IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI's primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes.
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Showing posts with label IRS abuses. Show all posts
Showing posts with label IRS abuses. Show all posts
Big Trouble Ahead For Many 419 Welfare Benefit Plan and 412i Retirement Plan Participants
Business owners and professionals who have adopted 419
welfare benefit plan arrangements are in serious trouble. The IRS has attacked
these arrangements as "listed transactions." Business owners who
engage in a "listed transaction" must report such transactions on IRS
Form 8886 every year that they are participating in the transaction, and you
are participating even in years when you do not make any contribution. Internal
Revenue Code 6707A imposes severe penalties ($200,000 annually for a business
and $100,000 per year for an individual) for failure to file Form 8886 with
respect to a listed transaction. Tax Court, according to both the IRS Appeals
Office and its own decisions, does not have jurisdiction to abate or lower any
penalties imposed by the IRS. Complaints caused Congress to impose a moratorium
on collection of Section 6707A penalties.
On June 1, 2010, the moratorium ended, and the IRS immediately began
sending out notices warning of possible imposition of 6707A penalties. When you get this notice it should be taken
very seriously.
Accountants were required to properly prepare and file Form
8918 (if they signed and/or prepare tax returns and got paid). The penalty for
accountants for not properly filing the forms is $100,000, or $200,000 if they
are incorporated.
Businesses that were in some 419 welfare benefit plans or
some 412i retirement as well as some Captive Insurance and Section 79 Plans,
were supposed to properly file under IRC Section 6707A each year with the IRS.
Either the taxpayer or the accountant was responsible, though the ultimate,
primary obligation falls on the taxpayer. The IRS has just begun sending the
notices referred to above to participants in many of these plans. This is in addition
to any IRS audit you might have had or currently may be having. The large 6707A
fine has nothing to do with any other IRS audit. The 6707A fine is for not
having properly filed under 6707A with your returns. You are required to file
each year with your tax return.
Not only were you required to file with your Federal return,
but many states also require protective filings. Some participants in these
types of plans have already received notices from the IRS. You must act
immediately if you wish to avoid possible huge IRS penalties and interest that
could put you out of business for good.
THE STATUTE OF LIMITATIONS IS NOT RUNNING. This means that
the IRS can fine you at any time in the future for anything regarding past or
present participation in an abusive 419 welfare benefit plan or an abusive 412i
retirement plan. There is still time to avoid the IRS penalties and interest.
You need to take action immediately and find out right away if the plan you are
participating in is abusive by consulting with a professional and experienced
419/412i plan expert.
Most accountants do not know how to properly prepare the
appropriate forms. Accountants or other advisors will probably be fined as
material advisors. This means that you may be subject to a large fine. Once you
get the large fine, the IRS claims it is not subject to an appeal.
You should have filed protectively for every year your
entity participated in the plan. Once again, for every year after 2003, the
penalty for not properly filing is $200,000 a year for corporations and
$100,000 a year for individuals. For example, it is possible an employer in the
plan since 2004 could be subject to over one million dollars in penalties
solely as a result of the failure to file. For all years in the plan, the Statute
of Limitations will not begin to run until after the form is properly filed. In
addition, certain individual plan participants should also file for every year
of plan participation. Once again, none of this has anything to do with any
other audit that you may currently be involved in or may previously have
experienced.
It is abundantly clear that taxpayers who receive notices
from the IRS regarding Section 6707A penalties should take these letters
extremely seriously. These notices do not lend themselves to
"do-it-yourself eye surgery".
This Can Happen to You
Several years ago at the advice of an accountant or investment advisor a client adopts a defined benefit plan for her business. She did so because she had been advised that under this type of plan she could contribute tax deductible contributions far greater than the limits permitted under a defined contribution plan. Each year she funds the maximum that the IRS permitted based on a report from her actuary. The plan investment returns have been very good.
She is now ready to sell her business or retire and informs her advisors that she wants to close out the plan and transfer the money over into her Individual Retirement Account. The advisors come back with the following news. The plan is overfunded and some of the funds cannot be rolled over to an IRA. Those funds that are ineligible for a rollover must return to the company as taxable income and the IRS will in addition, levy a non-tax deductible penalty of at least 20%.
What happened?
She has done nothing along the way that the IRS could challenge. What happened was a combination of several things.
What happened?
She has done nothing along the way that the IRS could challenge. What happened was a combination of several things.
Help with Common IRS Problems
There are many problems you can run into with the IRS. The following is an overview and helpful information on some of these confusing issues.
· IRS Penalties
· Unfiled Tax Returns
· IRS Liens
· IRS Audits
· Payroll Tax Problems
· IRS Levies
· IRS Seizures
· Wage Garnishments
IRS Penalties
The penalizes millions of taxpayers each year. They have so many penalties that it's hard to understand which penalty they are hitting you with.
The most common penalties are Failure to File and Failure to Pay. Both of these penalties can substantially increase the amount you owe the IRS in a very short period of time.
To make matters worse the IRS charges you interest on penalties. Many tax-payers often find out about IRS problems many years after they have occurred. This causes the amount owed the IRS to be substantially greater due to penalties and the accumulated interest on those penalties.
Some IRS penalties can be as high as 75%-100% of the original taxes owed. Often taxpayers can afford to pay the taxes owed, however, the extra penalties make it impossible to pay off the entire balance.
The original goal of the IRS imposing penalties was to punish taxpayers in order to keep them in line. Unfortunately, the penalties have turned into additional sources of income for the IRS. So they are happy to add whatever penalties they can and to pile interest on top of those penalties. Your loss is their gain.
Under certain circumstances the IRS does abate, or forgive, penalties. Therefore before you pay the IRS any penalty amounts, you may want to consider requesting that the IRS abate your penalties.
Unfiled Tax Returns
Many taxpayers fail to file required tax returns for many reasons. What you must understand is that failure to file tax returns may be construed as a criminal act by the IRS. This type of criminal act is punishable by one year in jail for each year not filed.
Needless to say, its one thing to owe the IRS money but another thing to potentially lose your freedom for failure to file a tax return.
The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is the IRS's version of an unfiled tax return. Because SFR Tax Returns are filed in the best interest of the government, the only deductions you'll see are standard deductions and one personal exemption.
You will not get credit for deductions which you may be entitled to, such as exemptions for a spouse or children, interest and taxes on your home, cost of any stock or real estate sales, business expenses, etc.
Regardless of what you have heard, you have the right to file your original tax return, no matter how late its filed.
IRS Liens
The IRS can make your life miserable by filing Federal Tax Liens. Federal Tax Liens are public records that indicate you owe the IRS various taxes. They are filed with the County Clerk in the county from which you or your business operates.
Because they are public records, they will show up on your credit report. This often makes it difficult for a taxpayer to obtain any financing on an automobile or a home. Federal Tax Liens also can tie up your personal property, you cannot sell or transfer that property without a clear title.
Often taxpayers find themselves in a Catch-22 where hey have property that they would like to borrow against, but because of the Federal Tax Lien, they cannot get a loan. We can work toward getting the Tax Lien lifted so that you can borrow money on your property.
IRS Audits
The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit.
Typically, Correspondence Audits are for missing documents in your tax return that IRS computers have tried to find. These usually include W-2's and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation.
The IRS Office Audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income.
The IRS Home or Office Audit should be taken more seriously because the IRS auditor is a Revenue Agent. Revenue Agents receive more training and learn more auditing techniques than a typical Tax Examiner.
The IRS audits should be taken seriously because they often lead to other tax years and other tax problems not originally stated in the audit letter.
Payroll Tax Problems
The IRS is very aggressive in their collection attempts for past due payroll taxes. The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase the total amount you owe in just a matter of months.
I believe that it is critical for a taxpayer to have an attorney for a representation in these situations. How you answer the first five IRS questions may determine whether you stay in business or are liquidated by the IRS. We always advise clients to avoid meeting with any IRS representatives regarding payroll taxes until you have met with a professional to discuss you options.
IRS Levy
An IRS Levy is the action taken by the IRS to collect taxes. For example, the IRS can issue a Bank Levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable. The person, company, or institution that is served with the levy must comply or face their own IRS problems.
The additional paperwork this person, company, or institution, is faced with to comply with the IRS Levy often causes the taxpayers relationship with that person to suffer. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS.
When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. The bank is required to remove whatever amount of money is in your account that day (up to the amount of the IRS Levy) and send it to the IRS within 21 days unless notified otherwise by the IRS. This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Levy.
An IRS Wage Levy is difficult. Wage Levies are filed with your employer and remain in effect until the IRS notifies the employer that the Wage Levy has been released. Most Wage Levies take so much money from the taxpayer's paycheck that the taxpayer doesn’t even have enough money to live on.
IRS Seizures
The IRS has extensive powers when it comes to Seizures of Assets. These powers allow them to seize personal and business assets to pay off outstanding tax liabilities. This occurs when taxpayers have been avoiding the IRS.
This is one of the IRS's ultimate weapons. They can seize cars, television sets, jewelry, computers, collectibles, business equipment, or anything with value which can be sold in order to acquire the money the IRS wants to pay off tax debts. If you are facing a seizure, you have a serious problem.
Wage Garnishments
The IRS Wage Garnishment is a very powerful tool used to collect taxes owed through your employer. Once a Wage Garnishment is filed with an employer. Once a Wage Garnishment is filed with an employer, the employer is required to collect a large percentage of each paycheck. The paycheck that would have otherwise been paid to the employee will then be paid to the IRS.
The Wage Garnishment stays in effect until the IRS is fully paid or until the IRS agrees to release the garnishment. Having wages garnished can create other debt problems because the amount left over after the IRS takes its cut is often small, so you may have difficulty with bills and other financial obligations.
Lance Wallach speaks at more than 20 conventions annually and writes for more than fifty publications about tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, etc. He is a course developer and instructor for the American Institute of Certified Public Accountants and a prolific author. He has written or collaborated on numerous books, including, The Team Approach to Tax and Financial Planning; Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hotspots; Alternatives to Commonly Misused Tax Strategies: Ensuring Your Clients Future, all published by the American Institute of CPAs. The CPA’s Guide to Life Insurance, and The CPA’s Guide to Trusts and Estates, both published by Bisk Education, and his latest book, Protecting Clients from Fraud, Incompetence, and Scams, published by Wiley. In addition, Mr. Wallach writes for various national business associations that sell his books to their members and others. He has been an expert witness on some of the above issues, and to date his side has never lost a case. Contact lanwalla@aol.com or visit reportabletransaction.com/IRSHelp.html
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Abusive Tax Shelters again on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season
"The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them," said IRS Commissioner John Koskinen. "The vast majority of taxpayers pay their fair share, and we are warning everyone to watch out for people peddling tax shelters that sound too good to be true.”
Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.
In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as "listed transactions.
In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as "listed transactions.
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