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Streamlined Audit Interview | Streamlined Audit Tax Lawyers

In an earlier article, I described the main features of an IRS audit of a voluntary disclosure made pursuant to the Streamlined Domestic Submission Procedures (“Streamlined Submission Audit”). Today, I would like to discuss a very specific feature of this process – Streamlined Audit Interview.

Streamlined Audit Interview: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a special offshore voluntary disclosure program initiated by the IRS in 2014. SDOP allows US taxpayers to remedy their past tax noncompliance concerning the reporting of foreign assets and foreign income while paying a highly reduced 5% Miscellaneous Offshore Penalty. The reason for such a lenient treatment is that the taxpayers must certify that their prior noncompliance with US international tax laws was non-willful.

Streamlined Audit Interview: General Description

Virtually every IRS field audit will involve an attempt to interview the audited taxpayer(s). The concept of a Streamlined Audit Interview describes a situation where an audited taxpayer is interviewed specifically in the context of a Streamlined Submission Audit.

Streamlined Audit Interview: Main Differences from Regular IRS Audit Interview

In many ways, a regular IRS audit interview is similar to a Streamlined Audit Interview. In fact, procedurally, there are very few differences: both audits involve the same type of scheduling procedures, same interview format and, with respect to audited tax returns, very similar questions.

The main difference between a regular IRS audit interview and the Streamlined Audit Interview lies in the fact that the latter will involve the examination of the audited taxpayer’s non-willfulness with respect to prior tax noncompliance – i.e. whether the taxpayer carried his burden of proof to participate in SDOP in the first place. In other words, the difference between the two types of audits is in the substantive legal issues to be discussed.

There are also differences in the potential stakes. A failure for the taxpayer to substantiate his original non-willfulness arguments may lead the IRS to impose heavy penalties and even refer the case to the US Department of Justice’s Tax Division for criminal prosecution.

Finally, a Streamlined Audit Interview is likely to involve a much broader spectrum of issues than just amended tax returns. For example, there could be questions concerning FBARs, sources of foreign account balances, US assets purchased with undisclosed foreign funds, et cetera.

Streamlined Audit Interview: Extensive Preparation Is Necessary

A taxpayer should prepare for a Streamlined Audit Interview. It should be remembered that this interview may happen two or even almost three years from the time when the SDOP voluntary disclosure package was originally submitted. Hence, it is important to refresh the memory of the taxpayer so that he would be able to respond to the IRS questions (instead of constantly saying “I have no recollection”, thereby creating an impression as if he had to hide something).

The taxpayer should also be prepared on how to properly answer a question. Again, the idea is to avoid unnecessary suspicions and an impression that he has something to hide. This why the taxpayer’s answers should be firm and clear in order to eliminate any doubt of their meaning.

In every case, there are going to be weak or negative facts. The temptation to avoid a discussion of negative facts is huge, but it should be resisted. The taxpayer should be prepared to speak of them boldly, explain these facts and show how they fit into his overall non-willfulness arguments.

A taxpayer should never be trained in lying to the IRS or obfuscating the facts. Never, under any circumstances, should an attorney allow his client to commit a perjury, especially in the context of a voluntary disclosure based on the taxpayer’s non-willfulness. The outcome of this unethical strategy is likely to be disastrous (the IRS is likely to find out the truth in any case) and may result in criminal charges filed against the client, even if his original tax noncompliance was non-willful.

Being honest is of utmost importance in a Streamlined Audit Interview. This, however, does not preclude an attorney from employing certain strategies as described above to prevent unnecessary complications by the failure of a taxpayer to express himself clearly or creating a temptation on the part of the IRS to go on a “fishing expedition”.

Contact Sherayzen Law Office for Professional Help With an Audit of Your Streamlined Submission and a Streamlined Audit Interview

If your Streamlined Submission is being audited by the IRS, you should contact Sherayzen Law Office as soon as possible for professional help. Sherayzen Law Office is a highly experienced international tax law firm that specializes in all stages of offshore voluntary disclosures, including IRS audits of a Streamlined Submission and federal court representation.

We can help You! Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Submission Audit | SDOP Audit Tax Lawyer

An increasing number of submissions under the Streamlined Domestic Offshore Procedures are subject to an IRS audit (hereinafter “Streamlined Submission Audit”). In this article, I will explain what a Streamlined Submission Audit is and what a taxpayer should expect during the Audit.

Streamlined Submission Audit: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a voluntary disclosure option offered by the IRS since June of 2014 to noncompliant US taxpayers to settle their past tax noncompliance concerning foreign assets and foreign income at a reduced penalty rate. In order to participate in SDOP, a taxpayer must meet three main eligibility requirements – US tax residency, non-willfulness of prior noncompliance and absence of IRS examination.

SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers whose prior tax noncompliance was non-willful. SDOP is very popular; in fact, it has quickly surpassed the traditional IRS Offshore Voluntary Disclosure Program (“OVDP”) in the number of participants with over 18,000 submissions just in 2016.

The Origin of the Streamlined Submission Audit

Streamlined Submission Audit originates within the very nature of SDOP. Unlike OVDP, SDOP voluntary disclosures are not immediately subject to a comprehensive IRS review of tax return items (although, there is a review process which may lead to a Streamlined Submission Audit, but it is not as comprehensive as that of the OVDP prior to the Audit). Hence, the IRS reserved the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.

Streamlined Submission Audit: Process

The exact process of a Streamlined Submission Audit varies from case to case, but all of such audits have a similar format: initial letter with request for a meeting, meeting with an interview, review of submitted documents and (very likely) additional requests for information, interview of other involved individuals (such as a tax preparer) and, finally, the results of an audit are provided by the IRS to taxpayer(s) and/or the representative indicated on Form 2848.

A Streamlined Submission Audit commences in a way very similar to a regular IRS audit: a letter is sent to taxpayers and (if there is a Form 2848 on file) to their representative. The letter explains that the IRS decided to examine certain tax returns (usually all three years of amended tax returns) and asks for submission of all documentation and work papers that were used to prepare the amended returns. Additionally, the letter requests that the taxpayers’ representative (or taxpayers if not represented) contact the IRS agent in charge of the audit to schedule the initial meeting.

During the initial meeting, the IRS agent will review (at least to make sure he or she has what is needed) the documents supplied. In larger cases, the IRS will need a lot more time to later examine all of the submitted documents and see if additional documents are needed. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Also, during an initial meeting, there is going to be an interview of the taxpayer(s). I will discuss the interview separately in a different article.

Once the review of the initial package of documents is concluded, it is very likely that the IRS agent will have questions and additional document requests. The questions may be answered by the taxpayers’ attorney during a separate meeting with the agent; smaller questions may be settled over the phone.

If additional documentation is needed, an IRS agent will send out an additional request to taxpayers and/or their attorney. The answer will most likely need to be provided in writing.

Once the IRS completes its interview of other involved parties and reviews all evidence, it will make its decision and submit the results of the audit to the taxpayers and their tax attorney in writing. The taxpayers’ attorney will need to build a strategy with respect to the taxpayers’ response to the audit results depending on whether the taxpayers agree or disagree with the results of the audit.

Differences Between Streamlined Submission Audit and Regular IRS Audit

At first, it may seem that there are no big differences between a regular IRS audit and a Streamlined Submission Audit. While procedurally this may be correct, substantively it is not.

The greatest difference between the two types of IRS audits is the subject-matter involved. While a regular IRS audit will concentrate on the tax returns only, a Streamlined Submission Audit will involve everything: amended tax returns, FBARs, other information returns and, most importantly, Non-Willfulness Certification. In other words, a Streamlined Submission Audit will focus not only on whether the tax forms are correct, but also on whether the taxpayer was actually non-willful with respect to his prior tax noncompliance.

This difference in the subject-matter examination will carry over to other aspects of a Streamlined Submission Audit: the taxpayers’ interview will focus on their non-willfulness arguments, third-party interviews of original tax preparers become a regular feature (this is very different from a regular IRS audit when tax preparers may never be interviewed), and the final IRS results must necessarily make a decision on whether to challenge the taxpayers’ non-willfulness arguments.

Failure by a taxpayer to sustain his non-willfulness arguments may result in a disaster during a Streamlined Submission Audit with a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

This is why it is so important for a taxpayer subject to a Streamlined Submission Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.

Contact Sherayzen Law Office for Professional Help With A Streamlined Submission Audit

If your submission under the Streamlined Domestic Offshore Procedures is being audited by the IRS, you need to contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (including OVDP, SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of a voluntary disclosure.
In fact, we have handled voluntary disclosure cases at every stage of the process of a Streamlined Submission Audit described above. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Office of Appeals to Pilot Internet Virtual Conference Option

On July 24, 2017, the IRS Office of Appeals announced that it will soon pilot a new Internet virtual conference option for taxpayers and their representatives. This new option will offer an additional choice for holding taxpayer conferences and will come as close as possible to a “face-to-face” meeting.

Internet Virtual Conference Option: Existing Options

Each year, the IRS Office of Appeals hears appeals of more than 100,000 taxpayers. The main purpose of such an appeal is to resolve tax issues without going to court. By avoiding the court, the taxpayers are able to dispute the original IRS finding in a convenient and fast way; they can even introduce additional evidence without the formal procedures required in court. The IRS Office of Appeals is also a very cheap forum for disputing IRS decisions compared to federal court. Finally, it is one of the ten rights guaranteed to taxpayers under the Taxpayer Bill of Rights

Currently, the taxpayers who utilize the appeals process can participate in a meeting with an Appeals Officer in three ways: in person, by phone or through a special video conference technology. Each of these options has its own problems. A face-to-face meeting with an Appeals Officer may require substantial traveling for the taxpayer. A telephone conference resolves this problem, but it loses the personal interaction that so many taxpayers prefer.

While the current video conference option partially resolves both problems, its biggest drawback is limited availability – only a few IRS Offices have the necessary technology.

Internet Virtual Conference Option Aims to Offer Another Option to Supplement the Existing Ones

The new Internet Virtual Conference Option aims to resolve the current problems with the existing options. The idea is to provide a secure, web-based screen-sharing platform to connect with taxpayers face-to-face from anywhere they have internet access – this is very similar to Video Skype Conferences offered by Sherayzen Law Office.

In essence the pilot Internet Virtual Conference Option will allow for greater access of the IRS by the taxpayers. In the future, it is likely that this option will become the preferred one by the IRS and the taxpayers.

Internet Virtual Conference Option Pilot Will Start on August 1, 2017

The IRS Office of Appeals plans to commence the pilot Internet Virtual Conference Option on August 1, 2017. After the pilot program is completed, the IRS will analyze the results and determine the taxpayers’ satisfaction with the technology. Sherayzen Law Office predicts that, once the technology is finalized, the IRS Internet Virtual Conference Option will become a permanent feature in the near future.

IRS Audit and the Constructive Dividends Trap

Do you own or work for a closely-held corporation? Do you make frequent payments between your small C corporation and your shareholders? Then you should be especially careful about the constructive dividend rules. Under these rules, the IRS can deem certain payments made to or on behalf of its shareholders as dividends, even though they have not been officially declared as dividends. In such cases, both the corporation and the shareholder may face steep additional tax liabilities, as well as significant penalties and interest on the resulting liabilities.

This article will explain the basics of constructive dividends. It is not intended to constitute tax or legal advice.

Corporate taxation can involve many complex tax and legal issues, so it may be advisable to seek an experienced attorney in these matters. Failure to do proper tax planning can result in significant adverse tax consequences. Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs, and help you avoid making costly mistakes.

Constructive Dividends

In general, a constructive dividend can be any type of economic benefit made to the shareholders by a corporation without an expectation of repayment that represents an undeclared dividend. If the economic benefits were primarily of a personal nature rather than business–related interests to the corporation, they will likely be treated as constructive dividends. Constructive dividends, as with declared dividends, can thus be distributions of cash and/or property as well as other types of payments that provide an economic benefit to the shareholder(s).

Because of the greater potential for self-dealing in closely-held and family-owned small corporations, the IRS is especially vigilant when it comes to possible constructive dividend situations in such entities. Shareholder-owners will often run afoul of tax laws if they attempt to have the corporation make payments for their personal, non-corporate related expenses, of if they try to distribute corporate profits to themselves by having the corporation report illegitimate expenses, rather than by paying a dividend.

Types of Constructive Dividends

There are numerous types of payments or economic benefits to shareholders that can be re-characterized as constructive dividends. If you are a shareholder in a closely-held corporation you should be aware of the possibilities.

One common constructive dividend is unreasonable compensation paid by a corporation to a shareholder-employee. Frequently, members of family-owned corporations will try to shift income by having their corporations pay excessive salaries (compared to the work actually performed) to family members who pay at lower tax rates, thereby reducing corporate net income at the same time. Because of the potential for tax abuse, shareholder-owners of small corporations will need to be able to show that the salaries paid were legitimate. Some factors to consider, among others, will be the nature and complexity of the work performed by the employee, the employee’s qualifications for the job, a comparison of salary paid by the corporation to prevailing salaries for similar jobs, as well as the ratio of dividends paid to salary by the corporation.

Bargain sales or rentals of property by the corporation to its shareholder(s) will also likely be deemed to be constructive dividends, depending upon the circumstances. For example, if a shareholder purchases property at a bargain rate below its true fair market value, a constructive dividend will arise on the amount of difference between what the property was purchased for and its actual value. Thus, if you are making such transactions, you should have a legitimate appraisal of the property and treat the sale at arm’s length in order to decrease the potential for a constructive dividend to be declared.

A constructive dividend can also arise when a corporation makes payments on behalf of its shareholder-employees personal expenses, or if the shareholder-employees use corporate property for personal use. An example of the latter situation may occur when shareholders use a company car or plane for non-corporate reasons without adequate payment to the corporation for personal use.

Constructive dividends may also be deemed by the IRS to be paid when a corporation makes payments to shareholders that are not bona fide loans. The determination of whether a payment was in fact a bona fide loan is a very complex tax issue that involves numerous factors, such as whether interest was actually paid by the shareholder to the corporation, and whether a loan agreement existed.

Proper Tax Planning is Required To Reduce the Probability of Constructive Dividend Classification During IRS Audit

While representing clients in IRS audits, I see that the widespread use of constructive dividends by the IRS. While this is a fairly common audit issue, it is appalling to see that this problem may have been prevented through timely tax planning by the taxpayers or their accountants.

This is why it is important to resolve this issue before the IRS audit begins, even if it means amending already filed tax returns. However, this is a job for an experienced tax attorney; I would strongly advise against doing the tax planning for such complex issues by yourself.

Contact Sherayzen Law Office for Help With Tax Planning

This is why you should contact Sherayzen Law Office before the IRS finds you. Attorney Eugene Sherayzen constantly deals with the IRS, and knows what to look for and where potential problems may arise, and we can use this knowledge to help you.