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IRS Wins Another 50% Willful FBAR Penalty Case!

 A district court has found in Agrawal, (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522 that a taxpayer was liable for nonwillful FBAR penalties and that the reasonable cause exception did not apply because the taxpayer did not act with ordinary business care and prudence when he prepared some of his own returns and when he had an accountant prepare others.

The penalty for violating the FBAR requirement depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC § 5321(a)(5)(B)(i)) The maximum penalty amount for a willful violation "shall be increased to the greater of" $100,000 or 50% of the balance in the account at the time of the violation. (31 USC § 5321(a)(5)(C)31 USC § 5321(a)(5)(D))

The IRS may not impose a penalty if the taxpayer meets several requirements, one of which is that the violation was due to reasonable cause. (31 USC § 5321(a)(5)(B)(ii))

The district court points out that neither 31 USC § 5321 nor its corresponding regs define "reasonable cause" in the FBAR reporting context, but the regs implementing Code Sec. 6651 equate the reasonable cause standard with a standard of "ordinary business care and prudence." (Reg. § 301.6651-1(c)(1)) The regs interpreting Code Sec. 6664(c)(1) state that the determination whether a taxpayer acted with reasonable cause "is made on a case-by-case basis, taking into account all pertinent facts and circumstances," and further that "generally the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper liability." (Reg. § 1.6664-4(b)(1))

Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.

Mr. Agrawal testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.

Mr. Agrawal was in immigrant from India, completed graduate school education in the US, and taught geophysics and math at a US technical college.
The IRS sought to impose a penalty for nonwillful failure to file FBARs. While he conceded that he should have filed FBARs, Agrawal argued the reasonable cause exception should apply and that his conduct was excused because he relied on the advice of tax professionals, and because he was elderly, unsophisticated about tax law, and spoke English as a second language.
The district court found that the reasonable cause exception did not apply to Agrawal and that he was liable for the penalty.
The court held that no reasonable juror could find that Agrawal acted with ordinary business care and prudence, or that he made a reasonable effort to understand his FBAR reporting responsibilities, when he failed to file his FBARs for the years 2006-2009.

By his own admission, Agrawal self-prepared his 2006 and 2007 tax returns; he did not disclose the existence of a foreign financial account on Schedule B despite a direct question on the issue. And according to his deposition testimony, in 2008 and 2009, he did not tell the CPA preparing his tax return of the existence of the foreign account or question the CPA's decision to leave blank the Schedule B question about foreign bank accounts.
The court said that a taxpayer acting with ordinary business care, or one making a reasonable effort to understand his responsibilities, would have sought informed advice about the reporting requirements alluded to in Schedule B; seeking such advice would necessarily involve the taxpayer notifying the advisor of the existence of the foreign account.
The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.

Have Unreported Income From a Foreign Account?


Want to Know if the OVDP Program is Right for You?

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Read more at: Tax Times blog

IRS Collection Activity Expected to Increase in 2020!

Hear that noise? It’s the collective sighs of tax professionals around the country upon learning that the Internal Revenue Service (IRS) is in the midst of a hiring spree. In FY 2019, the IRS employed about 78,004 employees, including more than 12,600 temporary and seasonal staff.

According to IRS Commissioner Charles Rettig, the IRS is hiring thousands of new employees, the most in almost a decade.

Speaking at the American Institute of CPAs (AICPA) conference in Washington, D.C., Rettig touted the good news. Rettig has made staffing a priority, noting earlier this year that the agency “essentially lost an entire generation of IRS employees” from 2011 through 2018. During that time, the IRS dropped about 20,000 employees, largely due to budget cuts.

Rettig Says That the IRS Hired Nearly 10,000 People
During the 2019 Fiscal Year and Plans to
Hire More Than 5,000 Additional Workers. 

Also, the IRS is gearing up to bring their Collections Division back to levels of activity that we have not seen for several years. 

That Means That In 2020 Expect The IRS To Issue More
Wage And Bank Levies, More Liens, And

More Lawsuits To Reduce Outstanding Debt
To 20 Year Judgments.

Also, Payroll taxes withheld by employers account for nearly 72 percent of all revenue collected by the IRS, making noncompliance and fraud in this area one of the biggest challenges for the nation’s tax system. In FY 2019, the IRS engaged in a special two-week effort to address this area of noncompliance. During this period, IRS revenue officers visited nearly 100 businesses around the country suspected of having serious issues with employment tax compliance. Business owners were informed about ways to catch up with back payroll taxes, how to stay current, and the potential for civil and criminal penalties. Expect continuing efforts to be made by the IRS in seeking out taxpayers who have not remitted their payroll tax withholdings in 2020. 

While Many Taxpayers are Under the Radar - 

the IRS Aims to Make Contact and Collect. 
The best strategy is to contact the tax attorney to help you be ready when they come knocking. That way you can stand your ground, rather than back peddling and also avoid criminal prosecution! 

 Have a IRS Tax Problem? 

Contact the Tax Lawyers at
Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact us at: or
or Toll Free at 888-8TaxAid (888 882-9243). 




Read more at: Tax Times blog

Comm'r Warns Taxpayers – Streamlined Offshore Procedures Won't Last Forever!

Last week I attended the ABA's 36th National Institute on Criminal Tax Fraud in Las Vegas, where IRS Commissioner Charles "Chuck" Rettig announced that for those taxpayers who still have income from unreported offshore accounts, they should take note that the Streamlined Offshore Procedures Won't Last Forever. 

Taxpayers should remember that the OVDP (f/k/a OVDI) started back in 2009 to give taxpayers with exposure to potential criminal liability or substantial civil penalties due to a willful failure to report foreign financial assets, a program with specified procedures for resolving criminal exposure and a specified penalties regime. Taxpayers could come forward, pay back taxes with interest and a penalty, and avoid criminal prosecution.

However, that arrangement changed on September 28, 2018, when the IRS ended the OVDP program, by giving 6 months advanced notice in Announcement IR 2018-52. Remaining Disclosure options for taxpayers with non-willful compliance issues included the Streamlined Foreign Offshore and Streamlined Domestic Offshore Procedures.

After September 28, 2018, CI's November 20,2018 memo describes the IRS current requirements for willful taxpayers to make a voluntary disclosure. The new practice has a defacto retroactive effect, since the Memorandum addresses a new process for all voluntary disclosures, both domestic and offshore, following the September28,2018 expiration of the 2014 Offshore Voluntary Disclosure Program. However, the penalty regime under the new framework is far less favorable than under prior programs.

While there is still a trickle of non-willful taxpayers cleaning up under the Streamlined Offshore Procedures, the IRS has made it clear that this the Streamlined Offshore Procedures won't last forever and this may be non-willful taxpayer's last chance to report previously undisclosed foreign accounts under this program.

These IRS ending the OVDP program and now the proposed ending of the Streamlined Offshore Procedures, reflect an ongoing efforts by the U.S. government to make
offshore tax compliance a priority.

The Foreign Account Tax and Compliance Act (FATCA), enacted in 2010, requires foreign financial institutions to report their U.S. taxpayer clients to the U.S. government. In addition, inter-governmental agreements (IGAs) with 113 countries mean that foreign governments are also sharing information with American authorities to combat offshore tax evasion. For more on this, please see our Blog posts:

This additional reporting may identify taxpayers who were able to hide their assets in the past and this may be non-willful Taxpayer's last chance to come clean under the Streamlined Foreign Offshore and Streamlined Domestic Offshore Procedures.

Have an Unreported Foreign Income?

Want To Know Which OVDP Program
Is Right For You?


Contact the Tax Lawyers at 
Marini & Associates, P.A.   
for a FREE Tax Consultation contact us at:
Toll Free at 888-8TaxAid (888) 882-9243


Read more at: Tax Times blog

Ten Facts About Tax Expatriation – Part III

As we previously discussed in Ten Facts About Tax Expatriation - Part I & Part II, whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off and there are 10 things you need to know about Expatriation:
  1. Uncle Sam taxes income worldwide.
  2. Expatriating means really leaving.
  3. The old 10-year window is closed.
  4. Big changes came in 1996.
  5. Tax avoidance is now irrelevant.
  6. There are special rules for long-term residents.
  7. There's an exit tax for expatriations on or after June 17, 2008.
 8. Some expatriates can escape the exit tax.

In general the exit tax is unforgiving and has broad application. Yet if you have less than $600,000 of income from the deemed sale of your assets on expatriation, you pay no tax. This exemption amount is adjusted for inflation and is $627,000 for 2010. If your gain exceeds this amount, you must allocate the gain pro rata among all appreciated property.

However, this exclusion amount must be allocated to each item of property with built-in gain on a proportional basis. This involves a complicated process of multiplying the exclusion amount by the ratio of the built-in gain for each gain asset over the total built-in gain of all gain assets. The exclusion amount allocated to each gain asset may not exceed the amount of that asset's built-in gain. Moreover, if the total allowable gain of all gain assets is less than the exclusion amount, the exclusion amount that can be allocated to the gain assets will be limited to that amount of gain. For example, in 2010, if the total allowable gain in an expatriate's assets was $500,000, then that $500,000 would be the limit instead of $627,000.

Fortunately not all expatriates face the exit tax; only "covered expatriates" do. Under prior law, you generally had to give notice you were expatriating to trigger the rules. Now if you relinquish your passport or green card, it's generally automatic. But some expatriates, even under the new law, can escape the exit tax. The financial thresholds (see point five above) can still exempt you. Some people born with dual citizenship who haven't had a substantial presence in the U.S. and certain minors who expatriated before the age of 18-and-a-half are also exempt. However, those people must still file an IRS Form 8854 Expatriation Information Statement.

9. You can elect to defer the exit tax.
If you do face the exit tax, you can make an irrevocable election (on a property-by-property basis) to defer it until you actually sell the property. This election allows people to leave the U.S. and expatriate without triggering immediate tax as long as the IRS is assured it will collect the tax in the future. To qualify, a covered expatriate must provide a bond or other adequate security for the tax liability. There are specific requirements for these security bonds. Plus, there is an updating and monitoring of the bond in case it becomes inadequate to cover the tax. The IRS scrutinizes these elections on a case-by-case basis, so hire an expert. There are detailed requirements for filing the deferral election, including documentation, and copies of various documents.

One of these requirements is appointing a U.S. agent for the limited purpose of accepting communications with the IRS. Plus, the taxpayer must waive any tax treaty benefits that might otherwise impact the IRS getting its money. It doesn't appear that many of these deferral elections have been made so far.

There's another reason, other than the bond, not to defer. When you do sell, you'll pay taxes at the rate then in effect, which will likely be higher. If the Obama Administration has its way, when the Bush tax cuts expire at the end of this year, the top rate on long-term capital gains will rise from 15% to 20%. Plus, the just-passed House reconciliation package to the Senate's health care bill (if also approved by the Senate) is supposed to impose an additional 3.8% tax on net investment income for taxpayers with threshold income amounts of $200,000 for individuals and $250,000 for joint filers. This could raise the top capital gains rate to 23.8% for those taxpayers.

10. You'll need professional help.
As you might expect, there are forms to file and procedures to follow if you expatriate. In fact, if you are wavering, the paperwork alone may keep you stateside! You must file IRS Form 8854 (in some cases for 10 years). Additional special forms (Form W-8CE if you have any deferred compensation items, a specified tax deferred account, certain non-grantor trusts, etc.) are also required. A good source is IRS Notice 2009-85.

Still, get some professional help. As this mere scratching of the surface suggests, the tax rules regarding expatriation for citizens and long-term residents are complex, even dizzying. Gone are the days when one could renounce U.S. citizenship and stand a good chance of avoiding U.S. tax. If you're facing these issues, or even if you are a beneficiary of someone else who is facing them, get some professional help. Bon voyage!

"Should I Stay or Should I Go?"

Need Advise on Expatriation? 

Contact the Tax Lawyers of
Marini & Associates, P.A. 

For a FREE Tax Consultation at:
Toll Free at 888-8TaxAid ( 888 882-9243)  



Read more at: Tax Times blog