IRS Announces More Flexible Offer-in-Compromise Terms

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The IRS announced today that it is expanding its “Fresh Start” initiative to provide for more flexible terms to its Offer in Compromise (OIC) program.  In general, an OIC is an agreement between a taxpayer and the IRS, settling the taxpayer’s tax liabilities for less than the full amount due (subject to compliance with the terms of the OIC).  The IRS noted that it will alter its focus on the financial analysis used to determine which taxpayers qualify for an OIC, as well as enable certain taxpayers to resolve their tax problems in as few as two years, as compared to four or five years in previous years.

Other announced changes for certain taxpayers include: 1) Revising the calculation for the taxpayer’s future income, 2) Allowing taxpayers to repay their student loans, 3) Allowing taxpayers to pay state and local delinquent taxes, and 4) Expanding the Allowable Living Expense allowance category and amount.

OIC’s generally will not accepted if the IRS believes, after examining a taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential, that the liability can be paid in full as a lump sum or a through installment payments.  Under the new “Fresh Start” changes, however, when the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months (down from four years), and two years of future income for offers paid in six to 24 months (down from five years.)

Under the new program, all OIC’s must be fully paid within 24 months of the date of acceptance of the offer. (Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, have been revised to reflect the changes).

Business seeking to make a business OIC will also likely benefit from revisions to the program narrowing the parameters and clarifying when a dissipated asset will be included in the calculation of reasonable collection potential. Additionally, in general, calculation of reasonable collection potential will not include equity in income producing assets for on-going businesses.

Contact Sherayzen Law Office for Making a Business Offer in Compromise

Making an Offer in Compromise can be a potentially complex process for both individuals and businesses.  If you find yourself or your business in this situation, contact Sherayzen Law Office for legal help.

Underpayment and Overpayment Interest Rates for the Third Quarter of 2012

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On May 22, 2012, the IRS announced that the interest rates will remain the same for the calendar quarter beginning July 1, 2012.  The rates will be:

  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.  The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.  The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.

Search Warrants and IRS Summons Powers in Tax Crimes Cases

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In a previous article, we explained the basics of criminal tax investigations. In this article, we will examine further two investigatory methods available to the IRS.

Search Warrants

IRS Special Agents may request for a search warrant in certain cases. In order for a search warrant to be granted, IRS Counsel generally must first approve of the warrant request. The agent must also demonstrate to a federal judge or magistrate that evidence of a tax crime will be found on the premises of the taxpayer during the search, and the warrant must describe with specificity the place that will be searched, and any documents or items that will be seized. An agent must also show that probable cause exists that a taxpayer has committed a tax crime for the search warrant to be valid under the Fourth Amendment to the US Constitution.

Search Warrants are generally limited to significant criminal tax cases, such as cases involving large sums of taxes owed, and substantial fraud.

Summons Powers

IRS agents also have broad summons powers, available in both criminal and civil cases, under Internal Revenue Code Section 7602. IRS agents, however, may not conduct unnecessary investigations (IRC Section 7605). When important documents in a tax crime case are held by third parties, IRS agents may also summon third parties in order to obtain testimony about such documents, but taxpayers are usually supposed to receive notice of the summons (IRC Section 7609).

Contact Sherayzen Law Office for Help With IRS Investigations

If you are facing a criminal investigation by the IRS, contact Sherayzen Law Office for legal help. Attorney Eugene Sherayzen will review the facts of the case, outline an aggressive ethical defense strategy, and rigorously represent your interests during the IRS investigation.

Form 8938 Threshold Requirements

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Starting tax year 2011, the IRS imposed a new tax reporting requirement on individual taxpayers who hold specified foreign financial assets with an aggregate value exceeding a relevant threshold. In its instructions to Form 8938, the IRS lists five main categories of taxpayers and assigns distinct reportable threshold to each category. Let’s explore each category.

1. Unmarried Taxpayers Living in the United States

If the taxpayer is not married and lives in the United States, then the applicable reporting threshold is satisfied if the total value of his specified foreign financial assets is more than $50,000 on the last day of the tax year, or more than $75,000 at any time during that tax year.

2. Married Taxpayers Filing a Joint Income Tax Return and Living in the United States

If the taxpayer is married and files joint income tax return with his spouse, then the reporting threshold is satisfied if the value of his specified foreign financial assets is either more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the tax year.

3. Married Taxpayers Filing Separate Income Tax Returns and Living in the United States

If the taxpayer is married and lives in the United States, but files a separate income tax return from his spouse, then the reporting threshold is satisfied if the total value of his specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. Therefore, this category is very similar to that of the unmarried taxpayer who resides in the United States.

4. Married Taxpayers Living Abroad and Filing a Joint Income Tax return

If the taxpayer has a tax home is abroad (a special test applies to determine whether this is the case), satisfies the presence abroad test, and files a joint tax return with his spouse, then the reporting threshold is satisfied if the value of all specified foreign financial assets that you or your spouse owns is either more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the tax year.

5. Married Taxpayers Living Abroad and Filing Any Return Other Than Joint Tax Return

If the taxpayer has a tax home is abroad, satisfies the presence abroad test, and does not file a joint income tax return (instead he files a different type of tax return such as married filing separately or unmarried), then the reporting threshold is satisfied if the value of all specified foreign financial assets is either more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the tax year.

Presence Abroad Tests

There are two “presence abroad” tests for the purposes of categories 4 and 5 above.

First, the presence abroad test is satisfied if the taxpayer is a U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted period of an entire tax year.

Second, the presence abroad test is satisfied if the taxpayer is a U.S. citizen or residence who is present in a foreign country or countries at least 330 full days during any period of twelve consecutive months that needs in the tax year being reported.

Contact Sherayzen Law Office For Help With IRS Form 8938

The reporting requirements under Form 8938 can be very complex. Moreover, in case of prior non-compliance with the FBAR or other reporting requirements (Form 5471, 8865, 8891, et cetera), filing of Form 8938 should often be done in conjunction with a voluntary disclosure process in order to reduce or avoid additional tax penalties.

For legal advice with respect to Form 8938, determination whether its requirements apply to you, help with completing the form properly, and coordination of the Form 8938 filing with other U.S. tax compliance as part of the voluntary disclosure process, contact Sherayzen Law Office. Our experienced tax compliance firm will help you resolve any issues related to Form 8938 and guide you toward proper compliance with its requirements.

Final Regulations and Guidance Issued on Reporting Interest Paid to Nonresident Aliens under FATCA

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The Foreign Account Tax Compliance Act (FATCA), was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, and mandates new reporting requirements, and amends existing IRC Sections.  Recently, the IRS issued final regulations and guidance regarding the reporting interest paid to nonresident aliens by certain financial institutions, as well as revenue procedure specifying foreign countries with which the U.S. has a information exchange agreement.  Nonresident aliens should be especially aware of these new rules, as many individuals will likely be affected by these rules.

TD 9584 (Guidance on Reporting Interest Paid to Nonresident Aliens), effective April 19, 2012, has the final regulations concerning the reporting requirements for commercial banks, savings institutions, credit unions, securities brokerages, and insurance companies that pay interest on deposits.

In general, beginning with interest payments made on, or after, January 1, 2013, covered financial institutions will be required to report deposit interest paid to certain nonresident alien individuals.  The IRS may then exchange information relating to tax enforcement with the officials of foreign countries.  Under the new Treas. Reg. §§ 1.6049-4(b)(5) and 1.6049-8(a), interest paid to nonresident aliens must be reported if the amount in aggregate is $10 or more.

The IRS views this ability to share such information as important to its goal of gathering information from other jurisdictions about US taxpayers who may be evading US tax by hiding assets offshore.  Additionally, the IRS enacted the new reporting requirements to limit US taxpayers with US deposit accounts from falsely claiming to be nonresident aliens in order to avoid paying US taxes on interest they receive from deposits.