Posted tagged ‘Penalties’
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.
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Categories: Audit, International
Tags: Dual Residents, FATCA, FBAR, Foreign Assets, Form 8938, Penalties, Section 6038D, Tax Reporting, Tax Residency
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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.
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Categories: Administrative, Individual
Tags: Penalties, qualified amended returns, Tax Court, tax position
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February 6, 2012
By Hale Sheppard
Nearly all taxpayers will face penalties by the IRS at some point, regardless of their sophistication level and size. Accordingly, tax practitioners, even those who claim not to get involved in traditional “collection” activities, must understand key aspects of abatement and collection procedures in order to effectively advise their clients. This is particularly true given that the IRS persists in taking extreme positions in the Tax Court, such as the always-say-never approach, that are contrary to the majority of existing legal authorities. A recent example is Custom Stairs & Trim, Ltd., Inc. v. Commissioner, T.C. Memo 2011-155, a case in which the IRS unsuccessfully argued that financial distress caused by events beyond the taxpayer’s control can “never” constitute reasonable cause for abating late payment and federal tax deposit penalties. The attached article, called “Always Say Never: Tax Court Rejects IRS’s Extreme Litigation Position in Penalty Cases,” analyzes Custom Stairs and the valuable lessons that it contains for taxpayers and their advisors. The article was published in the most recent issue of Journal of Tax Practice & Procedure.
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Categories: Administrative, Litigation
Tags: IRS, Penalties, reasonable cause, Tax Court
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January 25, 2012
By Jonathan Prokup and Dustin Covello
Following the release of Ann and Mitt Romney’s tax returns, the news media and political commentators of all stripes have – to paraphrase Arlo Guthrie – detected, neglected, selected, rejected, and inspected those returns for a variety of commercial and political purposes. As expected, the return shows substantial income, largely from passive investments.
One of the most interesting aspects of the Romneys’ returns – from a tax practitioner’s perspective – is the geographic location of a significant portion of their investments. As MSNBC reported:
His 2010 return shows a number of foreign investments, including funds in Ireland, Switzerland, Germany and Luxembourg. Most of Romney’s vast fortune is held in a blind trust that he doesn’t control. A portion is held in a retirement account.
Romney’s advisers acknowledged Tuesday that Romney and his wife, Ann, had a bank account in Switzerland as part of her trust. The account was worth $3 million and was held in the United Bank of Switzerland, said R. Bradford Malt, a Boston lawyer who makes investments for the Romneys and oversees their blind trust, which was set up to avoid any conflicts of interest in investments during his run for the presidency.
For tax practitioners, this excerpt poses the natural question: have the Romneys filed foreign bank account reports (“FBARs”), which have been the subject of much media attention in recent weeks? The answer might not be as straightforward as it would initially seem. (more…)
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Categories: Administrative, Individual, International
Tags: FBAR, foreign investment, Mitt Romney, offshore bank accounts, OVDI, Penalties, PFIC
Comments: 1 Comment
January 10, 2012
By Jonathan Prokup and Dustin Covello
The IRS announced yesterday a reopening of its 2011 offshore voluntary disclosure initiative (“OVDI”). This program will have essentially the same terms as the 2011 OVDI, but with a penalty rate of 27.5 percent (rather than 25 percent) of the highest account balance during the period covered by the initiative. The program requires filing eight years of amended tax returns and unfiled FBARs and the payment of tax, interest and a possible accuracy-related penalty on unreported income as well as the above-mentioned lump-sum penalty. In certain cases, a reduced penalty for failure to file FBARs is available. Unlike the prior initiatives, the reopened OVDI has no deadline; however, the government can always choose to impose a deadline or terminate the program at its discretion.
See the announcement at the IRS website here and “How to Make an Offshore Voluntary Disclosure” here. The IRS’ Frequently Asked Questions page provides significant guidance to determine whether individuals are eligible for OVDI. (more…)
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Categories: Administrative, Individual, International
Tags: Credit Suisse, FBAR, HSBC, offshoare bank accounts, OVDI, Penalties, Swiss, tax evasion
Comments: 1 Comment
December 8, 2011
By Phil Karter
As reported earlier this week in the tax press, the recently completed initial filing season for Schedule UTP produced at least one major surprise in the eyes of IRS officials, who had anticipated a much greater number of items listed on the average Schedule UTP than actually materialized. In fact, the IRS’s predictions were off by a wide margin, with the number of disclosed positions of the 1,500 or so Schedule UTPs filed averaging only slightly more than three items per schedule for CIC taxpayers, and less than two items for non-CIC taxpayers. Pre-filing expectations of item disclosures had been many multiples higher, perhaps even reaching as high as 100 or more separately stated positions. Although such predictions may have been wildly optimistic from the IRS’s standpoint, one must now wonder whether the apparent failure of the first filing season to meet the Service’s anticipated disclosure bonanza will hasten efforts to extend the penalty regime to specifically target what are viewed as incomplete or inadequate disclosures on Schedule UTP. (more…)
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Categories: Administrative, Audit, Corporate
Tags: Audit, CIC, disclosure, IRS, IRS Audits, Penalties, Privilege, schedule utp, tax penalties, tax workpapers, Work Product
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December 2, 2011
By Jonathan Prokup
For taxpayers who entered the IRS’s second Offshore Voluntary Disclosure Initiative (“OVDI”) prior to August 31, 2011, November 29th marked the end of the extended deadline that some taxpayers requested for submitting all of the materials included in the disclosure (e.g., amended returns, FBARs). Coincidentally with the timing of this deadline, many individuals who only recently learned of their reporting obligations (or, in some cases, of the existence of their accounts in the first place) are asking themselves what they can do now, having missed the opportunity to participate in the OVDI. (more…)
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Categories: Administrative, Corporate, Individual, International
Tags: bank account, FBAR, IRS, noisy disclosure, OVDI, Penalties, quiet disclosure
Comments: 8 Comments
May 23, 2011
By Jonathan Prokup
As part of its current Offshore Voluntary Disclosure Initiative (“OVDI”), the IRS is strongly encouraging taxpayers against making so-called “quiet” disclosures, in which taxpayers file amended tax returns, pay the applicable taxes and interest, and hope that the IRS doesn’t identify them for further investigation. These disclosures are described as quiet because they involve neither alerting the IRS to the amended returns nor offering to pay any applicable penalties. Because taxpayers may rightfully perceive the 25-percent penalty required to participate in OVDI as a rather expensive pound of flesh, taxpayers holding undisclosed offshore accounts may conclude that making quiet disclosures, rather than entering OVDI, is a more palatable method to come into tax compliance. (more…)
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Categories: Corporate, Individual, International
Tags: bank accounts, HSBC, offshore, OVDI, Penalties
Comments: 1 Comment
April 14, 2011
By Jonathan Prokup
Last week, the United States Department of Justice asked a federal court in San Francisco to force HSBC India to disclose the names of U.S. customers whom the Justice Department suspects are evading U.S. tax laws. According to the Justice Department’s brief, HSBC India solicited U.S. residents of Indian origin to open bank accounts. HSBC apparently advised those individuals that the bank would not disclose the existence of the accounts, or any interest earned on those accounts, to the U.S. government. (more…)
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Categories: Administrative, Corporate, Individual, International
Tags: FBAR, foreign bank accounts, HSBC, India, OVDI, Penalties
Comments: 1 Comment
April 7, 2011
By Jonathan Prokup
During a webinar the other week regarding the impact of the Mayo Foundation decision on taxpayers, I discussed the effect of Mayo on taxpayers’ decisions to take positions that are contrary to IRS rules or regulations. Part of that discussion examined the 20-percent accuracy-related penalty that can be imposed on such positions under Code section 6662.
As our readers may know, if a taxpayer takes a position on a return that is contrary to an IRS rule or regulation, the taxpayer may avoid the imposition of the accuracy-related penalty by following the requirements of Treas. Reg. § 1.6662-3. In general, that regulation provides that, when a taxpayer takes a position contrary to a regulation, the penalty for disregarding rules or regulations does not apply if (i) the position is disclosed on “a properly completed and filed Form 8275-R,” (ii) the position represents a “good faith challenge” to the validity of the regulation, and (iii) the taxpayer has a reasonable basis for the position. Treas. Reg. § 1.6662-3(a), (c)(1), (c)(2).
At the end of the webinar, an audience member asked whether the requirement to disclose a position on Form 8275-R included a position that was contrary to a revenue ruling. As so often happens in tax law, the answer creates as many questions as it resolves. Because one person’s question is likely shared by others, it seems appropriate to discuss the issue in a blawg post.
(more…)
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Categories: Administrative
Tags: disclosure, Penalties
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