GAO recommends IRS Step Up Enforcement Measures for Dentists, Doctors and Other Medical Services Providers Who Receive Medicaid Funds

Posted by Jennifer Benda on August 08, 2012

In a report issued July 27, 2012, the GAO recommended that the IRS “explore opportunities to enhance collection of unpaid taxes from Medicaid providers, including the use of continuous levies.”  The GAO reviewed Medicaid reimbursement information from the three states which received the most Medicaid funding under the American Recovery and Reinvestment  Act of 2009.  The GAO found that in 2009, doctors, dentists, and other medical services providers who received $6.6 billion in Medicaid reimbursement owed the U.S. government $791 million in unpaid taxes from 2009 and earlier years.  The GAO believes this estimate is low because it relies only on taxes which are self-reported and does not include amounts for which returns were not filed, underreported amounts, or amounts reported under a different tax identification number.  Over 40% of the unpaid taxes were identified as payroll taxes and over 30% of the unpaid taxes were identified as income taxes.  The study points out that Medicaid reimbursements made to delinquent taxpayer are subject to one-time, rather than continuous, levies during the collection process.  GAO concludes that if it was possible to continuously levy Medicaid reimbursements, collections would increase dramatically.  Congress has proposed changing the law so that Medicaid reimbursements are subject to continuous levy.  However, this measure has not become law.

 

The GAO report is available here: GAO Report 593095.pdf

New Foreign Asset Reporting Requirements for 2011 Returns

Posted by Jennifer Benda on March 03, 2012

The HIRE Act of 2010 enacted Section 6038D which requires single taxpayers to report ownership of specified foreign financial assets which in aggregate exceed $50,000 on new Form 8938, which is filed with an individual’s Form 1040.  Various dollar thresholds apply to individuals who do not file single taxpayer returns.  Individuals required to file Form 8938 are still required to comply separately with Treasury rules for filing FBARs, or Form T.D. 90-22.1, to report foreign bank and financial accounts. 

Specified foreign financial assets generally include financial accounts maintained at foreign financial institutions; stock, securities, and other financial instruments issued by a foreign person or other foreign issuer; and interests in foreign entities held for investment.  Assets held at U.S. branches of foreign financial institutions are not specified foreign financial assets.  The IRS recently posted responses to Frequently Asked Questions about Form 8938.  The IRS FAQ’s are available here:  http://www.irs.gov/businesses/corporations/article/0,,id=255061,00.html

The FAQs elaborate on many common situations.  For example, FAQ’s 7 and 8 provide that foreign investments maintained by a U.S. financial institution or its holdings, such assets held through U.S. mutual fund accounts, IRAs (traditional or Roth), 401(k) retirement plans, qualified U.S. retirement plans, and brokerage accounts maintained by U.S. financial institutions, are not reported on Form 8938.  FAQ 3 discusses the rules governing foreign real estate.  Foreign real estate held directly by an individual is not reportable on Form 8938.  However, if foreign real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, the investment in the entity is a specified foreign financial asset that is reported on Form 8938 if you meet the reporting threshold. 

There is a $10,000 penalty for failure to file Form 8938 and failures to report tax on income generated by assets not disclosed on Form 8938 are subject to a 40% accuracy-related penalty.  In addition, when a taxpayer fails to file Form 8938, the statute of limitations for the tax year remains open until three years after Form 8938 is filed. 

If you would like to discuss your obligations to report foreign assets or are looking for assistance with any IRS reporting requirements, please contact Jim Mastracchio at (202) 861-1650 or Jennifer Benda at (303) 764-4025.

IRS Includes Hiding Offshore Income on List of Dirty Dozen Tax Scams for 2012

Posted by Jennifer Benda on February 16, 2012

See IRS Video posted here:  http://youtu.be/10D1XqVmIW0

IRS News Release is posted here: http://www.irs.gov/newsroom/article/0,,id=254383,00.html

Careful Attention to Offshore Voluntary Disclosure Cases

Posted by Allen Littman on January 19, 2012

Baker Hostetler’s lawyers have handled hundreds of voluntary disclosures through the 2009 and 2011 Offshore Voluntary Disclosure Programs (OVDI).  Recently, the IRS has announced a third OVDI, this time with no defined termination date.

The OVDI programs provide important protections for those who might face criminal prosecution for unreported income or unfiled informational returns.  The OVDI programs also provide certainty regarding the level of civil monetary penalties that will be imposed.  In the current OVDI Program, penalties are relatively high (although they are somewhat lower than a civil “fraud” penalty), and there is no leeway for appeal or negotiation in the Program.  It is a relatively rigid process in which the taxpayer is required to provide certain information at certain times.  In addition to taxes and interest, accuracy penalties are imposed at a rate of 20% of the tax liability, plus 27.5% of the fair market value of the offshore assets giving rise to the unreported income. 

It has been our experience that certain taxpayers may be able to lower their civil monetary penalties through a non-OVDI audit process.  For such taxpayers, the taxpayer can withdraw or “opt out” from the program at the appropriate time after making the required disclosure to the criminal tax authorities.  This approach may be beneficial if there are substantial legal issues or doubt may be raised as to a taxpayer’s liability for particular amounts.  What is best depends on the taxpayer’s situation and his or her specific facts.

In particular, we learned in the previous OVDI Programs that some taxpayers, including certain immigrants, should carefully consider entering into the OVDI Program and then opting out.  One potential benefit of opting out may be the possibility of obtaining certain retroactive restructuring relief, an outcome that may not be available to taxpayers in the formal OVDI Program.  While not everyone can obtain a dramatically better result or retroactively restructure their holdings, paying close attention to a taxpayer’s particular facts and circumstances has the potential to create a less negative outcome.

An article discussing the IRS position on retroactive relief for OVDI taxpayers can be found here: http://www.bakerlaw.com/files/Uploads/Documents/News/Articles/TAX/2011/TaxNotesToday_Littman_Nydegger_3-2011.pdf

A brief description of the article appears here:  http://www.bakerlaw.com/articles/littman-and-nydegger-publish-article-tax-analysts-tax-notes-today-3-9-2011/

IRS Grants Additional Time To File FBARs

Posted by James Mastracchio on June 16, 2011

Today, the IRS announced an extension until November 1, 2011 for taxpayers who did not file TD F 90-22.1 (FBARs) forms in prior years.  For those taxpayers who only had signatory authority over a foreign account and did not own the account in 2009 or prior years, additional time has been granted to gather the necessary information to file the old FBARs.

This is a helpful development for many taxpayers who are attempting to gather information from financial institutions where the there was no ownership. 

The IRS on two prior occasions extended the deadline while it considered its position.  See Notice 2011-54 for the current reporting obligations.

U.S. Taxpayers Living Abroad - Reduced Penalties To Come Clean

Posted by James Mastracchio on June 06, 2011

In a bid to encourage U.S. taxpayers living abroad to file U.S. tax returns and FBARs, the IRS has significantly reduced the civil penalties associated with the 2011 Offshore Voluntary Disclosure Initiative.  On June 2, 2011, the IRS announced new rules applicable to U.S taxpayers who live outside the United States.  If qualified, taxpayers can file delinquent FBARs (Report of Foreign Bank Accounts) and other US tax returns, and pay a 5% penalty on financial assets (such as bank accounts, savings accounts and investment accounts) and pay a zero penalty on non-financial assets such as business interests, real property and artwork.  Under the initial settlement guidelines a penalty of 25% would be imposed.

To qualify, the U.S. taxpayer must have resided in a foreign country, complied with the tax laws of the country of residence, and had less than $10,000 per year in U.S. sourced income. 

For U.S. taxpayers living abroad, these new rules provide a significant reduction in the level penalties that would otherwise apply. 

For taxpayers who already settled with the IRS under the 2009 or 2011 OVDI programs, the IRS will reconsider their cases to determine if the lower penalties should apply, provided the taxpayers make a submission to the IRS for reconsideration.

John Doe Summons Granted for US Account Holders at HSBC

Posted by James Mastracchio on April 11, 2011

The U.S. District Court for the Northern District of California has granted the Department of Justice request to allow the IRS to issue a John Doe Summons on HSBC-India.  The government seeks records of U.S. taxpayers who hold accounts at the bank.  The evidence supporting the court petition suggests HSBC India was engaged in activity that sought US account holders who would invest with HSBC and avoid U.S. income tax through two U.S. branches.

This comes on the heals of the UBS investigation arising from John Doe Summons issued on that bank.  The IRS recently announced the 2011 Off-Shore Voluntary Disclosure Initiative (OVDI), which allows taxpayers with previously undeclared accounts to amend their tax returns and other informational filings (such as FBARs, Form 5471, Form 3520s) and avoid criminal prosecution.  The 2009 OVDI was announced at about the same time that the summons issue was underway.  Those with undisclosed accounts may want to seek counsel.

More Taxpayers Face Indictments For Undeclared UBS Accounts

Posted by James Mastracchio on March 17, 2011

Over the last two weeks, the Department of Justice announced a number of indictments and plea agreements involving taxpayers who had undeclaired off-shore accounts.  Several of these cases involved UBS account holders who either failed to make voluntary disclosures in a timely manner or were caught by the IRS prior to any action being taken to come clean.  While many of the recent prosecutions resulted in probation, the announcement on March 11, 2011 of a guilty plea in U.S. v. Werdiger, has resulted in multiple felonies for filing false personal income tax returns along with a conspiracy charge for defrauding the U.S. Government.  Unlike prior pleas that resulted in probation for the taxpayer, this case has a potentlal sentencing range is between 2 and 3 years - the stiffest by far.

Those with offshore accounts should seek counsel regarding the 2011 Voluntary Disclosure Initiative

This may become a trend.  The earliest criminal tax prosecutions produced reduced sentence recommendations as a result of cooperation agreements entered into by the taxpayer in new and on-going criminal tax investigations, later cases may not offer similar opportunities.  Those taxpayers with undisclosed accounts should take advantage of the 2011 Off Shore Voluntary Disclosure Initiative.