Category Archives: criminal tax law

We previously posted IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes.

Now according to the DoJ, a Montana man was sentenced to 15 months in prison for employment tax fraud. According to court documents and statements made in court, 

Trennis Baer, of Great Falls, owned and operated Baer Construction based in Great Falls. Beginning in 2010 and continuing through 2018, Baer did not file quarterly employment tax returns, nor did he pay employment taxes withheld from his employees’ wages to the IRS. Baer did not comply with these legal requirements, even though the company’s outside accountant from at least 2013 on prepared employment tax returns to be filed and calculated the taxes due. In addition to spurning his employment tax obligations, Baer willfully did not file personal income tax returns for the years 2001 to 2006, 2008, and 2010 to 2018. The total tax loss to the IRS from Baer’s conduct is more than $1.5 million. 

In addition to the term of imprisonment, U.S. District Judge Brian Morris ordered Baer to serve two years of supervised release and to pay approximately $935,251 in restitution to the United States.

Also according to the DoJ, a New York man was also sentenced to 20 months in prison for failing to collect and pay over to the IRS $732,462 in employment taxes. 

Sergei Denko, of Queens, New York, owned and operated Denko Mechanical Inc. and Independent Mechanical Inc., both contracting businesses in Queens that specialized in plumbing. According to court documents and statements made in court, from 2010 through 2014, Denko cashed more than $5 million in checks made out to companies he owned and operated to fund an “off the books” cash payroll. 

He did not report the cash wages to the IRS, filed false employment tax returns, and did not pay to the IRS the employment taxes arising from the cash payroll. 

Denko admitted to causing a total tax loss of $732,462 . In addition to the term of imprisonment, U.S. District Judge Rachel P. Kovner ordered Denko to serve one year of supervised release. The defendant has already paid $366,231 in restitution to the United States.  

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Read more at: Tax Times blog

According to the DoJ, a Queens Acupuncture Clinic Owner Charged with Tax Crimes A federal grand jury in Brooklyn, New York, returned an indictment on June 4, charging a New York City woman with conspiring to defraud the United States and aiding and assisting in the preparation of a false tax return. 

According to the indictment, from 2008 to 2013, Alice Bixuan Zhang of Queens owned and operated Welling Physical Therapy and Acupuncture PLLC (Welling) and, from 2012 to 2013, co-owned Wellife Physical Therapy and Acupuncture PLLC (Wellife). 

Both businesses had locations throughout New York City. As charged, Zhang and her co-conspirator took multiple steps to reduce the income they reported and taxes they paid to the IRS. 

• They allegedly diverted funds from Welling and Wellife to other entities that they controlled (“Related Companies”), and 
• Zhang and her co-conspirator reported those funds as deductible business expenses, thereby reducing the taxable income of Welling and Wellife.
• Zhang and her co-conspirator then allegedly sought to conceal from the IRS income earned by the Related Companies by cashing checks made to those firms at a check cashing business, and not disclosing that income to their tax return preparers, which resulted in the preparation of false income tax returns. 

Zhang will make her initial court appearance at a later date before a U.S. Magistrate Judge of the U.S. District Court for the Eastern District of New York. 

If convicted, she faces a maximum penalty of five (5) years in prison on the conspiracy charge and three (3) years in prison for assisting in filing a false return.

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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 As we previously discussed in Ten Facts About Tax Expatriation - Part I & Part II, whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off and there are 10 things you need to know about Expatriation:

 8. Some expatriates can escape the exit tax.

In general the exit tax is unforgiving and has broad application. Yet if you have less than $600,000 of income from the deemed sale of your assets on expatriation, you pay no tax. This exemption amount is adjusted for inflation and is $627,000 for 2010. If your gain exceeds this amount, you must allocate the gain pro rata among all appreciated property.

However, this exclusion amount must be allocated to each item of property with built-in gain on a proportional basis. This involves a complicated process of multiplying the exclusion amount by the ratio of the built-in gain for each gain asset over the total built-in gain of all gain assets. The exclusion amount allocated to each gain asset may not exceed the amount of that asset's built-in gain. Moreover, if the total allowable gain of all gain assets is less than the exclusion amount, the exclusion amount that can be allocated to the gain assets will be limited to that amount of gain. For example, in 2010, if the total allowable gain in an expatriate's assets was $500,000, then that $500,000 would be the limit instead of $627,000.

Fortunately not all expatriates face the exit tax; only "covered expatriates" do. Under prior law, you generally had to give notice you were expatriating to trigger the rules. Now if you relinquish your passport or green card, it's generally automatic. But some expatriates, even under the new law, can escape the exit tax. The financial thresholds (see point five above) can still exempt you. Some people born with dual citizenship who haven't had a substantial presence in the U.S. and certain minors who expatriated before the age of 18-and-a-half are also exempt. However, those people must still file an IRS Form 8854 Expatriation Information Statement.

9. You can elect to defer the exit tax.
If you do face the exit tax, you can make an irrevocable election (on a property-by-property basis) to defer it until you actually sell the property. This election allows people to leave the U.S. and expatriate without triggering immediate tax as long as the IRS is assured it will collect the tax in the future. To qualify, a covered expatriate must provide a bond or other adequate security for the tax liability. There are specific requirements for these security bonds. Plus, there is an updating and monitoring of the bond in case it becomes inadequate to cover the tax. The IRS scrutinizes these elections on a case-by-case basis, so hire an expert. There are detailed requirements for filing the deferral election, including documentation, and copies of various documents.

One of these requirements is appointing a U.S. agent for the limited purpose of accepting communications with the IRS. Plus, the taxpayer must waive any tax treaty benefits that might otherwise impact the IRS getting its money. It doesn't appear that many of these deferral elections have been made so far.

There's another reason, other than the bond, not to defer. When you do sell, you'll pay taxes at the rate then in effect, which will likely be higher. If the Obama Administration has its way, when the Bush tax cuts expire at the end of this year, the top rate on long-term capital gains will rise from 15% to 20%. Plus, the just-passed House reconciliation package to the Senate's health care bill (if also approved by the Senate) is supposed to impose an additional 3.8% tax on net investment income for taxpayers with threshold income amounts of $200,000 for individuals and $250,000 for joint filers. This could raise the top capital gains rate to 23.8% for those taxpayers.

10. You'll need professional help.
As you might expect, there are forms to file and procedures to follow if you expatriate. In fact, if you are wavering, the paperwork alone may keep you stateside! You must file IRS Form 8854 (in some cases for 10 years). Additional special forms (Form W-8CE if you have any deferred compensation items, a specified tax deferred account, certain non-grantor trusts, etc.) are also required. A good source is IRS Notice 2009-85.

Still, get some professional help. As this mere scratching of the surface suggests, the tax rules regarding expatriation for citizens and long-term residents are complex, even dizzying. Gone are the days when one could renounce U.S. citizenship and stand a good chance of avoiding U.S. tax. If you're facing these issues, or even if you are a beneficiary of someone else who is facing them, get some professional help. Bon voyage!

"Should I Stay or Should I Go?"

Need Advise on Expatriation? 

 

Contact the Tax Lawyers of
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

On Jan. 1, 2021, Congress enacted the Fiscal Year National Defense Authorization Act, which includes the Corporate Transparency Act (CTA), aimed at disclosing the identities of individuals, businesses and similar entities that use the U.S. financial system for legitimate, legal purposes or for illicit activities, such as hiding wealth from taxing authorities or engaging in money laundering. Under this new law, “reporting companies” will be required to file with the Financial Crimes Enforcement Network (FinCen) detailed reports containing the names, addresses, passport numbers and other personally identifiable information of all U.S. and foreign beneficial owners who have certain interests in those entities. An entity’s failure to report beneficial ownership information can result in fines of as much as $10,000 and up to two years in prison.

Over the past several years, the U.S. has gained a reputation around the world as one of the best jurisdictions for wealthy families to maintain privacy and keep their identities secret. While the impact of the CTA on that reputation remains to be seen, it is important to recognize that secrecy and anonymity are not necessarily nefarious objectives. Rather, most companies formed in the United States have been formed for perfectly legitimate business and asset-protection purposes. In many countries, individuals seek financial secrecy not to evade taxes or launder money but to provide for their personal safety and security. Knowledge of financial information in the wrong hands can put individuals and their families in danger.

WHO IS A BENEFICIAL OWNER?

The CTA defines “beneficial owners” of required reporting companies as individuals who directly or indirectly:

• exercise substantial control over an entity, or
• own or control at least 25 percent of the entity’s total ownership interests.

Specifically excluded from the definition of beneficial ownership are 1) minor children; 2) individuals acting as intermediaries, custodians or agent on behalf of another individual; 3) individuals acting as employees who assume control or ownership interest in the company solely due to their employment status; 4) individuals whose only interest in the entity is through a right of inheritance; and 5) creditors of the reporting entities that do not meet the substantial control and minimum ownership interest definition of a beneficial owner.

WHAT TYPES OF ENTITIES MUST MEET REPORTING REQUIREMENTS?

The law broadly defines a reporting company as a corporation, limited liability company or similar entity “created by the filing of a document with a secretary of state or similar office under the law of any U.S. state or Indian Tribe” or “formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a State or Indian Tribe.”

Under this definition, foreign entities that have not registered to do business in any state may be exempt from the reporting requirement. This will require further evaluation of an entity’s legal structure. Moreover, the law specifically excludes from the reporting requirements 1) most non-profits; 2) most financial institutions, including banks, credit unions and financial investment and securities trading firms; as well as 3) entities with a physical presence in the U.S. that employ more than 20 workers and report more than $5 million in annual revenue on their U.S. tax returns.

The treatment of trusts under the CTA is generally unknown and will likely remain so until the U.S. Treasury Department issues regulations. While not likely to be considered a reporting company, a trust is subject to being disclosed as the beneficial owner of a reporting company. It is unclear whether the trust, its trustee or its beneficiaries will be considered as the beneficial owners.

WHEN MUST COMPANIES BEGIN CTA REPORTING?

The CTA will become effective when the Treasury Department issues regulations, which is mandated to occur no later than one year after the law’s enactment on Jan. 1, 2020.

Once the CTA is in force, new entities will need to provide the required information at the time of formation or registration. Existing companies will have two years after the regulation’s effective date to submit the required information. If there is a change to an entity’s reported information, the reporting company will need to file an update with FinCen within one year from the date of the change.

DISCLOSURES OF INFORMATION

FinCen will maintain a private and encrypted database of reported beneficiary information, which it is not permitted to disclose except when a request is made through “appropriate protocols” from 1) a federal agency engaged in national security, intelligence or law enforcement activity, or state or local law enforcement agency pursuant to a court order; 2) a federal agency on behalf of a law enforcement agency, prosecutor or judge of another country under an international treaty or other agreement or, if not subject to a treaty or other agreement under other special procedures; 3) a financial institution subject to customer due diligence requirements with the consent of the reporting company; or 4) a federal functional regulator or other appropriate regulatory agency.

For individuals living in jurisdictions where anonymity is essential for purposes of personal safety and security, the risk of disclosing beneficial owner information will have to be evaluated when considering whether to continue to use U.S. entities for tax planning.

WHAT TO DO NOW?

Applicable entities will not need to begin complying with the CTA’s beneficial ownership reporting requirement until as early as January 2022. However, it is not too early for taxpayers to begin evaluating their exposure to the new law and gathering the specific information they will need to report to FinCen when the regulations go into effect, including the following details about each beneficial owner:

• Full legal name
• Current address (business or personal)
• Date of birth
• Acceptable identifying number, including those contained on a driver’s license issued by a U.S. state, a U.S. passport or a passport issued by a foreign country.

In planning for CTA compliance, non-resident aliens (NRAs) with beneficial ownership interests in U.S. entities should meet with their CPAs and advisors to assess their short- and long-term goals against the new law and consider the impact of restructuring their ownership interest for maximum tax efficiency.

Have IRS Tax Problems?

     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