Yearly Archives: 2019

The Internal Revenue Service hasn’t done enough to improve its procedures for reviewing amended tax returns to reduce erroneous and fraudulent tax refunds, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, followed up on earlier reports by TIGTA that found risks of fraudulent and erroneous tax refunds from amended returns.

In the new report, TIGTA reviewed a valid sample of 235 of more than 1.1 million amended tax returns processed in 2017 and identified 33 (that is, 14 percent) questionable amended returns with refunds totaling $74,974.

It forecast that the IRS could issue nearly $1.8 billion over the next five years. Of the 33 returns identified as questionable, 23 resulted from employee processing errors totaling $58,204 in potentially erroneous tax refunds.

Based on the results of the sample, TIGTA estimates the IRS issued nearly $279.4 million in potentially erroneous tax refunds claimed on 110,398 amended tax returns in 2017. It also forecast that the IRS could issue nearly $1.4 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.

In previous reports, TIGTA has recommended:

• that the IRS revise Form 1040 to allow taxpayers to amend their original tax return using that same form.
• In addition, TIGTA had also recommended that the IRS expand electronic filing to include amended tax returns.

It estimated the IRS could potentially save more than $17 million in processing costs during fiscal year 2012 if it had allowed taxpayers to e-file their amended tax return.

The IRS disagreed with this recommendation at the time, but said it would consider the format and appearance of the Form 1040X to include more specific information related to changes to income in conjunction with the implementation of e-filing of amended returns.

In the new report, TIGTA recommended that

• the IRS review the questionable amended tax returns it identified and implement adequate processes to identify and correct employee errors to reduce erroneous refunds.
• It also suggested the IRS should request funding to expand electronic filing for the 2020 filing season.
• TIGTA recommended the IRS update its internal processes to identify and review amended tax returns with claims for refundable credits that were denied during the original tax return processing,
• as well as modify the Form 1040X to allow individuals to use the Identity Protection Personal Identification Number when filing an amended tax return.

IRS management agreed with five of TIGTA’s seven recommendations, but disagreed with one suggestion on the need to hold amended tax returns for processing until a taxpayer confirms their identity when they are a victim of identity theft. The IRS believes its current verification processes provide enough account protections.

“... In its current state, amended return processing is reliant on manual processes; however, we developed automated tools for our employees to use that replicate, to the greatest extent possible, the systemic checks and validations to which original returns are subjected.”

The Tax Court found in Kohan, TC Memo 2019-85 that a dentist's underreporting of income was due to fraud. Therefore, there was no period of limitations to assess the taxes he owed.

(Schiff, (CA 2 1990) 67 AFTR 2d 91-1062)

Kohan conceded that he understated his income by $366,185 for 2008 and $380,124 for 2009. IRS found that these understatements were chiefly attributable to Dr. Kohan's underreporting the gross receipts of his dental practice. All of these receipts were deposited into his personal bank account.

In addition, IRS felt that Dr. Kohan did not cooperate with it during the examination. He declined to produce his receipts book or the payment information included on patients' charts. He declined to produce the income and expense summaries that he supplied to his CPA for use in preparing his tax returns. And he falsely told the IRS auditor that he leased the dental office building from a relative whom he refused to name.

This first round of approved treaties were protocols, which update existing treaties that are, in part, designed to help prevent companies from being subject to double taxation.

Pending new tax treaties that weren’t among those voted on when the U.S. Senate recently ended a years-long impasse could face additional delays, in part because the U.S. Treasury Department wants to add a caveat that may complicate the approval process.

But three treaties that remain pending are unlikely to move through the Senate with the same relative ease of the first four, in part because these new agreements could override a provision in the Tax Cuts and Jobs Act unless Treasury intervenes. Specifically, Treasury has requested reservations concerning the TCJA’s base erosion and anti-abuse tax provision that could require the U.S. to renegotiate the treaties. The Hungary and Poland treaties would replace ones from the 1970s and the Chile treaty would be that nation’s first with the U.S.

These new treaties would trump the statute due to the “later in time” principle, which refers to the 1888 U.S. Supreme Court case Whitney v. Robertson .
The ruling states that if treaties and legal provisions are inconsistent, “the one last in date will control the other." If the new treaties override the U.S. tax overhaul, it would mean the TCJA’s base erosion and anti-abuse provision wouldn’t apply.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243).

Source

Law360

On September 3, 2018 we posted 150 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are Your Waiting For?, we discussed that the IRS keeps updating its list of foreign banks which are turning over the names of their US Account Holders, who where then subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP) and that Liechtensteinische Landesbank was on this list.

Now according to DoJ, the Justice Department Announced that the resolution with LLB Verwaltung (Switzerland) AG Assistance to U.S. Taxpayers to Commit Tax Evasion has resulted in $10.6 Million PenaltyLLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz)

AG” (LLBSwitzerland), a Swiss-based private bank, reached a resolution with the United States Department of Justice, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division on August 5, 2019.

As part of the agreement, LLB-Switzerland will pay a penalty of $10,680,554.64 to the United States.

 Said Principal Deputy Assistant Attorney General Zuckerman.

"The Department Is Dedicated To Holding Both Financial Institutions And Individual Offenders

Accountable For Tax Evasion."

 

According to the terms of the non-prosecution agreement, in addition to paying a penalty, LLB-Switzerland has agreed to cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland.

According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. The majority of those accounts were in the names of nominee entities.

In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLBSwitzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLBSwitzerland from the resolution).

At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by thirdparty external investment advisers.

In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents.

The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files.

In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled.

At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them.

Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy.

Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLBSwitzerland waited two years, until a grand jury had indicted the Swiss asset manager, to close the accounts he managed.

LLB-Switzerland’s remediation efforts since 2012 have been comprehensive.

• It halted and terminated all U.S. crossborder business with U.S. clients.
• All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended.
• It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and
• LLB-Vaduz has shut down the operations of LLB-Switzerland.

In 2013, LLBVaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.

Under this agreement Liechtensteinische Landesbank is required to:

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
• Cooperate in treaty requests for account information;
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

Liechtensteinische Landesbank has made substantial efforts to cooperate with the IRS investigation, including by:

1. facilitating interviews that their Office with employees, including top level executives;
2. voluntarily producing documents in response to the Office’s requests;
3. providing, in response to a treaty request, unredacted client files for the U.S. taxpayer-clients who maintained accounts at their Banks or Financial Instruction; and
4. committing to assist in responding to a treaty request that is expected to result in the production of un-redacted client files for U.S. taxpayer-clients who maintained accounts at these Banks and Financial Instructions and with these Foreign Financial Advisors. 

Since the OVDP program ended on September 28, 2018, US taxpayers are now subject to  a 50% penalty per year. This penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons. 

 

Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the  most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.   

 

Do You Have Undeclared Income from one of 

these Offshore Banks or 

Financial Advisors?

 

 

Is Your Name Being Handed Over to the IRS?

  

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:

www.TaxAid.com or www.OVDPLaw.com or