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Monthly Archives: August 2012

Guide to IRS International Penalties

August 14, 2012

Taxpayer -These are applied to each tax year with no statue of limitation
Filing Requirement
Form
IRC Penalty section
U.S. person with interest in:
Foreign Corporation (FC)
Form 5471
IRC 6038(b)
Foreign Partnership (FP)
Form 8865
FC or FP with Foreign Disregarded Entity
Form 8858
Penalty reducing Foreign Tax Credit:
Foreign Corporation (FC)
Form 5471


IRC 6038(c)
Foreign Partnership (FP)
Form 8865
FC or FP with Foreign Disregarded Entity***
Form 8858
25 percent foreign-owned U.S. corporations
Form 5472
IRC 6038A(d)
25 percent foreign-owned U.S. corporations that fail to: 1) authorize the reporting corporation to act as agent of a foreign related party, or 2) substantially comply with a summons for information
N/A
IRC 6038A(e)
Transferor of certain property to foreign persons:
Foreign Corporation
Form 926


IRC 6038B(c)
Foreign Partnership
Form 8865 Schedule O
Foreign corporations engaged in U.S. business
Form 5472
IRC 6038C(c)
Individuals receiving gifts from foreign sources exceeding $10,000 (adjusted annually for cost of living)*** use to be $100,000
Form 3520
IRC 6039F(c),
Individuals that relinquish their U.S. citizenship or abandon their long-term resident status
Form 8854
IRC 6039G(c)
Foreign persons holding direct investments in U.S. real property interests
N/A
IRC 6652(f)
U.S. person who transfers to, or receives a distribution from, a foreign trust
Form 3520
IRC 6677(a)
U.S. Owner of a foreign trust
Form 3520-A
IRC 6677(b)
Failure to file returns with respect to acquisitions of interests in:
Foreign Corporation
Form 5471 Schedule O


IRC 6679,
Foreign Partnership
Form 8865 Schedule P
IRC 6679,
Foreign corporation failure to file personal holding company tax return
Form 1120 Schedule PH
IRC 6683(Repealedin 2005)
DISC, IC-DISC, or FSC failure to file returns or supply information:
DISC
Form 1120-DISC
IC-DISC
Form 1120-IC-DISC
FSC
Form 1120-FSC
Allocation of Individual Income Tax to Guam or the CMNI
Form 5074
IRC 6688
Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession
Form 8898
IRC 6688
Taxpayer’s failure to file notice of foreign tax redetermination under IRC 905(c) or IRC 404A(g)(2)
Form 1116 or Form 1118 (attached to Form 1040-X or Form 1120-X)
IRC 6689
Taxpayer’s failure to file notice of foreign deferred compensation plan under IRC 404A(g)(2)
N/A
IRC 6689
Taxpayer’s failure to disclose treaty-based return position
Form 8833 or statement
IRC 6712
Failure to Provide Information Concerning Resident Status (Passports and Immigration)
N/A
IRC 6039E
Information with Respect to Foreign Financial Assets Yearly penalty
Form 8938, Form TDF90.22-1
IRC 6038D
50% of assets

Read more at: Tax Times blog

Where's My Multimillion-Dollar Refund?

August 13, 2012

An Overview of the IRS Joint Committee Review Process
                 

By SusanStanley and Janice Flood

 In the current economic environment, many corporate taxpayers are faced with losses that when carried back will result in an overpayment of tax in excess of $2 million; any refund in excess of $2 million, whether claimed on IRS Form 1139/1045, an amended return Form 1120X/1040X, or due from an IRS examination, is subject to a review by the Joint Committee on Taxation (JCT) as required by § 6405.

(Section 6405 covers refunds resulting in excess of $2 million resulting from a claim, overassessment, tentative allowance, and disaster losses attributable to an election under § 165(i). For purposes of this article, JCT refunds may refer to any of these types of refunds).
        
In order to quell any perception of favoritism or corruption,  § 6405 was enacted. In § 6405, Treasury provides the JCT with oversight authority of all refunds in excess of $2 million. Upon completion of review by the JCT, a letter will be issued stating the JCT has taken no exceptions to the IRS findings and the process for issuance of the refund will be made.
        
Although IRS is not required to comply with the JCT staff requests for adjustments, both parties look to the review process as a way to enhance and implement better tax administration. In order to assure an efficient review process, taxpayers are encouraged to communicate openly with IRS agents, and even take ownership of the process by preparing documentation or providing information necessary to further the survey or examination.
       

Read more at: Tax Times blog

Willfulness in trust fund penalty must be determined at trial

August 13, 2012

In a summary judgement, a district court has concluded that a taxpayer who was vice-president, board member, and shareholder of his family-run company was a responsible person for purposes of the Code Sec. 6672 trust fund recovery penalty. However, the district court found that whether the taxpayer, who played a perfunctory role in his company, willfully failed to pay over withholding taxes was an issue of fact to be decided at trial.

Sheila and Robert Nipper, husband and wife, were the founders of Ruah Enterprises, Inc. (Ruah Enterprises), a hospice and home health services company. Sheila was Ruah Enterprises' president, and Robert was its vice-president. Ruah Enterprises was a family affair. Sheila's children and Robert's step-children were Ruah Enterprises' chief financial officer (CFO) and treasurer. Their child was its secretary.

Robert was also on Ruah Enterprises' board of directors, and regularly attended board meetings. He owned 29% of the company (Sheila owned 51%). He advised his wife on employee matters, was a signatory on all Ruah Enterprises checking accounts, and signed at least a few loans, leases, and financing statements on Ruah Enterprises' behalf. He also had a lien placed on his personal property by a Ruah Enterprises' creditor. From 2000 to 2002, he received an average salary of $42,000 from Ruah Enterprises. In '99, he had been self-employed as a landscaper, but after '99, his role at Ruah Enterprises was his only employment.

From its inception in '99 to 2003, Ruah Enterprises withheld its employees' income taxes and the employees' portion of FICA and Medicare taxes from its employees' paychecks. However, none of these withheld funds were ever remitted to the government.

Robert argued that he was vice-president in name only, and had no actual role in the running of the business. He argued that he was a signatory on checking accounts simply as a matter of form, but that in reality he did not sign checks or any other documents without Sheila's authorization. The few documents Robert did sign were only at Sheila's request when she was unavailable. He maintained that he wasn't informed of Ruah Enterprises' failure to pay taxes until the end of 2002 or beginning of 2003.

IRS argued that Robert was a responsible person because he: (1) was a board member and was authorized to manage Ruah Enterprises' business and affairs by its articles of incorporation, and to hire individuals to manage the day to day affairs; (2) regularly attended board meetings; (3) owned 29% of Ruah Enterprises; (4) received approximately $40,000 per year in salary; (5) had authority as a signatory on the company banking accounts to write checks; (6) had authority to sign financing contracts and loans on the company's behalf; (7) took out a personal loan for the use of the company; and (8) provided advice to Sheila on employee matters.

In addition, IRS argued that Robert acted willfully because he proceeded with reckless disregard of an obvious risk that Ruah Enterprises' payroll taxes weren't being paid to the government. As an officer of the company, he disregarded the imprudence of entrusting all financial affairs of a company with many employees to the CFO, a young relative with no college education or other qualifications, without providing any supervision. Further, Robert disregarded the unaccounted-for additional $230,000 per year that was available to the company because of its failure to remit that amount to the government.

The district court concluded that Robert was a responsible person under Code Sec. 6672. The court reasoned that the existence of authority in the general management and fiscal decision making of the corporation, irrespective of whether that authority was actually exercised, was determinative. While Robert argued that he did not exercise his authority, except occasionally and at Sheila's request, he could and should have paid the company's taxes. Robert was in a position where he could have ensured that the taxes were paid. He did not do so.

The district court, denying IRS's request for summary judgment on this issue, found that it had not been shown that Robert willfully failed to pay over the withholding taxes. The court concluded that while Robert's neglect of any responsibility or duties in managing the company was likely negligent, there was a dispute of material fact as to whether it rose to the level of reckless disregard in order to satisfy the second requirement for Code Sec. 6672 liability.

While Robert's lack of involvement didn't prevent him from being a responsible person, it was relevant to whether he acted willfully. IRS didn't provide uncontested facts on how sophisticated a business manager Robert was. The district court knew only that Robert knew nothing about his wife's field of home healthcare, and that he was self-employed as a landscaper in '99. These facts did not provide convincing proof that he was a sophisticated business manager who should have had a clear view of the concerns of a large business and his responsibilities.

While IRS provided evidence that Robert was informed of the failure to pay taxes, he provided contrary evidence that he wasn't so informed until the end of 2002 or beginning of 2003.
In a summary judgment motion, the district court said it had to make all permissible inferences of fact in Robert's favor.

Read more at: Tax Times blog

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