Owning  foreign accounts is completely legal for U.S. taxpayers, if the accounts are properly reported. A foreign bank, brokerage or other financial account must be reported annually on Schedule B of one’s tax return and on a Report of Foreign Bank and Financial Accounts (FBAR for short). Offshore hedge funds, commodities accounts, precious metals accounts and even some insurance products and retirement accounts must also be reported.

The IRS believes that millions of U.S. taxpayers have not filed FBARs. The penalties for a willful failure include prison. Even a non-willful failure can lead to huge civil penalties, however.

While the government scrambles to find all these accounts, journalists, hackers and “leakers” have found much information. Since we ran the leak story in April, several people have called to find out if they are on the list of people whose names are disclosed. Obviously, if journalists have the information, you can bet the IRS isn’t far behind. Now that information is available on line!

We caution readers that just because your name is on the list doesn’t mean you have done anything wrong. Many of the people on the list have probably filed  FBARs and reported any foreign income.

Interested to see if your name is on the list? Just click here, the link will bring you to the ICIJ’s offshore leaks database.

Whether or not the list contains your name or the name of a company you may have created, the time to come into compliance is running out. The IRS is offering an amnesty program called the Offshore Voluntary Disclosure Program but it comes with a hitch. If the IRS finds you before you find them, amnesty is not an option.

If you have not filed FBARs in past years, give us a call. We have helped many taxpayers and financial institutions with questions or concerns about FATCA (the Foreign Account Tax Compliance Act) and FBARs. For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.

Want more information about FBARs? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the tax tab or type in the name of a particular topic in the search bar. We have posted hundreds of informative articles on our site.

Written by Brian Mahany, Esq.

The post Are You On The List? FBAR Post appeared first on Due Diligence.

Beginning next year, the new FATCA law will require foreign banks and financial institutions to begin reviewing their accounts and reporting those with ties to the United States. It is estimated that millions of Americans are not in compliance with the FBAR reporting rules.

Readers of this blog know that most folks who don’t file are simply unaware of the reporting requirements. There are millions of dual nationals and green card holders living in the United States. There are millions more Americans living overseas. Most of these folks are required to file FBARs but millions do not.

Under an amendment to the immigration bill submitted by powerful U.S. Senators Jack Reed of Rhode Island and Charles Schumer of New York, Americans who “expatriate” to avoid taxes could be denied re-entry into the United States by the Department of Homeland Security.

Never mind the dubious Constitutionality of such legislation, concentrating that much power in the hands of Homeland Security, or any federal bureaucracy, is dangerous.

If enacted, the amendment do the following:

*           Automatically exclude any expatriate that triggers the expatriate exit tax.

*           Create a mechanism to allow the covered expatriate to petition the U.S. Department of Homeland Security (DHS) for a determination that tax avoidance was not one of their principle purposes for expatriation.

*           Allow DHS to determine whether the expatriate can establish through clear and convincing evidence that tax avoidance was not one of their principle purposes for expatriation.

While the government has the responsibility to insure that everyone pays their fair share of taxes, punishing people who leave the country and wish to return sends the wrong message and sets a dangerous precedent. Previously there have been attempts to allow the State Department to suspend passports to those with tax arrearages of over $50,000. Read the bills together and you get a sense that some folks in Washington want to not allow those Americans who owe taxes to leave the country or if they have left, not be allowed to return.

We believe the best way to insure compliance is to better educate taxpayers. The penalties for not filing an FBAR are so onerous that many are afraid to come into compliance, even though the IRS is currently offering an amnesty program. Others simply don’t understand the complex reporting requirements.

The government has an obligation to better educate folks before punishing the millions who remain out of compliance. Both the General Accounting Office and the IRS’ own National Taxpayer Advocate have criticized the administration for not better publicizing the offshore reporting rules.

There will always be taxpayers that try to outsmart the government and evade taxes. Unfortunately, for millions of honest Americans, the risk is that you could get caught up in the government’s dragnet. Worse, you might not be allowed to return to the United States.

If you have a foreign account and have not filed FBARs, consider hiring a tax lawyer trained in the foreign reporting rules. As noted above there is an amnesty program for those who have not reported. For those who can prove their failure to file an FBAR was an innocent mistake, better options may be available. Do nothing, however, and you may face penalties of $100,000 per year or 50% of your highest account balances. With the IRS looking back 8 years, the cost of noncompliance could be enormous.

We don’t think suspending passports or allowing bureaucrats to arbitrarily determine whether someone can return to the U.S. is a good idea but we do acknowledge that ignoring the problem is not an answer either. If you haven’t filed FBARs for even one past year, give us a call. (Note: the deadline to file FBARs for 2012 expires on June 28th, 2013.)

Have an unreported account or questions about FATCA or FBARs? We can help. For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.

Want more information about FBARs? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the tax tab or type in the name of a particular topic in the search bar. We have posted hundreds of informative articles on our site.

Written by Brian Mahany, Esq.

The post FATCA, FBAR Debate Gets Ugly appeared first on Due Diligence.

Most states have a similar trust fund recovery provision in their tax codes. Under state law, sales tax may also be considered a trust fund tax for which personal liability may attach.

The specific language in the tax code says, “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax…  shall…  be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.”

Responsible individuals could include CFO’s, accounts payable managers and corporate officers. The key is whether the person was required to report or pay taxes. If you have signature authority on an account or sign tax returns, be concerned if taxes aren’t getting paid.

To impose the trust fund recovery penalty and hold an individual personally liable, the IRS must prove two things. First, they must prove the person is “responsible” for the taxes and second, that the person acted willfully.

Courts have said that willfulness can be shown if the person had knowledge of the unpaid taxes or had a “reckless disregard of an obvious and known risk that taxes might not be remitted.” In other words, burying your head in the sand is not enough to escape liability.

The trust fund recovery penalty is not limited to one person. Courts have upheld the right of the IRS to assess multiple responsible individuals for the penalty.

In determining who is responsible for a trust fund recovery penalty assessment, the IRS often looks at check signing authority, corporate bylaws, corporate organization charts, job descriptions and even stock ownership records. If you own a controlling share of the business, expect the IRS to come after you if withholding taxes aren’t paid. (In September of 2011, we wrote about a construction company owner who was sentenced to prison for 22 months for not paying trust fund taxes.)

The trust fund recovery penalty can easily be avoided by remembering to always pay withholding, social security and sales taxes first. Although thousands of businesses fail every year, most are able to wipe out their debts through bankruptcy court. That doesn’t work for trust fund taxes, however. If your business is going under, make sure the tax man gets paid first!

Willful failure to pay trust fund taxes is also a crime under federal law and in most states. While bookkeepers and administrative personnel are rarely criminally prosecuted for unpaid taxes, the IRS has been known to assess the trust fund recovery penalty against them. We are even aware of cases in which an outside CPA was assessed.

Not paying trust fund taxes is a high priority with both the IRS and state revenue agencies.  Audits and assessments often lead to criminal prosecutions.

If you find yourself falling behind with taxes, receive an audit notice or get that knock on the door by criminal special agents, contact an experienced tax lawyer immediately. The tax attorneys at Mahany & Ertl have decades of experience – we are ready to help! For a confidential consultation, contact attorney Bethany Kroes at (414) 223-0464 or by email at bckroes@mahanyertl.com

Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Minneapolis, Minnesota, Portland, Maine and San Francisco, California. IRS services nationwide.

The post Trust Fund Recovery Penalty – Are You Liable? appeared first on Due Diligence.

The Bank Secrecy Act has long required U.S. taxpayers to report offshore financial holdings. That includes checking accounts, savings accounts, foreign brokerage accounts, offshore hedge funds, certificates of deposit, commodities accounts (gold and silver) and even some insurance products that contain a savings component. Compliance with the law, however, has been spotty. In 2010 Congress passed FATCA to better enforce compliance with foreign reporting rules.

FATCA requires foreign financial institutions to become the eyes and ears of the IRS. They must review accounts and report those that have ties to the U.S. Unfortunately, many dual nationals, foreign born Americans, green card holders and expats who are living abroad simply don’t understand the law and their obligations. They could soon be getting a huge tax bill from Uncle Sam.

The United States is encouraging foreign countries to sign an intergovernmental agreement with the U.S. Treasury. Those agreements, called IGA’s, are designed to streamline the process and making reporting easier for foreign banks and others. Although Israel has not yet signed on to FATCA, it is in active negotiation with U.S. authorities.

A working group consisting of the Israel Securities Authority, Israel Tax Authority, justice ministry and finance ministry is already active. Published reports say that Israel is considering a deal in which the Israel Tax Authority would collect the information from banks and turn it over to the IRS.

However the agreement is structured, Israeli’s who are also U.S. citizens or residents or Americans holding money in Israeli banks should expect to have those accounts disclosed. Anticipating that some customers would simply close their accounts or move their money, the new FATCA regulations will include a look back provision. In other words, if you have unreported money or assets in Israel, it’s too late to hide. The time to deal with the problem is now.

The penalties for an unreported account are as high as $100,000 per account or 50% of the highest account balance. These penalties are for each year the account was unreported for a maximum of 8 years. (The typical penalty is imposed on just 1 year – still, that means loss of half your money!)

There is  an amnesty program (called the Offshore Voluntary Disclosure Program or OVDI) that is a great bargain for people who willfully or knowingly didn’t report their accounts. No audit, no prosecution and a one time reduced penalty. Taxpayers who can prove their actions were unintentional may be eligible for a traditional or voluntary disclosure and get even better treatment.

There is a hitch with amnesty, however. The IRS  says no deals if they discover your account first or if a foreign bank makes a FATCA disclosure naming your account. In other words, time is running out to come forward.

The bottom line? FATCA has huge implications for Americans with ties to Israel. If you are a signer on an account located in Israel, have money in any of the Israeli banks such as HSBC Israel, Bank Leumi, Hapoalim or Bank Mizrahi Tfahot, or invest your money there and haven’t reported those investments or accounts, contact an attorney specializing in offshore reporting immediately. As we have already reported, Bank Leumi may have already turned over names to the IRS making it too late for those account holders to take advantage of the OVDI amnesty program.

Have an unreported account or questions about FATCA or FBARs? We can help. For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.

Want more information about FATCA? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the tax tab or type in the name of a particular topic in the search bar. We have posted hundreds of informative articles on our site.

Written by Brian Mahany, Esq.

The post Oy Vey! FATCA Coming To Israel appeared first on Due Diligence.

REITs have been around for decades. Internal Revenue Code section 856 was adopted back in 1960 when Eisenhower was president. The law was created to allow people to invest in large real estate projects. To qualify as a REIT, the trust must distribute 90% of its taxable income to investors. REITs also must also involve a real estate investment or property rental. The latter requirement is causing the controversy.

Businesses like the REIT concept because it allows the company to not pay corporate tax on its income. Since 90% or more of the income must be distributed, double taxation is avoided. According to the WSJ, some companies have been stretching the limits of the law and possibly the tolerance of the IRS.

Lamar Advertising (a major player in the outdoor advertising billboard market) and Iron Mountain Inc, a facility that rents document storage space are apparently seeking to convert to REITs. CBS is also considering spinning off its billboard business into a REIT.

We think the conversion makes sense and should pass muster. We have long represented cell phone tower operators. That industry has often used the REIT form of ownership for years and we know of no IRS challenges.

Much of our tax code was written decades ago. Not a month goes by without major technological changes in many business sectors. Cell phone towers, data storage facilities and private prisons were not even in existence when Congress enacted the REIT law. All of those uses, however, appear to comply with the law.

In a global market place, American businesses need to remain competitive. Using the REIT tax structure to avoid double taxation simply makes good business sense. We hope the IRS agrees.

The tax lawyers at Mahany & Ertl help businesses and individuals with a wide variety of tax matters. We can help in REIT conversions and other complex tax planning matters. For more information, contact attorney Brian Mahany at brian@mahanyertl.com or by telephone at (414) 704-6731 (direct). All inquiries protected by the attorney – client privilege.

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

Written by Brian H. Mahany, Esq.

The post C Corp, S Corp, LLC… REIT? appeared first on Due Diligence.

For those unfamiliar with the law, FATCA requires both taxpayers and foreign financial institutions to report accounts with ties to American taxpayers. Owning a foreign account or even having signature authority over one could trigger reporting requirements.

Under the Bank Secrecy Act, taxpayers have long been required to report foreign financial assets. Reporting is done both on Schedule B of the individual income tax return and by filing an FBAR form. (FBAR is the acronym for a Report of Foreign Bank and Financial Accounts.)

FATCA was designed to supplement existing IRS foreign reporting laws by making foreign banks and hedge funds the eyes and ears of the IRS. While the concept sounds great, many have questioned the cost and paperwork required by the new law.

As we have reported many times, one of the prime unintended consequences of the new law is the mass closure of accounts belonging to Americans.  Many foreign banks simply don’t want the hassle or the liability and are telling Americans to bank elsewhere.

Remember that millions of Americans live and retire overseas. Millions more are dual nationals or have business interests overseas. For those folks, a foreign account is really a “local” account and is a necessity. Faced with the looming 2014 FATCA implementation date, many foreign banks have already closed accounts belonging to Americans.

Terrorism is another concern. Americans are not well liked in all places today. Do we want wealthy Americans living in Syria identified? If you were living in Iran, would you want locals to know that you had ties to the U.S.? (See our post from March 2012 titled Does The New FATCA Law Help Foreign Dictators?

As the U.S. gears up for FATCA, many foreign governments are asking for reciprocity. They want American banks to report to them who in their country have money in the U.S. We tend to label certain countries such as Switzerland, Liechtenstein or the Cayman Islands as “tax havens” but one of the biggest tax havens worldwide is the United States! As more governments ask for reciprocity, it may soon lead to foreigners pulling capital from U.S. banks.

A recent article in the Atlantic identifies another unintended consequence of FATCA. The author of that article says that some companies have stopped hiring American managers because simply having signature authority over a foreign account triggers FATCA reporting.

The Atlantic article claims that FATCA disproportionally hurts middle class Americans. We agree.

Most of our clients are not Americans trying to evade taxes or hide money from Uncle Sam. They are dual nationals, foreign-born Americans, resident aliens (“green card” holders), American expats who have retired overseas, American business owners with offshore business locations, and adults who have done nothing more than obtain signature authority over Mom & Dad’s accounts in the “old country” to help pay the bills of their aging parents. For all these folks, compliance is simply a matter of better outreach and education.

Both the General Accounting Office and the IRS’ own National Taxpayer Advocate say the IRS has done a miserable job in educating people on the necessity of reporting their foreign accounts. If our government is serious about getting taxpayers to report offshore accounts, a little education would go a long way and result in far fewer unintended consequences.

That’s our opinion on FATCA. If you have your own stories of unintended consequences, drop us a line and we will gladly print your story (without your name, of course.)

Have an unreported account or questions about FATCA or FBARs? We can help. For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.

Want more information about FATCA? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the tax tab or type in the name of a particular topic in the search bar. We have posted hundreds of informative articles on our site.

Written by Brian Mahany, Esq.

The post FATCA and the Law of Unintended Consequences. appeared first on Due Diligence.

When must FBARs be filed?

The due date is June 30^th. Since that falls on a Sunday, be safe and file by Friday, June 28^th. (Electronic filings are available but I don’t recommend trying to figure out how to file electronically on Sunday night.)

Remember that the FBAR is a technically a Treasury Department form. Just because you are on extension for your income tax return does not give you an extension for FBARs. There are no extensions. There are some minor exceptions including some business managers having signature authority over certain type accounts but if you are unsure, plan on June 30^th or seek professional assistance immediately.

Who must file an FBAR?

If you are a U.S. taxpayer holding more than $10,000 in qualified foreign financial accounts at any time during the preceding year you must file an FBAR. Those having signature authority over these accounts must also file FBARs.

U.S. taxpayer includes individuals who are required to file a 1040 return, U.S. citizens no matter where they live and resident aliens (“green card holders). If you are a foreigner living here, a green card holder no matter where you reside or an American citizen living overseas, you must file an FBAR.

Corporations, partnerships, trusts and LLCs must also file FBARs if organized under the laws of the U.S. or located in the U.S. Certain other entities such as real estate investment trusts (REITS) and other entities organized under U.S. law or located here may also have to comply.

$10,000 threshold Whether you have one account with $10,000 or 5 accounts with $2000, if your foreign holdings in the aggregate exceed the threshold, you must file an FBAR. Even if your accounts only exceeded $10,000 for a day or two, you must file. We often see this happen when someone opens an account simply to fund an investment or real estate purchase and that account only remains open for a few weeks.

Foreign Financial Account. This one can get tricky. If you are unsure, ask a tax attorney or CPA specializing in offshore reporting.

Included in the definition of qualified accounts are checking accounts, savings accounts, certificates of deposit, foreign hedge fund holdings and other deposit accounts. Certain investments, annuities and even some insurance products with an investment component may qualify.

Foreign commodity accounts that let you hold silver and gold usually require an FBAR.

Foreign retirement accounts may qualify. There are country specific treaties that can impact on whether an FBAR is required. Don’t rely on your bank or retirement plan administrator to provide accurate advice.

I already filed a FATCA form 8938 with the IRS listing my foreign accounts, do I still need to file an FBAR?

Yes! The reporting requirements for FBARs and FATCA are different (although there is significant overlap). It is possible to have to file only one and not the other or both may be required. Filing a FATCA form with the IRS does not eliminate the need for FBAR compliance.

What happens if I don’t file an FBAR?

Willful failure to file an FBAR is a felony punishable by 5 years in prison. If that doesn’t get your intention, the civil penalties certainly will.

While few people are actually prosecuted criminally, the IRS does routinely impose the civil penalties for willful failure to file FBARs. Those penalties are the greater of $100,000 or 50% of the highest account value for each year and each unreported account. Although the IRS can look back 8 years, often the IRS will impose a penalty for just 1 year.

The IRS believes that if you failed to file an FBAR and you or your tax preparer checked the “no” box on the Schedule B question asking about foreign accounts, your actions were “willful.”

Non-willful violations are subject to penalties up to $10,000 per account per year. In some instances, we have seen the IRS waive all penalties but be prepared for an audit first.

I didn’t know about FBARs and have not filed them for years. What should I do?

This is a hidden trap that can really get you in trouble. Many people are afraid to come forward once they realize they have exposure for years of missing FBARs. While simply doing nothing and hoping you don’t get caught may sound tempting, the risks of getting caught are high and getting worse by the day.

Others believe they can “quietly” file the missing past due FBARs and not get caught. While that too sounds like a good strategy, the IRS has publicly stated that they will cull through the FBAR filings in search of people trying to make these so-called “quiet disclosures.” Those folks are subject to huge penalties. Making a quiet disclosure buys you some time but it doesn’t buy any peace of mind.

The IRS is running a tax amnesty program for those with missing FBARs and unreported foreign accounts. For people with small accounts or who can prove their actions were not willful, much better options may be available.

With such high stakes and complex regulations, anyone with past due FBARs should consult with a tax lawyer specializing in offshore reporting issues.

The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore tax  reporting services including FBAR preparation, FATCA compliance, foreign real estate transactions and more. For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.

Mahany & Ertl is the preferred legal services provider for FBAR compliance to the CPAmerica organization of accounting firms. We represent clients throughout the world and United States. Have questions? Call us without obligation or use the search engine feature of our Due Diligence blog. We have hundreds of helpful articles.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California.

Post by Brian Mahany, Esq.

The post FBAR 101 – Critical Information For FBAR Filers appeared first on Due Diligence.

The term “irrevocable trust” suggests that the trust is more or less permanent. That is not always the case, however.

To understand why someone would want to revoke an irrevocable trust, some very basic understanding is first necessary. An irrevocable trust has three parties. The person putting property or money into the trust is called the “settlor.” He or she is the person who creates the trust.

The beneficiaries are the people who will receive the property. In most irrevocable trusts the beneficiary is a spouse, child, grandchild or other family relation.

Finally, there is the trustee. That is the person or entity (often a bank) who manages the trust.

Some people create irrevocable trusts in order to receive a tax benefit or for Medicaid planning purposes. Others to protect their legacy from creditors or insure that a child’s inheritance will be protected from creditors or divorce. By making the trust irrevocable, the property is protected from claims of third parties. Changing tax laws and economic realities sometimes make people want to cancel or revoke their irrevocable trust, however.

Can it be done? Yes.

Unwinding a trust is tricky and varies state by state. There is also a risk that the IRS could disallow the process if not performed properly.

The most common ways of getting around an irrevocable trust involve having the beneficiaries and trustee consent to dissolution. That is often not difficult if all the parties are family members.

Some states allow an irrevocable trust to be undone if the trust is small or too difficult to maintain. Other trusts may have provisions which allow a direct distribution of property to a widow.

As noted above, trying to unwind one without professional help is risky. In recent years, many folks have created their own trust using LegalZoom and similar services. That’s fine but unwinding a trust is never as easy as its creation.

Another consideration is state inheritance and estate taxes. 21 states and the District of Columbia have such taxes (including Maine and Minnesota where we have offices). Even if unwinding an irrevocable trust makes sense under the IRS code and is otherwise possible, make sure to also examine any potential state tax impacts.

If you have an irrevocable trust and are now feeling some buyer’s remorse, give us a call. Our tax lawyers can help you decide what moves make the best economic sense for you. The U.S. Tax Code and the tax laws of the states are not static. As laws change you should insure that your estate plan still makes economic sense and provides the control and security you need.

For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.

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

Need more information? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific tax topics, just click the tax tab or type in the name of a particular tax topic in the search bar. We have posted hundreds of informative articles on our site.

The post Revoking An Irrevocable Trust? Yes!, It’s Possible appeared first on Due Diligence.

That’s a lot of zeroes.

There are dozens of abusive tax shelters in the marketplace. We are surprised by how many otherwise smart people and well known accounting firms get stuck holding or recommending these schemes. In Lane’s case, the IRS says his fund was a partnership option portfolio securities scheme or POPS for short. (This is one that even we have not seen.)

According to the IRS, the fund was set up to conceal payments to fund managers and generate losses. Those losses would be used to offset the tens of millions of dollars of gains made by Lane from stock options.

The old adage about there being no such thing as a free lunch certainly applies to abusive tax shelters. Creative accountants frequently dream up new schemes that promise above market returns or promise to “legally” offset or hide income. When you hear claims like that you certainly want to believe. After all, who wants to pay taxes.

Unfortunately, most such claims are false. Worse, the IRS considers many to be abusive tax shelters which can set you up for huge civil “listed transactions” penalties.

There is really no reason for accountants to make mistakes. The IRS publishes a list of abusive tax shelters and takes the position that simply making a few cosmetic changes to an otherwise fraudulent scheme won’t make it legal. (Recently we reported on another tax shelter case in which U.S. District Court Judge Brian Jackson said, “tax law deals in economic realities, not legal abstractions.” He also upheld an assessment of penalties because any reasonable and prudent person should have known that the tax shelter in that case was “too good to be true.”

Lane says he will appeal. He claims the fund was legitimate and denies the abusive tax shelter claims.

If you think you have invested in an abusive tax shelter, seek a second opinion from a qualified tax lawyer immediately. The IRS has established very strict reporting and penalty requirements for people found holding such a shelter. Even if the shelter passes IRS scrutiny, you could still be fined for not alerting the IRS to the shelter!

Luckily, the IRS operates on a voluntary compliance model meaning if you self report and fix the problem, penalties are usually much lower.

Our tax lawyers have dealt with a wide range of abusive tax shelters. From phony 419 and 412 “welfare benefit plans,’ to captive insurance companies, we can help with both representation before the IRS (audit defense, criminal tax defense and listed transaction penalties) and in pursuing malpractice claims against the accountant or lawyer that designed the shelter.

For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Many cases, including abusive tax shelter penalty abatement requests and appeals, can be handled for a flat fee.

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

Need more information? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific tax topics, just click the tax tab or type in the name of a particular tax topic in the search bar. We have posted hundreds of informative articles on our site.

Written by Brian Mahany, Esq.

The post Abusive Tax Shelter Results In $100 Million Assessment appeared first on Due Diligence.

The IRS doesn’t act alone. Usually IRS news bulletins outlining criminal tax charges are mirrored by press releases from the Justice Department and the local U.S. Attorney’s Office. There is nothing sinister about having good media relations, unless only one side of the story is reported.

Earlier this week a column in the Wall Street Journal titled “Mum’s The Word About SEC Defeats” addressed a similar phenomenon at the SEC. The government is quick to publish stories about indictments and prosecutions but is remarkably silent when the defendant wins and the agency loses.

As a lawyer representing defendants in federal IRS criminal tax cases, we love when spring rolls around. Timed to coincide with filing season, the IRS and Justice Department usually team up to roll out a number of criminal tax indictments across the country.

Why? Because stories of individuals being charged by the IRS is a reminder to all those folks that each year have second thoughts about properly filing and paying taxes. Admit it, no one likes paying taxes. And many think it’s okay to cut corners here and there. Reading about your neighbor who is facing 20 years in the federal pen is enough to keep 99% of us honest, however.

The IRS operates on a voluntary compliance model. There simply aren’t enough revenue agents and criminal division special agents to check everyone’s return and prosecute every criminal tax violation. So the government makes sure to ramp up its publicity machine, especially during filing season.

In the IRS’ case, that is the job of the IRS National Media Relations Office. We believe they do a better job than any ad agency or private sector business in the nation. Big business pours millions into expensive ad campaigns.  The IRS and DOJ simply issue a one-page press release talking about how so and so was just indicted and faces years in prison and hundreds of thousands in fines. A simple press release detailing a local criminal tax charge usually gets plenty of media play.

Letting the public know that there is a consequence of not paying taxes is good. The IRS has the responsibility to tell the complete story, however. Although the Justice Department employs some of the best and brightest trial lawyers in the country, they do lose cases. Remarkably, there are no press releases from either agency when that happens.

According to the Wall Street Journal column, the SEC operates in a similar manner. In this day of instant information, the government has a duty to tell the whole story. Reputations can be ruined when incomplete information is on the web. While third party news sources – media and blogs – might not know the entire story, the IRS does and should report accurate information. That includes sentences that don’t involve prison too.

I had the opportunity to be present for the 2008 Wesley Snipes trial in which a jury acquitted Snipes on all the criminal tax felonies and even some of the misdemeanors. Ask any IRS agent or prosecutor present at the trial and they will tell you it was a major defeat for the government. The press folks at IRS and DOJ? Of course not, they claimed “victory” when Snipes was sentenced on the three remaining minor misdemeanor charges.

The purpose of this blog isn’t to trash the IRS or Justice Department. They have a difficult job with very limited resources. Using the press release process effectively is key to insuring voluntary compliance. (It is impossible for the IRS to prosecute even 1% of the criminal tax frauds that occur yearly.) Because we are living in a digital age where reputations are on the line, however, it is important to report the rare defeats as well as the victories.

That’s our two cents.

The tax lawyers at Mahany & Ertl protect the liberty of those charged with criminal tax violations including tax evasion, filing false returns, money laundering, failure to file, failure to pay and conspiracy to defraud the government. If you are facing prison or believe that an audit may uncover problems that could turn criminal, give us a call.

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

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.

The post IRS Criminal Tax Charges – Paper Tiger or Real Dragon? appeared first on Due Diligence.