A San Jose medical device manufacturer was sentenced yesterday in Federal Court to 6 months in jail, according to a DOJ press release today. The IRS has also assessed a penalty against him in the amount of $14,229,744.
The sentence is actually relatively light considering the facts of his case, though. Unlike many who keep accounts offshore for asset protection, Desai's accounts generated significant interest income, more than $1.2 million over 2007-2009. Furthermore, this is not case of a strict FBAR violation because that interest income was not reported on his returns, causing an under reporting of taxes of about $350,000.
Even in tax cases where a taxpayer accepts responsibility and pleads guilty, an omission of $350,000 would generally fall under offense level 16 (18 under Table 4.1, -2 for acceptance), for a guidelines sentence of 2 years, give or take 3 months. In this case, Desai went to trial and was convicted by a jury, and the guidelines advise judges to sentence between 2 years and 3 months to 2 years and 9 months.
This case, then, continues the pattern of judges giving relatively light sentences to FBAR offenders.
Wilson Tax Law Group handles criminal tax cases. The firm also handles voluntary disclosures of foreign bank accounts with the IRS, which, if done early enough, can avoid criminal charges.
The Newport Beach Tax Attorney blog is dedicated to tax issues serving Orange County and Southern California. Posts cover recent news and tax cases including audits, tax litigation, IRS, and cryptocurrency tax issues. For more on the Orange County Tax Attorney Joseph P. Wilson, visit https://www.wilsontaxlaw.com or 949.397.2292
California Medical Manufacturer Sentenced to Prison for Foreign Bank Accounts in India
A San Jose medical device manufacturer was sentenced yesterday in Federal Court to 6 months in jail, according to a DOJ press release today. The IRS has also assessed a penalty against him in the amount of $14,229,744.
The sentence is actually relatively light considering the facts of his case, though. Unlike many who keep accounts offshore for asset protection, Desai's accounts generated significant interest income, more than $1.2 million over 2007-2009. Furthermore, this is not case of a strict FBAR violation because that interest income was not reported on his returns, causing an under reporting of taxes of about $350,000.
Even in tax cases where a taxpayer accepts responsibility and pleads guilty, an omission of $350,000 would generally fall under offense level 16 (18 under Table 4.1, -2 for acceptance), for a guidelines sentence of 2 years, give or take 3 months. In this case, Desai went to trial and was convicted by a jury, and the guidelines advise judges to sentence between 2 years and 3 months to 2 years and 9 months.
This case, then, continues the pattern of judges giving relatively light sentences to FBAR offenders.
Wilson Tax Law Group handles criminal tax cases. The firm also handles voluntary disclosures of foreign bank accounts with the IRS, which, if done early enough, can avoid criminal charges.
The sentence is actually relatively light considering the facts of his case, though. Unlike many who keep accounts offshore for asset protection, Desai's accounts generated significant interest income, more than $1.2 million over 2007-2009. Furthermore, this is not case of a strict FBAR violation because that interest income was not reported on his returns, causing an under reporting of taxes of about $350,000.
Even in tax cases where a taxpayer accepts responsibility and pleads guilty, an omission of $350,000 would generally fall under offense level 16 (18 under Table 4.1, -2 for acceptance), for a guidelines sentence of 2 years, give or take 3 months. In this case, Desai went to trial and was convicted by a jury, and the guidelines advise judges to sentence between 2 years and 3 months to 2 years and 9 months.
This case, then, continues the pattern of judges giving relatively light sentences to FBAR offenders.
Wilson Tax Law Group handles criminal tax cases. The firm also handles voluntary disclosures of foreign bank accounts with the IRS, which, if done early enough, can avoid criminal charges.
2014 May Meeting of the California State Bar Tax Procedure and Litigation Committee
Joseph P. Wilson, current Vice Chair of the State Bar California Tax Procedure and Litigation Committee, hosted the most recent meeting of the members in Orange County, California. Check out pictures from the meeting here: http://wilsontaxlaw.tumblr.com/.
2014 May Meeting of the California State Bar Tax Procedure and Litigation Committee
Joseph P. Wilson, current Vice Chair of the State Bar California Tax Procedure and Litigation Committee, hosted the most recent meeting of the members in Orange County, California. Check out pictures from the meeting here: http://wilsontaxlaw.tumblr.com/.
How long should I keep my tax records?
Clients are always asking me how many years should they keep their tax records. This is a really great question and an important one that everyone should be aware of. There is much confusion about the rule and it's because the rule is somewhat confusing. The general rule about how long to keep tax records is that it depends. No this isn't just another lawyer answer, it really does depend. It depends on things like what type of record we are talking about. It also depends on your personal tax situation - are you aggressive on your return or are you conservative on your tax return? Maybe you fall somewhere in between.
Generally, one should keep their day-to-day tax records for at least 3 years. Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.
However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years! That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.
There are some more complicated rules that could apply if you take aggressive positions on your tax return. For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission." Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return. In which case the IRS could go back forever to audit your return.
In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income. In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return. I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.
In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.
Generally, one should keep their day-to-day tax records for at least 3 years. Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.
However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years! That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.
There are some more complicated rules that could apply if you take aggressive positions on your tax return. For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission." Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return. In which case the IRS could go back forever to audit your return.
In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income. In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return. I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.
In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.
When the IRS opened an ESOP investigation several years later, the ESOP then filed a Form 5500. The IRS revoked the ESOP’s qualified status, so the distribution to the taxpayer’s IRA was not a tax-free rollover. Other documents filed by partnerships related to the ESOP did not inform the IRS of the distribution, so the income was omitted. See T.J. Heckman, TC Memo. 2014-131.
This just goes to show that you need to be careful when you take positions on your tax return and also that you need to really understand the rules about how long you should keep tax records. If you have questions or concerns about the contents of this blog, you can contact the Wilson Tax Law Group. This is what we do for a living and we are more than happy to help you.
How long should I keep my tax records?
Clients are always asking me how many years should they keep their tax records. This is a really great question and an important one that everyone should be aware of. There is much confusion about the rule and it's because the rule is somewhat confusing. The general rule about how long to keep tax records is that it depends. No this isn't just another lawyer answer, it really does depend. It depends on things like what type of record we are talking about. It also depends on your personal tax situation - are you aggressive on your return or are you conservative on your tax return? Maybe you fall somewhere in between.
Generally, one should keep their day-to-day tax records for at least 3 years. Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.
However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years! That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.
There are some more complicated rules that could apply if you take aggressive positions on your tax return. For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission." Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return. In which case the IRS could go back forever to audit your return.
In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income. In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return. I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.
In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.
Generally, one should keep their day-to-day tax records for at least 3 years. Day-to-day tax records include things like DMV vehicle registration, annual medical expenses, annual mortgage interest payments, W-2 and 1099 statements, etc.
However, a client should keep records related to capital assets for the life of the asset. For example, if you own a home and make improvements to it, and have the house for 30 years before you sell it, you should keep records of the improvements, purchase agreement, closing agreement, for at least 33 years! That's right, you need to keep those records for the entire time you owned the home plus at least 3 years after you disposed of it.
There are some more complicated rules that could apply if you take aggressive positions on your tax return. For example, the IRS can audit you up to 6 years after you filed your tax return if you failed to report 25% of your gross income, which would constitute a "gross omission." Also, if you are really aggressive the IRS could assert you committed fraud which would mean there is no time period limitation for the IRS to audit your tax return. In which case the IRS could go back forever to audit your return.
In a recent case, the IRS applied the 6 year limitation period against an individual who failed to disclose income. In this case, the individual did not disclose to the IRS a distribution he received from his employee stock ownership plan (ESOP), and so a six-year statute of limitations applied with regard to a deficiency notice sent more than three years, but less than six years, after the taxpayer filed his return. I have several clients who have ESOPs, which is sometimes used as a tax saving tool for people who have too much income.
In the recent case, the ESOP distributed its assets to its participants’ individual retirement accounts (IRAs). The ESOP did not timely file a Form 5500, Annual Return/Report of Employee Benefit Plan, for any of the relevant years, and the taxpayer did not include the distribution in income on his return for the year he received it.
When the IRS opened an ESOP investigation several years later, the ESOP then filed a Form 5500. The IRS revoked the ESOP’s qualified status, so the distribution to the taxpayer’s IRA was not a tax-free rollover. Other documents filed by partnerships related to the ESOP did not inform the IRS of the distribution, so the income was omitted. See T.J. Heckman, TC Memo. 2014-131.
This just goes to show that you need to be careful when you take positions on your tax return and also that you need to really understand the rules about how long you should keep tax records. If you have questions or concerns about the contents of this blog, you can contact the Wilson Tax Law Group. This is what we do for a living and we are more than happy to help you.
Hearings continue into missing IRS emails
The saga on the IRS inquiry over tea party tax exempt applications continues. This week IRS Commissioner John Koskinen appeared before the House Ways and Means Committee on June 20 and the House Oversight Committee on June 23 to defend the agency’s handling of employee emails.
Before the Ways and Means Committee, Koskinen rebutted accusations that former IRS official Lois Lerner destroyed her computer in 2011 to avoid prosecution for targeting conservative groups seeking nonprofit status. Koskinen told lawmakers that the hard drive on Lerner’s work computer crashed before the current Congressional investigations began and the agency’s information technology department could not repair it.
Koskinen also indicated that the IRS Tax Exempt and Government Entities Division plans to restart audits of Code Sec. 501(c)(4) organizations that were selected for examination but set aside. "I think it is unfair to them to leave them in limbo, that they deserve to have closure," Koskinen explained. "Any request for information that was inappropriate, they do not have to respond to," he said.
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