Posts

IRS Corporate Jet Audits Campaign | MN IRS Audit Tax Lawyer

/in , , /by

On February 21, 2024, the IRS announced that it will begin dozens of audits of business aircraft usage as part of a new tax enforcement campaign. In this short article, I will discuss these new IRS corporate jet audits in more detail.

IRS Corporate Jet Audits: Focus on Personal Use of High-Net Individuals

The IRS announced that it will be auditing the usage of corporate aircraft for personal purposes.  The chief revenue agency of the United States was blunt in identifying who it is targeting — high-net individuals. The audits will focus on aircraft usage by large corporations, large partnerships and high-income taxpayers and whether, for tax purposes, the use of jets is being properly allocated between business and personal reasons.

Officers, executives, other employees, shareholders and partners often use business aircraft for both business and personal reasons. In general, the Internal Revenue Code allows a business deduction for expenses of maintaining an asset, such as a corporate jet, as long as the company uses the asset for a business purpose. However, the company must allocate use of a company aircraft between business use and personal use. This is a complex area of tax law, and record-keeping can be challenging.

Hence, for someone such as an executive using the company jet for personal travel, the amount of personal usage impacts eligibility for certain business deductions. Use of the company jet for personal travel typically results in income inclusion by the individual using the jet for personal travel and could also impact the business’ eligibility to deduct costs related to the personal travel.

The number of audits related to aircraft usage could increase in the future following initial results and as the IRS continues hiring additional examiners.

IRS Corporate Jet Audits: Funding and Strategies

The IRS was quick to identify  the Inflation Reduction Act as the source of funding of this new IRS campaign. The IRS will be using advanced analytics and resources from the Inflation Reduction Act to more closely examine this area. At the same time, the agency complained that, in the past, it did not have the resources to properly audit this area due to low resources.

“During tax season, millions of people are doing the right thing by filing and paying their taxes, and they should have confidence that everyone is also following the law,” said IRS Commissioner Danny Werfel. “Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin. With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”

The examination of corporate jet usage is part of the IRS Large Business and International division’s “campaign” program. Campaigns apply different compliance streams to help address areas with a high risk of non-compliance. These efforts include issue-focused examinations, taxpayer outreach and education, tax form changes and focusing on particular issues that present a high risk of noncompliance.

IRS Corporate Jet Audits: Implications for Broader IRS Tax Enforcement

The IRS corporate jet audits are just part of a larger effort of the IRS to step up tax enforcement worldwide. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to avoid taxes. The IRS is now taking swift and aggressive action to close this gap with the focus on high-net-worth individuals.

“The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act,” Werfel said. “We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. The IRS will have more announcements to make in this important area.”

Of course, one of the most important areas of the increased IRS tax enforcement is US international tax compliance. This involves compliance with foreign income reporting, FBARs and various other information returns (Forms 3520, 3520-A, 5471, 8865, 8938, et cetera).

Contact Sherayzen Law Office for IRS Audits of Your US International Tax Compliance

If the IRS is auditing your US international tax compliance, including foreign income and foreign asset reporting, contact Sherayzen Law Office for professional help as soon as possible. We have helped taxpayers around the world with the IRS international tax audits. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Reasonable Cause Written Advice Standard | International Tax Lawyer

/in , /by

Reliance on a written advice of a tax practitioner (attorney, CPA, etc.) may provide the basis for a reasonable cause exception to imposition of IRS noncompliance or late filing penalties with respect to pretty much every single US international tax compliance requirement. In this short article, I will describe the reasonable cause written advice standard concerning how the written advice should be written in order to satisfy and strengthen your legal case before the IRS.

Reasonable Cause Written Advice Standard: What A Practitioner May Advise On

First of all, it is important to understand that a practitioner may provide a written advice pretty much on any US tax matter.  In other words, a taxpayer may obtain a written advice from a practitioner on any matter concerning the application and/or interpretation of any provision of the Internal Revenue Code, any provision of law impacting the taxpayer’s US tax obligations, any Treasury regulations and any other law or regulation that the IRS administers.

Reasonable Cause Written Advice Standard: What Written Advice Should Include

When he writes a tax advice, the practitioner should make sure that he complies with some important rules:

  1. The practitioner should consider all relevant facts and circumstances that the practitioner knows or would reasonably know. This means that two things must happen: (a) practitioner should conduct a reasonable investigation, including an interview with the taxpayer, to secure the necessary facts; and (b) the taxpayer must disclose all facts that he believes to be relevant and/or the practitioner asked him about. The disclosure of relevant facts by the taxpayer is absolutely crucial to the strength of the reasonable cause exception argument.
    At the same time, a failure by the practitioner to do a reasonable investigation of relevant facts may in of itself constitute a reasonable cause. He also should not rely on what he believes unreasonable, incorrect, incomplete and/or inconsistent representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) of the taxpayer or any other person.
  2. The practitioner should base his written advice on reasonable factual and legal assumptions (including assumptions of future events).
  3. The practitioner should apply the relevant law to the facts of the case. In other words, a written advice cannot simply state the law and assume that it should apply to the taxpayer’s case without the analysis of whether the facts of this particular case fit the relevant legal standard.

A failure to comply with all of these three rules may not necessarily be lethal to your legal case, but it may greatly affect its strength.

Reasonable Cause Written Advice Standard: Reliance on Advice from Third Parties

Sometimes, a practitioner may incorporate an advice from a third person into his own written advice.  He can do it only if the advice was reasonable in light of all facts and circumstances of the case.

The IRS is clear that such reliance on a third-party advice cannot be reasonable in three circumstances. First, the practitioner knows or reasonably should know that the opinion of the other person is not reliable. Second, the practitioner knows or reasonably should know that the other person does not have the necessary competence and necessary qualifications to provide the advice.  Finally, the practitioner knows or reasonably should know that the other person has a conflict of interest in violation of the IRS Circular 230.

Contact Sherayzen Law Office to Help With the Voluntary Disclosure of Your Prior US Tax Noncompliance

If you have not disclosed your foreign income and/or foreign assets to the IRS in violation of your US tax obligations, contact Sherayzen Law Office as soon as possible for professional help.  We have helped hundreds of US taxpayers to bring their tax affairs into compliance with US tax laws, including through a voluntary disclosure such as SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures. Mr. Eugene Sherayzen, an international tax attorney, can help you evaluate the strength of your legal case, including whether it meets the reasonable cause standard.  We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2024 SDOP Audit | Streamlined Domestic Offshore Procedures Lawyer

/in , , /by

An increasing number of submissions under the Streamlined Domestic Offshore Procedures (SDOP) has been subject to an IRS audit; this trend will undoubtedly continue in 2024. In this article, I will explain what is the 2024 SDOP Audit and what a taxpayer should expect during the Audit.

2024 SDOP Audit: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures 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 various eligibility requirements. The most important of these eligibility requirements is non-willfulness of prior noncompliance.

SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers who are not eligible for Streamlined Foreign Offshore Procedures and whose prior tax noncompliance was non-willful. 

2024 SDOP Audit: Why SDOP Disclosures Are Subject to IRS Audits

SDOP audits originate within the very nature of SDOP.  SDOP voluntary disclosures have certain eligibility requirements.  Once the disclosures are submitted, the IRS does not immediately subject them to an immediate comprehensive review of whether all eligibility requirements are met.  There is a review process, but initially it focuses on whether the formalities of the SDOP were met.

This is very different from the immediate comprehensive audit-like review of all items as part of the voluntary disclosure process that form part of some other programs, such as prior OVDPs (Offshore Voluntary Disclosure Program) or even current IRS Voluntary Disclosure Practice (VDP). These voluntary disclosure options usually also require the signing of Form 906, the Closing Agreement. SDOP does not have that final stage of signing Form 906.

This means that, if a suspicion arises concerning whether a taxpayer met the SDOP eligibility requirements, the only way for the IRS to resolve it is to audit the entire disclosure, particularly on the issue of non-willfulness. As part of the SDOP process, the IRS reserves the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.

2024 SDOP 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.

In other words, your 2024 SDOP Audit would commence 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 (and it is actually better to state your position for the record).

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 Your 2024 SDOP Audit and Regular IRS Audit

At first, it may seem that there are no big differences between a regular IRS audit and an SDOP 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 for the taxpayer 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 an SDOP Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.

Contact Sherayzen Law Office for Professional Help With Your 2024 SDOP Audit 

If your submission under the Streamlined Domestic Offshore Procedures is being audited by the IRS, contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of voluntary disclosures, including the audits of SDOP submissions.

 We can Help You during Your IRS Audit!  Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Domestic Offshore Procedures Lawyer: 2024 SDOP Eligibility Requirements

/in , /by

The introduction of the Streamlined Domestic Offshore Procedures (SDOP) in 2014 meant that the IRS finally recognized that there was a very large number of U.S. taxpayers who were non-willful with respect to their inability to comply with numerous obscure complex requirements of U.S. tax laws.  Since 2014, SDOP has been a highly successful voluntary disclosure option that I predict will remain as popular in 2024.  For this reason, in this short article, I will review the main six 2024 SDOP eligibility requirements.

2024 SDOP Eligibility Requirements: US Taxpayer

The first main requirement to be able to utilize SDOP is that the applicant is a US taxpayer. In the context of SDOP, this term is equivalent to a US tax resident.  This means that he should be one of the following: a U.S. citizen, U.S. lawful permanent resident, or he must have met the substantial presence test.

The substantial presence test is outlined in 26 U.S.C. 7701(b)(3). In general, under 26 U.S.C. §7701(b)(3), an individual meets the substantial presence test if the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier) equals or exceeds 183 days.

2024 SDOP Eligibility Requirements: Not Eligible for SFOP

The second requirement to participate in SFOP is that the taxpayer fails to meet the non-residency requirements of Streamlined Foreign Offshore Procedures (SFOP). I describe the non-residency requirements of SFOP in detail in this article.

What happens if spouses file a joint tax return and one of the spouses fails the non-residency requirement but the other spouse meets it? In this case, both spouses are still eligible to participate in the SDOP.

2024 SDOP Eligibility Requirements: US Tax Returns Filed

In order to participate in SDOP, the taxpayer must have previously filed a US tax return (if required) for each of the most recent three years for which the US tax return due date (or properly applied for extended due date) has passed.  In other words, a taxpayer cannot file a late original tax return as part of SDOP; he can only amend the returns that were already filed.

2024 SDOP Eligibility Requirements: Foreign Income and Information Return Violations

Another important eligibility requirement for SDOP is that the taxpayer must have failed to report foreign income and pay US taxes on it AND may have failed to file FBAR and/or and/or one or more international information returns (e.g. Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset that generated the foreign income.  In other words, foreign income reporting violation is crucial for the SDOP participation.

2024 SDOP Eligibility Requirements: Non-Willfulness

This is the most important and most critical eligibility requirement to the participation in the Streamlined Domestic Offshore Procedures. The taxpayer’s violations of the applicable US international tax requirements must be non-willful.

The non-willful nature of violations must apply to everything: the failures to report the income from a foreign financial asset, pay tax as required by US tax law, file FBARs and file other international information returns (such as Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621). If the failure to file the FBAR and any other information returns was willful, the participation in the Streamlined Domestic Offshore Procedures is not likely to be possible.

2024 SDOP Eligibility Requirements: SDOP Participation Must Be Timely

Finally, the fifth SDOP eligibility requirement is that the participating taxpayer is not subject to an IRS civil examination or an IRS criminal investigation, irrespective of whether the examination/investigation is related to undisclosed foreign financial assets or involves any of the years subject to the voluntary disclosure. If the taxpayer is already subject to such an examination/investigation, his participation in the Streamlined Domestic Offshore Procedure would not be considered timely.

Contact Sherayzen Law Office for Legal Help With Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts or any other offshore assets, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, estimate your current IRS penalty exposure, and determine your eligibility for the available voluntary disclosure options, including the SDOP, SFOP and other voluntary disclosure options.

Contact Today Us to Schedule Your Confidential Consultation!

2023 Streamlined Domestic Offshore Procedures: Pros and Cons

/in , /by

US taxpayers with undisclosed foreign assets and foreign income need to consider their 2023 offshore voluntary disclosure options. As was the case in the year 2022, I expect that Streamlined Domestic Offshore Procedures will continue to be the flagship voluntary disclosure option in 2023 for US taxpayers who reside in the United States. This is why noncompliant US taxpayers should understand well the main advantages and disadvantages of participating in the 2023 Streamlined Domestic Offshore Procedures.

2023 Streamlined Domestic Offshore Procedures: Background Information and Purpose

The IRS created the Streamlined Domestic Offshore Procedures (usually abbreviated as “SDOP”) on June 18, 2014, though the Certification forms became available only a few months later. Since its introduction, Streamlined Domestic Offshore Procedures quickly eclipsed the then-existing IRS Offshore Voluntary Disclosure Program (“OVDP”) and became the most popular offshore voluntary disclosure option for US taxpayers who reside in the United States. As we discuss the advantages of the 2023 SDOP, you will quickly understand the reason for this meteoric rise in popularity of the SDOP.

The main purpose of the Streamlined Domestic Offshore Procedures is to encourage non-willful US taxpayers to voluntarily resolve their prior noncompliance with US international tax reporting requirements in exchange for a reduced penalty, simplified disclosure procedure and a shorter disclosure period. In other words, SDOP is a voluntary disclosure option to resolve pretty much any non-willful US international tax noncompliance: foreign income, FBAR, Form 8938, Form 5471, Form 8621, Form 926, et cetera.

2023 Streamlined Domestic Offshore Procedures: Main Advantages

In exchange for a voluntary disclosure of their prior tax noncompliance through SDOP, US taxpayers escape income tax penalties and pay only a one-time Miscellaneous Offshore Penalty with respect to their prior failures to file the required US international information returns. It is important to emphasize that the Miscellaneous Offshore Penalty replaces not only FBAR penalties, but also penalties for noncompliance with respect to other US international information returns, such as Forms 5471, 8865, 926, et cetera. Depending on the specific circumstances of a case, the Miscellaneous Offshore Penalty is usually below the combined usual failure-to-file potential IRS penalties. In other words, noncompliant taxpayers can greatly reduce their IRS noncompliance penalties through their participation in the Streamlined Domestic Offshore Procedures. This is one of the most important SDOP benefits.

Another advantage of the Streamlined Domestic Offshore Procedures is the limited procedural scope of this voluntary disclosure option. What I mean by this is that the taxpayers should only submit the forms covered by the general statute of limitations unless they choose (i.e. not required, actually choose to do so) to do otherwise. The taxpayers only need to file three (sometime even less) amended US tax returns and six FBARs (sometimes seven and sometimes less than six). This limited disclosure stands in stark contrast with other major voluntary disclosure initiatives, such as 2014 OVDP (which required filings for the past eight years).

Moreover, despite the limited scope of the SDOP filings, taxpayers who utilize the Streamlined Domestic Offshore Procedures are usually able to fully resolve their prior US international tax noncompliance issues even if these years are not included in the actual SDOP filings. This means that the participating taxpayers are able “wipe the slate clean” – i.e. to erase their prior US international tax noncompliance from the time when it began. I should warn, however, that this is not necessarily always the case; I have already encountered efforts from the IRS to open years for which amended tax returns were not submitted (there were specific circumstances, however, in all of these cases that resulted in this increased IRS interference).

The last major advantage of the Streamlined Domestic Offshore Procedures is that this option only requires to establish non-willfulness rather than reasonable cause. Non-willfulness is a much easier legal standard to satisfy (be careful, this is NOT an “easy standard”, just an easier one) than reasonable cause.

2023 Streamlined Domestic Offshore Procedures: Main Disadvantages

Usually, participation in the Streamlined Domestic Offshore Procedures is highly advantageous to noncompliance taxpayers. However, there are some disadvantages and shortcomings in this program. In this article, I will concentrate only on the three most important of them.

First, this voluntary disclosure option is open only to taxpayers who filed their US tax returns for prior years. This requirement is the exact opposite of the Streamlined Foreign Offshore Procedures (“SFOP”) which allows for the late filing of original returns.

The problem is that there is a large segment of taxpayers who were perfectly non-willful in their prior US international tax noncompliance, but they never filed their US tax returns either due to special life circumstances (such as death in the family, illness, unemployment, et cetera), they were negligent or they believed that they were not required to file them (especially in situations where all of their income comes from foreign sources). These taxpayers would be barred from participating in the SDOP.

Second, when they participate in the Streamlined Domestic Offshore Procedures, the taxpayers have the burden of proof to establish their non-willfulness with respect to their inability to timely report their foreign income as well as file FBARs and other US international information returns. Outside of the SDOP, the IRS has the burden of proof to establish willfulness; if the IRS cannot carry this burden, then it has no choice but to automatically consider the taxpayer as non-willful.

The problem is that most cases have positive and negative facts at the same time. This means that a lot of taxpayers are actually in the “gray” area between willfulness and non-willfulness. In many of these cases, the burden of proof may play a critical role in determining whether a taxpayer is eligible to participate in the Streamlined Domestic Offshore Procedures. By the way, this decision should be made only by an experienced international tax attorney who specializes in this area of law, such as Mr. Eugene Sherayzen of Sherayzen Law Office.

Finally, participation in the Streamlined Domestic Offshore Procedures does not provide a definitive closure to its participants. Unlike OVDP, SDOP does not offer a Closing Agreement without an audit; there may be a follow-up audit after the IRS processes your voluntary disclosure package. This means that going through Streamlined Domestic Offshore Procedures may not be the end of your case; the IRS can actually audit you over the next three years. If this happens, the audit of your voluntary disclosure will focus not only on the correctness of your disclosure, but also on the truthfulness and correctness of your non-willfulness certification.

Contact Sherayzen Law Office for Professional Help With 2023 Streamlined Domestic Offshore Procedures

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office for professional help with your offshore voluntary disclosure. We have successfully helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, including Streamlined Domestic Offshore Procedures. We can also help you!

Contact Us Today to Schedule Your Confidential Consultation!