All U.S. Taxpayers Must Pay Taxes on Worldwide Income

New York is a very cosmopolitan city with people from all over the world living and working here.Unlike many other countries, United States citizens, and Green Card holders which work here, must report their worldwide income.   Many people have called this office with regard to this issue.  Is there a way they don’t have to declare their worldwide income?The answer is NO. If you are a Green Card holder, or a United States citizen you must declare your worldwide income.  However, there are credits that you may take for taxes you pay to other countries as well as credits for housing, and you are able to exclude income based on other factors as well.

At the minimum, the income must be declared.  This also includes declaring foreign bank accounts, broker, and asset holdings (see website FBAR discussion for further discussion on this issue).

Recent Swiss Case Involving US Green Card Holders

For U.S. citizens and Green Card holders, you are required to report this income.  In the case recently reported,anAmerican person livingin Switzerland, failed to do so and late filed for 2008 and 2009 and was sentenced to 15 months in prison.  This was upheld as their 2012 and 2014 Returns were misleading and had every reason to believe they had committed tax evasion. In another case,  A Swiss Executive pled guilty to tax fraud conspiracy involving wealthy American citizens living in Switzerland. In that case he helped Americans conceal over $60 million in assets.

https://www.irs.gov/compliance/criminal-investigation/swiss-executive-pleads-guilty-to-tax-fraud-conspiracy

BEST PRACTICES      

In simplest terms, you must file if you are living abroad.  If you are living here, you mustfile and declare your worldwide income.  For more information on this issue see:

https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-residents-abroad-filing-requirements

It’s simply just not worth the risk of trying to conceal your income from overseas and other sources.  The IRS is the most aggressive and complete collection agency in the world, with offices not just in the United States but overseas as well.

There are country-to-country information sharing agreements of income.  American citizens living in Switzerland have  their bank account information reported to the IRS.

If you have questions regarding theseor other issues or concerns, please contact our office  at 212-387-7880 or email at daniel@dmsilverlaw.comto discuss it for free,  no obligation half-hour consultation.  We have helped numerous people with these issues in the past and would like to help you in the future.

Boris Becker has fallen, and notonthegrass at Wimbledon.  The Code Violation he is facing is much more serious than a point penalty for bad behavior. Becker broke the the English Bankruptcy Laws and now faces jailtime.

Boris Becker was one of Tennis’ Great Champions having won 6 majors in the 1980s and 1990’s. He also won 13 Masters Series Titles ,an Olympic gold medal in doubles among many other titles and achievements. He later went onto coach Novak Djkovic for 3 years. www.en.wikipedia.org/wiki/Boris_Becker

Sadly, those achievements will not help him now.  A native of Germany, Becker was recentlys entenced to a two-year sentencein a London jail for concealing debt, removal of property, and fraud. Becker had previously filed for Bankruptcy in June 2017 in England. However, at the time of his bankruptcy filing Becker was dishonest and failed to disclose almost one half million dollars in a bank account. He later transferred these funds several times in an attempt to conceal them as well as a German property and 75000 shares of stock.

https://edition.cnn.com/2022/04/29/tennis/boris-becker-jail-sentence-bankruptcy-spt-int/index.html

Bankruptcy in England as in America requires honesty, transparency and cooperation. You must properly disclose your assets and turn over property that is required by the Courts. The system relies on the participants filing of papers that are accurate and truthful.  Failure to do so results in severe penalties including criminal prosecution which can result in jail time as in Becker’s case.

This case can be very useful to understanding American Bankruptcy law. What happened to Boris Becker can unfortunately happen to anyone who tries to lie or cheat the system. In Becker’s case it involved monies, properties and stock that were supposed to be turned over to the Court. This could easily have been the situation here in America in a typical bankruptcy case where there are Business interests or assets.

In America, there are many reported cases of bankruptcy fraud and crimes. The difference in Becker’s case is that he was a famous person who everyone will recognize his name. Other persons who commit bankruptcy crimes are unknown persons other than their new notoriety for their criminal conduct.

The bottom line is if you cooperate and are honest, you should have nothing to worry about. If you try to cheat the system or cover-up wrong-doing this is where serious problems start.

If you are experiencing financial hardships and solvency issues, do not let this pressure you in to making poor decisions. This could lead to significant legal liability.  Instead contact the bankruptcy and tax experts at the Law Offices of Daniel M. Silvershein to answer your questions or for a free consultation. Please contact the office at (212)-387-7880 or via email at daniel@dmsilverlaw.com.

ATTENTION FAIRWRAY SHOPPERS: THIS STORE IS FILING FOR BANKRUPTCY

No, you won’t be hearing this announcement while walking down the aisles of your local Fairway. However, if you were in Federal Bankruptcy Court, you could be hearing Fairway being called as the next case on the calendar. Fairway, an iconic NY supermarket filed bankruptcy again on January 23, 2019. This was not the first time that the store has been though the Chapter 11 process. The company previously filed in 2016. Attention Fairway shoppers, this time it may lead to liquidation or a sale of the business and a shutdown of its
operation.

Chapter 11 Bankruptcy is when a company attempts to reorganizes through restructuring their affairs: such as negotiation with their creditors for better terms on their debt, or in this case with Fairway, by closing off their locations and rejecting leases with their landlords. There are many options available to the Chapter 11 Debtor that outside of Bankruptcy are simply not an option.

It is possible that Fairway may sell the name or individuals stores to another investor or grocery store chain which may keep the Fairway name or chose to change the name of the store’s locations. It is also entirely possible that the stores will close for good.

FAIRWAY’S PRIOR BANKRUPTCIES

Fairway Market began as a small corner store on the Upper West Side of Manhattan in the early 1930’s and then rapidly expanded within NYC with approximately 15 locations throughout Harlem, Chelsea, Kips Bay, and far into the suburbs. Fairway’s downturn started in 2007 when the Glickberg family sold an 80% stake to private equity firm Sterling Investment for $140 million. Fairway quickly fell victim to Sterling’s aggressive expansion plan aimed at enticing suburban shoppers. This also burdened the company with a crushing $300 million in debt. Fairway first filed Bankruptcy in 2016. Some of the reasons contributed to their overexpansion and overhang of too much debt to service.

THE GM BANKRUPTCY AS A LEADING EXAMPLE OF OPERATING UNDER
CHAPTER 11

Back in 2008 when the “Great Recession” hit the General Motor Company filed for bankruptcy. GM had many unprofitable factories in North America. Several of these were closed, which they were legally entitled to close and break leases which they would be unable to do outside of bankruptcy. Certain unprofitable car lines were discontinued, which would have been a more difficult step outside of bankruptcy.

Since the 2008 Bankruptcy filing, General Motors is back and profitable. The company and thousands of jobs were saved through its restructuring process. The system worked as intended. Fairway is a long-standing supermarket franchise in the New York City and suburban market. The Chapter 11 Process will allow your local Fairway to become another grocery store; depending on who ultimately purchases these locations. For now, they will continue to operate as grocery stores. While the proceeding is going on, it is also possible that some stores may close.

FAIRWAY’S DEBT PROBLEM

If Fairway’s financial situation sounds familiar, sadly, it is. In many cases, businesses overextend and take on too much debt which their cash flow cannot support . These circumstances force them to face default or file for Chapter 11 bankruptcy. This also happens to individuals who use credit cards or bank loans to overextend themselves. They are left with monthly payment, which given their currently cash flow and expenses to live in NYC, they are unable to maintain. This burden causes great personal stress, anxiety and general unpleasantness.

My practice has for over 20 years advised, helped restructure businesses and individuals in filing for Bankruptcy whether it be chapter 7 or 13 for individuals or Chapter 11 for businesses. If you are a business or individual that are experiencing such problems, please feel free to contact our office at (212)387-7880, or by emailing at Daniel@dmsilverlaw.com.

Source:

Noah Manskar and Lisa Fickenscher, L. Fairway Bags Sale: Legendary Grocer Unsure Name
Will Live On, New York Post, January 24, 2020. @ pg 31.

The IRS wants taxpayers to be responsible, diligent, and punctual. Similarly, Amazon has grown as a company by building up its reputation with reliable delivery times. Many taxpayers could learn from Amazon when it comes to fulfilling tax responsibilities in a timely manner.  If you owe money to the IRS, only you are responsible for making sure they receive timely payment.

Be Careful When Sending  Returns/Extensions with Payment to the IRS:

If you think it’s hot in Texas, wait until the IRS comes along. In a recent case, a Texas man learned this the hard way. He slipped a check for $46,073 owed to the IRS “under the mat at the front door” of his former wife’s residence, with the understanding that she would file an extension along with the check, The pair had continued to file their tax returns jointly since their separation in 2007. The IRS neither received the check nor the extension because the wife never sent it out. As a result, the IRS issued a notice of deficiency and tacked on penalties for the couple’s failure to file and pay.  James Plato, TC Memo 2018-7 (Tax Ct.); In re “Penalties – Estranged Husband Didn’t Exercise Reasonable Care in Filing Joint Return” Thompson Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-03/Page 3.

The taxpayer decided to go to Tax Court to challenge the penalties that the IRS had issued against him. The Texas man argued that his failure to meet the deadlines was NOT willful, citing his history of tax compliance and efforts to pay the amount owed. The Tax Court disagreed and ruled against the taxpayer because he failed to “do everything possible to see that (the) return was filed.”

In re “Penalties – Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-03/Page 3; Plato, 2018-7 (Tax Ct.).

Act Early to Avoid Additional Tax Liability:

The IRS Tax Code imposes a hefty minimum 0.5% penalty per month for taxpayers that fail to pay their tax liability in a timely manner, I.R.C. 6651(a)(1)/(2). This penalty could increase to 25% if the liability is not paid within 4 months of the deadline. Taxpayers are best advised to not rely on others to fulfill their tax obligations, especially estranged spouses.

If you have neglected your tax liability by failing to pay amounts owed or failing to file your return, address these problems before the IRS decides to enforce the amounts owed. My law firm has specialized in helping clients successfully challenge tax liability owed to the IRS for over twenty years. For many taxpayers, penalties and interest accrued can successfully be challenged against the government. If you have unfiled returns or owe money to the IRS, schedule a free thirty-minute consultation at my office to resolve your tax problems. Call us at (212) 387-7880 or email us at daniel@dmsilverlaw.com.

The Tax Code has long incentivized taxpayers to start or invest in a trade or business by giving various tax incentives in the form of special deductions, credits, and exemptions. However, such special treatment of business income and loss is subject to restrictions that business owners and investors must be wary of to avoid scrutiny from the IRS.

The Hobby-loss Rules:

Many Americans enjoy hobbies that are also a source of income for them. These can include a wide array of activities such as creating art, baking cupcakes, or training horses. The distinction between hobby income and business income is an important one because the IRS only allows losses for a limited amount of years. Consistent losses over several years may result in your business to be treated as a hobby by the IRS. Since hobbies are usually done for enjoyment more so than for profit, the IRS employs a test that focuses on profitability. If you have turned a profit in the last three out of five years, you will be considered to have business income. If you have been unprofitable for three or more years out of the last five, you will be considered to have hobby income IRC § 183(e)(2).

Flipped Real Estate Flipper:

In a recent 2018 Tax Court case, Homayoun Samadi, TC Summ. Op. 2018-27 (Tax Ct.), the IRS relied on the hobby-loss rules when it refused to allow a taxpayer’s business losses because he had collected no income for several years. The case involved a taxpayer that was a licensed real estate agent in California who was in the “business” of flipping houses together with his friends and family. The group intended to buy homes, renovate them, and sell for a profit. Over the course of several years the taxpayer would drive the members of his group about 192 miles a week between different cities in California to “scout” potential investment properties. They had never actually invested in a property. The taxpayer deducted on his federal tax returns the costs he incurred for travel and other expenses, and the IRS challenged these deductions in Tax Court. The taxpayer lost the case because it was found that he did not own a trade or business, and the Court demanded the reversal of the business deductions which totaled over $35,000.

In re “House Flipping activity wasn’t a trade or business,” Thompson Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-11/Page 2; Homayoun Samadi, TC Summ. Op. 2018-27 (Tax Ct.).

How to Protect your business:

This case is a cautionary tale for taxpayers that wish to take advantage of the IRS’ generous treatment of U.S. business activity. The Hamayoun case makes clear that business owners are not always afforded the luxury of deducting losses for extended periods of time. If your business has not been profitable for several years, or if you are unsure about the tax consequences of your business operations, it is critical that you re-evaluate your business model with a tax professional to ensure that the IRS will not invite you to Court. In addition to offering such tax planning services, my law firm has also successfully defended business owners that have already attracted unwanted attention from the IRS.

If you have any questions or wish to learn about how to protect your business, call The Law Offices of Daniel M. Silvershein at 1(212) 387-7880, or email me at daniel@dmsilverlaw.com. We offer a free-of-charge thirty-minute consultation to help clients better understand how they can shield their business from the IRS.

Lerma Aquino, the business manager of TGI Friday’s on Guam, was indicted for allegedly under-reporting employee’s tips and service charges and cheating the IRS of money owed to them.   It’s alleged that Aquino avoided paying hundreds of thousands of dollars in employment taxes.

Some of the examples in the indictment include:  In the fourth quarter of 2010, Aquino reported that her employees received approximately $30,800 in tips when they actually received over $167,000 in tips and service charges.  For the first quarter of 2011, the amount of reported tips received was $33,600 instead of the actual amount of $216,600.  And again in the second quarter of 2011, the correct amount of tips was $157,000 but reported as only $34,300.  In total, the underreporting caused a loss to the United States over $225,000.

Aquino allegedly directed her employees to report a flat $1-$2 an hour as tip income instead of the actual amount early.  She also either modified or refused to accept truthful tip reports.

In February, 2016, Internal Revenue Commissioner John Koskinen spoke to the Senate Finance Committee and assured lawmakers that the problem of rehiring employees behind on their taxes, had past conduct or performance problems would be addressed.

But despite these promises, auditors found that the IRS rehired 200 former employees that were terminated for issues ranging from falsifying employment forms, unauthorized use of taxpayer accounts, misuse of email or property, workplace disruption, and violations of the Internal Revenue Code. Four of the rehired employees cheated on their own taxes and another four were found to have improperly accessing taxpayer records. In addition, one employee had several misdemeanors for theft and a felony for possession of a forgery device.

The Treasury Inspector General for Tax Administration has recommended to the IRS Human Capital Officer to increase the amount of hiring officials and give them increased access to job candidates’ past performance records and require that the basis for rehiring them be clearly documented.

Anthony Gosha, aka Boo Boo, of Phoenix City, Alabama, was arrested by federal agents in July 2017 on charges of filing fraudulent tax returns, conspiring to commit mail fraud, wire fraud and aggravated identity theft.

The indictment alleges that Gosha stole over 7,000 ID’s and used those to file phony tax returns with refunds totaling over $19 million.

Some of the ID’s were stolen from an Alabama state agency, and Gosha also used Electronic Filing Identification Numbers in the name of a fake tax prep business in which they used to file the returns.

On those returns, they instructed the IRS to either issue prepaid debit cards or U.S. Treasury checks.  Gosha recruited several postal carriers to provide addresses on their mail routes to which the refund checks could be sent.  The checks were then cashed at various check cashing businesses in Alabama and Georgia.

If convicted on all charges, Gosha faces up to a maximum of 30 years in prison plus a minimum of 2 years for each count of identity theft, supervised release, restitution, forfeiture and monetary penalties.

Commercial fisherman from Alaska, Archie and Roseann Demmert were charged in federal court with four counts of willful failure to pay individual income tax. Information obtained by the court shows a long history of not paying their taxes, going back over 13 years, in which they owed the IRS over $400,000, not including penalties and interest.

The arraignment has not been scheduled yet, but the couple faces a maximum sentence of one year in prison on each count, as well as supervised release, restitution and