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Tax Penalties and Penalty Abatement

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Tax Penalties and Penalty Abatement

When taxpayers fail to timely file or comply with other Internal Revenue Service (IRS) rules, the agency may issue many different types of penalties. Penalties are typically associated with late payment of tax and/or late filing of tax or information returns. Information returns can be domestic or international.  The international information returns carry significant penalties for late filing and/or filing inaccurately. These penalties can range from a few hundred to a few million dollars. Mishkin Santa will provide practical insight for lawyers on IRS rules related to these penalties and advice on how to obtain abatement of these penalties for clients.

Transcript

Hi, everybody. This is Mishkin Santa, and I'll be presenting today on "Tax Penalties and Penalty Abatement." Now, when we're talking about tax penalties and penalty abatement, I'm generally just gonna be speaking about federal penalties, so IRS, but I will make some comments about state penalties and state requirements. Sometimes I may use specific examples. California and New York tend to be the big ones that you have to be careful with. But in general, I will add the caveat that each state could have a separate filing requirement slash separate penalty regime that you have to be aware of. And so as a... If you're gonna be practicing tax or giving tax advice, I think one of the biggest things that a lot of practitioners overlook, or maybe don't give a lot of consideration to, is also the state associated penalty. So make sure that you have that in your thought process, your checklist. Obviously, you want to do the federal, but make sure that you get the state done as well. This is my background. So, I'm a partner at The Wolf Group. My various practice units and my educational history. Our company disclaimer. Okay, so without further ado, let's get into tax penalties, and let's talk a little bit about the basics. So what I'm gonna do here is I'm gonna build a little bit, so you're gonna get some basics, the basic tax penalties that are associated. Then we'll build into domestic penalties, international penalties, penalty abatement, amnesty programs, and we'll talk about some case law that's associated. And then lastly, we'll end with some miscellaneous areas that you should be aware of. Okay, so the first penalty that I think is important to really talk about is the failure to file penalty, and you're gonna find that in Internal Revenue Code 6651. Now, on the sides of a lot of my slides, I'm giving you the citations, which will have the Internal Revenue Code, but more importantly, which is really helpful, is what's called the IRM, or Internal Revenue Manual. The Internal Revenue Manual is basically the playbook for the IRS agents internally. And so if you ever wanna understand how they're taught to approach a topic or deal with an issue, you definitely wanna look at the Internal Revenue Manual. Now, it's not a free pass. You'll find that when you look at the Internal Revenue Manual, there are gonna be sections that are blacked out or you're unable to look at. It's because the IRS doesn't want you to see that. But for the most part, I'd say 90% of the Internal Revenue Manual is available to the general public. So when you're going to get your sources or your citations or look up something, definitely wanna start with the Code and the regs, but the IRM is also a good place to look at, and it does make reference to the various sections as well. Okay, getting back to the failure to file penalty. So this is the big one, I think, out of all the penalties that could be associated, and it applies to tax return filings. So if you have a delinquent tax return, so you've passed the due date, maybe you don't have an extension, or you're past the extended due date with a proper extension, you may be assessed a failure to file penalty. And the failure to file penalty is generally going to be 5% of the unpaid tax that is due. Now, in some cases, some of the filings don't have tax that is due, so for example, a partnership return or an S corporation return, so those would be Forms 1065 and Forms 1120-S. They pass the income expenses, deductions, and credits to the individual partners or shareholders. Therefore, they would not have any unpaid tax as part of their filing. So they're gonna be on a different system of failure to file penalty where it's a set amount based off of when the return was filed and how many months it's late. But for C corporation returns or individual 1040s, which is the resident return, or the 1040-NR, which is the non-resident return, generally, it's gonna be 5% of the unpaid taxes for each month, or part of the month that a tax return is late, not to exceed 25% of the total unpaid tax. On top of that, there could be a failure to pay penalty, which is a small percentage of the unpaid tax. Instead, it's 0.5%. And again, that penalty is not to exceed 25% of the taxes unpaid. Now, I will also note that these things are in combination. So in total, the failure to file and failure to pay penalties cannot exceed... Excuse me, 25% of the unpaid tax. So at some point in time, these penalties do, quote/unquote, "max out." Interest, though, does continue to run regardless. So again... And this is what I'm talking about here. So you have the failure to file and failure to pay penalties that are both happening concurrently. They will max out after about five months. And so that's how this typically tends to occur on a tax return filing that is late that has a balance due. Okay, there is the failure to timely pay after issuance of a notice. So in many cases, what happens is when you owe the IRS money and you're not paying over, you're gonna go into their collections queue. That typically happens after you've been notified that you owe the IRS money, and you have not responded after a certain period of time. Most people can get about 120-day grace period with the IRS. In some cases, you have to ask for that, but after that period, you're definitely gonna enter into that queue of collections, and at that point in time, they can start hitting you with this failure to timely pay after issuance of notice penalties, so you gotta be careful with that, which is 1% of the unpaid tax. And in some cases, if you write a check and it doesn't cover the payment, or maybe you do an electronic payment and you don't have enough money in your account to make the payment, you will get what's called a dishonored check penalty. And so basically, we look at, what's the amount that you paid? If it's less than $1,250, then the amount is gonna be $25 or less. If it's more than $1,250, then it's 2% of the total payment. So word to the wise, if you are going to make a payment, make sure you have enough money in the account that you're making the payment from. With checks, those typically don't incur fees with paying the IRS with checks, but in some cases, if you are doing electronic payments, say through irs.gov, it may cost a fee to do that online, so just be aware that that may apply as well. Accuracy related penalties. So, an accuracy related penalty is a significant penalty. It's generally 20% of the portion of the underpayment of the tax that happens due to negligence. And this normally would be assessed in some kind of audit or examination. So if, for example, you filed an individual tax return and you had a Schedule C on there as a sole proprietor, and you claimed a bunch of expenses that you cannot justify or substantiate, and the IRS were then to remove those expenses, your income would increase significantly in this case. And therefore, your tax would also increase significantly. And because you were negligent in reporting expenses that you can't substantiate or justify, the examiner may decide that you are worthy of an accuracy related penalty, which, again, is significant, 20%, and that would be assessed to you under Internal Revenue Code 6662. Now, there are defenses to accuracy related penalties that you can assert under 6664, which is the reasonable cause and good faith defenses, so you definitely want to raise those with the examiner or auditor if it's an issue that they're talking about assessing. Or maybe it's on their report for something they want to assess. You definitely want to take the time to just deal with that one issue. So I think that that's something that we'll talk more about a little bit later on in the presentation. Underpayment of estimated tax by corporations. So with corporations, and what I'm talking about here, generally, is C corporations. When there is tax due... And remember, C corporations these days now have a flat tax of 21%, but when there's tax due, generally C corporations don't have withholding tax for their income. And so therefore, it's incumbent upon the C corporation to make what are called quarterly estimated payments. And if you don't make quarterly estimated payments at the C corporation level, and you have income tax that is due, in addition to other penalties that could be assessed, you would definitely be assessed the underpayment of estimated tax penalty. And so there's a couple different methods which they use to calculate that penalty, which you'll see on the right hand side of the slide. This is a big one for individuals. A lot of individuals don't understand this penalty. They're assessed this penalty a lot of times and don't even know it. So sometimes when we're doing first-time abatement for clients, which we'll talk about later, one of the big things is, hey, you can't have had any penalties for the last three years prior to the year that you've been assessed a penalty that we're trying to abate. And the clients will say, "Yes, well, I haven't had any payments..." Or, penalties. "I haven't filed late, I haven't paid late," but they could have been assessed as underpayment of estimated tax penalty, because perhaps they have some form of income that has no withholding tax, and they were required to make quarterly estimated payments. It can be a very small amount, and so it can go unnoticed, but if that's on your filing history, then you would be denied that first-time abatement. This underpayment of estimated tax penalty is significant if you are a sole proprietor. Going back to our Schedule C example, if you are a sole proprietor with consulting income or self-employment income, you definitely want to be making quarterly estimated payments. You wanna be making those to the Internal Revenue Service. And then if you do live in a state that has... A taxable state, so not Texas or Florida, which are no-tax states, but rather, a state that has an income tax, you may also be required to make estimated tax payments at the state level. And so one jurisdiction, for example, is very harsh. The District of Columbia, for example, if you don't make... If you're not 100% accurate, and you don't make those four quarterly payments, you're definitely going to get this penalty. I know some people that maybe miss the first one and then will do a true-up on the second or third one or the fourth one. That is good to do, but it won't alleviate this penalty with DC. They're pretty strict about that. So you gotta be careful with making estimated tax payments. There's also the underpayment penalty, and as you can see, there are a lot of various types of penalties that could be associated with a tax filing. And it seems like there's a never-ending laundry list, and in our profession, we like to call it penalty games, because there's a wide variety that could apply, and ways of getting out of those. The underpayment penalty, though, is generally calculated on the Form 2210. A lot of times, good computer software will do this for you on its own, but basically, the underpayment penalty, it's not a standard percentage or flat dollar amount. In fact, there's actually factors that it's based on. And again, normally this occurs when you have... Let's say, for example, you go from being married with one child to being divorced and single. Maybe you're not claiming the child, but you still have withholding on your wages as if you were married with one dependent, whereas now, you forgot to basically switch that over to a single individual, well, an underpayment penalty may apply, because again, your withholding is too low, and now you owe tax. So that's a significant area that you gotta be careful with. Another situation would occur where maybe you got a large bonus, or maybe you exercised some stock options and there weren't payment of tax with that. That happens in a one-off scenario at one point during the calendar year. Then you would maybe get the underpayment penalty for not making an estimated tax payment. If that scenario does occur where you're receiving a large item of income and you do get the underpayment penalty, then it may be worth annualizing the underpayment penalty calculation on the Form 2210, because again, you're only getting that lump sum in one big chunk on one day, or a series of days, as opposed to radically throughout the calendar year. So be careful with that as well. Safe harbor. And there's the annualization method that I talked about on the right hand side. Seasonal people and self-employed people should definitely look at that if they have big chunks of income. On the left hand side, though, you'll see is the safe harbor method, which we use for a lot of our clients. And generally what happens is if you make payments using the safe harbor method, estimated tax payments, it doesn't really matter how much income you have in the following calendar year. You could get millions of dollars of additional income. You would not be assessed the penalty, because you've made payments within the safe harbor. But to calculate the safe harbor, generally, you're looking to pay in at least 90% of the tax you owed for the current year in the following year, or 110% of the tax on last year's return. So that's the way the slice breaks down. Now, there is a special rule for what we call high-income earners, so you gotta be careful when you're following that rule. You definitely want to do the 110% of the tax shown on last year's return, and make sure that's what you're calculating to get into the safe harbor. A lot of tax software, though, will do this for you on its own. You just need to go in and double check to make sure the proper safe harbor method is selected. Okay, now, taxpayers. What we just talked about were penalties related to taxpayers. There are also penalties that could be associated with tax preparers. Tax preparers, there are really good ones, and there are really bad ones, and there are fly-by-night firms that will take advantage of people for their tax preparation business. They will take people's refunds. There's a whole deal about rapid refund loans. I think that was more in the '90s and early 2000s. Tax preparers are not regulated. There's been a lot of conversation about regulating tax preparers, and things that should be required of tax preparers, but it is the Wild, Wild West in some cases when it comes to tax preparers. And if you monitor the DOJ website about tax crimes, regularly, you'll see that they'll make announcements about tax preparers that have committed fraud, or other tax crimes that they've arrested or assessed criminal penalties against, or sentenced to prison terms. The penalties that we're talking about on this slide really are more about civil penalties. So a good example of this is if I'm the tax preparer of record for a client, and then the client leaves my practice and goes to somebody else, and they come back to me and they say, "Hey, Mish, I need a copy "of the last tax return you did for me," I'm required under the law to furnish that copy. And if I don't give it to 'em and they complain to TIGTA or another governing body with the IRS, then the IRS can assess me a failure to furnish the copy of the tax return to the taxpayer. That's 6695-A. If I'm taking unreasonable positions... So let's go back to our Schedule C example. Let's just say we have someone that's self-employed, maybe they're working from home, they don't have any expenses, and I really want to give them a great outcome, so I make up a bunch of expenses and I put those onto the Schedule C. Obviously that's an unreasonable position that I have done on their behalf, so if the IRS catches that and figures out that I'm doing that kind of work, then I would get a tax preparer penalty for that. Failure to sign a tax return. I see this all the time. Someone gives me a copy of their tax return, it's not signed by their tax preparer. You gotta have the signed copy, especially if it's paper filed. That's key for that. Failure to correct information returns. So if, for example, I'm filing 1099s for my client, and maybe an item of income is incorrect for someone that I've issued a 1099 to, and that's brought to the client's attention and to my attention, and I don't correct it, then I could get a penalty for that. So there are accountability tools for tax preparers in the long and short of it. I don't think a lot of tax preparers know about some of these penalties, and I think some of them would be surprised if they were assessed these penalties or they had issues with the IRS office of... OPR is the office you wanna be careful with. You definitely do not want a call from the Office of Professional Responsibility, because I think you'd be looking to have an issue with your license if you did that. But in addition to that, there could be these penalties. Okay, one way that tax preparers can protect themselves when they have complex positions or issues with tax returns that they don't have complete information on from the client is by filing Form 8275. This is a form that carries a little bit of taboo with it. It's called the disclosure statement. But for example, if I'm doing someone's tax return and I've been alerted... Maybe we're two weeks out from the filing deadline, and I've just been alerted that, "Oh, by the way, I've got a controlled foreign corporation "and I'm not gonna be able to provide that information "from my foreign accountant for another month or two." Obviously, you don't have the information, you can't make up numbers, you can't do a profit loss and balance sheet for the foreign corporation on the Form 5471. At that point in time, you do then need to disclose, "Hey, the client, the taxpayer, "has a controlled foreign corporation. "Form 5471 may be required. "Not enough information is available." You put that on 8275, you alert the IRS that as soon as all information is available, you will amend the return to include the form. Now, the second form on here, the 8275-R, which means that you've looked at a regulation that the IRS has written, you disagree with it, and you're taking the position contrary to that regulation, is not a form I would ever recommend suggesting. I think you would get an automatic audit if you put that down there, 'cause basically, you're telling the IRS you're disagreeing with their interpretation of the law. One, that's never very good. And then number two, you're actually taking a position on the return that disagrees with their interpretation of the law. So you gotta be real careful when you're doing that latter form. You gotta be real careful with both these forms, but the latter form in particular can definitely lead you into a path that you don't want to get into. Failure to deposit penalties. Now, any time you have an employer that's making deposits, generally that's gonna be deposits of the payroll taxes, or maybe the unemployment taxes, if you don't make those deposits, or you don't do them properly, you could get a penalty for doing that. And typically, there's one of three issues, right? You don't make the deposit timely, you pay it in the wrong way, or you pay the wrong amount. In any of those three situations, you are gonna get the failure to deposit penalty. You'll see that when you file that 941. You'll get a notice response on that indicating that penalty has been assessed. Okay, the trust fund recovery penalty. This is also known as the hundred-percent penalty. This one is a nasty, nasty, nasty penalty. It can incur civil penalties, which, again, is the 100% penalty, which I'll talk about here in a minute, and it can incur criminal penalties. The IRS likes to go full tilt when TFRP, or the trust fund recovery penalty, applies. Normally what happens here is you have a business executive or executives that are running a business, they are withholding taxes from their employees' salaries, but they're not remitting those to the Internal Revenue Service. So, they're taking that money and they're doing something else with it. Maybe they're reinvesting in the business, or they're paying off business debt, but they're not paying their primary debtor, which is the IRS. Technically, that's stealing. Technically, that's a really bad position. You don't ever want to have issues with the trust fund recovery penalty, because that money needs to go to the IRS. You are a trustee of the FICA portion of the tax that is paid. You need to pay that over to the IRS. The 100% penalty is called the 100% penalty 'cause you basically get penalized 100% of what you didn't pay over, and should have paid over. That penalty is also issued at the individual level. So for example, if I'm the business owner, I'm the person that's responsible for not handing over the withholding tax, then I can personally be assessed the trust fund recovery 100% penalty. Another example of where this may come into play is if I have an S corporation return. Maybe it's for myself, I'm the only person in the S corp. I have to pay myself a reasonable wage. So perhaps I'm a doctor, and let's say I'm a heart surgeon or something, or a foot doctor, or whatever it is. And a normal foot doctor makes, on average in my area, $150,000 in wages. I choose to pay myself $10,000 in wages, that's obviously not going to be reasonable compensation in proportion with the rest of the market. The IRS may come in and readjust the profit distributions from the S corporation to make my wages more in alignment with the average wages of a doctor in my community. When they do so, obviously if I adjust from 10,000 to 150,000, there's a massive amount of withholding tax that has not been remitted. So now you have an adjustment, you have additional income tax that is due at the individual level, and you have the trust fund recovery penalty. And in that case, normally the IRS will open up six years of tax returns, both at the S corp and the individual level. We call that the evil audit. There's special rules about the Assessment Statute date, which can sometimes expand it out to six years. So that's an area that you have to be very, very, very careful with. You never want to get into an issue with TFRP. Same thing here with transferee, fiduciary, successor, nominee, alter ego. So we see these in a lot of cases where one person has a lot of tax liability, they decide to transfer their business to someone else, but basically, they continue to operate the business in some way, shape, or form, and they're profitable, and so they're not paying over the tax for the previous business. Then you could have transferee liability, successor liability, alter ego. Gotta be careful with those as well. Civil tax fraud penalties. This is something that the government has to provide or establish by clear and convincing evidence. These are, again, commonly assessed in an audit or an examination setting. I think that a lot of times when you have an issue where the government is really trying to establish... Maybe they're going overboard about establishing the facts and circumstances, that could be something that's trending towards a civil fraud penalty, and that's when you may wanna consider, then, bringing an attorney or some kind of tax controversy ultra representative to really represent you there, because if they can't prove it by clear and convincing evidence, again, if there's ways you can poke holes in that, you can't assess the penalty. So, downgrading the preponderance of evidence and all of that stuff... Or, excuse me, upgrading the preponderance of evidence that it's not attributable fraud is definitely a strategy that you want to have there. Criminal tax penalties, again, these really only occur if you're doing some kind of criminal action, so a lot of times you have to be, quote/unquote, "willful." We'll talk about that here in a little bit, what that means. But for example, if you fail to file a tax return, it's a hundred thousand-dollar penalty plus five years in prison. That's what could be assessed. The government has six years to bring the criminal action, and then obviously reasonable doubt. They have to prove all the elements of the crime beyond a reasonable doubt. So on the right hand side, there's a link to the IRS Tax Crimes Handbook. I will note that there are very special practitioners that practice criminal tax. A lot of them are going to be ex-DOJ individuals that have done the prosecution on the other side. That's really the folks that you wanna get in touch with if you do think you have a criminal issue. But the handbook is really illuminating to see what all criminal tax penalties can be assessed. Okay, getting off of a less touchy subject and getting into interest. So, as I mentioned earlier, interest will always run. It's very difficult to get interest taken off. Interest is always gonna be due on a lot of tax that is due. So typically, that's determined on a quarterly rate, and is based off of the federal rates, and compounds daily. Okay, that is the nuts and bolts of the various tax penalties, the general penalties. Now let's just talk about, briefly, IRS penalty abatement. Okay, so I mentioned this earlier. There's a concept, it's called first-time abatement. And you can read about this in the IRM, which I've given you the link here for, but again, in order to have first-time abatement, you have to basically have a very clean filing history, so three years in which you basically filed the same tax return. So, one issue that some people have, for example, first-time filers... Let's say we have a new immigrant to the United States, it's their first time filing the 1040, they didn't realize they were supposed to make estimated tax payments. They may not qualify for first-time abatement, 'cause it's their first year of filing. They need to have three years of filing the same tax return to qualify. The second thing is, during those three years, prior to the year in which the penalty was assessed, it needs to be clean. So, no failure to file penalties, no underpayment penalties, no late filing penalties, nothing like that, so very clean. The best way to do this is to get transcripts. You go, you call... Or, you can call the IRS to do this, but the IRS calling systems are shockingly horrible these days. They were bad before the pandemic, but ever since the pandemic, they've gotten really, really bad. I think one of the things to consider here is having the client do an IRS online account for themselves, which I would suggest all clients do, and then go and have them pull the last three years of account transcripts. The transcripts will tell you their filing history and if they have clean filings. If they do and everything matches up, then you can definitely request the first-time abatement. You can do that by calling into the IRS. That goes back to our issues of calling in. Or, you can do that on Form 843. In some cases, I have seen this, where the IRS will actually do it for you if they check it... They may, in some cases, check it for you and then give you the abatement without even asking. The other way to abate penalties, the primary method, is going to be reasonable cause, okay? And reasonable cause, a lot of people say, "Well, do you have a template "for how to do reasonable cause? "Do you have some kind of suggested language? "Is there a magical formula?" There really is not a magical formula. I mean, there is... I think some tax practitioners, normally good tax controversy attorneys, will have a template or format for their statements about how they put those together, along with maybe some pre-snipped case law that they like to use in certain circumstances. But for the most part, it's all about the facts and circumstances. You really have to develop the facts and circumstances. You need to ask the questions. "What happened? When did it happen? "From when were you non-compliant "to when did you become compliant? "What were the facts and circumstances "behind your non-compliance? "How quickly did you deal with the issue? "What changes, maybe, did you put in place "to fix the issue going forward," or going backward, if the issue is a multi-year issue. One thing to note is that you gotta be real careful about reasonable cause, because if there's a pattern of non-compliant behavior, as the slide indicates, on a go-forward basis... So let's say, for example, I'm arguing reasonable cause for 2020, but I have some non-compliance issues for 2021, or even 2022, the IRS could say, "Look, doesn't look like "you've really rectified your situation," or, "It seems like you've just got "right back into the same issue. "Even though you do have good reasonable cause for 2020, "because of your filing history after that, "we're not gonna give it to you." So really, you have to work with the taxpayer to rehabilitate them and make sure that they stay on the straight and narrow to get that reasonable cause. Other things to consider. So again, there's gonna be the standard of ordinary business care and prudence, which really is going to be the taxpayer's story. A lot of times, people that lose reasonable cause, or clients that lose a reasonable cause request, is because they wanna write their own statement, and they tell their story in a matter of sentences, 'cause for them, that's the only way they know how to tell it. I think this is where having a good tax practitioner can really come in handy, because they can do a better job telling the story than the client can do themselves. Sometimes clients are their own worst enemies, and in this case, in order to develop proper ordinary business care and prudence, my suggestion is always to have a third party write that statement for you. Detailing the compliance history of the taxpayer is very, very important. That's one of the first things to look at. Proactive versus reactive nature in the timeline, you wanna definitely highlight that. If there are any circumstances beyond control, I think that's a great example of reasonable cause. A good example of that recently is gonna be the COVID-19 pandemic. There were obviously circumstances beyond our control during that timeline. So, those are things that you wanna bring up. Maybe there's a hurricane, or some kind of natural disaster, as indicated in the third bullet there. Death obviously is going to be something that is beyond our control. Serious illness, unavoidable absence. On the right hand side are ones that the IRS indicates in the Internal Revenue Manual, but I've never seen anyone ever win on, "I couldn't obtain the records," or, "It was just a mistake," or ignorance of a law. One of the first things they drill into you in law school is ignorance of a law is no excuse. Now, in some cases, it can be. I mean, I've rarely seen this pass muster, but really, when you talk about your taxpayer education and things like that, that's where it gets tricky. I will say, though, that the Tax Cuts and Jobs Act of 2017 is a significant legislative change where a lot of guidance, in regards mostly to IRS regulations, came out years later. And so when we talk about penalties associated with tax through 2018, 2019, 2020, there's a good argument there for ignorance of the law. "Hey, you guys made all these changes "in the Tax Cuts and Jobs Act. "You wrote the plan in a month. "You passed it in six weeks, you made little changes. "It's not bipartisan. "Some of the plan was written "with handwriting notations in the margins. "There was supposed to be a technical corrections bill "that never got passed." It's a recipe for people not being able to follow the law properly. The other one on here is erroneous advice or reliance. You gotta be real careful with this, because a lot of people like to blame their CPA. "Oh, my CPA, the guy's a bum. "He didn't know what he was doing, he gave me bad advice." Generally, that's not going to work, and it would really have to be very clear that the CPA really didn't know what they were talking about, or that the advice they gave was just completely wrong. So I think people just have to be very careful about that. And typically, one thing I tell the client is when you get into a room with the IRS, the first thing they're gonna ask you for is, "Hey, is this your signature on the 1040 that says, "'Under penalty of perjury, "'I have examined everything,' blah, blah, blah," and there's no way around that. It's your responsibility as a taxpayer. You've signed that return, you've submitted that return. Even if you use the CPA or a tax preparer, it's still your ultimate responsibility. All the contents of that return are still your responsibility. And even if you don't understand all of it, it's very difficult to make a case that says, "Hey, I relied on erroneous advice." You have to be very careful with that. Okay, compliance. Compliance is a big deal of the IRS, as I indicated for penalty abatement. And so in some cases, I have non-filers, or people that have not filed certain forms or tax returns for many years, and the IRS will say, "Look, we'll play ball with you, "we'll help abate penalties, "but we need your client to be compliant." And what they're saying basically is they want them to follow the IRS Policy, which is Statement 5-133, which means they need at least six years of tax returns to be filed. Now, this is very much different from IRS amnesty programs, which we'll talk about a little bit later, but in general, if you're not using an amnesty program and you have someone that's a non-filer or seriously delinquent for multiple years, six years is generally what the IRS is gonna want you to file. So if a client came to me today, and they said, "Mish, I'm a non-filer for multiple years. "I live in the state, I just haven't done it. "The IRS hasn't done substitute for returns," I would say, "Look, let's get 2016 through 2021 filed for you. "Let's get you back in compliance, "and then whatever tax and penalties arise from that, "then we're on a good foot." We've got the six years in, and then we can start to work with the IRS on installment agreements, offer some compromise, whatever the next step would be there. Juxtapose that with the IRS Statute of Limitations for Assessment. The Statute of Limitations for Assessment is three years from when the tax return is filed. So sometimes clients will come to me and say, "Well, yeah, I haven't filed in many years, "but the Assessment Statute expiration date's three years. "Shouldn't I just do three years?" But the key there is it's three years from when the tax return was filed. So if you haven't filed a tax return, the assessment date is never started to run. And that's why the IRS will do substitute for returns. They're gonna want the Statute of Limitations to run on assessment. They're gonna want the Statute of Limitations to start on collections. And so, again, you're gonna want to go back and look at your policy statement, get back into compliance, start the clock on your Statute for Assessment, and go from there. Which then brings us to voluntary disclosure practice. Voluntary disclosure practice breaks down into basically two big sections, and potentially, in the future, a third section, but there's domestic voluntary disclosure and then there's offshore voluntary disclosure. Now, in the future, there could be something along the lines of digital asset voluntary disclosure, because there are a lot of non-compliant folks that have cryptocurrency or digital assets. But as it stands right now, the long-running practice is gonna be domestic or offshore. And prior to the Offshore Voluntary Disclosure Program, the first one came out in 2009, basically what you would do was you would call into the IRS, you would call into the special agent in charge and say, "What's the deal of the day? "Generally, here's the issue with my client." And obviously you're not giving away any specific client details. They would say, "Okay..." They'd write down the facts and circumstances, they'd say, "Okay, lemme get back to you," and then they come back and say, "Okay, here's what we want you to do. "You're gonna file these forms for these years, "and your penalty is going to be X, "and take it or leave it. "And if you do that, "then we're not gonna criminally prosecute you. "If you don't do that "and you file without taking advantage of this, "then you run the risk of us catching you," and all that stuff. So that's how the program went for many years. The Offshore Voluntary Disclosure Program was the first real formalization. Prior to that, I think there was like a credit card offshore program they did for a short run, and maybe some other obscure programs that were codified, but the Offshore Voluntary Disclosure Program was the first real one that they ever did in 2009. For domestic purposes, one of the big ones that I believe is still around is the Voluntary Classification Settlement Program, the VCSP. So in this case, we have individuals that... Normally it's employees that are told they're gonna be treated as self-employed individuals. So the employer said, "Look, I made a mistake. "I should have classified these people as employees, "not 1099 individuals," so they go back and they file all the forms, they pay all the payroll tax. They don't get assessed the trust fund recovery penalty, but rather, they pay a 10% penalty on the amount of the employment taxes that they should have paid. Okay, information returns. This is going to be really the second part of the program here. Information returns is where we see our next set of penalties. So, speaking for domestic information returns, we generally see that these are the different types of forms/series of domestic information returns that can be filed that, if you don't file them, you could get a late filing penalty. And if you look at the bottom, you'll see that in a couple years from now, we're gonna have this 1099-DA Form for cryptocurrency. Now, the IRS is referring to this now as digital assets, so that's their terminology vernacular that they're using, but that one's coming soon. In 2021, during the pandemic, March 2021, the IRS admitted that they destroyed 30 million of these types of information filings. So again, the IRS knows that there are issues with these filings. A lot of these forms have to be paper filed, which is really, really bad. You want to electronically file these forms and schedules if you can. But again, it doesn't go beyond purview that the IRS receives it and does nothing with it. And as you can see here, the IRS destroyed 30 million of these. The more significant forms you're gonna find are what are called the international informational returns. These carry significant penalties. I'll state that again. Significant penalties. You could have penalties for what we call the FBAR. You could have penalties for what we call the Foreign Account Tax Compliance Act, Foreign Grantor Trust, Controlled Foreign Corporation, the GILTI tax that's associated with foreign corporations, PFICs, which is Passive Foreign Investment Company holdings, international boycott disclosures, and then the brand new K-2/K-3 schedules that go with US domestic or foreign partnerships. And then lastly, the Expatriation Form, which is the Form 8854. So let's go through some of these so we can talk about the penalties that are associated. So the first one is the FBAR. This is the Report of Foreign Bank Accounts. Generally, you're required to file an FBAR if, in the aggregate, you have foreign financial assets, generally bank accounts, that, in the aggregate, exceed 10,000 US dollars. So I always use the example, let's say I have five foreign bank accounts. Each bank account has a maximum value of 2,000 US dollars. If you aggregate that up, it's $10,000, so then I'd have to file the FBAR. If I don't file the FBAR, then I could be assessed a $10,000 penalty for failing to file. Again, there's no income tax on that, it's information only, but it carries a very hefty penalty. And then with inflation for 2022, that's 14,489. So to determine if you would be assessed the quote/unquote $10,000 penalty, you have to run through a series of questions to determine if you fall into this quote/unquote "non-willful status." And it's critically important that you do so. It's not just obtaining the maximum values of the accounts, or the bank statements, the foreign bank statements, or the currency conversion. It really is developing the facts and circumstances. And I'll give you a hint. It's the third to last question, the Schedule B question, the Part III questions that you have to answer, which is 7A, 7B. That is critically, critically important, and we'll talk about those in the context of a court case here in a little bit. And here it is. Here's the court case. It's the Hughes court case. So we have here... Excuse me, an individual that used Turbo Tax to prepare their tax returns for 2010 through 2013. They had bank accounts at ANZBank in New Zealand. On their tax returns for 2010 and 2011, they didn't file the Schedule B, so there was no real opportunity to address or answer those questions. The court in this case determined that they were subject to the $10,000 non-willful penalty for those two years. The 2012 and 2013 tax returns did have the Schedule B, and the client did not answer these correctly, so the court determined them to be willful. And I'll tell you right now, the willful penalty is significantly more than the non-willful penalty. And so they were assessed the willful penalty for 2012 and 2013. Excuse me. So you gotta be real careful, again, when you're doing that Schedule B. Another case here, we have the Solomon case. This is a big issue right now, which I think is gonna be addressed by the Supreme Court. It's, does the $10,000 penalty apply by form or by account? In this particular case, the district court basically said it applies by account. So imagine if I had one FBAR with five accounts. That's $50,000, whereas I'm sure the taxpayers saying, "Look, it's one FBAR. "It's $10,000, not $50,000." So as you can see, the penalties can get out of control very quickly if you say they're by account and not by form. Same thing with the Bittner case. Again, they wanted to apply the penalties by account, not by form. And as you can see here, the IRS assessed $1.8 million in penalties, whereas Bittner is saying, "Look, it's five years of FBARs "that I didn't file, or $50,000," so huge discrepancy there. We have the Toth case, which, again, is arguing the penalties that could be associated with the FBAR, basically saying, "Look, we have this thing called the Eighth Amendment," which, I'm not sure how many times in the history of the United States someone has made an argument on the Eighth Amendment, but hey, excessive fines, and cruel and unusual punishment, for an excessive FBAR penalty, yeah, I think that holds weight. In this case, the penalty assessed was 70 times the maximum guideline fine criteria. So the Eighth Amendment was also an issue in the Schwarzbaum case. Okay, getting into the willful penalties for FBAR. So we talked about the non-willful penalties being 10,000. The willful penalties are 100,000. Adjusted with inflation, 144,890. They also carry criminal liability, so you could go to jail for your willful penalties. There's pattern penalties, so again, if you have multiple years of FBAR penalties, or issues with that, you could be assessed a pattern penalty, not to exceed $50,000. These are the various penalties adjusted for inflation here, you can see. The pattern penalty, adjusted with inflation, actually is more of $100,000 than it is $50,000. The Form 8938 is basically the IRS version of the FBAR. For those that don't know, the FBAR does not go to the Internal Revenue Service. Rather, the Internal Revenue Service just enforces the penalty associated with the FBAR. The FBAR goes to the Treasury Department to FinCEN, the Financial Crimes Enforcement Network. FinCEN has no ability to collect revenue or penalty assessments. So basically, if they're gonna assess some of the penalty, they just walk right down the hall, they knock on the door for the IRS, and they say, "Hey, look, taxpayer A, "we want to assess a $10,000 penalty," go develop the case, and go get the penalty assessed, and then collect the money. The IRS, not liking this because they don't really get access to the FBARs, makes their own form, which comes out of the Foreign Account Tax Compliance Act, passed in 2010. So we have Form 8938 that makes its first appearance in calendar year 2011... Or, for tax return for 2011 and 2012. And on the Form 8938, you also get your $10,000 penalty. So if you're not reporting your bank accounts and certain other assets, then you get the $10,000 penalty. If the IRS tells you you have an issue, so they send you a letter saying, "Look, we know you have an 8938 filing requirement," and you don't file the form, then they'll assess a $10,000 penalty for each 30-day period, or part of a 30-day period, for which you don't file the form, up to $50,000. Now, the 8938, I will warn everybody, also carries tie-ins to income, so the accuracy related penalty doubles to 40% if you haven't filed the 8938. You may also be assessed the 75% fraud penalty and criminal penalties. The Statute of Limitations also remains open, which is a little bit wacky, because if I file a tax return, again, going back to the Assessment Statute, it's three years, but if I file a tax return that should have had a Form 8938, but doesn't, the Assessment Statute of Limitation stays open forever. So technically, I'm here in 2022 or 2023, and I'm filing my 2022 tax return, and I've noticed, "Hey, maybe I should have been "filing 8938s all along, going back to 2011." I mean, under this rule, technically, I would go back and file 2011 through 2021 amended returns. And I can tell you that tax software does not support a lot of those older years. Right now in my tax software, I can probably only go back to 2015. So to go back and do an amended return for 2011 or 2012 would have to be done by hand, and I don't even know if the IRS would know what to do with a tax return that's that old. That would be a significant undertaking. Going back to the states, some of the states require that you file some of these federal forms with them. So for example, if I have an 8938 filing requirement for my federal return, I must also supply that form to the state of California. If I fail to file that form to California, then I could get a $10,000 penalty from the California Franchise Tax Board. So again, be real careful with your states. New York, for example, on their tax return, if you look real closely, it's got a question in there about whether or not you have foreign financial assets offshore. If you do, make sure to answer that question correctly. It could be used against you. CFC penalties. So these are controlled form corporations with the form 5471. Again, if you don't file that form, very similar to the 8938, it's $10,000, up to $50,000. That's the continuing penalty. One thing that I will note is that this is one of the first international forms where the IRS was automatically assessing the $10,000 penalty, no questions asked, if it was filed late and they received it. And normally, this occurred when you filed a C corporation return, so the Form 1120, with the Form 5471. So if you file that 1120 late, e-file it, and you've got a late 5471, it's automatic. You're gonna get a $10,000 penalty no matter what. Now, if you print out that C corporation return and you mail it in, it's 50-50 whether or not you get that automatic penalty or not. The Form 8992, which is what we call the GILTI tax, so that's basically the global alternative minimum tax associated with controlled foreign corporations... If you've not prepared that form and calculated that tax, same thing, $10,000 penalty, up to $50,000. The Form 5472, which basically is filed when you have a non-resident that owns 25% or more of a foreign corporation or a US LLC treated as a disregarded entity, this form tracks transactions between that non-US person and the company. So again, no income is on this form. Rather, just transactions. This form is also used for transfer pricing normally for big companies. Massive penalty here, though. $25,000 for failing to file this. That $25,000 penalty amount only applies, though, for calendar years... I think 2018 moving forward. Prior to that, it was only $10,000. And then here's the... And I'll stress this again, the non-residents and US limited liability companies. This is a big, big, big deal. So if you have a non-US person that has created a limited liability company inside the continental United States, and they're treating it as a disregarded entity, which means it's not a C corporation, non-US people can't open up S corps... Well, I guess they can, but under very limited circumstances. And obviously, this has nothing to do with partnerships. So again, this is a disregarded entity for US tax purposes, Schedule C, but it's foreign owned, So perhaps the non-US person is filing the 1040-NR with the Schedule C, and they have transactions between themselves and the limited liability company. Then they need to file this form. It's very special. $25,000 penalty for not doing so. The Form 8865 is used for foreign partnerships and controlled foreign partnerships. So just like the 5471 and the 8992, it's a $10,000 penalty for failure to file, up to $50,000. The Form 926 is used when we are talking about reporting contributions to a foreign corporation, whether that's cash, stock, or other property. When doing so, you do have to file the form to report that, and tell the IRS whether that transaction is a taxable transaction or not. And failure to file that form generally is equal to 10% of the fair market value of the property transfer, up to $100,000. When you have a US person that receives what we call a large gift or inheritance from a non-US person... So, we see this a lot. You have non-US people that get their green cards, they come into the US, or maybe they're employees on an L-1 visa, so their transfer visa. They have, obviously, non-US relatives or parents. Something happens, maybe the parents pass away. They then receive the estate, and the value is over $100,000. They do need to file IRS Form 3520 Part IV to report that inheritance or gifts that exceed 100,000 US dollars, and failure to do so could trigger a penalty of 5% of the gift, up to 25%. Form 3520 is generally used for the reporting of Grantor and Non-Grantor Trusts. So if I have a Foreign Grantor Trust, I need to be filing Forms 3520 and 3520-A. If I have a Non-Grantor Trust, I'm just filing Form 3520. And the penalties, these can get really high, because they're equal to 35% of the value of property transferred into the trust or transferred out of the trust. The 3520-A penalty is just basically reporting the trust income statement and balance sheet. That's typically gonna be $10,000 or 5% of the amount of the trust that the individual, quote/unquote, owns. Again, these can be massive, massive penalties. I regularly see people or US taxpayers that live in, for example, Australia and New Zealand, which are heavy trust jurisdictions being assessed penalties of 200, 300, 400, $500,000, because a lot of assets tend to go into trust in those jurisdictions. And so you have to be very, very careful with filing the Forms 3520 and 3520-A. One other thing that's almost a gotcha by the IRS is that these forms have to be mailed in, the 3520 and 3520-A. They do not get e-filed. They go to a separate group of the IRS at the Ogden, Utah campus. And so it's always a really difficult task to get someone from New Zealand or Australia to mail it from their country and get to the Ogden, Utah office in a timely manner without getting a late filing penalty. We have here the court case, recent court case, on the Form 3520. We have the Estate of Wilson case, and basically, the takeaway from this case, if you read through it, is file everything timely, or you get assessed the 35% penalty. So we have Mr. Wilson here who basically thought he got an end-around on his spouse. He knew he was about to get divorced, so prior to the divorce, he puts $9 million in Treasury bills into a foreign trust. Then he gets divorced. Then he terminates the trust and sends the money back to him, but he probably got some bad tax advice, or got a tax preparer that does no international. Failed to file the 3520 to show the distribution, argued that the penalty at the end of the year should be zero because that's how much was left in the trust at the year end. The IRS applied the 35% penalty, which is a massive amount of 9.2 million, and they won. In some cases, the 3520 and 3520-A have issues about how they get reported, how things are put on there. It's not intuitive to a lot of tax preparers how to do that. I think more intuitive is the 1041 filings that we do for a lot of domestic trusts. And I think that what was proposed to the IRS was this 1041-NR filing that should be used to replace the 3520, 3520-A. A lot of people believe that that form could be e-filed. It's a lot more intuitive, and follows more along the lines of the 1041 filing. That was proposed by the AICPA in 2008, but it was never, ever adopted. So that's an issue that... Or, that's an area that I think tax practitioners continue to push. The other thing to note is that K-2/K-3 reporting, which is brand new for tax year 2021, there could be issues with that in foreign trusts that are owned by, say, foreign partnerships. Or the reverse, the foreign trust owns the foreign partnership. So there could be tie-ins there that maybe restart the conversation on the 1041-NR. So potentially, a new form that could replace some of the international forms to look out for in the future. 8854 penalties. This is for the exit tax. If you fail to file your exit tax form, then there's the $10,000 penalty. I will note that one relief program, which only applies to former citizens, not green card holders, is this Relief for Former Citizens Program. One of the cool things about this program is that it doesn't require you to get a social security number. We have a lot of... The United States has a lot of what we call accidental Americans, so individuals that were born to US parents that live offshore, and they've never been inside the United States, so they've never gotten a social security number. In this case, again, if they just follow this program, they're not required to get a social security number to come back in compliance with the IRS. The IRS also has proposals on how to update the Form 8854 and the Statute of Limitations on the Form 8854, as well as making maybe a 8854 light form for low income taxpayers. That was put forth in the 2023 Treasury Green Book last year... Or this year. We have Form 8833. Just wanna bring to people's attention that there is a $1,000 penalty for individuals that file this form late. I also wanna highlight that this form could be used to trigger the exit tax, so you'd also have to file the Form 8854 if you take a treaty tiebreaker position with a green card holder. You have the K-2/K-3 reporting, which, again, is brand new for 2021, and if you don't file your K-2/K-3 with your individual return, you could get a $10,000 penalty, so be careful with that. Here's a laundry list... Or, a table that gives you a laundry list of the Statute of Limitations, penalties, additional penalties, and types of forms. I find this super helpful to reference when I'm talking to a client about potential liability. All right, very quickly, we're gonna run through IRS amnesty programs and miscellaneous items. So if you have international informational non-compliance, and you're living inside the United States, you may be eligible for streamlined filing domestic. One of the things to note about this program is they only want three years of tax returns. So it's almost a shortened Policy Statement 5-133. However, those three years have to be amended return. They cannot be delinquent return. So some people have postulated that if you have a non-filer living inside the United States that also has international issues, "Hey, let me just go file my six years under 5-133 "and then amend under the streamlined program "for the international items," that is very much frowned upon. We call that a backdoor streamline. That's very much frowned upon by the IRS, and I would not do that. I'd find a different way to come back into compliance. The program requires six years of FBAR filings. It does have a 5% miscellaneous Title 26, miscellaneous penalty calculation that we have to do. And it requires a non-willful statement, which I always tell people should be done by an attorney. If you have the transition tax, which applies to owners of controlled foreign corporations, then you have to go back to 2017. So in some cases, instead of three years, your streamlined filing may be four years or five years, or even longer than that. Here's a link for the frequently asked questions for the Domestic Program, if you wanna check that out. And here's some guidance about the non-willful statement and what goes into that. Excuse me. Here's a quick four-step process for how to calculate the 5% penalty if you are going to do a streamlined filing domestic, and if you are gonna be having a CPA and attorney working on the project together, and there's no letter, then you definitely wanna have a 7216 disclosure signed by the client so that the CPA and the attorney can talk to each other about the streamlined filing and make sure that tax returns can be shared, the non-willful statement can be shared, conversations can be had with confidentiality. The IRS Form 2048, which is the Declaration of Representation, is a fantastic way to check on the health of your client from the IRS standpoint. You can check in to see if they received prior year penalties through account transcripts. You can get the Assessment Statute date, the Refund Statute date, the Collection Statute date. You can monitor notices and correspondence, and you can represent your client over a phone call if you have to call into the IRS. For people living offshore, there's the Streamlined Filing Program Foreign. The only difference between this program and the Domestic Program is that there is no Title 26 miscellaneous penalty, so you avoid the 5% penalty, which is beautiful. So for a lot of my clients, we do streamlined filing foreign. There's the FAQs for streamlined foreign. Now, this program has been around I think since 2014 or 2015. It doesn't look like they're gonna be closing it down anytime soon. It is technically a voluntary disclosure program, and those should have a short shelf life. Those normally don't stick around forever and ever. But there's enough of these that have been filed where the IRS is now starting to detect false filings. And so, we have here the case of Mark Anthony Gyetvay that filed a false streamlined filing, and he was indicted for doing so in 2021. $93 million of offshore accounts. I'm not sure how he thought he would get away with filing a false streamlined filing. We also have this person out of Alexandria, Virginia, Mr. Rahman, who filed a false streamlined filing, and basically, they caught them. It's really funny. I think he had accounts in multiple jurisdictions, Bangladesh, UK, Singapore, Switzerland. He reported all of them except for Switzerland. And I would think, if it's the one jurisdiction the IRS knows about, it's gonna be Switzerland. So you don't want to leave off the big boy there and put on all the rest. Here's my checklist of dos and don'ts for streamlined filing. It's a helpful guide. There's a program which is called DIIRSP. It's called Delinquent International Informational Reporting Submission Procedures. This is basically a quiet disclosure. The IRS basically says, "Look, you wanna file your 5-133 compliance, "but as long as you're not under auditor investigation "and you've got reasonable cause, "you really should have nothing to worry about." But I would take that with a grain of salt. If you want maximum protection, use the streamlined filing procedures. That's really the only way to make sure your client doesn't get crazy $10,000 penalties for multiple years. There is also the delinquent FBAR procedures, which, we call it DFBAR. Also another one of those where the IRS says, "Look, if you're not under our investigation, "you haven't filed FBARs, there's no unreported income, "just file your FBARs and be done with it." I'm not a big fan of this program, again, because there's no protection here. There's nothing to say the IRS can't come back and audit and assess $10,000 penalties for all six years. There's a huge hullaballoo down between the IRS and tax practitioners about $10,000 penalties being assessed. A lot of these are being computer generated. The law requires under 6751-B1 that a supervisor signs off on the penalty before it's assessed. So one thing to do if your client gets a $10,000 penalty is check to see, did a supervisor at the IRS sign off on this? Or, was it in fact computer generated or signed off after the fact? Remember, they have to sign off on it before the penalty is issued. So, big thing you wanna check with the client file to make sure that that's been done. The IRS basically says, "Look, we think we don't have to file a 6671-A "as far as giving notice in the hearing. "What's more constitutional than that?" So they think that they can just assess penalties under 6212. I think with some of these $10,000 penalties, the IRS would be better served by, again, giving notice of a proposed efficiency in the hearing and working it out with the taxpayer. Just, before assessing it, it going to collections, and then dealing with it that way. I think that creates a lot of havoc with the IRS. This is just a snip from a comment made by the former streamlined unit chief Dan Price basically indicating that some of these filings that people are doing with reasonable cause statements, the reasonable cause is not being looked at by the IRS. The people that process these international forms are basically seeing these reasonable cause statements, and they are just throwing 'em in the trash. So they're not reading them, 'cause they're not required to read them, they're just required to process the form. They don't make the judgment calls. So again, if you're filing stuff with a reasonable cause statement, just take it with a grain of salt that it likely will not get read by the IRS, and that you'll have to appeal the penalty and provide another copy at that point in time. The first-time penalty abatement appears to now apply to civil penalties for international forms. So we got this recently for a client, which I thought was fantastic. It basically said, "Look, the client had filed 3520-As "for three previous years about the penalties. "Randomly got a penalty which ballooned up to 28,000, "and now we're abating it for first-time abatement." The mailbox rule. I wanna make sure people are aware of this, 'cause sometimes people forget that there's such a thing called the mailbox rule. This applies to basically mail. So if I mail something, like a payment, and I mail it on the day the payment is due, then that's fine, the IRS will honor that through the mailbox rule. But the mailbox rule doesn't apply to electronic payments. So for example, if the payment due date is April 15th, you wanna make your payment by 8:00 PM on April 14th. It's gotta be done the day before for it to be considered timely, or else you may get a late payment penalty. There's the FAST Act, which is, if you end up owing the IRS $50,000 or more in tax plus penalties, they may hold your passport. So maybe you go to renew your passport, the State Department has sent a letter... Excuse me, the IRS has sent a letter to the State Department saying, "Hey, look, this person owes us $50,000 or more." They may hold up your passport until you deal with that issue with the IRS. That came into being in 2015, and we've seen several people that have gotten into trouble with that. OFAC. So, regularly, OFAC publishes sanctions against various countries for violating certain laws. One of the big ones came in 2022. OFAC basically said, "Look, no more tax services "can be provided by US tax firms to certain persons "located in the Russian Federation." Due to the war in the Ukraine, there's strict liability if you do so, so you really gotta check your client base and really know who is your client. So, know your client rules that apply. So, definitely examine those rules further if you think you have issues with OFAC. We also have the... These are not final regulations, so this slide is incorrect. The regulations went final just recently, and this kicks in January 1st, 2024, so a little over a year. But basically, if you have a non-US person that owns or controls 25% or more of a US LLC, going back to that foreign-owned US disregarded LLC filing, this is a FinCEN filing now. This is different. They have to do this beneficial ownership disclosure form to disclose themselves as the beneficial owner, and then company applicants, so perhaps people that filed the formation documents with the Secretary of State. And if you don't file it, it's a $500 penalty per day, up to $10,000. FAQs. So a lot of people will reference FAQs. I have a lot of clients that say, "Well, the IRS FAQ says this. "Shouldn't we follow that?" An FAQ on the IRS website is not the law, and it's not published in the Internal Revenue Bulletin, which means you can't rely upon it. If you go in front of the tax court or a district court, and you say, "Look, I filed this FAQ. "I did it the way the IRS wants me to do it. "You can't hold me responsible "if the IRS determines differently at a later date," they'll say, "Thanks for sharing, but too bad, so sad." It's not something that you can rely upon. So you gotta be real careful when you're relying upon FAQs. The FAQs also change, like they'll remove older versions and update them, so if you are relying upon an FAQ, and again, this is just persuasive authority, it's not something that can be relied upon to win the day, it definitely helps your story to say, "Hey, I looked at it, I relied upon it," but it's not gonna win the day for you. But you definitely want to keep a copy of the FAQ that you did rely upon and date stamp that for your defense if you get into that issue. Okay, well, that's the nuts and bolts of tax penalties, penalty abatements, issues with domestic and informational returns. If you have questions about any of that stuff, we're always available at The Wolf Group to help address those or help address that with your client. I wanna thank everyone so much for attending today's presentation, and hopefully you learned a lot about penalties.

Presenter(s)

MS
Mishkin Santa
Principal, Director of International Tax
The Wolf Group

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                        • 1.0 general
                        December 31, 2026 at 11:59PM HST Approved
                        New Hampshire
                        • 1.0 general
                        December 9, 2024 at 11:59PM HST Available
                        New Jersey
                        • 1.4 general
                        January 16, 2025 at 11:59PM HST Approved
                        New Mexico
                          Not Offered
                          New York
                          • 1.0 areas of professional practice
                          December 9, 2024 at 11:59PM HST Available
                          North Carolina
                          • 1.0 general
                          Pending
                          North Dakota
                          • 1.0 general
                          December 9, 2024 at 11:59PM HST Available
                          Ohio
                          • 1.0 general
                          Pending
                          Oklahoma
                            Not Offered
                            Oregon
                            • 1.0 general
                            December 9, 2025 at 11:59PM HST Approved
                            Pennsylvania
                              Not Offered
                              Puerto Rico
                                Not Offered
                                Rhode Island
                                  Not Offered
                                  South Carolina
                                    Not Offered
                                    Tennessee
                                    • 1.15 general
                                    Pending
                                    Texas
                                    • 1.0 general
                                    Pending
                                    Utah
                                      Not Offered
                                      Vermont
                                      • 1.0 general
                                      December 9, 2024 at 11:59PM HST Approved
                                      Virginia
                                        Not Offered
                                        Virgin Islands
                                        • 1.0 general
                                        December 9, 2024 at 11:59PM HST Available
                                        Washington
                                        • 1.0 law & legal
                                        December 9, 2027 at 11:59PM HST Approved
                                        West Virginia
                                          Not Offered
                                          Wisconsin
                                            Not Offered
                                            Wyoming
                                              Not Offered
                                              Credits
                                                Available until
                                                Status
                                                Not Offered
                                                Credits
                                                • 1.0 voluntary
                                                Available until

                                                December 9, 2024 at 11:59PM HST

                                                Status
                                                Available
                                                Credits
                                                • 1.0 general
                                                Available until

                                                December 9, 2024 at 11:59PM HST

                                                Status
                                                Available
                                                Credits
                                                • 1.0 general
                                                Available until
                                                Status
                                                Pending
                                                Credits
                                                • 1.0 general
                                                Available until

                                                December 9, 2024 at 11:59PM HST

                                                Status
                                                Approved
                                                Credits
                                                • 1.0 general
                                                Available until

                                                January 1, 2026 at 11:59PM HST

                                                Status
                                                Approved
                                                Credits
                                                • 1.0 general
                                                Available until

                                                December 9, 2024 at 11:59PM HST

                                                Status
                                                Available
                                                Credits
                                                • 1.0 general
                                                Available until
                                                Status
                                                Pending
                                                Credits
                                                • 1.5 general
                                                Available until

                                                October 31, 2024 at 11:59PM HST

                                                Status
                                                Approved
                                                Credits
                                                • 1.0 general
                                                Available until
                                                Status
                                                Pending
                                                Credits
                                                • 1.0 general
                                                Available until

                                                December 9, 2024 at 11:59PM HST

                                                Status
                                                Available
                                                Credits
                                                • 1.0 general
                                                Available until

                                                December 8, 2024 at 11:59PM HST

                                                Status
                                                Approved
                                                Credits
                                                  Available until
                                                  Status
                                                  Not Offered
                                                  Credits
                                                  • 1.0 general
                                                  Available until

                                                  December 20, 2024 at 11:59PM HST

                                                  Status
                                                  Approved
                                                  Credits
                                                    Available until
                                                    Status
                                                    Not Offered
                                                    Credits
                                                      Available until
                                                      Status
                                                      Not Offered
                                                      Credits
                                                        Available until
                                                        Status
                                                        Not Offered
                                                        Credits
                                                          Available until
                                                          Status
                                                          Not Offered
                                                          Credits
                                                            Available until
                                                            Status
                                                            Not Offered
                                                            Credits
                                                            • 1.0 general
                                                            Available until

                                                            December 31, 2026 at 11:59PM HST

                                                            Status
                                                            Pending
                                                            Credits
                                                              Available until
                                                              Status
                                                              Not Offered
                                                              Credits
                                                                Available until
                                                                Status
                                                                Not Offered
                                                                Credits
                                                                • 1.0 general
                                                                Available until

                                                                December 9, 2024 at 11:59PM HST

                                                                Status
                                                                Available
                                                                Credits
                                                                  Available until
                                                                  Status
                                                                  Not Offered
                                                                  Credits
                                                                    Available until
                                                                    Status
                                                                    Not Offered
                                                                    Credits
                                                                    • 1.0 general
                                                                    Available until

                                                                    December 31, 2026 at 11:59PM HST

                                                                    Status
                                                                    Approved
                                                                    Credits
                                                                    • 1.0 general
                                                                    Available until

                                                                    December 9, 2024 at 11:59PM HST

                                                                    Status
                                                                    Available
                                                                    Credits
                                                                    • 1.4 general
                                                                    Available until

                                                                    January 16, 2025 at 11:59PM HST

                                                                    Status
                                                                    Approved
                                                                    Credits
                                                                      Available until
                                                                      Status
                                                                      Not Offered
                                                                      Credits
                                                                      • 1.0 areas of professional practice
                                                                      Available until

                                                                      December 9, 2024 at 11:59PM HST

                                                                      Status
                                                                      Available
                                                                      Credits
                                                                      • 1.0 general
                                                                      Available until
                                                                      Status
                                                                      Pending
                                                                      Credits
                                                                      • 1.0 general
                                                                      Available until

                                                                      December 9, 2024 at 11:59PM HST

                                                                      Status
                                                                      Available
                                                                      Credits
                                                                      • 1.0 general
                                                                      Available until
                                                                      Status
                                                                      Pending
                                                                      Credits
                                                                        Available until
                                                                        Status
                                                                        Not Offered
                                                                        Credits
                                                                        • 1.0 general
                                                                        Available until

                                                                        December 9, 2025 at 11:59PM HST

                                                                        Status
                                                                        Approved
                                                                        Credits
                                                                          Available until
                                                                          Status
                                                                          Not Offered
                                                                          Credits
                                                                            Available until
                                                                            Status
                                                                            Not Offered
                                                                            Credits
                                                                              Available until
                                                                              Status
                                                                              Not Offered
                                                                              Credits
                                                                                Available until
                                                                                Status
                                                                                Not Offered
                                                                                Credits
                                                                                • 1.15 general
                                                                                Available until
                                                                                Status
                                                                                Pending
                                                                                Credits
                                                                                • 1.0 general
                                                                                Available until
                                                                                Status
                                                                                Pending
                                                                                Credits
                                                                                  Available until
                                                                                  Status
                                                                                  Not Offered
                                                                                  Credits
                                                                                  • 1.0 general
                                                                                  Available until

                                                                                  December 9, 2024 at 11:59PM HST

                                                                                  Status
                                                                                  Approved
                                                                                  Credits
                                                                                    Available until
                                                                                    Status
                                                                                    Not Offered
                                                                                    Credits
                                                                                    • 1.0 general
                                                                                    Available until

                                                                                    December 9, 2024 at 11:59PM HST

                                                                                    Status
                                                                                    Available
                                                                                    Credits
                                                                                    • 1.0 law & legal
                                                                                    Available until

                                                                                    December 9, 2027 at 11:59PM HST

                                                                                    Status
                                                                                    Approved
                                                                                    Credits
                                                                                      Available until
                                                                                      Status
                                                                                      Not Offered
                                                                                      Credits
                                                                                        Available until
                                                                                        Status
                                                                                        Not Offered
                                                                                        Credits
                                                                                          Available until
                                                                                          Status
                                                                                          Not Offered

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