New Irish Software to Combat Offshore Tax Evasion | Tax Lawyer News

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The Irish Revenue is expanding its tax enforcement capabilities through new Irish software. This new Irish software will provide the Irish Revenue with a unique type of a multilateral analysis of a taxpayer in order to combat offshore tax evasion. This is definitely a new development in international tax enforcement and it is the one likely to be followed by other nations, including the United States.

New Irish Software Allows a Brand-New Versatile Analysis of a Taxpayer’s Life

The unique feature of the new Irish software is its multilateral analysis of a taxpayer. First of all, the software will match the data provided by taxpayer (or by other national institutions) with the data collected from other jurisdictions under the automatic information exchange agreements. So far, this is similar to the IRS FATCA software.

However, the new Irish software goes further: it will analyze the taxpayer’s social media accounts, statements, pictures and so on to see if the taxpayer’s posts about his lifestyle match the information provided by the taxpayer to the Irish Revenue. It appears that there are other features of the software which are not even disclosed to the public that also go beyond the traditional analysis of tax and financial documents.

In other words, the new software will do the data analysis that will allow the Irish Revenue to build a complete profile of Irish taxpayers and their activities. This is a very bold and creative approach to tax enforcement, but, as discussed below, it is completely within the logic of the recent trends in international tax enforcement.

The New Irish Software Comes After the Closure of the Irish Voluntary Disclosure Program

The new Irish software is being introduced by the Irish Revenue just about six months after the closure of the Irish voluntary disclosure program. The Irish Revenue received 2,734 disclosures with a declared value of almost 84 million before the program’s deadline for offshore disclosures on May 4, 2017.

Since the voluntary disclosure program is closed, the noncompliant taxpayers who will be identified by the new Irish software are likely to face substantially higher penalties.

Lessons to be Drawn from the New Irish Software With Respect to Future US Tax Enforcement

This latest development in Irish tax enforcement is indicative of the trend of using comprehensive data analytics through smarter, more aggressive software with elements of Artificial Intelligence to identify noncompliant taxpayers. This is the trend that will undoubtedly influence US tax enforcement. In fact, the IRS already has an advanced tax software to analyze FATCA data (which, right now, is filled with errors and not very effective). Moreover, the IRS has also stated that it will develop its own AI software to identify US international tax noncompliance.

Furthermore, it seems that there is a worldwide trend toward harsher international tax enforcement in lieu of continuation of the existing voluntary disclosure programs. The fact that the Irish Revenue unveiled new software after the closure of the voluntary disclosure program is also not an accident, but a planned course of events.

We can already observe the same trend here in the United States. The IRS is stepping up FBAR audits while the DOJ (US Department of Justice) is dramatically increasing its FBAR-related litigation. Additionally, the IRS has recently announced its intentions to seriously modify and even close its own voluntary disclosure programs.

The combination of all of these trends means that noncompliant US taxpayers are at an extremely high risk of detection at the time when most of their voluntary disclosure options are being closed or significantly modified. This is why this is the critically-important time for these taxpayers to explore their voluntary disclosure options while they are still available. Failure to do so now may lead to extremely unfavorable tax consequences, including the imposition of substantially higher IRS penalties.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

If you have undisclosed foreign assets (including foreign bank and financial accounts) or foreign income, please contact Sherayzen Law Office as soon as possible. Our international tax law firm has successfully helped hundred of US taxpayers with their offshore voluntary disclosures. We can help You!

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Reducing Form 5471 Penalties | Form 5471 Tax Lawyer & Attorney

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Reducing Form 5471 penalties has become a big headache for US shareholders of foreign corporations due to a very aggressive enforcement stance by the IRS. In this essay, I would like to explore the main option for reducing Form 5471 penalties – the Reasonable Cause Exception.

Reducing Form 5471 Penalties: What is Form 5471?

26 USC §6038 requires a US shareholder to report certain information with respect to a foreign corporation which is owned at least ten percent by the shareholder. Additionally, 26 USC §6046 imposes additional reporting requirements on US shareholders and US directors of a foreign corporation with respect to acquisition of its stock, its organization and its reorganization.

All of these reporting requirements can be satisfied by a timely filing of accurate Form 5471 with the taxpayer’s tax return. There are four different categories of Form 5471 filers depending on the taxpayer’s ownership percentage, the event that triggered the filing of Form 5471, whether the taxpayer is a director of the corporation and whether the corporation in question is a Controlled Foreign Corporation (“CFC”). Each of the filer categories needs to complete his own parts of Form 5471 and its Schedules.

Reducing Form 5471 Penalties: Form 5471 Penalties

There are five sets of Form 5471 penalties that may be imposed on US shareholders.

First, with respect to failure to comply with Form 5471 and Schedule M requirements (i.e. failure to comply with 26 USC §6038), there is a $10,000 penalty per form. Additionally, an extra $10,000 penalty per each 30-day period (or a fraction thereof) during which the failure continues after the initial 90-day notice from the IRS. This additional penalty is capped at $50,000 per form.

Second, with respect to failure to comply with Form 5471 and Schedule O requirements (i.e. failure to comply with 26 USC §6046), there is another $10,000 penalty. Similar to §6038, an additional $10,000 penalty may be imposed by the IRS for continuous failure to comply with 26 USC §6046; this penalty also cannot exceed $50,000 per form.

Third, in certain situation, the IRS may recommend criminal penalties under 26 USC §§7203, 7206 and 7207 if a taxpayer fails to comply with 26 USC §§6038 and §6046.

Fourth, failure to timely supply the required Form 5471 information may result in a 10% reduction in the foreign tax credit available under 26 USC §§901, 902 and 960. If the failure persists for 90 days or more after the date when the IRS informs the taxpayer of this failure, an additional 5% reduction is applied for each three-month period (or fraction thereof) of the continuation of the failure to comply with Form 5471 requirements. 26 USC §6038(c)(2) imposes certain limitations on this reduction of foreign tax credit.

Finally, foreign financial asset understatement penalties may be imposed pursuant to 26 USC §6662(j). In other words, any underpayment of tax as a result of a taxpayer’s failure to file an accurate Form 5471 will lead to the imposition of a 40% penalty on the underpaid tax (as opposed to the usual 20% accuracy-related penalty on underpayments).

Reducing Form 5471 Penalties: the Reasonable Cause Exception

All of the penalties listed above may be reduced to zero if the taxpayer is able to establish that he could not comply with Form 5471 requirements due to reasonable cause. For example, see Treas. Reg. §1.6038-2(k)(3).

Reasonable Cause is not defined anywhere in the Internal Revenue Code, but, in general, the courts have followed the Supreme Court’s definition in United States v. Boyle, 469 U.S. 241, 246, 105 S. Ct. 687, 83 L. Ed. 2d 622 (1985). The Boyle case stated that, if a taxpayer exercises ordinary business care and prudence and is nevertheless unable to obtain and provide the required information, the failure to file will be considered to have occurred due to reasonable cause.

This is a standard that, of course, requires a very detailed analysis of the facts that led to Form 5471 noncompliance. Drafting a Reasonable Cause Statement is a very creative and detail-oriented process at the same time. Everything should be analyzed carefully by the international tax attorney who is drafting a Reasonable Cause Statement: taxpayer’s education and work history, his cultural backgrounds, reliance on tax and financial professionals, mistaken understanding of law or facts, circumstances beyond the taxpayer’s control and innumerable other factors.

Reducing Form 5471 Penalties: Administrative Process

In order to establish that the Reasonable Cause exception applies to Form 5471 noncompliance, the taxpayer needs to make an affirmative showing of all facts alleged as reasonable cause in a written statement containing a declaration that it is made under the penalties of perjury. See Treas. Reg. §1.6038-2(k)(3). “The statement must be filed with the district director for the district or the director of the service center where the return is required to be filed.” Id.

Contact Sherayzen Law Office for Professional Help In Reducing Your Form 5471 Penalties

Sherayzen Law Office has a unique expertise in drafting Form 5471 Reasonable Cause Statements with respect to foreign corporations established in a very wide range of countries in Africa, Asia (including Japan), Europe and Latin America; of course, we a also have had a large number of clients who own Canadian corporations. We have helped all of these taxpayers to successfully reduce and even eliminate their Form 5471 penalties.

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IRS Written Advice Abatement Procedures | IRS Tax Lawyer

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This is the concluding article in our series of articles on the topic of the IRS Written Advice Defense. In prior articles, we have outlined the general legal test of the IRS Written Advice Defense and described each of the three prongs of this test. In this article, I would like to discuss the IRS Written Advice Abatement Procedures – i.e. the actual administrative process for requesting abatement of penalties based on this defense.

This article is for educational purposes only and I strongly encourage you to retain the services of an experienced tax attorney before engaging in the IRS Written Advice Abatement Procedures.

IRS Written Advice Abatement Procedures: Form 843

The centerpiece of the IRS Written Advice Abatement Procedures is Form 843. Taxpayers who are entitled to an abatement of penalties pursuant to 26 U.S.C. §6404(f) should complete and file Form 843. At the top of Form 843, taxpayers should write: “Abatement of penalty or addition to tax pursuant to section 6404(f).” Furthermore, taxpayers should state on Form 843 whether the penalty or addition to tax has been paid.

IRS Written Advice Abatement Procedures: Documents to Be Submitted with Form 843

The taxpayers must submit copies of the following documents together with their Form 843 (note that these documents are directly related to the three-prong legal test for the IRS Written Advice Defense):

1. A copy of the taxpayer’s written request for the IRS advice (with a statement of adequate and accurate facts);

2. A copy of the erroneous written advice provided by the IRS to the taxpayer and relied upon by the taxpayer; and

3. A copy of a report (if any) of tax adjustments (the report should identify the penalty or addition to tax and the item for which the erroneous IRS written advice was requested).

In addition to these required documents, I recommend that most of Form 843 abatement requests be accompanied by a detailed description of facts, the erroneous IRS written advice, the taxpayer’s reliance on this advice and how this reliance led to the imposition of a penalty.

IRS Written Advice Abatement Procedures: Time Limitations for Filing Form 843

The IRS regulations also address the issue when Form 843 should be submitted in order to be considered a timely request for abatement. The regulations specified that any abatement of a penalty or addition to tax pursuant to 26 U.S.C. §6404(f) will be permitted only if the request for such an abatement “is submitted within the period allowed for collection of such penalty or addition to tax, or, if the penalty or addition to tax has been paid, the period allowed for claiming a credit or refund of such penalty or addition to tax.” Treas. Reg. §301.6404-3(e).

IRS Written Advice Abatement Procedures: Where to File Form 843

The mailing address of Form 843 depends on whether the incorrect IRS advice is related to an item on a federal tax return. If the advice is related to an item on the taxpayer’s tax return, then Form 843 should be submitted to the IRS center where the tax return was originally filed. On the other hand, if the erroneous IRS advice is not concerning any item of the taxpayer’s federal tax return, then the taxpayer should submit Form 843 to the IRS Center where the taxpayer’s return was filed for the taxable year in which the taxpayer relied on the erroneous advice.

Contact Sherayzen Law Office for Professional Help With Respect to Abatement or Reduction of IRS Penalties

If the IRS imposed a penalty with respect to your prior noncompliance with US international tax returns, such as FBAR, Forms 926, 3520, 5471, 5472, 8621, 8865, 8938, et cetera, contact Sherayzen Law Office to explore your IRS penalty reduction options. Sherayzen Law Office is an international tax law firm that has helped US taxpayers around the world to deal with these penalties. We can help You!

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IRS Written Advice Defense: Adequate & Accurate Information | Tax Lawyer

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This is the fourth article on the topic of the IRS Written Advice Defense under 26 U.S.C. §6404(f). The first three articles outlined the legal test for the Defense and described the first and the second prongs of the test. In this say, I will briefly discuss the final third prong of the IRS Written Advice Defense – the requirement to provide adequate and accurate description of facts.

IRS Written Advice Defense: Taxpayer Must Provide Adequate and Accurate Description of Facts

When a taxpayer asks the IRS for advice, he must provide adequate and accurate description of his facts based on which the IRS has to make its decision. If the taxpayer fails to supply the IRS with adequate and accurate information, then the IRS Written Advice Defense will fail. See Treas. Reg. § 301.6404-3(b)(4). It should be noted that the IRS “has no obligation to verify or correct the taxpayer’s submitted information.” Id.

This is a much more difficult task that it may appear, because “adequate” really means here a complete set of all material facts that may influence the IRS analysis. If the taxpayer provides only the facts that are favorable and omits the facts which are unfavorable, the IRS advice will not give the taxpayer the protection against imposition of future penalties that the he seeks.

This is why I strongly encourage taxpayers to retain tax attorneys to submit their written request for the IRS written advice. This is especially true in the area of US international tax law.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

Sherayzen Law Office has an extraordinary experience in drafting Reasonable Cause Statements on various grounds, including IRS advice. We have drafted such statements in defense against imposed and potential FBAR, Form 926, 3520, 5471, 8621, 8865 and other IRS penalties.

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IRS Written Advice Defense & The Written Request | Tax Lawyers MN

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This article is a continuation of the series of articles on the IRS Written Advice Defense. In the first article of this series, I outlined the legal test for the Defense. The second article of the series focused on the first prong of that test. In this essay, I would like to briefly highlight the second prong of this legal test: the IRS written Advice must be issued in response to a taxpayer’s written request.

IRS Written Advice Issued in Response to Written Request by the Taxpayer

This second prong of the IRS Written Advice Defense is not as simple as it seems at first. The main issue here is when a specific written request is considered to be made by a taxpayer. Obviously, if the taxpayer writes a written request himself, it was made “by a taxpayer”. What about a request made by a taxpayer’s representative?

The IRS regulations state that a written request from a taxpayer’s representative shall be considered a “written request by the taxpayer” only if two conditions are met. First, a taxpayer’s representative must be “an attorney, a certified public accountant, an enrolled agent, an enrolled actuary, or any other person permitted to represent the taxpayer before the Service and who is not disbarred or suspended from practice before the Service.” Treas. Reg. §301.6404-3(b)(3).

Second, “the written request for advice either is accompanied by a power of attorney that is signed by the taxpayer and that authorizes the representative to represent the taxpayer for purposes of the request, or such a power of attorney is currently on file with the Service.” Id.

The Written Request for the IRS Written Advice Must Be Properly Made

In a future article, I will describe the property abatement procedure with which the taxpayer’s written request must comply. For the purposes of this essay, I just wish to point out that this is the second major issue concerning written requests for the IRS Written Advice.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

If the IRS has imposed penalties as a result of an audit of your tax return or FBAR, contact Sherayzen Law Office for professional help. We have helped US taxpayers around the world to deal with their IRS penalties, and We can help You!

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