deductions for contributions to these plans years ago, and
are confused and upset by the IRS's inquiry, especially when the taxpayer had previously
reached a monetary settlement with the IRS regarding its deductions. Logic and common
sense dictate that a penalty should not apply if the taxpayer no longer benefits from the
arrangement.

Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed
transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described
in the published guidance identifying the transaction as a listed transaction or a transaction
that is the same or substantially similar to a listed transaction. Clearly, the primary benefit in
the participation of these plans is the large tax deduction generated by such participation. It
follows that taxpayers who no longer enjoy the benefit of those large deductions are no
longer "participating ' in the listed transaction. But that is not the end of the story.
Many taxpayers who are no longer taking current tax deductions for these plans continue to
enjoy the benefit of previous tax deductions by continuing the deferral of income from
contributions and deductions taken in prior years. While the regulations do not expand on
what constitutes "reflecting the tax consequences of the strategy", it could be argued that
continued benefit from a tax deferral for a previous tax deduction is within the contemplation
of a "tax consequence" of the plan strategy. Also, many taxpayers who no longer make
contributions or claim tax deductions continue to pay administrative fees. Sometimes,
money is taken from the plan to pay premiums to keep life insurance policies in force. In
these ways, it could be argued that these taxpayers are still "contributing", and thus still
must file Form 8886.

It is clear that the extent to which a taxpayer benefits from the transaction depends on the
purpose of a particular transaction as described in the published guidance that caused such
transaction to be a listed transaction. Revenue Ruling 2004-20 which classifies 419(e)
transactions, appears to be concerned with the employer's contribution/deduction amount
rather than the continued deferral of the income in previous years. This language may
provide the taxpayer with a solid argument in the event of an audit. 

IRS Assistance

irshelpblog.wordpress.com

How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.

A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."

To read the rest, click here

Today's IRS audits are both targeted and coordinated

Today's IRS audits are both targeted and coordinated
Question: Are the IRS audits coordinated?

Answer: Yes. The IRS audits are both targeted and coordinated. They are targeted meaning that the IRS obtains a list of the participating employers in a plan promotion and audits the participating employers (and owners) for the purpose of challenging the deductions taken with respect to the plan. The audits are coordinated meaning that there is an IRS Issue Management Team for each promotion that has responsibility for both managing the promoter audit(s) and also developing the coordinated position to be followed by the Examination Agents. Their intention is that all taxpayers under audit will receive the similar treatment in Exam. There are also IRS Offices that specialize in 419 audits. For example, IRS offices in upstate New York and in El Monte California will manage many audits of specific promotions. Williams Coulson has significant experience in working with both of these offices.

Question: What is the general IRS position on these plans?

Answer: Though there can be some differences among plans, the basic IRS position is that the plans are not welfare benefit plans, but really plans of deferred compensation. As such, the contributions remain deductible at the business level but are included in the owner’s 1040 income for every open year and the value of the insurance policy with respect to contributions in closed years is included in the owner’s income either in the first open year or the year of termination or transfer. The IRS will normally apply 20% penalties on the tax applied and 30% with respect to non-reporting cases (see discussion below).

Question: Can the penalties ever be waived?

Answer:  Yes. The penalties can often be waived upon a showing of the taxpayer’s due diligence and good faith reasonable cause. For example, if the taxpayer can show reliance on an outside tax advisor who reviewed the plan and the law, the Examining Agent normally has the authority to waive the 20% negligence penalty. Note that there are different standards for waiving penalties among the IRS Offices. It is important to know the standards of each office before requesting a waiver.

Question: What if there is an opinion letter issued on the plan – will that eliminate penalties?

Answer:  Generally, the answer is a resounding – No. If the opinion letter was issued to the promoter or the promotion itself and a copy was merely provided to the taxpayer (even if the taxpayer paid for it), the IRS perceives the advice to be bias and not reasonable for reliance.

Question: What if the taxpayer relied upon the advisor who sold the promotion?

Answer:  The IRS also discounts any advice provided by parties who are part of the sales team for the promotion. It is possible to negate the bias against professionals involved in the sale if you can demonstrate that the professional was first a tax advisor and gave advice in that role and not as a salesman.

Question: What are the “listed transaction” penalties?

Answer: The IRS has identified certain multiple and single employer welfare benefit plans as listed transactions. Taxpayers who participate in listed transactions have an obligation to notify the IRS of their participation on IRS Form 8886. The Form 8886 must be filed with every tax return where a tax effect of the transaction appears on the return and for the first year of filing must also be filed with the IRS Office of Tax Shelter Analysis (OTSA). There are penalties that apply for the failure to file the Form 8886. The IRS position appears to be that although only the C corporation must file the 8886, if the business is a pass-through entity like an S Corporation, LLC or partnership, then the Form 8886 must be filed at both the entity level and also the individual level. The penalty for non-filing is 75% of the tax reduction for the tax year. Note that it is very clear that a plan does not have to be proven to be defective or abusive for the penalty to apply. Further, the IRS has made it very clear that they will construe the duty to disclose broadly. Thus, if there is even a possibility that a plan is a listed transaction, the taxpayer should consider strongly filing the Form 8886.

Question: Are there other negatives to not filing the Form 8886?

Answer:  Yes. In addition to the non-reporting penalty, the negligence penalty discussed above of 20% becomes 30% and is much more difficult to have waived. Further, the non-reporting penalty cannot be appealed to tax court. Therefore, the only recourse is to pay the penalty, file for a refund and fight the case in District Court.

Question: Whose responsibility is it to notify taxpayers of the need to file Form 8886?

Answer:  It depends. Many promoters take the initiative to inform their customers that the promotion may be considered to be a listed transaction and that they should consider filing Forms 8886, though some promoters have actually taken the opposite view and have directed customers to not file the Form 8886 to keep them off the IRS radar. These promoters face potential liability if the penalties are assessed. Because the Form 8886 is filed with the tax returns, it may be partly the responsibility of the CPA who prepares the returns to file the Form, though many CPAs may not know that the transaction is a listed transaction or how to prepare the Form. From the IRS perspective, the responsibility is clear – it is the taxpayer who bears the ultimate responsibility and will be penalized if the Form is not filed.

Question:  Are some plans better than others?

Answer:  Yes. Even though the IRS appears to have thrown a giant net over the entire industry, I have observed that many promoters have worked hard to develop a plan that complies with the tax law. The plans are supported by substantial legal and actuarial authority and make it clear that they are welfare plans and not deferred compensation plans. These plans are often very strong in their marketing materials as to the nature of the plan and also provide for less deductible amounts. On the other hand, some promotions have ignored new IRS Regulations (issued in 2003) and continue to sell and market plans that have been out of compliance for years. They make no attempt to bring their plans into compliance and seek to stay under the radar by directing their customers to not file Forms 8886.

Question:  Do taxpayers have causes of action?

Answer:  Maybe. We see two potential causes of action. First, in cases where the promoter has either created a defective product, or has turned a blind eye towards law changes, the promoter and potentially the insurance companies may have liability for the creating, marketing, endorsing and selling a defective product. Second, where planners have sold the product to customers improperly, by describing the plan as a safe, IRS approved retirement plan with unlimited deductions, they may have liability for fraudulent sales.

I do not agree with everything in this well written sales pitch. As an expert witness Lance Wallach’s side has never lost a case. I only know of two people that have successfully filed under IRS 8886, after the fact. Many of the hundreds of phone calls that I receive each year involve misfiling of 8886 forms.

If you are, or were in an abusive tax shelter like a 419 or 412i plan to time to act is now. If you are in a captive insurance or section 79 plan you should speak with someone that does not sell them. Many former promoters of abusive 419 plans now sell captive insurance or section 79 plans. IRS audits those plans. Who should you believe as many people still promote these scams?

Google Lance Wallach and the man pushing the plan.

Assistance with IRS Issues

irshelpblog.wordpress.com

Beware: The IRS is cracking down on small-business owners

Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.

A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."

If your client was currently is in a 412(i), 419, captive insurance, or Section 79 plan, they may be in big trouble. Accountants who signed a tax return for a client in one of these plans may be what the IRS calls a "material advisor" and subject to a maximum $200,000 fine.

If you are an insurance professional who sold or advised on one of these plans, the same holds true for you.

Call us and see what we can do for you - 516938-5007

IRS tax relief firm, Lance Wallach, speaking: How to Avoid IRS Fines for You and Your Clients

IRS tax relief firm, Lance Wallach, speaking: How to Avoid IRS Fines for You and Your Clients | ...: How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

IRS tax relief firm, Lance Wallach, speaking

Wednesday, April 16, 2014

How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

Help with Common IRS Problems

Help with Common IRS Problems
There are many problems you can run into with the IRS. The following is an overview and helpful information on some of these confusing issues.

· IRS Penalties
· Unfiled Tax Returns
· IRS Liens
· IRS Audits
· Payroll Tax Problems
· IRS Levies
· IRS Seizures
· Wage Garnishments

IRS Penalties

The penalizes millions of taxpayers each year. They have so many penalties that it's hard to understand which penalty they are hitting you with.

The most common penalties are Failure to File and Failure to Pay. Both of these penalties can substantially increase the amount you owe the IRS in a very short period of time.

To make matters worse the IRS charges you interest on penalties. Many tax-payers often find out about IRS problems many years after they have occurred. This causes the amount owed the IRS to be substantially greater due to penalties and the accumulated interest on those penalties.

Some IRS penalties can be as high as 75%-100% of the original taxes owed. Often taxpayers can afford to pay the taxes owed, however, the extra penalties make it impossible to pay off the entire balance.

The original goal of the IRS imposing penalties was to punish taxpayers in order to keep them in line. Unfortunately, the penalties have turned into additional sources of income for the IRS. So they are happy to add whatever penalties they can and to pile interest on top of those penalties. Your loss is their gain.

Under certain circumstances the IRS does abate, or forgive, penalties. Therefore before you pay the IRS any penalty amounts, you may want to consider requesting that the IRS abate your penalties.

Unfiled Tax Returns

Many taxpayers fail to file required tax returns for many reasons. What you must understand is that failure to file tax returns may be construed as a criminal act by the IRS. This type of criminal act is punishable by one year in jail for each year not filed.

Needless to say, its one thing to owe the IRS money but another thing to potentially lose your freedom for failure to file a tax return.

The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is the IRS's version of an unfiled tax return. Because SFR Tax Returns are filed in the best interest of the government, the only deductions you'll see are standard deductions and one personal exemption.

You will not get credit for deductions which you may be entitled to, such as exemptions for a spouse or children, interest and taxes on your home, cost of any stock or real estate sales, business expenses, etc.

Regardless of what you have heard, you have the right to file your original tax return, no matter how late its filed.

IRS Liens

The IRS can make your life miserable by filing Federal Tax Liens. Federal Tax Liens are public records that indicate you owe the IRS various taxes. They are filed with the County Clerk in the county from which you or your business operates.

Because they are public records, they will show up on your credit report. This often makes it difficult for a taxpayer to obtain any financing on an automobile or a home. Federal Tax Liens also can tie up your personal property, you cannot sell or transfer that property without a clear title.

Often taxpayers find themselves in a Catch-22 where hey have property that they would like to borrow against, but because of the Federal Tax Lien, they cannot get a loan. We can work toward getting the Tax Lien lifted so that you can borrow money on your property.

IRS Audits

The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit.

Typically, Correspondence Audits are for missing documents in your tax return that IRS computers have tried to find. These usually include W-2's and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation.

The IRS Office Audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income.

The IRS Home or Office Audit should be taken more seriously because the IRS auditor is a Revenue Agent. Revenue Agents receive more training and learn more auditing techniques than a typical Tax Examiner.

The IRS audits should be taken seriously because they often lead to other tax years and other tax problems not originally stated in the audit letter.

Payroll Tax Problems

The IRS is very aggressive in their collection attempts for past due payroll taxes. The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase the total amount you owe in just a matter of months.

I believe that it is critical for a taxpayer to have an attorney for a representation in these situations. How you answer the first five IRS questions may determine whether you stay in business or are liquidated by the IRS. We always advise clients to avoid meeting with any IRS representatives regarding payroll taxes until you have met with a professional to discuss you options.

IRS Levy

An IRS Levy is the action taken by the IRS to collect taxes. For example, the IRS can issue a Bank Levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable. The person, company, or institution that is served with the levy must comply or face their own IRS problems.

The additional paperwork this person, company, or institution, is faced with to comply with the IRS Levy often causes the taxpayers relationship with that person to suffer. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS.

When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. The bank is required to remove whatever amount of money is in your account that day (up to the amount of the IRS Levy) and send it to the IRS within 21 days unless notified otherwise by the IRS. This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Levy.

An IRS Wage Levy is difficult. Wage Levies are filed with your employer and remain in effect until the IRS notifies the employer that the Wage Levy has been released. Most Wage Levies take so much money from the taxpayer's paycheck that the taxpayer doesn’t even have enough money to live on.

IRS Seizures

The IRS has extensive powers when it comes to Seizures of Assets. These powers allow them to seize personal and business assets to pay off outstanding tax liabilities. This occurs when taxpayers have been avoiding the IRS.

This is one of the IRS's ultimate weapons. They can seize cars, television sets, jewelry, computers, collectibles, business equipment, or anything with value which can be sold in order to acquire the money the IRS wants to pay off tax debts. If you are facing a seizure, you have a serious problem.

Wage Garnishments

The IRS Wage Garnishment is a very powerful tool used to collect taxes owed through your employer. Once a Wage Garnishment is filed with an employer. Once a Wage Garnishment is filed with an employer, the employer is required to collect a large percentage of each paycheck. The paycheck that would have otherwise been paid to the employee will then be paid to the IRS.

The Wage Garnishment stays in effect until the IRS is fully paid or until the IRS agrees to release the garnishment. Having wages garnished can create other debt problems because the amount left over after the IRS takes its cut is often small, so you may have difficulty with bills and other financial obligations.

Lance Wallach speaks at more than 20 conventions annually and writes for more than fifty publications about tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, etc. He is a course developer and instructor for the American Institute of Certified Public Accountants and a prolific author. He has written or collaborated on numerous books, including, The Team Approach to Tax and Financial Planning; Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hotspots; Alternatives to Commonly Misused Tax Strategies: Ensuring Your Clients Future, all published by the American Institute of CPAs. The CPA’s Guide to Life Insurance, and The CPA’s Guide to Trusts and Estates, both published by Bisk Education, and his latest book, Protecting Clients from Fraud, Incompetence, and Scams, published by Wiley. In addition, Mr. Wallach writes for various national business associations that sell his books to their members and others. He has been an expert witness on some of the above issues, and to date his side has never lost a case. Contact lanwalla@aol.com or visit reportabletransaction.com/IRSHelp.html

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Avoiding, or at least winning, an IRS challenge

Avoiding, or at least winning, an IRS challenge

Lance Wallach

Of course, a Captive insurance company can be extremely beneficial in many aspects, as

insurance profits are kept within the group and tax benefits may be obtained. As is true with any

business planning, however, the Captive must be a legitimate business entity and be in

compliance with the law. There are opportunities for the Service to challenge Captive insurance

companies; therefore, proper formation and ongoing administration is essential. The Service may

have given up on the economic family doctrine, but the Service specifically stated in Rev. Rul.

2001-31 that it may continue to challenge Captives based on the facts and circumstances of each

case. 

Legitimate business reason. As is true with any business planning, a Captive must possess a

legitimate business reason to avoid being characterized as a sham by the Service. Some

legitimate business reasons are as follows: 

(1) To obtain coverage where insurers are unwilling to do so. 

(2) To reduce premium payments. 

(3) To control risk. 

(4) To increase cash-flow. 

(5) To gain access to the reinsurance market

(6) To create diversification. 

(7) To balance coverage.

 Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies.  He is an American Institute of CPA’s course developer and instructor and has authored numerous bestselling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications.  For more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us, lawyer4audits.com or call 516-938-5007.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

IRS: Disclose Offshore Accounts or Go to Jail

Brian

That's pretty much the headline from a CNBC article on Friday. And it's true.

In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.

U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.

So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.

Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.

Those that don't comply face prison and loss of 50% of their highest account value.

So what is the risk of getting caught? We think it is quite high.

Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.

The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.

Still not convinced? The IRS paid its first award under the new whistleblower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.

The world suddenly got much smaller.

This is interesting article but I do not believe everything in it is correct. I have received numerous phone calls from participants in these plans and the IRS is auditing.  For the most accurate information contact: Lance Wallach at lancewallach.com or call 516-935-7346