What is an IRS Summons?
IRC § 7601 authorizes the Service to inquire about any person who may be liable to pay any internal revenue tax. The authority under 7601 to inquire does not include the authority to summon.
IRC § 7602 authorizes the Service to summon a witness to testify and to produce books, papers, records, or other data that may be relevant or material to an investigation. United States v. Powell, 379 U.S. 48 (1964).
IRC § 7602 and the corresponding regulations, 26 CFR § 301.7602-1, also identify the purposes for which the Service may issue summonses.
The purposes are:
To ascertain the correctness of any return;
To prepare a return where none has been made;
To determine the liability of a person for any internal revenue tax;
To determine the liability at law or in equity of a transferee or fiduciary of a person in respect of any internal revenue tax;
To collect any internal revenue tax liability; or
To inquire into any offense (civil or criminal) connected with the administration or enforcement of the internal revenue laws.
The Service’s right to examine records provided by IRC § 7602 includes the right to photocopy such records.
The following persons may be summoned under the authority of IRC § 7602(a)(2):
The person liable for the tax or required to perform the act (prepare a return);
Any officer or employee of such person who has information that may be relevant to the investigation;
Any person having possession, custody, or care of books, papers, records, or other data that may be relevant to the investigation; and
Any other person the Secretary deems proper.
IRC § 7602(d)(1) prohibits a summons from being issued or enforced with respect to any person if a Justice Department referral is in effect with respect to such person. Under IRC § 7602(d)(2), a “referral” is in effect with respect to a person when either:
The Service has recommended to the Justice Department a grand jury investigation of, or the criminal prosecution of, such person for any offense connected with the administration or enforcement of internal revenue laws; or
The Justice Department requests, pursuant to IRC § 6103(h)(3)(B), the disclosure of a return or return information relating to such person, as when the Justice Department requests the Service’s criminal investigators to join an ongoing federal grand jury investigation of the person for non-tax crimes, such as narcotic trafficking or racketeering, to investigate potential tax charges.
The limitation of IRC § 7602(d)(1) applies only when the Service has referred to the Justice Department the taxpayer whose liabilities are at issue. The Service is not barred from summoning a third-party witness when the Service has referred the third-party witness to the Justice Department. Khan v. United States, 548 F.3d 549 (7th Cir. 2008); 26 CFR § 301.7602-1(c)(1).
Other IRC sections concerning the proper use and enforcement of a summons are:
Section 7603 — Service of Summons
Section 7604 — Enforcement of Summons
Section 7605 — Time and Place of Examination
Section 7609 — Special Procedures for Third-Party Summonses
Section 7610 — Fees and Costs for Witnesses
Section 7611 — Restrictions on Church Tax Inquiries and Examinations
Section 7612 — Special Procedures For Summonses For Computer Software
Section 7402 — Jurisdiction of District Courts
Section 7210 — Failure to Obey Summons
Section 7521 — Procedures Involving Taxpayer Interviews
In United States v. Powell, 379 U.S. 48, 57-58 (1964), the Supreme Court set forth the standards the Service must meet to have its summons enforced. The Service must show that:
The investigation will be conducted pursuant to a legitimate purpose;
The inquiry may be relevant to the purpose;
The information sought is not already within the Service’s possession; and
All administrative steps required by the Code have been followed.
Powell also held that a summons cannot be issued for an “improper purpose.” This includes using a summons:
To harass the taxpayer;
To pressure the taxpayer into settling a collateral dispute; or
For any other purpose adversely reflecting on the “good faith” of the investigation.
In United States v. Clarke, 573 U.S. 248, 254-255 (2014), the Supreme Court described procedures and standards for the Service to establish its proper purpose for issuing a summons, saying that
Summons enforcement procedures are meant to be summary in nature;
Absent contrary evidence, the Service can establish its satisfaction of the Powell standard, including its good faith, by submitting a simple affidavit (Declaration) from the investigating agent; and
The taxpayer is only entitled to question the investigating agent in a summons enforcement case when the taxpayer has presented credible evidence that plausibly raises an inference of bad faith by the Service.
If you have received an IRS summons, you should contact a tax attorney right away to determine how best to respond. Wilson Tax Law Group has handled summons responses for numerous clients before the IRS, including summons disputes in Federal Court.
What is a TRaCE investigation?
The Tax Recovery and Criminal Enforcement (TRaCE) Task Force is a pilot program facilitated by California Assembly Bill 576, Revenue Recovery and Collaborative Enforcement Team Act. TRaCE joins existing state and federal resources to collaboratively combat illegal business activities and is comprised of investigators and special agents from multiple agencies that work together to investigate, prosecute and recover revenue lost to the underground economy.
Underground Economy” is a term that refers to those individuals and businesses that deal in cash and/or use other methods to conceal their activities, identities and true tax liability from government licensing, regulatory, and taxing agencies.
The State takes the position that fraud and tax evasion most often occur in cash-driven businesses such as bars, restaurants, used car dealerships, and construction, but is also common in businesses selling counterfeit products and in the tobacco industry. Any business or owner can be the target of a TRaCE investigation, however, these industries have been specifically indetified as low hanging targets by the authorities.
TRaCE Partners include:
- Board of Equalization
- Department of Alcoholic Beverage Control
- Department of Justice
- Employment Development Department
- Federal Bureau of Investigation
- Franchise Tax Board
- Homeland Security Investigations
- Internal Revenue Service
The following are just a few of the organizations that are working with TRaCE to help combat various elements of the underground economy:
BSA, The Software Alliance
California Asian Pacific Chamber of Commerce
California Black Chamber of Commerce
California District Attorneys Association
California Highway Patrol
California Hispanic Chamber of Commerce
California Hotel & Lodging Association
California Labor Federation
California Manufacturing and Technologies Association
California Medical Association
California Organized Retail Crimes Association
California Police Chief's Association
California Restaurant Association
California Retailers Association
California Sheriff's Association
California State Chamber of Commerce
California Workforce Association
California Workforce Investment Board
Congressman John Garamendi
Congressman Kevin McCarthy
Counterfeit Report (The)
Executive Office of the President, U.S. IP Enforcement Coordinator
Foundation for Fair Contracting
Greater Sacramento Urban League
Howard Jarvis Taxpayers Association
International Anti-Counterfeit Coalition
Labor Compliance Coalition – Los Angeles Public Works
Los Angeles Business Improvement District
Los Angeles County Sheriff's Department
Los Angeles Fashion District
Los Angeles Police Department
Mid-Valley Building & Construction Trades Council
My Sister's House
Napa-Solano Building & Construction Trades Council
Napa-Solano Central Labor Council
National Intellectual Property Rights Coordination Center
Northern California Auto Dismantlers Association
Northern California Restaurant Association
Orange County Business Council
Sacramento County Sheriff’s Department
Sacramento Metro Chamber of Commerce
Sacramento Police Department
Sacramento-Sierra Building & Construction Trades Council
San Diego Police Department
San Diego Regional Chamber of Commerce
San Francisco Building & Construction Trades Council
San Francisco Chamber of Commerce
San Francisco Police Department
Santa Ana Police Department
Senator Orrin Hatch
Senator Richard Pan
Software & Information Industry Assoc.
Stockton Police Department
West Sacramento Police Department
Western Steel Council
Yolo County & Golden-Sierra Workforce Investment Board
What is the Office of Professional Responsibility (OPR)?
The Office of Professional Responsibility (OPR) goal is to regulate conduct and make determinations regarding alleged misconduct in violation of Circular 230, Regulations Governing Practice before the Internal Revenue Service. OPR announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, appraisers, and unenrolled/ unlicensed return preparers (individuals who are not enrolled to practice and are not licensed as attorneys or certified public accountants). Licensed or enrolled practitioners are subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code of Federal Regulations, Subtitle A, Part 10, and which are released as Treasury Department Circular No. 230. The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Unenrolled/unlicensed return preparers are subject to Revenue Procedure 81-38 and superseding guidance in Revenue Procedure 2014-42, which govern a preparer’s eligibility to represent taxpayers before the IRS in examinations of tax returns the preparer both prepared for the taxpayer and signed as the preparer. Additionally, unenrolled/unlicensed return preparers who voluntarily participate in the Annual Filing Season Program under Revenue Procedure 2014-42 agree to be subject to the duties and restrictions in Circular 230, including the restrictions on incompetent or disreputable conduct.
The disciplinary sanctions to be imposed for violation of the applicable standards are:
Disbarred from practice before the IRS —An individual who is disbarred is not eligible to practice before the IRS as defined at 31 C.F.R. §10.2(a)(4) for a minimum period of five (5) years.
Suspended from practice before the IRS —An individual who is suspended is not eligible to practice before the IRS as defined at 31 C.F.R. §10.2(a)(4) during the term of the suspension.
Censured in practice before the IRS —Censure is a public reprimand. Unlike disbarment or suspension, censure does not affect an individual’s eligibility to practice before the IRS, but OPR may subject the individual’s future practice rights to conditions designed to promote high standards of conduct.
Monetary penalty —A monetary penalty may be imposed on an individual who engages in conduct subject to sanction, or on an employer, firm, or entity if the individual was acting on its behalf and it knew, or reasonably should have known, of the individual’s conduct.
Disqualification of appraiser —An appraiser who is disqualified is barred from presenting evidence or testimony in any administrative proceeding before the Department of the Treasury or the IRS.
Ineligible for limited practice —An unenrolled/unlicensed return preparer who fails to comply with the requirements in Revenue Procedure 81-38 or to comply with Circular 230 as required by Revenue Procedure 2014-42 may be determined ineligible to engage in limited practice as a representative of any taxpayer.
Under the regulations, individuals subject to Circular 230 may not assist, or accept assistance from, individuals who are suspended or disbarred with respect to matters constituting practice (i.e. , representation) before the IRS, and they may not aid or abet suspended or disbarred individuals to practice before the IRS.
Disciplinary sanctions are described in these terms:
Disbarred by decision, Suspended by decision, Censured by decision, Monetary penalty imposed by decision, and Disqualified after hearing —An administrative law judge (ALJ) issued a decision imposing one of these sanctions after the All either (1) granted the government’s summary judgment motion or (2) conducted an evidentiary hearing upon OPR’s complaint alleging violation of the regulations. After 30 days from the issuance of the decision, in the absence of an appeal, the AL,J’s decision becomes the final agency decision.
Disbarred by default decision, Suspended by default decision, Censured by default decision, Monetary penalty imposed by default decision, and Disqualified by default decision —An AU, after finding that no answer to OPR’s complaint was filed, granted OPR’s motion for a default judgment and issued a decision imposing one of these sanctions.
Disbarment by decision on appeal, Suspended by decision on appeal, Censured by decision on appeal, Monetary penalty imposed by decision on appeal, and Disqualified by decision on appeal —The decision of the Al was appealed to the agency appeal authority, acting as the delegate of the Secretary of the Treasury, and the appeal authority issued a decision imposing one of these sanctions.
Disbarred by consent, Suspended by consent, Censured by consent, Monetary penalty imposed by consent, and Disqualified by consent —In lieu of a disciplinary proceeding being instituted or continued, an individual offered a consent to one of these sanctions and OPR accepted the offer. Typically, an offer of consent will provide for: suspension for an indefinite term; conditions that the individual must observe during the suspension; and the individual’s opportunity, after a stated number of months, to file with OPR a petition for reinstatement affirming compliance with the terms of the consent and affirming current fitness and eligibility to practice (i.e. , an active professional license or active enrollment status, with no intervening violations of the regulations).
Suspended indefinitely by decision in expedited proceeding, Suspended indefinitely by default decision in expedited proceeding, Suspended by consent in expedited proceeding —OPR instituted an expedited proceeding for suspension (based on certain limited grounds, including loss of a professional license for cause, and criminal convictions).
Determined ineligible for limited practice —There has been a final determination that an unenrolled/unlicensed return preparer is not eligible for limited representation of any taxpayer because the preparer violated standards of conduct or failed to comply with any of the requirements to act as a representative.
OPR has authority to disclose the grounds for disciplinary sanctions in these situations: (1) an AU or the Secretary’s delegate on appeal has issued a final decision; (2) the individual has settled a disciplinary case by signing OPR’s “consent to sanction” agreement admitting to one or more violations of the regulations and consenting to the disclosure of the admitted violations (for example, failure to file Federal income tax returns, lack of due diligence, conflict of interest, etc.); (3) OPR has issued a decision in an expedited proceeding for indefinite suspension; or (4) OPR has made a final determination (including any decision on appeal) that an unenrolled/unlicensed return preparer is ineligible to represent any taxpayer before the IRS.
What happens with an IRS Examination Appeals Hearing? Working with the IRS Office of Appeals.
The IRS Office of Appeals is a division separate and apart from the Examination Division that provides taxpayers an opportunity to attempt to settle their tax or collection cases. This office was established in 1927 and its an informal administrative forum that settles tax disputes without trial. It is supposed to be fair and impartial and independent from the examination division. According to the IRS the mission of IRS Appeals is: “to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.”
Tax controversies can involve proposed tax assessments, tax collection, or other IRS actions. Once the IRS issues a final notice, taxpayers can generally seek a remedy from the courts. However, the Appeals process is less formal and less costly than court proceedings and is not subject to judicial rules of evidence or procedure. Historically, Appeals has been able to settle the majority of the cases that come within its jurisdiction. In addition, taxpayers do not give up judicial review by coming to Appeals.
Although its still part of the IRS, independence is the most important of Appeals’ core values. Independence from IRS compliance functions is critical for Appeals to accomplish its mission. To resolve disputes effectively, Appeals must show itself to be objective, impartial, and neutral in fact as well as appearance. If taxpayers perceive they will not get a fair hearing in Appeals, more tax controversies would be litigated in Tax Court, which would increase the cost and burden to both the taxpayer and the Federal Government.
The IRS Restructuring and Reform Act of 1998 directed the IRS Commissioner to develop and implement a plan to reorganize the IRS by establishing organizational units serving particular groups of taxpayers with similar needs. It also specified that the reorganization plan should ensure an independent Appeals function within the IRS, including a prohibition of “ex parte" communications between Appeals officers and other IRS employees to the extent that such communications appear to compromise the independence of Appeals officers. There are instances when Appeals communicates "ex parte" with other divisions of the IRS, thus it is extremely important to call them out on it.
In 2016 , Appeals implemented several policy and procedural changes to re-emphasize the importance of independence. For additional information on those changes, please refer to the Fact Sheet – IRS Clarifies Office of Appeals Policies
IRS National Office of Chief Counsel Subject Matter Directory
What is the List of Countries with Shared Banking Agreements with the US?
The IRS has issued a list of the countries with which the United States has in effect an income tax or other convention or bilateral agreement relating to the exchange of information to which the United States agrees to provide, as well as receive, information and under which the competent authority is the Secretary of the Treasury or his delegate. The regulations require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. The following are countries with which the United States has in effect an income tax or other convention or bilateral agreement relating to the exchange of tax information:
Antigua & Barbuda
British Virgin Islands
Isle of Man
Netherlands island territories: Bonaire, Curacao, Saba, St. Eustatius and St. Maarten (Dutch part)
Trinidad and Tobago
Updated on December 17, 2014
Why Does The IRS Deny Real Estate Losses as Passive/What Is a Real Estate Professional Under the Tax Code?
A rental activity is generally treated as a per se passive activity. Generally, “[r]ental real estate is any real property used by customers or held for use by customers… .” Temp. Regs. § 1.469-1T(e)(3(ii)(A); Regs. §1.469-1T(e)(3). One exception to the rule that such activities are passive is found in IRC § 469(c)(7), which was added to the tax code in 1993. Before 1993, real estate rentals were passive without exception. Under Section 469(c)(7)(B), taxpayers do not fall under the general per se rule and are able to claim their losses without limitation if the taxpayers:
(1) Materially participate in real property trades or businesses form more than 750 hours and
(2) Perform more than half of all the personal services in trades or businesses in year in real property trade or businesses (this is not limited to rentals) in which there is material participation.
Under Section 469 of the tax code, “the term ‘real property trade or business’ means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.” IRS regulations say that, in the case of a joint return, the married couple will qualify as real estate professionals if one spouse separately meets the two-part test under Section 469(c)(7)(B).
The second part of the Section 469(c)(7)(B) test requires material participation in the real estate activity. Regs. Secs. 1.469-9(b)(6), 1.469-9(c)(3), and 1.469-9(e)(1). Under temporary IRS regulations currently in effect, taxpayers can establish material participation through any of the following seven tests:
(1) The individual participates in the activity for more than 500 hours during such year;
(2) The individual’s participation in the activity for the taxable year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for such year;
(3) The individual participates in the activity for more than 100 hours during the taxable year, and such individual’ participation in the activity for the taxable year is not less than the participation in the activity of any other individual (including individuals who are not owners of interests in the activity) for such year;
(4) The activity is a significant participation activity (within the meaning of paragraph (c) of this section) for the taxable year, and the individual’s aggregate participation in all significant participation activities during such year exceeds 500 hours;
(5) The individual materially participated in the activity (determined without regard to this paragraph (a)(5)) for any five taxable years (whether or not consecutive) during the ten taxable years that immediately precede the taxable year;
(6) The activity is a personal service activity (within the meaning of paragraph (d) of this section), and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year; or
(7) Based on all of the facts and circumstances (taking into account the rules in paragraph (b) of this section), the individual participates in the activity on a regular, continuous, and substantial basis during such year.
With respect to the last test, regulations provide that, if it is a management activity, the taxpayer must have participated more than 100 hours, no other person must have spent more time managing the activity, and no other person may have been compensated for management of the activity. Unlike with the two-part test, Section 469(c)(7)(B) allows the taxpayer’s spouse’s participation to be taken into account the to determine whether a taxpayer materially participates in the rental real estate activity under the 7 tests.
What Is An IRS Identity Protection PIN?
The IRS Identity Protection PIN (IP PIN) is a unique six digit number that is assigned annually to victims of identity theft for use when filing their federal tax return that shows that a particular taxpayer is the rightful filer of the return. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.
If the IRS has made a determination that the TP was a victim of tax-related ID theft, it will systemically issue a notice CP 01A, We Have Assigned You an Identity Protection Personal Identification Number. In 2014, the IRS announced that IP PINs would be issued to some taxpayers in Florida, Georgia, and Washington, DC (but, unfortunately, not California) as part of a pilot program, in addition to those who received a CP01A. Otherwise, the IRS currently does not issue Identity Protection PINs without a positve tax-related ID theft determination.
The IRS Identity Protection Specialized Unit – 1 (800) 908-4490 – may be called for any ID theft related inquiries.
What Should I Do If Someone Stole My Identity and Filed a False Tax Return?
The IRS Identity Protection Specialized Unit – 1 (800) 908-4490 – may be called for any ID theft related inquiries. The IRS divides ID theft issues into two categories: ID theft at risk of (but not yet) affecting tax administration and ID theft that is affecting tax administration – this is referred to as “tax-related” or “non-tax-related.” If you have been a victim of identity theft, whether tax-related or not, the main tool you should be aware of is the IRS Identity Theft Affidavit, Form 14039.
If you were unable to file an electronic return because an ID thief has already filed one, submit a paper return to the IRS Service Center with the ID Theft Affidavit attached. The IRS should acknowledge receipt of the Form 14039 within 30 days. If the IRS has already alerted you to the ID theft, then an address will be on the notice. The IRS will request supporting documentation or may determine that supporting documentation is unnecessary. Supporting documentation includes:
–Authentication of Identity – a copy of a valid U.S. federal or state government issued form of identification (examples include a driver’s license, state identification card, social security card, or passport); and
–Evidence of Identity Theft – a copy of a police report or Form 14039, IRS Identity Theft Affidavit.
Once a positive ID theft determination is made, the IRS will correct their records based on information submitted and cause issuance of your correct refund.
What Is An Offer-In-Compromise?
Under the federal tax code, the IRS has the ability to compromise tax, interest, and penalties on certain grounds. For the IRS to consider such a compromise, the taxpayer must submit Form 656, “Offer in Compromise,” with the attachments requested in the instructions to the form. There are three grounds on which the IRS may grant the offer-in-compromise request: (1) doubt as to liability, (2) doubt as to collectibility, and (3) to promote effective tax administration.
The federal regulations provide that, where there is a genuine dispute as to the existence or amount of the correct tax liability under law, a compromise may be granted for “doubt as to liability.” The same regulations provide that “doubt as to collectibility” exists where the one’s assets and income are less than the full amount of the tax liability.
Where those two options are unavailable, the IRS may still grant a compromise to promote effective tax administration. That goal may be met so long as the compromise wouldn’t undermine tax compliance and would avoid creating “economic hardship” or would further compelling public policy or equitable considerations. Economic hardship occurs when a taxpayer is unable to pay reasonable (meaning not affluent or luxurious) basic living expenses. In this analysis, the IRS will consider all the facts and circumstances, including one’s history of tax compliance.
The Wilson Tax Law Group can help if you are considering an offer in compromise. Call us at (714) 463-4430 to discuss your tax issues with an Orange County tax attorney.
What Is The Trust Fund Recovery Penalty?
A company that has employees is responsible for collecting the taxes from its employees (withholdings) and paying those taxes over to the United States. Under Section 6672 of the federal tax code, when the company has failed to pay over those taxes, a penalty – known as the “Trust Fund Recovery Penalty” – may be assessed against the individuals in the company responsible for that failure. The penalty against a “responsible person” is equal to 100 percent of the taxes that were stated as withheld from the wages of the employees but which were not paid over to the IRS.
The determination of who is a “responsible person” depends on several facts and consideration of a number of factors utilized in IRS investigations. The Wilson Tax Law Group’s former government experience gives us unique insight into the IRS’s determination and we have substantial experience in challenging the IRS’s determinations in trust fund recovery penalty cases. If you need assistance in a case that involves, or potentially involves, the trust fund recovery penalty, do not hesitate to contact an Orange County tax attorney at (949) 397-2292.
What Is A Nominee/Alter Ego Tax Lien?
A "nominee" is someone who holds property "in name only" for the benefit of another. An "alter ego" is the use of another name for one's self, and does not involve another individual. The IRS will sometimes assert that property is held by a nominee when someone other than the taxpayer against whom the IRS is seeking to assess or collect has legal title but the taxpayer, in substance, enjoys the benefits of ownership of the property. A tax lien can attach to property that really belongs to a taxpayer even if the taxpayer's name is not on the title.
In some cases, the IRS may go the extra step of filing a "nominee" tax lien in the chain of title for the person whose name the property is under. A "nominee" lien requires IRS attorney approval under their internal manual, but a dedicated "nominee" lien generally is filed to protect the IRS's priority of interest over subsequent buyers or lien holders and is not really necessary to allow them to foreclose or seize a specific piece of property held by a nominee.
The IRS and the federal courts look to state law to determine ownership of property. However, California has not set forth any specific requirements for determining when property is held by a nominee. As a result, law in this area is still developing and, in the interim, federal courts in California have looked to federal common law for factors weighed in this determination. Those factors include:
(a) No consideration or inadequate consideration paid by the nominee;
(b) Property placed in the name of the nominee (1) in anticipation of a suit or occurrence of liabilities while (2) the transferor continues to exercise control over the property;
(c) Close relationship between transferor and the nominee;
(d) Failure to record conveyance;
(e) Retention of possession by the transferor; and
(f) Continued enjoyment by the transferor of benefits of the transferred property.
This is a fact intensive analysis and the IRS has incorrectly filed nominee liens in the past. If you need help dealing with IRS liens and nominee/alter ego liens, the Wilson Tax Law Group has a great deal of experience in this area and can be contacted at (949) 397-2292.
When Are Tax Preparation and Tax Attorney Fees Deductible?
Although Section 212 of the federal tax code and the corresponding regulation at Section 1.212 do not specifically provide for the deduction of tax preparation fees or fees paid to an attorney giving tax advice, it does provide for the deduction of expenses incurred "in connection with the determination, collection, or refund of any tax." This has been widely interpreted to mean fees for tax return preparation and legal advice on the tax treatment of items are deductible on Schedule A of an individual income tax return.
They may also qualify as business expenses if they arise from the business and are ordinary and necessary to the operation of the business (for more on this, see the FAQ here
). If they qualify as business expenses, they should be claimed on Schedule C or on the appropriate business return because the tax treatment is more favorable as an above-the-line deduction.
In either case, as with any other expenses, they are deductible only in the year they are incurred. It is a common mistake to deduct the fees for preparing a return on that same return - e.g., the fees for preparing the 2013 return claimed on the 2013 return. However, the fees for a 2013 return would have likely been incurred between January and April of 2014, and the taxpayer would have to wait another year to deduct those fees on the 2014 return.
What Are Tax Deductible Business Expenses?
In general, “ordinary and necessary expenses” paid or incurred during the taxable year in carrying on a “trade or business” are deductible on Schedule C of a tax return or on a business return such as a corporate return, IRS Form 1120. The definitions are fairly common-sense: “Ordinary” means common and accepted and “necessary” means appropriate and helpful.
In some instances, the IRS may assert that, although an expenses is ordinary and necessary, certain activities, e.g., gambling, do not typically rise to the level of a “trade or business” and, therefore, the expenses are not “business” expenses. To be engaged in a “trade or business” for purposes of Schedule C requires that your primary purpose for engaging in the activity must be for income or profit and, generally, continuous and regular involvement.
However, there are instances a taxpayer is carrying on a trade or business that does not generate regular income or is a type of activity that does not require continuous labor, but may still be considered a “trade or business.” Neither congress nor the IRS have delineated a hard-and-fast rule as to what constitutes a “trade or business” but most people know one when they see one, and the Supreme Court has similarly deferred to “a common-sense concept of what is a trade or business, allowing a gambling to be a “trade or business” where it was what “he did what he did for a livelihood.”
Because this is a gray area in the law, the IRS can sometimes take over-aggressive positions and deny proper trade or business expenses in an audit. If you need help defending your business expense deductions in an IRS or California FTB audit, do not hesitate to call our Orange County tax attorney firm at (949) 397-2292.
Where Can I File a Quiet Title Action to Challenge a Tax Lien On My Real Property?
The California Code of Civil Procedure defines a “local action” as one for the determination of a right or interest in real property. Under the local action doctrine, an action involving real property which requires the court to act upon the title to the property must be brought within the state in which the land is located. This will also be the case where there are mixed questions of personal and real property. A court in California will decline to hear a quiet title action where it will require determination of a right or interest in an out of state piece of real property and will transfer or dismiss the case.
In such cases, California lawyers can utilize provisions allowing California counsel to represent their clients for the limited purpose of a quiet title action, generally requiring retention of secondary local counsel in the state where the real property sits
What Is Employment Tax Pyramiding?
“Pyramiding” is a term the IRS uses to describe the situation where a business has fallen behind in paying over its employment taxes and is continuing to accumulate (“pyramid”) federal tax liabilities beyond its ability to pay. Due to the accrual of interest and penalties on the older years, the older years tend to be larger liabilities, with each subsequent year being smaller than the one before it. Thus, the trend of accruing liabilities can be said to resemble a pyramid.
If you need assistance dealing with the IRS on employment tax issues, you can contact the Wilson Tax Law Group at (949) 397-2292.
How Can I Get a Lien For Someone Else’s Taxes Removed From My Property in Escrow?
If a delinquent taxpayer has some interest in your property, or the IRS (sometimes mistakenly) thinks that is the case for some reason, the tax code provides for a deposit mechanism that will allow you to dispute the attachment of the lien while the sale goes through.
The release or discharge of property from a federal tax lien is governed by 26 U.S.C. § 6325, entitled, “Release of lien or discharge of property.” Paragraph (b)(4) of that section, entitled, “Right of substitution of value,” provides for a request that can be made with a deposit of the equity to which the lien would attach.
The request is made by submitting an application for certificate of discharge. The regulations under section 6325 require the application to contain the information requested in the appropriate IRS publication. . IRS Publication 783, “Instructions on how to apply for Certificate of Discharge From Federal Tax Lien,” lists the required information and attaches the application form – IRS Form 14135, “Application for Certificate of Discharge of Property from Federal Tax Lien.” The correct deposit amount is determined by the IRS, as required by section 6325(b)(4)(A)(), taking into account the property’s value and encumbrances with priority over the tax lien. When such amount is “submitted pursuant to the application,” it is treated as the deposit.
Once the application is made and the appropriate sum is deposited with the IRS, the IRS has no discretion to refuse to issue the certificate of discharge. However, to have your deposit refunded, you must convince the IRS that the delinquent taxpayer’s interest in the property is less than the amount deposited. If the IRS denies the request for return of some or all of the deposit, the property owner can contest the attachment of the lien within 120 days after the date the certificate of discharge was issued.
How Much Power Does a Federal Prosecutor Have?
The best summary of a Federal Tax Prosecutor comes from the book: Convictions: A Prosecutor’s Battles Against Mafia Killers, Drug Kingpins, and Enron Thieves
by John Kroger. The section from the book is paraphrased as follows:
In the United States today few people possess more power. As early as 1940 Supreme Court Justice Robert Jackson remarked that a federal prosecutor has “more control over life, liberty and reputation than any other person in America.” Since Jackson’s day, that power has only increased. In the words of federal judge (and former AUSA) Gerald Lynch, “Congress has cast the federal prosecutor in the role of God.” Hyperbole? Certainly—but a revealing comment nevertheless.
Federal prosecutors have not always had so much influence. Traditionally, crime was the responsibility of state and local governments. Federal criminal law was a sleepy and unimportant backwater. Starting in the 1950s, however, Congress passed a series of landmark crime bills that radically expanded the United States government’s role in combating crime. These bills gave federal prosecutors, for the first time in our nation’s history, the legal tools they needed to combat the nation’s most serious criminal threats: the mafia, corrupt corporate executives, gangs, and drug dealers. As a result, the federal government is now deeply involved in law enforcement in your community.
During the exact same period, Congress, the Justice Department, and the federal courts quietly revolutionized law enforcement in a second, more subtle way. Back in the old days the federal government observed a strict division of labor: agents investigated crimes, and then prosecutors handled cases in court once those investigations were completed. Today that is no longer true. Disturbed by revelations of domestic political spying by J. Edgar Hoover’s FBI and believing, rightly or wrongly, that lawyers would respect civil liberties more carefully than would gumshoe agents, America’s lawmakers gradually shifted investigative power from law enforcement agencies like the FBI to federal prosecutors. As a result of this transfer of power, federal agents today cannot obtain a wiretap, a search warrant, an arrest warrant, an immunity order, or most subpoenas—the basic investigative tools required in every major case—without cooperation and prior approval from an AUSA. This gives AUSAs a virtual veto over most federal investigations. In some parts of the country federal prosecutors use this leverage lightly, and agents still run the show. But in most big cities and in all the most important federal cases AUSAs tell agents politely but firmly, “Investigate the case my way, or you won’t investigate at all.” As a result, AUSAs today are not just courtroom attorneys; they have become our nation’s chief criminal investigators.
What Is A Federal Tax Prosecutor?
Federal tax prosecutors toil in obscurity.
There is only four places where someone can have experience as a federal tax prosecutor.
1. Is if you worked for the Criminal Enforcement Section of the Department of Justice Tax Division in Washington D.C.
2. Is if you worked in a Tax Section within the Criminal Division of a U.S. Attorney’s Office, i.e., the Southern District of New York (or as an AUSA within the criminal division of a U.S. Attorney’s Office and you primarily handled tax cases).
3. Is if you worked in the Tax Division of the U.S. Attorney’s Office in Los Angeles after 2000.
4. Is if you worked in the Tax Division of the U.S. Attorney’s Office in San Francisco.
Very few tax attorneys in California can tout they were federal tax prosecutors. Many practitioners who tout, perhaps inadvertently, give the impression that they handled criminal tax cases, when in fact, there experience at the US Attorney’s Office was during a time when the Tax Division was not designated to handle any criminal cases whatsoever. Although experience in civil tax and bankruptcy tax is valuable it is not the same as federal tax prosecution experience.
If you are looking for a criminal tax defense attorney as well as civil tax attorney who has former IRS experience, please feel free to contact the Wilson Tax Law Group at (949) 397-2292.
What Should I Do When I Receive an IRS Summons Form 2039?
The answer to this question depends a lot on the circumstances in which you have received the IRS summons and the facts of your case.
First, it is important to know that there is a big difference between an IRS administrative summons and a court-issued summons. An IRS summons is a Form 2039 and will look like the form at this link: IRS Summons
. An IRS summons typically asks for a person to appear before an IRS agent to provide testimony or books and records. If your summons is in relation to court matter it will have the name of the case, a case number, the name of the court in which you have been sued, and will give a certain number of days from the date you were served for you to file a response, answer, or appear in court. This FAQ does not address a court summons, but, needless to say, you should not hesitate to contact our law firm if you are being sued in relation to a tax liability.
A summons can be issued to the taxpayer the IRS is investigating or to an owner or officer of the taxpayer-business. It can also be issued to banks holding your accounts, your vendors, your clients, your spouse, or your tax return preparer and accountant.
If you are a person who has received a civil examination summons, unless the summons was issued for an improper purpose like harassment, you will likely eventually have to comply with the IRS's request. Even if the summons is defective procedurally, the IRS can simply reissue the summons correcting any of those errors. If you have received notice that a third party has been sent a summons for your tax examination, you have a limited time to act if you want to challenge that summons. Third party summonses in collections and criminal matters don't afford you the same rights as summonses in civil tax cases.
Ignoring the IRS won't make them go away and can often compound your problems. If the IRS summons is ignored, the IRS can seek an order from the U.S. District Court requiring you to comply. Given that avoiding the IRS is not a wise tactic, how you respond to the IRS is probably the most important consideration. For that reason, you should at least consult with a tax controversy attorney before you decide how to respond to an IRS summons.
If you received an IRS summons Wilson Tax Law Group can assist, please feel free to contact us at (949) 397-2292.
What are Return Preparer Penalties?
As defined by I.R.C. Section 7701(36)(a), an “income tax return preparer” is any person who prepares a substantial portion of a federal income tax return for compensation. For example, this may be someone at a seasonal tax service shop, an accountant or CPA, or even a tax attorney. But, this is not someone who prepares his or her own return, of prepares a return for a family member or friend for free. Title 26 of the United States Code (also known as the Internal Revenue Code or “I.R.C.”) Section 6694 imposes a penalty on an income tax return preparer who: 1) prepares a return containing an understatement of liability due to a position for which there is no realistic possibility of being sustained on the merits, 2) knows or should have known of the unrealistic position, and 3) fails to disclose the facts or basis for the position or the position is frivolous. Subsections (b) and (c) of I.R.C. § 6695 impose penalties on tax return preparers who fail to sign returns they prepare or who fail to furnish an identifying number with respect to any return for which they are the return preparer. This provision is important to the IRS because the lack of such identification on returns may require the IRS to devote additional resources to identifying and selecting returns for audit, especially if there is a pattern of false deductions or credits by a return preparer. This ease of identifying false returns related to a single preparer would lead to increased recovery of taxes by the IRS. Section 6701(a) of the Internal Revenue Code, 26 U.S.C., provides for a penalty to be imposed on any person: (1) who aids or assists in, procures, or advises with respect to, the preparation or presentation of any portion of a return, affidavit, claim, or other document, (2) who knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the internal revenue laws, and (3) who knows that such portion (if so used) would result in an understatement of the liability for tax of another person. Under IRS Section 6701(b), the penalty is $1000 for essentially every return that the tax preparer knew was claiming a false understatement of tax, but the penalty is limited to one imposition for each year involving a particular taxpayer. For example, if a return preparer prepares knowingly false returns for Jimmy in 2010, 2011, and 2012, and a knowingly false tax return and a false amended return for Jane in 2010, the return preparer would be penalized $3000 for Jimmy’s three returns but only $1000 for the two filed for Jane. The eleventh circuit held, in 2014, that the burden of proof in Section 6701(b) cases brought by the IRS is not the usual minimum of a “preponderance of the evidence” (sometimes described as “more likely than not”) but the higher “clear and convincing evidence” usually applied in civil fraud cases. (Note: the clear/convincing standard is lower than the “beyond a reasonable doubt” standard.) This ruling may have made it worthwhile in many cases to zealously fight imposition of these penalties. The Wilson Tax Law Group has significant experience in handling return preparer penalty cases, injunction cases, and criminal cases involving charges of tax fraud against return preparers. In addition, our firm can help taxpayers affected by IRS audit projects against clients of return preparers the IRS deems fraudulent.
How Long Does the IRS Have to Collect?
Home /News/Resources /IRS and Tax FAQS /How Long Does the IRS Have To Collect?
The general rule is that the IRS has 10 years from the return due date for a return (April 15) or from the date the tax is assessed to collect. For a return filed after April 15, the tax assessment date will be the date the return is actually filed.
If the tax owed is from an audit, the 10 year period for the additional tax owed begins on the date that additional amount is assessed, after your audit has concluded.
There are a few exceptions to the general rule. The collection statute is also extended while the IRS is prevented from collecting through a bankruptcy stay (plus 6 months) or while administrative IRS remedies are being pursued, including innocent spouse relief requests, collection due process hearings, and offers in compromise. The collections statute may be tolled for additional days if the administrative relief is rejected while the time to appeal to Tax Court lapses, for example, an additional 30 days in the case of an offer in compromise and 90 days where innocent spouse relief is denied by an IRS determination letter.
In some cases the IRS, with the help of the Department of Justice, may bring suit in court to reduce a federal tax assessment to judgment which allows the IRS to collect on the liability beyond the ordinary ten-year limit. As with the assessment statute, a willful attempt to evade taxes allows for an unlimited collection statute insofar as the tax code allows for a suit to collect to be brought to collect the tax without the need for assessment.
How Far Back Can the IRS Audit/What Is the IRS Statute of Limitations in Audits?
The general rule is that the IRS has 3 years to assert changes to your tax liability through an audit. The starting event for the running of the IRS statute of limitations is the filing of your return, or the due date for your return (typically April 15), whichever is later. If you have not filed your return, there is no statute of limitations on the time the IRS has to assess your taxes.
The IRS’s manual provides that, in general, the filing of an amended return by a taxpayer does not extend the statute of limitations on assessment. If an amended return is received within 60 days from when the Assessment Statute Expiration Date would otherwise expire, a period of 60 days from the received date is allowed for the assessment of the additional amount of tax on that return imposed by Subtitle A (income tax). Even where the audit period has run following such an amended return, however, the IRS still may have another remedy via the “erroneous refund” procedures. Under those procedures, the IRS would have two years from the issuance of a refund by check or deposit to seek return of an erroneous refund via a suit in federal court.
The satisfying event for an IRS examination is called a “notice of deficiency.” As long as this notice, which asserts the proposed additional tax assessments, is issued to you within the three year period, the IRS has complied with the statute of limitations. If you don’t petition the IRS’s asserted changes to U.S. Tax Court within 90 days of the date of that letter, the IRS may assess its proposed taxes.
There is no statute of limitations for assessing taxes where the understatement on the return is due to fraud. The Tax Court has held that fraud on the return can include fraud by the return preparer, as opposed to the taxpayer, but many practitioners disagree with that conclusion.
The statute of limitations is 6 years where there is more than a 25% omission of gross income or gross receipts from the tax return, but not due to fraud.
How Long Should I Keep My Tax Returns?
There is no hard-and-fast rule about how long to keep tax records because the answer depends on a number of things: It depends on what type of record we are talking about. It also depends on your personal tax situation - are you aggressive on your return or are you conservative on your tax return? Maybe you fall somewhere in between.
Generally, one should keep their day-to-day tax records for at least 3 years. Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.
However, a client should keep records related capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years! That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.
Do you have a large net operating loss (NOL) that you have been carrying forward? You should keep the return which generated the NOL and every return you carried it forward through until you have exhausted the NOL and at least 3 years after. You should also keep records proving the loss amount just in case the last return in which you claimed the NOL gets audited and you have to back up the claimed NOL.
There are some more complicated rules that could apply if you take aggressive positions on your tax return. For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission." Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS audit your tax return. In which case the IRS could go back forever to audit your return.
Heckman v. Commisioner: Tax Court holds failure to disclose ESOP on return justifies 6-year statute of limitations for IRS re-assessment.
What IS FATCA?
FATCA stands for the Foreign Account Tax Compliance Act, which became law in March 2010. The point of FATCA is to target tax non-compliance by U.S. taxpayers with foreign accounts. The FATCA focuses on reporting by U.S. taxpayers about certain foreign financial accounts and offshore assets. It also focuses on foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest. The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting. FATCA is being rolled out over time. The deadlines for compliance can be found here.
Wilson Tax Law Group specializes in FATCA compliance. If you should have concerns or questions about FATCA, please contact our tax law office at (949) 397-2292.
Where do I send my Power of Attorney (“POA”)?
Where To File Chart
IF you live in...
Alabama, Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, or West Virginia Internal Revenue Service
THEN use this address...
P.O. Box 268, Stop 8423
Memphis, TN 38101-0268
IF you live in...
Alaska, Arizona, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin, or Wyoming Internal Revenue Service
THEN use this address...
1973 N. Rulon White Blvd. MS 6737
Ogden, UT 84404
IF you live in...
All APO and FPO addresses, American Samoa, nonpermanent residents of Guam or the U.S. Virgin Islands**, Puerto Rico (or if excluding income under Internal Revenue Code section 933), a foreign country: U.S. citizens and those filing Form 2555, 2555-EZ, or 4563.
THEN use this address...
Internal Revenue Service
International CAF Team
2970 Market Street
Philadelphia, PA 19104
* These numbers may change without notice.
**Permanent residents of Guam should use Department of Taxation, Government of Guam, P.O. Box 23607, GMF, GU 96921; permanent residents of the U.S. Virgin Islands should use: V.I. Bureau of Internal Revenue, 6115 Estate Smith Bay, Suite 225, St. Thomas, V.I. 00802.
What Is Innocent Spouse Relief From Federal Taxes?
When a married couple files a joint federal income tax return, they are jointly and severally liable to the IRS for any taxes owed for that year. Typically, when a couple is divorced and they owe taxes to the IRS, the divorce court divides the assets and liabilities among the parties, including the federal tax liabilities. In some cases, the court may order one of the ex-spouses to be responsible for the payment of the joint liabilities. However, this only gives one spouse the right to seek payment by the other spouse in divorce court, it has no effect on the IRS. The IRS, generally, has the right to collect against either spouse no matter what the divorce court says.
Under the innocent spouse procedures, one spouse can be relieved of the joint tax liability and require the IRS to only pursue collection against the other spouse. Innocent spouse relief requires the filing of a Form 8857, Request for Innocent Spouse relief, with the IRS. There are three avenues under which a taxpayer can seek this relief, Section 6015(b), (c), and (f) of the federal tax code.
There are some big differences between these three theories, and some taxpayers will not qualify under any of these theories, while other will qualify under one or more theory. As usual when it comes to taxes, time is of the essence. Under (b) and (c), the taxpayer has two years to seek the relief from the date of the IRS’s first collection action. The two year limit does not apply to (f). Among other factors that come into play in determining which type of relief is applicable are marital status, whether the tax liabilities were from an audit or from a self-assessed return, the taxpayer’s knowledge of the understatement or underpayment, and equitable considerations.
The Wilson Tax Law Group has significant experience in handling innocent spouse requests and appeals in U.S. Tax Court. Call (949) 397-2292 to schedule a consultation.
Where and When Can I Sue the IRS For My Tax Refund or to Appeal an Audit?
If you have filed an amended return or refund claim for a refund of taxes you have paid, and the IRS has denied your claim for refund, the only courts with jurisdiction to hear your case are United States district courts or the Federal Court of Claims (located in Washington, D.C.). If the taxes you are contesting have been paid in full, you have filed a refund claim, and you have been sent a “notice of disallowance” of that claim by the IRS, you have two years from the first notice of disallowance you have received (subsequent or reconsidered notices don’t extend the time) to file an action for refund in district court or the Court of Claims.
On the other hand, if you have been audited and the audit has been finalized – meaning you have been issued a “Notice of Deficiency” – and you haven’t fully paid the taxes the IRS says you owe, you may file a petition to litigate the matter in United States Tax Court. However, you must do so within 90 days of the date of the Notice of Deficiency.
If you are thinking of fighting the IRS in court, it is always a good idea to consult a tax professional to make sure you know, and take full advantage of, your rights at the earliest time possible.
Why Hire a Tax Attorney?
Tax attorneys will help you challenge the value or the tax itself, and help you reduce your taxes through careful planning. Tax attorneys understand the interplay of different tax laws and regulations, and in planning strategies to minimize people's tax liabilities.
Many tax laws are written by lawyers for lawyers, and as such are very difficult to understand. There are also many different types of taxes and tax laws–for example, income taxes, corporate and business taxes, death taxes, property taxes, estate and gift taxes, sales taxes, and international taxes. Sometimes taxes are based on an inflated or incorrect value the government has placed on an entity or activity.
A Tax attorney is a licensed lawyer who practices in the area of taxation. Some tax attorneys hold advanced degrees in taxation, such as a master of laws in taxation. While there are many other types of tax professionals out there, some unlicensed - like many tax return preparers and bookkeepers - and some licensed - like CPAs and Enrolled Agents. Ultimately, only an attorney can represent you in a suit for a refund, in an appeals court, or can negotiate on your behalf in a criminal case. For that reason, every other type of tax professional is limited in the scope of his or her experience and ability to represent and advise you in every potential problem with the IRS or local tax authorities.
Ultimately, taxpayers should be careful choosing who represents them before the IRS. Sometimes, a tax return preparer who was responsible for the problem in the first place can make the problem worse (and has a conflict of interest). Some bookkeepers and tax preparers falsely give the impression that they are CPAs or Enrolled Agents in order to enhance their credibility. Many CPAs can be adept at bookkeeping or internal audits, but have no knowledge of IRS procedure. Even worse, because they do not deal with criminal matters like some (but certainly not all) tax attorneys, some tax professionals may not anticipate - and take steps to avoid - potential criminal tax problems. Even with tax attorneys, many of them advertise that they handle criminal tax problems but have almost no experience in federal defense or prosecution.
Joseph Wilson is a former IRS attorney, former federal prosecutor, former California Franchise Tax Board Attorney, and a former attorney in a Big 4 accounting firm. If you need quality representation in any tax matter, feel free to contact the Wilson Tax Law Group at (949) 397-2292.
How Much Time Do I Have to Ask the IRS For My Refund?
Generally, the statutory time limit on filing an administrative claim (meaning filed with the IRS, as opposed to in court) for refund is the later of three years from the date the return was filed or two years from the date the tax for that tax year was paid. A tax return claiming a refund is considered a “claim for refund” under this general rule.
If you paid estimated taxes through withholdings or deposits to the IRS, you should be cautious of filing a late return to claim your refund. Even though the administrative claim would be considered timely if you filed your return late, there is an additional limitation to the amount that can be refunded which will render that claim moot. Your refund will be limited to whatever you paid in the 3 years before your late return was filed, plus the period of any extension of time for filing the tax return.
There are a few exceptions to these rules, with the exception for net operating losses (NOLs) probably being the most utilized. Refund claims for NOL carrybacks can be filed within the same 3 year period as the refund claim which has the NOL creating the carrybacks.
What foreign banks have been blacklisted by the IRS?
The IRS has blacklisted the following Foreign Financial Institutions or Facilitators. Thus, anyone who held assets at these foreign banks and who failed to properly report and account for these assets will pay 50% of the offshore penalty within the IRS Offshore Voluntary Disclosure Program and have a higher chance of criminal prosecution if they do not participate in the Offshore Voluntary Disclosure Program. Here is the list as of 1/2018:
- UBS AG
- Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
- Wegelin & Co.
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
- CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
- Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
- The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
- The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
- Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
- Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
- BSI SA (effective 3/30/15)
- Vadian Bank AG (effective 5/8/15)
- Finter Bank Zurich AG (effective 5/15/15)
- Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
- MediBank AG (effective 5/28/15)
- LBBW (Schweiz) AG (effective 5/28/15)
- Scobag Privatbank AG (effective 5/28/15)
- Rothschild Bank AG (effective 6/3/15)
- Banca Credinvest SA (effective 6/3/15)
- Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
- Berner Kantonalbank AG (effective 6/9/15)
- Bank Linth LLB AG (effective 6/19/15)
- Bank Sparhafen Zurich AG (effective 6/19/15)
- Ersparniskasse Schaffhausen AG (effective 6/26/15)
- Privatbank Von Graffenried AG (effective 7/2/15)
- Banque Pasche SA (effective 7/9/15)
- ARVEST Privatbank AG (effective 7/9/15)
- Mercantil Bank (Schweiz) AG (effective 7/16/15)
- Banque Cantonale Neuchateloise (effective 7/16/15)
- Nidwaldner Kantonalbank (effective 7/16/15)
- SB Saanen Bank AG (effective 7/23/15)
- Privatbank Bellerive AG (effective 7/23/15)
- PKB Privatbank AG (effective 7/30/15)
- Falcon Private Bank AG (effective 7/30/15)
- Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
- Bank EKI Genossenschaft (effective 8/3/15)
- Privatbank Reichmuth & Co. (effective 8/6/15)
- Banque Cantonale du Jura SA (effective 8/6/15)
- Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
- bank zweiplus ag (effective 8/20/15)
- Banca dello Stato del Cantone Ticino (effective 8/20/15)
- Hypothekarbank Lenzburg AG (effective 8/27/15)
- Schroder & Co. Bank AG (effective 9/3/15)
- Valiant Bank AG (effective 9/10/15)
- Bank La Roche & Co AG (effective 9/15/15)
- Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)
- St. Galler Kantonalbank AG (effective 9/17/15)
- E. Gutzwiller & Cie, Banquiers (effective 9/17/15)
- Migros Bank AG (effective 9/25/15)
- Graubundner Katonalbank (effective 9/25/15)
- BHF-Bank (Schweiz) AG (effective 10/1/15)
- Finacor SA (effective 10/6/15)
- Schaffhauser Kantonalbank (effective 10/8/15)
- BBVA Suiza S.A. (effective 10/16/15)
- Piguet Galland & Cie SA (effective 10/23/15)
- Luzerner Kantonalbank AG (effective 10/29/15)
- Habib Bank AG Zurich (effective 10/29/15)
- Banque Heritage SA (effective 10/29/15)
- Hyposwiss Private Bank Genève S.A. (effective 10/29/15)
- Banque Bonhôte & Cie SA (effective 11/3/15)
- Banque Internationale a Luxembourg (Suisse) SA (effective 11/12/15)
- Zuger Kantonalbank (effective 11/12/15)
- Standard Chartered Bank (Switzerland) SA, en liquidation (effective 11/13/15)
- Maerki Baumann & Co. AG (effective 11/17/15)
- BNP Paribas (Suisse) SA (effective 11/19/15)
- KBL (Switzerland) Ltd. (effective 11/19/15)
- Bank CIC (Switzerland) Ltd. (effective 11/19/15)
- Privatbank IHAG Zürich AG (effective 11/24/15)
- Deutsche Bank (Suisse) SA (effective 11/24/15)
- EFG Bank AG (effective 12/3/15)
- EFG Bank European Financial Group SA, Geneva (effective 12/3/15)
- Aargauische Kantonalbank (effective 12/8/15)
- Cornèr Banca SA (effective 12/10/15)
- Bank Coop AG (effective 12/10/15)
- Crédit Agricole (Suisse) SA (effective 12/15/15)
- Dreyfus Sons & Co Ltd, Banquiers (effective 12/15/15)
- Baumann & Cie, Banquiers (effective 12/15/15)
- Bordier & Cie Switzerland (effective 12/17/15)
- PBZ Verwaltungs AG (effective 12/17/15)
- PostFinance AG (effective 12/17/15)
- Edmond de Rothschild (Suisse) SA (effective 12/18/15)
- Edmond de Rothschild (Lugano) SA (effective 12/18/15)
- Bank J. Safra Sarasin AG (effective 12/23/15)
- Coutts & Co Ltd (effective 12/23/15)
- Gonet & Cie (effective 12/23/15)
- Banque Cantonal du Valais (effective 12/23/15)
- Banque Cantonale Vaudoise (effective 12/23/15)
- Bank Lombard Odier & Co Ltd (effective 12/31/15)
- DZ Privatbank (Schweiz) AG (effective 12/31/15)
- Union Bancaire Privée , USP SA (effective 1/6/16)
- PHZ Privat - und Handelsbank Zürich AG reorganized as Leodan Privatbank AG (effective 1/25/16)
- Hyposwiss Privatbank AG reorganized as HSZH Verwaltungs AG (effective 1/27/16)
- Bank Julius Baer & Co., Ltd (effective 2/4/16)
- Cayman National Securities Ltd. (effective 3/9/16)
- Cayman National Trust Co. Ltd. (effective 3/9/16)
- Bradley Birkenfeld (effective 11/15/16)
- Renzo Gadola (effective 11/15/16)
- Martin Lack (effective 11/15/16)
- Christos Bagios (effective 11/15/16)
- Joshua Vandyk (effective 11/15/16)
- Eric St-Cyr (effective 11/15/16)
- Patrick Poulin (effective 11/15/16)
- Andreas Bachmann (effective 11/15/16)
- Josef Dörig (effective 11/15/16)
- David Kalai and Nadav Kalai (effective 11/15/16)
- David Almog (effective 11/15/16)
- Hansruedi Schumacher (effective 11/15/16)
- Matthias Rickenbach (effective 11/15/16)
- Cem Can (effective 11/15/16)
- IPC Management Services, LLC (effective 11/15/16)
- IPC Corporate Services Inc. (effective 11/15/16)
- IPC Corporate Services LLC (effective 11/15/16)
- Titan International Securities, Inc. (effective 11/15/16)
- Legacy Global Markets S.A. (effective 11/15/16)
- Unicorn International Securities LLC (effective 11/15/16)
- Andrew Godfrey (effective 11/15/16)
- Michael Little (effective 11/15/16)
- Edgar Paltzer (effective 11/15/16)
- Peter Amrein (effective 11/15/16)
- Daniela Casadei (effective 11/15/16)
- Fabio Frazzetto (effective 11/15/16)
- Michele Bergantino (effective 11/15/16)
- Mario Staggl (effective 11/15/16)
- Beda Singenberger (effective 11/15/16)
- Gian Gisler (effective 11/15/16)
- Felix M. Mathis (effective 11/15/16)
- Michael Berlinka (effective 11/15/16)
- Urs Frei (effective 11/15/16)
- Roger Keller (effective 11/15/16)
- Josef Beck (effective 11/15/16)
- Hans Thomann (effective 11/15/16)
- Stephan Fellmann (effective 11/15/16)
- Otto Huppi (effective 11/15/16)
- Christof Reist (effective 11/15/16)
- Stefan Buck (effective 11/15/16)
- Marco Parenti Adami (effective 11/15/16)
- Emanuel Agustino (effective 11/15/16)
- Roger Schaerer (effective 11/15/16)
- Markus Walder (effective 11/15/16)
- Susanne D. Rüegg Meier (effective 11/15/16)
- Martin Dunki (effective 11/15/16)
- Robert Bandfield (effective 11/15/16)
- Michael A. Behr (effective 1/25/17)
- Prime Partners SA (effective 8/15/17)
How Are Criminal Tax Investigations Initiated?
The Internal Revenue Service Criminal Investigation Division conducts criminal investigations regarding alleged violations of the Internal Revenue Code, the Bank Secrecy Act and various money laundering statutes. The findings of these investigations are referred to the Department of Justice for recommended prosecution.
Sources of Criminal Investigations for IRS Special Agents
Criminal Investigations can be initiated from information obtained from within the IRS when a revenue agent (auditor), revenue officer (collection) or investigative analyst detects possible fraud. Information is also routinely received from the public as well as from ongoing investigations underway by other law enforcement agencies or by United States Attorneys offices across the country.
Preliminary Analysis and Investigation Approvals
Special agents analyze information to determine if criminal tax fraud or some other financial crime may have occurred. Relevant information is evaluated. This preliminary process is called a "primary investigation." The special agent's front line supervisor reviews the preliminary information and makes the determination to approve or decline the further development of the information. If the supervisor approves, approval is obtained from the head of the office, the special agent in charge, to initiate a "subject criminal investigation." At this point, at least two layers of CI management have reviewed the 'primary investigation' material and determined there is sufficient evidence to initiate a subject criminal investigation.
Conducting a Criminal Investigation
Once an investigation is opened, the special agent obtains the facts and evidence needed to establish the elements of criminal activity. Various investigative techniques are used to obtain evidence, including interviews of third party witnesses, conducting surveillance, executing search warrants, subpoenaing bank records, and reviewing financial data.
The special agent works closely with IRS Chief Counsel Criminal Tax Attorneys during the course of the criminal investigation. This process ensures all legal aspects of the investigation and prosecution recommendation are correctly addressed. Having a well-trained criminal tax defense attorney during this stage can help ensure the IRS follows all the rules and doesn't violate procedures and/or trample your constitutional rights.
Prosecution Recommendations by the Special Agent
After all the evidence is gathered and analyzed, the special agent and his or her supervisor either make the determination that evidence does not substantiate criminal activity, in which case the investigation is 'discontinued,' or the evidence is sufficient to support the recommendation of prosecution, in which case the agent proceeds with the preparation of a written report detailing the findings of violation of the law and recommending prosecution. This report is called a "special agent report" and it is reviewed by numerous officials, including:
- The agent's front line supervisor, called the supervisory special agent;
- A criminal investigation quality review team, Centralized Case Review;
- CI assistant special agent in charge;
- CI special agent in charge.
If CI determines the investigation should be criminally prosecuted, a prosecution recommendation is forwarded to:
- The Department of Justice, Tax Division, (if it is a tax investigation) or
- The United States Attorney for all other investigations.
Each level of review may determine that evidence does not substantiate criminal charges and the investigation should not be prosecuted.
If the Department of Justice or the United States Attorney accepts the investigation for prosecution, the IRS special agent will be asked by the prosecutors to assist in preparation for trial. However, once a special agent report is referred to for prosecution, the investigation is managed by the prosecutors.
The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction - either by a guilty verdict or plea. The IRS conducts approximately 3,000 criminal prosecutions per year.