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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

312-906-5041

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Frequently, clients come to us believing that the IRS won’t impose Foreign Bank Account Reporting (“FBAR”) penalties on people who don’t actually owe the U.S. any tax. 

Sadly, that’s simply not the case.

For FBAR noncompliance, the penalty may be up to $10,000 if the failure to file is non-willful, and up to the greater of $100,000 or 50% of the total account balances if willful (i.e., intentional).  Some tax practitioners used to believe that the higher willful penalty would be capped at $100,000 – at least until this summer, when the Court of Federal Claims held in Norman v. United States that the taxpayer was liable for the 50% penalty imposed by 31 U.S.C. sec. 5314, significantly more than the regulatory “limit” of $100,000.   A huge bite!

Some legislative history on the penalty amount here:  Treasury Regulation 31 C.F.R section 1010.820 was written under the previous version of the Bank Secrecy Act, and capped the penalty at $100,000.  In 2004, Congress amended the law to increase the penalty.  Based on the reasoning set forth in Colliot v. United States (Texas District Court 2018), and Wadhan v. United States (Colorado District Court 2018), the court held that the new 2004 law did not supersede the regulation promulgated under the prior statute.  Good news for noncompliant taxpayers, but it didn’t last long.  In Norman, the Court of Federal Claims instead confirmed that Congress did indeed supersede the regulation and accordingly would not cap the penalty amount at $100,000.  Most likely, the IRS will update the regulation to avoid the issue being tried again. 

For those of you who have or had foreign bank accounts and are not in compliance with the FBAR requirements - even if you do not believe you were willful in your non-reporting - we encourage you to contact us and discuss your options, including the IRS Offshore Voluntary Disclosure Program.  Notably, the IRS continues to offer an attractive Streamlined Program for non-willful taxpayers that can bring you into compliance quickly, and also significantly limit the penalties exposure.

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Making plans to travel internationally for the winter break? Needing to attend a business conference in Venice? Got tickets to the Radiohead concert in Toronto?

If you owe a significant sum to the IRS, you may be in for a rude surprise. Recent implementation of enforcement policies is resulting in lots of delinquent taxpayers receiving notices that their application for a new passport will be denied or existing passport not renewed.

On December 4, 2015, the Fixing America’s Surface Transportation Act (“FAST act) became a law, and it created a new Internal Revenue Code section § 7345 which requires the IRS to notify the State Department when an individual is certified as owing a “seriously delinquent tax debt”.

The first alarm rang on January 16, 2018, when the IRS published a Notice explaining the new rules. Additional important details were also added to the Internal Revenue Manual. On January 22, 2018, after the implementation of the passport program, the IRS took its first steps.

To be considered a “seriously delinquent tax debt”, there must be an assessed and unpaid amount of $50,000 or more, and the IRS has filed a notice of lien or a levy was issued. The section provides statutory exceptions for current installment agreements, offers in compromise, and Collection Due Process hearings. Several other exceptions are available as well. The IRS will send a form to a taxpayer after it certifies the seriously delinquent tax debt.

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Posted on in Tax Rants

Many clients have been contacting me these past several weeks and asking what my take is on the IRS after the change in administration.   Will enforcement activities decrease as a result of the new president’s own rancor for the agency?  Or will the Service instead react like the intelligence community, digging in its collective heels and strengthening its entrenched bureaucracy, perhaps even resurrecting the more draconian tactics of past times?

The answer I have been offering to my clients is both frustrating and disturbing:  I really have no idea.   And I do not think anyone really does know what to expect.  Playing a wait-and-see game makes substantive tax planning difficult, and tax controversy representation even more challenging. 

If the new President, with a supporting Congress, follow through on advertised tax reform proposals, the overall rates will be lowered, saving money for middle and upper income taxpayers.  And if the Affordable Care Act is repealed (Obamacare), so goes the 3.8% surtax on investment income.  While it is uncertain if these changes will happen at all, it is even more unclear now whether they would become effective for the 2017 or the 2018 tax year, making the deferral-of-income strategy a difficult recommendation to counsel at this point.

Posted on in Tax Rants

International investment is becoming easier and easier, so long as you have available funds. 

Advancements in technology, as well as the decreasing significance of language barriers and restrictive politics has made it possible for U.S. interests to invest overseas, even if the capital outlay is not massive. 

But the U.S. reporting rules are strict, and compliance essential.  Here’s what you need to know about reporting requirements prior to undertaking even a minimal foreign investment project. 

FBAR Reporting

In February of 2007, the Internal Revenue Service issued a news release outlining the reporting requirements for foreign financial accounts held by U.S. taxpayers under the Bank Secrecy Act of 1970 (BSA).    

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Posted on in Tax Rants

Maybe I’m showing my age, but I recall the “reinvention” of the Internal Revenue Service following the nasty Senate hearings in 1998.   

This was before 9/11, when our government’s problems were consistent with a simpler, less troubled time.  For those of you who weren’t of age at the time to care about such things, or perhaps weren’t even inhabiting this planet yet, these hearings were a big deal.  The Tax Collector was put on trial, and the proceedings televised to the nation – the IRS’ Watergate.  Current employees provided testimony behind curtains with masked voices like the adults in Charlie Brown cartoons.  Taxpayers complained bitterly about the “Gestapo-like” tactics of aggressive Revenue Officers and Special (criminal) Agents. 

The aftermath?  Our government’s procurement of a million dollar consultant study analyzing the structural and other problems with the IRS bureaucracy.  The study led to some new legislation – the third, but most significant ever, Taxpayer Bill of Rights.  Also, the IRS reorganized itself, and rolled-out a functionally (rather than geographically) based bureaucracy, while at the same time publicly dedicating itself to improved customer relations and a responsive, educating, client-servicing agency.   The “New” IRS. 

Tax Lien filings and levies dropped significantly in the wake of the roll-out.  Seizures were dramatically reduced and, in part due to the new protective legislation requiring a district court order, the taking of residences to satisfy tax debts all but disappeared entirely from the IRS Collection toolbox.

Shortly thereafter, the offer in compromise program criteria were liberalized, so instead of a 95% plus rejection rate, more and more taxpayers started realizing the “fresh start” promised by the alternative.   And the government reportedly reduced its receivables significantly, making it more resemble a business.  Good for everybody. 

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