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IRS Corporate Jet Audits Campaign | MN IRS Audit Tax Lawyer

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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!

IRS Large Corporate Compliance Program | IRS Lawyer & Attorney

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On May 16, 2019, the IRS Large Business and International Division (“LB&I”) announced the creation of a new compliance program for the large corporations – Large Corporate Compliance program.

The Large Corporate Compliance program will cover the oversight of the LB&I’s largest corporate taxpayers. It replaces the existing Coordinated Industry Case program.

The replacement of the Coordinated Industry Case program is not unexpected. Ever since the IRS announced that it would switch to compliance campaigns for case selection purposes, the future of the old program was in doubt. Moreover, the Coordinated Industry Case program used criteria that did not incorporate many of the advancements made by the IRS in the area of data analysis. Hence, it is not surprising that the May 16 announcement came right after the LB&I began on May 15, 2019 a new application of data analytics for determining the population of its largest and most complex corporate taxpayers.

The IRS stated that the Large Corporate Compliance program will determine on a different, automatic basis who should be covered by the program. In fact, the program employs automatic application of the large case pointing criteria to determine the LCC population. For example, pointing criteria include such items as gross assets and gross receipts. In the past, this was done on a manual, localized basis. Automated pointing allows a more objective determination of the taxpayers that should be part of the population.

After the population is determined, data analytics is used to identify the returns that pose the highest compliance risk. The Large Corporate Compliance program further improves LB&I’s ability to efficiently focus its resources on noncompliance.

The Large Corporate Compliance program will coordinate its work with the LB&I agents and examiners who apply their experience and expertise in undertaking compliance actions and determining compliance treatment streams of the biggest and most-complex corporate taxpayers. The IRS happily stated that each enhances the other.

The IRS further shared that the program includes continuous improvement using an agile model principle to continually monitor and improve based on feedback from stakeholders including field teams, practice networks, and data scientists.

Sherayzen Law Office carefully watches the new IRS moves with respect to its compliance programs to determine their impact on the firm’s clients.

Streamlined Audit Interview | Streamlined Audit Tax Lawyers

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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 into 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, 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!

Israeli IT Tax Breaks | Minnesota International Tax Lawyer and Attorney

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Israel continues to solidify its leading positions in the IT market by using tax policy. On January 1, 2017, Amendment 73 to the Law for the Encouragement of Capital Investments of 1959 entered into force. The main goal of the Amendment is to clarify, extend and improve the Israeli tax breaks for IT companies operating in Israel. Let’s review some of the most important of these Israeli IT tax breaks.

Israeli IT Tax Breaks: Preferred Technological Taxable Income Tax Rates

Starting year 2017, Israel will have three levels of taxation of what is termed as “preferred technological taxable income” (PTTI) of certain companies, referred to as “preferred enterprises” (PE). The tax rates will be as follows: 12% default rate, $7.5% development area A (special Israeli designation for certain areas) and just 6% in the case of a special preferred technological enterprise (SPTE). All of these rates compare favorably to the standard business tax rate in Israel of 24% (which was also lowered as of January 1, 2017 from 25%).

There is an important exception – R&D centers will not be entitled to a reduced corporate tax rate if the controlling shareholders or the beneficiaries are Israeli residents. Control here can be direct or indirect and it is defined as an entitlement to 25% or more of the income or profits of the R&D center.

Israeli IT Tax Breaks: IT Company Owners Dividend Tax Rates

The owners of IT companies get another tax break in the form of dividend withholding rates. Generally, the tax withholding rate for dividends paid to an owner of an IT company will be 20% (subject to any applicable tax treaty). However, the rate goes down to a mere 4% if the dividend is distributed to at least a 90% foreign resident corporate shareholder.

Again, these rate are below the general tax withholding rate of 30-33% for dividends paid out to shareholders who own at least 10% of the company.

Israeli IT Tax Breaks: Certain Capital Gains

The Israeli IT tax breaks also expand to capital gains in certain limited situations. Israeli IT companies that sell IP to a related foreign company will qualify for a reduced 6% capital gains tax rate, but only if the Israeli company developed or acquired the IP from a foreign company after January 1, 2017. Such sales are subject to the approval of the National Authority for Technological Innovation.

A Combined Effort of US and Israeli Lawyers Needed to Properly Plan A US Company’s Expansion to Israel

All of the tax law changes that I mentioned above are described here in a very general manner. There are very specific qualifications that need to be satisfied by a company in order to qualify for the Israeli IT Tax Breaks. This is why a US company will need to contact a specialized Israeli tax attorney to properly plan the expansion of its IT business to Israel.

At the same time, however, the work of the Israeli tax attorney should be coordinated with proper US tax planning, because US companies are taxed on their worldwide income and may potentially even be taxed on the income of their foreign subsidiaries. Therefore, the tax planning efforts of an Israeli tax attorney should be combined with those of a US tax attorney in order to produce a tax plan that will function properly in both jurisdictions at the same time.

Contact Sherayzen Law Office for Professional Help With Your Business Tax Planning

If you wish to expand your business overseas, you need to contact Sherayzen Law Office for professional US business tax planning. Additionally, we can also help you with your US annual compliance with respect to your foreign assets and foreign income.

Contact Us Today to Schedule Your Consultation!

IRS Statute of Limitations: Tax Collections

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The statute of limitations limits the time for the IRS tax collection activities. Generally, there is a ten-year statute of limitations for the IRS collection of owed taxes. Thus, for assessments of tax or levy made after November 5, 1990, the IRS cannot collect or levy any tax ten years after the date of assessment of tax or levy. See 26 U.S.C. §6502(a)(1). Court proceedings must also be started by the IRS within the 10 year statute of limitations. Treas. Reg. Section 301.6502-1(a)(1).

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax six years after the date of assessment of tax or levy. See 26 U.S.C. §6501(e). However, if the six-year period ends after November 5, 1990, the statute of limitations is extended to ten years. Hence, in order to come under the six-year statute of limitations, the six-year period must end prior to November 5, 1990.

The ten-year statute of limitations can be extended by agreement between the taxpayer and the IRS, provided that the agreement is made prior to the expiration of the ten-year period. See 26 U.S.C. §6501(c)(4).

Thus, in figuring out the applicable statute of limitations, you must understand: the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Sherayzen Law Office can help you understand all of these issues and represent your interests in your negotiations with the IRS.

Call NOW to discuss your case with a tax lawyer!