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Orange County Tax Law Blog

Why did IRS create the offshore amnesty program?

The U.S. taxes income regardless of where it is earned. After a whistleblower came forward in 2008, the IRS learned that certain banks around the world had created profit centers that advised Americans on how to evade taxes.

In 2009, the Justice Department was able to “pierce the veil of Swiss banking secrecy,” UBS agreed to settlement of $780 million and disclosure of accountholder names to avoid criminal prosecution. More information was gleaned by pursuing similar strategies with banks and financial firms in Switzerland, Liechtenstein, the Caribbean and Israel. Hiding funds offshore moved to tiny islands with unreliable advisers/banks systems.

Plea in offshore account case as IRS ends amnesty program

In 2010, a L.A. taxpayer failed to report more than one million dollars sitting in his Israeli Bank Leumi account on a FBAR (now FinCEN Form 114). He also requested that the bank refrain from mailing statements to the United States and tapped the funds through a loan scheme.

At the end of August, the man pleaded guilty to felony federal tax charges for failing to file. The potential for five years in prison exists in addition to stiff civil monetary penalties. This illustrates that offshore enforcement is still a priority for the IRS even as it concludes its Offshore Voluntary Disclosure Program (OVDP) at the end of the month.

California bill seeks to align partnership audits procedures

The proposed change affects partnership tax returns when the IRS makes changes or corrections during a federal tax audit. The new step requires the partnership to notify the California Franchise Tax Board of the updates. S.B. 274 is on desk of Governor Jerry Brown after passing the Senate.

Another feature of the proposed legislation is that it could shift tax liability to the partnership entity itself and away from individual partners.

How a tax lien can affect financing options for a business

When debts pile up, it can be easy to fall behind on tax payments. The IRS assesses a tax liability and the send a bill (Notice and Demand for Payment). When it doesn’t hear back from you in time, the Service files a public Notice of Federal Tax Lien.

A federal tax lien protects the government’s interest and alerts creditors that the U.S. government has a legal right to your property. This can easily affect your ability to obtain business financing.

A look at history as tax fraud charges again make headlines

One of the most famous tax fraud cases of all time sent Al Capone to prison. Those charges were mostly based on circumstantial evidence, because the famous Chicago gangster only endorsed one check and never had a bank account in his name.

The government proved Capone had an ownership interest in a gambling house. In addressing a defense claim of “no income,” a New York Times archive article described the prosecutor’s voice growing more bitter as he compared lavish expenditures (Diamond belt buckles and $113,000 race track losses) to ordinary folk expenditures.

Employee or independent contractor? A mid-year checkup

The sharing economy has allowed more people to add side gigs. It’s also provides others enough income to leave traditional 9-to-5 positions. Understanding the tax implications, however, is crucial.

It’s a good time to analyze whether you are on track. You still enough have time in the year to make adjustments if you are not. What does employee versus independent contractor have to do with it?

IRS proposes rule on 20 percent deductions for businesses

The Tax Cuts and Jobs Act created a new 20 percent deduction for qualified business income. There have been unanswered questions, however. Two big ones are: which businesses qualify and what counts as qualified business income. 

What qualifies as a passthrough business? Generally, these are a sole proprietorship, partnership, S corporation or trust. Owners pay their taxes through individual tax returns. Most small businesses are structured in these ways, but not all will benefit. In this post, we will discuss which businesses should be eligible.

Unknowing spouses may qualify for tax liability relief

Oftentimes, one member of the household handles all the money. For many couples, one person is usually in charge of filing tax returns and carrying out other financial obligations. Such exclusions can lead to problems later on, especially when that partner makes a mistake or manages the finances incorrectly.

Can I be held liable for tax errors my spouse made?

Talking about money has always been tricky for couples. As a single adult, you're in charge of keeping track of where your money comes from and how it gets spent. When you get married, though, your finances and financial competence may be heavily scrutinized. Even married couples who keep separate bank accounts or pay for things separately need to discuss money management every now and then to ensure the family budget remains balanced – and to ensure taxes are filed and paid correctly.

And yet, as the years go by, many people abdicate their role in understanding how the family budget operates. They let their more financially savvy spouse take care of the taxes, or assume that the accountant did everything right. A letter of collection from the IRS can be a nasty wake-up call that all may not be perfect in paradise.

How long does it take the IRS to audit a tax return?

Generally, the answer is between one and three years. In 2018, the IRS expected to receive 153 million individual tax returns. It takes time to go through all of them. 

There are a couple ways that your tax return might be singled out for more attention. Random selection using a statistical formula is one. The IRS then compares a flagged return against “norms.” Computer screening is another used to cross reference information on your return with third party information. If a business partner or investor is under audit, you might also be next.