In comments made to lawmakers in the House of Representatives earlier this month, Treasury Secretary Steven Mnuchin indicated that the IRS would be ramping up enforcement efforts on high-earning individuals. This information should cause high-income earners to consider their compliance with high-value tax laws. If you have failed to file a tax return, have inflated deduction or credit utilization for expenses or activities that you did not incur or perform, unreported cryptocurrency income, or have foreign bank accounts that have not been declared annually, it is in your best interest to consult with an experienced tax attorney to discuss your potential exposure.
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During the meeting with the House Ways and Means Committee on March 3rd, Mnuchin shared that he had recently directed the IRS Commissioner to free up resources to allow for the auditing of returns of high net-worth individuals. In a recently released report, the IRS reportedly has conducted more audits of lower-income individuals in recent years because they are easier to examine and do not require the manpower and technical expertise that a high-earning individual’s tax return may require.
In addition to informing committee members of the IRS plan to audit those who have higher incomes, Mnuchin also reiterated the need for Congress to provide the additional funding for the IRS that was requested by the White House earlier this year. President Trump’s budget requested $12 billion to fund the IRS, which is $500 million over last year’s budget. The lion’s share of the increase, if allocated by Congress, will go toward furthering the modernization efforts of the Service, which will allow more efficient enforcement.
The key takeaway from Secretary Mnuchin’s remarks is that those with (and even those without) high incomes need to be aware that they are in the crosshairs of IRS enforcement actions. High-earning individuals should ensure that they are compliant with all tax laws. We have included a couple of them below, but there is a plethora of potential issues not touched on in this article and should be discussed with your tax counsel.
Although this may seem evident, some of the lowest hanging fruit for the IRS involves going after taxpayers who have not filed a federal income tax return annually. Between Form 1099, K-1, Cash Reporting (especially cash moving or returning from offshore), Suspicious Activity Reporting, Know Your Customer Reporting and W-2 filings that are sent to the IRS by a payor or a bank or brokerage or other financial institution, and data analytics processes used by the IRS to determine why certain individuals have not filed annual income tax returns, it is relatively easy for the Service to detect filing noncompliance. The willful failure to file a tax return can result in criminal prosecution and a defendant can be sentenced to up to a year in prison for each year a tax return was not filed.
Note: As long as a taxpayer that has willfully committed tax crimes self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax prosecution, the taxpayer can be successfully brought back into a tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously receive a break on the civil penalties that would otherwise apply. It is imperative that you hire an experienced and reputable tax defense attorney to take you through the voluntary disclosure process. As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results. See our Testimonials to see what our clients have to say about us!
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U.S. law requires that residents with foreign bank accounts with a high balance of more than $10,000 at any point in the year report such an account on an annual basis. The Foreign Bank Account Reporting (FBAR) laws also come with relatively hefty civil penalties, not to mention criminal implications. For instance, a taxpayer who willfully fails to file an FBAR for a given year faces a penalty of up to 50% of the high balance of the account for the year in which the account went undeclared.
The examples above are just a small sampling of the types of non-compliance issues that taxpayers of all walks of life can face. An experienced tax defense attorney is poised to provide thoughtful guidance as to how to proceed in each instance. Many areas of the tax law with heavy non-compliance have IRS-created programs in place that allow for taxpayers to get right with the government. Your tax attorney will also present other options that may be useful and help guide you toward the right solution, given your particular situation and goals.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing a diverse group of taxpayers. From individuals to middle-market businesses and beyond, our team of zealous advocates will assist in the development of a strategy to help you reach your specific goals and objectives. Whether you are under a tax examination or are in need of tax planning advice, contact the Tax Law Offices of David W. Klasing today, online or by phone at (800) 681-1295, for a reduced-rate consultation.
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