Tax Controversy (Internal Revenue Service)
Attorneys at Ortiz & Gosalia represent clients before the Internal Revenue Service regarding audits, collections, appeals and litigation before the U.S. Tax Court. Our attorneys personally work with our clients on a one-on-one basis to evaluate the specific facts and circumstances of the matter, and to chart a course of action to help our clients achieve the best possible outcome.
All of our attorneys hold post doctorate degrees in tax law from the University of Washington, and we have over twenty-years of combined legal experience representing clients before the Internal Revenue Service.
We encourage you to contact Ortiz & Gosalia to discuss your tax matter and to determine if we may be assistance to you.
Reporting Foreign Financial Accounts and Income
Taxpayers that are citizens or residents (for tax purposes) of the United States or domestic entities and that have bank or other financial accounts in foreign countries may be required to file FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938, Statement of Specified Foreign Financial Assets.
Report of Foreign Bank and Financial Accounts (FBAR)
FBAR’s must be filed by June 30 of the year following the year the account holder meets the $10,000 threshold requirement. This deadline may not be extended, and, failure to timely file the FBAR may result in a penalty of up to $10,000 for each year of non-filing per account per person if the reason for non-filing is due to non-willful conduct. If the failure to file is due to willful conduct, then the penalty is up to the greater of $100,000 or 50% of the aggregate balances per year and criminal liability may also be asserted.
Taxpayers may be required to file an FBAR if:
- The taxpayer had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 USD at any time during the calendar year to be reported.
Unfortunately, it is very easy for a taxpayer to trigger these requirements. For example, a taxpayer may be required to file an FBAR and or other informational returns if they:
- Receive a gift or inheritance from a relative or friend that resided in a foreign country, and the funds are deposited into the taxpayer’s foreign bank account or into a foreign account where the taxpayer is a joint account holder.
- Transfer funds to a foreign account in their home country to support family members or purchase real estate.
- Retain a foreign bank or investment account after becoming a U.S. resident. Once the balance is over $10,000 USD at any point during the year, an FBAR must be filed even if the funds were earned prior to becoming a U.S. resident.
- Participate in a government sponsored retirement account and the account has not been reported to the IRS.
Although failing to file an FBAR may be inadvertent, the failure to disclose the foreign accounts, assets or income may have severe consequences in the form of significant civil penalties and possible criminal liability. The IRS has currently offers two types of voluntary disclosure programs by which taxpayers may come forward and disclose any previously undisclosed foreign accounts, assets and income.
Offshore Voluntary Disclosure Program (OVDP)
The first program is the Offshore Voluntary Disclosure Program (OVDP), whereby a taxpayer must submit an application and meet the necessary eligibility criteria. Upon approval, the taxpayer must compete the necessary requirements of the program, which include the following:
- Amend up to eight prior year federal income tax returns
- File up to eight years of FBARs
- Pay any interest and penalties that may result from amending prior year returns
- Submit payment of the Title 26 Miscellaneous Offshore Penalty (27.5% of the highest aggregate balance of unreported foreign accounts)
Although the program requirements are extensive and the twenty-seven and a half percent civil penalty (27.5%) is high, it is significantly less than what a taxpayer may face should the IRS audit them. Furthermore, the OVDP significantly minimizes the risk of criminal prosecution. If a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.
Streamlined Compliance Procedures Program
The IRS announced the Streamlined Compliance Procedures program in the summer of 2014 as an alternative to the OVDP for non-willful taxpayers to disclose foreign accounts. The specific eligibility requirements for the Streamlined Compliance Procedures for U.S. residents are as follows:
- Applicable non-residency requirement is not met;
- Previously filed a U.S. tax return (if required) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed;
- Failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR and or other informational returns, and
- Such failures resulted from non-willful conduct.
Eligible taxpayers will only be subject only to the Title 26 Miscellaneous Offshore penalty, which is reduced five percent (5%) of the aggregate end-of-year foreign account balance. Taxpayers will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties. A critical distinction from the OVDP is that the Streamlined Compliance program requires taxpayers to certify under penalties of perjury that their failure to comply with all U.S. tax requirements was due to non-willful conduct. With the Streamlined Compliance Procedures program, if willful conduct is uncovered, or if there is fraud or misrepresentation in submitting the petition, taxpayers may face significant civil penalties and possible criminal liability.
We welcome you to contact Ortiz & Gosalia with regard to reporting foreign bank accounts and any of the above-described IRS forms and programs. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
An Internal Revenue Service Installment Agreement is an option available to taxpayers allowing them to fully pay their tax liability over a period of time. When the IRS agrees to a proposed Installment Agreement, the agency will not pursue other collection action including levying bank accounts or garnishing wages. However, interest and penalties will continue to accrue while the liability is being paid.
In order to qualify for an Installment Agreement, the taxpayer must first be fully compliant with the IRS filing requirements.
Taxpayers with a liability less than $25,000 may qualify for an Online Payment Agreement, with a streamlined application and acceptance process.
Taxpayers will a liability greater than $25,000 may still qualify for an Installment Agreement though they will first be required to disclose a detailed picture of their finances.
We welcome you to contact Ortiz & Gosalia with regard to IRS installment agreements. Call us at (425) 633-2004, send an email to email@example.com, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Offers in Compromise
The Internal Revenue Service Offer in Compromise (OIC) program allows taxpayers to settle a tax liability for less than the full amount owed. The IRS will often accept an offer when the amount it reasonably expects to collect from a taxpayer’s equity in assets and disposable monthly income is less than the amount owed. The determination of the amount a taxpayer can pay is referred to as the reasonable collection potential (RCP). The IRS will not however consider an offer unless the taxpayer is fully compliant with the IRS’s filing requirements and is not currently in bankruptcy.
The IRS may also accept an OIC on two other grounds. First, acceptance is permitted if there is doubt as to liability when genuine doubt exists that the IRS has correctly determined the amount owed. Second, an offer may be accepted based on effective tax administration when there is no doubt that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair because of exceptional circumstances.
In order to determine a taxpayer’s RCP, the taxpayer must provide the IRS with a statement of financial information, either the IRS Form 433-A for individuals or self-employed taxpayers or the IRS Form 433-B for business taxpayers. The taxpayer is generally required to include supporting documentation such as recent bank statements, monthly expense receipts, among other items.
If an offer is accepted, the taxpayer must remain in compliance with all filing and payment requirements for the next five years or else forfeit the entire offer and the original liability will be reinstated. Taxpayers may choose to pay the offer amount in a lump sum or in installment payments. A lump sum offer is defined as an offer payable in 5 or fewer installments. If a taxpayer submits a lump sum offer, the taxpayer must include with the offer a nonrefundable payment equal to 20 percent of the offer amount. A periodic payment may be paid over the course of a number of years, subject to approval by the IRS.
If the OIC is rejected, the taxpayer has a variety of alternatives available. For example, the taxpayer can appeal to the IRS Appeals Office and the United States Tax Court, or seek an alternative collection remedy, either an installment agreement or being classified as Currently Not Collectible.
The OIC program is an excellent resource for qualifying taxpayers to reduce their overall liability. Those interested in exploring this opportunity should contact a tax attorney for a detailed analysis on the feasibility of requesting a compromise.
We welcome you to contact Ortiz & Gosalia with regard to your tax matter and the IRS Offer in Compromise program. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
The Internal Revenue Service has the authority to select taxpayers for further review of their tax returns whether the returns were filed or not. While the specific selection criteria are not disclosed to the public, a number of items increase the risk of being examined. These include failing to file returns, filing returns with information inconsistent with information provided to the IRS by third parties or taking disproportionately large deductions in relation to the associated income.
At Ortiz & Gosalia, PLLC, our Seattle area tax attorneys have years of experience navigating IRS examinations and seeking favorable outcomes.
IRS examinations generally fall into one of three categories:
- Correspondence audits: The IRS conducts the audit through telephone conversations, mail and facsimile. These audits are generally less intensive and are used to resolve smaller issues with a taxpayer’s return.
- In-office audits: The IRS conducts the audit at an IRS location. The taxpayer is required to bring supporting documents to the IRS office and defend positions taken on the examined return.
- Field audits: The IRS conducts the audit at either the taxpayer’s home or place of business.
It is essential that taxpayers maintain good records and retain receipts and other evidence of the positions taken on their returns. Failure to substantiate a position with proper records can lead to an increase in tax liabilities. Further, when selected for an audit, it is advisable to seek outside professional assistance. IRS examiners will ask questions designed to induce incriminating responses by the taxpayer. As well, tax rules are expansive and a number of uncertainties exist. A knowledgeable advocate can identify and navigate the uncertainties to seek a favorable outcome. With the appropriate assistance, the difficulties associated with an audit can be alleviated.
We welcome you to contact Ortiz & Gosalia with regard to an IRS examination. Call us at (425) 633-2004, send an email to email@example.com, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Innocent Spouse Relief
Many married taxpayers choose to file joint tax returns because of the numerous benefits this filing status allows. However, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. In the State of Washington, marital property, unless expressly segregated from the marital estate, is owned equally by both spouses. This includes income and thus, even if the spouses file separately, they are both liable for the income tax.
Further, both spouses are generally responsible for the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In certain cases, however, a spouse can seek relief from the liability.
The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist clients with three types of relief for spouses who filed joint returns or who filed separately in a community property state:
- Innocent Spouse Relief provides a taxpayer total relief from additional tax if the spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
- Separation of Liability Relief provides for the allocation of additional tax owed between the taxpayer and the spouse or former spouse because an item was not reported properly on a joint return. The tax allocated to the taxpayer is the amount the taxpayer actually owes.
- Equitable Relief may apply when the taxpayer does not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to the spouse. Taxpayers may also qualify for equitable relief if the correct amount of tax was reported on return but the tax remains unpaid.
Taxpayers must request relief no later than two years after the date the IRS first attempted to collect the tax, regardless of the type of relief sought. The IRS has ruled that the two-year time limit does not apply to requests for equitable relief. Further, not all IRS attempts to collect the tax will trigger the two-year period. Collection activities that may start the two-year period are:
- The IRS issues a section 6330 notice informing the taxpayer that the IRS intends to levy,
- The IRS applies an income tax refund against a previous liability,
- The filing of a suit by the United States for the collection of the joint tax liability, or
- The filing of a claim by the IRS in a court proceeding in which the taxpayer is a party or the filing of a claim that involves the taxpayer’s property.
Qualifying for Innocent Spouse Tax Relief
Taxpayers must meet all of the following conditions to qualify for innocent spouse relief:
- The taxpayer filed a joint return (or separate in Washington), that has an understatement of tax, directly related to the spouse’s erroneous items. Any income omitted from the joint return is an erroneous item. Deductions, credits, and property bases are erroneous items if they are incorrectly reported on the joint return.
- The taxpayer establishes that at the time the joint return was signed or the separate return was filed the taxpayer did not know, and had no reason to know, that there was an understatement of tax, and,
- Taking into account all the facts and circumstances, it would be unfair to hold the taxpayer liable for the understatement of tax.
Qualifying for Separation of Liability Tax Relief
To qualify for separation of liability relief, taxpayers must meet one of the following requirements to be relieved:
- The taxpayer is divorced or legally separated from the spouse with whom the joint return was filed,
- The taxpayer is widowed, or
- The taxpayer has not been a member of the same household as the spouse with whom the joint return was filed at any time during the 12-month period ending on the date you request relief.
Qualifying for Equitable Tax Relief
Taxpayers may qualify for equitable relief even without qualifying for innocent spouse relief or separation of liability relief. Equitable relief is available for additional tax owed because of an understatement or an underpayment. Generally, to qualify for equitable relief the taxpayer must establish, under all the facts and circumstances, that it would be unfair to be held liable for the understatement or underpayment of tax.
We welcome you to contact Ortiz & Gosalia with regard to your tax matter. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Tax Court Litigation
Taxpayers who are unable to resolve their tax matters with agents of the IRS have the option to present their case in a number of federal forums each with different requirements and attributes. The available forums are the United States Tax Court, the United States District Courts, the United States Bankruptcy Court and the United States Court of Claims. Individual taxpayers rarely use the United States Court of Claims.
The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist individuals and businesses in Washington State and elsewhere with tax litigation, settlements and appeals.
United States Tax Court
Generally, most tax issues are presented in the United States Tax Court since taxpayers can commence a case tax case before paying the tax liability. A case generally begins after the taxpayer has received a Notice of Deficiency from the IRS and the taxpayer petitions the court. Taxpayers must do so within 90 days (150 days if the taxpayer is not a resident of the U.S.) of the IRS mailing date on the deficiency notice. The court may also hear cases primarily involving collection actions (liens and levies) and IRS denials of taxpayer requests for innocent spouse relief, offers in compromise, penalty abatements or other collection alternatives. These cases can be commenced after the taxpayer has exhausted all IRS Appeal rights.
Unlike other forums, Tax Court judges have special expertise in federal tax laws and are employed to interpret tax laws and regulations to ensure that taxpayers are taxed fairly by the IRS. Trials are conducted before one judge and without a jury.
Often, U.S. Tax Court cases are settled by mutual agreement between the taxpayer and IRS attorneys prior to trial. If a trial is conducted, the judge will issue a report setting forth both findings of fact and an opinion. Decisions of the Tax Court can be appealed to the United States Court of Appeals so long as the case is not designated by the taxpayer to be a small Tax Court case.
United States District Court
To file a tax case in the U.S. District Court, taxpayers must first pay the disputed amount and then request a refund from the IRS. After receiving a denial of the taxpayer’s refund request and exhausting IRS administrative remedies, the taxpayer can then file a suit in the U.S. District Court. Unlike the U.S. Tax Court, taxpayers are then entitled to a jury trial. While there is no minimum amount of disputed tax to file suit in the U.S. District Court, the cost and complexity of a federal District Court often limit U.S. District Court tax actions to large cases.
United States Bankruptcy Court
The remedies available to a taxpayer in Bankruptcy Court vary depending on whether the taxpayer’s case is a Chapter 7, Chapter 11 or Chapter 13 case. Courts can, however, decide a number of disputes between the IRS and the taxpayer. More specifically, the courts often determine the amount or validity of a deficiency claim or tax liens, and the taxpayer’s right to a discharge of tax liabilities asserted by the IRS. As with the U.S. Tax Court, actions in the Bankruptcy Court can commence prior to making payment of the liability.
We welcome you to contact Ortiz & Gosalia with regard to a tax litigation matter. Call us at (425) 633-2004, send an email to email@example.com, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Trust Fund Penalty
The Trust Fund Recovery Penalty (TFRP) is an assessment of unpaid withholding taxes against responsible individuals in lieu of collecting against the withholding company. These taxes include withheld income and employment taxes, including social security taxes, railroad retirement taxes, or other collected excise taxes. The penalty arises when a company fails to remit taxes withheld on behalf of its employees.
The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist individuals and businesses in Washington State and elsewhere with TFRP interviews and assessments.
The TFRP may be assessed against any person who:
- is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
- willfully fails to collect or pay them.
A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be
- an officer or an employee of a corporation,
- a member or employee of a partnership,
- a corporate director or shareholder,
- a member of a board of trustees of a nonprofit organization,
- another person with authority and control over funds to direct their disbursement, or
- another corporation.
For willfulness to exist, the responsible person:
- must have been, or should have been, aware of the outstanding taxes and
- either intentionally disregarded the law or was plainly indifferent to its requirements (no bad motive is required).
The IRS may also attempt to assert the TFRP against other individuals involved in the accounting aspects of the business, or who otherwise have check signing authority. These persons could include company bookkeepers and accountants; other individuals in family businesses named as officers but who have no actual authority; spouses or other relatives of principal owners; and other key company employees with no control over the financial aspects of the business.
The TFRP can often be costly and since it cannot be discharged in bankruptcy it can jeopardize personal assets including homes or other property, impact income streams and affect credit ratings. Taxpayers notified by the IRS of interviews in connection with the TFRP, should seek legal counsel to advocate on their behalf.
We welcome you to contact Ortiz & Gosalia with regard to the TFRP. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Release of Liens and Levies
Once the Internal Revenue Service has determined that a taxpayer has a tax obligation, the IRS will begin enforcing collection. To collect, the IRS can file a Notice of Federal Tax Lien, serve a levy on the taxpayer’s wages, personal property or bank account.
The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist individuals and businesses in navigating, negotiating, contesting and appealing various IRS collection efforts.
Federal Tax Lien
A federal tax lien is placed on all of a taxpayer’s assets as soon as a tax is assessed and the taxpayer fails to pay the tax upon IRS demand. Generally, the tax lien lasts for ten years, running with the ten-year statute of limitation for collecting a tax liability. However, a federal tax lien and the statutory period for collecting a tax liability can be extended by events including a request for an IRS Collection Due Process hearing, a bankruptcy filing, or entering into a voluntary waiver with the IRS.
A Notice of Federal Tax Lien (NFTL) is filed to make the public and other creditors aware of the tax lien and to establish the government’s priority against other creditors or potential purchasers of a taxpayer’s property. The filing of a NFTL can also adversely affect a taxpayer’s credit score.
Taxpayer’s receiving a NFTL should consult a professional to confirm the validity of the lien by analyzing the procedures used by the IRS to file the NTFL, and the limitation period remaining for the lien. Further, the professional can help obtain a subordination or discharge of the lien allowing the taxpayer to refinance or sell the encumbered property. If a lien has not yet been filed, the professional can also propose other collection alternatives or file a Collection Due Process (CDP) Request.
The IRS has the authority to levy a taxpayer’s property. A levy is the actual attempt by the IRS to seize the property of a taxpayer held by a third party. The most common types of IRS levies include wage levies, bank account levies, and levies on a taxpayer’s securities and accounts receivables. If the taxpayer does not have financial assets sufficient to satisfy a delinquent tax liability, the IRS can also attempt to seize physical property directly from the taxpayer.
However, the tax laws provide for the release of a levy or seizure under appropriate circumstances. For example, a levy can be released by an IRS agent if the taxpayer proposes and enters into a suitable Installment Agreement, if the levy creates an undue economic hardship, or if the taxpayer qualifies for Currently Not Collectible status.
Collection Due Process (CDP)
Before attempting to levy a taxpayer’s assets, the IRS must send the taxpayer a Final Notice of Intent to Levy and Notice of Right to a Collection Due Process Hearing (a CDP Request). After issuing a Notice of Right to a CDP Hearing and receiving a CDP Request filed within 30 days of the notice letter, the IRS is required to schedule a CDP Hearing with an Appeals Officer. The Appeals Officer is required to be independent from IRS collection personnel and must verify that the IRS followed all administrative and procedural requirements; determine if the proposed IRS collection action balances the need for efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary; and consider all less intrusive collection alternatives proposed by the taxpayer in the CDP Request.
If the Appeals Office renders an adverse decision, the taxpayer may contest the decision by filing an appeal in the United States Tax Court or federal district court. Since the filing of a CDP request and its subsequent disposition halts IRS collection activity, the hearing is a right that should be strongly considered by taxpayers.
We welcome you to contact Ortiz & Gosalia with regard a tax levy, lien or other IRS collection matter. Call us at (425) 633-2004, send an email to email@example.com, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.
Bankruptcy Tax Relief
Bankruptcy relief is an oft-used method to combat serious tax issues and halt IRS collection activity. Filing a bankruptcy case automatically and immediately stops bank account levies and wage garnishments, and allows the taxpayer to either obtain a discharge or reorganize his or her tax liabilities.
The attorneys of Ortiz & Gosalia, PLLC, assist clients with filing for bankruptcy — including Chapter 7and Chapter 13 bankruptcy — and provide advice with regard to the tax consequences of bankruptcy.
Generally, the Bankruptcy Code allows an individual to discharge income tax if all of the following requirements are met:
- The tax return was filed more than two years before the bankruptcy filing.
- The tax return was due more than three years before the bankruptcy filing.
- The tax liability was assessed more than 240 days before the bankruptcy filing.
- The taxpayer did not file a fraudulent tax return or engage in tax fraud or evasion.
- A tax return was actually filed for the delinquent tax liability.
Once these time periods have expired, the liability will become, in most cases, dischargeable by the bankruptcy court. However, these time periods can be extended by a number of different events including a prior bankruptcy that extends the two-year filing and three-year due date periods or an offer in compromise extends the 240-day assessment period.
If the taxpayer has received a Notice of Federal Tax Lien, the bankruptcy matter will be more complicated since the lien attaches to all of the taxpayer’s real and personal property and must be considered in a bankruptcy filing. Therefore, if a taxpayer receives such a notice, they should seek knowledgeable counsel for assistance.
We welcome you to contact Ortiz & Gosalia with regard to your bankruptcy or tax matter. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.