Category Archives: Tax Negotiation and Representation

UK Tax Investigations On The Increase

HM Revenue & Customs (HMRC) is under huge pressure to increase tax receipts and reduce tax leakage. As a result, HMRC has a growing appetite for launching investigations where it considers there is a reasonable possibility of collecting under-declared tax.

Intensive bursts of compliance activity are targeting business sectors considered to be high risk, and HMRC is sharing information internally more effectively than ever before, thus increasing its chances of identifying potential anomalies in taxpayers’ affairs. “The tax authority has created dedicated common interest teams, such as a unit focused on high net worth individuals and offices which deal exclusively with large businesses,” explains Valerie Watson, Moore Stephens tax partner who has assisted many clients on tax investigations. “Non-domiciled individuals taxed on the remittance basis are now handled by one tax district, again enabling easier cross-referencing and sharing of information.”

Tax inspectors may also be making use of new media, such as the internet, to identify individuals with valuable assets (such as holiday properties that are being let out for income) or undeclared profits (for example, from trading through internet auction sites).

New information sharing agreements between national tax authorities are also having an impact. Following the Tax Information Exchange Agreement between Liechtenstein and HMRC, the details of UK-resident taxpayers who hold accounts or assets in Liechtenstein will be passed to HMRC. “This goes hand-in-hand with the Liechtenstein Disclosure Facility”, says Valerie, “which provides an opportunity for UK taxpayers to declare any unpaid tax voluntarily in exchange for reduced penalties and immunity from prosecution.”

Another notable example that reflects the changing times is the agreement reached between the UK and Switzerland whereby the Swiss banks will levy withholding tax on UK taxpayers’ bank accounts held in Switzerland and pass the sums concerned to HMRC via the Swiss tax authorities. They will do so without identifying any taxpayers, but this nevertheless represents a marked change in attitude by the Swiss Finance Department.

Specific events can also trigger tax investigations, as Valerie explains: “HMRC is currently investigating approximately 500 UK-resident holders of HSBC accounts in Switzerland, using data passed on by an ex-employee. HMRC has been using this data to open Code of Practice 9 investigations – which relate to cases of suspected serious fraud – without apparently screening to check whether taxpayers have already made appropriate disclosures. HMRC’s new Offshore Coordination Unit has started contacting the remaining account holders to offer them the opportunity to make a disclosure.”

This highlights the fact that individuals and businesses can find themselves subject to a tax investigation without there necessarily being any actual wrongdoing. However, given the complexity of the current tax system and the scope for differences of interpretation, any detailed HMRC investigation stands a reasonable chance of finding some element of under-declared tax somewhere in the affairs of an individual or a business.

Via EPR Network
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Tax Refunds Help Americans Pay Down Debts, Get Caught Up On Bills, Or Simply To Make Ends Meet

Millions of Americans count on their tax refunds each year to pay down debts, get caught up on bills, or simply to make ends meet. With an estimated 1.5 million personal bankruptcies to be filed in 2011, bankruptcy lawyers around the country are being asked the same question: “What will happen to my tax refund if I declare bankruptcy?”

Income tax refunds are basically interest-free loans to the government, and are therefore considered assets of debtors who declare bankruptcy. The trustee assigned to your case may be able to seize your income tax refund, depending upon two main factors: first, what type of bankruptcy you file, and second, whether your refund is fully  exempted.

TAX REFUNDS

•  According to the IRS, the average tax refund for 2009 was $3003 per person.

•  Early filers usually get larger refunds.

•  There were $1.2 trillion in personal taxes in the 2009 tax year.

The two main types of personal bankruptcy cases are Chapter 7 and Chapter 13. In a Chapter 7 case, debtors are essentially allowed to walk away from their debts.

In a Chapter 13 case, debtors must repay their unsecured debts over 3 to 5 years.

Most Chapter 7 cases are considered “no asset” cases, and for those assets that the debtor does possess, there are federal and state exemption laws, which prevent the bankruptcy trustee from seizing and selling the debtor’s property.

Just like the debtor’s household goods, clothing and automobile, in most Chapter 7 cases the debtor’s tax refund can be fully exempted, which means the bankruptcy trustee cannot even consider seizing the refund. However it is very important to use the full and correct exemptions to protect the refund.

BEFORE YOU FILE BANKRUPTCY

•  Tweak your withholdings to produce more immediate income throughout the year, which will reduce your refund return at the end of the year

WHEN YOU FILE

•  You must disclose all of your assets and all of your debts, and your tax refund is an asset. Bankruptcy fraud is a serious crime.

•  Maximize the bankruptcy exemptions on your refund and in most cases, you will be able to keep it.

AFTER YOU FILE

•  If your refund is exempt, the money is yours to keep.

•  If your return must be surrendered, the trustee in your case will directly notify the IRS, and you will likely never even see the money.

Chapter 13 cases can be a bit more complicated. If you have a confirmed Chapter 13 Plan that requires repayment of only a percentage of your debt, your trustee will likely seize your refund every year over the course of your bankruptcy, using the proceeds to increase the payout to unsecured creditors.  Income tax refunds in Chapter 13 are considered “property of the estate,” so your trustee will want to apply this money toward payment of your Plan.

Via EPR Network
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