Tax Audit Lawyer

International FATCA Lawyer and CPA

Many of the clients who seek legal help from international FATCA attorneys and CPAs at Evolution Tax and Legal, both business and individuals, have failed to properly report their U.S. and Foreign income and assets.

The reason of these failures varies widely, from the common mistake of not attaching a tax form to your tax return, to the negligent omission of certain foreign income and assets from your return, to the scenario where clients purposefully did not report certain income and assets as they thought it was not in their best interest to do so.

Thankfully, there are various programs promulgated by the U.S. that allow persons in all of these scenarios to come out voluntarily and disclose their incorrect prior reporting. These are informally known as “disclosure programs” and require a legal expert to guide you through the requirements of each program, depending on which one fits your situation the best.

Generally, the program that is best suited for you depends upon the “willfulness” of the errors in your prior tax reporting. The programs surrounding negligent errors and omissions of reporting foreign assets on a return, generally allow for a simplified filing method where no additional tax or interest is due on your late filing. For those mistakes that are negligent but also include some omission of income, the applicable reporting program is a bit more stringent and will include an associated penalty with the late filing. Finally, for the omission and non-reporting of income or assets that is due to an intentional or willful action, the reporting programs are extremely stringent and require a larger penalty to be paid, along with the follow-up of an audit of some sort. The general disclosure programs we take our client base through are listed below.

Streamline Disclosure Program

The IRS’s Streamline Disclosure Program is one that allows taxpayers who have non-willfully failed to disclose certain foreign assets and income to come clean with the IRS. The big qualifier for this program incidence of ‘non-willfulness” behind the improper reporting of foreign income and tax to the IRS. If the requisite ‘non-willfulness’ can be shown, the IRS’s Streamline Offshore Disclosure Program provides taxpayers who utilize it civil protection against the imposition of civil penalties related to the late filing, payment and improper reporting of tax returns.

In a disclosure through the Streamline Offshore Disclosure Program, the person will have to amend and report the three prior years of tax returns and FinCen Form 114 (better known as an FBAR) for the prior six years. As a result of disclosing certain foreign income and assets through this program, the person is provided civil protection against many penalties that could be assessed against the value of income and assets not previously reported. In exchange, the person disclosing must pay a 5% penalty on the value of assets of any given year within the six-year disclosure period with the highest asset value.

If you have negligently failed to report foreign assets and income and want to come clean with the IRS, please contact the Orange County FATCA attorneys at Evolution Tax and Legal to discuss your options as it pertains to filing through the Streamline Offshore Disclosure Program

 

Delinquent FBAR Submission Program

If you were not aware, a US person is required to file Form FinCen 114, better known as a Foreign Bank and Financial Account Report (FBAR), if they hold foreign bank or investment accounts that exceed a value of $10,000 at any point in the year.

If you happen to fail to timely file an FBAR (or file at all), and you do not need to use either the Voluntary Disclosure Practice or Streamlined Filing Compliance Procedures to disclosure your non-compliance, you may submit your FBARs through the Delinquent FBAR Submission Program.

To submit your late FBARs through this program, your delinquent or non-filed FBARs will need to be prepared along with a statement explaining why you are filing the FBAR late and submit them electronically with FinCen.

What is important about this program is that the IRS will not impose a failure to file penalty upon the filing of your delinquent FBARs. However, it is important to note that you will only receive this treatment if you properly reported and paid tax on the income from the foreign accounts reported on your delinquent FBARs and have not been contacted by the IRS regarding an audit of your delinquent FBARs. This requirement is more complex than you would think. Do you truly know if you reported all the income you should have from your foreign accounts? Before jumping into this program on your own, please contact our FATCA attorneys in Orange County, CA to make sure that you are eligible for this program or would be better suited to disclose your foreign assets via a different disclosure program.

 

Delinquent International Information Return Program

Finally, if you have failed to attach or properly report one of the many foreign informational returns with your tax return (such as Form 8938, Form 1116, Form 8833, etc.), that is not the FBAR, you may file the delinquent form through the Delinquent Foreign Information Return Program.

Like the Delinquent FBAR Submission Program, you must have properly reported all the income and paid all the tax related to the information delinquently filed through this program. Thus, this program will only work if you do not submit through the Voluntary Disclosure Program or the Streamline Offshore reporting Program. Furthermore, you must not have been contacted by the IRS with respect to an audit regarding the delinquent information returns.

However, separately and in addition to the requirements above, a “reasonable cause” statement must be submitted along with the disclosure package. “Reasonable cause” has a special definition within the Internal Revenue Code and is defined by a myriad of case law.

Due to the nature of this disclosure program’s requirements, such as determining if you have reported all of your income correctly and the need to submit a ‘reasonable cause” statement, please make sure you consult with a FATCA attorney at Evolution Tax and Legal before making any sort of disclosure through this program.

IRS Civil Investigation Defense

A civil audit can be triggered by many things like tax evasion or other types of criminal tax fraud. However, once triggered, you are in for the full ride until its completion. Generally, the IRS auditor assigned to your case will provide you with a notice, otherwise informally known as an Information Document Request (IDR). This IDR will list the items the auditor is questioning and will require you to produce the financial documents and support you used to take the position on your return filed.

Often times, taxpayers no longer have the requested records in their possession and are left reeling without any idea as to how to support their return being audited. You should not face such a large task without a qualified Orange County tax attorney experienced in criminal tax defense on your side.

 

Our Approach to Civil Tax Audits

In order to provide you the max tax benefit from an audit and bring the IRS auditor onto your side, we take an approach with the IRS on their civil audits that is otherwise known as a “ground-up” approach.

Essentially, our Orange County criminal tax attorneys work with you and your IRS auditor to rebuild a tax return based solely on the financial documents that you can provide us in conjunction with making requests to the IRS themselves. The “ground-up” approach builds good rapport with the IRS and allows us to leverage their subpoena power to obtain documents from banks, past employers, investment firms, etc.

After we have collected all of the necessary documents, we rebuild your return and hand it over to the auditor. With all the support in place, this “audit-proof” return will be subject to minimal change.

When taking this approach, auditors lose their combativeness and are happy to work with you and us as your advisor. Essentially, our goal is to do the job of the auditor for themselves. This transparent atmosphere with the tax auditor builds a healthy working relationship conducive to allowing favorable positions on your audited tax return. This could potentially allow for further deductions if your financial records support them, avoiding massive penalties and interest, and can even avoid the referral of a civil case to a criminal IRS unit.

In our experience, if you work with a skilled criminal tax lawyer with our “ground up” approach, it is very unlikely that your tax fraud case will go criminal even when there are potential “Badges of Fraud” in your fact patters, which includes—

  • Maintaining inadequate records or destroying records
  • Failing to file tax returns
  • Providing implausible or inconsistent explanations during civil examination
  • Concealing assets during collection of tax liabilities or examination
  • Failing to cooperate with tax authorities
  • Displaying belligerent, rude, or disrespectful behavior to an IRS agent
  • Excessive dealing in cash
  • Filing false returns
  • Intentionally underreporting or omitting income
  • Overstating deductions or claiming false deductions
  • Hiding or transferring income with relatives or related entities
  • Keeping false records of your income or “second set of books”
  • Falsifying books or records “forgery”
  • Claiming fake dependents
  • Falsely claiming credits
  • Arranging affairs for the sole purpose of tax avoidance in a manner that lacks economic substance
  • Prematurely destroying records
  • Taking positions on a return that are “more likely than not” to be disallowed if discovered without sufficient disclosure