The chances of having your tax return audited by the IRS.

The Chances of Being Audited

2014 audit statistics show changes

Every year the IRS publishes the statistics of the number of tax returns they are examining. Provided here are the last three years of published information and a look back to 2008 to see any trends:

Percent of Individual Tax Returns Audited
Fiscal Year	2014	2013	2012	2008
All Individual Tax Returns	0.86%	0.96%	1.03%	1.00 %
No Income (AGI)	5.26%	6.04%	2.67%	2.15%
Income under $25,000	.93%	1.00%	1.05%	.90%
$25,000 - 50,000	.54%	.62%	.70%	.72%
$50,000 - 75,000	.53%	.60%	.64%	.69%
$75,000 - 100,000	.52%	.58%	.64%	.69%
$100,000 - 200,000	.65%	.77%	.85%	.98%
$200,000 - 500,000	1.75%	2.06%	1.96%	1.92%
$500,000 - $1 million	3.62%	3.79%	3.57%	2.98%
$1 million - $5 million	6.21%	9.02%	8.90%	4.02%
$5 million - 10 million	10.53%	15.98%	17.94%	6.47%
$10 million and over	16.22%	24.16%	27.37%	9.77%
Note: These audit rates are stated as a percent of total tax returns in each Adjusted Gross Income (AGI) class as claimed on individual tax returns. In general the examinations are for tax returns filed in the previous calendar year. Observations: Overall, you have less than a 1 out of 100 chance of being selected for an audit. The .86% audit rate is down .10% versus 2013. Audit rates are down for all income levels versus 2013 due to resource constraints per the IRS. The IRS claims this translates into the potential loss of $2 billion in tax revenue. However, the audit rates for those with incomes over $500,000 is still up dramatically when compared to 2008. The IRS is continuing its focus on returns with no AGI or negative income. This group's 5.26% audit rate is significantly over the 2.15% audit rate in 2008.

Joint accounts : the date of the FBAR filing violation is 6/30 of the year following the calendar year for which the account is being reported

--------- For each co-owner against whom a penalty is determined, the penalty will be based on the co-owner's percentage ownership of the highest balance of the foreign financial account.---------
 
I think who earns may not be the same as who owns. Assume, for example, the H (US citizen) and W (nonUS citizen) reside in France with a community property law that says 50% of earnings for personal services belong 1/2 to each, then if W earns everything in the account, it is still owned 1/2 by each. So, if W has no FBAR filing obligation, H's penalty would be based on the 50% he owned. At least that is how I interpret the concept.
If W has an FBAR filing requirement, then 100% of the account is the penalty base, but split 50-50 to each of them.
Of course, in applying the offshore penalty in OVDP, the IRS has always only applied it to the owned portion of the account for the U.S. taxpayer.
Since 100% of europe goes by a community property type law one way or another, this means very good news for ``H`` because his FBAR penalty will only be based on 50% of the joint account value. There are inconsistencies here.
Why should it be based on the highest joint account balance ?
Again the date of the filing violation is 6/30 of the year following the calendar year for which the account is being reported. I am not sure where the IRS outside of OVDI gets this from !?
Hazards of Litigation present.
Example:
2012 : joint account 6/30 balance $150K but max. balance $300K
Penalty base should be $75K for ``H`` and not $150K !!

willful : ---------In no event will the total penalty amount exceed 100 % of the highest aggregate balance of all unreported foreign financial accounts during the years under examination-------------
Example :
2010 : $250.000 aggregate balances as of 6/30 and not high/max. balance
2011 : $250.000 aggregate balances as of 6/30 and not high/max. balance
2012 : $250.000 aggregate balances as of 6/30 and not high/max. balance
Before for willful penalties was $100k or 50% whatever is greater. Which would have been hypothetically $375K (3x125K)
Now worst case scenario is 100% of $250K = $250K which is a reduction of $125K from earlier guidance.
willful: ---------In most cases, the total penalty amount for all years under
examination will be limited to 50 % of the highest aggregate
balance of all unreported foreign financial accounts during the years
under examination.-------------------
I would like to emphasize by aggregate balance we are talking about the amount as of 6/30 for each tax year under examination.
To use the example from the guidance :
2010 : $50.000 aggregate balances as of 6/30 and not high/max. balance
2011 : $100.000 aggregate balances as of 6/30 and not high/max. balance
2012 : $200.000 aggregate balances as of 6/30 and not high/max. balance

NW :  -------------- In no event will the total amount of the penalties for nonwillful violations exceed 50% of the highest aggregate balance of all unreported foreign financial accounts for the years under examination.-----------------

 This really feels like a turkish bazar when I take into consideration the $10K max. penalty per year and account and holder vs. the NW mitigation guidelines and this new guidance.
I still do not see the original intentions of Congress well represented here.
There is supposed to be consideration of the desired result “of improving compliance in the future” which can be obtained without penalties.
Further, there is nothing in the Statues that require full application of all technical penalties. The Federal courts have consistently held that when Congress uses the word “may”, it means “may”, not “must” or “shall”, so even absent the IRM FBAR policy guidelines, there is discretion that the IRS can exercise. Additionally, it is obvious that the IRS appreciates the discretionary nature of its authority. I quote from a IRS Division Council memo providing guidance on the application of civil FBAR penalties (“Guidance Memo”) “The penalty statute, however, provides for discretion in asserting the penalty.
The purpose for the penalty, and the reason for the flexibility Congress provided in asserting the penalty is to encourage compliance. There is no requirement to assert a separate FBAR penalty for every possible technical violation encountered and doing so could lead, in some cases, to an absurd result.”

New IRS FBAR Penalty Guidance

Heather Maloy, Commissioner, LB&I, has issued a memo dated 5/13/15 titled Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties. here.

The key points of the memorandum that I find interesting are:

1.  The FBAR penalty provisions are "only maximum penalty amounts, leaving the IRS to determine the appropriate FBAR penalty amount based on the facts and circumstances of each case."  I think we all knew that, but I am glad the IRS is reminding its agents of that proposition.

2.  Attachment 1 provides procedures

developed to ensure consistency and effectiveness in the administration of FBAR penalties. They will help ensure FBAR penalty determinations are adequately supported and penalties are asserted in a fair and consistent manner. Examiners must continue to use their best judgment (LOL) when proposing FBAR penalties. They must take into account all the available facts and circumstances of a case. See IRM 4.26.16.4.7, FBAR Penalties -- Examiner Discretion, concerning the use of examiner discretion when proposing FBAR penalties.

Most Recent IRS International Hacking Reveals Vulnerability

According to national reports, hackers allegedly stole the personal data of approximately 100,000 taxpayers from the IRS’s computer system.  The most recent investigative report from CNN reveals the IRS believes the cyber-attack has links to Russia.  In the coming days, weeks and months, federal law enforcement will no doubt do everything it can to detect who is behind this alleged cybercrime and, if possible, to bring charges against those allegedly responsible.

As the IRS continues to combat stolen identity tax refund fraud, an epidemic that costs the Government more than $5 billion per year, the significance of this cyber-attack cannot be overstated: it is game-changing.  At a minimum, if the latest news coverage is accurate, it is crystal clear that international hackers successfully infiltrated the IRS’s computer system to steal legally-protected and extremely sensitive taxpayer information.  This information must inevitably threaten the IRS’s filters in place to detect fraudulent tax returns filed in the names of stolen identities.  After all, if the IRS is looking at a taxpayer’s prior tax returns, the hackers now have that information.

The IRS’s response: “We’re confident that these are not amateurs,” IRS Commissioner John Koskinen said.  “These actually are organized crime syndicates that not only we but everybody in the financial industry are dealing with.”

The IRS’s response is fair in some respects – cybercriminals have perpetrated attacks against large retail stores and small businesses.  But the difference between the IRS’s identity theft epidemic and the private sector is that no other private company or government agency continues to lose more than $5 billion year after year to the same crime.  That the IRS’s data security systems did not shield the agency – and taxpayers – from an international hack of this caliber is as frightening as it is reflective of the fact that the agency’s systems are simply vulnerable.  What Commissioner Koskinen should understand is that if a large bank were losing billions of dollars year after year to the same brand of fraud, the bank would do something about it to stop the bleeding.

Perhaps more than anything else, this cyber-attack reveals that stolen identity tax refund fraud is not a problem the Government can prosecute its way out of.  Resources are limited and the IRS should spend every last dime on making it harder to steal money from the Treasury by improving filters, enhancing its data security systems, and protecting taxpayers from becoming victims of identity theft – not on seeking long prison sentences for the less sophisticated identity thieves the Government can actually catch.  If resources are the issue, the IRS should ask Congress to reallocate funding to cyber-infrastructure improvements and retain a company like Google to help.

Ultimately, this may be an embarrassment to the IRS – but perhaps it can also be the beginning of improved technology, improved policies and procedures, and improved perspectives on how to combat the identity theft tax fraud epidemic.

Swiss naming of suspected tax cheats causes waves - Bundesblatt Nr. 19

When Switzerland makes a decision to turn over bank information of a foreign depositor upon request of a treaty party, the depositor is entitled to invoke procedures under Swiss law to test whether the turn over is appropriate.  This requires that the Swiss authority notify the depositor so that the depositor can invoke the procedure.  But, what to do when the depositor has disappeared from the bank's radar screen and the bank does not know how to contact the depositor?  "In such cases the tax authorities notify the account holder via the government’s online gazette – sometimes giving the full name of the client and in other instances just the initials and date of birth."  See Swiss naming of suspected tax cheats causes waves (Swissinfo 5/25/15), here.

 but the more important link with the names or initials is here :
 https://www.admin.ch/opc/de/federal-gazette/2015/index_19.html

Florida CPA Charged with Filing Fraudulent Tax Returns

A Florida CPA has been arrested and charged with using her tax preparation business to facilitate an income tax refund fraud scheme.

Pre-Expatriation Gifts and A step-by-step "how to" -- answering the key question on a gift tax return to report such a gift.

One of the easiest ways to bring your net worth down below $2,000,000 -- and be a noncovered expatriate -- is to give stuff away. U.S. citizens married to noncitizens are especially good candidates for this strategy. The situation is simple: a U.S. citizen gives $300,000 cash to a non-citizen spouse. In order to make this a winning strategy for exit tax purposes, a gift tax return will be necessary.

The IRS Scandal, Day 746

House Republicans formally asked the IRS to review whether the Clinton Foundation is complying with the rules governing its tax-exempt status. The letter was signed by Marsha Blackburn and 51 other House Republicans, and comes on the heels of a flurry of reports and speculation about the Foundation’s international fundraising. Blackburn asked the IRS to respond within 30 days.

But is the IRS going to take any action? It hardly seems likely. Besides, an IRS spokesman has already said that the IRS does not comment on individual tax cases. More broadly, there is no reason to believe that the IRS will probe much of anything. Lois Lerner ran the tax exempt organizations wing of the IRS, but she evidently focused on what she thought were bad conservative causes. The Clinton Foundation is a charity, but seems inextricably entwined with politics, State Department business personal emails, and speech-making. ...

To anyone with a thinner coating of Teflon, the subject would be embarrassing: donations by foreign governments while Mrs. Clinton was Secretary of State. Mrs. Clinton resigned from the Foundation’s board after she announced her Presidential run. But upon becoming Secretary of State, Mrs. Clinton promised that the Foundation would stop accepting donations from foreign governments. It turns out there were exceptions. It also turned out–another oops–that the Foundation’s IRS tax filings were less than transparent.

Survey Shows Rise in U.S. Expats ‘Seriously’ Mulling Renouncing Their Citizenship

	76% of respondents do not feel they should be required to file US taxes
	86% said they do not feel they are well-represented in the US government
	There was a 50% jump in US expats 'seriously considering ' renouncing their US citizenship when compared to last year
	Nearly 60% of surveyed US expats voted in the last Presidential election  http://blogs.wsj.com/expat/2015/05/07/survey-shows-rise-in-u-s-expats-seriously-mulling-renouncing-their-citizenship/

Conditional green card = green card

A "permanent resident" visa is commonly called a "green card" because that is what the piece of plastic more or less is -- green. You either hold that visa status (and have the card) or you do not.

The only variable in your status is whether you have that visa status forever, or only for a little while. Some people get permanent resident status right away. Other people get the permanent resident status but have to wait for a while to prove that they will be allowed to keep it permanently.

One of these conditional permanent resident visa situations involves marriage. When a U.S. citizen marries someone who is not a U.S. citizen (or green card holder), the spouse can receive a conditional permanent resident's visa. After two years (to be sure that the marriage is real!) the conditions are removed and the green card is permanent.

Another common conditional green card situation is the EB-5 visa. If the investment that you put money into works as the promoter promised, you convert yourself to a permanent green card holder. If not, you lose that conditional green card.

FinCEN Provides Additional E-Filing Method for FBAR Individual Filers

The Financial Crimes Enforcement Network (FinCEN) has announced that the BSA E-Filing System now provides an alternative E-Filing method for individuals filing the Report of Foreign Bank and Financial Accounts (FBAR).
Filers can now choose between the current method of filing using an Adobe PDF or use the new online form that only requires an Internet browser to file. More information is available at http://www.fincen.gov/whatsnew/pdf/20150511.pdf.

What happens to the 10% early distribution penalty on a retirement account if a covered expatriate had paid the exit tax on the account ?

• A traditional IRA that had a pretend distribution under section 877A(e).
• A 401(k) for which the covered expatriate forgot to give Form W-8CE within 30 days of expatriating. The 401(k) had a pretend distribution under section 877A(d)(2).

The traditional IRA

A traditional IRA, or an individual retirement account, is established under Internal Revenue Code Section 408(a). Distributions from a traditional IRA are taxed under Section 72. 26 U.S.C. §408(d)(1).

A covered expatriate is treated as receiving a full distribution from an IRA on the day before the expatriation date. 26 U.S.C. §877A(e)(1)(A). As the question noted, no early distribution penalty is imposed because of this deemed distribution. 26 U.S.C. §877A(e)(1)(B).

Section 877A(e)(1)(C) says that after the pretend distribution:

The mechanics of Form 8854

If you are late filing Form 8854 you will be a covered expatriate.
Someone who expatriated in 2013 would have a filing deadline for Form 8854 sometime in 2014 – the same filing deadline as applies to the final income tax return filed for 2013.
Part II applies to people who expatriated on a date between June 3, 2004 and June 17, 2008.

If the only thing you are doing in the United States is buying stocks, bonds, and holding cash than you are merely an investor but you are not engaged in a U.S. trade or business. Since you are not engaged in a U.S. trade or business, your income cannot possibly be effectively connected with a U.S. trade or business.

The upshot of finding that income is “effectively connected with the conduct of a U.S. trade or business” is that the income is taxed at the normal income tax rates (income minus allowable deductions, multiplied by the appropriate tax rate). If income is NOT “effectively connected with the conduct of a U.S. trade or business” it is taxed at a flat 30% rate, with no deductions.

In both cases, income tax treaties can alter the result. And in both cases, but people are only at risk for U.S. income taxation if the income is received from sources in the United States.

IRS Officer Busted for Identity Theft and Fraud

An Internal Revenue Service revenue officer has been indicted for committing mail and wire fraud, filing false tax returns, identity theft and perjury.
James Brewer, a 38-year-old Staten Island, N.Y., resident who works in the IRS’s Edison, N.J., office, was charged in the U.S. District Court for the Eastern District of New York in a 28-count indictment that was unsealed Thursday. The charges include seven counts of wire fraud, mail fraud, three counts of subscribing to false federal tax returns, six counts of aiding and assisting in the preparation of false federal tax returns, ten counts of aggravated identity theft, and perjury. Brewer was assigned to an IRS office in Edison, N.J. He was arrested in Las Vegas and is expected to be arraigned Friday afternoon.
According to the indictment, Brewer operated two outside businesses, contrary to IRS regulations. He prepared tax returns for others in exchange for fees, and he operated a business selling designer clothes, collectable toys, sports memorabilia, and other items on eBay.
As part of a scheme to fraudulently reduce his taxable income and increase his tax refunds, Brewer allegedly failed to report any income he received for his unauthorized tax prep business. He also underreported the gross receipts earned from his Internet retail business, and claimed false dependents on federal tax returns he prepared and filed on his own behalf for three tax years.
Brewer also allegedly engaged in a multi-year scheme in which he prepared and filed false tax returns for others. In that business, Brewer listed false dependents and false deductions to fraudulently cause his clients to receive a refund to which they were otherwise not entitled or fraudulently inflate their refunds.
In doing so, Brewer listed the names and Social Security numbers of various people on the tax returns as dependents without their authorization. As part of this scheme, Brewer also diverted a portion of those clients’ refunds to himself, in some cases without his clients’ authorization or knowledge. Finally, in an effort to fraudulently obtain for himself a tax credit for first time homebuyers, Brewer lied under oath about his residency when he testified in a matter in the U.S. Tax Court in New York, New York.
“The crimes alleged in this indictment are very serious. While employed by the IRS to enforce our nation’s tax laws, it is alleged that James Brewer was himself breaking these laws,” said Jonathan D. Larsen, special agent-in-charge of IRS-Criminal Investigation’s Newark Field Office, in a statement. “Today’s indictment underscores our commitment to work in a collaborative effort to promote honest and ethical government at all levels and to prosecute those who allegedly violate the public’s trust.”

Form 8938 update

H.S. has published an article titled "Form 8938 and Foreign Financial Assets:  A Comprehensive Analysis of the Reporting Rules after IRS Issues Final Regulations," here.  It is published in the March/April issue of the International Tax Journal.  The article (i) analyzes the new/final regulations for Form 8938, describing both the changes accepted and rejected by the IRS, (ii) divides and organizes the complicated rules into manageable portions, addresses the confusing overlap between Form 8938 and the FBAR, and (iv) incorporates guidance from multiple sources, aiming to be a “one-stop shop” for all things Form 8938.

The Senate Finance Committee just released the comments (1400 submissions) sent by the public including myself on tax reform.

As expected, there are lots of comments about CBT and FATCA.

The actual number of files was slightly different, 449 for individual and 316 for international (plus 5 broken links in international).  I used an Adobe tool to search all PDF files in a folder and count the number of files that contained the keywords citizenship, FATCA or FBAR.
Results:
Individual 172/449 = 38%
International 175/316 = 55%
Those are impressive percentages I’d say and beneath them lie many persuasive testimonies with thoughtful suggestions for reform. I think that having more than 50% of the submissions ought raise awareness. At Ways and Means, they pretty much ignored an overwhelming quantity of submissions. It will take them a much greater effort to ignore these which surpass the 50% mark.

http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-7d191971b7ee

In Search of FBAR Fullfilment and Consciousness

When history is written, 2011 will be remembered as the “year of the FBAR.”
So far court  decisions have only confirmed the plain wording of the FBAR statute which says that no FBAR penalty will be imposed if there is "reasonable cause" and the balance in the offending account was properly reported. We are still left with the "fact specific interpretation" of what constitutes precisely "reasonable cause".
What is deemed wilful has very nicely been documented in released FOIA docs:
https://www.bragertaxlaw.com/previously-unreleased-irs-guidelines-for-fbar-audits.html
It Begins in the 1970s:
The historical roots of the FBAR may be found in the Bank Secrecy Act which was enacted in 1970. Here is what it says:

“1970    CONGRESS ENACTS THE BANK SECRECY ACT (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) which requires American financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments and file reports of cash purchases of these negotiable instruments of $3,000 or more (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. (Bank Secrecy Act of 1970).”

THE BSA REGULATIONS NOW REQUIRE ALL FINANCIAL INSTITUTIONS to submit five types of reports to the government including:
FBAR: Department of the Treasury Form 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR): Each person (including a bank) subject to the jurisdiction of the United States having an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $5,000. (31 CFR 103.24)
The FBAR Has Been Asleep For A Long Time - But FBAR Consciousness Has Been Renewed and Is Moving Closer To Many Borders.

Why would you choose to be an American taxpayer without getting any of the benefits of citizenship or residence?

The situation, in a nutshell: you and your spouse are both U.S. citizens. You renounce your citizenship, but your spouse remains a U.S. citizen. You can elect (discussion below) to be treated as a U.S. taxpayer, even though you are no longer a U.S. citizen and are not living in the United States.
What the election does :
If you elect to be a U.S. taxpayer, the result is that you treated like a resident for income tax purposes, and for withholding on wages paid to you:
A nonresident alien individual with respect to whom this subsection is in effect for the taxable year shall be treated as a resident of the United States—
(A) for purposes of chapter 1 for all of such taxable year, and (B) for purposes of chapter 24 (relating to wage withholding) for payments of wages made during such taxable year.

FATCA Security Risks with Sensitive Data

The Foreign Account Tax Compliance Act, commonly called “FATCA” has caused Americans abroad to be fearful of security risks when their personal financial information is reported by non-US financial institutions or foreign government agencies to the IRS. FATCA reporting will include the name, address and taxpayer identification number of each US account holder at the financial institution; the account number; account balance and value; the account’s gross receipts and gross withdrawals or payments; and other account related information requested by the Internal Revenue Service (IRS). The Treasury Inspector General for Tax Administration has expressed concerns with the security of data transmission as mandated by FATCA.  In September of 2014 the IRS issued a fraud alert to all international financial institutions that are complying with FATCA. Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identities as well as financial account information.  Financial institutions directly registered to comply with FATCA, and those in jurisdictions that are treated as having an IGA in effect to implement the FATCA provisions through their home governments, have already been approached by parties impersonating themselves as the IRS. The IRS now has reports of incidents from various countries and continents.

An Emotional Audit: IRS Workers Are Miserable and Overwhelmed

Businessweek thinks the IRS sucks.  The reasons are largely outlined by the John Oliver video above.  I’m sure this has generated a lot of scoffs, but I honestly do try to keep this in mind as I sit on hold for 90 minutes.  Maybe it helps me from being a complete jerk to the person who eventually picks up.  Solid chance that person’s day is worse than mine. How much longer before this all implodes? Is that the goal?  Might work.

Combining FBAR and 8938 is a step toward simplification of the onerous reporting required of US persons living overseas.

https://americansabroad.org/files/5914/2913/2714/tax-advocate-recommendations-13-april-2015.pdf
One set of nonfiling/inaccuraty penalties would be eliminated and that is a good step.
TAS did not go far enough to reduce the questionable and maybe even unconstitutional FBAR fines. Accounts in those countries are not foreign and should not be treated by such with "foreign account" penalties.
While one may hope that relieving FFI of their reporting obligations for bona fide tax residents, will be a relief for US persons living overseas - the notion is hypothetical. All FFI under FATCA  must vet through their account lists and hunt down US persons among existing accounts, for any new accounts, and this still must be done if the US persons are bona fide tax residents or not. So will this be any help? It will add an extra layer of bureaucracy and questions imposed on the banks at their expense to ask the extra questions.
There is no mention of the foreign nationals in the US getting their accounts shut in their home countries as a result of FATCA regulations.
Also, no mention of US persons with a "foreign address" getting financial accounts closed or services limited on US based accounts. This is still Unamerican!
Clearly with FATCA,FBAR, and Citizenship Based Taxation the US has treated overseas US persons with an expectation that they are to serve the US government, instead of the US government having the prime responsibility to serve them.
Double taxation, without representation, with excessive compliance, and with excessive compliance penalties, and with $0 in US government services in exchange is still wrong and unjust.

Income tax return that must be filed in the year of expatriation:

When a US person expatriates and becomes an alien , there is a dual status year. If the event happened in October, and X was a US person for >183 days in the year X expatriates, does he need to file a Form 8840 for the part of the year that he was an alien?

Will Filing an Amended Tax Return Extend the Statute of Limitations?

Many people fear that filing an amended tax return will cause the statute of limitations to be extended. In general, the filing of an amended tax return does not extend the statute of limitations on assessment.  If an amended return is received by the IRS within 60 days from when the assessment statute expiration date would otherwise expire, then the IRS is granted a period of 60 days from the received date to assess additional amounts of tax on that return. See IRC Section 6501(c)(7). For example, if an amended income tax return for the 2011 tax year was received on April 3, 2015, the IRS would have 60 days from April 3 to assess any additional tax due on that income tax return.


To claim a refund, Form 1040X must be filed generally no later than the date that is 3 years after the date the original return was filed or within 2 years after the date the tax was paid (whichever is later). Returns filed before the due date (without regard to extensions) are considered to be filed on the due date.

You can check the status of your Form 1040X (PDF) using the Where’s My Amended Return? (WMAR) online tool or the toll-free telephone number 866-464-2050 three weeks after you file your amended return. The WMAR tool allows you to track the status of amended returns for the current year and up to three prior years.
More information from the IRS on the topic of amending tax returns can be found here.

Nina Olson testifies before House Committee on Annual Report to Congress, April 15, 2015

Yesterday the  National Taxpayer Advocate Nina Olson testified before the House Committee on Oversight and Government Reform about her 2014 Annual Report to Congress.

She discussed this year’s tax filing season and the key points of the report, including the IRS’s failure to meet taxpayers’ need for service, which she said erodes taxpayer trust in the system and undermines voluntary compliance.

Watch the full testimony: House Committee on Oversight and Government Reform: The Taxpayer Advocate’s Annual Report.

Read the full text of the testimony.

Tax Heavyweight Says Congress Should End Puerto Rico Tax Incentive

Over the last year or so, the scheme that I’ve said “no” to more than anything else involves Puerto Rico. Back in 2012, Puerto Rico—a US territory—enacted tax incentives designed to entice hedge fund managers and other wealthy immigrants into relocating there from the mainland US.

The specific law I criticized is Act 22. Anyone who becomes a bona fide resident of Puerto Rico is now eligible for the following benefits, courtesy of Act 22:

• 100% tax exemption from Puerto Rico income taxes on all Puerto Rico source dividends and interest payments.
  
• 100% tax exemption from Puerto Rico income taxes on all short- and long-term capital gains accrued since becoming resident in the territory.
  

By itself, this exemption isn’t particularly noteworthy. But the US Tax Code provides that bona fide residents of the territory need not pay federal income tax on “income derived from sources within Puerto Rico.” 

Taxpayer Advocate Request Easing Foreign Reporting Requirements For US Taxpayers Abroad

The National Taxpayer Advocate suggested to the Internal Revenue Service to reduce the duplicate foreign asset reporting requirements created by the Foreign Account Tax Compliance Act. The Taxpayer Advocate Service (TAS) is your voice at the IRS. Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights.
April 13, 2015 the National Taxpayer Advocate stated in Recommendations for Published Guidance under IRC §§ 60380 and 1471: Eliminate Duplicative Reporting of Assets on the FATCA Form 8938 if the Asset is Reported or Reflected on the FBAR (FinCEN Report 114) and Exclude Financial Accounts Maintained by a Financial Institution in the Country of  Which the U.S. Person is a Bona Fide Resident from FATCA Reporting:

1. That taxpayers shouldn’t have to report assets on the Form 8938, Statement of Specified Foreign Financial Assets, if those assets are already reported or reflected on a Financial Crimes Enforcement Network Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

2. The IRS should amend the FATCA regulations to ease reporting for banks in countries where U.S. account holders are bona fide residents.

• Those banks shouldn’t be required to report those accounts under FATCA if the institutions are organized under the laws of that country.

• Those accounts also shouldn’t be among the specified foreign financial assets required to be reported on the Form 8938.

The UK is phasing out tax returns over the next 5 years. Here’s how to do the same in United States.

Let’s start with a dream: what if all you need to do on April 15 is open a pre-filled return online, see what the government thinks you owe, make any changes, and be done. No more charges from your accountant. No paying for software you don’t need. For most of us, taxes would be a breeze.

This is a happening in the UK.

Britain’s Chancellor of the Exchequer announced last month that the UK will phase out all annual tax returns within 5 years. That includes personal, small business, and large corporations. They’ll achieve this by automating the tax system - tying data from employers, banks, investment firms, and anyone else required to report, to a personal tax account.

LOL.....7 Tips For Dealing With A Cash-Strapped IRS

https://www.law360.com/tax/articles/641758/7-tips-for-dealing-with-a-cash-strapped-irs

With the IRS operating under constrained resources, tax practitioners are dealing with drawn-out audits, more correspondence exams and less-experienced agents. Here, experts provide seven tips for reducing the stress of working with a cash-strapped IRS.

Educate the Auditor

IRS Commissioner John Koskinen on Wednesday warned again about the “brain drain” at the agency. With a hiring freeze in place and the service losing employees to attrition, agents with decades of experience and specialized expertise are leaving the agency, and less-knowledgeable employees are taking their places....

Obama and Biden Release Their 2014 Tax Returns

President Obama and Vice-President Biden yesterday released their 2014 tax returns. Here are charts putting the 2014 returns in context with their earlier returns:

Obama:

Year	AGI	Tax	Charitable Gifts	Gifts/AGI
2014	$477,383	$93,362	$70,712	14.8%
2013	$481,098	$98,169	$59,251	12.3%
2012	$608,611	$112,214	$150,034	24.7%
2011	$789,674	$162,074	$172,130	21.8%
2010	$1,728,096	$453,770	$245,075	14.2%
2009	$5,505,409	$1,792,414	$329,100	6.0%
2008	$2,656,902	$855,323	$172,050	6.5%
2007	$4,139,965	$1,396,772	$240,370	5.8%
2006	$983,826	$277,481	$60,307	6.1%
2005	$1,655,106	$545,614	$77,315	4.7%
2004	$207,647	$40,426	$2,500	1.2%
2003	$238,327	$51,856	$3,400	1.4%
2002	$259,394	$68,958	$1,050	0.4%
2001	$272,759	$86,072	$1,470	0.5%
2000	$240,505	$63,732	$2,350	1.0%

Biden:

Year	AGI	Tax	Charitable Gifts	Gifts/AGI
2013	$388,844	$90,506	$7,380	1.90%
2013	$407,009	$96,378	$20,523	5.00%
2012	$385,072	$87,851	$7,190	1.90%
2011	$379,035	$87,900	$5,540	1.46%
2010	$379,178	$86,626	$5,350	1.41%
2009	$333,182	$71,147	$4,820	1.45%
2008	$269,256	$47,464	$1,885	0.70%
2007	$319,853	$66,273	$995	0.31%
2006	$248,859	$42,832	$380	0.15%
2005	$321,379	$70,473	$380	0.12%
2004	$234,271	$41,845	$380	0.16%
2003	$231,375	$38,393	$260	0.11%
2002	$227,811	$41,756	$260	0.11%
2001	$220,712	$40,728	$360	0.16%
2000	$219,953	$42,313	$360	0.16%
1999	$210,797	$40,309	$120	0.06%
1998	$215,432	$35,131	$195	0.09%

The IRS Scandal, Day 702

The Blaze, ‘America Is Fed Up’: GOP Schedules Votes on Major IRS Reforms Next Week:

The House next week is expected to pass several bills aimed at reforming the IRS, in

particular the way the IRS handles applications for groups seeking tax-exempt status.

That issue has been highly controversial since it was revealed that the IRS applied extra scrutiny to conservative groups seeking tax-exempt status just before the 2012 election. The resulting scandal forced former IRS official Lois Lerner to leave the agency, although Lerner has so far dodged any punishment for her role.

For example, the Justice Department just said it won’t prosecute Lerner for her decision not to testify before Congress about her actions in the targeting scandal.

GOP leaders say the IRS needs real reform, and quickly, to ensure it doesn’t become a political weapon for whichever party runs the executive branch.

“The IRS has maliciously targeted individuals and groups simply because of their personal beliefs,” House Majority Leader Kevin McCarthy (R-Calif.) told his colleagues on Thursday. “The current system is unfair and America is fed up.”

Three of the bills up next week deal with the targeting scandal. One of these, from Rep. George Holding (R-N.C.), would try to to ensure the IRS can no longer play politics with tax exempt applications by allowing groups to declare tax-exempt status on their own, without having to wait for the IRS.

Another from Rep. Jim Renacci (R-Ohio) calls for the firing of any IRS worker that delays their tasks for political reasons, such as slow-walking the tax-exempt status of a political group. And the third, from Rep. Pat Meehan (R-Pa.), would require the Treasury Department to issue regulations allowing groups to appeal decisions by the IRS not to grant them tax-exempt status.

The bills are being considered long after the targeting scandal broke, which shows a lingering resentment among conservatives, and a feeling that reforms are still needed at the tax collection agency. Just last month, some Republicans accused the IRS of quietly working to undo some of the reforms Congress has tried to impose on it, by putting forward a budget plan that doesn’t include language related to ending the political targeting of tax-exempt groups.

IRS Ethics Lawyer Disbarred

Not all attorney disbarments make news. But when the attorney being disbarred was an employee at the IRS who dealt with ethical issues, it becomes noteworthy.
The District of Columbia Court of Appeals last week accepted the recommendation of the Board of Professional Responsibility that Takisha Brown be disbarred. It found that Brown had intentionally misappropriated funds and made false statements with reckless disregard for the truth.
According to the Board, Brown misappropriated amounts from a settlement of an auto accident case that she handled in private practice, and misrepresented that she had paid a bill when in fact the bill had not been paid. The Hearing Committee noted that disbarment is the presumptive sanction for lawyers who intentionally misappropriate client funds, unless extraordinary circumstances justify a less severe sanction. The Court of Appeals upheld the Board’s conclusion that Brown failed to demonstrate extraordinary circumstances warranting a departure from the presumptive sanction of disbarment.

FBAR audit success story ????

After I read this blog post yesterday about a so called ``FBAR audit success story`` from a well-known FBAR ambulance chaser law firm I was thinking ......yes even 4/2015 these things happen. Where is Caroline C. Ciraolo when you need her !? I know it is a free market and buyers be aware.
http://www.irsmedic.com/2015/0...
The story does not make much sense and seems kind of invented or altered for promotion purposes because German income taxes are much higher than US income taxes. Reginald has the FEIE and FTC plus annual carry-overs. Reginald never had an income tax liability to the US.
He committed a “Form Crime“ by not filing 1040s, 8938 etc. and FBARs.
No big deal – typically the Service does not assess FBAR penalties when there is no tax due and Reginald has on top of everything else strong RC arguments. Another easy target and $25,000 income for IRSmedic.

How to tell the IRS that a TP was leaving the USA and is now a former U.S. taxpayer?

Are you familiar with the residency termination rule in the Regulations under section 7701(b) that states that unless one attaches a residency termination statement to the income tax return, the default residency termination date is December 31st of the year one leaves the US?

The tax rules for the final year of U.S. residency require that the individual attach a statement giving the IRS all of the details needed to establish a residency termination date. This is a residency termination statement.

There is a an FBAR nonwillfull penalty opinion entered April 1, 2015 by the US District Court for the Western District of Washington.

Taxpayers should not be forced to sue in federal court to get an explanation as to the agency’s rationale or the evidence it considered in making its decision.  In addition the District Court implies incorrect FBAR triggers !
The court seemed to muff up the FBAR reporting requirement threshold and then didn’t even acknowledge it later on: pg. 1, sec. II, “Essentially any person residing in the Unites States with foreign accounts totaling more than $550,000 [is required to file an FBAR].”
In legal terms, the proper follow up question is “WTF?” I can’t figure out where Judge Jones got this $550,000 figure or, if he decided that the filing threshold was $550,000, why he wouldn’t be compelled to rule that Mr. Moore did not have an FBAR filing obligation and, thus, deserved no penalties. So isn’t it fair to ask, that if a federal district court, presided over by a judge that must be fairly smart, and obviously well-rounded, after being briefed on this issue and having a staff of highly motivated legal clerks to assist him, can’t recite the actual FBAR reporting requirement correctly, what does this say about the burden placed on regular taxpayers?
I cannot get over this questionable revolving door career move from Caroline D. Ciraolo. Up to december of 2014 she played a big part in defending exactly these type of NW cases like the one here evolving Mr. Moore and just 2 month later I see her signature under this motion trying to nail exactly one of those NW TP she was so adamant in defending before.
Moore v. United States, 2015 U.S. Dist. LEXIS 43979 (W.D. WA 2015).  The opinion on summary judgment opinion is here.  The briefs  on the motion (excluding exhibits) are:

• US motion for summary judgment, here; 
• Moore's Response to the US Motion, here; and 
• the US Reply to Moore's Response, here.  

The docket entries as of 4/3/15 are here.
http://www.procedurallytaxing.com/district-court-fbar-penalty-opinion-raises-important-administrative-and-constitutional-law-issues/#respond

The cynical and embarrassing part of this case is that we learn that the US District Court for the Western District of Washington is only interested in procedural issues and that there is no binding law to guide the court when it comes to RC in the FBAR context or the standard of review issue .
What standard applied to the IRS’s determination on the FBAR penalty?
The court accepted the government’s position that it “should determine de novo whether Mr. Moore is subject to an FBAR penalty, but should review the IRS’s determination of the amount of that penalty only for abuse of discretion.”
Mr. Moore`s case thus opens the door to DOJ in the future to test the waters on perhaps getting a more deferential abuse of discretion standard of review on the question of liability.

You've never seen IRS penalties like these.............

http://money.cnn.com/2015/04/01/pf/taxes/irs-penalties/index.html?source=yahoo_hosted

Was it an April Fool's joke?  Only a homeland American could ask that.  US citizens abroad knew right away that it was dead serious.

FATCA: Swatting Flies With Atom Bombs:

Possible inflation of the offshore tax evasion problem and the staggering costs of the Foreign Account Tax Compliance Act are causing even the most ardent advocates of information sharing and ending bank secrecy to question the U.S. approach.
“For the U.S. to ask countries around the world to spend billions in implementation costs to deliver less than $1 billion per year is, economically, complete nonsense,” said Martin Naville, CEO of the Swiss-American Chamber of Commerce. He referred to FATCA as the least considered program in history and “mind boggling” in its unilateralism. “The net value of FATCA for the U.S. is probably negative,” said Naville, who added that tax compliance is a must but that there are better ways to achieve it.

But it goes after Fat Cats! Don’t you get our clever pun? And besides, how can we go after international money launderers without making it a crime to commit personal finance abroad?
Related: Wall Street Journal, Checking the IRS Overseas (Via the TaxProf). “Even the Obama Administration says the law would capture only $870 million a year in additional tax revenue, which is probably overstated given changes in behavior by Americans and their overseas employers.”