San Francisco, CA - Tax Attorney | Tax Information You Need to Know!

How The IRS taxes your illegal income, Stephen M. Moskowitz interview

We are honored that CNN Money has interviewed Stephen M. Moskowitz of Moskowitz LLP, A Tax Law Firm.  The article can be found here.  In it, we discuss How The IRS taxes your illegal income.

This is a tricky area of law that is more common that many people may think.  For instance, in California there are discrepancies in certain areas of state and federal law, like, medical marijuana and dispensaries, and its related taxation.  It can mean a lot of money for the government, which makes it serious business for all taxpayers.  Criminal tax work is unique and demands a high level of competence and experience with the tax tax and criminal laws.  Our criminal tax practice group routinely advises individuals, businesses and tax professionals on how to prepare legal tax returns.  We have been in the trenches defending freedom, assets, and dignity for over 30 years.  We are available to give you all the representation that is so crucial at this point in time.

The State of California Seeks Back Taxes from Small-Business Shareholder- Not So Fast

A closer look at federal constitutional case law would seem to indicate that the State of California may not find it so easy to seek refunds plus interest after all.

In Cutler v. Franchise Tax Board, the second District Court of Appeal held that because the purpose and effect of California’s qualified small business stock statues is to favor California corporations over foreign corporations, the statues are discriminatory and cannot stand under the commerce clause of the U.S. Constitution.   As such, the Franchise Tax Board has issued a statement that for tax years after January 1, 2008, it will issue Notices of Proposed Assessments to thousands of small businesses who received tax breaks based on small business stock exclusion and deferral statutes.

Is this legal under Federal Constitutional law? Probably not. According to the United States Supreme Court, retroactive legislation is constitutional unless its application is so “harsh and oppressive as to transgress the constitutional limitation.”  Welch v. Henry, 305 U.S. 134, 1475 (1938). The United States Supreme Court also formulated a test to determine if retroactive legislation is constitutional. According to the Supreme Court, 1) the retroactive application of the statute must be supported by a legitimate legislative purpose furthered by rational means such that the [Government’s] purpose in enacting the amendment was neither illegitimate nor arbitrary; and 2) the [government] acted promptly and established only a modest period of retroactivity. United States v. Carlton, 512 U.S. 26, 30-31, 32 (1994).
 
The Ninth Circuit Court of Appeals has stated that a retroactive tax increase to reduce a budget deficit by ensuring higher revenue is permissible and rational. Licari v. Commissioner, 946 F.2d 690, 692 (9th Cir. 1991). Consequently, the retroactive application sought by the FTB plus interest will likely survive constitutional scrutiny as being a rational basis to raise revenue.  Where the retroactive claim for a tax refund and interest becomes questionable is the period of time that the state seeks to demand a refund. In this case, the disallowance of a tax incentive amounts to a retroactive tax increase.  The retroactive effect of a tax increase has “generally been confined to short and limited periods required by the practicalities of producing … legislation.” Carlton, 512 U.S. at 32-33 quoting United States v. Darusmont, 449 U.S. 292, 296-297 (1981). Though Licari predated Carlton by three years, the Ninth Circuit Court of Appeals in Licari applied the same standard formula in Carlton and found that a four-year period of retroactivity in question was “far longer than required simply by the practicalities of producing … legislation.” Licari, 946 F.2d at 694.
 
In the present case, the period of retroactivity extends four years. Applying the test enunciated by the Ninth Circuit Court of Appeals in Licari, the four year look-back period would not pass constitutional scrutiny. Arguably, even retroactively seeking refunds from taxpayers for less than four years could run into question under some constitutional authorities. For example, Justice O’Conner stated in her concurring opinion that “a period of retroactivity longer than the year preceding the legislative session in which the law was enacted would raise, in my view, serious constitutional questions.” Carlton, 512 U.S. at 38 (O’Conner, J. concurring).

 

See more articles from Stephen M. Moskowitz, Esq. and Anthony V. Diosdi, Esq.

Feeling generous this year?

Donating to Charity may be a tax benefit but it also is a Red Flag for an IRS Audit

Giving to others is rewarding in and of itself, but it's always nice to see your generosity provide you with a tax benefit and result in a lower tax bill.  In our tax law practice we represent many individuals and one of the most often audited items on tax returns is the charitable deduction.    The Charitable Contributions Deduction allows taxpayers to deduct their contributions to qualifying charitable contributions of cash and property within certain limitations.


Does your donation qualify for a tax deduction?

Planning your charitable gifts and donations with a tax attorney can help you ensure that you receive full tax credit for your generosity.    On a more sophisticated level, your tax attorney can also help you through tax planning when to make the gift and what type of property to give thereby maximizing the benefits of your generosity, and legally minimize your tax bill. 

Having a tax attorney assist you is prudent because taking the charitable deduction may also raise your chances of an IRS audit. That is because one of the IRS audit indicators that IRS computers look for is the income level and the average charitable donation for similar income groups.  See our article, The Audit Lottery Myth.    Further, the IRS knows that compliance with documenting the deduction and/or taking the deduction correctly can be complicated.  As such, it is an easy “money maker” for the IRS to just flag it and put the burden on the taxpayer to prove their entitlement to the deduction.  

For instance, a client of ours manages his own charitable foundation.     The IRS audited the tax returns and questioned that tax deductions and asserted that our client did not meet the Tax Code’s requirements.   The Moskowitz Tax Attorneys defended our client’s right to tax status and won.   This saved our client over 1.5 million dollars in taxes and penalties and the charity continues to exist today.

Also in our tax law defense practice the Moskowitz Tax Law firm defends individuals who are audited by the IRS and it turns out that they had made up the tax deduction or the audit triggers a further federal investigation.   For instance, the following excerpt is from a press release issued by the US Attorney’s Office:  

The indictment alleges that from December 2011 through February 2012, (NAME Redacted by author) obstructed the Internal Revenue Service by obtaining false documents that he intended to present to the IRS in support of deductions he claimed on his tax returns in 2007 and 2008.  The indictment further alleges that during three separate interviews with special agents with the Internal Revenue Service – Criminal Investigation, (NAME Redacted by author) falsely told agents that he possessed original and legitimate documents to support the deductions on his tax returns, and denied that he had attempted to obtain false documents to support those deductions.

This case presents a number of challenges.    This case seemingly involves a situation analogous to the ‘cover-up being worse than the original crime.’   From the criminal tax attorney’s perspective, negotiation of a plea agreement or providing defense thru trial, this taxpayer’s special knowledge of investigations and rights and oath of duty will have to be dealt with and presented in a way that will mitigate potential upward sentencing adjustments.    Note, there are additional elements to this case that are not discussed here which should be considered.  

For now and perhaps more importantly, this fact pattern shows how a seemingly simple tax dispute over a tax deduction can spiral into a very serious criminal tax matter.   As here, an IRS audit or inquiry has led to criminal tax allegations and related crimes being charged where the defendant, now faces prison and monetary fines.  

In conclusion, we can all agree that giving to charities is a good thing.   It helps many people and causes and is basically an American way of life.   Legislators agree and provide charitable givers with the incentive of a tax deduction.  However, there are requirements you need to know in order to take advantage of the tax benefits and otherwise protect and assert your rights.   

If you're not sure how to account for charitable donations in your 2013 tax planning, or believe that the IRS has unjustly withheld this deduction in a past return, consult an experienced tax attorney at Moskowitz LLP in San Francisco. These tax attorneys and tax professionals can help you navigate the complexities of tax law.

Disclaimer:  Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

DISTRICT COURT DECIDES FBAR PENALTY ASSESSMENT CASE - BOTH A WIN FOR THE GOVERNMENT & FOR OVDP PARTICIPANTS

By:  Stephen M. Moskowitz, Esq., LL.M & Anthony V. Diosdi, Esq., LL.M

Here at Moskowitz LLP, A Tax Law Firm based in San Francisco, CA, we have been following just how the Internal Revenue Service will collect FBAR penalties once imposed outside the scope of any Offshore Amnesty Program.      

In its decision November 8, 2012, the District Court for the District of Utah found in United States v. McBride that the assessment of FBAR penalties was lawful and that the IRS may proceed with its collection efforts.   In order to establish the lawfulness of FBAR penalty assessments, the United States has strategically ‘cherry picked’ the cases it has brought against taxpayers.     Both in United States v. Williams, (4th Cir. 2012) [non-precedential opinion], and now in United States v.  McBride, regardless of the evidentiary used by the court, it is hard to see how the Government couldn’t win its cases.   McBride is another case of “low hanging fruit” with case facts establishing conduct of blatant lying by the taxpayer(s) to the IRS agents, clear intent to underreport income via offshore accounts, etc.   

However, there does appear to be a significant victory in both McBride and Williams for taxpayers with unreported offshore accounts. It appears that neither court has agreed that it is permissible to impute knowledge simply because a taxpayer checked “no” on Schedule B.

It should be noted, in the right case, an interesting argument can be made that the willful penalty of $100,000 per year or 50 percent of the value of a foreign account may violate a taxpayer’s right to Due Process under the Fifth Amendment of the United States Constitution. In considering how the willful penalty infringes upon an individual’s right to due process, a taxpayer could analogize to due process theories applied in the punitive damages context. In BMW of North America v. Gore, 517 U.S. 559 (1996), the United States Supreme Court discusses whether a punitive damages award could be grossly excessive in proportion to related compensatory damages award. The Court asserted that “[p]unitive damages may be properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition……Only when an award can fairly be categorized as ‘grossly excessive’ in relation to these interests does it enter the zone of arbitrariness that violates the Due Process Clause.” Id. At 568. In evaluating whether evaluating whether an award is “grossly excessive,” the United States Supreme Court has instructed courts to consider three guideposts: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages award by the jury and the civil penalties authorized or imposed in comparable cases.” State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003).

In the right case, the above standard enunciated by the Supreme Court will not be too difficult to satisfy. Let’s assume that a taxpayer simply did not know he or she had a duty to report a foreign account on an FBAR. In that case it cannot be said that the taxpayer’s conduct was “particularly reprehensible.” Further if the taxpayer cooperated with the Internal Revenue Service, it would be extremely difficult to argue that the Government suffered a harm. Even in cases where the Government were to contend actual economic harm for the lost tax on a foreign account, the willful penalty seems ripe for a Constitutional challenge. The Supreme Court has traditionally held that “an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.” State Farm, 538 U.S. at 425. Given the way the willful penalty is drafted, it is not too difficult to imagine a situation where the Government intends to impose a willful penalty that exceeds four times the value of an undisclosed foreign account. Finally, there are no comparable cases to draw upon to determine the civil penalties for a taxpayer who simply didn’t know that they had to disclose foreign accounts on an FBAR. So, we are just going to have to wait and see if the Government attempts to impose the willful penalty against a taxpayer who simply did not know that the account had to be disclosed on an FBAR.

The strategies the tax law firm of Moskowitz LLP employs in defending our clients from offshore account related investigations vary according to the facts and circumstances of the case, the comfort zone of our client, and our experience.    

Disclaimer:  Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

IRS Form 1099 Enforcement Program - Another Fishing Expedition?

By:  Stephen M. Moskowitz, Esq., LLM & Chris Housh, Enrolled Agent

We will be speaking on this issue and would like to personally invite you to attend. As our guest, you are eligible for 20% off the registration fee!

IRS Form 1099 Reporting: What You Need to Know
November 27, 2012
San Francisco, CA
Holiday Inn San Francisco International Airport North, 275 South Airport Boulevard

Register online: http://www.lorman.com/389645
Call: 866-352-9539
Discount code: S7490185
Priority code: 15999

The Housing Assistance Tax Act of 2008 included a new IRS mandate that requires certain companies that settle payments for merchants and other payment processors to report the gross sales of the transactions to the IRS each year.   This reporting form was generally targeted towards closing the tax compliance gap for online commerce by having companies like PayPal, Amazon, Credit Card Merchants, etc. report to the IRS all gross ‘sales’ or other transactions.    Starting in 2011, the gross amount of payment cards and third-party transactions were recorded on the 1099K.     This reporting is just another ‘loophole’ the IRS has closed for individuals who were not reporting their online sales businesses for tax purposes. 

Now that the IRS has the data, as practitioners of tax law defense, we can anticipate the corollary impact of reporting programs on taxpayers such as, double reporting problems when duplicate forms are filed for the same transactions, erroneous forms being reported to the IRS, mismatched tax forms when merchant data does not match the taxpayer data, and unfortunately, the IRS utilizing its access to this new data for investigations of civil and criminal tax crimes.    

True to form, it has come to our attention that the IRS is now embarking on an enforcement program for Forms 1099K by utilizing the data collected from the credit card companies, Pay Pal and similar companies to, in the IRS’s own words,  “make sure taxpayers are compliant."  This new 1099K enforcement program will allow the IRS to ‘fish for information’ regarding the 1099K data in regards to efforts to further combat tax evasion or under-reported income as well as how to better collect delinquent taxes from individuals. 
 
It is our understanding that the IRS will begin issuing notices to individuals which will:

  • Request information regarding the accuracy of the 1099K; or,
  • Request that taxpayer’s provided a worksheet and answer questions regarding the transactions indicated on 1099K; or,
  • Issue Matching Notices requiring a response or face imputed income and therefore an  additional tax assessment. 

The Form 1099K will have the credit card company or payment processing company inform the IRS how much you grossed in sales or other transactions on a monthly basis.  The IRS will then assume that all of those funds that are reported should be in the same Schedule C.  However, if you sell material on eBay, and then have a friend put his share of the nice meal out on the town into your PayPal account, the IRS will treat it as taxable income that you should report on your business.

We also anticipate that if your business has a customer that does some purchases by check and some by credit card, and that customer issues a Form 1099-MISC at the end of the year for all of the purchases, the IRS can respond that the portions that were paid by credit cards and show on the 1099-K are not reported in an effort to increase your taxable income.  Keeping strong records on your sales and how people pay you will be an important part of your business going forward.

Moskowitz LLP is a Tax Law Firm representing clients in all aspects of tax disputes with the federal, state and local tax authorities. We have 30 years of experience in representing individuals and businesses in audits, coordinated exams, administrative appeals, and both civil and criminal tax cases.

We begin every engagement by clearly understanding the client’s priorities, both short term and long term. Our clients benefit from our unique legal teams, made up of experienced tax attorneys with advanced credentials, CPA’s, and other team members who work together to provide a sophisticated solution and/or defense to that tax situation at hand.

We have over 35 years of extensive experience in disputes involving:  Tax Controversies; Tax Litigation; Audit Representation; Criminal Tax Representation; Current Tax Returns; Delinquent Tax Returns; Innocent Spouse; Tax Shelters; State Tax Representation; Tax Planning; Tax Aspects of Family Law; Tax Settlement; Offer in Compromise; International Tax Representation


Disclaimer:  Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

Prop. 30 proposes higher income tax for well off in California

Next week, Californians will vote on two tax-based proposals.It's no secret that the state of California is in a dubious position, facing considerable debt in the wake of our Nation’s recent recession. In order to increase revenue, Governor Jerry Brown has proposed a series of tax increases that will appear on voting ballots next week.

One of the most talked about reforms has been Proposition 30, an amendment to the state constitution that will increase income tax rates among wealthier Californians for the next seven years. The proposal is officially described as a temporary measure to replenish state finances. The extra money will reportedly be directed to schools and universities that would otherwise have to face the budget cuts that are currently necessary for 2012-13, The Huffington Post states.

As explained by the state voter's guide, advocates praise the bill as a means to balance the government budget, promote education and preserve public safety efforts. However, those against the measure have expressed skepticism about whether the revenue will be devoted to schools, and that taxpayers will not be able to account for how the money is actually spent.

While Prop. 30 would raise income taxes for California households making at least $250,000 a year, another tax bill on the ballot - Prop. 38 - proposes that Californians across income brackets see a gradual tax increase over the course of 12 years. That money will reportedly be distributed among K-12 schools across the state, reports the news outlet.

As election day looms, both parties are campaigning hard to sway California residents who remain undecided on this issue. The experienced tax attorneys at Moskowitz LLP in San Francisco will be paying close attention to the results on November 6, and are readily available to help California residents resolve their income tax issues.

South Korean government cracks down on offshore accounts

Seoul is a capitalist paradiseIn the last 10 years, South Korea has seen an incredible surge in economic expansion. The country now represents the fourth largest economy in Asia, and the capital city of Seoul - particularly its Gangnam neighborhood - has become a capitalist paradise teeming with big-name brands and luxury boutiques. However, the increased wealth enjoyed by some Koreans has drawn the attention of the country's National Tax Service (NTS), leading financial regulators to question whether they have enough information about the offshore assets of their citizens.

According to Tax-News.com, the NTS began cracking down on this issue this year, expanding its data collecting abilities to get a more comprehensive sense of Korean assets abroad. This measure is reportedly an effort to increase revenues for the Korean government by expanding the pool from which it can effectively extract taxes.

This increased activity has spurred an increase in voluntary disclosure - 62 percent  more assets have been declared compared to this time last year - as more Koreans have stepped forward to provide details about their international holdings. The documented rise could be due, in part, to the fact that, along with boosting its investigative efforts, the government body has also reassured the population that those who come forward won't face some form of punitive action.

"The NTS has declared that it intends to develop further its ability to identify and investigate undeclared accounts held abroad" the source states. "However, [...] those who declare their overseas assets voluntarily will retain their confidentiality and, while they will be required to pay the tax and interest due, will not be audited."

Offshore account compliance can be uncertain territory for taxpayers and government bodies alike. While regulators may encounter difficulties when it comes to monitoring their citizens' activities, individuals may be unclear about the assets they must declare, and who they are legally required to disclose them to. Steve Moskowitz, Senior Partner of Moskowitz, LLP, a Tax Law Firm in San Francisco, CA, just returned from meeting with Korean tax officials in Seoul, Korea. We will post highlights of his trip soon.

Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.

Is Steven Seagal Above the Law when it comes to his tax debt?

Dionne Warwick reportedly owes $2.6 million in back taxes. Since the State started publishing the names of the individuals who owe the largest amounts, the FTB has collected more than $100 million in delinquent tax debt.

Because of the amounts collected, California has gotten even more aggressive with their efforts.  For instance, a new state law (AB 1424, Perea), increases the number of names published from 250 to 500.  It also authorizes the State of California to suspend professional and/or driver’s licenses of these individuals.

Here at Moskowitz, LLP, A Tax Law Firm, we have found that the State will release the suspended license(s) once the individual comes forward and a tax debt collection plan is authorized by the State.   From our practical experience, the  professional license that is most often suspended for tax debt reasons is the Contractor’s Licenses.  However, it appears the reading of this new law and the State’s website, that the State of California is actively monitoring professional licenses, including but not limited to, licenses to practice law, medicine, real estate, insurance, cosmetology licenses, nursing, dental, chiropractic, and horse racing.     We suspect that suspending these types of licenses will have collateral effects on the individual beyond tax debt collection aspects for which the law was designed.   For instance, when the State suspends a contractor’s license, that suspension also affects the individual’s ability to earn income and the bonds and insurance associated with the business.

Two celebrities are among the individuals on the list - who owe a substantial $19.1 million altogether - are famed action star Steven Seagal and celebrated singer Dionne Warwick. The FTB asserts that Seagal, whose latest film, "Maximum Conviction," will be released in November, is accountable for $347,849 in back taxes. Meanwhile, Warwick has reportedly racked up $2.6 million in tax-related debt.    Lucky for these two, their ability to earn a living is not dependent upon having a valid acting license.

Moskowitz, LLP is a Tax Law Firm in California whose attorneys advise clients on how to resolve matters of back tax liabilities through strategic planning, litigation, and aggressive representation before administrative agencies such as the Internal Revenue Service, Franchise Tax Board, Board of Equalization, and Employment Development Department.

Based in the San Francisco Bay Area, Moskowitz LLP Tax Law Firm members have more than three decades of tax law experience obtaining results for both civil and criminal tax cases.   If you have IRS, State or international tax matters or tax problems whether within San Francisco bay area  or anywhere in the world, our Tax Attorneys and CPAs offer an experienced tax team for your needs.  For more information, please see our website or contact us by phone at:  (888) 829-3325, (415) 394-7200.

Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.