Dana Lee CPA LLC Team

$350 million in income is what a defense contractor allegedly tried to hide from the IRS. Although unsuccessful, since he was arrested this July of 2024 in Ibiza, Spain.

The Story

Edelman became a millionaire during the United States’ post-9/11 military efforts in Afghanistan and the Middle East. His defense contracting business received more than $7 billion from contracts with the U.S. Department of Defense to provide jet fuel to U.S. troops in Afghanistan and the Middle East.

He tried to use Delphine, his French wife to escape US taxation. He tried to say that Delphine founded and owned the defense contracting business. And because she was a French citizen residing abroad, she did not have U.S. tax obligations. Although he was a 50% owner of the defense contracting business. Edelman told this false story of Delphine’s ownership to various arms of the U.S. government, including to a Subcommittee of the U.S. House of Representatives during a 2010 Congressional investigation, to the Department of Defense during contract negotiations, to the Internal Revenue Service in a 2015 application to the Offshore Voluntary Disclosure Program, and to the Department of Justice in a 2018 presentation.

Edelman Used Foreign Banks And No FinCEN Reporting Was Done

In addition, the IRS says that he tried to hide his defense contracting profits into foreign banks. He used banks who were known to shield account holder identities from U.S. authorities. Edelman used banks in Switzerland, the Bahamas, Singapore, and the United Arab Emirates. And on top of that he held the accounts in the name of non-U.S. entities that were created in other foreign countries, Panama, Belize, and the British Virgin Island.
Well, this didn’t stop the IRS Criminal Investigation Division, who, in collaboration with Britain, Spain, and The Joint Chiefs of Global Tax Enforcement (known as the J5) caught up on his scheme. If you didn’t know, the J5 brings together the taxing authorities of Australia, Canada, the Netherlands, the United Kingdom, and the United States.
Edelman used these funds he tried to conceal from the IRS to fund his other business ventures around the world. He also had a business selling internet services to U.S. troops and contractors at Kandahar Air Base in Afghanistan. Also, he had a Mexican fuel infrastructure project, and a music television franchise in Eastern Europe. He allegedly also used the money to buy a ski chalet in Austria. Plus, he bought a house in Spain and a townhouse in London. He also bought multiple yachts—all of which were purchased in the name of nominees.

FinCEN Requirements

Now, if you didn’t know, if you have or control foreign bank accounts and assets or foreign business interests you might need to report them not only to the IRS, but also, to the Financial Crimes Enforcement Network (FinCEN).
You can see some of the rules and IRS forms regarding foreign assets here: form 8938, form 8858, form 8865, form 5471, form 3520 and form 8621. But you should consult with a tax professional if you have such assets.

Conclusion

Edelman and Delphine are charged with conspiring to defraud the United States and 15 counts of tax evasion. Edelman also is charged with two counts of making false statements to the United States, and 12 counts of willfully violating his foreign bank account reporting obligations, as part of a pattern of unlawful activity. They both face many years of prison.

Now keep in mind, the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

IRS Chief Counsel Margie Rollinson announced the creation of a new Associate Office that will focus exclusively on partnerships, S-corporations, trusts and estates.

During the last decade of IRS budget cuts, the pass-through entities like S Corporations and partnerships have not seen too many audits or scrutiny. But this change is imminent because, as we discussed earlier, the IRS will receive an infusion of $60 billion over the next ten years, in addition to its annual appropriation. So now it has enough funding and it’s moving fast.

The IRS also plans to bring in outside experts with private-sector experience regarding pass-throughs to work alongside the expert in-house knowledge of current IRS employees.

Plus, the Internal Revenue Service now is paying a lot more than in the past and it’s attracting more mid-career professionals, so that the Service can increase its compliance enforcement fast and not spend a lot of time on training its employees.

S Corporations

If you have an S Corporation, make sure you have all owners pay themselves reasonable salaries for their work. Pay attention to properly calculate your basis in your S Corporation. When owners take distributions make sure that these are made according to the ownership percentages, so that you do not lose your S Corporation status. Make sure you have the proper support for your deductions, especially in hot areas like vehicle expenses, meals, uniforms, donations. Properly reconcile your books. Do your bank and credit card reconciliations.

Partnerships

If you have a partnership, pay attention to the basis calculation. Another hot are here is the income flowing to the owners that is subject not only to income tax, but also to self-employment tax. Pay attention to the status of the partners, if they are truly limited partners or are they involved in the management of the business? Pay attention to how you deduct your out-of-pocket expenses. And of course, do your reconciliations and have the proper support for your deductions.

Conclusion

If you need tax advice regarding your business or if you are opening a new business, we offer comprehensive business advisory services that help our clients not only avoid IRS headaches, but also save on taxes by having the right tax set-up and strategy. If you are in need of a good CPA firm contact us!

You can check our YouTube channel for more subjects that you might find useful.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

The IRS is evolving fast! The IRS that you are dealing with today or dealt with last year is not the same IRS that you’re going to be dealing with in 2 – 3 years.

Over the next ten years, an infusion of a whopping $60 billion will be allocated to the IRS, in addition to its annual appropriation. This isn’t just a minor adjustment; it’s a major financial influx that’s enabling the agency to transform how it operates.

What Does This Mean For You And Me?

The IRS now has enough money that it can hire more people.  And we’re not talking fresh graduates, but mid-career professionals who can really hit the ground running. This is evident from the job postings on their website, which now offer significantly higher pay than in the past.
And with these new hires, the IRS is ramping up its audit activities of everyone, which are going to hit pretty soon.
Last year alone, they increased the number of revenue agents by about 9%.

IRS Commissioner Danny Werfel said in March that the Service has focused enforcement on high-income groups by serving notices to 125,000 people who have not filed a federal income tax return since 2017, including 25,000 with incomes over $1 million; conducting audits focused on the use of corporate jets; and collecting $520 million since mid-2023 in taxes owed by millionaires.
But it’s not just millionaires in their sights. Pretty soon they will expand their audit activities to all individuals and businesses. Because now the IRS doesn’t have to pick and choose among whom to audit anymore.

With new technology that the IRS is putting in place and with increased audit workforce they will have the capacity to significantly increases its examinations.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If your tax situation is simple enough, where you feel comfortable filling your tax return on your own, you might not need to buy a tax software, like TurboTax or Tax Act every year.

That is because starting with 2025, so starting with the next year tax season you will be able to file your tax return directly with the IRS.

This year, in the 2024 tax season, the IRS had a pilot program called Direct File which allowed people to file their returns directly with the IRS. This program was available only in 12 states and only for 5 weeks. The program went so well that the IRS decided to make Direct File permanent starting with the 2025 tax season while making it available to all states, with plans to expand to more complex returns.

As of now the returns supported by DirectFile are the ones with the following types of income and deductions:

Income: wages, Social Security income, unemployment compensation and interest income of $1,500 or less.

Credits: earned income tax credit, child tax credit and credit for other dependents.

Deductions: standard deduction, student loan interest and educator expenses.

So for now you cannot use the IRS software if you itemize deductions.

We will keep you posted as the IRS expends the type of returns that can be filed through their program.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Having a good accountant can save you a lot of IRS troubles. The size of your refund should not be your criteria of evaluating your accountant. Because there are a lot of cases when the accountant without the client’s knowledge claimed bogus deductions.

Deductions Claimed With No Basis

You don’t want an accountant that claims your pet bulldog as a security expense, arguing it protected your home office. Or an accountant that lists your daily morning coffee as a stimulant necessary for work efficiency deductible as a utility. That was the case of Mr. C who claimed deductions that had no basis in fact. For example, for one client, who made approximately $103,000 in income, Mr. C claimed over $90,000 in deductions related to unreimbursed employee expenses.

Mr. C, who had graduated law school but who but repeatedly failed the bar exam, claimed deductions for his clients based on extreme and unsupported legal theories. He argued that expenses related to preventing an illness qualified as an “impairment related work expense.” He claimed the full value of his clients’ mortgage and utilities as long as the client had some type of Schedule C business to claim. When legally you can only claim the business portion of your home office expenses based on the square footage that you use exclusively and regularly for business. Another example of fraudulent deductions he used for his clients were invented unreimbursed employee expenses. On many occasions, he also filed tax returns on behalf of clients without their permission or knowledge.

Undercover Agent Sent By IRS

You can imagine that all these wild, fraudulent deductions generated all sorts of red flags in the IRS’ system. So, the IRS sent an undercover agent to catch this preparer.

The undercover IRS agent posed as a potential client. Mr C wanted a $5000 retainer to meet with the undercover agent. Instead, the undercover agent corresponded with Mr. C via email. Mr. C said that if the agent used another preparer, he would receive a refund of $373, but that if he used Mr. C, he would receive a refund of $6,007. Mr. C would take half, netting him $3,008. Two days later, Mr. C filed the undercover agent’s return, which claimed $29,339 in fraudulent deductions, including $2,400 in employee expenses, and 28,600 in other expenses that the undercover agent had never discussed with Mr. C or his employees.

According to evidence presented at trial, Mr. C engaged in a similar pattern with his other clients. When the victim- clients learned what Mr. C had done, many of them demanded copies of their tax returns. Mr. C refused to engage in conversation and even delayed providing returns for months at a time. And he often acted in a highly vindictive manner when questioned or challenged by clients or others. Often he berated these clients in emails, threatening legal actions. Or he filed amended tax returns, without clients’ permission or knowledge, that removed all deductions, causing the taxpayer-victim to then owe the IRS tens of thousands of dollars.

Conclusion

You have to be very careful when choosing your accountant. That’s because once the IRS flags an accountant for shady deductions, all the clients of that accountant have a higher risk of being audited by the IRS. In Mr C’s case many of the victim-clients have since been audited and/or filed amended returns, causing them significant financial hardship.

As to Mr. C he was convicted on May 24^th, 2024 of 33 counts of tax fraud. He now faces up to 99 years in federal prison, three years per count.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are a victim of domestic abuse, our heart goes out to you.

There is an option to access up to $10,000 retirement money penalty free for domestic abuse survivors

We want to bring to your attention some good news when it comes to your financial situation. Starting with 2024 a domestic abuse survivor can withdraw up to $10,000 from their retirement account penalty free. This can help you or your loved one to escape an unsafe situation.

Normally, early distributions from retirement accounts, such as IRAs or 401K accounts, are subject to a 10% tax, in addition to the regular income tax. The amounts you withdraw from an IRA or retirement plan before you reach age 59½ are called “early” or “premature” distributions.  On these distributions you must pay an additional 10% early withdrawal tax, unless an exception applies.

As a victim of domestic abuse, you can have these early distributions penalty free, up to $10,000, but not to exceed half of your retirement account.

Option for repayment and Refund of income tax

Additionally, if you take advantage of this new rule, you have the opportunity to repay the money you withdrew from your retirement plan over three years. And you will get a refund for the income taxes you paid on this money at the time of the distribution.

Requirements

To be able to do this, you will have to self-certify that you experienced domestic abuse. This means you do not need any further documentation such as law enforcement records or medical records. But you do need to take the distribution within 12 months of the domestic abuse incident.

This is a provision found in the Secure Act 2.0 of 2022, section 314, which is effective for distributions made after December 31^st 2023.

You can check our YouTube channel for more subjects that you might find useful. If you are in need of a good CPA firm contact us!

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.