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Understanding Federal Criminal Tax Enforcement


The Government helps to preserve the integrity of this Nation's self-assessment tax system through vigorous and uniform criminal enforcement of the internal revenue laws. Criminal prosecutions punish tax law violators and deter other persons who would violate those laws. To achieve maximum deterrence, the Government must pursue broad, balanced, and uniform criminal tax enforcement. Uniformity in tax cases is necessary because tax enforcement potentially affects more individuals than any other area of criminal enforcement. Broad and balanced enforcement is essential to effectively deter persons of varying economic and vocational status, violators in different geographic areas, and different types of tax law violations.


To achieve uniform, broad, and balanced criminal tax enforcement, the Attorney General has authorized the Tax Division to oversee all federal criminal tax enforcement and to authorize or decline investigations and prosecutions in tax matters. 


For more information about tax crimes and resolving your tax problems, call Selig & Associates at (212) 974-3435



A DIY Guide to IRS Penalty Abatements

Be gentle its my first time . .


According to the IRS, you may qualify for a first-time penalty abatement if certain conditions are met. Specifically, you were not previously required to file a tax return, or alternatively, you had no prior penalties during the past 3 years. *Estimated tax penalties don’t apply. 


Additionally, all of your tax returns have to be filed, and you have to have paid your taxes, or alternatively, made arrangements to pay your taxes by entering into a bona fide installment agreement.


Assuming that you meet this criteria, the IRS will probably approve your request for a first time abatement for Failure To File and Failure to Pay penalties.


But what about interest? In a nutshell, the IRS charges interest on tax, penalties, and interest until the balance is paid in full. However, if your request for a first time penalty abatement is approved, your interest payment should be reduced.


FYI the penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.


Eight Fun Facts on Late Filing & Late Payment Penalties

IRS Tax Tip 2013-58


  1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.


  1. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should  explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.


  1. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.


  1. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.


  1. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.


  1. If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.


  1. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.


  1. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.


The IRS is Racially Profiling Dominican & Hispanic Tax Return Preparers says Federal Tax Practitioner David Selig, of Selig & Associates. Bronx, Brooklyn and NYC is being unfairly scrutinized! 


Compared to the national average, Hispanic neighborhoods receive more Earned Income Tax Credits and have a disproportionate number of Head-of-Household filers. Accordingly, Selig suspects that the IRS has implemented a clandestine computer scoring system that profiles certain demographics e.g. Hispanic single parent families with low incomes, viz. bodegas, restaurants, domestics and other unskilled laborers. According to Selig, this program unfairly targets Hispanics and improperly punishes Hispanic Tax Return Preparers. 



EITC Due Diligence Law and Regulation Internal Revenue Code §6695 and related regulations set out the EITC Due Diligence requirements and the penalties for failure to comply with them.


IRC §6695(g) states that any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the credit allowable by section 32 shall pay a penalty of $500 for each such failure. IRC §6695(h) allows a cost-of-living adjustment. The penalty for taxable years beginning in 2015 is $505.


There are four due diligence requirements. Generally, if you prepare EITC claims, you must ask all the questions required on Form 8867, Paid Preparers' Earned Income Credit Checklist, as well as, ask additional questions when the information your client gives you seems incorrect, inconsistent or incomplete. Complete and submit the Form 8867 for all paper and electronic tax returns and for all other EITC claims. It is required for all EITC claims, the ones with a qualifying child and the ones with no qualifying child. Also, keep a copy of the completed form. Prepare and keep the worksheet showing how you computed the credit. The table below provides more information on your record-keeping requirements. 


You could be penalized for each time you fail to meet all four due diligence requirements for each EITC claim. Among other things, Tax Return Preparers must:


1.) Complete Form 8867, Paid Preparer's Earned Income Credit Checklist, to make sure you consider all EITC eligibility criteria for each claim you prepare.


2.) Complete checklist based on information provided by your client(s).


2.b) For EITC EITC returns or claims for refund filed electronically, submit Form 8867 to the IRS electronically with the return.


2.c) For EITC returns or claims for refund not filed electronically, attach the completed form to any paper return you prepare and send to the IRS.


2.d) For EITC returns or claims for refund you prepare but do not submit directly to the IRS, provide the completed Form 8867 to your client to send with the filed tax return or claim for refund.


3.) Complete the EIC worksheet from the Form 1040 instructions, or Publication 596, Earned Income Credit, or a form with the same information.  The worksheet shows what is included in the computation, that is, self-employment income, total earned income, investment income and adjusted gross income. Most professional tax preparation software includes the computation worksheet.



3.b) Not know or have reason to know any information used to determine your client's eligibility for, or the amount of EITC is incorrect, inconsistent or incomplete.


3.c) Make additional inquiries if a reasonable and well-informed tax return preparer would know the information is incomplete, inconsistent or incorrect


4.) Know the law and use your knowledge of the law to ensure you are asking your client the right questions to get all relevant facts.


4.b) Document any additional questions you ask and your client's answer at the time of the interview.


FYI   To qualify for Head of Household filing status, taxpayers must be unmarried or considered unmarried at the end of the year, and have paid more than half the cost of keeping up a home for the tax year.


The Earned Income Tax Credit “EITC” is intended to help low-income earners with children. The EITC is a refundable tax credit, and according to several IRS Tax Examiners, it's nothing more than a "redistribution of wealth" scheme. 


FYI In addition to targeting Hispanics, the IRS uses a computer scoring system to determine who will be audited, referred to as “DIF” viz. Discriminant Inventory Function System.




A Do it Yourself Guide to NYS Offers in Compromise


According to Publication 220 “The New York State Offer in Compromise Program is designed to help financially distressed taxpayers who face overwhelming tax liabilities”. In fact, that single sentence sounds so good that I’m frequently asked the following two questions: (1) “Am I eligible for an Offer in Compromise?” and (2) “Can I do it myself?” to which I reply “maybe” and “yes” respectively.  


So let’s get to it! According to Publication 220  “To be eligible, you must show that you have been discharged in bankruptcy, you are insolvent, or (for individuals only) that collection in full would cause you undue economic hardship. You are considered insolvent if all your liabilities (including your tax debt) exceed the fair market value of your assets. Undue economic hardship generally means that you are unable to pay reasonable basic living expenses, which are those providing for the health, welfare, and production of income for your family.


We use Internal Revenue Service (IRS) standards to help determine allowable living expenses. We also consider other factors, including the taxpayer’s age, employment status, and employment history; any inability to earn income because of long-term illness, medical condition, or disability; and any obligation to dependents”.  


Tax Tip: This isn’t an invitation for sob stories and swan songs, but rather, this is your best opportunity to clearly and credibly present your case. The first step is to determine how much you actually owe. I recommend that you contact the State directly and request an account transcript that lists each unpaid tax liability. The second step is to list all of your expenses, including rent or mortgage payments, utilities, insurance, medical coverage and all uncovered medical expenses, childcare, child support and other court ordered payments. For food and incidental expenses, you should attach a copy of the IRS’s 2017 Federal Collection Standards re Food, Clothing and Other Items to your Offer.  The third step is to determine how much you should offer (which is easier said than done).


 Tax Tip. Remember, this is an adversarial contest. That is to say, the State wants to collect as much as it possibly can. Conversely, you want to pay as little as possible. Accordingly, the State will consider things that you’d probably prefer not to think about, such as anticipated future earnings; potential inheritances; personal injury lawsuits; increased earnings when your children are no longer considered dependents; when does your car come off lease; your ability to borrow, the value of your assets, retirement accounts, etc


Tax Tip. A successful Offer in Compromise addresses and successfully  answers each relevant issue. Remember, in this forum, you are the “Offeror” and the State is the Offeree. This means you have the burden of proof and persuasion, and if that wasn't enough, you must make the offer as attractive as possible. For questions about New York State Offers in Compromise or other tax matters, contact David Selig of Selig & Associates at (212) 974-3435

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