Author Archive

Must Taxpayers File “Timely” Forms 1099 to Obtain Section 530 Relief? Unexpected Answers from a Recent Worker-Classification Case

April 29, 2013

By Hale Sheppard

When battling the IRS, knowledge is power.  Nowhere is this more true than in worker-classification cases, where the IRS often seems hell-bent on treating all workers as employees, regardless of the facts.  One bright spot for taxpayers under IRS scrutiny is an obscure provision, commonly known as Section 530, that grants taxpayers a brand of “civil immunity” if they meet three criteria.  One requirement is that taxpayers file Forms 1099 (Miscellaneous Income) for all workers considered to be independent contractors.

For over three decades, the IRS has taken the position that Section 530 relief is not available unless taxpayers file their Forms 1099 in a “timely” manner.  One problem with the IRS’s stance is that it has been questioned and contradicted by at least two courts, including the Fifth Circuit Court of Appeals in a recent case called Bruecher Foundation Services, Inc. v. United States.  The bigger problem is that too many taxpayers, unaware of the relevant rules and caselaw, allow themselves to lose worker-classification cases, unnecessarily prolong audits, and/or miss opportunities to seek fee reimbursement from the IRS.  This article, published in the May 2013 issue of TAXES – The Tax Magazine, aims to alleviate these problems by highlighting and analyzing the taxpayer-favorable authorities regarding Section 530 relief and the Form 1099 filing requirement.

Government Wins Second Willful FBAR Penalty Case: What McBride Really Means to Taxpayers with Unreported Foreign Accounts

April 25, 2013

By Hale Sheppard

Taxpayers with undisclosed foreign accounts wish it were not true, but the reality is that the U.S. government, after a long period of inactivity and ineffectiveness, has taken significant steps over the past few years to identify and punish failures to file Forms TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), or foreign bank account reports (“FBARs”) as they are commonly known.  These steps include enacting legislation obligating foreign institutions to automatically provide the IRS with information about U.S. account holders, paying handsome rewards to whistleblowers, introducing a new information return forcing taxpayers to report their foreign financial assets (including foreign accounts) to the IRS each year, imposing multi-million dollar fines and disclosure duties on foreign banks that collaborate with taxpayers to evade U.S. taxes, extracting valuable data about international tax transgressions from taxpayers participating in the Offshore Voluntary Disclosure Program (“OVDP”), and criminally prosecuting FBAR offenders.  Another step has become apparent in the past few months, i.e., litigation to collect civil penalties for “willful” FBAR violations.  To date, two cases have been decided, both in favor of the U.S. government.  The attached article, “McBride Willfull FBAR Penalty Case Article,” examines the most recent case.  The article was published in the most recent version of the Journal of Taxation (April 2013).

IRS Introduces Two Unique Remedies for U.S. Persons with Unreported Canadian Retirement Plans and Accounts

February 6, 2013

By Hale Sheppard

Life isn’t fair.  Neither is the IRS’s most recent settlement initiative designed to entice taxpayers to proactively resolve their international tax non-compliance, such as failing to report foreign income, foreign accounts, foreign entities, etc.  In both instances, some people win and some people lose, often with little or no regard to what is equitable.  Among those basking in the benefits of favored status lately are certain Canadians, residing either in the United States or the homeland, who have neglected their tax-related obligations with Uncle Sam.  Indeed, thanks to recent modifications to the offshore voluntary disclosure program (“OVDP”) and the introduction of a special “streamline procedure” for select expatriates, many Canadians are able to resolve their tax transgressions on terms vastly superior to those applicable to the masses.  This is particularly true for persons with specific types of Canadian retirement plans.  The article, “IRS Introduces Two Unique Remedies for U.S. Persons with Unreported Canadian Retirement Plans and Accounts,” which was published in the most recent edition of the International Tax Journal, analyzes the unique options available to Canadians.

IRS Finally Collects Civil “Willful” FBAR Penalty in Williams Case – Court Introduces New Lower Standard for Penalizing Taxpayers with Unreported Foreign Accounts

December 7, 2012

By Hale Sheppard

The world of international tax enforcement is changing at a frenetic pace, especially when it comes to the rules about penalizing taxpayers who fail to file Forms TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), or foreign bank account reports (“FBARs”) as they are commonly known.  The latest installment in this area is United States v. Williams, a recent decision by the Fourth Circuit Court of Appeals holding that the taxpayer “willfully” violated his FBAR duties and thus deserved maximum sanctions.  This judicial opinion, already the subject of much criticism by the tax community, raises more questions than answers.  The attached article, called “Third Time’s the Charm:  Government Finally Collects “Willful” FBAR Penalty in Williams Case,” addresses multiple issues triggered by Williams.  The article was published in the December 2012 issue of the Journal of Taxation.

Alarmists might conclude that Williams stands for the proposition that (i) the standard for asserting civil FBAR penalties is willfulness, (ii) in this context, the government can establish willfulness by showing that the taxpayer was merely reckless, (iii) recklessness exists where a taxpayer does not read and understand every aspect of a complex tax return, including all schedules and statements attached to the return (including Schedule B), as well as any separate forms (including the FBAR) alluded to in the schedules, and (iv) the taxpayer’s motive for not filing an FBAR is not relevant.  Pragmatists, on the other hand, might see Williams as an aberration, based on narrow facts, with little precedential value, and with questionable real-world applicability.  Most people likely will fall somewhere in between.  Regardless of the viewpoint, it is undeniable that Williams introduced issues critical to the FBAR debate, many of which remain unresolved.  Taxpayers and their advisors would be wise to follow the evolving issues, as the incidence of FBAR and other international tax enforcement issues will continue to rise in the future.

Direct Sellers Hit by IRS Worker – Classification Audits

December 5, 2012

By Hale Sheppard

Despite the recent increase in online commerce, traditional methods of moving product, such as so-called “direct selling,” are alive and well.  Indeed, according to a recent IRS study, direct selling is a significant industry, with annual sales of nearly $30 billion and more than 13 million salespersons in the United States alone.  The IRS has intensified worker-classification audits over the past few years, generally claiming that workers should be treated as employees instead of independent contractors.  Theoretically, these audits should cause little concern for direct sellers because they enjoy a special status under the Internal Revenue Code.  The reality, though, is that the IRS’s recent audits have caused problems for many direct sellers, particularly those who fail to appreciate their unique tax status and/or assert their rights.  The attached article, called “Direct Sellers Hit by IRS Worker-Classification Audits:  An Analysis of the Obscure Rules and Strategies Applicable to These Workers,” is designed to alleviate these problems.  The article was published in a recent issue of Taxes – The Tax Magazine.

The New Duty to Report Foreign Financial Assets on Form 8938: Demystifying the Complex Rules and Severe Consequences of Noncompliance

July 15, 2012

By Hale Sheppard

Concerned about the extent of international tax non-compliance, Congress enacted the Foreign Account Tax Compliance Act (“FATCA”).  Among other provisions found in FATCA was Section 6038D, which requires certain individuals to annually report to the IRS data about their interests in foreign financial assets.  Sounds simple enough, right?  Well, this seemingly straightforward obligation has been causing significant havoc for taxpayers and their advisors in 2012, as they wrestle for the first time with tricky new issues when deciding whether and/or how to complete Form 8938 (Statement of Specified Foreign Financial Assets).

Given the challenges associated with the current rules and the finalization in the near future of additional regulations expanding the coverage of Section 6038D, uncertainty will persist for some time.  Confusion about Section 6038D and Form 8938 can trigger a series of negative results for taxpayers, including new information-reporting penalties, increased accuracy-related penalties, criminal charges, extended assessment periods, and a fight with the U.S. government on three fronts simultaneously.  Confusion about this new international tax requirement could cause severe problems for tax advisors, too, because misinformed clients facing IRS problems tend to point their fingers (and their malpractice firms) squarely toward the trusted tax professionals on whom they relied.

In an effort to avoid these types of problems, the attached article, which was recently published in the May-June 2012 issue of the International Tax Journal, (i) contains a thorough analysis of the Form 8938 filing requirements, incorporating and digesting guidance from multiple sources, (ii) clarifies the confusing overlap between Form 8938 and the FBAR, and (iii) explains the unappreciated, severe consequences for taxpayers who fall into noncompliance.

The Parameters of Qualified Amended Returns Examined by Tax Court in Case of First Impression

March 9, 2012

By Hale Sheppard

Life grants few chances at true redemption. The Internal Revenue Code, likewise, is not known for facilitating taxpayer salvation. Sure, under certain circumstances, taxpayers have an opportunity to file late tax-related elections to rectify an oversight, and other forms of clemency exist. However, the general rule is that taxpayers are stuck with a position once they take it on a tax return filed the IRS. One obscure exception to this rule is the qualified amended return (“QAR”), which can be a powerful self-help remedy for taxpayers who experience the “oh-shoot” moment. This event often occurs when taxpayers realize that, oh shoot, they forget to include certain income items on their tax return or, oh shoot, they cannot sleep because the stance they took on their tax return was too aggressive. Filing a QAR in these situations may allow a taxpayer to sidestep penalties stemming from the inaccurate tax return. The QAR rules, like most things tax, are complex. A recent Tax Court case, Bergmann v. Commissioner, 137 T.C. No. 10 (2011), provides us an opportunity to analyze the purpose, application, intricacies, and evolution of the QAR rules. The attached article, called “The Parameters of Qualified Amended Returns Examined by Tax Court in Case of First Impression,” examines the issues in Bergmann v. Commissioner. It was published in the most recent edition of the Journal of Taxation.


Follow

Get every new post delivered to your Inbox.

Join 102 other followers

%d bloggers like this: