IRS Penalties for Hiding Income Offshore

Posted on June 13, 2012 by Kursti Nakagawa

You may remember Mitt Romney’s refusal to make his complete tax returns public due to his offshore accounts in the Cayman Islands in January. Romney at least reported the income to the IRS, if not the American public. The OC Register reported this week that Lake Forest resident Louis Joseph Vadino is being investigated by the IRS for evading 12 years of taxes totaling nearly $4 million. He did this mainly by opening foreign bank accounts and creating companies outside of the U.S. to hold property titles, some of them hidden under the relatives’ names. He is scheduled to go to trial at the end of July.

The IRS has specially trained examiners and international partners that make sure U.S. citizens and residents accurately report income and pay the appropriate taxes on foreign entities. Failure to report foreign sources of income may be a criminal act. Worldwide income and foreign bank or investment accounts are required to be reported on your U.S. tax return. Filing rules for tax returns on income, estates, and gifts are generally identical whether you are living in the U.S. or abroad.

If you do attempt to evade taxes on income from foreign sources, you can be subject to additional taxes, IRS penalties, interest, fines, imprisonment, or deportation if you have a green card.

The Offshore Voluntary Disclosure Initiative (OVDI) of 2012, an IRS initiative that was extended indefinitely after being in effect from 2009–2011, allows taxpayers who have hidden offshore accounts to become compliant and current with their taxes without criminal liability. While they can face a 27.5% IRS penalty, taxpayers in limited circumstances may qualify for a penalty of 5%. Offshore accounts or assets that did not surpass $75,000 in any calendar year will have a penalty of 12.5%. Taxpayers may choose to be examined by the IRS if they feel the penalties are disproportionate to their income. Unreported foreign gifts or bequests of $100,000 or more in one year can be penalized from 25%–35%, even if no taxes are due. Under the OVDI process, penalties are waived for this situation.

While the tax penalties under OVDI may seem high, the benefits of voluntarily reporting this income far outweigh the costs. The IRS tax penalties could be much higher if the offshore income is discovered by examiners, not to mention the criminal prosecution that can lead to time in jail.

If you need help with becoming compliant with the IRS, our experienced tax settlement professionals can help. We can also help you file your taxes. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

3 Ways to Start Eliminating Your Tax Debt

Posted on May 28, 2012 by Kursti Nakagawa

If you have a large IRS tax debt, the amount you owe can be daunting. To avoid being charged additional fees and making the debt larger, it is important to act and begin the tax settlement process quickly. Even if you cannot pay it off all at once, there are options you can pursue to eliminate your tax debt. Here are three methods that can help you to settle or eliminate your tax debts.

Offer in Compromise It is possible to reach a tax settlement with the IRS that is less than the full amount you owe. This plan is called an Offer in Compromise. Although filing an Offer in Compromise can be time consuming and complicated because the qualifications are very specific, this is a powerful option because it allows for the resolution of all your outstanding tax balances at the same time, plus the suspension of collection activities while your offer is being considered.

Installment Agreements An Installment Agreement is a payment plan that is negotiated with the IRS or a State Tax Agency. Instead of paying one lump sum, the taxpayer agrees to pay a tax debt over a specified period of time. The terms of an agreement will be contingent on the tax liability amount and the taxpayer’s current and projected financial status (income and assets).

Uncollectible Status If you do not have sufficient income or assets to pay your tax debt, you may be eligible for the temporary designation of Uncollectible. If you have been granted this status, all collection activity stops until your situation is reevaluated, and the IRS determines that you have the ability to pay your debt. This can give you more time to work on paying off your debt without accruing additional fees and penalties.

Since the IRS prefers to receive the full amount of tax debt that you owe, they may not give you the best advice when you are seeking to use one of the tax debt elimination options above. A licensed tax professional can negotiate with the IRS on your behalf and help you to get reach the best possible tax settlement based on your situation.

If you need help with an outstanding tax debt, our experienced tax settlement professionals can help. We can also work with you if you need help filing your taxes. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

5 Ways to Get Caught Cheating on Your Taxes

Posted on May 18, 2012 by Kursti Nakagawa

As unemployment and the economy continue to loom over America, you may be tempted to cheat on your taxes since what you owe seems like too much to pay. This is never a good idea. With penalties, fees, interest, and in extreme cases, jail time as possible consequences, cheating on taxes is simply not worth it. If you do have issues with paying and need tax settlement help, consulting a professional on a legally maximizing your deductions or setting up payment plan is a far safer option.

Here are 5 common tax deduction cheats that the IRS looks for:

Commuting Costs associates with going to and from work can never be deducted, even if your workplace is hours away. The burden of an expensive commute lies solely on you, because it is non-deductible expense.

Volunteering While donated goods and cash can be deducted, the services you have donated cannot. This applies even if you can calculate the value of the service. However, if costs are incurred while you are volunteering, those can be deducted.

Pets Since pets are not considered dependents, personal pet costs including food, medical bills, and grooming are not tax deductible.

Remodeling Your home improvements are considered personal expenses. You cannot claim them as tax deductions.

Gym membership Unless you have a diagnosed medical condition that causes your doctor to specifically prescribe a gym or health club membership, your membership cannot be deducted. The difference is that the first is a medical deduction, and the second is just beneficial.

If you want to avoid mistakes on your tax return and receive the deductions that you qualify for, our experienced tax settlement professionals can help. We can also work with you if you have filed your taxes and cannot afford to pay in full. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

7 Ways to Guarantee an Audit

Posted on May 9, 2012 by Kursti Nakagawa

As the National Debt grows, the IRS has become increasingly vigilant with enforcing taxes. Therefore, returns that could have been accepted in prior years may now be flagged for an audit. Even small mistakes can influence whether or not you are audited.

Here are 7 ways to guarantee an audit:

Your income is suspiciously low or unusually high. Since the IRS knows the average salary in a given field, making less than other people in the same profession raises a red flag. Having a relatively low income while you reside in high income area is also a cause for review. On the high end, while the IRS audits less than 1% of taxpayers each year, those earning $100,000 or more are 500% more likely to be audited.

You fail to report income. You must report all wages, interest, dividends, capital gains, and miscellaneous income. All of your W-2s and 1099s are submitted to the IRS, so they can match your return against these documents and know if something is missing.

Your income has large swings from one year to the next. Since the IRS assumes that your income should be fairly consistently from year to year, large income changes that cannot be verified against your W-2s and 1099s will result in a red flag.

Your itemized deductions are too high. Deductions higher than the “average” can flag your return for an audit. This includes itemization from medical or dental expenses, taxes on real estate or personal property, interest on a home mortgage, gifts, sizable casualty or theft losses, and unreimbursed employee expenses.

Your charitable non-cash gift is valued at over $500. If your donation of valuable personal property $500 and over is not appraised or Form 8283 was not filed for your donation, you could be flagged for an audit. While taxpayers are entitled to a deduction for donations, it is for the fair market value of the donation—NOT the original cost. A general donations value guide is available on Goodwill’s website.

Your charitable contributions are overly generous. While charity is in no way discouraged by the IRS, if you are donating much more than the average person in your tax bracket, your return can be flagged. Make sure to have detailed and accurate receipts for all of your contributions.

You claim employee job expenses. The IRS assumes that if your employer doesn’t reimbursing you for an expense, it may not be a true job expense. Therefore, simply reporting a job expense can flag your return for an audit. If you receive a W-2, your job expenses would need to meet the following: the total of all the expenses exceeds 2% of your adjusted gross income, expenses are “ordinary and necessary,” and were not reimbursed.

If you have received an audit notice from the IRS or want to avoid mistakes on your tax return, our experienced tax settlement professionals can help. Please visit professionaltaxresolution.com for more information on our tax services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

Amending Prior Returns Can Lower Your Taxes

Posted on May 3, 2012 by Kursti Nakagawa

The first step in resolving an outstanding tax liability should be to verify that the amount of the tax debt being reported by the IRS or State Tax Agency is correct. Because tax law is so complex, important tax deductions or tax credits are often missed when returns are completed by individuals who lack the professional knowledge and experience to determine which ones apply. Often a missed deduction, a missed tax credit, a change in filing status or an overlooked income adjustment will result in a tax amount owed that is greater than it would have been if the item had been claimed on the return. That being the case, the filing of an amended return is sometimes the simplest and most cost effective way to substantially reduce an outstanding tax liability. By law, a return can be amended within three years from the date of the original return or within two years from the date a tax was paid, whichever is later.

Some of the more common reasons for filing an amended return are outlined below:

Errors and omissions It is not uncommon for a tax return to be filed with calculation errors or omissions of data and/or required documentation. Although the IRS will normally correct simple math errors and will often request a missing form or schedule, this type of mistake can also be corrected by taxpayer through the use of an amended return.
Introduction of new information A return that is submitted to meet a filing deadline can be amended later if further examination of events and records of the previous year indicate that there would be a tax advantage to claiming different deductions or additional deductions.
Change in filing status If a return has been submitted but the filing deadline for the return has not passed, it is possible to use an amended return to switch the filing status from married filing jointly to married filing separately or vice versa. Amended returns are also used to undo joint filing status when there has been the annulment of a marriage.
Change in tax elections Tax returns allow for many elections whereby the taxpayer chooses how he or she wishes to be treated by the Internal Revenue Service for tax purposes. These elections include such things as treatment of foreign income, residency status, and income tax withholding, just to name a few of the many elections available. In certain instances, these elections can be changed through the use of an amended return when the introduction of new information indicates that there would be a tax advantage in doing so.
Carry back of losses Amended returns can be used to apply property losses from the current tax year to the previous year’s tax return. They are also commonly used by businesses to carry net operating losses back to the previous two tax years.

If you have an outstanding tax liability, our experienced tax resolution specialists can help you resolve it. The first step in this process will be to carefully examine previously filed returns and to file amended returns when necessary. This process can often result in a significant reduction in the tax amount owed by identifying available tax benefits that have not been utilized. For more information about our tax debt resolution and tax settlement services, visit us today at professionaltaxresolution.com. Contact us by email at info@protaxres.com or by phone at (877)-889-6527 to receive a free, no obligation consultation.