Tag Archive for Tax Blog

Ironclad Defenses To Tax Crimes – Part I

I. Forgotten-Deduction Defense

In a tax evasion case, the government bears the burden of proving that the defendant had a substantial tax deficiency. Defendants often try to show that there was no deficiency, that their return was substantially accurate, or at least raise questions pertaining to the government’s calculations. The argument usually goes something like this: “I had unclaimed deductions.”

The most famous example of this is United States v. Helmsley, 941 F.2d 71 (2d Cir. 1991). There, the defendant used one method of depreciation on her return. When the government charged her with tax evasion and put on evidence of a deficiency, the Read More

Written by | Posted in Tax Fraud/Evasion/Crimes

Internet Tax Freedom Act – Why Not Let It Expire?

On June 18, 2014, the House Judiciary Committee passed H.R. 3086 to make the Internet Freedom Act (ITFA) permanent. Otherwise, it expires on November 1, 2014. It has expired before. The main reason offered to extend it years ago was to help make sure the Internet grew. I think it would have grown even without the Internet Tax Freedom Act (ITFA). The ITFA is a federal prohibition on tax actions of state and local governments. The ITFA says that state and local governments cannot impose tax on Internet access fees. When enacted back in 1998 (P.L. 105-277), very few states even imposed such taxes and they were grandfathered in. The ITFA also prohibits discriminatory taxes on e-commerce. I think that existing laws, such as the commerce clause, already covered that prohibition.

So, basically, it prohibits state and local governments from doing something they likely Read More

Written by | Posted in Sales/Use Tax

The House Judiciary Committee Approves Legislation to Permanently Prohibit State Taxes on Internet Access

On June 18th the House Judiciary Committee approved H.R. 3086, entitled “The Permanent Internet Tax Freedom Act” (hereinafter “PITFA”), by a large margin vote of 30 to 4. The bipartisan bill has more than 220 cosponsors. The legislation would make permanent the provisions of the Internet Tax Freedom Act, which temporarily bans states from taxing Internet access or placing multiple or discriminatory taxes on e-commerce. Most states currently do not tax Internet access, although several states do such as Ohio and Texas, which were grandfathered under the original legislation. The new bill would remove that exemption. By striking the 2014 expiration date from the bill, the PITFA makes the suspension permanent instead of requiring reauthorization every few years.

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Written by | Posted in State And Local Tax (SALT)

Offshore Account Penalties to Double With Start of 2014 OVDP Program

On Wednesday, June 18, 2014, the IRS announced that it was trying to make it easier for taxpayers to come clean about offshore accounts. The Service made changes to two key programs – one intended for taxpayers that willfully sought to evade tax laws, and another for those that avoided taxes despite trying to comply with the law.

John Koskinen, the IRS commissioner, said in a statement that the changes would convince more taxpayers to get up-to-date on their taxes.

“The new versions of our offshore programs reflect a carefully balance approach to ensure everyone pays their fair share of taxes owed.”

“Through the changes we are announcing today, we provide additional flexibility in key Read More

Written by | Posted in FBAR • OVDP • Tax Fraud/Evasion/Crimes

States Turn to Technology to Narrow Tax Gap by Targeting Small Business

Each year, the IRS and states alike, estimate the difference between taxes owed and taxes collected. This difference, known as the “tax gap,” has been steadily growing at both the federal and state level over the past several years. For example, the IRS estimates that the federal “tax gap” is about $385 billion. While it sounds like a large number, the IRS is able to boast about an 86% compliance rate. On the state side, similar problems exists. For instance, large states, such as California have a “tax gap” of about $10 billion. In response, the states are launching large and expensive “campaigns” in order to attempt to narrow the tax gap and generate revenue. Small businesses will undoubtedly feel the crack-down of the compliance efforts across the country.

Many states have leveraged technology to begin new automated collection systems. In Read More

Written by | Posted in IRS • Small Business

The Basics of Offshore Tax Planning For Canadian Corporations – Part 5

Using an Offshore Subsidiary to Hold IP

In many corporate groups, particularly in the internet age, the real wealth lies in the IP-patents, trademarks, computer software.

Often, it is quite tempting to look for ways to move such IP offshore, both for tax and other reasons. Stories of IP-based companies such as Google and Apple generating profits in tax havens provide intriguing examples of the possibilities.

In an ideal situation, income derived from exploiting such IP could be earned and accumulated in Forco with little or no Canadian income tax applying. Read More

Written by | Posted in Corporate • Expatriate • International

Discharging Taxes In Bankruptcy – Part 2

Timing Rules

Income tax bankruptcy is all about timing. There are three rules that must be satisfied, in the proper order, for taxes to be discharged in bankruptcy.

1. The Three Year Rule
2. The Two year Rule
3. The 240 Day Rule

The Three Year Rule:

The bankruptcy must be filed more than three years after the return was due to be filed (including timely filed extensions). Read More

Written by | Posted in Individual

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.3.3.2)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.3.3.2 Mala fides or bad faith Read More

Written by | Posted in Africa • Audit

Ironclad Defenses To Tax Crimes – Introduction

Introduction

Affirmative defenses are rare in criminal tax cases. The government has the burden to prove each and every element of the offense beyond a reasonable doubt. As a result, the burden is generally on the government to prove all the relevant facts to the jury, and the defendant may simply put on evidence that will counter the government’s proof.

What this means is that the defendant can deny having the required mental state to commit tax evasion without shifting the burden from the prosecution to himself to prove that he lacked the required mental state. Indeed, the burden remains firmly on the prosecution. Sandstrom v. Montana, 442 U.S. 510, 524 (1979). To the extent that the Read More

Written by | Posted in Tax Fraud/Evasion/Crimes

If You Hire A Cook Or A Nanny – Are Employer Related Taxes Applicable?

If you hire someone to do household work and that person is considered your employee, you may be liable for paying employer related taxes. Although it is commonly called the “Nanny Tax” it covers more than just nannies, it includes workers who perform household work, which the IRS defines as “work done in or around your home”. This definition captures babysitters, yard workers, drivers, private nurses, private cooks, etc.

Your first task is to determine if the person you hired is your employee or is self-employed. The worker is your employee if you control what work is done and how it is done. The household worker may have been sent to you by an agency but if you control what work is done and how it is done the worker is still considered your employee. Whether the worker is part-time or full-time or is paid daily, weekly, hourly or for each job is not relevant once Read More

Written by | Posted in TaxConnections

Discharging Taxes In Bankruptcy – Part 1

Many people in America have debt problems. A lot of those people will, at one point or another, either consider or file for bankruptcy. Unlike the television commercials would have you believe, bankruptcy is not the solution to all a client’s money problems, especially, if it involves income taxes.

The Benefits of Bankruptcy

First we will look at the advantages of your client contemplating a bankruptcy filing that includes federal income taxes. If the client is eligible, a bankruptcy may be an alternative to several payment options the IRS may favor. These include:

1. Installment Agreements – While in an installment agreement the client continues to Read More

Written by | Posted in Individual

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.3.3.1)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.3.3.1 Improper or ulterior purpose or motive Read More

Written by | Posted in Africa • Audit
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