Friday, March 27, 2009

FW: IRS News and Information - March 27, 2009

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Newsroom                                                                                      March 27, 2009


First $2,400 of Unemployment Benefits Tax Free for 2009
IR-2009-29, March 26, 2009 — All or part of unemployment benefits received in 2009 will be tax free for many unemployed workers, according to the IRS.,,id=205633,00.html

IRS Seeks Volunteers for Taxpayer Advocacy Panel
IR-2009-28, March 24, 2009 — Volunteers sought to serve on the Taxpayer Advocacy Panel, which collects input from taxpayers and reports on how to improve IRS service.,,id=205572,00.html

First-Time Homebuyers Have Several Options to Maximize New Tax Credit
IR-2009-27, March 18, 2009 — Taxpayers are reminded that they can claim homebuyer credit for 2009 purchases this year or by amending their 2008 tax return.,,id=205416,00.html

IRS Eliminates Inserts Related to Business Mailing
IR-2009-24, March 13, 2009 — In an effort to improve its communications with taxpayers, the IRS will eliminate the nearly dozen inserts that go into a notice informing businesses that they owe additional tax.,,id=205284,00.html


Reporting Fraud

If you suspect a client is providing fraudulent information, you should report it to the IRS. See Publication 3857 to find out what may indicate fraudulent activity and where to report it.,,id=106778,00.html 


Issue Management Resolution System (IMRS) and Hot Topics

Catch up with the latest IMRS monthly overviews and hot issues.,,id=158507,00.html


Spring 2009 SSA/IRS Reporter

The spring issue of the SSA/IRS Reporter is now available on,,id=109886,00.html


Employee Plans News Spring 2009 edition

This edition contains the following articles and more:

  • Final Regulations Issued for Automatic Contribution Arrangements
  • Critical Priorities…With Monika Templeman - Today’s Discussion: Update on the Enrolled Retirement Plan Agent Program
  • Attention All 2009 Form 1099-R Issuers
  • Highlights of the Retirement News for Employers



Technical Guidance


Publication 3112 IRS e-file Application and Participation dated is now available for download

This publication provides important information for Tax Professionals and Authorized IRS e-file Providers regarding applying and participating in IRS e-file. All participants should read this publication to become familiar with the requirements for continued participation


More new forms for employment tax adjustments

The latest additions to the series of new forms for correcting errors on employment tax returns are now available.

  • Form 943X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund
  • Form 944X. Adjusted Employer's Annual Federal Tax Return or Claim for Refund
  • Form 945X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund,,id=187188,00.html


Revenue Ruling 2009-7 announces the new rates of interest. It will be published in IRB 2009-13 dated March 30, 2009.




NATIONAL PHONE FORUMS (,,id=158856,00.html)


Tax Talk Today.TV ( )

·         Specialty Taxes: Estate and Gift and Employment Taxes - Tuesday, May 12, 2009


IRS will no longer sponsor Tax Talk Today - The May 12, 2009 program will be the last live Tax Talk Today show.  Archived programs will be available online through Sept. 30, 2009.



1.             IRS Cuts Penalties to Lure Tax Evaders   *   Wall Street Journal

2.             IRS: Offshore Account? Tell Us Now   *   USA Today

3.             The I.R.S. Will Lower Penalties for Some Offshore Tax Evaders   *   New York Times

4.             UBS Offshore Customers Offered Eased Tax Penalties   *   Bloomberg

5.             US Increases Pressure on Swiss Bank Clients   *   Associated Press

6.             IRS Offers Reduced Penalties for Offshore Accounts   *   Dow Jones

7.             GETTING PERSONAL: IRS Offshore Rules Should Coax Disclosure   *   Dow Jones

8.             IRS Launches Crackdown on Offshore tax Evasion   *   Reuters

9.             Tax Reporting: New IRS Penalty Structure for Offshore Accounts Encourages Voluntary Disclosure   *   BNA Daily Tax Report

10.        Tax Havens: Treasury to Launch Strategy to Address Tax Havens, Geithner Tells House Panel   *   BNA Daily Tax Report

11.        First $2,400 of Unemployment Benefits Tax Free for 2009, IRS Says   *   Tax Notes Today

12.        Tax Relief Set for Unemployment Benefits   *   Atlanta Business Chronicle

13.        Exempt Organizations: Grassley Says Subpoena of Church Data Possible if Televangelists Do Not Cooperate   *   BNA Daily Tax Report

14.        First Circuit Grants Government’s Request for En Banc Review in Textron   *   Tax Notes Today

15.        Prosecutors: Barry Owes $277,000 in Back Taxes   *   Washington Post

16.        FEDERAL DIARY:  Where Were All the Senators?   *   Washington Post

 WALL STREET JOURNAL  March 27, 2009  IRS Cuts Penalties to Lure Tax Evaders  By EVAN PEREZ and TOM HERMAN

 WASHINGTON -- The Internal Revenue Service is offering leniency to many wealthy Americans who volunteer to pay taxes owed on assets stashed in offshore accounts, in exchange for information on the bankers who helped them hide the money.

 Taxpayers who take part in a new program being offered over the next six months will face lower penalties than would otherwise be due, and will likely avoid criminal prosecution, the agency said.

 [IRS Cuts Penalties to Lure Tax Evaders]

A key part of the program, IRS officials said, is "developing intelligence" on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities. This raises the likelihood that the IRS and the Justice Department could take aim at major financial firms, as they have against UBS AG, the Swiss bank that admitted in a settlement last month that some of its bankers had helped U.S. clients evade taxes.

Lawyers representing clients who are trying to make amends with the IRS said their clients are being prodded to name those who helped them set up offshore accounts, or risk losing the leniency they would receive by coming forward.

"The IRS is clearly interested in information about bankers, financial advisers, lawyers and intermediaries," said Scott D. Michel, a lawyer at Caplin & Drysdale who helps clients navigate the IRS's voluntary process to pay back taxes. "Lawyers who go in for voluntary disclosures are being asked to identify any such people with whom their clients interacted."

As the federal government struggles with rising deficits and public anger over financial bailouts, the White House and Congress have begun to focus on reducing tax evasion as a way to ease the financial strain. Recently, under pressure from the U.S. and other countries, Switzerland and several other countries seen as offshore tax havens have promised to increase information sharing with the IRS and other tax authorities to combat tax fraud.

For those holding accounts hidden from the IRS, "this is a chance to come clean on their own," IRS Commissioner Doug Shulman said in a conference call with reporters on Thursday. "For taxpayers who continue to hide their heads in the sand, the situation will only become more dire." The IRS has warned that it will crack down hard on evaders who don't come forward voluntarily.

Under the new program, account holders must voluntarily disclose unreported offshore income and pay any back taxes, interest and penalties. That typically includes paying all back taxes and interest going back a maximum of six years, filing or amending returns, and paying a penalty equivalent to 20% of the value of an account during the tax year in which the account had its highest value.

Previously, IRS penalties could be so severe that a taxpayer might wind up paying more in back taxes, interest and penalties than the value of the foreign account.

In addition, if taxpayers come forward voluntarily before the IRS has launched an audit, they likely would escape criminal proceedings.

The IRS devised the program as the federal government neared a victory in its battle with UBS over its role in encouraging tax evasion by U.S. account holders. UBS admitted to abetting tax evasion as part of a deal with the Justice Department that allowed it to avoid criminal prosecution. The bank also paid $780 million in fines and turned over information on more than 250 accounts. UBS continues to fight an IRS subpoena seeking information on 52,000 other accounts, arguing that disclosing the information would violate Swiss bank-secrecy laws.

As a result of the UBS case and other ongoing efforts, the IRS said, the number of people who have come forward to declare offshore accounts has more than doubled this year over the same period in 2008.

Jack Blum, a Washington tax attorney and expert on offshore tax jurisdictions, said the new IRS program seems aimed at helping tax authorities in new cases against banks in the same business for which UBS got in trouble.

It is unclear exactly how many Americans are hiding taxable income in secret bank accounts abroad, or how much in taxes they are evading.

A report issued by the U.S. Senate Permanent Subcommittee on Investigations last July said the U.S. each year "loses an estimated $100 billion in tax revenues due to offshore tax abuses." The report estimated that offshore tax havens hold trillions of dollars in assets belonging to citizens of other countries, including the U.S.

USA Today  March 27, 2009  Section: MONEY  IRS: Offshore Account? Tell Us Now  Reduced penalties apply, but only for six months  By Kevin McCoy

 Trying to lure wealthy Americans to disclose assets hidden offshore, the IRS on Thursday announced a six-month program that offers lower penalties to those who come forward and pay taxes due on the secret holdings.

 The offer includes clients of UBS, the Swiss banking giant that last month gave federal investigators the names of American owners for about 300 accounts in a continuing federal court showdown.

 Along with lower tax penalties, those who comply are expected to avoid criminal prosecution.

 "This is a chance for people to come clean on their own," said IRS Commissioner Douglas Shulman. "For taxpayers who continue to hide their heads in the sand, the situation will only become more dire."

 Under the plan, owners who disclose foreign accounts would pay:

 *Back taxes and interest for a minimum of six years.

 *A 25% delinquency penalty for each year in which tax returns weren't filed, or a 20% accuracy penalty for years in which returns were filed but income from offshore accounts wasn't included.

*A penalty equal to 20% of the highest aggregate value at any point during the last six years for all previously secret foreign accounts.

Until now, the IRS could impose penalties of at least 50% for all years in which an account wasn't disclosed. In some cases, that could exceed the value of the offshore holdings.

The IRS said those already under criminal investigation for tax evasion are too late to qualify. But the agency said UBS account holders not part of such a probe would be eligible.

Robert McKenzie, a lawyer for more than a dozen American clients with UBS accounts, predicted the program would prompt more disclosures because it would enable evaders to compute their liability "almost to the penny" -- which wasn't possible before. The IRS said the number of Americans who have disclosed foreign accounts has more than doubled this federal fiscal year over 2007-08.

The announcement comes amid a U.S. legal battle to get owners' names for 52,000 UBS accounts in which Americans held at least $14.8 billion. UBS, which admitted helping U.S. clients evade taxes, maintains that turning over the information would violate Swiss banking secrecy laws.

New York Times March 27, 2009  Section: B  The I.R.S. Will Lower Penalties for Some Offshore Tax Evaders  By LYNNLEY BROWNING

 The Internal Revenue Service, under pressure to bring in money to the faltering economy, plans to give offshore tax evaders a big break.

 The agency announced on Thursday a plan that lowers a penalty levied on wealthy Americans who stash billions of dollars overseas to evade taxes.

 In another shift, the I.R.S. will generally not prosecute taxpayers who come forward voluntarily, provided they are not drug dealers, arms merchants or others with ill-gotten gains. And it will not assess a 35 percent penalty on money secretly transferred to foreign trusts -- a common method of tax evasion.

 The goal, Douglas Shulman, the I.R.S. commissioner, said during a briefing ''is to get taxpayers who have been hiding assets offshore back into the system.''

 The plan was developed amid a widening investigation into American clients of UBS but will apply to clients of other banks.

 Under the plan, the I.R.S. will cut a penalty for not filing a Report of Foreign Bank and Financial Account, known as an Fbar -- something offshore tax evaders have not done, to avoid detection by the I.R.S.

The current penalty is up to 50 percent of the highest annual balance of each account for each of the last three years -- an amount that can quickly wipe out an investor and still leave him owing taxes and interest. While the number of Americans coming forward this year to disclose hidden assets has doubled, the I.R.S. said, it is still not enough.

Now, the I.R.S. will reduce that penalty to 5 to 20 percent, depending in part on whether the wealth was inherited. It will also levy the penalty just once, on the highest balance in the accounts over the last six years.

Still, with many accounts holding securities that have plunged in value because of faltering stock markets, the new lowered penalty will still have some sting.

Under the plan, the I.R.S. will also require taxpayers to pay any taxes and interest owed over the last six years. It will also assess either the standard, accuracy-related penalty of 20 percent, or a 25 percent penalty for filing returns late. Taxpayers in the program must also file amended returns for the last six years.

Americans have six months to take the deal. Those under criminal investigation for tax evasion are not eligible. While some Americans who enter the program are likely to provide information about the bankers, lawyers and accountants who assisted them, such cooperation is not a requirement to participate.

BLOOMBERG  March 26, 2009  UBS Offshore Customers Offered Eased Tax Penalties (Update3)  (Adds details on IRS policy and lawyer’s comment, beginning in 19th paragraph.)  By Ryan J. Donmoyer

 March 26 (Bloomberg) -- The Internal Revenue Service said it will waive some penalties for Americans who disclose they hid assets in foreign bank accounts to avoid taxes, including U.S. customers of UBS AG.

 The tax agency, in a memo today, said it will move to collect only 20 percent, and in some cases as little as 5 percent, of assets in previously undisclosed offshore bank accounts. Normal penalties can exceed the account balance in cases of deliberate efforts to conceal the money. The penalty will be in addition to back taxes and interest for as many as six years and additional IRS penalties on taxes owed.

 "We believe this guidance is a firm but fair resolution of these cases," IRS Commissioner Douglas Shulman told reporters in a conference call. "For taxpayers who continue to hide their head in the sand, the situation will only become more dire."

 The IRS action has been anticipated by tax lawyers since the U.S. sued UBS, Switzerland’s largest bank, for the names of 52,000 current and former U.S. clients the IRS claims evaded taxes. UBS provided about 300 names though it has refused to provide the rest, citing Swiss secrecy laws.

 Coming forward voluntarily usually allows a taxpayer to avoid criminal charges, although all applications for leniency under today’s initiative will be screened by criminal investigators, the agency said.

 More Than Double  The IRS said the number of people voluntarily disclosing they have an offshore account has more than doubled in the last year. That number is expected to grow as a result of the new guidelines, said lawyers representing clients with offshore accounts.

 Mark Matthews, former head of the IRS’s criminal tax division, said the agency’s move will probably entice many UBS clients who feared confiscatory penalties to come forward.

"There have been some clients who have been fearful of the penalties and this may be the final piece of information they need," said Matthews, who was also once a deputy assistant attorney general in the Justice Department’s tax division. He is now a partner at the Morgan Lewis law firm in Washington.

 It is legal for Americans to have money in offshore accounts, which many do for legitimate reasons such as when they own a home or business overseas. The accounts must be disclosed to the Treasury Department when they hold more than $10,000, and U.S. taxes must be paid on any income earned.

 50 Percent Penalty  The IRS can confiscate the higher of $100,000 or 50 percent of an offshore account’s value when the holder deliberately doesn’t disclose the account to Treasury. The penalty can apply each year the form isn’t filed, so after three years of noncompliance the account holder can owe 150 percent of the account’s value.

 Under the IRS program announced today, the tax agency will take 20 percent of the account’s assets based on its peak value in the previous six years.

 Under one hypothetical example that includes the effects of compounding, a $1 million offshore account that earned 10 percent annually for six years would owe 35 percent in taxes and interest on the $772,000 earned by the account.

 In addition, the account holder would owe either a 20 percent "accuracy" penalty or a 25 percent "delinquency" penalty, plus 20 percent of the $1.77 million the account had grown to hold.

 In limited cases, the 20 percent asset penalty will be reduced to 5 percent for inactive accounts owned by someone who didn’t open it, if initial deposits were made using previously taxed money, the IRS said.

 Holocaust Survivors  Matthews said that carve-out appears tailored to minimize the impact on heirs to Holocaust survivors, many of whom didn’t know what to do with their inherited Swiss accounts. It would also apply to Americans who opened Swiss accounts on a lark while on vacation but didn’t actively manage them.

 Americans with offshore accounts who don’t voluntarily come forward face a redoubled effort by the IRS to catch them.

 "Offshore cases sent to the field are work of the highest priority," IRS deputy commissioners Faris Fink and Barry Shott wrote in a memo earlier this week to the agency’s field auditors. "Examiners should utilize the full range of information-gathering tools in properly developing offshore issues, with special emphasis on detecting unreported income."

Those tools include interviews with the taxpayers and third parties, and issuing summonses, Fink and Shott said, as well as seeking information from foreign governments through tax-treaty networks. The IRS released the memos today.

IRS Policy  Under long-standing IRS policy, taxpayers who voluntarily disclose potential tax problems before the agency pursues them can generally avoid harsh penalties, including criminal prosecution. IRS spokesman Bruce Friedland said anyone identified to the IRS as part of a criminal enforcement action wouldn’t be eligible to make a voluntary disclosure under the terms announced by the agency today.

 Ed Robbins Jr., a Beverly Hills, California, tax attorney with dozens of clients with offshore accounts, said many UBS clients still risk exposure to criminal prosecution, even if they voluntarily come in.

 "The Department of Justice has its own voluntary disclosure policy, which is a different animal," he said. "If a movie star comes in and prosecutors are alerted, prosecutors are in a position basically to trump the IRS if they find somebody they really like" and want to make an example of, he said.

Associated Press  March 26, 2009  US Increases Pressure on Swiss Bank Clients  By DEVLIN BARRETT

The federal tax collection agency is ratcheting up the pressure on Americans who kept secret Swiss bank accounts, giving them six months to come clean and cough up any evidence against their advisers or bankers.

Tax lawyers told The Associated Press Thursday that demands for information and evidence have increased sharply since the government sued UBS (nyse: UBS - news - people ) AG to try to get the names of tens of thousands of U.S. citizens who may have dodged taxes through Swiss accounts.

 Putting the squeeze on rich Americans who hid their wealth, IRS Commissioner Douglas Shulman on Thursday also laid out a six-month window for those with secret offshore accounts to come clean under specific terms and penalties.

The Obama administration wants UBS to turn over information on as many as 52,000 U.S. customers who concealed their accounts from the government in violation of tax laws. In February, the bank agreed to pay $780 million and turn over the names of roughly 250 U.S. clients, but the Justice Department sued to get the names of tens of thousands more.

Swiss authorities have vowed to fight to protect their tradition of bank secrecy.

Robert McKenzie, a Chicago-based lawyer who has more than a dozen Swiss bank clients seeking to voluntarily disclose their account information to the government, said more recent clients who have come forward are now being asked a slew of new detailed questions about how the accounts were handled, and by whom.

"My view is the IRS is now looking to find those who promote these financial devices, and give advice on these financial devices, and expand the investigation," said McKenzie.

 McKenzie said that before the government struck a deferred prosecution deal with UBS last month, the Internal Revenue Service had six fairly straightforward questions it asked of U.S. taxpayers holding Swiss accounts who voluntarily came forward.

McKenzie said new clients coming forward are now confronting a list of nearly 30 detailed questions, asking not just about financial documents, but any travel to conduct banking business, documents and correspondence related to the accounts, and which bank employees helped them manage the accounts.

 McKenzie said some of the account-holders he has advised are still willing to "roll the dice" and see if the IRS catches them, but he is advising them to come clean with the U.S. government, because others are.

 "Each time somebody comes in, it leads to a greater possibility the next person will be discovered because his neighbor disclosed," said McKenzie.

Those with such Swiss accounts include doctors, immigrants, and even a retired American bank executive, McKenzie said.

 Lawrence Horn, a New Jersey lawyer who also represents Swiss bank clients, agreed that the demands for information have increased markedly as the government continues its legal fight over Swiss bank secrecy.

"The procedure used to be, 'You show me a little, I'll show you a little,'" said Horn. "Now they want information up front. They're asking specific questions about when an account was opened, who helped you open it, and if a law firm was used to open it."

Shulman, the IRS commissioner, told reporters on a conference call Thursday that the agency was offering a six-month window for offshore bank clients to come forward under terms he called fair but firm.

Those who come forward on their own can expect to pay back taxes and interest for a six-year period, as well as a penalty of 20 percent of the amount held in the accounts in whatever year their balance was highest, Shulman said.

 "This is a chance for people to come clean on their own," said Shulman. "For taxpayers who continue to hide their heads in the sand, the situation will only become more dire."

 The deal is only good for six months, Shulman warned, after which the IRS will re-evaluate the terms. By law, the IRS can seek as much as 50 percent of the balances of some accounts used to avoid paying taxes.

DOW JONES  March 26, 2009  IRS Offers Reduced Penalties for Offshore Accounts  By Martin Vaughan Of DOW JONES NEWSWIRES

 WASHINGTON (Dow Jones)--The IRS Thursday announced reduced penalties for individuals who have hid assets in offshore accounts, and who voluntarily turn themselves in to IRS agents.

Those account holders will owe taxes and interest on untaxed amounts going back six years, plus penalties as outlined in new IRS guidance, said IRS Commissioner Doug Shulman in a call with reporters.

 "Those who truly come in voluntarily will pay back taxes, interest and a significant penalty, but can avoid criminal prosecution," Shulman said.

 However, those who don't come in of their own accord will face the full range of civil and criminal penalties, Shulman said.

"For offshore account holders who continue to hide their head in the sand, the situation will only become more dire," Shulman said.

Under long-standing IRS guidelines, those who voluntarily turn themselves in will not face criminal prosecution. But the IRS on Thursday set penalties that will apply, in order to provide predictability and entice more tax evaders to come in from the cold.

The new penalty framework applies to voluntary disclosure cases that are pending, and to individuals who disclose within the next six months.

Those individuals will be assessed either a delinquency penalty for failure to pay in a timely manner, up to 25% of the tax owed, or an accuracy penalty for understating taxes due, up to 20% of the tax owed.

In addition, they will be charged a penalty of 20% of the aggregate amount in all foreign bank accounts in the year with the highest account value.

That 20% penalty is in lieu of all other penalties. For instance, participants will be able to avoid a penalty for failure to disclose the foreign bank account of up to 50% of the value of the account each year the account wasn't disclosed.

IRS officials said that individuals who aren't currently under criminal investigation and who haven't been notified of a civil examination will qualify. That is likely to include thousands of U.S. holders of accounts at UBS AG (UBS), whose identities the IRS is trying to obtain through a civil lawsuit against UBS.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.

 DOW JONES  March 26, 2009  GETTING PERSONAL: IRS Offshore Rules Should Coax Disclosure  By Arden Dale A DOW JONES NEWSWIRES COLUMN

 NEW YORK (Dow Jones)--For those hiding wealth offshore, the message from the Internal Revenue Service is clear: It is time to come in from the cold.

The agency on Thursday announced penalty limits for individuals who step forward voluntarily to report assets they have hidden in offshore accounts.

 Many will see penalties reduced under the new regime, which will also help ensure that IRS offices around the country treat voluntary disclosure cases the same way, tax attorneys say.

The limits apply to voluntary disclosure cases already under way and to people who step forward within the next six months. In these cases, individuals will either be assessed a delinquency penalty for failing to pay on time, up to 25% of the tax owed, or an accuracy penalty for understating taxes due, up to 20% of the tax owed.

In lieu of all others that may apply, the IRS may assess a penalty equal to 20% of the amount in the account (or aggregate accounts), based on the year with the highest account value.

The IRS also said account holders will owe taxes and interest on untaxed amounts going back six years.

The guidelines come as the IRS continues a crackdown on offshore accounts through a high-profile government investigation involving thousands of people with Swiss bank accounts managed by UBS AG.

At issue is whether people evaded taxes on U.S. securities held in the accounts.

The guidance will help clear up uncertainty over how harshly the government may treat taxpayers who want to come forward in the UBS and other cases. Until now, the wide range of possible penalties had people scared, according to Bryan Skarlatos, a partner at Kostelanetz & Fink LLP, a New York law firm.

"There was always the potential that the IRS could take very punitive action," says Skarlatos.

Scott D. Michel, an attorney at Caplin & Drysdale, noted that the penalty for willful failure to comply with a key filing requirement could have been as high as 50% of the value of the account. "That was a big fear and disincentive for people who otherwise wanted to clean these accounts up," says Michel.

Another big positive for account holders is the six-year look-back period defined by the IRS. That time-frame eases a worry that the IRS could collect taxes and interest on decades of account holdings.

Still, the new guidelines won't change the general approach many tax attorneys take to voluntary disclosures.

 "This initial guidance doesn't change our game plan at all. It's just made clearer what the parameters are," said Edward M. Robbins, Jr., a partner at the law firm Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills, Calif.

As the UBS case has unfolded, tax attorneys have been urging people with undisclosed accounts to enter into the voluntary disclosure practice at the IRS. While the program doesn't guarantee specific outcomes, it often results in more lenient civil penalties. It also protects against criminal prosecution.

-By Arden Dale, Dow Jones Newswires  REUTERS  March 26, 2009  IRS Launches Crackdown on Offshore tax Evasion  By Corbett Daly

WASHINGTON (Reuters) - The U.S. Internal Revenue Service announced new steps on Thursday aimed at getting taxpayers hiding money in offshore accounts to pay up, promising not to file criminal charges for those who voluntarily fess up to hiding money overseas.

"This is a chance for people to come clean on their own," IRS Commissioner Doug Shulman told reporters.

While promising not to prosecute criminal charges, the IRS would impose penalties and interest on past due taxes, he said.

Switzerland agreed earlier this month to relax its strict bank secrecy rules and cooperate more on tax evasion to fend off a global crackdown on tax havens. The country has been under pressure because of an IRS tax fraud investigation targeting UBS AG

IRS memos sent to agency examination staff said offshore tax cases should "receive priority treatment."   

"Offshore cases sent to the field are work of the highest priority," said one document, which was made public by the IRS. "Examiners should utilize the full range of information gathering tools in properly developing offshore issues with special emphasis on detecting unreported income. This includes interviewing taxpayers, making third-party contacts and timely issuing summonses to taxpayers and third parties."

Daily Tax Report  The Bureau of National Affairs, Inc.  Federal Tax & Accounting  March 27, 2009

Tax Reporting: New IRS Penalty Structure for Offshore Accounts Encourages Voluntary Disclosure

The Internal Revenue Service March 26 announced it has put a new penalty structure in place designed to encourage taxpayers with offshore assets to come into its voluntary disclosure program, offering those who comply the chance to avoid criminal prosecution and a battery of additional penalties.

The agency unveiled a set of memorandums it sent to the highest officials in the Large and Mid-Size Business Division, the Small Business and Self-Employed Division, and Criminal Investigations, stressing a heightened focus on audits of offshore issues as well as the new structure.

Under the voluntary disclosure guidelines, IRS will look back six years and taxpayers must pay taxes, interest, and an accuracy or delinquency penalty for all years.

Central Feature 20 Percent Penalty.

 In lieu of all other penalties, taxpayers will be assessed a penalty equal to 20 percent of the amount in foreign bank accounts and entities in the year with the highest aggregate account/asset value.

In a conference call with reporters, Commissioner of Internal Revenue Douglas Shulman stressed this will be available only to those who disclose voluntarily and called the new structure "a firm but fair resolution to these cases." He cautioned that "this guidance will be for the next six months only. For taxpayers who continue to hide their head in the sand, the situation will only become more dire."

Both Shulman and two senior IRS officials who spoke to reporters on background stressed that taxpayers who do not disclose continue to face fully developed exams, the possibility of combinations of steep penalties, and potential criminal prosecution.

However, "my goal has always been clear and that is to get taxpayers who are hiding assets offshore back into the system," Shulman told reporters. With the structure that IRS has developed, "taxpayers will pay back taxes, interest, and a significant penalty, but can avoid criminal prosecution."

IRS Addresses Issue of Names in Possession.  

The initiative appears to leave open the voluntary disclosure option for taxpayers whose names are on lists obtained by IRS from outside sources, such as foreign banks, if those taxpayers are not facing criminal charges.

 The IRS officials said even if IRS already has taxpayers' names on a list from an outside source, those taxpayers likely still can make a voluntary disclosure as long as IRS has not opened an investigation on that taxpayer.

 The agency said in a statement later in the day that "to be clear, it is too late for any taxpayer who is under criminal investigation to make a voluntary disclosure. The IRS cannot discuss specific situations, but the voluntary disclosure process does not apply when the IRS has information related to a specific taxpayer from a criminal enforcement action."

The agency noted in the statement that "voluntary disclosure depends on the facts and circumstances involved in each case. Taxpayers with unreported offshore income should immediately discuss with their tax professional their options to get right with the government, including taking advantage of coming in voluntarily."

Penalty Framework Outlined. 

The three memorandums IRS made available March 26, all dated March 23, addressed different facets of the voluntary disclosure issue. The agency also released the section of its Internal Revenue Manual addressing voluntary disclosure.

 A key memo, addressed to the commissioners of LMSB and SB/SE, set forth the penalty framework for voluntary disclosure requests containing offshore issues, noting that the framework will be applied to all requests that have been submitted to IRS and are not yet resolved.

The guidance will remain in effect for six months starting March 23, IRS said, stressing that "all voluntary disclosure requests are mandatory work."

 The Criminal Investigations unit will make preliminary determinations that taxpayers are eligible to seek voluntary disclosure and forward their requests to the Philadelphia Offshore Identification Unit (POIU)for civil processing, IRS said in the memo.

IRS Provides Details of Process.  

Agents who specialize in offshore audits will work the cases, and the resulting closing agreements will be reviewed and executed as prescribed by existing delegation orders.

 The memo authorized the commissioners to resolve tax liabilities for those requesting voluntary disclosure by taking a three-prong strategy.

First, agents will assess all taxes and interest due going back six years, or the earliest year within that six-year period in which an account was opened or acquired or an entity was formed. They also will require taxpayers to file or amend all returns, including information returns and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as an FBAR.

Second, agents will assess either a 20 percent accuracy penalty or a 25 percent delinquency penalty on all years, with no reasonable cause exception allowed.

Third, in lieu of all other penalties that may apply, including FBAR and information return penalties, IRS will look at the amounts in the foreign bank accounts or entities in each of the six years and impose a penalty equal to 20 percent of the amount in the accounts or entities in the year with the highest aggregate account/asset value.

Smaller Penalty Available in Some Cases.   

IRS said it will reduce that latter 20 percent penalty to 5 percent in cases where (1) the taxpayer did not open or cause any accounts to be opened or entities formed, (2) there has been no activity during the period when the account or entity was controlled by the taxpayer, and (3) all U.S. taxes have been paid on the funds in the account or entity.

"The terms outlined herein are only applicable to taxpayers that make voluntary disclosure requests, and who fully cooperate with IRS, both civilly and criminally," the memo said.

In a second memo unveiled by IRS March 26, the agency emphasized to SB/SE examination area directors and SB/SE industry directors that "offshore cases sent to the field are of the highest priority. Examiners should use the full range of information gathering tools in properly developing offshore issues, with special emphasis on detecting unreported income."

IRS said techniques should include interviewing taxpayers, making third-party contacts, and timely issuing summonses to taxpayers and third parties.

Increased Stress on Offshore Exams.

"In particular, examiners should request foreign-based information through exchange of information under applicable treaties and tax information exchange agreements (TIEAs) in any cases where the taxpayers have accounts or transactions in countries with such agreements,"IRS said.

The memo urged examiners to be "alert to the badges of fraud"and said managers should ensure that income and penalty considerations are sufficiently developed and documented.

In addition, the memo said IRS will no longer allow taxpayers the chance to minimize their exposure to penalties through the terms of the agency's Last Chance Compliance Initiative (LCCI). All notices and letters with respect to the LCCI, as well as relevant sections of the Internal Revenue Manual, are in the process of being obsoleted.

For currently open exams where taxpayers already have been offered terms under LCCI, they will be allowed to resolve their cases using that initiative if they respond to their examiner within 15 days, IRS said.

Practitioners React to Guidelines.

The new voluntary disclosure guidelines generally drew praise from practitioners, although some expressed caution about how they would be applied.

"We've been looking for something like this for quite some time,"Mark Matthews, former IRS deputy commissioner and former chief of IRS criminal investigations, now with Morgan, Lewis & Bockius LLP, said. "This brings some clarity to an area that's been very confused."

He said in his view, the certainty offered in the new guidance is likely to bring more people into the voluntary disclosure program, and "we would encourage clients to take them up on this offer."

Previously, Matthews said, many clients were hesitant because so many different penalties could potentially apply, and IRS has now put together "a more one size fits all approach. I think it's a simple, fairly understandable system," he told BNA.

Response Measured.

Charles Rettig, Hochman, Salkin, Rettig, Toscher, & Perez, PC, was more measured, saying, "It is great for the IRS to finally get an initiative together on this issue. Practitioners have been pushing for guidance re offshore voluntary disclosures for quite some time."

However, he stressed, "Hopefully, the penalty administration in this guidance will not be harshly applied for taxpayers who came in early, before the initiative. Fairness in application of this initiative is important for the future of voluntary disclosures over the long term.

"Practitioners and future taxpayers need to know those who come in voluntarily will be treated fairly, and certainly better than others who were discovered before deciding to comply," Rettig said.

 While "some guidance is always better than none," Rettig said he remains concerned that some taxpayers will likely be looking at a 20 percent penalty under the initiative when the IRS may otherwise have determined that, based on the actual facts, no penalty is warranted. "The deemed fairness of the overall voluntary disclosure system is significantly more important to all taxpayers than presently imposing harsh penalties on those with offshore accounts," he said.

 Daily Tax Report  The Bureau of National Affairs, Inc.  Federal Tax & Accounting  March 27, 2009

 Tax Havens: Treasury to Launch Strategy to Address Tax Havens, Geithner Tells House Panel

 The Treasury Department plans to launch a three-pronged initiative to address tax havens, prudential supervision, and money laundering issues in weakly-regulated jurisdictions, Treasury Secretary Timothy Geithner told the House Financial Services Committee March 26.

 Geithner did not offer further details on the tax havens plan at the hearing, where his testimony focused on the issue of financial regulatory reform.

The havens plan was itself part of a four-part strategy for such reform described both in Geithner's written testimony and in a description outlining Treasury's proposals on the agency's Web site.

The larger four-part strategy includes addressing systemic risk, protecting consumers and investors, eliminating gaps in the existing regulatory structure, and fostering international coordination.

According to the Treasury description, the havens plan would be included under the piece that deals with international coordination.

"To keep pace with increasingly global markets, we must ensure that international rules for financial regulation are consistent with the high standards we will be implementing in the United States,"it said.

The March 26 House Financial Services Committee hearing addressed the piece of the four-part strategy dealing with systemic risk.

Tax Notes Today  March 27, 2009  FIRST $ 2,400 OF UNEMPLOYMENT BENEFITS TAX FREE FOR 2009, IRS SAYS 

The IRS has announced (IR-2009-29) that all or part of unemployment benefits received in 2009 will be tax free for many unemployed workers. The relief provided under the American Recovery and Reinvestment Act of 2009 includes making the first $ 2,400 of unemployment insurance exempt from tax.

According to the IRS, a record 5.6 million individuals were receiving unemployment benefits in mid-March. The IRS urged all unemployed workers to consider the special tax break as they plan their tax withholding and quarterly estimated tax payments for the year.

The new law does not affect the returns that taxpayers are currently completing, just next year's. Unemployment benefits received in 2008 and prior years remain fully taxable. Individuals should use Form W-4V, "Voluntary Withholding Request," or the equivalent form provided by the payer to request that withholding begin or end. Form W-4V is also available on the IRS Web site at or by calling the IRS toll free at 1-800-TAX-FORM (829-3676).

Atlanta Business Chronicle  March 26, 2009  Tax Relief Set for Unemployment Benefits

The Internal Revenue Service said Thursday all or part of unemployment benefits received in 2009 will be tax free.

“The changes in the new law will provide relief to Georgians receiving unemployment benefits by suspending taxes on the first $2,400 of those benefits,” said IRS Spokesman Mark Green in a news release.

Under the federal government’s stimulus plan, people who get unemployment benefits during 2009 can exclude the first $2,400 of those benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse separately, the IRS said.

The new law doesn’t affect the return taxpayers are filling out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

“The changes in the law will largely impact individuals preparing 2009 tax returns filed next year, in 2010,” Green said.

Daily Tax Report  The Bureau of National Affairs, Inc.  Federal Tax & Accounting  March 27, 2009

Exempt Organizations: Grassley Says Subpoena of Church Data Possible if Televangelists Do Not Cooperate

Sen. Charles Grassley (R-Iowa), in his weekly phone call with Iowa reporters March 26, raised the possibility of subpoenaing several televangelists who have failed to cooperate with him in an investigation of their television ministries.

Since 2007, Grassley, Senate Finance Committee ranking member, has been investigating six televangelists for possible abuse of their tax-exempt status after reports of their lavish lifestyles reached his office. Grassley wrote to the television ministers requesting information on expenses, executive compensation, and amenities given to executives at the various ministries (215 DTR G-1, 11/7/07).

Grassley said on the call with reporters that he has received almost complete answers from two of the six ministries, and he is making progress with the others. The two that have given complete answers have submitted themselves to what he called "an evangelical accounting board" to make sure that they are following IRS rules to remain tax exempt.

"It's kind of a Good Housekeeping Seal of Approval for churches that are members of it to pledge to do certain things to make sure that their money is handled in a secure way as a trustee for the donor's money," he said.

Joyce Meyer Ministries is one of those that joined the Evangelical Council for Financial Accountability, Grassley learned March 12. The council is an independent body that audits members to maintain accreditation.

For the one or two ministries that are still holding out, Grassley said: "We haven't decided yet to take the step of a subpoena, but it looks like that's what we will have to do."

Kenneth Copeland Ministries of Newark, Texas, and the affiliated Eagle Mountain International Church, was one of those that had been holding out. In a July 15 news release, the ministry said it has acted in good faith to respond to inquiries from Grassley but maintained any investigation should be done through an official Internal Revenue Service church tax inquiry, not one initiated by the Senate Finance Committee (142 DTR G-6, 7/24/08).

So far, Grassley said Joyce Meyer of Joyce Meyer Ministries of Fenton, Mo., and Benedictus Hinn of World Healing Center Church Inc. and Benny Hinn Ministries of Grapevine, Texas, have provided extensive answers to all questions in a series of submissions. Incomplete responses have been submitted by: Randy and Paula White of Without Walls International Church and Paula White Ministries of Tampa, Fla.;Eddie Long of New Birth Missionary Baptist Church and Eddie Long Ministries of Lithonia, Ga.; and Kenneth and Gloria Copeland of Kenneth Copeland Ministries.

Creflo and Taffi Dollar of World Changers Church International and Creflo Dollar Ministries of College Park, Ga., declined to provide any of the requested information.


The U.S. Court of Appeals for the First Circuit has granted the government's motion for an en banc rehearing of a decision involving application of the work product doctrine to tax accrual workpapers.

On January 21 a First Circuit panel had held that tax accrual workpapers are protected by the work product privilege even if the documents are required by financial reporting rules and remanded the case to the district court for a determination of whether Textron Inc. might have waived the privilege by disclosing the documents to its outside auditor. (For analysis of the decision, see Doc 2009-1883 or 2009 TNT 20-7. For the First Circuit's opinion in United States v. Textron Inc. et al., No. 07-2631 (1st Cir. Jan 21, 2009), see Doc 2009-1304 or 2009 TNT 12-11.)

But on March 25, a majority of the circuit judges voted to rehear the case en banc, vacating the panel's earlier judgment. A day earlier, the court denied Textron's appeal for a rehearing on the remand of the issue of potential waived privilege. (For the court's order, see Doc 2009-6744.)

Dissenting in the appellate panel's 2-1 decision for Textron in January, Judge Michael Boudin offered a strong critique, saying the majority's analysis had not correctly interpreted circuit precedent and that Textron's position had been made "scholarly mince-meat" by academic articles on the subject.

Tom Callahan of Thompson Hine said the court's grant of en banc review was not particularly surprising. Boudin's dissent "laid out a succinct argument for why the full circuit should rehear the case," he said.

Gilbert S. Rothenberg, acting deputy assistant attorney general of the Justice Department's Tax Division, said "the government is pleased that the First Circuit has withdrawn the panel's opinion in this case and has determined to hear en banc the important question of whether attorney work-product privilege is available for tax accrual workpapers that are prepared by a public corporation to comply with financial reporting requirements."

Although some commentators have said any final ruling in the matter will have little precedential value given the change in regulatory standards governing tax accrual workpapers, Callahan said a taxpayer win would still be important. "A decision by the First Circuit that Textron's tax accrual workpapers are protected by privilege would set up a strong foundation for other privilege cases," he said. But he also agreed that workpapers would be "hard to keep under wraps" with the advent of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes," and other securities reporting standards.

Dennis J. Ventry Jr., a professor at University of California-Davis School of Law, said the circuit court's denial of Textron's appeal and grant of en banc review was important procedurally. "The issues respecting waiver, and in particular, the possibility that a court could find waiver of work product in the event a company's auditors incorporate work product into their own workpapers, will not be before the en banc court," he said. Instead, the sole issue to be determined is "whether workpapers are generated in the ordinary course of business, irrespective of litigation, and/or as required by the securities laws."

The First Circuit has six seats for active judges, but one is vacant, leaving five judges available for en banc review. Ventry noted that one of the judges who participated in the January decision was sitting by designation and is prohibited from participating in the rehearing. Thus, in effect, Textron has "lost one of the votes that provided it the panel majority."

"The government lives to fight another day -- to prove that workpapers are created for financial accounting purposes, not for litigation," Ventry said.

James G. Hartford, a tax professional in Arlington, Va., said that on en banc review, the court has an opportunity to state clearly what test will be applied in the circuit for analyzing work product claims. "The tax bar needs to know whether the 'but for' test still stands, or if the circuit has changed its mind and adopted the 'principal purpose' test articulated" in United States v. El Paso Co., 682 F.2d 530, 542 (5th Cir. 1982), cert. denied, 466 U.S. 94 (1984), he said. If the circuit court upholds the district court's use of the "but for" analysis, the result is a greater likelihood that the government could seek certiorari from the Supreme Court, given a clear split in law among the circuits, he said.

"My hope is that the rehearing also undertakes a more thorough analysis of the relationship between Textron and [Ernst & Young], especially looking at how possible litigation between them could affect privilege claims," Hartford said.

Lawrence Hill of Dewey & LeBoeuf LLP said the court's order was not unexpected. "The work product waiver analysis employed by the court was problematic," he said.

A review of data from the Administrative Office of the U.S. Courts shows that out of 7,759 cases decided on the merits by the First Circuit since October 1999, only 14 have been granted en banc review.

WASHINGTON POST  March 26, 2009  Prosecutors: Barry Owes $277,000 in Back Taxes  By Del Quentin Wilber

 D.C. Councilmember Marion Barry (D-Ward 8) owes the federal government more than $277,000 in back taxes and hasn't made a payment on undisclosed taxes owed to the D.C. government since July, federal authorities disclosed today.

The disclosure came in court papers filed by federal prosecutors who are asking a judge to revoke Barry's probation for tax offenses because he did not file his federal or D.C. returns for 2007 in a timely manner. U.S. Magistrate Judge Deborah A. Robinson has scheduled a hearing for April 2.

Barry, 72, who recently had a kidney transplant, is on three years probation for failing to file tax returns from 1999 through 2004 and for not paying the bulk of taxes owed on more than $500,000 he earned during that period.

In court papers, federal prosecutors have urged Robinson to revoke Barry's probation because he has not filed his taxes on time in eight of the past nine years. They say Robinson should send Barry to jail, put him in a halfway house or extend his probation another two years.

Barry has argued that serious illnesses distracted him from filing his taxes on time for 2007. He filed them on Feb. 17, a week after federal prosecutors moved to have his probation revoked.

Federal authorities have not previously disclosed how much Barry owes the U.S. Treasury. But in the court papers filed today, they disclosed that Barry still owes $277,688.05 in back taxes, according to an affidavit filed today by Don Sender, an IRS special agent.

The IRS is garnishing $1,350 every two weeks from Barry's paycheck, Sender wrote. The Council member makes about $92,530 a year in salary.

Seder added that Barry's 2007 return says the councilmember owes the federal government $6,512 in taxes for that year.

Federal prosecutors noted that Barry also owes back taxes to the District, but they did not disclose that figure.

Barry, a former mayor, has not made a payment on those back taxes since July, they wrote.

The councilmember's attorney, Frederick D. Cooke Jr., declined to comment.

Washington Post  March 27, 2009  FEDERAL DIARY:  Where Were All the Senators?  By Joe Davidson  D03

Everyone knows that people are the most important asset in any organization.

Even politicians who bash the federal bureaucracy praise the hard-working stiffs who staff it. And it's the Office of Personnel Management that oversees many of the policies that can make working for Uncle Sam a pleasure or not.

So why did nearly all members of the Senate Homeland Security and Governmental Affairs Committee considering the qualifications of the man nominated to lead that office stay away from his confirmation hearing as if he had a communicable and terminal disease?

The audience section of the hearing room in the Dirksen Senate Office Building yesterday was standing room only. But the seats reserved for the distinguished senators were largely empty; their water glasses full and untouched.

The two senators who attended the hearing, Daniel K. Akaka (D-Hawaii) and George V. Voinovich (R-Ohio), did their duty well.

Those absent included members of the subcommittee that oversees federal employee issues: Democrats Carl M. Levin (Mich.), Mary Landrieu (La.), Roland W. Burris (Ill.), Michael Bennet (Colo.), and Republican Lindsey O. Graham (S.C.). They could have raised unasked questions about the Federal Employee Health Benefits program, telework and pay parity between civilian and military personnel, among a host of other issues.

The truth is, they didn't miss much. As is customary, M. John Berry introduced his family -- his sister, his brother and his partner of 12 years, Curtis Yee. Refreshingly, having an openly gay person in a high government position is no longer a big deal, which is not to say homophobia is dead.

Berry seems to be a very likable guy who is well-equipped to do the job. He has been director of the National Zoo since 2005 and held a variety of important jobs before that. When he was legislative director for Rep. Steny H. Hoyer (D-Md.) from 1985 to 1995, he dealt with many federal workplace issues and earned the respect of federal employee unions. He moved through the hearing smoothly, causing no slip-ups, making no waves.

Yet, it's also true that the hearing could have revealed more about his plans, more about his vision, more about where he will take the workforce had the absent senators been there to offer their questions and insights.

Berry, a 50-year-old Montgomery County native, opened with a fairly bland statement, filled with generalities, that avoided critical issues facing the federal workforce. That's no knock on him; it's routine for nominees to avoid the controversial before they get the job.

He delivered expected pleasantries about the civil service carrying on a "proud American tradition," saying "we are fortunate to have the best and the brightest" and "as the nation's largest employer, we should be its 'model employer.' "

The closest Berry's prepared statement came to dealing directly with any of the serious issues facing the federal workforce was his remark that "in the next decade, there will be a significant increase in the percentage of those eligible to retire. We need to consider and craft creative approaches that will allow us to engage the skills and experience of our retirees and the nation's aging population."

What are those creative approaches, an absent senator might have asked.

While Berry understandably did not need to get too detailed in his remarks, it is the job of senators to ask pointed questions that will give them the information they need to take their advise and consent role seriously.

Akaka and Voinovich played that role, but they should not have had to do so alone.

Akaka, for example, asked about "fixing the broken hiring process," with Voinovich later following up with a comment about that process being "in the Dark Ages." Berry seemed to agree with those assessments, but without much in the way of his own opinion or how it can be fixed.

Akaka asked about OPM's poor showing on the Partnership for Public Service list of best places to work. The agency was number 25 out of 30 in the latest rankings from 2007. Berry responded generally about the need for leaders to lay out a "clear vision" with goals for employees.

Voinovich pushed for a more detailed answer. When Berry continued with the generalities , Voinovich interrupted to press the issue of how Berry would move OPM from a place where people don't feel good about working there.

"You're going to have to spend the next couple of years shaping that place up," the senator from Ohio said.

Voinovich also asked about the pay-for-performance systems that have come under attack by employees at the Defense Department and the Transportation Security Administration. Berry promised to approach the issue with an open mind, which is interesting since his boss, President Obama promised to "strongly consider a complete repeal" of the Pentagon system.

Max Stier, the Partnership's president, got it right when he said, "Mr. Berry is likely to be one of the most important appointments made by President Obama to the success of his agenda, although he is unlikely to receive anywhere close to the attention he deserves."


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