Yearly Archives: 2021

On January 15, 2020 we posted 151 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are You Waiting For? and since then the Government has add Strachans (effective 10/6/2020) to this list bringing the number to 152 Offshore Banks and Foreign Financial Advisors.

• 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.

These Banks, Financial Instructions and Foreign Financial Advisors  have 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. 

This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.

 

1. With roughly 151 Foreign Banks and Financial Advisors cooperating with the DOJ & IRS and 
2. FATCA requiring the entire world to report to the IRS

it is INEVITABLE that this increased disclosure, will result in EVERY AMERICAN eventually being discovered. Banks worldwide want to know if there US clients are compliant with the IRS. 

As additional banks are added to the list, American taxpayers will continue to be subject to the 50% intentional failure to file penalty, which now applies to all taxpayers with foreign accounts who  make a voluntary disclosure after September 28 2018.

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 if the 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

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

Read more at: Tax Times blog

The Tax Court has held in Aspro, Inc., TC Memo 2021-8 that payments made to a corporate taxpayer's three shareholders were dividends, not compensation for personal services rendered to the taxpayer, because the taxpayer had never previously paid dividends to the shareholders; the payments were roughly made in proportion to each shareholder's ownership; payments were made to two shareholders that were corporations, but the ostensible personal services were performed by individuals who owned those corporations; and the payments were made annually, but the personal services were performed throughout the year.

A corporation may deduct all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered. (Code Sec. 162(a)(1); Reg §1.162-7(a))

But the test of deductibility in the case of compensation payments is whether they are in fact payments purely for services. (Reg §1.162-7(a))

Aspro, Inc, the taxpayer, operated an asphalt paving business. Most of the taxpayer's revenue came from contracts with government entities. These public projects are awarded to the low bidder.

The taxpayer had three shareholders. Shareholder A, an individual, owned 20% of taxpayer. Shareholders B and C, both corporations, owned 40% each.

Shareholder A also was taxpayer's president and was responsible for the company's day-to-day management. His responsibilities included bidding on projects.

A often spoke to the individuals who owned B and C to get their advice on bidding for projects.

In 2014, taxpayer paid management fees to A, B, and C for their services in advising taxpayer on how to bid for projects. Taxpayer deducted these management fees as personal services rendered to taxpayer.

Neither in 2014 nor in any prior year did the taxpayer pay dividends to its shareholders.

The IRS denied the deduction, claiming the fees were actually dividends.

The Tax Court Ruled That The Payments Were Dividends,
And Not Personal Service Management Fees.

While the Court did not dispute that potentially a portion of payments made to A might have been compensation for personal services, since the payments were not purely compensation (as discussed below) the payments were not deductible under Reg §1.162-7(a).

The Court looked at various facts that it said were indicia that the payments were dividends. For example:

·         The taxpayer never made any dividend distributions to its shareholders during its entire corporate history. The taxpayer merely paid management fees. This lack of dividend payments indicates that the management fee payments lacked a compensatory purpose, the Court said looking at Reg §1.162-7(b)(1) (the taxpayer being a corporation with few shareholders).

·         Although the management fees were not exactly pro rata among the three shareholders, the two large shareholders always got equal amounts, and the percentages of management fees all three shareholders received roughly corresponded to their respective ownership interests. This distribution supported an inference that taxpayer paid management fees to the shareholders as dividends.

·         The fact that taxpayer paid shareholders B and C, instead of the individuals actually performing services, indicated a lack of compensatory purpose.

·         Taxpayer paid management fees as lump sums at the end of the tax year, rather than throughout the year as the services were performed.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

According to Law360, a California licensed tax return preparer committed fraud in underreporting income from his marijuana business, and a U.S. Tax Court ruling holding him liable for penalties should be affirmed, the U.S. told the Ninth Circuit.

Raymond Chico, who founded the marijuana cigarette container company Doobtubes, was uncooperative with the Internal Revenue Service during its audit of his income tax returns, (not recommended and probably resulted in the fraud penalty assessment) and the Tax Court rightly held him liable for fraud penalties related to his overstating of business expenses and understating of income, the government said in a brief Wednesday.

Chico, whom the government described as a "serial entrepreneur," had plenty of tax preparing experience and should have recognized his mistakes on his tax returns, the government said.

"Based On This Court's Precedent, Chico's Understatement Of His And His Wife's Income By More Than $640,000 Over
The Course Of Three Years, Coupled With His
Inadequate Record-Keeping, Is Sufficient To Establish
 His Fraudulent Intent," The Government Said.

In December, Chico told the appeals court that the IRS failed to clearly prove he knowingly avoided paying taxes on Doobtubes' income. Chico said that the Tax Court's ruling should be reversed because he had properly filed his personal income tax returns and at most made mistakes in his business tax filings, according to the brief.

The Tax Court ruled in September 2019 that Chico underreported Doobtubes' receipts by $180,000 and ordered him to pay fraud penalties. Chico, despite being a licensed tax return preparer, also didn't file corporate returns for Colorado marijuana dispensary Lakewood Patient Resource Center Inc., for which he was chief financial officer and half-owner, according to the Tax Court.

Chico Was Also Said To Be Uncooperative During A Revenue Agent's Examination of His Tax Compliance, Failing To Respond Adequately and Provide Requested Paperwork Related
To His Tax Returns Between 2010 And 2012,
According To The Tax Court Opinion. 

Most Likely This Lack of Cooperation Inspired
the Revenue Agent to Assess the Fraud Penalty!

But Chico said in his brief that he had only limited experience as a tax return preparer and during the Tax Court proceedings he initially relied on an attorney who failed to cooperate with the IRS in its audit and was later disbarred from practicing law in California.

Despite Chico's arguments, the government said in its brief there is more than enough evidence showing that he committed fraud and Chico was responsible for the actions of his first legal representative.

In addition to Chico's understatement of income, he also kept inadequate records and failed to file business tax returns for Lakewood Patient Resource Center, the government said. Taken together, the "badges of fraud" make clear that Chico's tax position was fraudulent, the U.S. said.

The government also told the appeals court that even though the Tax Court judge who presided over Chico's trial didn't issue the opinion in his case, the factual record is more than sufficient to support the imposition of fraud penalties. The case didn't require the new judge to make any credibility determinations on witness testimony, as Chico has argued, the U.S. said.

It is too late for Chico to raise arguments in the appeals court that a retrial should be held in his case, the government said.

"[Chico] consented to a decision in the Tax Court by a successor judge based on the record developed at trial, expressly declining the opportunity afforded by the court to seek a new trial or supplement the record," the government said.

Have as IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

According to the Miami Hearld Magic Johnson is one of a cavalcade of rich and famous, including golfer Tiger Woods, actors Angelina Jolie and Brad Pitt, soccer star Cristiano Ronaldo, among them, listed as the owners of registered businesses in the Grand Duchy of Luxembourg.

There is nothing illegal about owning Luxembourg Companies and there are legitimate reasons for a company to hide the identify of its owners. But the benefits, as well as the secrecy, are being stripped away. Up until recently, it was a way to minimize taxes and maintain a high level of confidentiality.

Now, thanks to a law that took effect in 2019 requiring Luxembourg companies to list their beneficial owners, those who have an actual financial stake in the company, are now public.

The double whammy of the new transparency law and the 2020 expiration of the special tax perks documented in the 2014 Luxembourg Leaks investigation, appear to have made a dent on the country’s popularity as a destination for global wealth: 2020 was the first year in the registry’s history that more existing companies left Luxembourg than new companies entered.

The Miami Herald and its parent McClatchy partnered with 17 media outlets, including Le Monde in France, Süddeutsche Zeitung in Germany and the Organized Crime and Corruption Reporting Project, as well as the nonpartisan Anti-Corruption Data Collective to analyze Luxembourg’s corporate registry, which contains more than 140,000 active companies, as part of a project called OpenLux. 

Need International Tax Advice?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog