Federal Tax and Form Crimes
For the most effective use of this blog and the links, readers must have the background and skills to test the information by further research and analysis before reaching any conclusion as to its usefulness and correctness in actual situations. Legal advice is always individual, considering the unique facts and circumstances of each client and shaping legal advice and strategies for the particular client. That simply cannot happen on this blog.
Monday, September 14, 2015
IRS Proposes Rules on Gifts and Inheritances from Expats
The proposed rules stem from the Heroes Earnings Assistance and Relief Tax Act of 2008, or “HEART Act,” which applied to certain individuals who terminate their U.S. citizenship or permanent residents who surrender their green cards on or after June 17, 2008.
The HEART Act introduced two new sections to the Tax Code, 877A and 2801. Section 877A imposed an exit tax on such individuals, and the Treasury and the IRS released guidance in 2009 for Section 877A. However, the Treasury and the IRS have not issued guidance for Section 2801 until now.
The key component of Section 2801 is that U.S. taxpayers who receive gifts and inheritances from people who previously expatriated are subject to gift and/or estate taxes on the receipt of such gift or bequest.
The number of people giving up their U.S. citizenship has accelerated in recent years, in part due to later legislation such as the Foreign Account Tax Compliance Act, or FATCA, which was passed in 2010 as part of the Hiring Incentives to Restore Employment Act, also known as the “HIRE Act.” Last year, 3,415 Americans renounced their citizenship (see Americans Living Abroad Set Record for Giving Up Citizenship). There have been calls in Congress from Sen. Rand Paul, R-Ken., and others to repeal FATCA. But taxes aren’t the only reason why Americans move abroad.
Under the estate and gift tax rules, a foreign person can make a gift to somebody in the U.S., and there is no gift tax as long as it’s not a U.S.-sited asset.
Sunday, August 16, 2015
Thursday, August 13, 2015
lol....US Department of Justice blames Americans abroad for their own FATCA injuries
The US Department of Justice has issued a 57-page response to the filing of a Motion for a Preliminary Injunction by the James Bopp FATCA repeal legal team. The report begins as follows:
Plaintiffs seek an extraordinary order that would halt enforcement of several duly enacted statutory provisions, along with associated regulations and implementing international agreements, aimed at curbing offshore tax evasion. The challenged laws are essential to tax enforcement, and the injuries that plaintiffs allege they have suffered as a result of such laws are self-inflicted, speculative, or even illusory. Plaintiffs’ claims for relief fail for lack of Article III standing, are jurisdictionally barred by the Anti-Injunction Act, and are meritless as a matter of well-established constitutional law. The preliminary injunction should be denied because plaintiffs have no likelihood of success on the merits and have no irreparable injury—certainly none to outweigh the great harm that the Government, and public interest in general, would suffer if enforcement of these laws were enjoined.
Republicans Overseas and others are reacting strongly to DOJ's victim blaming tactics. Here are links to the original story at Republicans Overseas and to John Richardson's comments at ADCS.
Here, again, is the complete DOJ document: DEFENDANT'S MEMORANDUM IN OPPOSITION TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
It
is obvious that victim blaming is, and will continue to be, a central
tactic of this Administration, as it is finally put on the defensive and
forced to justify its outrageously discriminatory and immoral FATCA
campaign. Now is a good time to remind ourselves of the essential
characteristics and dynamics of victim blaming, which easily scale from
the most primal one-on-one bullying to the targeting and systematic
abuse of specific groups by the state. Here are a couple of good
references to start with:
Wednesday, August 12, 2015
Green cards and treaty elections
If
you have a green card and live abroad (in a country that has an income
tax treaty with the United States) you can choose to be taxed as a
nonresident of the United States. As you might guess, this has some
unpleasant trickiness when it comes to the exit tax.
I
offer here an interesting thought exercise: how a patient and
methodical green card holder might avoid the exit tax, even if he/she is
wealthy enough to otherwise trigger covered expatriate status.
Basic tax rule for green card holders
If you have a green card visa, you are a "resident alien" for income tax purposes. The consequences are simple:
- Render the IRS full income tax on your worldwide income, no matter where you live; and
- Submit all of the tax paperwork demanded by the U.S. government.
Becoming nonresident
Every
income tax treaty gives a green card holder (but not a U.S. citizen)
living abroad the power to choose to be taxed as a nonresident of the
United States. If you wield this power:
- You will be taxed only on your income from U.S. sources, and income earned outside the United States will not be taxed by the United States; and
- Your U.S. tax paperwork burden will be only marginally lighter.
You
cause yourself to be a nonresident of the United States for income tax
purposes by filing Form 1040NR and attaching Form 8833 to it.
some guidance with regards to OVDP or SFCP
The choice of program should be guided
by the facts and circumstances. It is a function of the source of your
offshore funds, the nature of the failure of your disclosure and whether
your behavior was willful or nonwillful.
Questions to ask include:
• Did I have a purpose of avoiding or evading U.S. tax?
• Could my actions appear that I had a purpose of avoiding or evading tax? For example, bringing funds into or out of the U.S., using cash or “mules” rather than checks or wires, or moving assets between institutions, might give that appearance to the IRS.
• What is the size of the accounts?
• What is the amount of foreign assets?
• What is the source of the funds? Were they ever reported when they were first earned?
• Are the funds licit or illicit funds to begin with?
• Were the funds earned from foreign or domestic sources?
• Were the taxpayers living abroad when the accounts were set up? When the accounts were funded?
• What was the amount of earnings from the foreign accounts?
• Were FBARs filed for some accounts but not others?
• Did I provide false information to my tax return preparer?
• Am I in law enforcement, politics or a professional?
• What is the risk tolerance for the taxpayers?
• Will the spouses have different answers to these questions (perhaps separate counsel may be needed)?
Once you elect a program, the other is no longer available as a fallback.
Questions to ask include:
• Did I have a purpose of avoiding or evading U.S. tax?
• Could my actions appear that I had a purpose of avoiding or evading tax? For example, bringing funds into or out of the U.S., using cash or “mules” rather than checks or wires, or moving assets between institutions, might give that appearance to the IRS.
• What is the size of the accounts?
• What is the amount of foreign assets?
• What is the source of the funds? Were they ever reported when they were first earned?
• Are the funds licit or illicit funds to begin with?
• Were the funds earned from foreign or domestic sources?
• Were the taxpayers living abroad when the accounts were set up? When the accounts were funded?
• What was the amount of earnings from the foreign accounts?
• Were FBARs filed for some accounts but not others?
• Did I provide false information to my tax return preparer?
• Am I in law enforcement, politics or a professional?
• What is the risk tolerance for the taxpayers?
• Will the spouses have different answers to these questions (perhaps separate counsel may be needed)?
Once you elect a program, the other is no longer available as a fallback.
Tuesday, August 4, 2015
Case : Form 8854 was not filed when green card abandoned
Case : A long-term resident returned to CH in 2013 and filed Form I-407 to abandon her green card.She was not a covered expatriate because of the balance sheet test or the net tax liability test. However, she could not answer the certification test question (Form 8854, Part IV, Line 6) with "yes" because her 2012 tax return was wrong.Her income tax return filing history is:
Her 2012 income tax return (as a resident) was filed but omitted some income. She was a green card holder for the full calendar year of 2012. She did not abandon her green card until 2013. She filed a tax return for 2013. (I do not know whether she filed as a resident or nonresident). She did not file Form 8854 with the tax return She filed Form 1040 (a resident's tax return) for the full year of 2014, with no Form 8854.Now, in 2015, she will amend her 2012 income tax returns to fix the problem. Then she will file her Form 8854 in 2015.
What to do?
The
question facing the taxpayer is how should Form 8854 be answered? What
is the taxpayer's expatriation date (see Part I of Form 8854) --
sometime in 2013 or sometime in 2015?
There is a related problem: do you file Form 8854 with the 2015 tax return or the 2013 tax return?
Friday, July 31, 2015
Foreign Bank Account Report (FBAR) Filing Date Extended by HR 3236
Today, July 31, 2015, President Barack Obama signed into a law HR 3236 a highway funding bill. Buried in the Bill is a provision which changes the filing date for Foreign Bank Account Reports (FBARs) to April 15th. Up until now the due date for the FBAR, which must be filed electronically on FinCEN Form 114 (formerly TD F 90-22.1) was June 30th. The Bill also provides for an extension of time of up to 6 months to file the FBAR, making the extended due date October 15th. This reconciles the due date for the FBAR with the individual tax return filing date. Before now many taxpayers were tripped up by the differences in the filing dates. Because many taxpayers go on extension for their tax returns, and don't have extensive discussions with their CPAs, or other tax preparers until shortly before the extended deadline of October 15th, there were many instances of individuals not realizing they had a filing responsibility until after the June 30th deadline. Those taxpayers were usually stunned to find out that the extension of the filing date for their tax return did not extend the time to file their FBARs. This was a common sense fix to an unnecessary problem.
The Bill also authorizes a first time abate (FTA) procedure of sorts. Specifically the Bill states: "[f]or any taxpayer required to file such [FBAR] Form for the first time any penalty for failure to timely request for, or file, an extension may be waived by the Secretary." This appears to provide authority to abate an FBAR penalty if the FBAR is filed after April 15th, but before October 15th, if this is the first time the FBAR was due. The language doesn't really add anything to the law since the IRS already has wide latitude to waive FBAR filing penalties. These provisions become effective next year so the FBAR filing due date for 2015 will be April 15, 2016.
Finally, the Bill overturns the Supreme Court's decision in Home Concrete (Home Concrete & Supply LLC, 132 S. Ct. 1836 (2012)). That case dealt with the 6 year statute of limitations under Internal Revenue Code Section 6501(e)1)(1)(A) which provides for the longer statute of limitations where there is an omission from gross income in excess of 25%. The Supreme Court held that this rule did not apply in the case of basis overstatements. The Bill specifically amends Code Section 6501(e)(1) to provide that an omission from gross income includes an overstatement of basis. This is part of a disturbing trend by Congress to continue to increase time the IRS has to assess additional taxes.
The Bill also authorizes a first time abate (FTA) procedure of sorts. Specifically the Bill states: "[f]or any taxpayer required to file such [FBAR] Form for the first time any penalty for failure to timely request for, or file, an extension may be waived by the Secretary." This appears to provide authority to abate an FBAR penalty if the FBAR is filed after April 15th, but before October 15th, if this is the first time the FBAR was due. The language doesn't really add anything to the law since the IRS already has wide latitude to waive FBAR filing penalties. These provisions become effective next year so the FBAR filing due date for 2015 will be April 15, 2016.
Finally, the Bill overturns the Supreme Court's decision in Home Concrete (Home Concrete & Supply LLC, 132 S. Ct. 1836 (2012)). That case dealt with the 6 year statute of limitations under Internal Revenue Code Section 6501(e)1)(1)(A) which provides for the longer statute of limitations where there is an omission from gross income in excess of 25%. The Supreme Court held that this rule did not apply in the case of basis overstatements. The Bill specifically amends Code Section 6501(e)(1) to provide that an omission from gross income includes an overstatement of basis. This is part of a disturbing trend by Congress to continue to increase time the IRS has to assess additional taxes.
Moore v US / Western District of Washington Punishes IRS for Failing to Justify or Explain Itself in FBAR Case
In Moore v US judges hold up IRS misconduct to the bright and sanitizing light of judicial review.
One benefit that hopefully comes from decisions like Moore is that in addition to its impact on the party to the litigation, one hopes that the scathing court review has some impact on how the IRS goes about its business of administering the FBAR penalty regime.
The case is an important case for lots of reasons, including how it emphasizes that the IRS has a legal obligation to explain the underlying reasons for its actions when it proposes and assesses FBAR penalties. Taxpayers, even those who may have stashed cash overseas, have fundamental rights that the IRS should respect. If the IRS fails to respect those rights, cases like Moore provide an important precedent for checking what may be systemic abuses of power but which at a minimum raise troubling fairness concerns for the affected party.
As the IRS gets knee deep in determinations that move away from its traditional deficiency cases, especially when the review is on an abuse of discretion basis, courts are starting to take a more careful look at agency practices. A good example of this is in the FBAR area, where IRS administers the potentially draconian Title 31 penalty regime (See IRM 4.26.16.4.1 (07-01-2008) (discussing the delegation to IRS and how the Code does not apply to the FBAR regime). IRS adopted a Taxpayer Bill of Rights and it stands to remind IRS employees alike of the importance of informing taxpayers.
Absent a remedy in court, however, sometimes those rights are illusory (or require parties to sue or pursue FOIA to find out what the IRS has done).
One benefit that hopefully comes from decisions like Moore is that in addition to its impact on the party to the litigation, one hopes that the scathing court review has some impact on how the IRS goes about its business of administering the FBAR penalty regime.
The case is an important case for lots of reasons, including how it emphasizes that the IRS has a legal obligation to explain the underlying reasons for its actions when it proposes and assesses FBAR penalties. Taxpayers, even those who may have stashed cash overseas, have fundamental rights that the IRS should respect. If the IRS fails to respect those rights, cases like Moore provide an important precedent for checking what may be systemic abuses of power but which at a minimum raise troubling fairness concerns for the affected party.
As the IRS gets knee deep in determinations that move away from its traditional deficiency cases, especially when the review is on an abuse of discretion basis, courts are starting to take a more careful look at agency practices. A good example of this is in the FBAR area, where IRS administers the potentially draconian Title 31 penalty regime (See IRM 4.26.16.4.1 (07-01-2008) (discussing the delegation to IRS and how the Code does not apply to the FBAR regime). IRS adopted a Taxpayer Bill of Rights and it stands to remind IRS employees alike of the importance of informing taxpayers.
Absent a remedy in court, however, sometimes those rights are illusory (or require parties to sue or pursue FOIA to find out what the IRS has done).
In the first Moore opinion, the judge was troubled by the IRS’s failing to explain why it penalized Moore:
The court can only guess, however, as to whether the IRS considered relevant factors or made a clear error of judgment. The record before the court contains no administrative explanation of the IRS's decision to impose penalties.
Moreover, the court was deeply troubled that one of its agents promised Moore that it would not assess the penalty pending an appeal of a proposed assessment but then the IRS assessed Moore anyway:
The Government may also choose to supplement the record to provide contemporaneous explanation of its decision to assess the 2005 penalty without providing the "appeal" it promised Mr. Moore. On the record before the court, that decision is baffling. The only reason the Government offered, its concern that the statute of limitations would expire, is nonsensical on the record before the court.
Wednesday, July 29, 2015
Determining “Reasonable Cause” for Non-Willful FBAR Violations
For violations involving the non-willful failure to report
the existence of a reportable interest in a foreign financial account,
the maximum amount of the FBAR penalty that may be assessed under Title
31, Section 5321(a)(5)(B) shall not exceed $10,000, per year, for up to six calendar years. However, no penalty shall be imposed if such non-willful violation was due to reasonable cause and
the amount of the transaction or the balance in the account at the time
of the transaction was properly reported [see 31 U.S.C. §
5321(a)(5)(B)(ii)]. The reasonable cause exception does not apply to
willful FBAR violations. [see 31 U.S.C. § 5321(a)(5)(C)(ii)].
Tuesday, July 28, 2015
UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules
Billionaire offshore tax cheat Igor Olenicoff has won a big
one in his long running court battle with his former Swiss bank, UBS AG,
and his former UBS banker turned whistleblower, Bradley Birkenfeld.
In a ruling from the bench Thursday, Orange County Superior Court Judge Kim G. Dunning shot down a malicious prosecution suit UBS and Birkenfeld had brought against real estate developer Olenicoff, Olen Properties, and an Olen lawyer, on the grounds that they themselves are too dirty to sue. The big bank and Birkenfeld both sued Olenicoff in state court in 2012 after he lost a federal court suit claiming they had duped him into breaking the tax law and then secretly ratted him out to U.S. authorities, while also mismanaging the $200 million plus he had hidden offshore.
In a ruling from the bench Thursday, Orange County Superior Court Judge Kim G. Dunning shot down a malicious prosecution suit UBS and Birkenfeld had brought against real estate developer Olenicoff, Olen Properties, and an Olen lawyer, on the grounds that they themselves are too dirty to sue. The big bank and Birkenfeld both sued Olenicoff in state court in 2012 after he lost a federal court suit claiming they had duped him into breaking the tax law and then secretly ratted him out to U.S. authorities, while also mismanaging the $200 million plus he had hidden offshore.
Monday, July 27, 2015
green card holder case study
My original question / case
——————————-
* 5+ year green card holder, EU citizen
* Looking to potentially get US citizenship
* No FBARs filed (ever) (at the time of asking the question at least, which was June 2015)
* Aggregate foreign balances of $30-$100k in the last 6 years, not reported anywhere
* Total capital gain + income from accounts less than $1000 per year (and in most cases, as little as $200 per year), but never reported on US tax returns
* Everything fully taxed in home country, and no taxes owed in the US even if it had been properly reported here
* Had contacted 3 lawyers about how to come into compliance, and gotten three different responses
– Lawyer 1: Go with Streamlined Domestic
– Lawyer 2: Follow the Delinquent FBAR procedures since there are no taxes owed
– Lawyer 3: Amend 3 tax-returns, and back-file 6 FBARs.
——————————-
* 5+ year green card holder, EU citizen
* Looking to potentially get US citizenship
* No FBARs filed (ever) (at the time of asking the question at least, which was June 2015)
* Aggregate foreign balances of $30-$100k in the last 6 years, not reported anywhere
* Total capital gain + income from accounts less than $1000 per year (and in most cases, as little as $200 per year), but never reported on US tax returns
* Everything fully taxed in home country, and no taxes owed in the US even if it had been properly reported here
* Had contacted 3 lawyers about how to come into compliance, and gotten three different responses
– Lawyer 1: Go with Streamlined Domestic
– Lawyer 2: Follow the Delinquent FBAR procedures since there are no taxes owed
– Lawyer 3: Amend 3 tax-returns, and back-file 6 FBARs.
Some of the advice I received :
—————————-
a) * Lawyer 2 has best answer…
* Streamlined just opens a can of worms, don’t do it
* Amending tax returns is a red flag
b) * Simply file FBARs going forward
* Do nothing else
* Use the “I didn’t know” option when filing FBARs
* Don’t attach any written statements (someone has to read them -> red flag)
a) * Lawyer 2 has best answer…
* Streamlined just opens a can of worms, don’t do it
* Amending tax returns is a red flag
b) * Simply file FBARs going forward
* Do nothing else
* Use the “I didn’t know” option when filing FBARs
* Don’t attach any written statements (someone has to read them -> red flag)
Some responses from the Expat Forum :
——————————-
a) * File past 6 years FBARs as a first step
* Select “I didn’t know” as the reason for the late ones
* Potentially amend tax returns as a second step
b) * File past 6 years FBARs as a first step
* Do nothing more
c) * File FBARs for the last 6 years
* Use “I didn’t know” as the reason
* Review tax returns / amend, as need be
a) * File past 6 years FBARs as a first step
* Select “I didn’t know” as the reason for the late ones
* Potentially amend tax returns as a second step
b) * File past 6 years FBARs as a first step
* Do nothing more
c) * File FBARs for the last 6 years
* Use “I didn’t know” as the reason
* Review tax returns / amend, as need be
What I decided
——————————-
I filed 6 years worth of FBARs (this was the one thing nearly all commenters agreed on!), and I will continue filing going forward, both as the FBAR goes, and also including any foreign investment income on my US tax return. A word of note here — which wasn’t really a factor for me as my wish would have been to be in compliance anyway — would be to everyone that lots of European banks will start reporting this information back to the US this year. So coming into compliance before that happens, arguably would be the better the option, in my opinon.
——————————-
I filed 6 years worth of FBARs (this was the one thing nearly all commenters agreed on!), and I will continue filing going forward, both as the FBAR goes, and also including any foreign investment income on my US tax return. A word of note here — which wasn’t really a factor for me as my wish would have been to be in compliance anyway — would be to everyone that lots of European banks will start reporting this information back to the US this year. So coming into compliance before that happens, arguably would be the better the option, in my opinon.
Regarding
tax returns / amending: at this moment I haven’t yet amended any tax
returns for any of the past 3 years, as I’m still undecided on whether
it’s worth it (primarily talking about my time / their time, the effort
needed, and the cost of filing, potentially paying an accountant as
well, and also the fact that I am wondering if such action could come
with the risk of opening up issues and just having the potential to be
another huge time sink for me. Someone said “let sleeping dogs lie”, and
while my own preference would always be to do these things as
“correctly” as possible; given the threatening language and scare
tactics that the IRS employs, I’m quite frankly concerned that any
benevolent actions on my part could backfire. Who knows.
IRS Advises re Delinquent International Information Return Submission Procedures
Taxpayers
who do not need to use the OVDP or the Streamlined Filing Compliance
Procedures to file delinquent or amended tax returns to report and pay
additional tax, but who:
- have not filed one or more required international information returns,
- have reasonable cause for not timely filing the information returns,
- are not under a civil examination or a criminal investigation by the IRS, and
- have not already been contacted by the IRS about the delinquent information returns
should
file the delinquent information returns with a statement of all facts
establishing reasonable cause for the failure to file.
Describe your situation in the reasonable cause statement
As
part of the reasonable cause statement, taxpayers must also certify
that any entity for which the information returns are being filed was
not engaged in tax evasion. If a reasonable cause statement is not
attached to each delinquent information return filed, penalties may be
assessed in accordance with existing procedures.
- All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return.
- All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.
- A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested.
Information
returns filed with amended returns will not be automatically subject to
audit but may be selected for audit through the existing audit
selection processes that are in place for any tax or information
returns.
Saturday, July 25, 2015
Tuesday, July 21, 2015
Form 1040NR with Form 8833 attached or Green card + treaty election = exit tax danger
This matters to you if you are a green card holder:
- thinking about expatriating, or
- you want to keep the green card, live abroad, and stop paying income tax in the United States.Let's say you are a citizen of another country, and you are living there. You also happen to hold a U.S. green card.Within two years of living in the United States, you decide to return to your home country to live permanently. You will no longer live in the United States. So you leave and you have been living in your home country for a year or so.Since you are leaving the United States and will no longer live here, you want to stop paying U.S. income tax and filing U.S. income tax returns.
How to do this
There are two ways to go about this: - One way is to give up your green card. You do this by filing Form I-407.
- The other way to stop paying U.S. income tax is by taking advantage of the income tax treaty between your home country and the United States (if such a treaty exists).
Sunday, July 19, 2015
Ex-US Rep. Michael Grimm Gets 8 Months For Tax Fraud
Former Staten Island Rep. Michael Grimm was sentenced to eight months
Friday for under-reporting taxes from a restaurant business after a
Brooklyn federal judge acknowledged the rarity of prison terms for such
crimes in New York but noted his status as lawyer, former FBI agent and
lawmaker who “exploited” bottom-rung workers.
Tuesday, June 30, 2015
Personal residence exclusion under exit tax rules
American
citizens who give up their American citizenship (expatriates) are
classified into covered expatriates and non-covered expatriates. A
covered expatriate is subject to a “mark to market” rule, where the US
pretends that the covered expatriate sold all his property on the day
before expatriation and imposes a tax on the gain from the pretend sale.
Normally,
you get a personal residence exclusion of $250,000 when you sell your
principal residence. The question is: Do you get the exclusion for the
pretend sale under mark to market?
Summary
If
you actually sell your principal residence, you get a $250,000
exclusion from the gain. It’s not clear whether you get the exclusion
when you calculate the gain for exit tax purposes. If it is feasible to
sell the residence, consider doing so in preparation for expatriation.
Wednesday, June 24, 2015
FBAR and Tax Crime Statutes of Limitations – Suspended When Overseas?
What is a Statute of Limitations (SOL), Generally?
The tax laws contain what is known as a statute of limitations. The statute prescribes the length of time permitted to the IRS to enforce the tax rules. If the length of time runs out for a particular tax year, then the IRS is forever barred from claiming that you owe more tax in that year. It is important to understand how the various statutes of limitations work, because in certain cases, the statute of limitations will be longer than others or it will not start to run at all. There are often different SOL time periods for civil versus criminal actions. You can learn more about the various tax related SOL in my earlier blog posting here.
How does the SOL Work for FBAR Purposes?
The Internal Revenue Manual at IRM Section 4.26.17.5.5.4 provides a good summary of bullet points on the topic. These are elaborated upon, below:
The Title 26 statutes of limitations do not apply to FBAR cases. Title 26 refers to a particular Title in the United States Code; Title 26 contains the Internal Revenue Code.
The statute of limitations on assessment of civil FBAR penalties is 6 years from the date of the violation. Typically, the date of the violation is the date when an accurate and complete FBAR being due, is not received by the Treasury (i.e., June 30 due date. This refers to June 30th of the year following the calendar year for which the foreign financial account should be reported.). It is very important to note that unlike the case of tax returns, the FBAR SOL “clock” does start to “tick” (the SOL time period begins and continues to run) even if the taxpayer has not filed the FBAR (FinCen Form 114). Therefore, a US person with an FBAR filing duty, might just get lucky and win the audit lottery simply by waiting for the 6-year SOL to run on the old, unfiled FBARs. By filing prospectively, such a taxpayer can become FBAR compliant merely by the passage of time. The question arises whether the SOL is tolled or suspended if the taxpayer is outside of the US? More on this below.
The tax laws contain what is known as a statute of limitations. The statute prescribes the length of time permitted to the IRS to enforce the tax rules. If the length of time runs out for a particular tax year, then the IRS is forever barred from claiming that you owe more tax in that year. It is important to understand how the various statutes of limitations work, because in certain cases, the statute of limitations will be longer than others or it will not start to run at all. There are often different SOL time periods for civil versus criminal actions. You can learn more about the various tax related SOL in my earlier blog posting here.
How does the SOL Work for FBAR Purposes?
The Internal Revenue Manual at IRM Section 4.26.17.5.5.4 provides a good summary of bullet points on the topic. These are elaborated upon, below:
The Title 26 statutes of limitations do not apply to FBAR cases. Title 26 refers to a particular Title in the United States Code; Title 26 contains the Internal Revenue Code.
The statute of limitations on assessment of civil FBAR penalties is 6 years from the date of the violation. Typically, the date of the violation is the date when an accurate and complete FBAR being due, is not received by the Treasury (i.e., June 30 due date. This refers to June 30th of the year following the calendar year for which the foreign financial account should be reported.). It is very important to note that unlike the case of tax returns, the FBAR SOL “clock” does start to “tick” (the SOL time period begins and continues to run) even if the taxpayer has not filed the FBAR (FinCen Form 114). Therefore, a US person with an FBAR filing duty, might just get lucky and win the audit lottery simply by waiting for the 6-year SOL to run on the old, unfiled FBARs. By filing prospectively, such a taxpayer can become FBAR compliant merely by the passage of time. The question arises whether the SOL is tolled or suspended if the taxpayer is outside of the US? More on this below.
Tuesday, June 23, 2015
Relinquish your U.S. citizenship or their green card, but have not filed FBARs.
It is possible to expatriate, not file FBARs, and certify to the IRS
that you have complied with your tax obligations. It is not necessarily a
good idea, however.
Summary
An
expatriate must certify whether he has complied with all tax
obligations under Title 26 of the United States Code. FBAR filings are
required under Title 31. Therefore, the expatriate does not need to
certify whether he is up to date with FBAR filings.
Three ways to be a covered expatriate
When you relinquish your U.S. citizenship, you will be a “covered expatriate” if:
- Your net worth exceeds $2,000,000;
- Your average net Federal income tax liability for the prior 5 years exceeded $160,000 (for expatriations in 2015); or
- You do not certify under penalty of perjury that your prior 5 years of tax obligations are up to date.
For this blog post, we will focus on the third test: The certification requirement.
Tuesday, June 16, 2015
Use Form W-8BEN to eliminate US tax
When
a US person (like, say, a 401(k) plan administrator) pays taxable
income to someone outside the United States, 30% must be subtracted from
the payment and given to the IRS. This is the withholding tax required
by IRC §1441(a).
Paying
30% tax to the United States on a 401(k) distribution when the income
tax treaty between the United States and Switzerland says that the USA
cannot tax the distribution? Sounds like a bad idea. Here is how
you prevent this from happening.
Fill
in Form W-8BEN and give it to the 401(k) plan administrator. In
particular, use Part II of Form W-8BEN to use the CH-income
tax treaty to force the result of zero tax withholding in the United
States.
- On Line 9, you certify that you are a resident of New Zealand.
- On Line 10, you claim the benefit of Article 18.1(a) to create a rate of withholding of 0% on your 401(k) distribution.
- The explanation is that the treaty gives exclusive power to tax the 401(k) distribution to the country of residence. Nothing more remarkable than that will be required to complete Part II.
Other countries' treaties
The
US has income tax treaties with many countries. Treaties like CH's (the country of residence gets to tax cross-border pension
distributions) are common but far from universal. The treaties may
provide for different treatments for different types of distributions.
For example, the US-UK income tax treaty gives the source country the
exclusive right to tax lump sum distributions. US-UK Income Tax Treaty,
art. 17.2 (2001, as amended).
Conclusion
If
you are receiving cross-border retirement account distributions, look
for an income tax treaty between your home country and the United
States. It may well give you a better tax result than the default tax
rules of the United States and your home country. The pension benefits
are most commonly found in article 18, but because each country
negotiates its version, and the treaties were adopted at different
times, you might find pension benefits clauses in other articles.
Tuesday, June 9, 2015
Covered gift and bequest from covered expatriate
In the article, 'The New Rules of Offshore Accounts', that last paragraph states that if a person receives a gift/bequest from certain wealthy people who have renounced U.S. ties could have to pay tax on it at a 40% rate.
What form is filed to calculate this tax liability?
Friday, June 5, 2015
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:
|
Saturday, May 30, 2015
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 !!
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.”
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
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.
Wednesday, May 27, 2015
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
but the more important link with the names or initials is here :
https://www.admin.ch/opc/de/federal-gazette/2015/index_19.html
Tuesday, May 26, 2015
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.
Monday, May 25, 2015
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.
Wednesday, May 20, 2015
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/ |
Tuesday, May 19, 2015
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.
Tuesday, May 12, 2015
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.
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:
Tuesday, May 5, 2015
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.
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.
Monday, May 4, 2015
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.”
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.”
Subscribe to:
Posts (Atom)