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Passport Revocation and Denial for Tax Debt | IRS Tax Lawyer & Attorney

Starting January 1, 2018, the State Department commenced to deny the requests for US passport issuance and renewal made by individuals with “seriously delinquent tax debt”. Moreover, the State Department has been granted the authority for US passport revocation with respect to these individuals. Let’s explore this new law on passport revocation and denial for tax debt.

Passport Revocation and Denial: IRC Section 7345

Section 32101 of the 2015 Fixing America’s Surface Transportation Act (“FAST Act”) added IRC Section 7345, which requires the IRS to notify the State Department of taxpayers that the IRS has certified individuals as having “seriously delinquent tax debt.” This is called “Section 7345 Certification.” Once the State Department receives such a Certification, it is generally required to deny a passport application for the certified individuals and may even revoke or limit passports that were previously issued to these individuals.

Passport Revocation and Denial: Who Can Make Section 7345 Certifications

Only designated IRS officials may certify an individual or reverse Certification. IRC Section 7345(g) specifically reserves this right to the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, “Commissioner or specified delegate”).

Passport Revocation and Denial: Seriously Delinquent Tax Debt

The term “seriously delinquent tax debt” is defined in IRC Section 7345(b)(1), which sets up four requirements. First, the debt must be “unpaid, legally enforceable Federal tax liability of an individual.” Id. Note that the seriously delinquent tax debt is limited to liabilities incurred under Title 26 of the United States Code (i.e. the Internal Revenue Code). The term does not include items such as FBAR penalties and child support.

Second, this federal tax liability must have been “assessed.” IRC Section 7345(b)(1)(A).

Third, the assessed liability must be greater than $50,000. IRC Section 7345(b)(1)(B). Pursuant to the IRC Section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016. In fact, for 2018, the threshold amount is $51,000.

Finally, either a levy pursuant to IRC Section 6331 or a lien pursuant to the IRC Section 6323 has been issued with respect to the assessed tax liability. IRC Section 7345(b)(1)(C). Moreover, the administrative appeal rights under IRC Section 6320 with respect to the lien must have been either exhausted or lapsed. Id.

Passport Revocation and Denial: More Than $50,000 Threshold

In calculating whether the $50,000 federal tax liability threshold is met, the IRS will aggregate all of the current tax liabilities for all taxable years and periods assessed against an individual. It will also include penalties and interest.

Passport Revocation and Denial: Exclusions

Under the newly-issued IRS guidance, the term “seriously delinquent tax debt” for the purposes of passport revocation and denial does not include the following:

1. A debt that is being timely paid under an IRS-approved installment agreement under section 6159.

2. A debt that is being timely paid under an offer in compromise accepted by the IRS under section 7122.

3. A debt that is being timely paid under the terms of a settlement agreement with the Department of Justice under section 7122.

4. A debt in connection with a levy for which collection is suspended because of a request for a due process hearing (or because such a request is pending) under section 6330.

5. A debt for which collection is suspended because the individual made an innocent spouse election (section 6015(b) or (c)) or the individual requested innocent spouse relief (section 6015(f)).

Passport Revocation and Denial: Exceptions

Additionally, the State Department will not revoke or deny the US passport of a taxpayer if one of the following exceptions apply:

1. The taxpayer is in bankruptcy;

2. The IRS identified the taxpayer as a victim of tax-related identity theft;

3. The IRS determined that the taxpayer’s account is currently uncollectible due to hardship;

4. The taxpayer is located within a federally declared disaster area;

5. The taxpayer has a request pending with the IRS for an installment agreement;

6. The taxpayer has a pending offer in compromise with the IRS;

7. The taxpayer has an IRS-accepted adjustment that will satisfy the debt in full; or

8. If the taxpayer is serving in a designated combat zone or participating in a contingency operation, the IRS will postpone the Certification.

Passport Revocation and Denial: 90-Day Delay

Before denying a passport, the State Department will grant a taxpayer 90 days to allow him to either resolve any erroneous certification issues, make a full payment of the tax debt or enter into a payment arrangement with the IRS.

Passport Revocation and Denial: Main Remedy in Case of Erroneous Certification

In cases where the IRS makes an erroneous Certification or fails to revers a certification, a taxpayer does not have many choices. It appears that the taxpayer will not be able to appeal to the IRS Office of Appeals. The main course of action in these situations appears to be a civil action in court under IRC Section 7345(e).

Contact Sherayzen Law Office for Professional Help with US Tax Issues

Sherayzen Law Office is a highly experienced tax law firm based in Minneapolis. We have helped hundreds of US taxpayers to resolve their tax issues, and we can help you!

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Overcoming Late IRC Section 1041 Transfer Presumption | IRS Lawyer & Attorney

In a previous article, I discussed that a late IRC Section 1041 transfer between former spouses is presumed to be unrelated to the cessation of the marriage. This means that such a transfer may not be considered tax-free for US tax purposes. In this article, I would like to explain what a late IRC Section 1041 transfer is and how to overcome the presumption that it is not related to the cessation of the marriage.

What is a Late IRC Section 1041 Transfer?

A transfer of property between ex-spouses is not taxable as long as it is “incident to divorce”. 26 U.S.C. §1041(a)(2). Temporary regulations state that such a transfer of property will be considered as incident to divorce as long as it occurs within one year of the date of the cessation of marriage or if this transfer is related to the cessation of marriage. Treas Reg §1.1041-1T(b), Q&A-6.

As I indicated in a previous article, a transfer of property is related to the cessation of marriage if it is done pursuant to a divorce or separation instrument and “occurs not more than 6 years after the date on which the marriage ceases”. Treas Reg §1.1041-1T(b), Q&A-7. If the transfer of property between ex-spouses occurs after six years of the cessation of marriage, then it is considered a late IRC Section 1041 transfer. Id.

Late IRC Section 1041 Transfer: Presumption that the Transfer if Not Related to Marriage

A late IRC Section 1041 transfer gives rise to a presumption that the transfer is not related to the cessation of marriage. Id. In other words, if an ex-spouse transfers a property to another ex-spouse more than six years after the cessation of their marriage, then the IRS will assume that the transfer is not related to the marriage.

Late IRC Section 1041 Transfer: Rebuttal of the Presumption

Luckily for US taxpayers, this presumption is not absolute and can be rebutted. “This presumption may be rebutted only by showing that the transfer was made to effect the division of property owned by the former spouses at the time of the cessation of the marriage.” Id.

The temporary Treasury regulations emphasize that the presumption can be rebutted by establishing two facts. First, the transfer was made late “because of factors which hampered an earlier transfer of the property, such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage”. Id. Second, “the transfer is effected promptly after the impediment to transfer is removed.” Id.

Late IRC Section 1041 Transfer: PLRs Indicate Anticipation of Transfer in a Divorce Decree as the Crucial Factor

The IRS has issued a number of Private Letter Rulings (“PLRs”) on the issue of a late IRC Section 1041 transfer. Overall, the PLRs seem to follow an important trend in determining whether a taxpayer is successful in his rebuttal of the aforementioned presumption.

The key factor that appears in these PLRs seems to be whether a transfer of property (or an option to transfer a property) was part of the divorce decree. In other words, the most important question is whether this transfer of property was anticipated by the terms of the divorce decree. If it was and there is a good justification for the delay of the transfer of property, then the IRS is likely to rule that Section 1041 applies and the transfer would be deemed tax-free for federal income tax purposes.

Of course, it is highly important that a tax attorney review the situation to determine the likelihood that the IRS will agree on both points: anticipation of transfer in the divorce decree and the good reason for the delay of the transfer.

Contact Sherayzen Law Office for Professional Help Concerning Late IRC Section 1041 Transfers

If you are engaged in a divorce or you are an attorney representing a person who is engaged in a divorce, contact Sherayzen Law Office for experienced help with respect to taxation of transfers of property to an ex-spouse as well as other tax consequences of a divorce proceeding.

Shakira Tax Evasion is Reportedly Investigated by Spain | Tax Law News

On January 23, 2018, the Spanish Newspaper based in Madrid “El País” broke the news that the Colombian Singer Shakira (full name Shakira Isabel Mebarak) is being reportedly investigated by the Spanish tax authorities for tax evasion. Let’s explore the alleged Shakira tax evasion investigation in more detail.

Alleged Shakira Tax Evasion Investigation is Centered Around Spanish Tax Residency

At the core of the alleged investigation of potential Shakira tax evasion lies the concept of tax residency. Under the tax laws of Spain, a person who resides in Spain for at least 183 days during a calendar tax year may generally be considered a Spanish tax resident. As such, he would be required to disclose his worldwide income on a Spanish tax return.

It should be noted (as Sherayzen Law Office has pointed out in the past) that Spain is a very strict tax jurisdiction in many aspects, especially when it comes to tax evasion. In fact, it is the only country in the European Union which has a form similar to the IRS Form 8938 – Spanish Modelo 720.

Alleged Shakira Tax Evasion Investigation: 2011-2014 Tax Residency of Shakira in Question

El País reported that the Spanish tax authorities focused their investigation of Shakira on tax years 2011 through 2014. The singer has claimed that she was resident of the Bahamas at that time. Shakira’s lawyer stated that Shakira lived in several places over the years due to her lifestyle as an international singer and has been in full compliance with tax laws of all relevant jurisdictions.

The tax authorities reportedly reached a different conclusion – that Shakira was a Spanish tax resident during the years 2011, 2012, 2013 and 2014. It is not clear whether the alleged conclusion was arrived at using direct evidence or indirect evidence. El País, for example, stated that the Spanish Tax Agency investigators went to her hairdresser in Spain to establish that Shakira lived in Spain.

It should be pointed out that Shakira officially declared herself as a Spanish tax resident in 2015 due to her marriage with the Spanish soccer player Gerard Pique.

Paradise Papers Could Have Prompted the Investigation of Potential Shakira Tax Evasion

The alleged Shakira Tax Evasion investigation also has an interesting twist. It appears that it could have been prompted by the famous Paradise Papers in November of 2017.

The Paradise Papers is a collection of 13.4 million of files that were stolen from the client files of Appleby Law Firm, a Singapore-based trust company, as well as company registries of nineteen different jurisdictions.

According to the Paradise Papers, Shakira transferred some or all of her intellectual property and trademarks to Tournesol, Ltd., (“Tournesol”) a company registered in Malta in 2009. Shakira is the sole shareholder of this company. Tournesol increased its capital by 31 million euros through an interest-free loan agreement with ACER Entertainment, a related company owned by Shakira and registered in Luxembourg.

Alleged Shakira Tax Evasion Investigation: Potential Penalties

Shakira’s estimated net worth is $200 million. This means that her tax fraud case will involve large numbers, possibly in the millions of dollars.

It appears that if Shakira is found guilty of tax fraud that is in excess of 600,000 euros, she could be facing from two to six years in prison for each count of tax fraud. Moreover, she could be facing a fine of six times the amount of underpaid tax. It should be pointed out that the charges will most likely focus on the years 2012-2014, because 2011 appears to be barred by the Spanish statute of limitations.

Shakira’s celebrity status will not have any impact on the Spanish tax authorities. In fact, she now joined a list of many celebrities who have been investigated by the Spanish Tax Agency, including Lionel Messi and Cristiano Ronaldo.

2014 Individual Income Tax Rates

The IRS recently announced the 2014 individual income tax rates with inflation adjustments wit respect to each tax bracket. Remember, since the American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013, a new tax bracket of 39.4% appeared. Also, note that the 2014 individual income tax rates listed below do not include other taxes such as those imposed on investment income by the new health care laws. Finally, it is important to remember that the default PFIC regime calculations do not depend on your personal tax rate.

As adjusted for inflation, the following marginal income tax rates will apply to individuals in the tax year 2014:

Filing Single

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $89,350
28% $89,351 – $186,350
33% $186,351 – $405,100
35% $405,101 – $406,750
39.6% $406,751 and greater

Notice the small range of the 35% tax bracket.

Filing Married Filing Jointly and Surviving Spouses

10% $0 – $18,150
15% $18,151 – $73,800
25% $73,801 – $148,850
28% $148,851 – $226,850
33% $226,851 – $405,100
35% $405,101 – $457,600
39.6% $457,601 and greater

Filing Married Filing Separately

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $74,425
28% $74,426 – $113,425
33% $113,426– $202,550
35% $202,551 – $228,800
39.6% $228,801 and greater

Filing Head of Household

10% $0 – $12,950
15% $12,951 – $49,400
25% $49,401 – $127,550
28% $127,551 – $206,600
33% $206,601 – $405,100
35% $405,101 – $432,200
39.6% $432,201 and greater