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Fort Worth Tax Law Blog

Foreign Account Holder Successfully Asserts Fifth Amendment on Schedule B

The Fifth Amendment protects an individual from being forced to incriminate himself or herself, often referred to as "pleading the fifth." In the past, some have unsuccessfully attempted to assert the Fifth Amendment as a reason to avoid filing tax returns, or to file tax returns that don't report any income. These arguments, usually asserted by tax protesters, are generally considered frivolous by the IRS and federal courts.

Recently, the Tax Court ruled in favor of a taxpayer who reported his income but refused to disclose the source by asserting his Fifth Amendment privilege. Youssef Youssefzadeh timely filed his 2011 tax return and reported all of his income. On his Schedule B, however, he refused to identify the source of some of the interest income that he earned, which turned out to be from foreign bank accounts. The IRS threatened to assess a "frivolous-return penalty" against Youssefzadeh if he did not provide the missing information. When he still refused, the IRS assessed the penalty against him, which he challenged at the Tax Court. 

Alaskan Plastic Surgeon Convicted of Offshore Tax Evasion

The Department of Justice announced the conviction of an Alaskan doctor who used secret accounts in Costa Rica to hide assets from his wife, as well as to evade U.S. taxes. At his sentencing next March, he faces a maximum of 20 years imprisonment. He could also be forced to forfeit $4.6 million in seized funds.

Shortly after his wife filed for divorce in 2007, Dr. Michael Brandner drove more than 4,000 miles from Tacoma, Washington, to Costa Rica. He took $3,250,000 in cashier's checks with him, as well as 1,000 ounces of gold. He hid these assets in two bank accounts and a safe deposit box. In 2008, he opened an account in Panama under the name of a sham corporation and deposited $4.6 million. Brandner concealed both the existence of these accounts, as well as the interest earned by the accounts, from both his wife and the Internal Revenue Service. 

Taxes and bankruptcy, part 1: a Texas case

Bankruptcy is by no means a sure-fire way to evade the IRS. An octogenarian widow of a Texas billionaire is finding this out now.

In part one of this two-part post, we will discuss the case of Caroline "Dee" Wyly, against whom the Internal Revenue Agency is seeking a $386 million tax fraud penalty. The agency is seeking this penalty despite the widow's bankruptcy filing.

It's about trust: the Trust Fund Recovery Penalty

The word "trust" has a lot packed into it. Broadly, of course, it refers to belief or confidence in the reliability or faithfulness of a person or an organization. But in legal terms, a trust is a legal mechanism by which certain property rights are held by one party to benefit another.

In tax law, there is also an even more specific use of the word "trust" that occurs in the context of employment taxes. Employers are required to withhold and pay over to the federal government certain taxes such as Social Security taxes that are designated as "trust fund" taxes.

New tool for criminal investigations: stingrays

The IRS continues to struggle with budget cuts, but it is far from toothless. In fact, the agency recently began using nasty new tools that can track cell phone location data by mimicking cell towers. These tools are called "stringrays" or cell-site simulators.

Last week, the IRS commissioner went before a Senate committee and acknowledged that the IRS uses stingray devices in criminal investigations.

A new abbreviation in tax law: CRS, for common reporting standard

Tax law is filled with abbreviations. IRS of course stands for Internal Revenue Service. OIC stands for offer in compromise. FBAR stands for Report of Foreign Bank and Financial Accounts (now also known as FinCEN form 114) and so on.

The newest abbreviation is CRS. (No, not CVS, the national pharmacy chain.) CRS stands for common reporting standard. It refers to the digital exchange of information between tax authorities in the U.S. and other countries to enforce the Foreign Account Tax Compliance Act (FATCA, another abbreviation).

IRS "50% Penalty" List Increased to 56 Foreign Banks

The IRS has added four more foreign financial institutions to its list of "Foreign Financial Institutions or Facilitators." Those who had accounts at one or more of these institutions are required to pay an increased penalty of 50% if they wish to participate in the Offshore Voluntary Disclosure Program (OVDP). The list is expected to continue to grow as the U.S. government continues its ongoing investigations of offshore tax evasion.

When the Offshore Voluntary Disclosure Initiative was first announced in 2009, participants paid a penalty equal to 20% of the highest aggregate balance in their offshore accounts during the most recent eight year period. That penalty was increased to 25% when the program was re-opened in 2011. In 2012, the current OVDP was opened on an indefinite basis, with the penalty amount set at 27.5%. 

IRS Gives Preview of FATCA Reporting Form

The Internal Revenue Service has released a draft version of the form that will be used by foreign financial institutions (FFIs) to report information about U.S. accounts under the terms of the Foreign Account Tax Compliance Act (FATCA). Passed into law in 2010, FATCA requires foreign financial institutions to report information about U.S. account holders on an annual basis. The Treasury Department has since negotiated Intergovernmental Agreements (IGAs) with more than 100 countries to implement the provisions of FATCA, including most of the world's top tax havens.

Form 8966 provides identifying information about the American taxpayer, including that person's name and taxpayer identification number. It reports information about the account, such as the account number, the account balance, as well as the amount of interest and dividends earned during the year. There is also a "Pooled Reporting" section that lists the total number of accounts, as well as the aggregate account balance, for individuals with multiple accounts. 

Responding to an IRS summons

A great deal can be at stake for a person when they are the subject of a tax investigation by the Internal Revenue Service. Thus, an under-investigation taxpayer may feel a great deal of fear and worry about the whole investigative process.

One of the actions the IRS will sometimes take when investigating a taxpayer in relation to an alleged tax issue is issuing a summons to the taxpayer. Receiving a summons can be a very intimidating thing. It could leave a taxpayer feeling panicked.