6/6/2014 2014 2014 IR IRS & CT CT DR DRS Upda Update Green & Sklarz LLC www.gs ‐ lawfirm.com (203) 285 ‐ 8545 New Haven ~ Stamford About Us Eric L. Green, Esq Jeffrey M. Sklarz, Esq Eric is the Chair of the Connecticut Bar Jeff’s practice is focused on representing Associations Tax Section, and is a businesses and individuals with complex frequent lecturer on tax topics, including financial challenges and litigation needs estate planning, and handling tax audits including: bankruptcy/bankruptcy litigation, and tax controversies. Eric is the creator, creditor/debtor litigation, tax litigation, author and lecturer for CCH’s Certificate pension and employee benefit litigation and Program in IRS Representation, which trains other professionals to handle IRS commercial litigation. He regularly tries cases matters on behalf of clients. Eric is an and appeals before Connecticut’s state and advisor and columnist for CCH’s Journal federal courts. of Tax Practice & Procedure. About Us Arnold Kapiloff, Esq. Attorney Kapiloff concentrates his practice in estates and trusts and matters of federal, state, and local taxation, including planning and the handling of tax controversies before judicial and administrative tribunals. He has published articles on taxation and lectured frequently on tax matters before bar association groups and other professional continuing education programs. He is a Fellow of the American College of Tax Counsel. Prior to forming this own law practice he was Counsel at the Department of Justice Tax Division, and then counsel to Kostelanetz & Fink, LLP where he was chair of that firm’s Estate Planning and Wealth Management Group. 1
6/6/2014 IRS Representation Certificate Program Agenda • IRS Collection Update • IRS Criminal Enforcement Update • Bankruptcy & Discharging Taxes • Penalty Abatement • CT DRS Update IRS Collection Update • 11.8 million taxpayer accounts in collection inventory as of 12/31/13 • Finally getting hiring authority – should see 300 new REs and ROs this year • Changes to collection have made it easier to resolve tax debts 2
6/6/2014 Collection Update • 2012 Fresh Start initiative has made it easier to resolve tax debts • Offer acceptance rate is up to 42% (74,000 filed, 31,000 accepted) • Streamlined installment agreements easier than ever • New $186 Offer application fee – get it right • So why the increasing collection inventory? Collection Update • US v. Clark – Summons Enforcement • Summons can only get what exists • If missed meeting, 2 nd letter issued by IRS counsel • If that missed, US Attorney will seek enforcement by court order Criminal Tax Update • IRS Criminal Investigation increase of 25.7% number of convictions in 2013 over 2012 • Identity theft remains a top priority (66% increase in new investigations opened in 2013) • Return Preparer Fraud • Refund Fraud • Offshore Disclosure investigations 3
6/6/2014 Criminal Tax Update True or False? Since its inception in 1913, the government (CI and DOJ) has never had a less than 90% conviction rate in tax cases that go to trial? Answer TRUE! Why? Criminal Tax Update • Wegelin & Co. Indictment • Ty Warner & Beenie Babies • Hydro Expo – the 8300 will kill ya • Payroll Companies – don’t get Carter! • Payroll Tax debts – once, twice, and you’re done • Zwerner ‐ the cost of “willful misconduct” 4
6/6/2014 Ci Civil vil & Crim Crimin inal al Pe Penalties – Recen ecent Case Case USA v. Zwerner, 1:13 ‐ cv ‐ 22082 ‐ CMA (S.D. Fla.) • Carl Zwerner had offshore bank accounts since the 1960s • He wanted to come into tax compliance in 2008 because of the impending turnover of Swiss bank account information • At the time there was no OVDI program – so he made a so ‐ called “quiet disclosure” for 2007 • In March 2009 he filed delinquent FBARs for 2004, 2005 and 2006 • The Government did not prosecute • BUT – assessed 50% FBAR penalties for each delinquent year Ci Civil vil & Crim Crimin inal al Pe Penalties – Recen ecent Case Case (Cont.) • The penalties amounts to approximately 150% of the amount of money held in the accounts • On June 3, 2014, following a jury trial – the FBAR penalty was upheld • Bad Facts? • Filed returns that said he did not have foreign accounts • Filed returns that said he did not have foreign income • Used shell companies • Signed a letter admitting to “willful misconduct” Civil Ci vil & Crim Crimin inal al Pe Penalties – Recen ecent Case Case (Cont.) "As this jury verdict shows, the cost of not coming forward and fully disclosing a secret offshore bank account to the IRS can be quite high. Those who still think they can hide their assets offshore need to rethink their strategy.“ ‐ Kathryn Keneally, Asst. Atty. Gen. Tax Division 5
6/6/2014 Discharging Taxes in Bankruptcy Discharging Taxes in Bankruptcy • Can be used to resolve outstanding tax issues • Some income taxes may be dischargeable • Stop collection activity • Force an installment agreement • Discharge non ‐ priority debt Discharging Tax Debt • Income tax • Must be 3 years old • If a return is filed late, must be filed at least 2 years prior to the Petition Date • Additional assessments 240 days old • No SFR (?) • Tax Liens 6
6/6/2014 Discharging Tax Debt: 3 Year Rule The critical date for the three year look back period to commence is when the return was last due, including extensions, not when the return was filed which is immaterial. United States v. McDermott (In re McDermott), 286 B.R. 913 (M.D. Fla. 2002). Discharging Tax Debt: 3 Year Rule (cont) Don’t be this guy: • In re C.R. Leslie, 2014 ‐ 1 USTC ¶50,297 (Bankr. C.D. Iowa May 29, 2014) – no discharge of taxes because TP forget he filed an extension of time to file tax return Discharging Tax Debt: 2 Year Rule TP Must Self ‐ File a Return • "[I]n order for a document to be considered a 'return,' under either the bankruptcy or the tax laws, it must (1) purport to be a return; (2) be executed under penalty of perjury; (3) contain sufficient data to allow calculation of tax; and (4) represent an honest and reasonable attempt to satisfy the requirements of the tax laws." Moroney v. United States (In re Moroney), 352 F.3d 202 (4 th Cir. 2003); Beard v. Commissioner, 82 T.C. 766 (1984) aff'd, 793 F.2d 139 (6th Cir. 1986) 7
6/6/2014 Discharging Tax Debt: 2 Year Rule (Cont.) Return Cannot be an SFR • Generally an SFR (6020(b) return) is not considered a return for purposes of the 2 year rule. • But see, In re: Rhodes, Case No. 11 ‐ 402890 ‐ PWB, AP No. 11 ‐ 4074, Doc. #28 (Bankr. N.D. Ga. May 6, 2013) (denying summary judgment where IRS issued SFR but debtor, thereafter, filed a return that was accepted by IRS). • If the debtor signs the SFR, that may constitute a “return”. 26 USC 6020(a) Discharging Tax Debt: 2 Year Rule (Cont.) Self ‐ Filed Return Must be Pre ‐ Assessment ( maybe?) • In re Martin , 508 B.R. 717 (Bankr. E.D. Cal. 2014) – TP self ‐ filed a return post ‐ assessment. Court held there is nothing in the Bankruptcy Code that prohibits discharge. • First case to follow 8 th Circuit holding in In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006) • All other circuits have followed In re Hindenlang, 164 F.3d 1029, 1034 (6th Cir. 1999) (no discharge for returns that reduce tax liability post ‐ assessment) Discharging Tax Debt:2 Year Rule Does the 2 ‐ Year Rule Even Exist? • For federal taxes Yes ‐ CCN CC ‐ 2010 ‐ 016 (Sept. 8, 2010) (“A Form 1040 is not disqualified as a “return” under section 523(a) solely because it was filed late. Regardless of whether a Form 1040 filed after assessment is a “return” for tax purposes, the portion of a tax that was assessed before the Form 1040 was filed is nondischargeable under section 523(a)(1)(B)(i).”) • For state taxes – Maybe No ‐ Miss. State Tax Comm. v. McCoy, 666 F.3d 924 (5th Cir. 2012) (“Because returns submitted under [29 U.S.C.] § 6020(b) are, by definition, late and specifically excluded from the definition of returns, McCoy contends that MSTC's interpretation that late filings are not returns under § 523(a)(*) would render this final portion of § 523(a)(*) superfluous.”), cert. denied, 133 S. Ct. 192, 184 L. Ed. 2d 38. But see, In re Wogoman, 475 B.R. 239 (10th Cir. BAP 2012). • There is a disagreement within the District of Massachusetts over whether to follow McCoy or not. Compare Perkins v. Massachusetts Dep't of Revenue, 507 B.R. 45, 54 (D. Mass. 2014) (follow McCoy) with, Gonzalez v. Massachusetts Dep’t of Revenue, 506 B.R. 317 (1st Cir. BAP 2014) 8
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