IRS Disaster Tax Relief

Added Leon, Levy and Wakulla counties, 5/12/09

Added Dixie and Gilchrist counties, 5/4/09

Following severe storms, flooding, tornados and straight-line winds on March 26, 2009, the President declared Calhoun, Dixie, Gilchrist, Hamilton, Holmes, Jackson, Lafayette, Leon, Levy, Liberty, Madison, Okaloosa, Santa Rosa, Suwannee, Wakulla, Walton and Washington counties federal disaster areas qualifying for individual assistance.

As a result, the IRS is postponing until May 26, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between March 26, 2009, and May 26, 2009 (the "Postponement Period").

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after March 26, 2009, and on or before April 10, 2009, as long as the deposits were made by April 10, 2009.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief.

Covered Disaster Area

The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until May 26, 2009, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after March 26, 2009, and on or before May 26, 2009.

The IRS also gives affected taxpayers until May 26, 2009, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after March 26, 2009, and on or before May 26, 2009.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits, due on or after March 26, 2009, and on or before April 10, 2009, provided the taxpayer made these deposits by April 10, 2009.

Casualty Losses

In 2008, a change was made to the tax law that provides relief to individual taxpayers whose personal-use property was damaged or destroyed by a casualty in a federally declared disaster area. Under prior law, individuals who suffered casualty losses as a result of a federally declared disaster were required to reduce the loss from each casualty event by $100 and reduce the total of their casualty losses for the tax year by 10 percent of their adjusted gross income. In addition, these individuals were required to claim their casualty losses as an itemized deduction. In 2009, as a result of the new law, individuals who suffer a casualty loss as a result of a federally declared disaster are required to reduce the loss from each casualty event by $500. The new law removes the 10 percent of adjusted gross income limitation for net disaster losses and allows individuals to claim the net disaster losses even if they do not itemize their deductions. Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year.

Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year's return should put the Disaster Designation Florida/Severe Storms and Flooding at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

UBS CLIENT PLEADS GUILTY TO FILING FALSE TAX RETURN HID ASSETS WORTH $3 MILLION IN SECRET SWISS BANK ACCOUNT

Ft. Lauderdale Yacht Broker Second UBS Client Charged, First to Plead Guilty

WASHINGTON - Robert Moran, of Lighthouse Point, Fla., pleaded guilty on criminal information charging him with filing a false income tax return, the Justice Department and Internal Revenue Service (IRS) announced. Moran appeared today before Judge James I. Cohn in Ft. Lauderdale and accepted responsibility for concealing more than $3 million in assets in a secret bank account at UBS in Switzerland.

According to court records, on or about Oct. 14, 2008, Moran, a Ft. Lauderdale yacht broker, filed a U.S. Individual Income Tax Return Form 1040 for tax year 2007, which he signed under the penalties of perjury. The tax return failed to report that Moran had an interest in, or signature authority over, a financial account at UBS in Switzerland. Additionally, Moran failed to report the income he earned on any UBS Swiss bank accounts.

According to court records, Moran was the beneficial owner of a UBS account in the name of Winter Drive Investments S.A., a nominee Panamanian corporation. From 2001 through 2008, Moran communicated with bankers at UBS via email, telephone and in person about the purchase and sale of securities, and the conversion of investments from U.S. dollars to Euros.

Judge Cohn scheduled sentencing for June 26, 2009. Moran faces a maximum sentence of three years in prison and a maximum fine of $250,000.

"With the filing deadline imminent, most American taxpayers are filing their tax returns and paying the taxes that they owe," said John A. DiCicco, Acting Assistant Attorney General of the Justice Department's Tax Division. "Honest taxpayers should rest assured that those who hide assets and income from the IRS face investigation, prosecution, and steep fines and jail time."

In February 2009, UBS entered into a deferred prosecution agreement in which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of their agreement, UBS agreed to provide the U.S. government with the identities of, and account information for, certain United States customers of UBS's cross-border business.

On April 2, 2009, another UBS client, Steven Michael Rubinstein, was charged with filing a false income tax return via a criminal complaint. Rubinstein, of Boca Raton, Florida, is alleged to have failed to report income and assets in a secret Swiss bank account.

"Combating offshore tax evasion continues to be one of the IRS's top priorities," said IRS Deputy Commissioner Linda Stiff. "With each passing day, it is increasingly clear the IRS is committed to pursuing people hiding income offshore. Anyone in this situation needs to immediately come in through our voluntary disclosure process before it's too late. It's better to come clean now instead of waiting and facing a heavier price later."

Acting Assistant Attorney General DiCicco and U.S. Attorney Acosta commended the investigative efforts of the IRS agents involved in this case. The prosecution is being handled by Senior Litigation Counsel Kevin M. Downing and Trial Attorney Michael P. Ben'Ary of the Tax Division, and Assistant U.S. Attorney Jeffrey A. Neiman.

United States citizens who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return.

U.S. JUDGE BARS TWO CONNECTICUT RESIDENTS FROM PREPARING FEDERAL TAX RETURNS FOR OTHERS

Father and Daughter Prepared Tax Returns That Falsified and Inflated Deductions for Customers

WASHINGTON - A federal district court in Connecticut has permanently barred Wethersfield residents Deowraj Buddhu and his daughter, Sunita Buddhu, from preparing federal tax returns for others. Mr. Buddhu and/or Ms. Buddhu have operated businesses that provide tax return preparation services under the names Paradise Consulting, Phoenix Consulting and Lotus Consulting, in Hartford, and Wethersfield, Connecticut.

After conducting a hearing on February 6, 2009, the Court found that the Buddhus have prepared federal income tax returns and amended federal income tax returns containing falsified or inflated deductions for their customers resulting in understatements of their customers' tax liabilities. Based on an IRS investigation, it was determined that the Buddhus prepared 2,090 tax returns for the tax years 2004 and 2005, and Ms. Buddhu, operating under the name Lotus Consulting, prepared 922 federal income tax returns for the tax year 2006. The Court also found that the Buddhus prepared federal income tax returns for their customers on which they listed false identification numbers for themselves. The Court found that Ms. Buddhu interfered with the administration of the internal revenue laws by falsely representing to her clients that the IRS has no authority to conduct examinations of Connecticut residents' tax returns and by preparing letters for her clients to submit to the IRS stating this unfounded position.

Acting Assistant Attorney General John A. DiCicco thanked Tax Division trial attorney Lisa Bellamy for her efforts in obtaining the injunction and Supervisory Tax Specialist Lucille Jessey of the Internal Revenue Service who managed the investigation of tax returns prepared by the Buddhus.

In the past decade, the Justice Department has obtained injunctions against more than 400 tax return preparers and tax-fraud promoters.

TAX SHELTER PROMOTER PLEADS GUILTY TO CONSPIRING TO IMPEDE AND IMPAIR THE IRS

WASHINGTON - Anthony G. Merlo, a former resident of Fort Worth, Texas, and the U.S. Virgin Islands, pleaded guilty to conspiracy to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced. Merlo appeared before Magistrate Judge Ellen S. Carmody in Grand Rapids, Mich.

In March 2008, Merlo and five others were indicted by a grand jury in Grand Rapids and charged with conspiring to defraud the United States by promoting, marketing, selling and administering fraudulent tax shelters called loss-of-income insurance policies. These policies were issued through Security Trust Insurance Co., a now-defunct company formerly known as Caduceus Life Insurance Co., that was located in the U.S. Virgin Islands.

Co-conspirator John A. Campbell, a former partner in and resident director of the Kalamazoo, Mich., office of the law firm of Miller, Canfield, Paddock & Stone P.L.C., pleaded guilty to conspiracy in April 2008. Campbell's client, Oskar René Poch of Hickory Corners, Mich., pleaded guilty to corruptly endeavoring to obstruct the administration of the Internal Revenue laws in April 2008. Poch owned and operated Trillium Staffing, an employee-leasing company in Kalamazoo.

Co-defendants Peter Peggs, Robert Larsen, and Craig Stone, who allegedly promoted fraudulent tax shelters, are scheduled to begin trial in September 2009.

According to the plea agreement and evidence presented at the plea hearing, Merlo became involved with promoting offshore tax shelters in 1995 with co-defendants Peggs and Larsen through Security Trust. Merlo admitted that his level of involvement in this promotion significantly increased from 1999 through mid-2002, when he was also interacting with Defendants Campbell and Stone.

According to the plea agreement and evidence presented at the plea hearing, Merlo agreed with Defendants Peggs, Larsen, Stone, and others to conceal information and documents from the IRS in connection with the marketing, promotion, selling, and administering of Security Trust's tax shelter products known as "loss-of-income" or "general business risk" insurance and "deferred private annuities." Specifically, Merlo admitted that he and his co-conspirators attempted to impede and impair the IRS by, among other things, hiding from the IRS and others the relationship between the front and back ends of their loss-of-income tax shelter product; paying Campbell's law firm for an opinion letter to be used in the marketing of this product that omitted any mention of the back-end; altering documents so as to refrain from accurately memorializing the connection between the front and back ends; and discussing, and approving of, the destruction of documents related to the program.

Judge Judge Janet T. Neff has scheduled the sentencing of Campbell and Poch for September 28, 2009. The scheduling of Merlo's sentencing is pending. Merlo and Campbell face maximum potential sentences of five years' in prison, followed by terms of supervised release not to exceed three years, fines of up to $250,000, and mandatory special assessments of $100. Poch faces a maximum potential sentence of three years' in prison, followed by a one year term of supervised release, a fine of $250,000, and a mandatory special assessment of $100.

An indictment is only a charge and is not evidence of guilt. The defendants are entitled to a fair trial in which it will be the government's burden to prove guilt beyond a reasonable doubt.

Acting Assistant Attorney General John A. DiCicco and acting United States Attorney for the Western District of Michigan Donald Davis thanked Tax Division trial attorneys Richard M. Rolwing and Patrick J. Murray, who are prosecuting the case. They also commended the investigative efforts of the IRS agents involved in this case.

IRS is hiring hundreds of Internal Revenue Agents

The IRS is hiring hundreds of Internal Revenue Agents - It's a great time to join the agency!

The IRS has begun a major hiring effort to fill hundreds of critical jobs nationwide. Most of these jobs are for internal revenue agent positions (look for series number 0512). At least 30 hours of college-level accounting coursework is required for revenue agent jobs.

When you join the IRS family, you can enjoy federal health benefits, job-skills training and flexible work schedules. You also get the satisfaction of serving your country. Because the IRS is a large agency - with more than 100,000 across the nation -- there are many opportunities for career growth.

Revenue agent positions range from entry level (GS-5) to more senior positions (GS-13). GS-5 salaries cover a range from about $30,000 to $45,000 per year; GS-13 salaries range from about $85,000 to $115,000. Your salary depends on your location and how long you've served at that level.

Revenue agents are proactive decision makers, working with individual taxpayers, businesses, and the legal and financial communities. They conduct examinations in the field environment, requiring them to travel. They work regularly with taxpayers, their representatives, certified public accountants and tax attorneys.

http://jobsearch.usajobs.opm.gov/a9trirs.asp. All applicants must undergo a background investigation.

IRS TAX HELP - First Quarter 2009 Tax Update

While the new law tax changes in the American Recovery and Reinvestment Act of 2009 were the most significant developments in the first quarter of 2009, many other tax developments may affect you, your family, and your livelihood. These other key developments in the first quarter of 2009 are summarized below. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Retirement plan account participants, IRA owners, and their beneficiaries do not have to take required minimum distributions (RMDs) for 2009. The IRS has issued guidance clarifying that:

• If you would have been required to make RMDs for 2009 and you do make withdrawals in 2009 (that are not RMDs for 2008): (a) you might be able to roll over the withdrawn amounts into other eligible retirement plans; but (b) you must still include any previously untaxed portion of the withdrawal that you do not roll over in your gross income.
• No 2008 RMDs are waived, even for eligible individuals who chose to delay taking their 2008 RMD until Apr. 1, 2009 (e.g., retired employees and IRA owners who turned 70 1/2 in 2008).
• The 2009 RMD waiver applies to individuals who may be eligible to postpone taking their 2009 RMD until Apr. 1, 2010 (generally, retired employees and IRA owners who attain age 70 1/2 in 2009). However, the law does not waive any RMDs for 2010.
• If a beneficiary is receiving distributions over a 5-year period, he or she can waive the distribution for 2009, effectively permitting the beneficiary to take distributions over a 6-year period.

New guidance for victims of Madoff-type investment schemes. Just days after Bernard Madoff's guilty plea, the IRS issued comprehensive guidance for the many investors caught in his (and similar) notorious Ponzi-style fraud. The guidance takes an extremely generous, pro-taxpayer position, allowing the losses to be claimed as theft losses against ordinary income and even allowing a net operating loss generated by Madoff-style losses to be treated as sole proprietorship losses potentially eligible to be carried back 3, 4, or 5 years under a business-style tax break enacted by the American Recovery and Reinvestment Act of 2009. The guidance consists of a revenue ruling dealing with specific tax issues that victims of Madoff-type schemes must confront and a revenue procedure providing safe harbors for determining the proper time and amount of loss.

Trademarks and the like may qualify for tax-free swaps. A like-kind exchange is a popular way for a taxpayer to dispose of qualifying appreciated property without paying a current tax. In a complete reversal of the position I had previously taken, the IRS now says that intangibles such as trademarks, tradenames, mastheads, etc., that can be valued separately and, apart from goodwill, qualify as like-kind property that can be exchanged without incurring a current tax. Furthermore, the IRS says that except in rare and unusual situations, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles can be separately described and valued apart from goodwill. Of course, to qualify for a like-kind exchange, various statutory and regulatory rules have to be satisfied.

Settlement offer for disclosing unreported offshore income. The IRS announced a settlement offer for those that voluntarily and timely disclose unreported offshore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, the penalty will equal 20% of the highest asset value of an account anytime in the past six years. However, those who come forward on a timely basis will not face criminal prosecution.

Vehicles qualifying for the hybrid credit. On its website, the IRS has listed 2009 and 2010 model year hybrid vehicles that qualify for the hybrid credit. Due to a production-based limitation, not all hybrids qualify for a full credit. For example, the credit for qualified Toyota and Lexus vehicles was eliminated for purchases on or after Oct. 1, 2007. The phaseout of the credit for qualified Honda vehicles began for purchases on or after Jan. 1, 2008 and the credit was completely eliminated for purchases on or after Jan. 1, 2009. The phaseout of the credit for qualified Ford and Mercury vehicles began for purchases after Mar. 31, 2009.

Courts reject blanket denial of FICA exception for medical residents. Two Circuit Courts of Appeal have held that stipends paid by hospitals to medical residents may qualify for exemption from FICA taxes (i.e., social security taxes) under the FICA student exception. In so holding, they rejected the IRS's view that medical residents per se are ineligible for the student exception. These cases have important ramifications for the many teaching hospitals and their residents. The decisions however, doesn't affect the income tax aspects of medical residents' stipends. It is well settled that they are not excludible.

More investment flexibility for 529 plans. Section 529 Education Plans are tax-advantaged savings plans that can be used to pay qualified education expenses. In recent guidance, the IRS has determined, that for calendar year 2009 only, 529 plans may permit accounts to change their investment strategy twice (as opposed to once under prior rules) during the year, as well as upon a change in the designated beneficiary of an account. This new flexibility was prompted by concerns from 529 plan sponsors that in today's market environment the lack of flexibility in switching investments could imperil many 529 accounts.