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Yearly Archives: 2012

IRS Rules – May adopt a CAP Decision as part of a CDP Hearing

August 28, 2012

 

The IRS Office of Chief Counsel said in a program manager technical advice memorandumPMTA2012-14, that a settlement officer may adopt the CAP decision as part of the determination in the CDP hearing but is not required to do so.
 

1) Section 6330(c)(4) does not preclude consideration during a CDP hearing of an issue that was raised and considered in a CAP hearing when the CAP and CDP hearings were requested simultaneously. The Settlement Officer may adopt the CAP decision as part of the determination in the CDP hearing.

2) There is no legal requirement that a taxpayer be given the right to a CAP hearing for a proposed levy when a CDP hearing is requested at the same time. The IRS Office of Appeals ("Appeals") may decide for policy reasons not to provide a CAP hearing for a proposed levy when the taxpayer has requested a CDP hearing about the same proposed levy.

The taxpayer may make simultaneous requests for CAP and CDP review when the Service’s collection action is a NFTL filing or levy. Under CAP, Appeals’ administrative decision is final and the review is limited to the specific collection action proposed or taken. See IRM 8.24.1.1.1(9). Under CDP, Appeals’ determination is subject to judicial review and the scope of Appeals’ review is broader. See I.R.C. § 6330(c), (d); IRM 8.24.1.1.1(10).

For example, a taxpayer may, with certain exceptions, challenge the existence or amount of his or her underlying tax liability in a CDP hearing. See I.R.C. § 6330(c)(2)(B). A taxpayer may not challenge the amount of his or her liability in a CAP hearing. See IRM 5.1.9.4.1(2).

A taxpayer may request a CAP hearing at the same time as a CDP hearing request in order to receive an expedited review, generally five days. See IRM 8.24.1.1.1(9). CDP consideration by contrast will generally take longer.

The more expedited review provided by CAP may be desirable, for example, when a NFTL filing is interfering with a transaction or a levy causes the taxpayer economic hardship, and the taxpayer wants the NFTL withdrawn or the levy released as quickly as possible.

Consequently, many taxpayers will request CAP consideration at the same time as their request for a CDP hearing.

If you have a Tax Lein or Tax Levy, 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

Doctor Convicted for Hidding $8 Million in Secret Offshore Accounts in India & HSBC

August 28, 2012

Acccording to the DOJ - A jury convicted Arvind Ahuja yesterday on federal tax charges stemming from his failure to disclose offshore bank accounts maintained in India and the Bailiwick of Jersey, the Justice Department and Internal Revenue Service (IRS) announced. Trial began on Aug. 15, 2012 before U.S. District Judge Charles N. Clevert, Jr., in Milwaukee. Ahuja, a prominent neurosurgeon in Milwaukee, was convicted of one count of filing a false 2009 individual income tax return and one count of failing to file a Report of Foreign Bank and Financial Accounts (FBAR).

According to the evidence presented at trial, Ahuja transferred millions of dollars from bank accounts in the United States to undeclared bank accounts located in India at HSBC bank. Ahuja invested the funds in these accounts in certificates of deposit, which earned more than $2.7 million in interest income during the years 2005 through 2009.

Ahuja also maintained an HSBC bank account in the Bailiwick of Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy, France. Ahuja used credit and debit cards linked to this account to pay personal expenses while on trips to London. Ahuja managed his offshore accounts with the assistance of bankers who worked at an HSBC India representative office in New York.

The evidence established that for tax year 2009, Ahuja filed a false tax return with the IRS that failed to report the interest income earned on his certificates of deposit at HSBC India, and failed to report he had signature authority over bank accounts located in India and Jersey. Ahuja also failed to file an FBAR for 2009 to report his offshore accounts to the IRS. Ahuja?s accountant testified that Ahuja never disclosed the existence of his offshore accounts during the preparation of his tax returns.
Sentencing is scheduled for Jan. 18, 2013.

"This prosecution reflects the continuing commitment of the United States Department of Justice, including my office and the Tax Division, to identify, investigate and prosecute individuals who fail to abide by well-established obligations to report and pay on their tax indebtedness", said James L. Santelle, U.S. Attorney for the Eastern District for Wisconsin.

This case is a warning to individuals who still think they can use offshore bank accounts to commit tax crimes, said John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department's Tax Division.

If you have Unreported Foreign Bank Account Income, 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

Tax Evasion Potential of Foreign Parent Groups primarily operating in U.S. Analyzed by GAO

August 27, 2012

A new report by the Government Accountability Office (GAO) has analyzed the prevalence of, and potential tax advantages or abuse stemming from, foreign-parented corporate groups with U.S. subsidiaries that conduct the majority of their worldwide operations in the U.S.
 
Although information on the subject was limited, GAO concluded that this structure may provide an advantage because foreign-controlled domestic corporations (FCDC ) and their foreign parents may not be subject to the anti-deferral rules applicable to U.S. parent corporations and their foreign subsidiaries. 
 
The FCDC ownership structure could provide a tax avoidance or evasion advantage relative to a structure where U.S. parents own foreign subsidiaries. According to IRS officials, the FCDC structure could confer a tax advantage because certain rules that can limit potential abuse by U.S. parent companies and their foreign subsidiaries may not apply to FCDCs and their foreign parent companies.
 
These rules (called anti-deferral rules) make immediately taxable to U.S. corporations certain types of income such as interest, rents, and royalties of their foreign subsidiaries. These types of income tend to be easily movable from one taxing jurisdiction to another and hence more amenable to transfer pricing abuse.
 
The standard to be applied is that of a taxpayer dealing at arm's length with an uncontrolled taxpayer. The arm's length result of a controlled transaction must be determined under the method that provides the most reliable measure of an arm's length result.

The GAO states in its report that a multinational corporate group, whether U.S.-owned or foreign-owned, can generally shift income to subsidiaries in low-tax countries to avoid or evade U.S. taxes, even if the majority of their economic activity is in the U.S. However, use of a foreign-controlled domestic corporation (FCDC) structure can provide a tax avoidance or evasion advantage over structures where U.S. parents own foreign subsidiaries.

GAO observed that many corporate groups with U.S. owners achieve the FCDC structure by forming a new foreign corporation in a low-tax country that becomes the owner of the corporate group. This transaction is known as an “inversion,” and it is typically used to reduce the group's overall tax liabilities. Foreign ownership can also occur via takeovers or mergers by foreign corporations, foreign corporations with U.S. subsidiaries incorporating overseas at the onset, or foreign corporations expanding their operations and establishing new subsidiaries in the U.S.

The primary advantage of the FCDC structure is that, unlike U.S. parent companies and their foreign subsidiaries, the anti-deferral rules generally don't apply to an FCDC structure. Rather, the anti-deferral rules only apply to an FCDC if it is also the owner of a CFC, or to the foreign parent of an FCDC if the foreign parent is itself a CFC.

However, with respect to tax evasion through transfer pricing abuse, FCDC structures don't provide any particular advantage since they are subject to the same rules as U.S. corporations with foreign subsidiaries.

GAO emphasized that data on foreign-owned but essentially U.S.-based corporate groups was extremely limited, and noted that it was unable to describe how they came to adopt this structure “without basic information.” GAO stated the Form 5472 doesn't provide information from which GAO can ascertain the percentage that a group's business in one particular country represents of its worldwide business, and it further doesn't contain information on intermediary parties to an FCDC structure. Form 5472 could, however, be revised to better identify and understand FCDCs. 

If you Need Structuring Advice for US In-Bound Sales & Services, 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

Reliance on Accountant May Provide Reasonable Basis to Avoid Penalty for Failure to File Foreign Trust Form

August 24, 2012

 

A district court has denied IRS's motion for summary judgment in a case dealing with the Code Sec. 6677 penalty for failure to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The court concluded that there was a genuine issue of material fact about whether the taxpayer's accountant provided him with advice on which he reasonably relied in not filing the form.
 


If you have been unjustifiably Assessed a Tax Penenalty, 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).


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United States District Court, M.D. Florida, Tampa Division.

Brian Chivas JAMES, Plaintiff,

v.

UNITED STATES of America, Defendant.

No. 8:11–cv–271–T–30AEP.

Aug. 14, 2012.

Dwaune L. Dupree, Kendall C. Jones, Sutherland, Asbill & Brennan, LLP, Washington, DC, Patricia A. Gorham, Sutherland, Asbill & Brennan, LLP, Atlanta, GA, for Plaintiff.

Michael W. May, U.S. Department of Justice, Washington, DC, for Defendant.

ORDER

JAMES S. MOODY, JR., District Judge.

Background

Plaintiff Brian Chivas James is a Sarasota physician specializing in pain management. In 2001, looking to protect his assets from potential malpractice claims, James proceeded to create an irrevocable foreign trust in Nevis, West Indies, with First Fidelity Trust Limited (FFT) as its trustee. James initially funded the trust in 2001 with a contribution of $192,000. He made additional contributions of $805,000 in 2002 and $607,146 in 2003.

Under 26 U.S.C. sec. 6048, the trust was required to file Form 3520–A, Annual Information Return of Foreign Trust with a U.S. Owner, which the trust timely filed for all relevant years. In addition, as owner of the trust, James was required to file IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. James failed to file the required Form 3520 for the years 2001, 2002, and 2003.

James argues that his failure to file Form 3520 is the fault of his former accountant, George Famiglio. Famiglio had prepared James's personal and business taxes for a number of years, and James relied on Famiglio to properly oversee and advise him about the tax requirements of the foreign trust. According to James, he or his agent timely provided Famiglio with all appropriate trust documents and information, for each year in question, yet Famiglio failed to timely file Form 3520, and/or advise James that it should be filed. James further contends that he was personally unaware of the requirement to file Form 3520.

James argues that he acted prudently and with sound business judgment in engaging Famiglio to handle all issues related to the foreign trust, and that his accountant simply dropped the ball. Although James does not remember the details of most conversations he had with Famiglio, or any specific advice he received, he recalls that they "talked a pretty good bit" about the trust, and he believed at the time that "[Famiglio] had filed all the-everything required with the IRS." In short, James argues that he had "reasonable cause" in failing to file Form 3520 by reasonably relying on Famiglio.

The Government contends that James lacks reasonable cause. Noting that James was put on notice of the requirement to file Form 3520, the Government argues that his reliance on Famiglio cannot constitute reasonable cause. In 2006, the Government assessed penalties of $67,200, $281,750, and $230,000, for failure to file Form 3520 in years 2001, 2002, and 2003, respectively. James now sues for a refund of tax penalties, arguing that his failure to file Form 3520 was due to reasonable cause and not willful neglect.
The district court said it was clear that a taxpayer may reasonably rely on an expert's advice that no return is required; thus, if an expert erroneously advises him that no return is required, or erroneously advises him that it can be filed beyond the due date, reasonable cause may be found. The court pointed to these factors in deciding that there was a genuine issue of material fact about whether Famiglio provided Dr. James with advice upon which the latter reasonably relied:

  • Dr. James timely provided all required trust forms to Famiglio and relied on Famiglio to advise him on all matters related to the trust;

  • Famiglio advised him on at least some trust matters (for example, he advised on how to report loans from the trust for tax purposes and that the trust loans did not result in taxable income);

  • Dr. James relied on Famiglio to advise him about making the appropriate filings for the trust, but Famiglio failed to so advise him; and

  • Dr. James, based on his conversations with Famiglio, believed that he had filed all required forms.

In addition, the court pointed out that Famiglio prepared James's personal tax returns. On Schedule B of his Form 1040 tax returns, Famiglio answered “no” to the question asking whether the taxpayer received a distribution from, or was the grantor of or transferor to, a foreign trust. The court said that answering “no” to this question could be construed as Famiglio providing advice that Dr. James need not file Form 3520, advice upon which James could have potentially reasonably relied.

As a result, the court denied IRS's motion for summary judgment.
 
 James v.U.S., 2012 WL 3522610 (M.D.Fla., Slip Copy, Aug. 14, 2012).

Read more at: Tax Times blog

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