California Tax Law Blog

Taxpayers and Preparers Beware: Audit Season is Coming

Taxpayers and Preparers Beware: Audit Season is Coming

| Apr 23 | Criminal Tax Representation, Tax Law Blog | No Comments

tax-preparation-tax-filing-small-business-reading-pa-philadelphia-lancaster-allentown-harrisburg~~element85As tax day has come and gone for most Americans, the unpleasant nature of tax season may be extended through a civil audit of your tax return. Every year, about 1.5 million tax returns are audited to ensure compliance. Although that number seems high, it actually only represents 1% of the tax returns filed in the United States every year. Many Americans go see a tax professional (usually a seasonal employee) to get their taxes prepared. Others attempt to take on the task own their own.

Regardless of the method of preparation, a taxpayer is responsible for the tax returns that they file. But what happens if your tax preparer, a professional that you trust, fudges your taxes? As a Texas couple that ran a tax preparation agency found out: they get to spend a hefty amount of their lives in a federal prison.

First, it is important to understand: not all tax preparers are crooks. In fact, most of them are extremely skilled and are very good at what they do. But like any profession, there are bad apples. But unlike every profession, when a job is done incorrectly with the intention of defrauding the U.S. government, a slap on the wrist is not likely to be sufficient. Unscrupulous tax preparers may fudge your return with or without your knowledge motivated by the belief that if they can generate higher refunds or lower balances due than the competition that they will have a more thriving business as a result.

Jacqueline and Gladstone Morrison were sentenced last month after they were found guilty of a myriad of tax-related crimes. The two operated Jacqueline Morrison & Associates in Arlington and Forth Worth between 2005 and 2010. Over the years, the Morrison’s created false expenses, claimed false deductions and credits and otherwise falsified thousands of tax returns. Because of their illegal activity, they had a booming business and collected over $2 million in fees over six year period that they were operating. In an attempt to grow their business even more, the Morrison’s applied for and received a franchise agreement from H&R Block.

A jury convicted both of the Morrison’s in October of last year and at their sentencing, they found out that they would treated to a stay at the not-so-luxurious Club Fed (federal prison) for 15 years each. In addition to the prison term, they were ordered to pay over $18 million to the Treasury in the form of restitution.

The timing of the sentence was likely not a coincidence. The IRS and Department of Justice find it effective to schedule their prosecutions and sentencing hearings in a way that will provide news of such convictions around tax time. They figure that if taxpayers see the potential penalties for falsifying returns or otherwise cheating on their taxes, they will be deterred from doing so. Although this is likely true, a large amount of taxpayers that are audited each year have either (1) nothing to hide or (2) have made a simple mistake without the intention to avoid paying taxes. This goes for tax preparers as well. As we mentioned above: mistakes are sometimes made and the reality is that sometimes the government will catch that mistake and induce a civil audit. The danger in an audit to a taxpayer is where the auditor interprets the actions taken to understate tax liability as willful tax evasion rather than mere negligence. Tax evasion is a felony punishable by jail time for both the taxpayer and preparer. Negligence in taken a position on a return, on the other hand, is punished via a civil penalty amounting to a mere 20% addition to the tax owed for the taxpayer and a possible preparer penalty for the tax preparer.

It is important (whether you are a taxpayer or a tax preparer) to have experienced representation with you during a civil audit where fraud may have occurred. Although many taxpayers or preparers have nothing to hide, trouble still may be looming during a civil audit. The revenue agents that conduct such examinations are trained to look for any inaccuracy in a tax return and even a simple mistake can result in significant inaccuracy penalties. Further, an accidental slip-of-the-tongue of a taxpayer or preparer could quickly turn a relatively simple civil examination into a criminal examination and investigation conducted by the IRS Criminal Investigation Division. As the Morrison’s learned last month (and will have the opportunity to think about over the next 15 years from behind bars) is that criminal investigations can escalate an investigation into something very serious, very quickly.

The tax attorneys and accounting professionals at the Tax Law Offices of David W. Klasing have a plethora of experience representing taxpayers in civil and criminal audits and investigations. In addition to representing taxpayers, our attorneys represent tax preparers in cases of fraud or other accusations of wrong-doing. Whether you are a taxpayer or tax preparer, if you are facing an audit or other investigation, remember that you do not have to go against the IRS or the Department of Justice alone. But also keep in mind: the longer you wait to seek representation, the harder it will for an experienced tax attorney to undo the statements that have already been made or protect evidence that has already been collected. Contact the Tax Law Offices of David W. Klasing today at 800-805-9718 or online for a reduced-rate consultation.

DOJ Brass: Swiss Banks to Turn Over Account Information Soon

DOJ Brass: Swiss Banks to Turn Over Account Information Soon

| Apr 15 | Tax Law Blog | No Comments

368We have always kept our readers apprised of the latest news with regard to the crackdown on foreign bank accounts used to hide money from the IRS and the U.S. Treasury. True to form, we thought it important to share a message delivered by top brass in the Department of Justice. Delivered last week, Acting Assistant Attorney General Caroline D. Ciraolo delivered an address to the press at a Pen and Pad event where she detailed the government’s progress on the negotiations between Swiss banks and the State Department.

Swiss Banks Indicted For Undeclared American Accounts

With the very public indictments of Swiss banks in 2012 and 2013 (followed by the indictment-induced shutdown of Wegelin), banks around the world that had previously or even currently provided services that were used to harbor American taxpayer money were shaking in their boots. This reaction was likely warranted. In addition to the threat of criminal penalties, banks were facing hefty civil levies. To make matters even worse, they were witnessing some of their key employees being indicted for their role in the activity. The DOJ smelled blood in the water and used this fear to their advantage.

In late 2013, the Department of Justice announced a new program to allow Swiss banks that were not currently being investigated by the U.S. to come forward if they had been involved in any activity that the U.S. would deem to be criminal. In exchange for coming forward and cooperating, the banks would be eligible to receive the benefits of a non-prosecution agreement. The banks would also be required to pay a penalty.

The Terms of the Non-Prosecution Agreement

Playing on the fears of the Swiss banking community worked. Over 100 banks jumped at the opportunity and applied to be a part of the program. Though, the implementation of the program was not without some pushback. Attorneys for a number of the Swiss banks that had previously signed up to be a part of the program voiced concerns over the scope of the program requirements. Under the terms, the DOJ demanded nothing short of complete cooperation. And not only did the terms require the banks to comply with U.S. investigations, but they also suggested that cooperation in investigations of other nations could also be required. The underlying question prompting the attorney’s inquisition was exactly what would the banks need to do to cooperate? And for how long?

Through Ms. Ciraolo’s address last week, the Department of Justice attempted to answer some of the questions of the banks. The general terms of the agreement will last four years. The terms include the requirement that the participating banks close accounts that are being used to hide American’s money. Further, they will be required to cooperate with the federal and state governments with regard to accounts that were or are being used to hide money from the IRS. Lastly, the banks will need to take steps, including training and additional oversight, to ensure that this type of secrecy doesn’t happen again. Notwithstanding the four-year term of the agreement, participating banks will also be required to cooperate in any criminal investigation for matters that were not time-barred before August 29th, 2013.

A Clear Warning to Taxpayers

Ms. Ciraolo’s message was clear: Swiss banks will begin signing these agreements in the very near future. When that happens, the banks will be obligated to turn over account and other personal information of Americans to the IRS and the Department of Justice. The Foreign Bank Account Reporting (FBAR) laws require that any taxpayer report a foreign bank account with a balance of over $10,000. Those who do not comply with the law will be prosecuted and can be sentenced to lengthy federal prison sentences.

The federal government is encouraging taxpayers to voluntarily come forward and disclose their previously secret accounts. In return for the disclosure and the payment of a reduced penalty and any back-taxes owed, the government will not pursue criminal charges against you (much like the agreement that the Swiss banks are entering into). But the Offshore Voluntary Disclosure Program has a catch: if the government has already received information about your secret account, you will not be eligible for the OVDP. This essentially creates a race between the taxpayer and the Swiss bank that has taken part in the non-prosecution program. Though, the Swiss bank has nothing to gain by a taxpayer participating in the OVDP and a taxpayer has everything to lose.

Contact Us Today

Consulting an experienced tax attorney as soon as possible will provide you with your best chance at walking away from an undeclared account with the least damage done. At the Tax Law Offices of David W. Klasing, our tax and accounting professionals have years of experience in the OVDP process. Further, we have assisted our clients in tax matters ranging from audit defense to criminal investigation defense. When going up against the government, it is foolish to go alone. Let us zealously advocate on your behalf.

Contact the professionals at the Tax Law Offices of David W. Klasing today online or at 800-805-9718 for a reduced-rate consultation.

Croatia and U.S. To Begin Sharing Account Information

Croatia and U.S. To Begin Sharing Account Information

| Mar 26 | OVDI Program | No Comments
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If prompted to name off a commonly known tax haven, Americans would likely spout off Switzerland, the Cayman Islands, or Luxembourg. It is possible that a very large number of countries could be identified before one asserted that Croatia is a potential hiding-place for offshore funds. Nonetheless, the United States and the Croatian government recently announced a new information-sharing agreement that will bring financial intuitions in Croatia into compliance under the domestic FATCA laws. This may be a cause for concern for any American with an account with a foreign institution in Croatia that has not been declared to the IRS.

Details of the New Agreement with Croatia

The agreement, which was announced last week, is just another milestone in the U.S. government’s attempt to establish a worldwide presence in the arena of financial information collection. Since Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010, the State Department has been quick to use its international political power to encourage countries to voluntarily share information with the IRS. In short, Uncle Sam wants to know what you are doing with any significant amount of money whether it is within the U.S. or without.

Kenneth Merten (U.S. Ambassador to Croatia) and Croatian Finance Minister Boris Lalovac effectuated the agreement and according to the announcement, Croatia will also be sharing information with tax authorities across the European Union. This is consistent with Croatia’s recent admission into the EU back in 2013. In order to comply with both the FATCA requirements and similar standards of the EU, Croatia will adopt information-sharing policies outlined by the Organization for Economic Cooperation and Development (OECD), of which the United States is also a member.

Under Croatia’s new procedures, financial institutions in Croatia will be required to provide American account information to the Croatian taxing authority who will then relay that information to the IRS. The agreement between the nations is reciprocal in that the IRS will collect and disseminate information regarding financial information of Croatian citizens back to their domestic Finance Ministry.

For Americans with foreign accounts, news of another country entering into an information-sharing agreement represents an escape route that is progressively getting more and more narrow. Soon, no nation will be without some type of agreement with the United States with regard to foreign account identification. Some taxpayers think that finding a country with weak diplomatic relations with the U.S. is a solid strategy to avoid foreign account detection. But alas, even strong tension between the United States and Russia did curb advice from Moscow to its banks specifically allowing them to comply with FATCA regulations. The truth of the matter is that soon, there will be no jurisdiction where neither the government or the private banks will be willing to keep your financial secrets and when the U.S. government finds out about your hidden account, any evidenced effort to hide your wealth will likely result in a criminal prosecution for willful noncompliance of domestic tax law.

Americans Can Use the OVDP to Avoid Prison

But the story certainly does not have to end that way. The IRS has made an effort to allow for a temporary method to safely disclose your foreign accounts without facing the possibility of incarceration. Further, for those taxpayers whose conduct was not willful, the IRS is willing to reduce some of the fines and penalties associated with the violation of the Foreign Bank Account Reporting laws. The Offshore Voluntary Disclosure Program has been a way for thousands of Americans to come forward and come clean without fear of draconian penalties or the real possibility of a lengthy stay in a federal prison.

Though, the OVDP has several strings attached to it. First, you cannot already have an open investigation or examination with regard to any tax issue. Thus, if a country (like Croatia) has passed along information to the IRS regarding your foreign account, there is a pretty substantial chance that you will be disqualified from the program. This means that time is of the essence to file an application to be a part of the program and be accepted while you can. Second, when applying for the OVDP, there are particular documentation requirements that must be met, declarations that must be made, and evidence that must be included in order to ensure the timely and accurate processing of your application. The application should be completed and reviewed by an experienced tax attorney to make ensure accuracy and completeness.

The tax law professionals at the Tax Law Offices of David W. Klasing have years of experience in assisting taxpayers come clean about their foreign accounts. When time is of the essence and the process is detail-oriented, the best advocate to have in your corner is David W. Klasing and his team of tax professionals. Contact the Tax Law Offices of David W. Klasing today at 800-805-9718 or online for a reduced-rate consultation.

When do tax violations turn into tax crimes?

When do tax violations turn into tax crimes?

| Mar 25 | Tax Law Blog | No Comments
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When do tax violations turn into tax crimes?

Tax avoidance is the method of organizing your finances in accord with the legal usage and interpretation of the United States tax code. As the famous quote by Judge Learned Hand accurately states, “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” However there can be a very fine line between legal tax avoidance, as stated by Judge Learned Hand, and illegal tax fraud or tax evasion. It can take the experience, knowledge and training of a dedicated tax professional to delineate between aggressive tax avoidance strategies and those practices that cross the line into tax crimes.

However understanding the types of things that IRS agents look for when determining whether a tax crime has been committed can help you avoid serious civil or criminal tax consequences. If the recommendations of your accountant or tax preparer make you feel ill at ease, seek a second opinion. Remember, it is the taxpayer who is ultimately responsible for and liable for the information that is contained in his or her tax return.

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International Data Exchange Service is Now Active – Bad News for Taxpayers with Undeclared Accounts

International Data Exchange Service is Now Active – Bad News for Taxpayers with Undeclared Accounts

| Mar 17 | Tax Law Blog | No Comments
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International Data Exchange Service is Now Active – Bad News for Taxpayers with Undeclared Accounts

We all know the feeling of having to schedule an undesirable trip to the dentist, doctor, or the DMV. In fact, most of us push off these unwelcomed events as long as possible. But alas, the day eventually arrives. For Americans with overseas accounts that have yet to be declared, that day is today. The IRS recently announced that their gateway protocol allowing foreign banking institutions to transmit American account information directly to the IRS is officially active and ready to be used. This news gives any American with a secret foreign bank account a very good reason to contact an experienced tax attorney. The difference could be between freedom and federal prison.

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Self-Described Tax Fraud Queen Re-Sentenced to 21 Years in Prison

Self-Described Tax Fraud Queen Re-Sentenced to 21 Years in Prison

| Mar 10 | Criminal Tax Representation, Tax Law Blog | No Comments
jail

Tax crimes typically carry stiff and severe penalties. We have previously reported cases where tax criminals face several years in prison, but this particular case is one of the longer sentences that we have seen. A Tampa woman has been re-sentenced to a lengthy prison sentence on various weapon and tax-related charges.

Rashia Wilson, the self-proclaimed Tax-Fraud Queen, was sentenced to 21 years in federal prison stemming from weapon charges that she previously pled guilty to. Further, her sentence included time for substantial tax fraud activity.

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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.

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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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