On September 12th, the Treasury Inspector General for Tax Administration (TIGTA)
released its annual
report on IRScompliance trends. Individual
income tax return examinations conducted by the US Internal Revenue Service
decreased in 2013 for the third year in a row, falling to USD1.4 million or one
for every 104 tax returns. Just over 80
per cent were done by correspondence, with only one of every 541 returns being
examined in a face-to-face interview.
This is to be expected given the ongoing staff and budget cuts but that’s
not an opportunity to take them for granted.
The IRSare still pretty good at their jobs.
Every week, I hear from tax payers who often
do not like what I have to say. Some are
considering products or structures that appears too good to be true. My view remains the same – if something
appears too good to be true, it typically is.
Be very careful. Not that I am
rushing to judgment but Gary Stern is the latest
professional to become ensnared in the coils of the criminal justice system.
The once prominent lawyer who represented NFL players, doctors, lawyers, and
other professionals has been charged with tax fraud. Federal prosecutors allege that Stern
organized, operated, and promoted elaborate and bogus tax schemes, primarily to
help his wealthy clients evade federal income taxes. As if things couldn’t get any worse for
Stern, he is still facing civil litigation involving famous football players,
like former Bears quarterback Kyle Orton, Ray Lewis, and Terrell Owens for
fraudulent tax schemes that engulfed these players as well.
Aside from structures or
products that appear too good to be true, there are those clients that either
ignore professional advice or believe that they are able to do their own
(particularly complex) tax work. In Wole Odujinrin v. IRS Commissioner the petitioner, a hematology
oncologist who represented himself, did not have adequate substantiation to
support his petition and was not entitled to claim a net operating loss. He was also liable for an accuracy-related
penalty under IRC 6662.
It appears that this petitioner showed up with little documentation in
support of his claimed deductions and had inadequate evidence to show that he
correctly assessed his 2009 tax liability. He testified that he relied on the
advice of a tax practitioner but that person was not present to testify at
trial nor provide an affidavit.
It is really unfortunate to say but the unregulated
nature of the US tax practitioner community means that there are some scary
characters out there. Anyone can claim
to be a US tax professional. This profound lack of regulation brings with it an
unbelievable amount of fallout.
All I can say is “caveat
emptor” – or let the buyer beware. When
your tax situation becomes too complex as is the case of many expat Americans,
be sure to engage the services of someone both licensed and experienced with
expat tax law. If you are given improper
advice, you can establish a defense based off reliance on professional advice
which is an excellent defense to use but available only when you rely on the
advice of a competent tax professional under Sec.
Basically any petitioner engaging this
defense needs to establish that:
1. The tax practitioner relied
upon was a competent tax professional;
2. The taxpayer made full
disclosure to the tax practitioner of all relevant facts; AND
3. The tax advice received from
the tax practitioner was reasonably reliable
Be careful out there guys…