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Yearly Archives: 2012

Dead Beat Taxpayers Residing residing outside U.S. questioned at U.S. border regarding back taxes.

Taxpayers traveling to the United States with unpaid U.S. tax assessments can be detained at the border, questioned, and flagged for follow-up enforcement. If a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Tax Lien, the IRS may submit identifying taxpayer information to the Treasury Enforcement Communications System (TECS), a database maintained by the Department of Homeland Security (DHS).

The database allows the DHS to identify taxpayers with unpaid tax assessments who are traveling to the United States (Internal Revenue Manual (IRM), §5.1.12.26).  

U.S. or non-U.S. persons with an unpaid federal tax liability whom the IRS has been unable to contact may be unaware of the tax debt until they come through U.S. Customs and are detained by Immigration and Customs Enforcement (ICE). ICE agents may ask them what assets they have in the United States, the purpose and duration of their trip, where they are staying, vehicle registration information, and similar information. The agents also may inquire about a taxpayer’s employment relationships in the United States or any personal services performed in the United States, to establish wage garnishment opportunities. Thereafter, ICE agents alert an IRS coordinator and transmit this information through a referral program. Typically, an investigation request is sent to an IRS agent in the region in which the taxpayer is traveling to follow up with the taxpayer.

To be entered into TECS, the taxpayer must live outside the United States and its commonwealths or territories (or “is about to depart to reside in a foreign country” or “travels outside the United States … on a frequent basis and [IRS agents] have not been able to contact the taxpayer”) and be subject to a filed Notice of Federal Tax Lien (IRM, §5.1.12.26.5.1).  

The IRS may file a federal tax lien on a taxpayer’s real or personal property under Sec. 6321 when the taxpayer fails to pay taxes allegedly owed after the notice-and-demand period expires. A properly filed federal tax lien publicly alerts creditors that the IRS has a priority claim against the taxpayer’s real or personal property. If the IRS files a federal tax lien in the wrong location, it will not have priority over a later purchaser, holder of a security interest, mechanic’s lien, or judgment lien creditor.

A federal tax lien is filed in the office designated by the state where any real property owned by the taxpayer is located (Sec. 6323(f)) and is a public record. For personal property, the federal tax lien ordinarily is filed in the county in which the taxpayer resides or in any other office designated by state law. However, taxpayers who reside outside the United States are deemed to reside in Washington, D.C., for lien-filing purposes. Accordingly, the Notice of Federal Tax Lien is filed with the Recorder of Deeds for the District of Columbia (IRM, §5.17.2.3.2).

A withdrawal or release of the lien, along with certain other prerequisites, is required for removal of the taxpayer’s information from TECS. Thus, the lengthy process may result in detention at the border for travelers to the United States for a period after the IRS has withdrawn or released a lien.

A taxpayer who resides outside the United States may not be aware of outstanding federal tax liabilities if the address on record for the taxpayer is outdated or otherwise incorrect. Consequently, tax advisers with clients who reside outside the United States should ensure that the correct address for the taxpayer is used on the client’s returns and, if the client no longer is required to file U.S. returns, that the IRS still is able to contact the taxpayer about previously filed returns. Taxpayers should be advised that a failure to keep the IRS apprised of a change in mailing address may result in an unwelcome—and potentially embarrassing—surprise when the taxpayer seeks to enter the United States.  

If you have Un-Resolved Tax Liabilities, contact the Tax Lawyers at Marini & Associates, P.A. for a FREETax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Some U.S. companies pay more to CEOs than to Uncle Sam

Citigroup, Abbott Laboratories, and AT&T are among the 26 companies that paid more to their CEOs in 2011 than they did in U.S. federal taxes, according to a study released on Thursday.

Tax breaks on research and development, past losses, and foreign-held earnings were among those lightening the tax load for many companies on the list, said the Institute for Policy Studies, a left-leaning think tank in Washington, D.C.

Citi, Abbott and AT&T all took issue with the institute's methodology. All three said they paid all taxes owed in 2011.

During a presidential election cycle in which wealth and taxes are often debated, the study's authors said the U.S. tax code has become an enabler of large CEO pay, while also offering companies ways to reduce their tax bills.

Four pay-related tax breaks combined to cost taxpayers $14 billion in uncollected federal taxes, the report said.

The four included breaks dealing with performance-based chief executive pay and stock options, as well as the preferential 15 percent tax rate on carried interest enjoyed by private equity partners and other financiers, it said.

Compensation for the 26 CEOs whose pay surpassed their companies' corporate tax bills averaged $20.4 million, according to the study. That average was up 23 percent over last year.

The average was also significantly higher than pay tracked by separate studies of broader groups. For instance, $10.3 million was the average 2011 direct compensation for 300 large-company CEOs tracked by pay consultants Hay Group.

CURRENT U.S. TAXES PAID EYED

To get its list, the institute compared CEO pay to current U.S. taxes paid, excluding foreign and state and local taxes that may also have been paid, as well as deferred taxes that can often be far larger than current taxes paid.

The group's rationale was that U.S. taxes paid are the closest approximation available in public documents to what companies may have actually written in their checks for last year to the U.S. Internal Revenue Service.

Among companies topping the institute's list:

* Citigroup, the financial services giant, with a tax refund of $144 million based on prior losses, paid CEO Vikram Pandit $14.9 million in 2011, despite an advisory vote against it by 55 percent of shareholders.

* Telecoms group AT&T paid CEO Randall Stephenson $18.7 million, but was entitled to a $420 million tax refund thanks to billions in tax savings from recent rules accelerating depreciation of assets.

* Drugmaker Abbott Laboratories paid CEO Miles White $19 million, while garnering a $586 million refund. Abbott has 64 subsidiaries in 16 countries considered by authorities to be tax havens, the institute said.

ABBOTT TAKES ISSUE

"This is a blatant misrepresentation of the facts," Abbott spokesman Scott Stoffel said.

He said Abbott did not get a rebate, but paid the U.S. government $700 million in federal income taxes in 2011, and that the report's numbers reflect a non-cash accounting adjustment caused by the resolution of various tax matters.

A Citigroup spokeswoman said that, while the company did not pay federal income tax in 2011, that was due to substantial losses it recorded in 2008 and 2009, a break available to all businesses in similar straits.

She also noted that Citi paid on average $3.7 billion a year in federal income taxes from 2000 to 2006, and paid other taxes last year, including more than $3 billion in payroll taxes, and that Pandit voluntarily took a salary of just $1 in 2010.

AT&T said in a statement its CEO's pay was closely tied to performance and was fair, and that the accelerated deductions that lowered its federal taxes stemmed in part from $20 billion spent in support of the U.S. economy and jobs. The company reported paying $3.8 billion in other taxes last year, and hundreds of millions in federal income taxes in 2010.

All the tax breaks identified in the study are legal and shareholders generally expect companies to take advantage of any reasonable tax breaks they can, said David Wise, a senior principal with Hay Group.

If the tax code changed to eliminate pay-related deductions, like the stock option deduction, he said, "individual companies could navigate that fairly easily. But collectively, those dollars would add up and increase the tax base." (Reporting by Nanette Byrnes; Editing by Kevin Drawbaugh, Gary Hill)


Source: Reuters

Read more at: Tax Times blog

Collateral Agreement and Bond in Lieu of Filing Tax Lien

In a Chief Counsel’s Advice (“CCA”) 201231001 released recently, the IRS accepted a collateral agreement and bond from a C corporation in lieu of filing a Notice of Federal Tax Lien (“NFTL”), where the C corporation argued that filing a NFTL would ruin its business. A collateral agreement is a pledge, guaranteed by security, for the performance of a certain act, for example the payment of a delinquency or the filing of a return. Treas. Reg. 301.7101-1(a) requires the execution of a bond on an appropriate form prescribed by the Service and with a satisfactory surety. Treas. Reg. 301.7101-1(b)(1) provides that a surety holding a certificate of authority from the Secretary as an acceptable surety on Federal bonds is a satisfactory surety.

Generally, the IRS will file a NFTL in the following situations:

  • Any account with an aggregate unpaid balance of $10,000 or more.
  • All installment agreement cases not meeting the streamlined, guaranteed, or in-business trust fund criteria.
  • A case involving both assessed and un-assessed periods that have not yet been classified as “currently not collectible.”
  • A case that has an open account with an aggregate unpaid balance of $10,000 or more that has been classified as “currently not collectible.”
  • Property that is exempt property for purposes of Federal bankruptcy or state insolvency proceedings.
  • The taxpayer lives outside the U.S. and has known assets.
  • A pending bankruptcy or other exigent circumstance exists and the government’s interest will be protected (even if the aggregate unpaid balance is less than $10,000).

In CCA 201231001, the taxpayer was a privately-owned C corporation that sold insurance and provided completion and other bonds to contractors. The taxpayer’s sole shareholder demonstrated an inability to currently pay the entire deficiency assessed on audit, and said filing of a notice of a NFTL would “ruin its business and thus prevent payment of the remaining taxes owed.” The taxpayer submitted sample payment bond language and a proposed amortization schedule for its proposed collateral payment agreement. The collateral agreement proposed payment of the shortfall over three years at a 3% interest rate, compounded monthly, with a payment schedule of 12 monthly payments. The taxpayer made a payment when it submitted the proposal.

Section 6621(a)(2) provides that the underpayment interest rate is computed by adding 3% to the Federal short-term rate. Section 6621(c)(1) provides that the underpayment rate for large corporate underpayments is the Federal short-term rate plus 5%. Section 6621(c)(3)(A) defines a large corporate underpayment as any underpayment of tax by a C Corporation for any taxable period if the amount of the underpayment exceeds $100,000. The Federal short-term rate for the first and second quarters of 2012 is 0%, and the large corporate underpayment rate for the first and second quarters of 2012 is 5%. Rev. Ruls. 2011-32, 2012-8. The taxpayer’s liability for the period at issue exceeded $100,000.

The CCA advised that the collateral agreement and bond could be accepted from the taxpayer in lieu of an NFTL, but the agreement’s terms must include interest accruing at the large corporate underpayment rate of 5%, compounded daily. This is not a fixed rate, but one that varies monthly, depending on the Federal short-term rate. The Chief Counsel’s Office noted that a collateral agreement secured by a bond with appropriate surety, authorized by 26 U.S.C. § 7101, does not compromise the tax liability, and should not be confused with collateral agreements in the context of offers in compromise. That is, this taxpayer was paying the full amount owed, and not attempting to pay a lesser amount.

The CCA also stated that the collateral agreement pledging payment of the tax deficiency should include terms required by Internal Revenue Manual § 5.6.1, including:

• that the IRS intends to offset any refunds to the delinquent account until it is paid in full or otherwise satisfied,

• that the taxpayer must remain current on filing and not incur further delinquencies during the term of the agreement, and
• that the IRS has a unilateral right to liquidate the collateral upon the taxpayer’s failure to keep the terms of the agreement.

While Chief Counsel Advice may not be cited or used as precedent (26 U.S.C. § 6110(k)(3)), this advice may signal the beginning of an alternative means to avoid the filing of a NFTL in certain situations.

If you have Tax Liabilities and you Don't Want a Tax Lien, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Whistleblower Case Hinges on IRS Time Frame for Setting Awards

The U.S. Tax Court has given the IRS until Sept. 24 to respond to an amicus brief in support of what could amount to an award of tens of millions of dollars for whistleblower Joseph Insinga, an informant who implicated seven major corporations in tax evasion in 2007 (Insinga v. Comr., Tax Court Order No. 4609-12W (7/31/12)).
The issue is whether the Administrative Procedures Act applies to the IRS in this case and whether inaction is tantamount to a negative determination.
The case will be closely watched by informants because of its potential to impact other slow-moving IRS whistleblower claims and also because it is the first to invoke the Administrative Procedures Act in a whistleblower case. The act confers jurisdiction on the court if agency action or failure to act aggrieves an individual.
Five-Year Wait
For Insinga, it is a matter of having waited five years for the IRS to decide if it will pay him on claims he made as a former Rabobank managing director against corporations such as General Mills and Newell Rubbermaid. The IRS has already collected hundreds of millions of dollars in taxes, penalties, and interest on his information, according to the court documents.
In the original Tax Court petition, Insinga alleged that the IRS advised him that his submission was defective because the IRS had recently discovered “other sources” of the information he had furnished in April 2007.
If they deny his claim, he has the right to go to federal court and seek the court's help. However, they haven't denied his claim and they haven't approved it either.
A June 27 amicus brief filed by Dean Zerbe, attorney with Zerbe, Fingeret, Frank & Jadav, on behalf of the National Whistleblowers Center, was designed to compel the Tax Court to make a final decision without delay.
The IRS, in its March 21 motion to dismiss the case, said that the court does not have jurisdiction until the IRS issues a determination letter. There has been no denial letter issued to Insinga, nor has a determination been made in the case, IRS said. Furthermore the IRS said the statute does not set forth any time limits within which a determination must be made.
The IRS is taking the position that they don't have to pay us until the last of all the cases we reported is paid or otherwise disposed of.
Insinga has argued that he should have an award determination based on the amount the IRS has already collected from his claim—an estimated $600 million—within 90 days after the IRS was paid.
He estimated that the offshore and other tax avoidance transactions he identified would result in a total of $1.5 billion in collection of unpaid taxes, penalties and interest for the IRS.
The IRS has come under pressure from a number of sources to move whistleblower claims along. Sen. Charles Grassley (R-Iowa), for one, said the IRS's handling of the program has been inexcusable, and threatened to block two pending Treasury Department nominees from getting a confirmation vote until he got answers about implementation of the program. Grassley wrote the 2006 legislation that overhauled the whistleblower program, and has kept a lookout over its development.
 
IRS Deputy Commissioner for Service and Enforcement, Steven Miller, also buoyed the hopes of whistleblower community when he announced June 20 that he is reviewing the program, which will lead to “a set of expectations for timely action.”
Until that time he said the Whistleblower Office should evaluate claims within 90 days, and whistleblowers should be notified of an award decision within 90 days of when collected proceeds can be finally determined.
But all eyes are on the Tax Court, since the Miller memo is not binding. “If the court comes out and directs the IRS to make a decision in a set number of days—such as 90 days—it would really break a logjam, because there are so many folks waiting for the IRS to make a decision.

If you have questions about the IRS' Wistler Blower Program, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

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