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Specializing in IRS and NYS Tax Representation. Workers Compensation Audits, Payroll, Sales and Income Tax representation for Businesses, Individuals, Restaurants and Construction Companies. Civil and Criminal Workers Comp Audit representation includes: NYSIF Examinations, Premium Disputes, Employee Misclassification, Underreporting, Unreported Income, and Failure to Keep Accurate Payroll Records.

Thursday, May 31, 2018

Paul Manafort should hire SELIG & Associates + Important Tax Tips

Paul Manafort filed a motion to dismiss the FBAR count, Count 11 of the superseding indictment, here, in the case in E.D. Virginia, United States v. Manafort (E.D. Va. No. 1:18-cr-83 (TSE)).  The argument was the the statute of limitations prevented that count.  As described in the superseding indictment:

COUNTS 11-14: 31 U.S.C. §§ 5314 and
5322(a); 18 U.S.C. §§ 2 and 3551 et seq.
Failure To File Reports Of Foreign Bank
And Financial Accounts

Count 11 was for failure to file the FBAR for 2011, due on June 29, 2012.  The statute of limitations is 5 years (18 USC 3282(a), here), which had lapsed on June 29, 2017.  The original indictment was brought on February 13, 2018, and the superseding indictment brought on February 22, 2018.  The indictment was clearly out of time unless some special rule applied.  And it did.  As the prosecutors explained in its response to the motion, here (and Exhibit A here):

Section 3292(a)(1) of Title 18 suspends the running of the statute of limitations where the government, before the return of an indictment, applies to a court in which a grand jury is investigating the offense to suspend the running of the statute of limitations because evidence of the offense being investigated is in a foreign country. In connection with that application, the government must show, by a preponderance of the evidence, that “an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country.” 18 U.S.C. § 3292(a)(1). If the government is successful in making that showing, the running of the applicable statute of limitations is suspended from “the date on which the official request is made” until “the date on which the foreign court or authority takes final action,” id. § 3292(b), though the suspension may not exceed three years, id. § 3292(c).

Because the government secured a timely and valid order in this District to suspend the running of the applicable statute of limitations until at least the date on which the Superseding Indictment was returned, Manafort’s motion should be denied. On June 6, 2017, the government transmitted a request pursuant to a mutual legal assistance treaty (“MLAT”) to the Republic of Cyprus seeking, among other evidence, bank records, articles of incorporation, and witness interviews concerning certain of Manafort and Richard Gates’s bank accounts in Cyprus.  

On June 26, 2017, the government applied, ex parte, to this Court for an order pursuant to 18 U.S.C. § 3292 to suspend the applicable statute of limitations in light of the government’s MLAT request to Cyprus. This Court (Hilton, J.) granted the government’s request on June 27, 2017, thus suspending the applicable statute of limitations during the pendency of the government’s official request to Cyprus. See In Re Grand Jury Investigation, No. 14 GJ 1420 (E.D.V.A. June 27, 2017) (attached hereto as Exhibit A). As found by Judge Hilton, a grand jury impaneled in this District was conducting an investigation into, as relevant here, the flow of foreign money to Manafort, DMP International, Davis Manafort Partners, Smythson LLC, and Jesand Investment Corporation, and into subject offenses that included potential violations of 31 U.S.C. §§ 5314 and 5322(a) (Failure to File a Report of Foreign Bank Accounts). Judge Hilton further found, based on a preponderance of evidence, that evidence of such offenses was located in Cyprus and that the government had made an “official request” to Cyprus for that evidence under 18 U.S.C. § 3292(d) on June 6, 2017. Having found the requirements of Section 3292 satisfied, Judge Hilton ordered that the statute of limitations be suspended for the FBAR offenses, among others, for the period authorized by Section 3292(c). 

Because Cyprus had not taken “final action” on the government’s June 6, 2017 official request at the time the Superseding Indictment was returned, the statute of limitations remained suspended. Specifically, Cyprus produced documents in response to the government’s June 6 request on September 6, 2017; October 2, 2017; November 1, 2017; and April 30, 2018. Several of the items requested in the June 6, 2017 request remained outstanding at least until the time of the April 2018 production. For example, on December 8, 2017—before Cyprus’s most recent production—the government wrote to Cypriot authorities to renew its June 6, 2017 request (and a related request made two weeks later). The government’s December 8 letter stated that, after reviewing the records produced thus far, investigators had identified several items called for in the MLAT request that Cyprus had not produced. And Cyprus did not make a subsequent response to the government’s request until the April 30, 2018 production mentioned above. The bottom line, then, is that Cyprus had not fully satisfied the government’s official request when the original and Superseding Indictment of Manafort were returned on February 13 and 22, respectively. As a result, no “final action” had yet occurred as of the date of the operative indictments, and the applicable statute of limitations remained suspended. See United States v. Bischel, 61 F.3d 1429, 1433-34 (9th Cir. 1995) (construing “final action” to mean “a dispositive response by the foreign sovereign to both the request for records and for a certificate of authenticity of those records”); see also, e.g., United States v. Ratti, 365 F. Supp. 2d 649, 659-60 (D. Md. 2005) (following Bischel’s interpretation of Section 3292).

The form of business you operate determines what taxes you must pay and how you pay them. The following are the five general types of business taxes.

Income Tax

All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return. For additional information refer to Publication 583.

Estimated tax

Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer to Estimated Taxes

Self-Employment Tax

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
  • If your net earnings from self-employment were $400 or more.
  • If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.
Note: There are special rules and exceptions for aliens, fishing crew members, notary public, state or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax.

Employment Taxes

When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
  • Social security and Medicare taxes
  • Federal income tax withholding
  • Federal unemployment (FUTA) tax
For additional information, refer to Employment Taxes for Small Businesses.

Excise Tax

This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following.
  • Manufacture or sell certain products.
  • Operate certain kinds of businesses.
  • Use various kinds of equipment, facilities, or products.
  • Receive payment for certain services.
Form 720 - The federal excise taxes reported on Form 720, consist of several broad categories of taxes, including the following.
  • Environmental taxes.
  • Communications and air transportation taxes.
  • Fuel taxes.
  • Tax on the first retail sale of heavy trucks, trailers, and tractors.
  • Manufacturers taxes on the sale or use of a variety of different articles
Form 2290 - There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Report the tax on Form 2290. For additional information, see the instructions for Form 2290 .
Form 730 - If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Use Form 730, to figure the tax on the wagers you receive.
Form 11-C - Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering.
Excise tax has several general excise tax programs. One of the major components of the excise program is motor fuel. For additional information, refer to Excise Taxes.

A No Holds Bared Exposé: Advice on Unreported Tip Income and IRC Sections 7436 and 3121(q)

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Advice on Unreported Tip Income and IRC Sections 7436 and 3121(q)

This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent.


1. Whether cash amounts distributed to individuals from “tip boxes” are properly classified as tips under the Internal Revenue Code (Code) and subject to Federal Insurance Contributions Act (FICA) tax.

2. Whether cash amounts distributed to individuals from “tip boxes” are subject to notice and demand procedures under section 3121(q)or whether taxes on cash amounts should be included in Table 3 of Letter 3523,
 Notice of Employment Tax Determination under IRC § 7436.2
All section references in this memo are to the Internal Revenue Code of 1986 unless otherwise noted.Letter 3523, formerly titled “Notice of Determination of Worker Classification” has been renamed “Notice of Employment Tax Determination under IRC § 7436”. For purposes of this memo, we refer to the notice required to be issued to a taxpayer pursuant to section 7436 as “Letter 3523.”

Office of Chief Counsel Internal Revenue Service

Number: 201816010Release Date: 4/20/2018
CC:TEGE:EOEG:ET1:Conway- Hataloski
Third Party Communication: None Date of Communication: Not Applicable
POSTN-129181-17 2
1. The cash amounts distributed to individuals from “tip boxes” are properly classified as tips pursuant to rules stated in Rev. Rul. 2012-18and are wages subject to FICA tax.
2. The cash amounts distributed to individuals from “tip boxes” are tips and thus subject to notice and demand procedures under section 3121(q).
Taxpayer engages individuals to perform services at the Taxpayer’s request and on the Taxpayer’s premises. Taxpayer treats the individuals as volunteers and does not directly pay the individuals any form of compensation or benefits for their services. Taxpayer acknowledges, however, that the individuals receive cash payments from amounts contributed by customers. The cash amounts are deposited by customers in “tip boxes” placed by Taxpayer in the vicinity of where the individuals perform services.
Taxpayer places the “tip boxes” to encourage customers to contribute cash amounts to the individuals. Taxpayer does not require customers to make cash contributions and customers have discretion on how much cash to contribute (including zero contribution).
The amount of cash in the “tip boxes” is distributed at the end of each shift. Individuals who performed services during a shift determine how to allocate the tip box amount between all of the individuals who performed services during that shift. Although Taxpayer is aware that customers place cash in the “tip boxes” and that the individuals working each shift distribute the cash among themselves, Taxpayer does not have a system in place for individuals to provide written statements reporting the cash amounts received to Taxpayer, and there is no evidence that Taxpayer has knowledge of the specific amount of cash received by each individual. Taxpayer does not issue Forms W-2, Wage and Tax Statement, to the individuals and has not included any wages or taxes in connection with their services on Form 941, Employer's QUARTERLY Federal Tax Return.
During the course of an audit, the Service determines that Taxpayer has the right to direct and control the individuals as they perform services and that the individuals should be classified as employees of Taxpayer for purposes of FICA taxes. In addition to its worker classification determination, the Service proposes a FICA tax liability related solely to the unreported cash amount received by the individuals.The Service issues Letter 3523 to Taxpayer at the conclusion of the audit, notifying Taxpayer of its worker classification determination.
2012-26 I.R.B. 1032.For purposes of simplicity, this memo does not address any determination made by the Service with regard to Section 530 of the Revenue Act of 1978 or any potential Federal Unemployment Tax Act (FUTA) or income tax withholding liability.
POSTN-129181-17 3
Your inquiry relates to whether the cash amounts are “tips” subject to notice and demand procedures under section 3121(q) or whether tax on the tip box amounts should be included in Table 3 of Letter 3523, which lists the proper amount of employment tax, additions to tax, and penalties with respect to payments made to individuals who are being reclassified as employees.
Sections 3101 and 3111 impose FICA taxes on employees and employers, respectively. FICA taxes are imposed on “wages” as that term is defined in section 3121(a). Section 3121(a) defines wages as all remuneration for employment with certain specific exceptions. Section 3121(a)(12)(A) excludes “tips” from the definition of wages if paid in any medium other than cash. Section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee’s employment by an employer, unless the amount of the cash tips is $20 or more.
Section 3102(a) requires employers to deduct from wages and pay over the employee portion of the FICA tax. However, section 3102(c)(1) provides a special rule applicable to tips. It states, in relevant part, the employer’s obligation to deduct employee FICA tax from tips which constitute wages is applicable only to such tips as are included in a written statement furnished by the employee to the employer pursuant to section 6053(a), and only to the extent that collection can be made by the employer by deducting the amount of the tax from wages of the employee (excluding tips) as are under control of the employer, or from other funds made available by the employee for this purpose.
Under section 3121(q), tips received by an employee in the course of the employee’s employment are considered remuneration for that employment (and are deemed to have been paid by the employer for purposes of the employer portion of the FICA taxes imposed by sections 3111(a) and (b)). For purposes of determining the timing of the employer’s FICA tax liability, the remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section 6053(a). However, if the employee did not furnish the statement, or if the statement furnished was inaccurate or incomplete, the remuneration is deemed to be paid on the date on which the Service issues a notice and demand under section 3121(q) for the taxes to the employer.
The characterization of a payment as a “tip” by the employer is not determinative for purposes of determining when the employer portion of FICA arises. Section 31.3121(a)-(1)(c) of the Employment Tax Regulations provides that the name by which the remuneration for services is designated is immaterial. Thus, designating a payment as a tip is irrelevant if the amount is paid as compensation by an employer for services
POSTN-129181-17 4
performed by its employee. For example, Rev. Rul. 59-252holds that the payment by a customer of a fixed charge imposed by a banquet hall that is then distributed by the banquet hall to the employees who render services (e.g., waiter, busser, and bartender) is a service charge and not a tip. To the extent any portion of a service charge paid by a customer is distributed to an employee, it is wages for FICA tax purposes at the time it is distributed.
Tips are not defined in the Code or regulations; however, published guidance addresses how to determine whether a payment is a tip. Rev. Rul. 2012-18 reaffirms the factors first stated in Rev. Rul. 59-252 which are used to determine whether payments constitute tips. Rev. Rul. 2012-18 provides that the absence of any of the following factors creates a doubt as to whether a payment is a tip:
1) payment must be made free from compulsion;
2) the customer must have the unrestricted right to determine the amount;
3) the payment should not be the subject of negotiation or dictated by employer policy; and
4) generally, the customer has the right to determine who receives the payment.

Under the facts presented, the four factors set forth in Rev. Rul. 2012-18 have been satisfied. The fact that the cash contributions are collected by the individuals who work during the shift and pooled for purposes of distribution among them satisfies the fourth factor. The customers generally have the right to determine who receives the payment when the tipped amounts are pooled and the individuals working each shift distribute the cash among themselves.
Once the amounts have been properly identified and characterized as tips, the timing of the FICA rules for employer tax liability purposes can be applied. Because the tips have not been reported to the taxpayer pursuant to section 6053(a), they are deemed to be paid on the date on which the Service issues a notice and demand under section 3121(q) for the taxes to the taxpayer. Thus, the tips are not subject to the employer share of FICA tax until the Service issues a notice and demand under section 3121(q).
The Service should issue Letter 3523 to Taxpayer based on the worker classification determination, and should identify in Table 1 the individuals the Service determined should be reclassified as employees. However, tax on the cash amounts received by the individuals should not be included in Table 3 of Letter 3523 because the tips are deemed paid only after the Service issues a notice and demand under section 3121(q). Thus, the only issue that would be subject to Tax Court jurisdiction would be the proper worker classification of the individuals listed in Table 1.
If an amount properly characterized by an employer as a tip was reported by the employee to the employer in accordance with section 6053(a), it would be deemed to be
1959-2 C.B. 215.

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Tuesday, May 29, 2018


Life insurance agents, Samuel Tadlock III, 32, of Eastvale, Marlene Ramirez, 42, of Murrieta, Daniel Herrarte, 34, of Sylmar, and Jorge Lopez Jr., 38, of San Fernando, were arrested on multiple felony counts of identity theft and grand theft after allegedly submitting fraudulent insurance applications with information from stolen identities to collect approximately $124,000 in unearned commissions from insurance companies. Scotty Carlisle, 42, of Corona, is making arrangements to surrender himself. 

"I have zero tolerance for agents and brokers who scam insurers and victimize consumers," said Insurance Commissioner Dave Jones. "We aggressively investigate allegations of wrongdoing and work with our district attorney partners to prosecute scam artists and dishonest insurance producers." 

An investigation by California Department of Insurance Investigation Division revealed the agents issued life and supplemental insurance policies for Accident, Accident Care, Critical Illness, Disability, Medical Bridge, and Group Medical Bridge, using fraudulent applications as part of a scheme to earn commission advances from insurers.

The suspects altered and falsified applications by making changes to essential information, including addresses, phone numbers, birthdates and social security numbers and submitting new application through the insurer's electronic database. Not only were the agents collecting unearned commissions, they were allegedly trying to take advantage of bonuses, including a Hawaiian trip incentive offered to qualifying insurance agents.

When the victim insurer discovered inconsistencies in the applications, they terminated the sales agents' contracts, removed them from the incentive promotion and reported the alleged illegal activity to the department.

Selig & AssociatesWe solve Tax Problems including Tax Crimes, Tax Evasion, Failure to File a Tax Return and Criminal Non-Filing, Filing False Tax Returns, Installment Agreements, Partial Payment Agreements, Audits, Sales Tax Controversies, Wage Garnishments, Bank Levies, Seizure of Property, Innocent Spouse Relief, Trust Fund Recovery Penalty, Payroll Taxes, Statute of Limitations, Offer in Compromise ("OIC"), Administrative Appeals, Collection Due Process Hearings ("CDP") Asset Protection Trusts, Tax Liability Settlement Trusts, and most other tax matters.  

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The Sovereign Citizen Movement (is coming back like a bad penny)

Individuals and groups who identify with the Sovereign Citizen Movement claim that the Federal Government is operating outside its jurisdict...