It is often said that death and taxes are the only two things that people are certain to experience. However, one’s tax obligations do not end with one’s death. When someone dies, income taxes may still be owed on his or her estate. Moreover, estate taxes or inheritance taxes may also apply. In order to ensure that taxes are filed correctly, it is important to have a strong knowledge of tax law.

Filing Taxes for a Deceased Person

After a person dies, the administrator of his or her estate must file a tax return and report all income he or she earned prior to the date of his or her death. Typically, the administrator will file Form 1040, and he or she may also be required to file tax returns for any previous years in which the deceased person failed to file a return. If necessary, the estate administrator can obtain documents related to the deceased person’s income and taxes by filing IRS Form 4506-T (Request for Transcript of Tax Return).

As tax season draws to an end, many taxpayers have scrambled to compile financial information and file their tax returns prior to this year’s extended deadline of April 18. During this time, many people worked with accountants or tax preparers to ensure they were able to obtain the largest possible tax refund. In many cases, however, the assistance of an experienced tax attorney can be essential when preparing your tax return, addressing complex legal issues, and avoiding potential tax penalties.

Benefits Provided By a Skilled Tax Lawyer

While a certified public accountant (CPA) will have knowledge of financial matters related to taxes, such as allowable deductions and tax credits, an experienced taxation law attorney will have a deep understanding of the legal issues related to tax audits and IRS collection. A tax attorney can help with the following:

In recent months, the news has been filled with discussion of cryptocurrencies such as Bitcoin, Ripple, or Ethereum. As these virtual currencies increase in value, many people are looking to invest in them. However, even though digital currencies can be exchanged for goods or services, or paid to employees as income, they are not the same as legal tender. This has resulted in a great deal of confusion as to how virtual currencies are treated under the United States tax laws.

Cryptocurrencies, Property, and Capital Gains

“Convertible” virtual currencies that have an equivalent value in real currency and can be exchanged into U.S. dollars are taxable as property, similar to other capital assets such as stocks or bonds. In general, capital gains taxes apply when these currencies are bought or sold, including when they are converted into cash, when one type of currency is traded for another virtual currency, or when digital currency is exchanged for other property. Any gains or losses are based on the fair market value of the currency at the time it was acquired and at the time of its sale or trade. 

A tax audit can be a frightening situation. The United States tax code is complex, and many taxpayers are unfamiliar with its intricacies and the potential consequences that they may face if they have committed a violation. In some cases, taxpayers may face what is known as an “eggshell audit,” which is a civil audit that may potentially result in criminal charges. While this is an informal term, it refers to the care that must be taken in these situations as taxpayers seek to minimize their tax liabilities and civil penalties while avoiding criminal prosecution.

Potential Consequences of an Eggshell Audit

Eggshell audits occur because a taxpayer filed a fraudulent tax return. The taxpayer may have underreported the income he or she earned or claimed improper deductions or credits. The end result is that the taxpayer paid less taxes than he or she would have owed if he or she had filed an accurate tax return. Moreover, a return is considered fraudulent if a taxpayer deliberately intended to evade paying the full amount of his or her taxes or if he or she willfully submitted false statements or documents.

Recently, we examined the options taxpayers have to achieve compliance when they have undisclosed foreign assets. One key method of compliance that the IRS has provided in recent years is the Offshore Voluntary Disclosure Program (OVDP). The program allows taxpayers to report their offshore assets and become compliant while minimizing their civil penalties and avoiding criminal prosecution. However, the IRS recently announced that it will be ending the OVDP on September 28, 2018.

Changing Options for Offshore Tax Compliance

The OVDP was launched in 2009, and the current version of the program has been in effect since 2014. The IRS has reported that since the OVDP was implemented, more than 56,000 taxpayers have used the program to achieve compliance—$11.1 billion in taxes, penalties, and interest have been paid. However, the number of people participating in the program has declined from a high of 18,000 people in 2011 to 600 in 2017.