Archive for the ‘Tax and Controversy News’ Category

IRS Watchdog Reports on Offer in Compromise – Results Not Surprising

Thursday, April 26th, 2012

On April 12, 2012, the Treasury Inspector General for Tax Administration (TIGTA) reported serious deficiencies in the IRS's offer in compromise ("OIC") program. As attorneys and tax professionals, we at Nardone Law Group are frequently asked by clients if an OIC is an option for them when analyzing their tax collection alternatives.  And for some, it most certainly is.  However, what we have found, and what has been further confirmed by the TIGTA Audit Report, is that an OIC can be an arduous process.  

As described by TIGTA, an OIC is an agreement between a taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. The goal of the audit was to assess the effectiveness of the OIC Program to: (i) timely process requests, (ii) consistently apply OIC guidelines, (iii) accurately measure program results, and (iv) effectively promote the program.  According to the audit report, auditors found that IRS did not always contact taxpayers when promised, and inventory backlog caused processing delays.

According to the audit report, the number of requested offers increased by 28% between fiscal year 2007 and fiscal year 2011. But, the resources available to work the offers have decreased. A statistically valid sample of 99 offers identified 73 cases—or 74%—in which the IRS failed to contact the taxpayer by the promised date. TIGTA estimated that some 9,500 taxpayers who submitted offers between July 1 and December 31, 2010, may not have been contacted when promised. In addition, as of October 25, 2011, there were almost 7,500 unassigned offers in holding queues awaiting assignment to IRS staff.

As tax attorneys who work OICs, we recognize there are many problems with the OIC process.  We certainly agree that: (i) we do not receive timely responses, (ii) guidelines are not applied properly, and (iii) IRS staff lack practical work experience or thought process when it comes to understanding taxpayer's positions and assets.  Thus, the TIGTA report is not a surprise. We encourage everyone to review the audit report, which we have made availalbe here.

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Injured or Innocent Spouse Tax Relief

Tuesday, April 17th, 2012

Well, it’s tax filing season again.  And, as tax attorneys and tax lawyers in Columbus, Ohio, one of the issues that frequently comes up for married couples is whether to file a joint Form 1040 federal income tax return, or to file the Form 1040 as married filing separately.  As you might imagine, there are a number of planning ideas that address that question.  In this article we would like to focus on, and address, one of those planning issues specifically.  That being, whether or not filing a joint return would cause both spouses to be jointly and severally liable for a tax liability of one of the spouses, which will remain unpaid at the time of filing the return.  The answer to this is yes. By filing a joint return, both spouses will be jointly and severally liable for the unpaid liability on that return.  If there is a tax liability for which one of the spouses is solely responsible for, then the married couple should absolutely file their Form 1040s as married filing separately.  If however, the married couple files jointly, the spouse who is not responsible for the unpaid tax liability, may be able to show that an exception exists to the joint and several liability of the unpaid tax, which would include being an Injured Spouse.

If you are in injured spouse, it is possible that you can avail yourself of the innocent spouse relief provisions under the Internal Revenue Code.  Here are seven facts about claiming injured spouse relief:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

4. You may file form 8379 along with your original tax return or your may file it by itself after you receive an IRS notice about the offset.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the IRS eliminated the two-year time limit that applies to certain relief requests. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

For additional information on this topic, click here to view a video from the Internal Revenue Service.

The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result, based on each clients' specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

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Filing False Returns: A Deportable Offense Under Immigration Laws

Tuesday, March 27th, 2012

If you are lawful permanent resident holding a green card, or if you are in the United States on a temporary visa, and you have filed a fraudulent or false tax return, the Supreme Court recently held that you are subject to deportation or removal from the U.S. as an aggravated felon.
 
In a 6-3 decision, the United States Supreme Court issued its opinion for Kawashima v. Holder, affirming a Ninth Circuit Court of Appeals decision that filing false returns is a deportable offense. This article provides guidance as it relates to permanent residents or temporary visa holders who have filed a false or fraudulent return.
 
In Kawashima, the issue before the Court was whether the filing of a false or fraudulent return is a deportable offense for lawful permanent residents and green card holders. In 1997, Mr. Kawashima plead guilty to a violation of IRC §7206(1), for willfully filing a fraudulent or false return. After his conviction, Mr. Kawashima was subject to deportation proceedings pursuant to the Immigration and Naturalization Act. His wife, Mrs. Kawashima, was also subject to the deportation proceedings for her guilty plea and related conviction for violating of IRC §7206(2), willfully assisting in the preparation of a fraudulent or false return.
 
For fully naturalized residents of the United States, a conviction of either §7206(1) or §7206(2) can result in a maximum penalty of $100,000, 3 years in prison, or both. In addition, for lawful permanent residents and green card holders, deportation proceedings can be initiated, in addition to fines and jail time related to the offense.
 
The Immigration and Naturalization Act (“INA”) provides that any alien convicted of an aggravated felony is a deportable offense. See 8 U.S.C.A. 1227(a)(2)(A). Further, the Act provides that aggravated felonies under this provision include offenses under Internal Revenue Code §7201, where the revenue loss to the government exceeds $10,000.  See 8 U.S.C.A. 1101(a)(43)(M).
 
The Court rejected the Kawashima’s argument that “fraud” and “deceit” were necessary elements of the deportation provision under the INA. Rather, the Court held that the INA broadly refers to offenses with elements necessarily entailing fraudulent or deceitful conduct. Thus, once the Kawashima’s plead guilty to filing a false or fraudulent return, and assisting in the filing of a false return—an offense fraudulent or deceitful in nature—they became deportable, and subject to removal from the United States under the provisions of the INA.

Cases such as this present a multitude of issues for potential defendants since there are two formal proceedings: one for the violation of the Internal Revenue Code, and one for the deportation proceedings. Thus, for any lawful permanent resident, or visa holder, it is important to fully understand the unintended consequences of any action, including entering into a plea agreement. If you are a lawful permanent resident residing within the United States, and are the subject of an IRS examination, please contact us for assistance. Nardone Law Group has professionals dealing with immigration and tax litigation who can assist you in the resolution of these matters, including the impact on your immigration status.

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Internal Revenue Service Announces Relief for Unemployed Taxpayers

Thursday, March 22nd, 2012

   

With the unemployment rate lingering around 8.3%, it is not uncommon for taxpayers in Ohio to find themselves in a position of being unable to pay their tax liabilities because they are unemployed. To remedy this problem, the Internal Revenue Service(“IRS”) has just announced an extension of the 2008 “Fresh Start” initiative, a program geared towards helping taxpayers that have either: (i) been unemployed for at least 30 days, or (ii) if self-employed, experienced at least a 25% decrease in business income for 2011.
 
Under the Fresh Start program, taxpayers can request a 6-month grace period on failure to pay penalties—ranging from .5% to 25% of the amount due—on the condition that the tax, interest, and other penalties are paid in full by October 15, 2012. This option can potentially save struggling taxpayers thousands of dollars, but it should be noted that while the failure to pay penalty is suspended, taxpayers must still pay the statutory interest of 3% on back taxes.
 
In addition to the statutory interest rate, participation in this program is subject to the following conditions:
 
  • Income must not exceed $200,000 when married, filing jointly; or
  • Income must not exceed $100,000 when filing single, or as head of household; and
  • The taxpayer’s calendar year balance of tax liabilities must not exceed $50,000.
 
The program also encompasses a streamlined procedure for entering into installment agreements with the IRS. This is great news for taxpayers with back taxes because taxpayers can now enter into in an installment agreement with much less hassle. Typically, taxpayers with $25,000 or more in back taxes are required to provide financial statements to the IRS when entering into installment agreement negotiations. This amount has been increased to $50,000 and agreements can now last for a term of 72 months, rather than the current 60 month maximum.
 
If you are having difficulty paying your tax liabilities and have been unemployed for 30 or more days in 2011 or 2012, or experienced at least a 25% drop in business income related to your business, contact the experienced tax lawyers at Nardone Law Group, LLC for assistance. Nardone Law Group, LLC represents individuals and business taxpayers in Akron, Canton, Cincinnati, Columbus, Cleveland, Dayton, and all surrounding areas.

 

   

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Tax Deductions for Professional Gamblers in Ohio

Tuesday, January 17th, 2012

Tax Deductions for Professional Gamblers in Ohio

This article addresses the question of what tax deductions are available to professional gamblers.  On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities.  The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo.  These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers.  The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.

Professional versus Recreational Gamblers

The tax deductions available to professional gamblers for their gambling activities are vastly different from the tax deductions available to recreational gamblers.  In general, gambling income is fully taxable and gambling losses may not exceed gambling winnings—unless the taxpayer is engaged in the trade or business of gambling. This means that if you are a professional gambler, you may be able to deduct all your losses, as well as incidental business expenses that are ordinary and necessary expenses in the pursuit of your gambling activities.  Therefore, the most important question for gamblers is to determine at what point a gambling activity raises to the level of a trade or business such that you would be considered a professional gambler. When you become a professional gambler, your gambling losses may be deductible in determining your adjusted gross income, as opposed to being taken as itemized deductions subject to limitations.  Deducting your losses from adjusted gross income can result in huge tax savings, so understanding what it takes to become a professional gambler is of principal importance.

What is a Professional Gambler?

The IRS and reviewing courts will find that a gambling activity constitutes a trade or business only after examining all relevant facts and circumstances.  Whether you play poker, slot machines, or are involved in horse racing, the facts and circumstances must show that your gambling activity is pursued full time, in good faith, and with regularity.  In addition, your gambling activity must also be your intended source of livelihood and cannot be recreational or a mere hobby.  If you have a job outside of gambling, you must show that you not only pursued your gambling activity full-time, but that your gambling activity was your main source of earning a livelihood.  It may not be immediately clear whether your gambling activity will qualify you as a professional gambler.  Thus, the tax lawyers at the Nardone Law Group, LLC recommend taking the following steps to ensure the greatest chance of success.

Recommendation for Professional Gamblers

If you consider yourself to be a professional gambler, you can increase your chances of being determined as such by the IRS by operating your gambling activities in a business-like manner.  This involves setting up a separate bank account designated solely for your gambling activities.  You should also have a detailed business plan outlining your strategy and indicating how you intend to make a profit from gambling.  The motive to make a profit is the key ingredient.  Therefore, your business plan should clearly provide your plan to make money and should reference any and all research you have done to increase your chances of making your gambling activities profitable.  Further, you should keep a log of the time you spent gambling also keeping track of the money you bring with you gambling, tracking your winnings and your losses.  Never rely on a casino's player's card or a Form W-2G to track your winnings.  You must maintain your own records.  You should also limit the recreational aspects of gambling.  If you are a professional gambler, you should treat gambling like any other job.  If you gamble with friends for casino perks, then it will be much more difficult to prove to the IRS you are truly a professional gambler. Finally, you must be able to document your expertise in your gambling activity.  You must be able to show what research you have done to show that you believed you could make a profit gambling, even if you have not done so.  Your research should be referenced in your business plan and the books you have read and experts you have consulted with should be cited to and referenced accordingly.

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler, and you have significant gambling losses that are greater than your gambling winnings, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

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How likely is it that you will be audited by the Internal Revenue Service? See our tax attorney’s recent article.

Tuesday, January 17th, 2012

What is the Likelihood that I will be Audited by the Internal Revenue Service?

Clients and taxpayers, in general, are surprised as to the amount of information available on the Internal Revenue Service’s website regarding examination statistics.  As an example, the Internal Revenue Service recently issued statistics regarding tax returns examined in Fiscal Year 2010.  Overall there were 187,124,450 returns filed and 1,735,083 returns examined, which represents 0.9% percent of returns covered by examination.  That is less than one percent folks.  But, as always, the devil is in the details.  For example, the Internal Revenue Service examined 4.7% of returns filed where individuals reported gross receipts between $100,000 and $200,000 and filed a schedule C.  On the other hand, the Internal Revenue Service examined 98 percent of certain large corporate taxpayers.  So, it all depends.

The below chart provides a summary of the most common returns and taxpayers:

 

Type of Taxpayer Returns Filed Returns Examined Amount of Additional Tax (thousands of dollars)
Schedule C Filer - $100,000 to $200,000 in gross receipts 893,707 42,403 $923,734
Schedule C Filer - $200,00 or more in gross receipts 705,877 23,569 $528,770
Partnership Returns 3,423,583 12,406 N/A
S Corporation Returns 4,414,662 16,327 N/A
Employment Tax Returns 30,158,258 63,937 $1,245,789
Estate Tax Returns 42,366 4,288 $1,405,415

The question you very well may be asking yourself is, so, how does the IRS select tax returns for audit?  This is a question that we get asked quite a bit at Nardone Law Group.  To answer the question of how returns are selected for an audit, follow this link. 

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