Tag Archives: Taxpayers

Taxpayers with Significant Tax Debts Can Lose Their U.S. Passports

By Coleman Jackson, Attorney, Certified Public Accountant
August 21, 2019

 

Taxpayers with Significant Tax Debts Can Lose Their U.S. Passports

 

Ever heard of the Fixing America’s Surface Transportation (FAST) Act of 2015?  Well, under FAST the IRS has the authority to notify the State Department of taxpayers certified as owing the federal government.  A significant tax debt is currently defined as a delinquent tax bill of $52,000 or moreThe FAST requires the State Department to revoke the delinquent taxpayer’s U.S. passport and limit the taxpayer’s ability to travel outside the United States.

 

Taxpayer’s who intend to travel outside the United States must negotiate with the IRS to get the delinquent tax certification lifted

 

Taxpayer’s who intend to travel outside the United States must negotiate with the IRS to get the delinquent tax certification lifted.  Until that happens the taxpayer could become stranded outside of the U.S. with a revoked passport, or be blocked receiving a passport for the first time or on renewal leaving them unable to travel out of the country for any reason.

 

taxpayers who have to travel abroad must responsibility deal with their federal tax obligations long before they need to travel; because other than option one, above (paying the tax debt in full), the suggested options take months and some of them even take years to resolve in negotiations with the IRS

 

The IRS has identified several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt as follows:

  1. Paying the tax debt in full;
  2. Paying the tax debt timely under an approved installment agreement;
  3. Paying the tax debt timely under an accepted offer in compromise;
  4. Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice;
  5. Having a pending collection due process appeal with a levy; or
  6. Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

The practical tiptaxpayers who have to travel abroad must responsibility deal with their federal tax obligations long before they need to travel;  because other than option one, above (paying the tax debt in full),  the suggested options take months and some of them even take years to resolve in negotiations with the IRS.

The following types of taxpayers have been exempted from the delinquent taxpayer certification requirements under FAST:

  • Taxpayers in bankruptcy proceedings;
  • Identity Theft Victims;
  • Taxpayers whom the IRS has deemed non-collectible;
  • Taxpayers located within a federal declared disaster area;
  • Taxpayers with pending Installment Agreement request;
  • Taxpayers with pending Offer in Compromise with the IRS; or
  • Taxpayers with an IRS accepted adjustment that will satisfy the debt in full; and
  • Taxpayer’s serving in a combat zone is not exempt from the certification rules, but the certification is postponed while they do their tour of duty in the combat zone.

 

Taxpayers with plans to travel abroad simply need to be aware of the fact that their plans can be totally upended if they owe the federal government more$52,000 or more in back taxes.

 

Taxpayers with plans to travel abroad simply need to be aware of the fact that their plans can be totally upended if they owe the federal government $52,000 or more in back taxes.  The $52,000 could be owed on personal income taxes or business taxes where the individual taxpayer has been found be to be a responsible party, such as in payroll taxes with respect to the trust fund penalty that usually applies to delinquent taxpayer who owns the business or even employees of the business responsible for deciding what vendors and suppliers get paid and when.  Also the $52,000 certification threshold can be reached for a single tax period or multiple tax periods combined.  Example No 1, the taxpayer owes the IRS $2,000 for 2009, $14, 000 for 2015, and $40,000 for 2018.  In this example the taxpayer is seriously delinquent and the IRS under FAST can certify them as seriously delinquent to the U.S. State Department.  Example No. 2, the taxpayer owns a windmill manufacturing company with twenty employees; their business slowed to a whisper in the third quarter 2019 and the business owner decided to pay office rent, utilities, employees and suppliers and not the IRS payroll taxes.  The IRS learns of this decision and finds the owner the responsible party under the germane tax section and access a $52,000 trust fund penalty on the owner.  In this case, the owner/taxpayer could be certified by the IRS as a seriously delinquent taxpayer under FAST.  The owner’s passport could be revoked or their passport renewal could be denied by the U.S. State Department.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

EXPANSION OF PAID TAX RETURN PREPARER DUE DILIGENCE ELIGIBILITY REQUIREMENTS

By Coleman Jackson, Attorney and Certified Public Accountant
August 10, 2018

EXPANSION OF PAID TAX RETURN PREPARER DUE DILIGENCE ELIGIBILITY REQUIREMENTS

Paid Tax return preparers must exercise due diligence when preparing and assisting taxpayers in complying with federal tax laws.  Internal Revenue Code Sec. 6695 (g) imposes a civil penalty on paid tax return preparers who fail to comply with due diligence eligibility requirements under the tax statute.  Originally, IRC Section 6695(g) only applied to determinations of a taxpayer’s eligibility for the earned income credit (EIC).  But the U.S. Congress has gradually amended IRC Sec. 6695 (g) to impose these due diligence eligibility requirements in more and more tax areas.  By the 2016 tax filing season, Congress had expanded IRC Sec. 6695(g) due diligence requirements to cover not only earned income tax credit eligibility determinations but also child tax credit eligibility determinations, additional child tax credit eligibility determinations and American opportunity tax credit eligibility determinations.  And in late December 2017, Congress expanded IRC Sec. 6695 (g) to cover head of household eligibility determinations.  There are civil penalties imposed on paid tax return preparers who violate IRC Sec. 6695 (g).

Under the mandatory paid tax return preparer due diligence requirements of Internal Revenue Code Sec 6695(g),  all paid tax return preparers must timely perform the following eligibility due diligence procedures when advising or assisting taxpayers in taking the American opportunity tax credit, earned income credit, child tax credit, additional child tax credit; and for returns filed in 2018, head of household status on any federal tax return:

Prepare and submit to the IRS with the underlying tax return a due diligence checklist

  1. Prepare and submit to the IRS with the underlying tax return a due diligence checklist (e.g. Form 8867 or some equivalent eligibility checklist), and keep the checklist for three years.  There is a separate penalty under IRC Sec. 6695(g) for failing to prepare the checklist (Form 8867), or for failing to submit the checklist (Form 8867) to the IRS or for failing to keep the checklist (Form 8867) at the tax return preparer’s business establishment for three years.

Return preparers must have actual knowledge of the taxpayer’s eligibility to qualify for the earned income credit

  1. Return preparers must have actual knowledge of the taxpayer’s eligibility to qualify for the earned income credit, child tax credit, additional child tax credit, American opportunity tax credit; and for tax returns filed in 2018, head of household filing status. Actual knowledge of the tax return preparer must be based on credible information obtained from the taxpayer or reasonably obtained by the return preparer from some other credible source; such as, information obtained from an educational institution, financial institution or governmental agency.  Moreover the actual amount or computation of the applicable credit must be derived from completion of appropriate tax worksheets and be consistent with all applicable guidelines, regulations and rulings of the Internal Revenue Service relating to each credit type, return or refund application rules.  There is a separate penalty under IRC Sec. 6695(g) for each and every credit claimed where the tax return preparer lacks or failed to obtain credible knowledge of the facts and circumstances governing a particular taxpayer’s eligibility for a particular credit or head of household filing status.  There are also civil penalties associated with failing to complete the computation worksheets or failing to maintain them.

Tax return preparers cannot ignore obvious facts or turn a blind eye to facts that are reasonably available to them in determining whether a taxpayer is eligible for the applicable credit or tax filing status

  1. Tax return preparers cannot ignore obvious facts or turn a blind eye to facts that are reasonably available to them in determining whether a taxpayer is eligible for the applicable credit or tax filing status. Due diligence requires the tax return preparer to ask reasonable questions, look around the trees and not get lost in the forest to make sure tax returns are prepared based on accurate information, complete information and congruent information while accurately applying applicable tax laws pursuant to Treas. Reg. Sec. 1.6695-2T(b)(3).    Tax return preparers, must under the Treasury Regulations, establish the identities of the parties (children and parents, for example); the return preparers must establish the relationships between the parties (children and parents, for example); return preparers must establish the taxpayers eligibility for the tax position (head of household, for example); and tax return preparers must determine the correct quantum allowed under the regulations. Paid tax return preparers satisfying these due diligence eligibility requirements are merely acting as an informed reasonable tax return preparer would under like circumstances.  There are separate penalties under IRS Sec. 6695 (g) if tax return preparers fail to meet ‘the reasonable and well informed tax return preparer knowledgeable in tax law’ standard of behavior.

maintain documentation identifying the source of the information used to establish the eligibility of the taxpayer to claim head of household

  1. Treasury Regulations implementing IRC Sec. 6695(g) require that the tax return preparer (a) maintain for three years all checklists (Form 8867, for example), (b) maintain all computation worksheets calculating the tax credits, and (c) maintain documentation identifying the source of the information used to establish the eligibility of the taxpayer to claim head of household, the earned income credit, the American opportunity tax credit, the child tax credit, and the additional child tax credit.  The tax regulations require that this due diligence documentation be maintain in good form and made available to IRS examiners’ in event of an IRS compliance review of the tax return preparer’s business facilities.

 

Accumulated IRC Sec. 6695(g) penalties can become substantial monetary burdens for any tax return preparer that lacks and understanding of preparer obligations and responsibilities under U.S. federal tax law; or ignores the rules or otherwise find themselves falling short of expectations under IRC Sec. 6695(g).   In recent years, it appears that the U.S. Congress is placing more-and-more responsibilities on paid tax return preparers to improve the quality of overall tax compliance.  As this blog points out more and more tax positions are being placed under the Internal Revenue Code Section 6695(g) tax return preparer due diligence umbrella.  There is potential criminal exposure to tax return preparer’s under the Internal Revenue Code as well; but, our intent is not to cover criminal violations of the tax code in this particular blog.  Watch our blogs for further discussions, like this one.  For now we will simply end this blog with our discussion of the civil penalty waiver.

As with other civil penalties under the tax code, penalties assessed under IRC Sec. 6695 can be waived if the tax return preparer can make a credible showing that their tax practice has implemented reasonable procedures to comply with tax rules; that those procedures are consistently and routinely followed and that these current violations of IRC 6695(g) are inadvertent, unintentional and isolated.  The basic rules and professional care exercised when documenting, marshaling and presenting any typical reasonable cause defense must be followed when making a credible argument to the agency or courts for waiver of the tax return preparer due diligence penalties under Internal Revenue Code Sec. 6695.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

IRS to End the 2014 Offshore Voluntary Disclosure Program on September 28, 2018

By:  Coleman Jackson, Attorney, CPA
March 27, 2018

IRS to End the 2014 Offshore Voluntary Disclosure Program - OVDP on September 28, 2018

Have you heard the news!  On Monday, March 13, 2018 the IRS announced that it will end the Offshore Voluntary Disclosure Program on September 28, 2018.

It is likely already too late for all those people who are taking their chances and have not already made steps to enter the OVDP.  Practitioners from all over the country have experienced extreme delays in getting taxpayers pre-cleared into the 2014 OVDP for months.  Pre-clearance requests are taking more than 6 months these days.  IRS representatives have stated that the preclearance processing unit of the IRS has long backlogs in even logging in new OVDP preclearance requests.  The unit has about a 9 to 12 month back log in pre-clearance requests… so we have been told.

Taxpayers who have not taken advantage of the 2014 OVDP must act quickly.

Taxpayers who have not taken advantage of the 2014 OVDP must act quickly.  Repeat it is possible that it is now too late to act.  The U.S. Treasury has been receiving directly or indirectly information from foreign financial institutions concerning U.S. persons with foreign bank accounts for about two years now.   They probably already know those U.S. persons who hold foreign bank accounts.  The chances of being detected with respect to foreign bank holdings are probably extremely high.  In fact it might be impossible to hide from detection; and, possible federal prosecution of violators could rise.

Violators of FBAR rules by failing to timely report offshore bank accounts are subject to civil fines and criminal prosecution.  Foreign Bank Accounts are reported annually on April 15th by filing Form 114 with the Financial Crimes Network.  Delinquent FBARs put taxpayers in legal jeopardy.  There may also be federal income tax issues involved also if the taxpayer has under-reported its income or unfiled federal tax returns.   Tax fraud and delinquent FBARs are serious crimes which can result in violators spending years in federal prison upon conviction.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432