Incredibly, 48 Nations Embrace FATCA To Reveal U.S. Depositors

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FATCA is four years old but it is still being ramped up for its big worldwide rollout July 1, 2014. Foreign banks must hand over the details of American account holders with over $50,000 on deposit or face serious repercussions. Institutions that fail to comply could effectively be frozen out of U.S. markets. The institutions may not like it, but they are complying.
And so are virtually all nations, which is an astounding accomplishment for the U.S. Treasury Department. It is now clear that FATCA is a bigger success than anyone could have imagined. With disclosures, prosecutions and summonses, the IRS is getting quicker, better and more complete information than ever. And FATCA will expand it like a fire hose.
(Photo credit: Images_of_Money)

After foreign institutions identify U.S. account holders, FATCA requires the institutions to impose a 30% tax on payments or transfers to any who refuse to step up and get into full U.S. compliance. At first, Foreign financial institutions (FFIs) must report account numbers, balances, names, addresses, and U.S. taxpayer identification numbers. For U.S.-owned foreign entities, they must report the name, address, and U.S. TIN of each substantial U.S. owner.
Although the Republican Party is backing a FATCA repeal resolution, and there is RepealFATCA.com, FATCA is almost surely here to stay. Now, the U.S. Treasury has given foreign financial institutions 10 extra days to register. In addition to extending registration to May 5 from April 25, the U.S. has confirmed that more and more countries are now FATCA compliant. In particular, this is a big relief for financial firms in Brazil, South Korea and South Africa. Conversely, U.S. depositors who have accounts in such countries may now be more nervous.
But far more important that a mere 10 day delay, the U.S. now says it does not need to insist on the immediate signature on all IGAs, Intergovernmental Agreements. Countries that have FATCA agreements “in substance” with the U.S. will be treated as complying with FATCA. In fact, this is so even if the agreements are not finalized by Dec. 31, 2014.
What is the practical impact of this decision? It increases the number of countries that have intergovernmental agreements with the U.S. to 48. That is up from the 26 agreements that are actually signed. Here are the 26 nations so far, with links to their agreements:
Bermuda
Canada
Cayman Islands
Chile
Costa Rica
Denmark
Finland
France
Germany
Guernsey
Hungary
Honduras
Ireland
Isle of Man
Italy
Japan
Jersey
Luxembourg
Malta
Mauritius
Mexico
Netherlands
Norway
Spain
Switzerland
United Kingdom
Going from 26 to 48 is huge, and a smart move by the U.S. The announcement allows a country’s financial institutions to comply with FATCA via their domestic regulators. Overnight, which nations got added to the prior list of 26?
Australia
Austria
Belgium
Brazil
British Virgin Islands
Croatia
Czech Republic
Estonia
Gibraltar
Jamaica
Kosovo
Latvia
Liechtenstein
Lithuania
New Zealand
Poland
Portugal
Qatar
Slovenia
South Africa
South Korea
Romania
Before the announcement, many foreign businesses were unsure how to comply with FATCA by July 1 if their home countries had not yet signed IGA deals with the United States. Now, there is more certainty. And plainly, the list of countries with IGAs is likely to grow further.
Hey, what about China, Hong Kong, Russia and Singapore? The jury is still out.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

World Travel, Great. Writing It Off? Priceless

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How To Follow Your Dream And Spend Your Retirement Traveling The World Deborah L. Jacobs Forbes Staff
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Reading Deborah Jacobs piece, How To Follow Your Dream And Spend Your Retirement Traveling The World, got me thinking. You have to admit it sounds awfully good. She describes a kind of fantasy: ditch your possessions and hit the road during retirement. And some people actually do it, including Lynne and Tim Martin.
It even lead to a memoir, Home Sweet Anywhere: How We Sold Our House, Created a New Life, and Saw the World. I don’t know about their tax situation, but it sounds like a legitimate second professional life to me, and probably was even a money maker. That makes it sound decidedly different from a case about world travel the Tax Court and Ninth Circuit Court of Appeals recently considered.
Traveling the world is great, but you’re unlikely to be able to write it off. (Photo credit: archer10 (Dennis))

In Michael Oros, the Ninth Circuit agreed that Mr. Oros couldn’t write off his world trip on his taxes. Oros was a full-time employee of Intel. But a trip around the world and writing about it sounded tempting. So in 2006, Mr. Oros began a long to South America, Asia, Africa, and Australia. He traveled throughout South America in 2006, then to Asia, Africa, and Australia during 2007.
Throughout the entire trip, Oros was on paid vacation or paid sabbatical from Intel. He did try to act business-like about it, writing up a business plan and keeping a contemporaneous journal. Trouble was, he had never previously written a book. Even worse, five years after the trip, he still hadn’t completed it.
To the IRS and the courts, that meant he simply wasn’t in the business of being an author. And that made all his tax write-offs no good. So for people like me that think a traveling retirement sounds great, will the IRS pay for your big trip?
The short answer is no. The more nuanced answer is that it’s conceivable, provided that you make it a real business. Of course, if you want to enjoy yourself and avoid any IRS hassles my standard advice is to keep your business and personal pursuits separate.
But it can be tempting, as Mr. Oros could attest. Just look at the math. Assuming your combined state and federal tax rate is 45%, spending $20,000 really only costs you $11,000. The government pays $9,000. But be aware it is an area of intense IRS scrutiny.
In fact, the IRS has issued a manual to help agents ferret out taxpayers improperly writing off hobbies. The IRS is less likely to question whether you’re engaged in a business if your income from the activity exceeds your expenses. It also matters whether you conduct yourself in a businesslike manner. If you keep good records and hold yourself out as running a business, it will help.
If you can manage to eke out a profit three years out of every five (or two years out of seven, if your activity is horse breeding), the IRS will presume you’re in business to make a profit. That presumption is worth a lot, saving you from mud wrestling with the IRS over a more amorphous facts and circumstances test.
One of the auditors’ checklist items is a business plan. Write one up and try to look businesslike in all things. The more expert you become and the more you engage others, the more businesslike you’ll look. If you have advanced degrees or hire consultants to help you, it may be easier to  convince the IRS.
Finally, the IRS thinks personal pleasure is an indication that your “business” is a hobby. Don’t enjoy it too much. So should you travel the world, write your experiences, and write off your expenses on your taxes? Probably not. And if you do, try not to smile in all of those photos.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

What If IRS Makes You An Offer You Can’t Refuse?

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In The Godfather, an offer you can’t refuse is where your brains or your signature will be on a contract. It’s an extreme example of the concept of duress in contract law. Contracts, leases, deeds, and many other documents can be voided by duress. In fact, the situation doesn’t have to be as graphic as in The Godfather.
Duress may involve economic pressure. Duress can even figure in tax cases. After all, most people are afraid of the IRS. Its power is imposing. Even so, the IRS does a very good job of training and policing its employees, and the agency has clear rules against taking matters too far.
But given the key role of the taxing agency and its power, there are occasionally mishaps where an IRS employee goes too far and is deceptive or threatening. The courts have found this all the more troubling if the taxpayer is especially vulnerable or is threatened with losing everything. Even if back taxes are unequivocally due, some collection efforts are too strong and too intimidating.
(Photo credit: DonkeyHotey)

To be clear, taxpayers rarely win these cases. Trying to invalidate an IRS action by claiming duress usually fails. Assertions of duress can be grouped into two categories.
The first is in the forced payment of illegal taxes. The second is in the coerced waiver of the IRS statute of limitations so taxes can be collected later than lawfully allowed. In both situations, courts have occasionally called out the IRS. A few courts have even recognized that taxpayers can be victims of coercion where there was no express threat of illegal action.
As in claiming duress under contract law, all facts and circumstances must be examined. The IRS may be legally empowered to close your business or sell your house. Still, some actions are viewed as just too much, especially if the taxpayer is unsophisticated or vulnerable. Even the U.S. Supreme Court has invalidated IRS action where a taxpayer was compelled to pay what was later judged an illegal tax under economic duress.
As to statute extensions, the details matter. In Diescher v. Commissioner, the Board of Tax Appeals struck down an extension of the statute of limitations because it was signed under the threat of fraud penalties. Notably, the taxpayer had a lawyer when he signed the waiver. Even so, the IRS went too far, unfairly pressuring him to sign. He feared that if he did not sign, the IRS would immediately collect the deficiency and penalty.
In Robertson v. Commissioner, the Tax Court also found duress where unsophisticated taxpayers signed an extension of the statute of limitations. They had recently won the lottery, so they had money to fight the IRS. But they were terrified the IRS would take their house and had no prior experience with the IRS. Wealth alone does not mean you can withstand IRS pressure.
Not every person reacts to pressure in the same way. The legal ramifications of IRS action will depend in part on the taxpayer’s perception of the threat. The courts consider one’s level of education and previous experiences with the IRS.
An IRS agent’s threat to destroy a taxpayer’s business or take his home is difficult for anyone. It may be even more so for someone who lacks experience in dealing with the IRS. The complexity of tax law and procedure compounds the problem.
However, in some cases, even an inaccurate or flatly incorrect statement of the law or the facts by the IRS will not mean duress. For example, in Ravin v. Commissioner, the IRS incorrectly informed a man that his appeal rights would be barred if he did not sign a consent. That was clearly not true, but the court still refused to strike down the consent as a product of duress.
Congress periodically cuts back on IRS power and expands taxpayer rights. The pendulum swing seems headed that way again now. In the meantime, the courts are occasionally called upon to stop the IRS from coercing compliance through undue pressure or duress.
But arguing duress isn’t easy, and prevailing is rare. Indeed, the law says IRS actions carry a presumption of correctness. You must actually show that IRS action was truly beyond the pale, and doing so is difficult.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Obamacare Delays Should Delay Tax Day Too: April 15? How About August

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Deadlines are part of government and our system of laws. We’re used to meeting them, including the dreaded April 15 tax day. Yet the repeated delays in implementing Obamacare have become the new normal. So far, according to Politico, delays have included the following and more:
Nov. 15, 2012: Exchange deadline delayed. The Department of Health and Human Services gave states an extra month to decide whether they would set up their own health insurance exchanges — a decision it announced just one day before the original deadline.
Dec. 24, 2013: Enrollment deadline extended. In a message on HealthCare.gov, customers were told they could get help finishing their Jan. 1 applications if they were already in line on Dec. 24.
Feb. 10, 2013: Employer mandate delayed. This time, businesses with between 50 and 100 workers were given until 2016 to offer coverage, and the mandate will be phased in for employers with more than 100 workers.
Many have questioned the legal authority for these delays. The latest delay will extend the enrollment deadline by two to three weeks for three dozen states. With this delay and so many others, isn’t it reasonable to think that taxpayers too deserve a delay in that merciless April 15 tax day?

President Obama, Vice President Biden, and senior staff, react in the Roosevelt Room of the White House, as the House passes the health care reform bill. (Photo credit: Wikipedia)

While we’re at it, let’s not just get a filing deadline delay, but a payment delay too. The latter seems only fair. After all, you can already get an extension to file your taxes from April 15. You may need time to consider proper reporting, get professional advice, etc. There’s no shame in getting an extension. Millions are processed every year.
The extension used to be an automatic four months, with two more thereafter if you had a good reason. Then, the IRS dropped the reason requirement and the two-step process. Now automatic extensions are six months, from April 15 to October 15. Who couldn’t use the extra time?
But that extension is just to file your return, not to pay. Your payment is still due April 15. It would sure be nice to have an extension of that! Yet despite the repeated extensions in the implementation of the Affordable Care Act, it seems awfully unlikely that Congress, the IRS or the White House will extend the due date for your tax payment.
That means you should make your payment, get your extension, and use the time wisely to make your return accurate and complete. You may be waiting for Forms K-1, gathering documents, etc. If there are debatable points on your return, get some professional advice. It is better to go on extension and be thorough than to file rashly.
To extend, you can mail a Form 4868, ask your return preparer, use TurboTax or other commercial software, or do it yourself electronically. Go to IRS.gov and click: Application for Automatic Extension of Time To File U.S. Individual. For more IRS guidance, see IRS Tax Topic 304 Extensions of Time to File Your Tax Return.
Does going on extension subject you to a higher IRS audit risk? Probably not. Some people claim that going on extension increases audit risk. Others say that going on extension actually decreases it. Neither can be proven. There are many opinions about what triggers an audit.
Many believe that filing at or near a deadline reduces audit risk. Who knows, the crush of other filers April 15th might reduce the chance that your return will stand out. Of course, that logic may also apply to the crush of extended returns filed on October 15th. Just go on extension if you need the time.
Need more time to pay, and wish that you could get an Obamacare-style delay? Don’t hold your breath for an extension of the April 15 tax due date.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Finding Lost Bitcoin Could Mean IRS Finds You

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The bankrupt Japanese Bitcoin exchange MtGox discovered over 200,000 lost Bitcoins valued at over $116 million. The coins apparently showed up in an old Bitcoin wallet format. MtGox’s CEO said he thought it no longer contained any Bitcoins. This is good news in a bankruptcy filing, of course, and would be good news for anyone. You can see the bankruptcy disclosure here.
There’s no tax issue for MtGox, of course, but there could be for someone else who finds Bitcoin or anything else of value. Imagine finding millions in your old jeans pocket! Under U.S. tax law, if you find something it is generally income unless you can show it was rightly yours all along. And that can be the rub, whether it’s cash or art or anything else.

Bitcoin Wallpaper (2560×1600) (Photo credit: PerfectHue)

If you get back your own money or property, it generally shouldn’t be income. After all, you are just getting back what you owned. As you remain the rightful owner of it, you don’t have income for tax purposes, even if the item has appreciated in value during the hiatus. Happily, that means the IRS can’t tax it.
However, even if you are getting your own property back, if you claimed a tax loss when you lost it, beware. You may have to report the item as income when you recover it. Under the tax benefit rule, since you claimed a tax benefit, you must take the item back into income when you recover it.
This tax benefit rule can be tricky, since your tax benefit might not have saved you much if any on your taxes. In short, it can seem punitive. From lost loot, Nazi art, and lost gold coins, finding something can bring surprise tax problems, even if getting back your property is gratifying. The tax result can be unexpected and even downright distressing.
The worst tax position is if you didn’t own it to begin with–or can’t prove that you did. You have found what the IRS appropriately enough calls treasure trove. Remember the anonymous couple in California’s gold country who found $10 million in rare gold coins buried in cans on their property?
They made the biggest and best coin discovery in U.S. history. So said Davis Hall of Professional Coin Grading Service. Walking their dog, the couple dug up a protruding rusty metal can. Lo and behold, it contained 1,400 rare U.S. gold coins from 1847 to 1894. Their face value was more than $28,000, and their market value was said to be over $10 million.
Most tax experts agreed that is all income to the couple–the full $10 million, not just the $28,000 face value. Approximately 90% of the coins will go up on Amazon.com’s “Collectibles” site. The couple said they plan to keep some of the coins and sell others, donating part of the proceeds to charity.
Treasure trove is just one example of the astounding breadth of what is income for U.S. tax purposes. The most famous case on treasure trove is Cesarini v. United States, 296 F. Supp. 3 – 1969. Mr. Cesarini bought a used piano for $15 and found nearly $5,000 in cash inside.
Imagine his surprise and delight over such good luck! But then the IRS said it was taxable income. Mr. Cesarini went to court over it, but the court agreed with the IRS. Mr. Cesarini appealed, but the 6th Circuit Court of Appeals agreed too. See Cesarini v. United States, 428 F. 2d 812 – 1970.
Sure, finding something is great, but after the euphoria wears off, consider taxes. The IRS sure does.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Win A Lawsuit, Pay IRS—Even On Your Attorney’s Fees

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If after a bitter dispute, you’re collecting a legal settlement or judgment, you might feel vindicated and relieved. But when you consider that you may need to report it to the IRS, less so. The tax treatment varies enormously. Consider how you were damaged, how the case was resolved, and how checks and IRS Forms 1099 were issued. 
Settlements and judgments are taxed based on the origin of your claim. So, if you’re suing for lost profits, a settlement is lost profits, taxed as ordinary income. If you get fired at work and sue for severance and discrimination, you’ll be taxed as receiving wages. Usually, though, employment settlements are split between wages reported on a Form W-2 and an amount reported on an IRS Form 1099.
These rules are full of exceptions and nuances. Punitive damages and interest are always taxed regardless of the type of case. But the biggest exclusion from income is for personal physical injury recoveries. In that case, your damages are tax-free.

Cash (Photo credit: bfishadow)

Conversely, damages for emotional distress are taxed unless the emotional distress is triggered by the physical injury. Clearly, that’s confusing. The IRS and courts frequently have to address the point, since exactly what constitutes personal physical injuries or sickness isn’t defined. The IRS normally wants to see “observable bodily harm” such as bruises or broken bones before it excludes damages from income.
If the case arises out of employment, the IRS knee-jerk reaction is that recoveries are wage loss or otherwise taxable. However, an employee suit may be partially tax-free if the employee has physical sickness from working conditions. Many tax disputes involve employment cases, where stress or work injuries may be cause physical injuries or physical sickness.
And if there is related emotional distress, those damages should be tax-free as well. Thus, in one case, stress at work produced a heart attack. In another, stressful conditions exacerbated the worker’s pre-existing multiple sclerosis. The Tax Court in both cases sided with the worker and against the IRS. See Tax-Free Physical Sickness Recoveries in 2010 and Beyond.
If you can, get tax advice before your settlement agreement is drafted and signed. The IRS isn’t bound by the parties’ tax characterization, but the IRS will frequently respect it if it is reasonable. Allocations between categories of damages, with the tax treatment of each part specified in the settlement agreement, can make your taxes simpler and more certain.
Finally, note that the tax treatment of lawyers’ fees can catch you by surprise. If a contingent fee lawyer is to receive 40%, the IRS treats the client as receiving 100% and then paying the lawyer. If the case is an employment dispute, involves your trade or business, or is 100% for physical injuries, you won’t pay tax on the legal fees.
In most other cases, though, you will probably have to include the legal fees in your income, and then try to deduct them. The trouble comes with just how you do the latter. For many, the fees can only be claimed as a miscellaneous itemized deduction. And that means you lose part of your deduction and face Alternative Minimum Tax (AMT) treatment. Yes, it is even possible for you to lose money by winning a suit once you pay your taxes.
Whatever you do, don’t wait until tax return time to consider these issues. Get some advice before you settle. A little planning and some tax language in your settlement agreement can make all the difference.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Sell Your House Or Vacation Home Tax-Free In A 1031 Exchange?

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In 7 Key Rules About 1031 Exchanges — Before They’re Repealed, I noted the proposal in Congress to repeal this storied section of the tax code. Repeal is not likely in the short term, but you still might want to take advantage of this rule while you can. A 1031 exchange is a swap of one business or investment asset for another without tax. There’s no limit on how many times you can do it, so you can keep rolling over your gain.
The odds of finding someone with the property you want, who wants your property, are slim. So most exchanges have three parties. A middleman holds the cash after you sell. The middleman then buys the replacement property for you. But there are time limits and details to be observed.
Remember, 1031 is for investment and business property, not personal. You can’t swap your primary residence for another. But, aren’t vacation homes investments? Also, can’t you convert your personal residence to “investment” and then do a 1031? Maybe.

English: Christian Patterson Rental Property (Eugene, Oregon) (Photo credit: Wikipedia)

First, note the primary residence tax benefit on sale. You can sell your primary residence and, combined with your spouse, shield $500,000 in capital gain, as long as you’ve lived there for two years out of the past five. But this break isn’t available for your second or vacation home.
You might have heard tales of taxpayers who used a 1031 to swap one vacation home for another, perhaps even for a house where they want to retire? One question is whether the 1031 was legit, but it can be. Later, you hear, the couple moved into the new property themselves and made it their primary residence. Eventually, they use the $500,000 capital gain exclusion! Pretty slick.
Here’s another example. You stop using your beach house, rent it out for six months or a year, and then exchange it for other real estate. If you actually get a tenant and conduct yourself in a businesslike way, you’ve probably converted the house to investment property. That should make your 1031 exchange OK.
But if you merely hold it out for rent but never actually have tenants, it’s probably not. The facts will be key, as will the timing. The more time that elapses after you convert the property’s use, the better. Although there is no absolute standard, anything less than six months of bona fide rental use is probably not enough. A year would be better.
If you want to use the property you received in the 1031 exchange as your new second or primary home, don’t move in right away. In 2008, the IRS issued a safe harbor rule. IRS said it would not challenge whether a replacement dwelling qualified as investment property for purposes of a 1031.
To meet that safe harbor, in each of the two 12-month periods immediately after the exchange:
You must rent the dwelling unit to another person for a fair rental for 14 days or more; and
Your personal use can’t exceed the greater of 14 days or 10% of the number of days during the 12-month period that you rent it out at a fair rental.
After successfully swapping one vacation/investment property for another, you can’t immediately convert it to your primary home and take advantage of the $500,000 exclusion. If you acquire property in a 1031 exchange and later attempt to sell it as your principal residence, the exclusion does not apply for five years. You must wait five years after the 1031 exchange to qualify for the primary residence tax break, not the usual two years.
Is all of this maneuvering worth it? It may not be depending on the numbers. And factor in the risk that the IRS may disagree with some or all of what you’ve done. It’s worth noting that you can probably do a simple 1031 exchange without a lawyer, just using a 1031 intermediary firm. But if you have complex facts, a mortgage on one or both sides of the transaction, or questions like the ones raised here, consider getting some independent professional help.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

IRS Can Audit You Forever, But Key Steps Can Prevent It

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Even a routine tax audit can be expensive and nerve-wracking. So if the IRS statute of limitations has expired, it can be a trump card. The IRS normally has three years to audit, measured from the return due date or filing date, whichever is later.
But watch out: the three years is doubled if you omitted 25% or more of your income. Even worse, the IRS has no time limit if you never file a return. What’s more, the IRS also has no time limit on fraud. As a result, you might think the IRS would always assert fraud to get unlimited time.
It’s a chicken or egg issue, since the IRS has to show you were fraudulent to keep the time limit open. Fortunately, though, the IRS has a high burden to show fraud. Here are other timing rules you should know.

Many people voluntarily give the IRS more time. Why would anyone do that? It works like this. The IRS contacts you (usually about two and a half years after you file), asking you to extend the statute. Most tax advisers say you should usually agree. If you say “no” or ignore the request, the IRS will assess extra taxes.
There are also time limits to amending a tax return. Do it within three years of your original. But here’s a timing trick. If your amended return has an increase in tax, and you submit the amended return within 60 days before the three-year statute runs, the IRS will only have 60 days after it receives the amended return to make an assessment.
An amended return that does not report a net increase in tax doesn’t extend the statute. Timing on refunds can be tricky too. If you have too much tax withheld but fail to file a return, you usually only have two years (not three) to get it back.
Statute of limitation issues come up frequently with partnerships, LLCs and S corporations. The partners or shareholders pay tax, but the return is filed by the entity. And the entity might agree to extend the statute. Also, a tax notice may be sent to a partnership, but not to partners. Professional advice may be needed to untangle it.
Also, watch for cases where the statute may be “tolled” (held in abeyance). That can occur with an IRS John Doe summons, even though you have no notice of it! For example, suppose a promoter sold you on a tax shelter. The IRS may issue the accountant a summons asking for the names of all his clients. While he fights turning those names over, the statute of limitations clock for his clients is stopped.
Finally, consider state taxes too. Some states have three- and six-year statutes like the IRS. But some states set their own time clocks, giving them even more time to assess taxes. In California, for example, the basic statute of limitations is four years. However, if the IRS adjusts your federal return you are obligated to file an amended return in California. If you don’t, the California statute never runs out.
Timing is everything in tax matters, and that’s certainly true with the statute of limitations. The statute usually begins to run when a return is filed, so keep certified mail or courier confirmation. If you file electronically, keep all the electronic data, plus a hard copy of your return. Monitor the timing carefully and know when you’re clear. It can mean the difference between winning and losing.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Tax Evasion Trial For Merkel Ally, Bayern Munich Football President Uli Hoeness

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Uli Hoeness is close to royalty in football circles. In Germany, Mr. Hoeness was a household name for over 40 years. He started as a player, helping win West Germany the World Cup in 1974. He eventually became team manager of Bayern Munich, and since 2009, has served as President of the Club.
But he has hosted TV talk shows and figured in politics too, much to the current chagrin of Chancellor Angela Merkel. His arrest in 2013 rocked sports and politics in Germany. Police searched his lakeside villa, arrested him and later released him on five million euros’ bail. And now Mr. Hoeness goes on trial for seven charges of evading 3.5 million euros ($4.8 million) in taxes.
As has occurred in similar American trials, Mr. Hoeness is accused of having stashed money in Switzerland. Given the high amounts involved, if he is convicted, he could face jail time. The maximum punishment for major tax fraud is 10 years jail, but shorter terms which can be suspended are far more common. See Germany’s Bayern football boss to face tax trial.

Chancelor of the Federal Republic of Germany Dr. Angela Merkel signing autographs on the open door day at the Bundeskanzleramt in Berlin, Germany (Photo credit: Wikipedia)

A key issue could be whether his stepping forward and amending his taxes in 2013 to fix the problem will undermine the criminal case against him. The same issue has arisen under U.S. law. The issue even arose in the high profile case of Beanie Babies Founder Ty Warner, where it came up at sentencing that he had applied for amnesty.
But when Warner applied for amnesty in 2009, he was rejected because the IRS already had his identity. After Beanie Babies founder H. Ty Warner plead guilty to tax evasion, he was sentenced on January 13 to 2 years of probation and 500 hours of community service, but not to jail. So the feds have appealed to the Seventh Circuit. Prosecutors say Warner, Forbes’ 209th richest American worth $2.6 billion, should be jailed.
Few people are turned down, but the IRS policy is not to accept taxpayers who are already being investigated. Mr. Warner (#209 on Forbes 400 list) was not the first Forbes 400 member facing tax charges. Leandro Rizutto (#296), founder of Conair, and Igor M. Olenicoff (#184), a California real estate developer, were two others. In general, stepping forward to the IRS will not automatically prevent an American tax prosecution if the IRS was already on to the person when they confessed.
The law in Germany has been more favorable to taxpayers that U.S. law. In that sense, the prosecution of Mr. Hoeness could break new ground. And there are suggestions that prosecutors want this case to be a sea change.
Despite its proximity to Switzerland, Germany has lagged the U.S. in its pursuit of taxpayers hiding money in Switzerland and elsewhere. Yet it is clear that German has tried to say “me too” following American success with the issue. In 2011, Germany and Switzerland agreed on steps to tax Germans’ wealth hidden in Swiss banks by early 2013.
But that was delayed when in late 2012, the German opposition in late 2012 argued against allowing those guilty of tax evasion to get off easily via an anonymous settlement. Hoeness admitted to having been a compulsive stock market “gambler” and remains popular. And public interest in the case is high.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Man Chokes H&R Block Tax Preparer As Block Settles Disability Case

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Who isn’t unhappy with their taxes? Paying them is never fun. Even dealing with the paperwork can be downright stressful. But please, don’t beat up your tax preparer! It’s one thing to wring your hands over your taxes, or perhaps even to curse a bit.
But this customer took his frustration out physically over his tax return. Police arrested and charged an H&R Block customer with assault. Kirkwood, Missouri is a suburb of St. Louis, and the local police arrested Michael Wright, 53, who admitted assaulting an H&R Block employee. Mr. Wright was so upset about his taxes that he pushed his tax man to the ground and tried to choke him. Police: Kirkwood man choked tax preparer over tax filings.
Mr. Wright now faces a third degree assault charge. Although H&R Block didn’t comment on the unfortunate story, Block is simultaneously in the news for a second reason over a disability deal it has reached with the Justice Department. The deal is to remedy alleged violations of the Americans with Disabilities Act (ADA).

H&R Block (Photo credit: qnr)

The deal resolves the government’s allegations that individuals with disabilities have been denied full and equal enjoyment of H&R Block’s tax-preparation goods and services. The alleged problems involve H&R Block’s website www.hrblock.com and its mobile applications. H&R Block is one of the largest tax return preparers in the United States. When you think of Block, you may think of the walk-in stores like the Kirkwood, Missouri location.
However, the company has taken advantage of the Internet in a big way. It offers a wide range of services, including professional and do-it-yourself tax preparation, instructional videos, office location information, interactive live video conference and chat with tax professionals. It offers online and in-store services and electronic tax-return filing. On Dec. 11, 2013, the DOJ’s Civil Rights Division and the U.S. Attorney’s Office for the District of Massachusetts filed a complaint in intervention in National Federal of the Blind (NFB) et al. v. HRB Digital LLC et al. to enforce Title III of the ADA.
A complaint alleged that H&R Block failed to code its website to make it accessible to individuals with vision, hearing and physical disabilities. Under the terms of the five-year decree, H&R Block’s website, tax filing utility and mobile apps will conform to the Level AA Success Criteria of the Web Content Accessibility Guidelines (WCAG) 2.0. These recognized international industry standards for web accessibility can be found online and are available to help companies ensure that individuals with disabilities can fully and equally enjoy web-based goods and services.
According to the decree, the H&R Block website will be accessible for the start of the next tax filing term on Jan. 1, 2015, with additional accessibility deadlines over the following years. H&R Block will also pay $45,000 to the two individual plaintiffs in the case, plus pay a $55,000 civil penalty. A copy of the consent decree can be seen on the ADA website.
But however you access H&R Block’s services–or whoever your tax preparer may be–take a deep breath and try to get through this tax filing season without getting arrested.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

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