California Tax Law Blog

IRS Official: No Further Guidance on the Term “Non-Willful”

IRS Official: No Further Guidance on the Term “Non-Willful”

| Mar 03 | Criminal Tax Representation, OVDI Program | No Comments
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When a taxpayer who has failed to report the existence of a foreign bank account for one or more tax years has decided to come forward, every step of the process can be nerve-racking. Determining the method by which you will disclose your previous omissions to the government, filling out the sometimes-onerous documentation, and making several certifications prior to admission into the program leave many taxpayers bewildered, confused or frustrated.

The streamlined offshore disclosure program is advantageous for taxpayers as there is a single penalty of 5 percent (of the foreign account balance) that is due if admission into the program is granted. A taxpayer would likely prefer this program over the standard Offshore Voluntary Disclosure Program because although the OVDP protects against criminal prosecution, it requires a taxpayer to pay more penalties and fees associated with the non-disclosure.

One of the most important questions that are “certified” to the taxpayer in a streamlined offshore account disclosure is whether the prior non-disclosure was non-willful. It carries so much weight because participation in the streamlined program itself requires that the taxpayer not have willfully failed to disclose, and pay taxes on, their foreign bank accounts.

To date, the IRS has refused to elaborate on a one-sentence definition of the meaning of the term non-willful. If a taxpayer applies to participate in the streamlined program and certifies that their conduct is non-willful, but the IRS later determines that their conduct was indeed willful, the applicant will not only be excluded from the streamlined program but will have also tipped off the IRS of their activity.

The one-liner, referenced above, attempts to describe non-willfulness as being “For purposes of the streamlined procedures, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” As you can tell, although the definition provided by the IRS is more detailed than the word it describes, it lacks helpful elements like key factors or examples.

Another important requirement for both the streamlined procedures and the OVDP is that an applicant cannot be currently under examination or investigation for any tax issue. With foreign banks turning over U.S. accountholder information every day, U.S. taxpayers are facing an expedited decision: come forward or face criminal prosecution.

The IRS Responds to Requests for a Detailed Definition

When asked at an American Bar Association event whether the IRS had any plans to issue any guidance regarding the definition of the word “non-willful”, John McDougal, a special trial attorney for the Office of the Chief Counsel said that “[t]here’s not going to be anything further on that”. Those are certainly words that tax practitioners and taxpayers alike did not want to hear.

In defending his statement, McDougal said that it would be difficult for the Service to create such a list because of the extensive case law that has already come down on the issue. He said that in the end, it is tax practitioners that must decide what position a taxpayer should take with regard to their particular facts. This position is likely to be questioned by tax attorneys and other professionals with knowledge of recent case law on the issue of willfulness. There have been several incidents from courts around the country that involve inconsistent rulings based on nearly identical facts. This uncertainty does not sit well with tax professionals or their clients.

The Solution: Find an Experienced Tax Attorney

What is a taxpayer to do if they are concerned about whether their conduct is willful or not? Because the IRS has made it clear that they will not issue any further guidance on the issue, tax attorneys that have extensive experience in the practice of the streamlined disclosure program, as well as the Offshore Voluntary Disclosure Program, offer taxpayers the best chance of correctly identifying their “willful status”. Practitioners that have helped clients through the programs have an enhanced knowledge through experience of how the Service is likely to determine willfulness.

At the Tax Law Offices of David W. Klasing, we have a wealth of experience in assisting taxpayers get back on the right track with the IRS. We know the common traps of the process and make sure that our clients do not get stuck in them. Our team of highly-qualified tax attorneys and professionals are the best that you can have in your corner whenever you are dealing with the IRS or Department of Justice. Contact us today at (800) 805-9718 or online for a reduced-rate consultation.

Fraudulent Tax Preparation Scheme Results in 15-year Prison Sentence for Both Husband and Wife

Fraudulent Tax Preparation Scheme Results in 15-year Prison Sentence for Both Husband and Wife

| Mar 03 | Tax Law Blog | No Comments
income tax fraud handcuffs

The vast majority of accountants and tax preparers are honest, hard-working individuals who strive to recommend what appears to be sound decisions for their clients. However, there are some unscrupulous tax preparers who will attempt to exploit taxpayers and the tax system despite their professional standing, the duty that is owed to their client, and the deterrent effect of an IRS investigation and potential criminal prosecution. Tax preparer schemes can take many forms. However, the civil and criminal consequences are rarely limited to tax preparers because the tax payer is ultimately responsible for the contents of his or her tax return filings. In nearly all instances of tax preparer fraud the taxpayers will, at minimum, have to correct errors. Many times this means that the defrauded taxpayer will have to pay back taxes which may include significant fines and penalties. If it is believed that the taxpayer willfully participated in the scheme, criminal prosecution of the taxpayer may also occur.

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Nevada Consultant Headed to Federal Prison

Nevada Consultant Headed to Federal Prison

| Mar 02 | Criminal Tax Representation | No Comments
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One of the great aspects of American government is the level of generosity and inclusion that the government garners toward nonprofit groups around the country. In fact, the feds will spend big bucks helping small up-and-coming organizations. But with every good and honest attempt to better society, there are folks that aim to take advantage of the system. Michael Stickler is one of those folks.

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What actions do FATCA lawyers recommend after receiving a letter from your foreign bank?

What actions do FATCA lawyers recommend after receiving a letter from your foreign bank?

| Feb 26 | Tax Law Blog | No Comments
offshore money handcuffs

If you are an American citizen or green card holder and hold an interest in or signature authority over foreign financial accounts, chances are you will eventually receive a rather unnerving letter from your bank or financial institution. While the wording of the letter will vary based on your financial institution, the jurisdiction the account is located in, the model of intergovernmental agreement (IGA) in effect, and the basis for the problem the general message set forth is nevertheless typically very similar. That is, the message is typically along the lines that the foreign financial institution has identified your account(s) to the United States and that the IRS is likely to soon be in possession of your identity and account information.

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Should I participate in the Offshore Voluntary Disclosure Program if I haven’t received a letter from the IRS?

Should I participate in the Offshore Voluntary Disclosure Program if I haven’t received a letter from the IRS?

| Feb 24 | Tax Law Blog | No Comments
handcuffs with computer

Receiving a letter from your foreign financial institution or the IRS regarding undisclosed accounts can expose a taxpayer to significant civil and criminal liability. Depending on the facts and circumstances present the individual could face severe civil fines and penalties or exponentially more severe criminal penalties. For instance penalties for non-compliance with the Banking Secrecy Act (BSA) due to a failure to file Report of foreign Bank and Financial Accounts (FABR) via FinCEN Form 114 can be severe. Civil consequences for the failure to disclose a foreign financial account with a balance, that at any time during the tax year, exceeds $10,000 and the taxpayer has an interest in the account or signature authority over the account can include a fine of $10,000 per an undisclosed account per a year. If the violation was perceived as being willful by the IRS agent, penalties can easily eclipse the balance of the accounts and your matter may be referred to the Criminal Investigation Division of the IRS.

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Why it’s important to have a tax attorney by your side when facing an IRS criminal investigation

Why it’s important to have a tax attorney by your side when facing an IRS criminal investigation

| Feb 12 | Tax Law Blog | No Comments
formal meeting

If your tax compliance issue has been referred to the Internal Revenue Service’s Criminal Investigation Division, you are probably already aware that you face extremely serious consequences. However if you were expecting or relying on your tax preparer to testify on your behalf or to explain your actions, your reliance is misplaced. Your original tax preparer will be unable to represent you in a criminal tax proceeding because it would represent a conflict of interest. You original accountant may, in fact, be facing tax preparer penalties that can be imposed by the IRS and referral to the IRS Office of Professional Responsibility (OPR). Faced with defending against tax preparer penalties and the potential loss of his or her license, your tax preparer will not be able to defend you.  They also are most likely the first witness the government would call against you in a subsequent criminal prosecution.  Worst of all, they do not have attorney client privilege and anything conveyed to them can be legally compelled as detrimental testimony against you.

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Swiss Banker Staying Put in Switzerland After Indictment

Swiss Banker Staying Put in Switzerland After Indictment

| Feb 10 | OVDI Program, Tax Law Blog | No Comments
Bank Frey in Switzerland tax evasion charges

Most folks that remember their childhood will also likely remember the feeling of dread that rushed through your body when one or both of your parents summoned you from your bedroom to receive a harsh scolding for something that you had done. To avoid the unpleasantness of the forthcoming verbal lashing, we pretend not to hear them, lock ourselves in our rooms, or even attempt to bargain from afar. Today, we’ll talk about Stefan Buck, a Swiss banking executive and fugitive, who is locked in his proverbial room without any intention of leaving. Buck is facing charges related to tax evasion.

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Laguna Beach Doctor Pleads Guilty to Willful FBAR Violations

Laguna Beach Doctor Pleads Guilty to Willful FBAR Violations

| Feb 04 | Tax Law Blog | No Comments
gavel, flag, and law book

Dr. Baruch Fogel of Laguna Beach, California, is a physician who operated a number of managed care health facilities. At some point in 2008 or 2009, Dr. Fogel met with his then-accountant David Kalai. Mr. Kalai was tax preparer and principal of United Revenue Services (URS). Apparently acting on advice provided by Mr. Kalai, Dr. Fogel moved assets to a foreign account held in the name of a foreign corporation in order to reduce his income tax liability.  Mr. Kalai arranged, facilitated and attended a meeting with bank officials at the Beverly Hills branch of Bank Leumi where financial documents were executed that opened financial accounts, based in Luxembourg, and where at least $8 million was diverted from US accounts to the foreign accounts. This transaction and transactions like these resulted in both the taxpayer and the tax preparer facing extremely serious civil and criminal tax charges.

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Breaking News: Foreign Social Security Accounts Not Subject to FBAR

Breaking News: Foreign Social Security Accounts Not Subject to FBAR

| Feb 04 | FBAR Compliance and Disclosure, Tax Law Blog | No Comments
breaking news important updates

A quiet update to the IRS website that was discovered by the tax professionals at the Tax Law Offices of David W. Klasing has provided tremendous opportunity for our clients. The update, which specifies what need and needn’t be reported on Form 8938 (Statement of Specified Foreign Financial Assets) and FinCEN Form 114 (FBAR), clarifies that social security benefits from a foreign jurisdiction are not assets that must be disclosed to the federal government as part of the strict FBAR requirements.

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How do FBAR Compliance Failures Occur and what are the Consequences?

How do FBAR Compliance Failures Occur and what are the Consequences?

| Feb 03 | Tax Law Blog | No Comments
handcuffs with computer

Regardless of your reasons for failing to file a Report of Foreign Bank and Financial Accounts (FBAR) (FinCen Form114), tax compliance problems regarding foreign assets or accounts can lead to harsh tax penalties or referral for criminal tax prosecution. Under the Banking Secrecy Act, individuals and entities who are US taxpayers and who hold signature authority over or an interest in foreign financial accounts must disclose the existence of that account by electronically filing FBAR (FinCEN Form 114). This obligation arises when, at any time during the relevant tax year, the balance of a foreign account or the aggregate balances of all foreign accounts exceeds $10,000.

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