There are risks associated with owning or having ownership interest in a foreign account (which includes being signatories) and failing to disclose its existence to the IRS. The Foreign Account Tax Compliance Act ("FATCA") was passed requiring foreign banks to disclose information about accounts that are associated with or owned by United States citizens. As part of the Bank Secrecy Act (Title 31), qualifying individuals must file Form TD F 90-22.1, Report of Foreign Bank Account and Financial Accounts ("FBAR") which was recently revised in March 2011. This Form is separate and in addition to other filing requirements by the IRS. Form TD F 90-22.1 must be received by the U.S. Department of Treasury by June 30, 2011. Because the FBAR technically is part of the Bank Secrecy Act (Title 31) rather than the Income Tax Code (Title 26), it contains traps for the unwary. Unlike the filing income tax forms which follow the mailbox rule, FBAR forms must be received by June 30, 2011 the due date, not just mailed by it. There is no electronic filing option for the FBAR. The FBAR must be mailed to a special address in Detroit rather than a taxpayer's usual IRS service center. Another critical distinction is that the due date for filing cannot be extended. As a result any extensions a taxpayer receives for filing an income tax return are not applicable to the FBAR. Unless Congress changes the law, the FBAR due date will remain June 30, which is out of sync with the normal tax deadlines of April 15 and October 15 (for those on extension). Therefore, taxpayer should be aware that in addition to disclosing foreign accounts on Form 1040, Schedule B, Part III, Form TD F 90-22.1 must be timely filed, i.e. received by the U.S Department of Treasury in Detroit Michigan no later than June 30, 2011.

The Florida Constitution (F.C.) (Article 10, Sec. 4) protects homestead property from levy of creditors of the owner. The F.C. provides that homestead property should be liberally construed in favor of the homesteader against the creditor. The person claiming the homestead exemption must be a Florida resident who establishes that he or she made, or intends to make, the real property his or her permanent residence. A permanent residence is the address listed on your driver's license, the place from which you register your cars, or file your income tax return or vote. If this property is not your permanent residence, or you are not a resident of Florida, you must notify the Property Appraiser. It is also important to note that only natural persons may claim homestead (not corporations or other like entities). If you are receiving a residency based exemption or benefit in another county, state or country; you are not eligible for exemption. Homestead must be established before levy of the judgment creditor. However, homestead is subject to forced sales for property taxes, mortgages on the property, and mechanics liens arising from improvements of the property. Homestead inures to the benefit of the surviving spouse and minor children. Homestead consists of a ½ acre of contiguous land including a residence within a municipality. Outside of a municipality one may claim up to 160 contiguous acres. Homestead also protects personal property to the value of one thousand dollars. If homestead is sold, the proceeds are considered to retain homestead exemption provided the owner has good faith intent to reinvest the proceeds in another homestead within a reasonable time. In other words, if you moved to a new home, the homestead exemption does not transfer automatically. To receive a new or additional exemption, you must make the application before March 1, of this year. If you have moved from another home within the state of Florida and you had homestead on your previous property, you may be eligible to bring your homestead savings with you. To be eligible you must apply for and receive a homestead exemption on your new property within two years of leaving your previous homesteaded property and submit a (DR-501T) Homestead Assessment Difference form to the Property Appraiser's Office. However, it is important to note that if the homestead is abandoned, the protection may be forfeited.

Whether Florida attorneys' fees are deductible depends on the nature of the underlying claim. If the character of the claim brought is for business purposes, the fees are deductible; if the underlying claim is personal, the attorney fees are not deductible. To recover attorneys' fees from the opposition, the prevailing party must show that the underlying claim was business related. Otherwise, the attorneys' fees are not deductible. Additionally, the ruling in Commissioner v. Banks, clarifies that even if such fees are deductible, they qualify as itemized deduction, and as such, are subject to the 2 percent floor, mandated by I.R.C. Section 68. 543 U.S. 426 (2005). However, as part of the American Jobs Creation Act of 2004, Section 62(a)(20) was implemented which allows for attorneys' fees incurred in connection with any action for unlawful discrimination to be deducted. Additionally, this section provides that attorneys' fees incurred for this specific purpose are not considered itemized deductions that would be subject to the 2 percent floor.

In today's society, many Florida taxpayers do not file their tax returns simply because they cannot pay their taxes. However, one of the most serious offenses an individual can commit, with respect to the IRS, is failure to file a tax return. Under Title 26 of the United States Code, Section 7203, it is a federal crime or offense for anyone to willfully fail to file a federal income tax return when required to do so by Internal Revenue laws or regulations. A person's willful failure to supply information or pay tax is also punishable as a crime under Section 7203. In some cases, a person convicted of these crimes may be imprisoned for up to 5 years. In addition to the risk of criminal prosecution, there are severe civil penalties that are imposed for failure to file a tax return. For example, the failure to file penalty pursuant to Section 6651 is assed by the IRS at a rate of 5% per month or partial month up to a 25% maximum. The failure to pay penalty is assessed by the IRS at a rate of 0.5% per month or partial month up to a 25% minimum. If both the failure to file and failure to pay penalties are assessed, the failure penalty is reduced by the failure to pay penalty. Hence, penalties are greater when a taxpayer fails to file versus when a taxpayer fails to pay. Similarly, as mentioned above, there are serious underpayment penalties to taxpayers. One example would be criminal fraud, which is your basic example of tax evasion. This can result in imprisonment, fines, or both. Another example would be civil fraud, where the taxpayer fraud does not rise to the criminal fraud level. If this happens, the penalty can be up to 75% of the portion of tax underpayment which is directly linked to the determined fraud. Moreover, there are penalties for frivolous returns. A frivolous return is where the taxpayer omits or is incorrect with respect to information which is required to determine the taxpayer's tax liability. This can result in a penalty for $500 dollars for each and every frivolous return that is filed with the IRS. Furthermore, in the event a refund is owed to the taxpayer, this refund may be given up if not claimed in time (a specific example of this would be the earned income tax credit). Moreover, interest on underpayments run from the due date of the tax return, i.e. April 15th of the given year. In other words, taxpayers can expect to pay a lot more than they owe to the IRS once interest accumulates. For example, the interest on unpaid balances is around 4% annual interest on unpaid balances. Interest is updated on a quarterly basis, so this number can fluctuate dramatically. Furthermore, the statute of limitations, criminal charges may be brought against you within six years of the date that the tax return needed to be paid. With respect to civil charges, there will be no deadlines for the statute of limitations purposes, but civil penalties may be imposed. Hence, the taxes you need to pay will be assessed with penalties and interest.

As with every tax season, this year's tax season comes with both its good and bad. While the tax deadline was extended to April 18, 2011, some taxpayers must wait until mid to late February to file their taxes. On December 23, 2010 the IRS warned that because of the late enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111-312), which extended various expired provisions, it would need time to reprogram its systems and update Schedule A. As a result, taxpayers who itemize deductions on Schedule A and those taxpayers who take certain extended deductions would not be able to file their returns at the start of tax season. Those taxpayers who need to wait are: 1) Taxpayers Claiming Itemized Deductions on Scheduled A. 2) Taxpayers Claiming the Higher Education Tuition and Fees Deduction; and 3) Taxpayers Claiming the Educator Expense Deduction. Additionally, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 along with a number of other tax deductions and credits for 2011 and 2012. Except for those asked to wait to file, the IRS will begin accepting e-file and Free File returns on January 14, 2011.

Every person who owns and resides on real property in Florida on January 1 and makes the property their permanent residence is eligible to receive a homestead exemption up to $50,000. The first $25,000 applies to all property taxes, including school district taxes. The additional exemption up to $25,000, applies to the assessed value between $50,000 and $75,000 and only to non-school taxes. When filing for the first time, the homeowner should be prepared to answer these questions: 1. In whose name or names was the title to the dwelling recorded as of January 1st? 2. What is the street address of the property? 3. How long have you been a legal resident of the State of Florida? (A Declaration of Domicile or Voter's Registration will be proof of date before January 1st). 4. Do you have a Florida license plate on your car and a Florida driver's license? 5. Were you living in the dwelling on January 1st (January 1st is the date on which permanent residence is determined)? The deadline for filing without a fee is March 1st. All applicants must have: 1. A valid Florida driver's license (a license valid only in the state of Florida is not acceptable); and 2. A Florida voter's registration or a notarized, recorded Declaration of Domicile.

The Internal Revenue Service developed and enforces rules designed to discourage U.S. investors from deferring tax on investment income by holding passive investments through non-U.S. companies that do not distribute their earnings currently. The rules impose significant additional tax burden on gains and certain dividends derived from investments in a Passive Foreign Investment Company (PFIC) and are very broadly drafted and construed. IRC 1297(a). PFIC rules extend anti-deferral rules to certain foreign corporations, regardless of the level of U.S. stock ownership. A U.S. person who owns any percentage of PFIC shares is potentially subject to these rules. A foreign corporation is generally a PFIC if it meets either the Income Test (IRC 1297(a)(1)) or the Asset Test (IRC 1297(a)(2)). To meet the Income Test, at least 75% of its gross income for the tax year is passive income (defined in IRC1297(b)). To meet the Asset Test, at least 50% of its assets by value generate (or are held for the production of) passive income (determined under 1297(e)). For these purposes, passive income includes interest, dividends, certain rents and royalties, and gains from the sale of investment property. It is not difficult for a foreign corporation to be classified for a taxable year as a PFIC under either of the above-mentioned tests. The Income Test is based on gross income, rather than net income, and the Asset Test is also extremely broad. The PFIC rules create a punitive scheme for taxing deferred income, by eliminating the lower rates on capital gains and any deferral benefit through the imposition of the interest charge.

Has your Florida debt been forgiven? Don't be surprised if the IRS considers this income! Historically, any discharge of indebtedness or other relief from debt is taxable as income under the Internal Revenue Code (IRC). In general under the IRC, when a lender decides to forgive all or a portion of a borrower's debt and accept less than the original amount owed, the forgiven amount is considered as income for the borrower and may be taxed. However, the Mortgage Debt Forgiveness Relief Act of 2007 was enacted to provide relief to qualifying homeowners who would have otherwise suffered a tax consequence because of the forgiveness of mortgage debt. The Mortgage Debt Forgiveness Act has paved the way for many additional amendments to help taxpayers exclude qualifying debt that has been forgiven from income and eliminate potential tax liabilities. Recently the Emergency Economic Stabilization Act of 2008 has extended the tax relief until 2012. This benefit is only available to qualifying taxpayers. Discharged acquisition indebtedness is only excludable if it is incurred with respect to the taxpayer's principal residence (Code Sec. 108(h)(2), as added by P.L. 110-142). The term "principal residence" as it applies here has the same meaning as used in determining whether the exclusion under Code Sec. 121 applies to the gain from the sale of the residence (Code Sec. 108(h)(5), as added by P.L. 110-142). Under regulations issued pursuant to Code Sec. 121, whether a residence is the taxpayer's principal residence depends on an examination of the facts and circumstances, such as the taxpayer's place of employment and mailing address (Reg. §1.121-1).

Taxpayers beware! Do not open or respond to any emails proporting to be from the IRS. It is important to know, the IRS never uses e-mail to contact taxpayers about their tax issues. Therefore any e-mail you receive that claims to be from the IRS should be viewed with immediate suspicion and not opened or replied to because the IRS will not email taxpayers. Phishing, as it is called, is the act of sending an e-mail to a user falsely claiming to be an established legitimate enterprise in an attempt to scam the user into surrendering private information that will be used for identity theft. These criminals use the information obtained to empty the victims' bank accounts, run up credit card charges and apply for loans or credit in the victims' name. Phishers can be cunning, and will use public information about you on-line to better deceive you, claiming to be from a business or organization that you deal with -- for example, an Internet service provider, bank, online payment service, or even a government agency. Posing as the IRS has been a particularly favored tactic over the last several years. Below are some examples of what fraudulent IRS emails may look like. Sender Subject Your Stimulus Check Your US Govt Bailout Check Instructions Your Stimulus Check Your Check Instructions for Govt Bailout Your Bailout Check Your US Govt Stimulus Check Instruction Internal Revenue Service Collect Your Refund IRS Important Notice From IRS Internal Revenue Service Notice from Department of the Treasury Internal Revenue Service Access your tax refund online Internal Revenue Service Taxpayer Advocate Service (Tax Refund) Internal Revenue Service Get Your Annual Tax Refund Now Internal Revenue Service Notice from IRS Internal Revenue Service IRS Notification - Tax Refund Taxpayers who receive unsolicited e-mail that claims to be from the IRS can forward the message to a special electronic mailbox, phishing@irs.gov. The IRS can use the information, URLs and links in the suspicious e-mails you forward to trace the hosting Web site and alert authorities to help shut down the fraudulent sites.

If the taxpayer applies under IRC Section 6325(b)(2)(B), there will be a determination of the amount required for a discharge or a determination that the tax lien is valueless within 30 days from the date of the application. As a caveat, the IRS notes that if an application is made under IRC Section 6325(b)(2)(B), the certificate of discharge will be issued, once the foreclosure proceeding has been concluded. Although IRC Section 6325(b)(2)(B) may be used to apply for discharge with regard to short sales, the provision is directed mainly at foreclosures. An application for discharge under this section should explicate that a short sale in lieu of a foreclosure proceeding will not change the position of the IRS in relation to the property or the taxpayer. The taxpayer must apply for discharge by submitting a copy of the proposed escrow agreement and completing Form 14135. It is important to remember to submit the application at least 45 days before the transaction date that the certificate of discharge is needed. Along with the application, the taxpayer must submit a deposit or a bond in the amount of liability owed to the United States. IRC Section 6325(4)(B). To apply under this section, the taxpayer should provide the description of the property with a copy of the deed. The application should include: when the property is to be sold, any and all liens to the property (junior and senior to the tax lien), and an itemization of all costs. In the application, the taxpayer should state whether foreclosure proceedings are expected to begin or are pending. Finally, it is also advisable that an application include an appraisal by a disinterested third party. Although this requirement applies to taxpayers applying under a different section, the value of the property is what is at issue. IRS Publication 783 offers instruction on how to apply for a certificate of discharge from a federal tax lien.

Federal tax liens are not automatically discharged upon short sale. The IRS has the power to object and prevent the sale if there is a federal tax lien on the property. A short sale will not necessarily discharge a tax lien but the taxpayer has the option for applying for such discharge if certain conditions are met. A short sale would entail the lender reducing the outstanding balance on the mortgage. The property would then be sold for less than the remaining balance on the mortgage. The proceeds of such a sale would be applied against such balance. To begin the short sale process, the borrower and lender enter into negotiation in order to discount the mortgage and whether the sale of such property will be in full satisfaction of the debt. However, the lender holding the first mortgage on the property may not be the only party that has a lien on the property. Other parties with liens on the property will have to approve the short sale. Due to the requirement that junior lien holders approve the short sale the IRS may prevent the sale or delay the process, which may result in having the property foreclosed before a resolution between the parties. To mollify this risk, it would be in the taxpayer's best interest to apply for the discharge of the lien as quickly as possible. IRC Section 6325 provides the parameters governing when a taxpayer may seek discharge of the tax lien. The most relevant IRC statute for a short sale would be IRC Section 6325(b)(2)(B) which provides that a discharge may be issued when the government's interest has no value. This would be the case where the debts senior to the tax lien exceed the sale price or fair market value of the property, which would necessarily be the case in a foreclosure of the property. To recover under this section in the case of a short sale, the taxpayer would have to show that the government's interest has no value. To effectuate this, the taxpayer must file an application for Certificate of Discharge of Property from Federal Tax Lien.

On June 21, 2004, I had the distinct honor of meeting one of my mentors after having been sworn in to the Supreme Court of the United States. In1981 Sandra Day O'Connor became the first woman to serve as a justice in the 191-year history of the Supreme Court of the United States. President Ronald Reagan nominated Sandra Day O'Connor to the Supreme Court on July 7, 1981. In September of 1981, Sandra Day O'Connor became the Supreme Court's 102 justice and the first female member. Justice O'Connor proved to have a more moderate judicial philosophy than many anticipated. O'Connor received her law degree from Stanford in 1952. Upon graduation, she was at the top of her class, graduating third in a class of 102 students. O'Connor was just two places behind another future Supreme Court justice, William H. Rehnquist. Leading up to her appointment onto the Supreme Court, O'Connor had been the senate majority leader of the Arizona Senate, and was a Judge in the Arizona Court of Appeals. One year into Sandra Day O'Connor's Supreme Court tenure, she authored one of her most famous opinions in Mississippi University for Women v. Hogan (1982). In this decision, the Supreme Court ruled that it was unconstitutional for a state nursing school to refuse to admit men. In a 1992 case against abortion rights, Planned Parenthood v. Casey, O'Connor was one of the majority who voted to keep abortion legal for women. In Bush v. Gore (2000), she joined the majority, ruling that the Florida recount should not continue. In July of 2005, Sandra Day O'Connor retired from the court, having served 24 terms as a Supreme Court Justice.

The IRS uses powerful methods to collect unpaid taxes. At the heart of the IRS collection procedures is the federal tax lien which arises automatically after the conditions precedent to the creation of the tax lien have been satisfied, i.e. - assessment of tax liability, demand for payment, and failure to pay. Once these requirements have been met, the tax lien is automatically in place, under Internal Revenue Code (IRC) §6303(a), and enforceable against the taxpayer, according to IRC §6321. In essence, once a person fails or neglects to pay any federal tax after the IRS's demand, then the amount of the tax liability automatically becomes a lien in favor of the United States from the time of assessment. IRC § 6321 also asserts that the lien automatically attaches to property and rights to property, whether real or personal. The tax lien attaches not only to all property and rights to property belonging to such person at the time during the period of the lien, but also to any property or rights to property acquired after the lien arises. For example, in Florida the bankruptcy court has held that the United States had a valid tax lien against the funds of a Chapter 7 debtor's bank accounts because the IRS had assessed the tax, the debtor had refused to pay the taxes, and therefore the tax lien existed against all properties, including the bank accounts which were opened after the lien arises. In re Morgan, 213 Bankr. 609 (Bankr. MD Fla. 1997). A federal tax lien can be perfected by filing notice with states and any other creditors explaining that the IRS is first in line to receive payment as a result of back taxes. In addition, the tax lien is perfected against certain third parties if a Notice of Federal Tax Lien is recorded or filed. Florida state law controls where the federal tax lien must be filed to be effective and to give proper notice. IRC § 6323(f).

Internal Revenue Code (IRC) § 121 provides an exclusion from gross income for gain from the sale or exchange of property if, during the five year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence for at least two years. IRC § 121(a). Under the current tax laws, the amount of the exclusion is $250,000, unless a husband and wife file a joint return for the taxable year of the sale, in which case the exclusion is $500,000, if the husband and wife meet the following requirements: (i) either spouse meets the ownership requirements of subsection (a) with respect to such property; (ii) both spouses meet the use requirements of subsection (a) with respect to such property; and (iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of previously using the exclusion within the previous two years. IRC § 121(b). The exclusion applies, with regard to a joint return, if either spouse meets the ownership and use requirements with respect to such property. IRC § 121(d)(1). An individual will also be treated as using property as such individual's principal residence during any period of ownership while such individual's spouse or former spouse is granted use under a divorce decree. IRC § 121(d)(3).

A taxpayer should be very wary when entering into a short sale without considering the tax consequences. A short sale looks better than foreclosure because the taxpayer is forgiving a debt and the lender essentially agrees to take the loss. However, although the debt is forgiven to the lender, the IRS does not generally afford the taxpayer such favorable treatment. Historically, when a debtor is forgiving a debt by their lender, the amount forgiven will be considered income and will be subject to tax. Crane v. Comm'r, 331 U.S. 1 (1947). This applies to recourse mortgages as well as non-recourse mortgages. Comm'r v. Tufts, 461 U.S. 300 (1983). However, a recent law was passed which allows for certain types of forgiven debts to not be subject to income tax. The Mortgage Debt Forgiveness Act, passed in 2007, allows for relief for some homeowners who had their debts forgiven from 2007 to 2009. However, not every taxpayer qualifies under this new law and a number of conditions must be met to benefit. A taxpayer may fill out IRS Form 982 to apply for a reduction of tax attributes due to discharge of indebtedness and for an adjustment to their basis, as provided in Internal Revenue Code Section 1082. Normally, a mortgage is included in the purchase price of a home, and therefore included in the basis. Upon sale of the property, the basis would be a part of the computation for capital gains for tax purposes. In making a determination in this respect, the IRS cites Regulation 1.1017-1. The IRS may consider each taxpayer and determine whether a relief from indebtedness by a lender may also qualify for relief from taxation on that debt forgiveness. However, this is not the default treatment of forgiveness of mortgage indebtedness. Consequently, taxpayers should consider carefully whether they might qualify for this relief. If the IRS determines that a taxpayer does not qualify, such person would be assessed with a tax, in accordance with the character of the property. Therefore, if a taxpayer short sells a property and is forgiven a mortgage of $100,000, that taxpayer could be liable for the capital gains of 15 percent (based on current tax rates for 2010) on that $100,000, which would be a $15,000 tax liability.