Can I Plead The 5th Amendment Before the IRS

Can I plead the 5th during the course of my communications with the Internal Revenue Service?  This a common question I am asked by clients and taxpayers who may be under an IRS audit, IRS debt matter or other related tax issue.  The article below has been prepared to provide general information regarding this matter, and it is recommended that you consult your tax attorney regarding the disclosure of information to the IRS.

The 5th Amendment of the United States Constitution holds that a person should not be compelled to be a witness against themselves.  Thus, it is possible to plead the 5th Amendment in certain tax proceedings if answering a question would incriminate the summoned individual.  However, what a taxpayer should understand is that information, documents and other related evidence that has been produced voluntarily by the taxpayer (or another witness) who has been summoned, can be used against the taxpayer even if the information would be incriminating.

Internal Revenue Code Section 7602 authorizes the IRS to summon taxpayers and other third parties to testify as well as provide records, documents and information.  Although a summoned person can plead the 5th amendment regarding an inquiry or question that may tend to incriminate them, as stated above, this does not apply to documents that may have already been voluntarily provided to the IRS.  This is so because the government did not compel the summoned person to produce the information when the information was voluntarily produced.  In certain circumstances the actual act of producing and providing documents can incriminate an individual because the mere act of providing the documents is an admission that the documents and information actually exist.  Whether or not the actual act of production would incriminate an individual would be based upon the facts and circumstances of the actual case at hand, but, the person may have a valid argument using the 5th Amendment privilege against producing existing documents that were voluntarily created.

What about third parties who may have received information or documents from the individual that is asserting their 5th Amendment privilege?  If a taxpayer has transferred information and documents to a third party, the IRS can summon such individual, and the taxpayer cannot argue the 5th Amendment to prevent the summoned party from disclosing documents and information to the IRS.  This is because the 5th Amendment is personal and therefore only the taxpayer can assert the privilege.  That being said, what about when the taxpayer provides information to their tax attorney?  If the taxpayer would have been able to avoid producing the records prior to transferring them to their tax attorney, the attorney-client privilege will prevent the IRS from summoning the attorney given the records were transferred to obtain legal advice.

The above article has been prepared by John McGuire from The McGuire Law Firm.  Mr. McGuire is a tax attorney whose practice focuses primarily on tax issues before the IRS, tax law & planning and business matters.

Denver IRS Tax Attorney

IRS Offer in Compromise Resource Page

The article below has been prepared to act as an IRS Offer in Compromise resource page whereby individuals can obtain necessary information regarding an IRS Offer in Compromise.  Please note, this information is not legal advice and should not supplement the advice of a tax attorney or tax professional.

What is an IRS Offer in Compromise?

An offer in compromise allows a taxpayer to settle their tax debt with the Internal Revenue Service for less than the total amount of tax owed.  Generally, the IRS will accept an offer in compromise if the offered amount by the taxpayer is the most the IRS could collect from the taxpayer within a certain period of time.

Offer In Compromise Pre Qualifier Tool

The IRS has an Offer in Compromise Pre Qualifier tool that can be very useful to taxpayers wondering if they would be eligible for an IRS Offer in Compromise.  The pre qualifier tool initially asks the taxpayer questions related to tax return filings, estimated payments and other tax payment & filing issues as well as bankruptcy (click for initial questions).  These issues could dictated whether or not a taxpayer is even eligible to submit an IRS Offer in Compromise.  Thereafter, the Offer in Compromise Pre Qualifier Tool asks financial questions related to income, expenses, assets, asset values and loans.  These financial questions break down a taxpayer’s equity in assets and disposable income which are the major factors considered by the IRS when accepting or rejecting an offer in compromise.

IRS Offer in Compromise Form

Form 656 is the form submitted to the IRS when submitting your offer in compromise.  Form 656 states the taxpayer’s information, the tax types and periods of which the taxpayer is attempting to settle, and perhaps most importantly, the offer in compromise amount and terms for payment.  In addition to Form 656, the taxpayer must submit the proper financial statement.  An individual taxpayer will submit Form 433A OIC, and a business taxpayer will submit Form 433B OIC.  If an individual has ownership interests in a business, the individual would likely need to file Form 433B for such business.

Where To Submit Your IRS Offer in Compromise

Your offer will initially be submitted to one of two offer in compromise units, which are in Memphis, TN and Holtsville, NY.  Where you live, will determine the office where you will file your offer.  The offer in compromise booklet provides the correct address based upon where you live.

What Decisions can the IRS make regarding my Offer?

The IRS can either accept, reject or return your offer.  Acceptance, of course would be preferred!  If the IRS rejects your offer, they may reject the amount, but agree to a larger amount and thus you may still be able to settle your tax debt.  You can also appeal the rejection by filing Form 13711.  The IRS will return an offer if, for example, the taxpayer is out of compliance.  You do not have appeal rights on a returned offer.

What Information is Public?

The IRS does make certain information regarding offers public.  Click, “information” for addresses of IRS offices with information open to public inspection.

Publication 594

IRS Publication 594 discusses the IRS collection process and may be useful to you as you are considering submitting an offer in compromise to the IRS.  Generally, submitting an offer to the IRS acts as a hold on enforcement.

If you have questions regarding the IRS Offer in Compromise process or your ability to settle a tax debt, you can discuss these issues with a tax attorney at The McGuire Law Firm.  A free consultation is provided to all clients.

IRS Offer in Compromise

Streamlined OVDP by Denver Tax Attorney

What is the Streamlined Offshore Voluntary Disclosure Program (OVDP)?  Simply put, the Streamlined OVDP is a program established by the IRS that may be considered “shortened” or “simpler” than the normal OVDP, and has a reduced or lesser penalty of 5% in comparison to the OVDP.  Certain criteria must be met to be eligible for the Streamlined OVDP, one of which is that the taxpayer must show the failure to report the assets and income was non-willful.  That being said, the IRS would define non-willful conduct as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of good faith misunderstanding of the requirements of the law.”

If an individual is eligible for the Streamlined OVDP the scope and effect of the streamline procedure is as follows:

The taxpayer must file amended tax returns, including all of the required informational tax returns (8938, 3520, 926 etc.) for each of the three most recent years for which the tax return due date has passed. For example, if it is May 20, 2015 and Joe Taxpayer has filed his 2012, 2013 and 2014 1040 tax returns, but failed to report all gross income due to foreign financial assets (and may have failed to file the FBAR), Joe would amend his 2012, 2013 and 2014 1040s to include the necessary income from the foreign financial accounts.  In addition:

  • The taxpayer must also file FBARs for the most recent 6 years the FBAR was due and should have been filed. FBAR is filed by filing FinCEN Form 114 online, which was previously TD F 90-22.1.
  • The taxpayer must pay the necessary offshore penalty, which is currently 5% for the Streamlined OVDP. The total amount of tax due when including the necessary income in gross income, interest and the streamlined offshore penalty should be remitted when filing the amended tax returns.

 

Now that we know the procedure for the streamlined program, how is the 5% penalty calculated?  The offshore penalty of 5% is calculated by taking 5% of the highest aggregate balance (or value) of the taxpayer’s foreign financial assets that would be subject to the offshore penalty for the years covered by the tax return and FBAR period.  The highest aggregate balance is determined by taking the year-end balances and year-end asset value(s) of the foreign financial assets that would be subject to the offshore penalty for the applicable periods of tax return and FBAR filings.  The highest value for a single year, for the applicable years would then be subject to the penalty.

 

What assets are subject to the 5% offshore penalty?  If a foreign financial asset should have been reported on an FBAR, but was not, the asset is subject to the penalty.  An asset can also be subject to the 5% offshore penalty even if the asset was reported, but gross income from the asset or in respect of the asset was not included in the taxpayer’s gross income.

 

If you have failed to report foreign financial assets and/or income, a tax attorney at The McGuire Law Firm can represent you before the IRS and assist you with your obligations.  This article has been drafted by John McGuire, a tax attorney in Denver, Colorado with The McGuire Law Firm.  Mr. McGuire’s practice focuses primarily on tax matters before the IRS, tax planning & related issues and business transactions.  You can schedule a free consultation with a Denver tax attorney by contacting The McGuire Law Firm.

OVDP Denver Tax Attorney

IRS Supporting Document Request

Taxpayers may receive a IRS Supporting Document Request from the Internal Revenue Service requesting supporting documents for certain items, issues or positions taken on a tax return.  Common issues of which the IRS would request a taxpayer support could be IRS Filing Status.  For example, if a taxpayer filed head of household, the IRS may want documentation to verify the dependent and elements that allow a taxpayer to claim head of household.  Furthermore, a common document request by the IRS is to verify children and the related elements that are necessary to claim certain tax credits.

Generally the taxpayer can compile the necessary records and documents, and forward to the Internal Revenue Service via mail and the document request is not necessarily an audit whereby the taxpayer would meet with an examiner.  If the taxpayer after reviewing the necessary requirements and elements realizes they should not have claimed a certain filing status or taken a specific position on the tax return, they can agree with an assessment of tax that would have occurred had the taxpayer not claimed a certain status, dependent, related credit or other issue.

The video below has been prepared a tax attorney at The McGuire Law Firm Denver Tax Attorney to provide additional information regarding the IRS requesting additional documents to support positions taken on a tax return.

John McGuire is a tax attorney in Denver Colorado representing clients before the Internal Revenue Service on matters such as IRS tax audits, IRS tax debts, United States Tax Court Cases and other tax disputes.  Additionally, John works with many small and medium sized businesses from a business start up and business formation, to contractual matters and the eventual sale of a business or business interests.  If you need to speak with a tax attorney or business attorney, you can contact John at John@jmtaxlaw.com

 

Offshore Voluntary Disclosure Program

What is the Offshore Voluntary Disclosure Program?  Often referred to as the OVDP, this program was created to allow taxpayers with foreign financial accounts and interests to voluntarily disclose their interests for a reduced penalty.  Currently the foreign bank reporting requirements require that taxpayers with foreign financial accounts or interests report these interests when the aggregate amount in the accounts exceeds a certain threshold, which is currently $10,000.  This is often referred to as the FBAR.  When taxpayers fail to report such interests, penalties can be assessed by the Internal Revenue Service.  Thus the OVDP provides a means for taxpayers to be in compliance with the FBAR requirements, and reduce penalties that would apply if they do not voluntarily disclose and are eventually caught by the Internal Revenue Service.  John McGuire is a tax attorney in Denver, Colorado with The McGuire Law Firm and has prepared the video below to provide additional information regarding the Offshore Voluntary Disclosure Program.  You can speak with a tax attorney by contacting The McGuire Law Firm and schedule a consultation.

IRS Form 12257

The IRS may issue Form 12257 after an appeals hearing.  Form 12257 provides a summary of the determination made by the IRS Appeals Office.  Further, by executing the form, you may be waiving certain rights regarding the issue and matter at hand and thus it is important that you agree with the determination made by the appeals office, and understand what you are signing.  The video below has been prepared by John McGuire, a tax attorney in Denver, Colorado with The McGuire Law Firm to provide additional information regarding Form 12257.  You can speak with a tax attorney by contacting The McGuire Law Firm.

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FinCEN Examining Virtual Currency Businesses

FinCEN (Financial Crimes Enforcement Network) has recently been investigating and examining businesses involved with virtual currencies such as Bitcoin.  In fact, on May 5, 2015, FinCEN announced the first civil enforcement action stemming from a virtual currency provider.  FinCEN and the United States Attorney General Office for the Northern District of California assessed a $700,000 civil penalty against Ripple Labs, LLC and a subsidiary for violation of the Bank Secrecy Act (BSA).  The applicable businesses apparently did not comply with requirements regarding an anti-money laundering policy as required under the Bank Secrecy Act.  Furthermore, penalties were assessed for failing to report suspicious activities (Suspicious Activity Reporting) in regards to certain transactions. 

FinCEN’s position is that virtual currency businesses and virtual currency providers as well as exchangers must comply with the Bank Secrecy Act.  FinCEN Director Jennifer Calvery stated, “Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws.  Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.” 

Compliance with the BSA helps safe guard financial institutions and thus the American people from illegal motives, which is why certain institutions must have anti money laundering policies and other compliance and reporting requirements.  The failure of an institution or business to comply with the BSA can lead to civil penalties and possible criminal charges.  When civil penalties are assessed, the Internal Revenue Service has been delegated the authority and responsibility to collect the amounts that have been assessed.  In regards to the benefits of the applicable regulations, it is believed that certain reporting requirements have helped prevent and detect criminal activity related to illegal drug trafficking, terrorism and other illegal activities. 

If you are involved with or are considering involvement with a virtual currency business, it is recommended you become aware of the record keeping, reporting and other compliance measures required by the Bank Secrecy Act and other acts implemented for similar purposes. Such compliance issues may include an Anti-Money Laundering Policy (AML), Suspicious Activity Reporting (SAR), Know Your Customer and other programs and procedures.

 

IRS Tax Lien and Jointly Held Property

The filing of a federal tax lien by the Internal Revenue Service creates many issues and questions when property is held jointly.  Related issues can arise when the Internal Revenue Service files a tax lien against a party, and the party holds an interest in property but the other owners of the property have no such tax lien. The issues can be further compounded by state law matters such as community property and joint tenancy, tenancy in common and tenancy by the entirety.  Joint tenancy will be discussed below.

A joint tenancy is created when two or more people become the owners of property and the ownership is equal and undivided, and when the interest of each tenant is created through the same conveyance at the same time and the interests are equal.  You may have seen a right of survivorship stated within a joint tenancy or the JTWROS, which means joint tenancy with right of survivorship.  Generally, a joint tenancy will have a right of survivorship and under this right of survivorship, when one tenant passes away, the surviving joint tenant or joint tenants will automatically own a greater portion of the property.  For example, if A & B own Blackacre Properties as joint tenants with right of survivorship.  If A passes away, B is now the sole owner of Blackacre Properties.  It is important to note that certain states have removed the survivorship issues from joint tenancy, and thus check the applicable laws within the applicable state. 

So how does an IRS tax lien impact property held in joint tenancy?  Typically, if only one of the joint tenants owes taxes and thus the tax lien has been filed against only one of the joint tenants, the lien attaches to the taxpayer’s interest and thus the entire property, which can be sold pursuant to collection action such as a judicial sale under Section 7403 of the Internal Revenue Code.  However, the non-liable joint tenants, those tenants who have not had the tax lien filed against them, are required to receive compensation from the sale of the property. What if the joint tenant were to pass away?  Under most states, if the person whom the tax lien has been filed passes away before the other joint tenants, the tax lien will cease to attach to the property held in joint tenancy.  What if such individual is the last to die?  If the individual with the tax lien survives all other joint tenants, the tax lien would attach to the entire property.  Of course, there are exceptions to this rule and you must check the applicable state law.

If you have questions related to the impact of a federal tax lien on your individual or business property, you can speak with a tax attorney and business attorney by contacting The McGuire Law Firm.  The McGuire Law Firm provides a free consultation with an attorney to discuss your tax and business matters. 

IRS Tax Lien and Jointly Held Property

 

What is FBAR Form 114?

Form 114 is the form used to report financial interests or signatory authority over foreign financial interests as required under the Report of Foreign Bank and Financial Accounts.  The form is filed yearly, and electronically with the Financial Crimes Enforcement Network (FinCen).  It is important to note that Form 114 is filed separately from your 1040 individual income tax return.  Moreover, certain penalties apply for not filing the Form when you would be required to do so.  The video below has been prepared by a tax attorney to provide additional information regarding Form 114.

Speak with a tax attorney in Denver, Colorado or Golden, Colorado at The McGuire Law Firm regarding your tax questions and issues.

IRS Form 872

If you are being audited by the IRS, the IRS may request that you sign Form 872, which extends the amount of time the IRS has to assess you additional tax.  In essence, you are agreeing to extend the statute of limitations the IRS has to assess you additional tax.  Whether or not you agree to extend the statute may depend upon the facts and circumstances of the audit and tax period at audit.  If you are being audited by the IRS, it may be best to contact a tax attorney or tax professional to discuss the matter.  You can speak with a tax attorney in Denver, Colorado by contacting The McGuire Law Firm.  The video below has been prepared by a tax attorney to provide additional information regarding Form 872.

Schedule a free consultation with a Denver tax attorney- 720-833-7705 or http://jmtaxlaw.com/contact-us/

The McGuire Law Firm has successfully resolved IRS audits for many individual and business clients.