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Due to Hurricane Fran, the IRS has extended the deadline for the Offshore Voluntary Disclosure Initiative for foreign accounts to September 9, 2011.  U.S. taxpayers with foreign accounts totaling more than $10,000 at any time during the year must report the accounts to the IRS or face substantial penalties and criminal charges.  Voluntary disclosure and payment can avoid criminal charges. Click here for more information.

For certain professionals, failing to report can end also one's career. An attorney here in North Carolina was recently disbarred for failure to report an offshore account.

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From IR-2011-80, issued on July 25, 2011:

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

• The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
• A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
• The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

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From IR-2011-70:

WASHINGTON — The Internal Revenue Service today reminds everyone who has a bank or other financial account in a foreign country, or who has signature authority over such an account, that they may be required to report the account to the U.S. Department of the Treasury by June 30 each year.

Many people in the U.S. have foreign financial accounts. While there is nothing improper about setting up or maintaining such accounts, many people may mistakenly believe their accounts are not large enough on a combined basis to trigger reporting obligations. Foreign account owners may have to report their accounts to the government, even if the accounts do not generate any taxable income.

U.S. persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Department Form TD F 90-22.1, each year if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

For 2010, the due date for filing the FBAR is Thursday, June 30, 2011, though some financial professionals will have until June 30, 2012 to file. Unlike with federal income tax returns, requests for an extension of time to file an FBAR cannot be granted.

The FBAR is not an income tax return and should not be mailed with any income tax returns. It is due by June 30 of the year following the calendar year in which the aggregate value of the foreign accounts, on any one day, exceeds $10,000. But for 2009 and earlier years, the due date is generally Nov. 1, 2011 for individuals whose filing deadline was properly deferred under Notice 2009-62 or Notice 2010-23, and have no financial interest in a foreign financial account but with signature or other authority over that account.

FBARs are filed with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, Mich. 48232-0621.

Click here for a report of a recent plea bargain by a disbarred lawyer who was charged with hiding asset in UBS accounts in Switzerland.

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The U.S. Fourth Circuit Court of Appeals, under whose jurisdiction North Carolina falls, overruled a Tax Court decision and upheld a Treasury regulation that provides for a two-year statute of limitation on claims for innocent spouse relief (Jones v. Commissioner, docket no. 10-1985 (4th Cir. 6/13/11)). This is the third time a Tax Court ruling on this issue has been overturned by a higher court.

Married couples who sign and file a joint return are both liable for any tax and penalties due with regard to the return.  Innocent spouse relief is often sought by a spouse who claims that he or she did not have any knowledge of the other spouse's fraud against the IRS.

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IR-2011-39:

Video: Dirty Dozen: English  |  Spanish  |  ASL 

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

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From IR-2011-23

WASHINGTON — The Internal Revenue Service today released the 2011 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 84-page document, The Truth About Frivolous Tax Arguments.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

The 2011 version of the IRS document includes numerous recently decided cases that continue to demonstrate that frivolous positions have no legitimacy.

Frivolous arguments include contentions that taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment; that the only “employees” subject to federal income tax are employees of the federal government; and that only foreign-source income is taxable.

In addition, the document highlights cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes, and the imposition of criminal and civil penalties on taxpayers who claimed they were not citizens of the United States for federal income tax purposes.

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With accompanying pictures, this article on Forbes.com gives us 10 things NOT to do with regard to our tax returns.

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From IR-2010-32:

WASHINGTON — The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.

“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”

Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.

The IRS urges taxpayers to avoid these common schemes:

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Have you ever heard a friend, neighbor, or colleague state that they had found a way to get around paying income taxes, or that certain taxes weren't really legal?  Don't believe them - many people, including several wealthy actors, have gotten into trouble with the IRS that way.

The IRS has a comprehensive analysis of frivolous tax arguments on its website.

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From IR-2009-84:

WASHINGTON ─ The Internal Revenue Service today announced a one-time extension of the deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts. These taxpayers now have until Oct. 15, 2009.  

Under special provisions issued in March, taxpayers with these hidden accounts originally had until Sept. 23, 2009 to come forward. Those taxpayers who do not voluntarily disclose their hidden accounts by the new deadline face much harsher civil penalties, where applicable, and possible criminal prosecution.

IRS officials decided to extend this deadline after receiving repeated requests from tax practitioners and attorneys around the country following an influx of taxpayer requests. By extending the deadline for a short period of time, the IRS is providing relief for those taxpayers who had intended to come forward prior to the deadline, but faced logistical and administrative challenges in meeting it. The extension will allow tax preparers and attorneys the necessary time to interview and advise their backlog of taxpayers with these hidden accounts, and prepare the necessary paperwork to qualify for the special penalty provisions.

The IRS also announced that there will be no further extensions.

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Taxes are going up, and so is the number of revenue agents at the IRS!  This is from the latest GiftLaw eNewsletter:

In the 2010 budget proposed by President Barack Obama, there is an increase of $400 million dollars for the IRS. The IRS plans to increase its enforcement budget to $5.5 billion out of the total $12.12 billion IRS budget.

IRS Commissioner Douglas Shulman has been emphasizing the importance of greater enforcement as a method of closing the "tax gap." Increased IRS funds will enable the hiring of 4,500 new revenue agents. IRS Deputy Commissioner Linda Stiff noted that these new agents are the "largest hiring initiative" in recent years.

Treasury Secretary Tim Geithner indicated, "This budget will also expand job-creating investments in local communities, strengthen our nation's security through financial intelligence, launch new initiatives to enforce the tax code and provide the recourses to address global economic challenges." The new IRS accountants, economists, statisticians and revenue agents are part of an ongoing program by President Barack Obama and Secretary Geithner to close the tax gap.

Editor's Note:

With the record budget deficits, Washington faces three financial options. The first is to increase taxes, the second to reduce spending and the third to increase tax law enforcement. Because the taxpayers of the United States are among the most honest in the entire world and pay 85% to 88% of the total taxes due, it will be difficult to close the budget gap merely through greater enforcement. However, the current administration is clearly going to make an effort to increase tax revenues with 4,500 new IRS agents.

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