No one likes FATCA, the Foreign Account Tax Compliance Act. Passed by Congress in 2010, the law requires both U.S. taxpayers and foreign banks to report Americans with foreign accounts. U.S. taxpayers are already subject to FBAR filing rules. (An “FBAR” is a Report of Foreign Bank and Financial Accounts.) Having a second report with different rules adds more confusion and a greater liklihood of fines if a mistake is made.  Foreign banks hate the law because it forces them to become informants for the IRS and adds a tremendous amount of extra work.

Although foreign banks have long complained about the law, the volume and frequency of those complaints is increasing. A sample of headlines this week reads as follows:

• “FATCA’s ‘Vulnerabilities Evident’, Washington Expert Claims, Calls For Repeal” - MarketWatch
• “…Banking Execs Say Majority of Banks to Miss FATCA Deadlines” - MarketWatch
• “Why FATCA Should be Repealed” - UPI
• “Banks Expect To Miss FATCA Deadlines” - Accounting Today
• “Most banks will miss FATCA deadlines” - International Adviser
• “Industry Concerned About Extraterritorial Tax Clampdown Plan” Financial Times
• “KPMG - FATCA Deadline Will Be Missed”

The administration needs money meaning that efforts to repeal FATCA will face a difficult road. Budget analysts say that the new law will raise $800 million. Industry folks estimate the cost of compliance may be significantly greater, however. Unfortunately, increased accounting and bank fees are ultimately born by the taxpayer anyway.

While banks are complaining, some governments are jumping on the bandwagon and have entered into reciprocal agreements with the IRS. Just as the administration wants to combat tax evasion, so do other developed countries like the United Kingdom and Germany.

The voices in opposition continue to grow louder, however, we believe that FATCA will survive largely intact. Only a change in administration could likely lead to the law’s repeal at this point.

Whether or not FATCA is repealed, Americans with unreported foreign accounts are still at tremendous risk. The level of international cooperation is at an unprecedented level and more and more countries are entering into tax exchange agreements allowing the IRS to obtain records from foreign banks.

Remember, that even if FATCA is repealed, U.S. taxpayers are still required to report most foreign accounts and file annual FBARs. The penalty for not filing an FBAR may involve 5 years of prison, a civil penalty of $100,000 or 50% of the highest account balance for each year the account is unreported.

Whatever Congress may do with FATCA has little impact on taxpayers with unreported offshore bank accounts. Bank secrecy is largely dead.  If you have an unreported foreign account, now is the time to come forward. The IRS is currently offering an amnesty program (the offshore voluntary disclosure program or “OVDI”) for those taxpayers who have failed to file the required annual FBAR forms identifying their offshore holdings. The penalties are steep (27.5%) for most taxpayers but the program avoids audits, onerous monetary penalties and keeps participants from worrying about criminal prosecution.

We believe the decision to disclose is clear. How one should disclose, however, requires a knowledgable tax lawyer or CPA well versed in foreign reporting issues. Amnesty may not be the best deal for everyone.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including FBARs, the new FATCA requirements, tax amnesty, OVDI, voluntary disclosures, foreign gift reporting and Swiss accounts.

Mahany & Ertl - America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

The numbers are out and they aren’t good for people convicted of tax crimes. While the U.S. Department of Justice Tax Division has always enjoyed a very high conviction rate, many people convicted of tax crimes never went to jail. Not anymore.

According to the latest statistics, jail sentences have increased by 40% over the last decade.  In 2001, the average tax offender received a sentence of 18 months. Now those sentences average 25 months.

The statistics are a bit misleading because a decade ago, half the people convicted never went to jail. The average sentence may have been 18 months but many folks got house arrest while others received sentences of several years. Now, those convicted are probably going to jail. In other words, not only has the average sentence increased but so has the likelihood of receiving a prison sentence.

Sentences in federal criminal cases are governed by the United States Sentencing Guidelines. Although no longer binding on judges, they are the court’s starting point and most judges stay within guidelines.

The sentencing guidelines attempt to account for a wide range of factors including one’s criminal history, whether the defendant used “sophisticated means” to carry out the crime and whether the defendant took early acceptance of responsibility for his or her actions. For tax cases, the guidelines also look at “relevant conduct” tax loss.  The higher the tax loss, the longer the recommended sentence.

The current guidelines impose suggest stiff penalties for tax crimes and many judges now believe that house arrest is not a strong enough deterrent to insure voluntary compliance.

What does this mean for people with tax problems? Plenty.

First, if you know you have a problem, don’t bury your hand in the sand.  The IRS operates on a “first contact” basis. That means if you come clean before you are caught, criminal penalties can generally be avoided.

Second, if you are indicted and convicted, it pays to have a lawyer with extensive federal criminal tax appearance.  Adjustments to the sentencing guideline calculations often can mean the difference between prison and freedom. Although there are many good lawyers that can negotiate a fair plea agreement, the final sentence is up to the court. Mastery of the federal sentencing guidelines and the thousands of court cases interpreting those guidelines separates great criminal tax lawyers from the rest of the pack.

If you have unreported or unpaid federal taxes, have other criminal exposure or are already under criminal investigation, give us a call. Our criminal tax lawyers are well experienced with tax evasion, false returns, unreported foreign accounts, criminal FBAR violations and money laundering cases. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com. All inquiries are covered by the attorney client privilege and are kept in strict confidence.

Mahany & Ertl - America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and Minneapolis, Minnesota. IRS services available worldwide.

We have helped many people with unreported foreign accounts. Some simply need to file missing FBAR forms, some are amnesty candidates while others fare better under a traditional voluntary disclosure. The only common thread to all these cases is that very few are ever black and white.  The current guidance from the IRS on the Offshore Voluntary Disclosure program (amnesty) consists of a few dozen frequently asked questions. With little written guidance from the IRS and few court decisions (the laws are still new), its difficult for the average taxpayer to find answers.

The IRS wants to know if you have a “financial interest in or signature authority over a financial account in a foreign country.” One of the consistent issues we face is trying to determine who must report the account on an FBAR form (Report of Foreign Bank and Financial Account). This question and defining a foreign account are not covered in this article. Suffice it to say, the definitions are not always clear but the stakes are quite high.

Assuming you have an obligation to file an FBAR, are you also responsible for any income derived from that account? That’s the purpose of this article.

As a general rule, beneficial ownership is the key to determining who must report any income. It is possible to have signature authority without having beneficial ownership. For example, an adult daughter may have signature authority over her aging parents’ Indian bank account to help manage their finances and pay bills. The beneficial ownership appears to be remain with the parents.

Of course, things are rarely this clear cut.

Foreign law usually determines who is the beneficial owner of the account. The IRS is not bound by that determination, however. This means that the IRS could impose a tax obligation on the person it believes to be the beneficial owner even though under foreign law, that person may not have an ownership interest in the account assets.

Although the IRS does defer to the law where the account is held, there are exceptions as noted above. The Service wants to know who has the authority to dispose of the asset, the intent of the parties and who derives the benefit of the asset.

In one tax court case, a father opened 4 accounts in the names of his children. He said the money was for the kids but the IRS showed that he used the money to further his business. Although he claimed he merely borrowed the money from his kids accounts, the court found that he had beneficial ownership of the accounts and was therefore responsible for the income generated by those accounts.

Certainly, if you are acting as an agent for another, it is extremely beneficial to have an agreement in place that explains the relationship of the parties. If your name appears on a joint account but your role is merely to help another pay their bills, create an agreement upon opening of the account. Don’t wait until the IRS  starts an audit.

There are also special rules for community property income if one or both the spouses are non resident aliens. While this article is just a brief summary, know that section 879(a) of the Internal Revenue Code may take precedence over local community property laws.

If this isn’t already complicated enough, remember that the FBAR rules want to know about both beneficial ownership and signature authority (nominal ownership). In other words, if you are in any way an owner or signer of the account, report it. As noted above, who reports the income from that account is a different question. The new FATCA filing requirements now in effect for the first time also have different requirements (they appear to look to beneficial ownership).

If you have a joint account or  appear on an account with other family members or associates, seek professional tax guidance. Failing to file an FBAR can result in steep civil penalties. If the IRS  believes the failure to file was willful, the penalties can include prison and 50% of the high balance of the account or $100,000 for each year not reported.

The tax lawyers at Mahany & Ertl concentrate in foreign tax reporting requirements. OVDI, amnesty, FBARs, FATCA compliance, foreign corporations, foreign gifts and voluntary disclosures, we can help. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com. All inquiries are protected by the attorney client privilege and are kept in strict confidence.

Mahany & Ertl - America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota.  IRS services available worldwide.

by Brian Mahany

A Trust Fund Recovery Penalty (”TFRP”) is not a penalty in the traditional sense. It a collection tool used by the IRS as an alternative method of collecting certain taxes from businesses. Under both state and federal law, business insiders and control persons may be held personally responsible for unpaid business taxes.

To understand the penalty and how it works, one first needs to understand what a trust tax is. These are taxes “collected” from a third person and held in trust for the government – think employment and sales taxes.

When you purchase a can of soda for $1.00, the shopkeeper typically charges you sales tax. Thus you might have to pay $1.06 for the soda. The six cents is collected from a third party (you) and held for the state. The same is true for withholding taxes. You may owe your employees $20 per hour but typically you “collect” and hold back a couple bucks of that money for taxes.

If the business doesn’t pay these taxes, the government can seek to collect the unpaid taxes through a trust fund recovery penalty which is sometimes called a “transfer assessment” or “100% penalty.”

Who is Liable?

Although each state’s laws may vary slightly, generally the IRS and state tax authorities can seek to hold responsible anyone who had authority to pay the taxes but failed to do so. Examples include:

· Owners

· Officers and directors (especially those involved in finance)

· Bookkeepers

The IRS’ authority to transfer the debt to responsible individuals is found in sec. 6672 of the Internal Revenue Code. Because the underlying debt is a trust fund, these penalties are generally not dischargeable in bankruptcy.

Failure to turnover trust fund taxes is a crime punishable by imprisonment. It can also make you personally responsible for the business’ tax debt.

The penalty is imposed when the business cannot or will not pay the outstanding taxes. The process begins with an investigation by an IRS revenue officer. He or she will determine who participated in the decision not to pay the tax. In certain cases, the IRS or state revenue agency may refer the case for criminal investigation or simply shut down the business.

If the IRS seeks to question you about who made the decision not to pay taxes, seek professional legal help immediately. Often the IRS simply looks at corporate records to determine who the officers or directors are. That could mean a field sales V.P. with no say or knowledge about the company’s finances could be assessed tens of thousands of dollars simply because his business card says “Vice President.”

Thousands of taxpayers each year receive improper transfer assessments imposing the trust fund recovery penalty. Why?

There are several reasons. First, most people wait too long before seeking legal representation. Second, the IRS often will assess the bookkeeper or person whose signature is on the check. Unfortunately, that person may simply be someone with no authority to decide who gets paid and who doesn’t.

Much depends on what you say in an interview with the revenue officer. A lot is riding on that single interview. Botch it and you may find yourself personally owing for someone else’s mistakes.

We have found it much easier to block the assessment of the penalty up front than it is to pursue appeals once the penalty is applied.

A tax lawyer can also help you when the IRS waits too long to assess the penalty. The government has 3 years from the date the original taxes were due to transfer the debt.

Not having the money is usually not a defense for trust fund taxes. While that argument might work for income tax debts, the government views trust funds as monies already collected from an employee (or customer if it is a state sales tax.) Believe it or not, not having the money is also not a defense to a criminal tax prosecution.

Our advice is simple. If the IRS is seeking to interview about unpaid business taxes or if you failed to pay over these taxes and are caught, call the tax lawyers at Mahany & Ertl immediately. We are fully prepared to represent you in both the investigation / interview stage and through the entire IRS appeals process if the debt has already been assessed to you.

For more information, see our website article on trust fund recovery or contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of IRS audit defense and collection issues.

Mahany & Ertl - America’s Tax Lawyers. We proudly give taxpayers a voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

Thanks to our friends at Offshore Alert, we just read of a new tax scam involving offshore charities.  Apparently folks in the U.K. have discovered that its easy to simply create a bogus charity in another country. Once approved, the taxpayer then “donates” to the charity and takes the deduction on his or her tax return.

While donating to charity is a wonderful thing to do, the scam charities have no serious  charitable purpose. Instead they are used to fund the taxpayer’s own business activities or leisure pursuits.  According to an article in the Financial Times, British revenue officials uncovered one “charity” that was running a fundraising function. That function, however, was simply a personal party.

Think about it, get a large charitable deduction for purchasing food and wine for a huge house party.

The scam is remarkably simple in its design.  Of course, engaging in such conduct is a crime punishable by jail. If the charity is offshore, however, how likely are the participants to be caught?

We certainly don’t advocate such criminal behavior. Because taxes are so high and seem to be increasing, more and more people are resorting to deceit and trickery to fool the IRS. Is the tax scam a problem in the U.S.? There has always been some abuse of not-for-profits domestically but we have not seen any cases first hand. Some enterprising person, however, has read the Financial Times article and is probably creating a new charity to take underprivileged kids to Hawaii.

If you or an organization you are associated with is being audited, give us a call. We have helped many people and businesses under audit. We can assist with audit defense, IRS appeals and even U.S. Tax Court. While every case is different, we were recently able to reduce a $4 million dollar audit assessment to under $100,000.

For more information, contact attorney Brian Mahany at (414)704-6731 (direct) or by email at brian@mahanyertl.com. All inquiries are protected by the attorney client privilege and are kept in strict confidence.

Mahany & Ertl - Proudly giving taxpayers a voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

Israel and the United States have a long, rich history as friends. Through wars and regional strife, we usually share common goals and ideals. Until now. Uncle Sam wants Israeli banks to disclose the names of U.S. taxpayers with accounts in Israel. Although American law already requires taxpayers to disclose their offshore holdings, next years banks are required to make similar disclosures to the IRS.

Previously we reported that Bank Leumi is requiring customers to certify that their accounts have been disclosed to U.S. authorities. Now, press reports say other banks including Bank Hapoalim are also requiring customers to certify compliance. With over 100,000 Americans living in Israel and many Israelis working and paying taxes here, the new enforcement drive affects many.

While some people go to great lengths to hide money from tax authorities, most of the people we speak with simply didn’t know or understand the offshore reporting laws.  Most of our tax clients are dual nationals, foreign born Americans or Americans with legitimate foreign business interests.

Sending money to foreign banks is legal but those foreign accounts must be disclosed annually on a Report of Foreign Bank and Financial Account form (”FBAR”). Failure to tell Uncle Sam about your foreign interests is a felony and can lead to penalties of 50% of the account value for each year an account is unreported.  With such high penalties, there is no room for error. Foreign business interests and gifts have additional reporting requirements which also carry high penalties.

While it is easy for Bank Leumi and Bank Hapoalim to simply tell customers they must report their account, the advice is a bit late. Unless the account was just opened, taxpayers may face huge penalty assessments by doing so.

The IRS is currently running an amnesty program for unreported foreign accounts. Called the Offshore Voluntary Disclosure Program (or “OVDI”), taxpayers can avoid possible loss of their entire account, prison and an audit. The price is still steep, however - 27.5 of the highest balance of the accounts during the past 8 years.

There are alternatives to the amnesty program for taxpayers with small balances (under $75,000) and those who can prove their noncompliance was not willful.  (There are additional technical exceptions as well.)

If you have an unreported bank or brokerage account in Israel, call us. We can carefully review your situation and provide you with the available options. Don’t wait, however. If the IRS finds you first all deals are off.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including unreported Swiss, Israeli, Canadian and Indian bank accounts.

Mahany & Ertl - America’s Tax Lawyers. We proudly give taxpayers a voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

Someone complained earlier this week that all the news coming out about the crackdown on unreported foreign accounts is negative. After recent press reports from Switzerland, we are happy to report that the news is only 98% bad!

Last week, the Swiss Federal Administrative Court ruled that Credit Suisse does not have to give the IRS information about a particular bank client. While the ruling is specific to a that customer, others may benefit from the ruling.

After the U.S. began seeking information from Credit Suisse, an American client of the bank sought to block the release of that information. Rather than seek sympathy from a U.S. court, the taxpayer turned to Swiss authorities.  Under a 1996 treaty, the IRS can seek information in limited cases from Swiss authorities. Last week’s court ruling, however, says the IRS went too far.

While many may be excited by the ruling, Swiss lawmakers subsequently passed a newer, more expansive treaty with the United States. Ironically, that treaty hasn’t been ratified by Congress meaning for now, the taxpayer’s identity and records are safe from disclosure.

The Department of Justice is investigating somewhere between 11 and 17 Swiss banks according to those with knowledge of the probe. Earlier this year justice officials indicted Wegelin, Switzerland’s oldest private bank. The bank subsequently dissolved after the indictment.

Swiss banks are largely caught in the middle just like their U.S. clients. The government has been indicting banks, individual bankers and customers with unreported accounts. Swiss banks have to contend with both U.S. laws which prevent aiding and abetting tax evasion and Swiss bank secrecy laws.

Although a few people may benefit in the short term from the Swiss court’s decision, we still believe that the era of bank secrecy is largely over. Although offshore bank and foreign brokerage accounts are completely legal, failure to disclose them to the IRS is a felony. If you have an unreported account, now may be the time to come forward. The IRS is currently offering an amnesty program (the offshore voluntary disclosure program) for those taxpayers who have failed to file the required annual FBAR forms identifying their offshore holdings. The penalties are steep (27.5%) for most taxpayers but the program avoids audits, avoids even steeper penalties and essentially gives participants a “get out of jail free” card.

The decision to disclose is becoming easier. The best method to disclose, however, requires a knowledgable tax lawyer or CPA well versed in foreign reporting issues. Amnesty may not be the best deal for everyone.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including FBARs, the new FATCA requirements, tax amnesty, OVDI, voluntary disclosures, foreign gift reporting and Swiss accounts.

Mahany & Ertl - America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

We hear of many people making claims against their tax preparers for not properly advising them of their foreign account reporting requirements. Lately some taxpayers are suing Swiss banks for allegedly providing them bad advise - like, “don’t worry you won’t get caught.” Now in what may be the ultimate lawsuit, billionaire Igor Olenicoff is suing Swiss banking giant UBS claiming that they didn’t tell him that his $200 million Swiss account needed to be reported to the IRS.

Olenicoff was caught by the IRS and ultimately pleaded guilty to a criminal tax charge. He was also forced to pay $52 million in penalties to the IRS. Now he hopes to get back that money plus a whole lot more from UBS.

Olenicoff says a UBS banker told him his Swiss account would not be subject to IRS reporting requirements. The bank, of course, says it never told him “to lie on his tax returns.”  It’s hard to predict what will happen in court. Both parties are well represented in the litigation.

Although we have absolutely no inside knowledge of the case - we are limited to what appears in the media and court filings - it’s hard to imagine a billionaire with $200 million in a foreign bank account not having a great CPA or tax attorney to do his returns. Is it the bank’s responsibility to provide him tax advice? That question is one of several soon to be addressed by the court.

Tax preparers do make mistakes. We don’t see a billionaire doing his taxes with some free downloaded software or relying upon the folks who set up a sign on the street corner offering tax return preparation for $39.99, however.  Pleading guilty to criminal tax charges can’t help one’s case either. Many believe that Olenicoff simply is upset that he got caught.

The stakes are high in this case. Olenicoff is reportedly seeking well over a billion dollars from UBS.

If you lost money from bad investment advice or if a tax preparer / tax attorney provided you improper tax advice, you may have a claim.  CPA’s, lawyers and even most tax preparation services have a basic understanding of the fundamentals of foreign bank accounts and FBAR filings. Using a street corner preparer, however, puts you at much greater risk.

First, CPAs and tax lawyers have the greatest amount of training. Although tax preparers are required to have minimal competency testing beginning this year, the quality of their training is almost always much less. But that’s not the only reason.

Not only are your chances of a costly mistake much lower by using a CPA or tax lawyer when foreign accounts are involved, most professionals carry malpractice insurance. There is a “deep pocket” to pay any IRS penalties in the unlikely event one does fail to file an FBAR or provides bad advice. Ordinary preparers, however, don’t often carry insurance.

If you have questions on offshore reporting including FATCA, FBARs and the current offshore tax amnesty program (2012 Offshore Voluntary Disclosure Program), give us a call. Our tax attorneys concentrate in foreign accounts and have represented many dual nationals, foreign citizens with work visas and Americans holding foreign bank and brokerage accounts. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All inquiries are protected by the attorney client privilege and kept in strict confidence.

Mahany & Ertl - Giving Taxpayers A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

“Putting a large dent in offshore tax evasion” - IRS Commissioner Doug Shulman used those words this week in remarks to the National Press Club. His message, however, is misses the mark.

Shulman claims the IRS has made tremendous inroads against offshore tax evasion yet cites the statistics from the recent offshore amnesty programs. While tax evasion is a problem, we believe most people with unreported offshore bank and other accounts either don’t know of the reporting requirements or received bad information from preparers.

While his remarks about Swiss banks turning over bank records may have some relevance to tax evasion, his comments seem to lump together the true criminals with the innocent foreign account holders and businesses that legitimately take advantage of doing business in multiple jurisdictions.

Shulman took the opportunity to address increased audits of businesses doing business internationally. In recent years the IRS has focused on international transfer pricing issues within the business community.  The perception is that businesses somehow cheat the government by moving profitable operations to low tax countries. The arena is so complex and rules so nebulous, however, that the IRS has lost many audit assessments when challenged in tax court. If the IRS can’t get it right, how can businesses be expected to do so?

This post isn’t intended on being critical of the agency. It is a warning to not vilify honest taxpayers with legitimate offshore accounts and companies doing business outside the U.S. We are clearly living in a global economy - Congress and the IRS needs to do a better job of separating those who intentionally evade taxes from those who simply don’t know or understand the ever changing rules.

The tax lawyers at Mahany & Ertl concentrate in international tax reporting issues. Unfiled FBARs, the new FATCA requirements, offshore tax amnesty (OVDI) and transfer price audits - we can help. For more information contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com. All inquiries are protected by the attorney client privilge and kept in strict confidence.

Mahany & Ertl - America’s Tax Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.

The IRS is a giant publicity machine. Just look at the number of indictments announced by the agency during tax filing season. Or how the Justice Department can be losing 30% of its tax division prosecutors while at the same time the IRS claims they are clamping down on tax cheats. Often the IRS will announce a new enforcement initiative but then not follow through.

There are exceptions of course.  Last month we reported on the tripling in numbers of high net worth individuals being audited.

The back story about cross border withholding is a little less clear. In 2009, the IRS claimed this was soon to be a top priority but practitioners saw few results. That may be changing. In the second half of last year, the IRS began sending out record numbers of penalty notices to withholding agents.

For those unfamiliar with cross border withholding, withholding agents must hold back 30% of certain outbound income payments. The government believes that it’s only chance to collect taxes is before money leaves the U.S.

U.S. sourced income paid to foreign persons is reported on IRS Form 1042-S.  A study by the IRS several years ago revealed that approximately 1/3 of these forms were wrong.

While much of the IRS’s focus on offshore reporting centers on U.S. taxpayers moving money offshore. The cross border withholding problem concerns withholding on foreign citizens earning money here.

This area of taxation is particularly complex because of the existence of specific tax treaties between the U.S. and certain other countries.

Although the IRS has been warning withholding agents for years that is was gearing up to tackle the problem, the agency finally appears to show signs of some bite to back up their bark.

If you are a business with foreign workers, a withholding agent or just someone who needs help with foreign reporting requirements, give us a call. Our tax attorneys help businesses, CPAs and individuals with a wide range of offshore tax issues.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com. All inquiries are kept in strict confidence and covered by the attorney - client privilege.

Mahany & Ertl - Giving Taxpayers A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.