Category Archives: Compliance

FTC Charges Online Marketers and Merchant Account Entities

negative option marketingThe FTC fired warning shots that could affect affiliate marketers, publishers, and merchant account signers. The FTC filed suit against RevGuard, LLC and 60 other defendants. What’s the charge? Negative option marketing (FTC Act, 15 U.S.C. § 45(a), and ROSCA, 15 U.S.C. § 1843).

Negative Option Marketing At Center of RevGuard FTC Lawsuit

The lawsuit asserts that RevGuard, et al. deceptively billed people who bought a tooth-whitening product.[1] A negative option plan generally refers to transactions in which a seller interprets the customer’s failure to take an affirmative action — typically cancelling an offer — as consent to be charged for goods or services on a recurring basis.

In the FTC v. RevGuard case, the FTC alleges that the defendants’ checkout pages were structured so that once a customer made a purchase, they were instantly redirected to another page that displayed a large yellow “complete checkout” button. The commission further alleges that when customers clicked to “complete checkout” they were enrolled in a second negative option plan for additional products. According to the FTC, the offending checkout page looked like an order confirmation.

Who Does This Decision Affect?

Though the FTC commonly cracks down on negative option schemes, this case has significant implications for merchant transaction companies. Specifically, the FTC’s co-defendants list included: (1) service providers that perform the fraud’s “back office” functions; (2) intermediate holding companies that obscure financial transactions; and (3) merchant entities that obtain merchant accounts, web domains, and credit-card settlement bank accounts.[2] In essence, this case raises concerns for entities that did nothing more than open merchant accounts.

Furthermore, and far more troubling, is that the asset freeze applied to the aforementioned three groups of co-defendants, not just the affiliate marketers who actually profited from the scheme.[3] In particular, the Ex Parte Temporary Restraining Order issued by the Court declared that the asset freeze applied to “. . . [d]efendants and their officers, agents, employees, and attorneys, and all other persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly . . . .”[4]

This case should serve as a lesson for entities involved in similar arrangements. While the FTC v. RevGuard, LLC case is just getting started (it has not even been posted to the FTC website as of the date of this post), it promises to shake up the industry and force affiliate marketers to get creative with structuring future payment processing arrangements.

Sources

[1] FTC v. RevGuard, LLC et. al. Complaint at 21.

[2] FTC v. RevGuard, LLC et al. Emergency Motion for a Temporary Restraining Order at 12.

[3] FTC v. RevGuard, LLC et al. Ex Parte Temporary Restraining Order Granting Asset Freeze, Appointment of a Temporary Receiver, and other Equitable Relied, and Order to Show Cause Why a Preliminary Injunction Should Not Issue § 5.

[4] Id. at § V(A).

The Recent Crackdown on Tech Support Scams

tech support scams lawyerBetween 2012 and 2014,  40,000 people complained to the FTC about tech support scams. Since then, the agency has carefully monitored the situation and stepped up efforts to prosecute scammers.

Though the commission’s efforts may help prevent future problems, current tech support scam victims may need legal assistance. If you’re one such person, an FTC attorney can explain your legal options.

In the meantime, let’s take a look at some common tech support scams.

Large Company Popup Scams

The FTC recently settled with defendants who ran a popup ad scam. A “computer virus” warning would splash on victim’s screen, prompting the person to call in and be “shown” the problems. To add verisimilitude, the scammers claimed to be from large companies, like Apple, Google, and Microsoft.

This is one of the most common ways for tech support scammers to steal, but it is easily avoided by keeping anti-viruses software current and ignoring online popups claiming that your computer is infected.

Facebook Tech Support Scams

Facebook has tech support staff, but they don’t contact users. So, if someone from Facebook tech support calls claiming you must pay to change a service, hang up. Because once they have the victim’s financial information, they can use the person’s account for illegal purchases.

License Agreement Violations

This scam relies on the victim not understanding how computer licenses work. Perpetrators tend to target companies but they also sting individuals.

How does it work? The scammer accuses the victim of violating a licensing agreement. Many companies do not track this kind of information on such a detailed level and just pay up.

Connect With An FTC Lawyer About Tech Support Scams

Despite their best efforts, people will continue to fall victim to these types of scams. Even the most knowledgeable user can slip up. When this happens, an FTC attorney can help.

Offers in Compromise: Reduce Your Tax Debt

Tax Lawyer ChicagoDrowning in tax debt? You may find relief via an “offer in compromise” — an IRS option that allows taxpayers to reduce outstanding tax debts.

But be warned: the rules are inflexible and messing up can be costly. So, it’s best to work with an attorney who has intimate knowledge of the program.

The IRS Does Compromise

The IRS wants taxpayers to devote all disposable income to pay off tax debts, but they understand that people have living expenses. Despite its Scrooge McDuck reputation, the IRS doesn’t force people to fork over every last cent.

However, the difference between what you and the agency consider to be “reasonable allowable living expenses” can be cavernous.

Spending Limits and Cash Flow

The IRS determines cash flow by calculating income minus allowable living expenses. Then that amount is multiplied by the number of months the government has left to collect the tax debt. The IRS is only able to collect tax debts that are less than 10 years old.

If the amount of the cash flow left after the calculations are performed is less than what the taxpayer owes, the offer will likely be approved.

The rub? The IRS’ thresholds for allowable living expenses are typically much less than what taxpayers actually spend.

Let’s use Cook County, Illinois as an example.

The IRS allows a two-person family living in Cook County, Illinois $2,092 per month for housing and utilities expenses. That figure is supposed to cover rent or mortgage, insurance, property taxes, maintenance and repair expenses, garbage collection, heating, water, electric, gas, residential phone service, cell phone service, Internet, and cable television. But the average rent for two-bedroom apartments in Chicago is around $2,047 (May 2017).

Certain expenses are not limited and counted in full, such as child support payments. And in certain cases, tax attorneys can secure variances for living expenses. For example, if a taxpayer has extraordinary expenses for the care of a special needs child, a variance may be possible. There are other things that might also prompt a lawyer to seek a variance from the standards, but petitioners need to provide evidence of their claims.

Making an Offer in Compromise

Before making an offer in compromise, taxpayers should first review the current living expense standards for their location. Then they should complete the cash flow analysis to determine an appropriate offer. By researching and conducting the proper analysis, it is likelier that a taxpayer will be successful with the offer.

 

Getting Compliant with the Overseas Voluntary Disclosure Program

OVDP LawyerTaxpayers with foreign accounts and overseas income must alert the IRS of this fact. Failure to do so will likely result in severe financial penalties and possible incarceration. A tax attorney can help you gather and prepare the necessary documents.

The Bottom Line on the Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program (OVDP) is for people who’ve failed to pay taxes on undisclosed foreign accounts and assets. Participants cannot be under IRS investigation.

As of October 2016, the IRS has collected over $10 billion in taxes, interest, and penalties, from over 100,000 taxpayers, via the program.
Streamline Program Makes Compliance Easier

Over the years, the IRS has obviated OVDP acceptance obstacles. For example, the program extended eligibility to U.S. residents — not just expats — plus eliminated the $1,500 threshold. Moreover, officials nixed the cumbersome risk assessment step.

Program eligibility requires taxpayers to certify that previous compliance lapses weren’t willful. Additionally, folks who filed delinquent or amended returns in the past must remit associated penalties before re-filing.

Penalties for Noncompliance

Shirking FBAR requirements can be costly. The IRS assess fines of $10,00 per account, per year, for inadvertent noncompliance. However, that figure rises to $100,000 per year — or 50% of the account balance, plus criminal penalties — in the face of willful recalcitrance.

When individuals fail to file Statements of Specified Foreign Financial Assets (Form 8938), they can be fined $10,000 for failing to disclose the holdings, plus penalties up to $10,000 for every 30 days after they receive an IRS notice.

Incarceration is another possible punishment.

If the IRS unearths tax fraud, it may seek civil penalties equal to 75% of the underpayment, which can then be tacked on to the full tax amount.

Be Cautious With Quiet Disclosures

Many delinquent taxpayers file quiet disclosures in the hopes that their noncompliance will go unnoticed. But be warned: the IRS is on the prowl for quiet disclosures; and when they catch one, an intense audit typically follows.

Speak with a tax attorney before filing quiet disclosures. In most cases, it’s only advisable for clients who were signatories on foreign accounts but had no control of, or financial interest in, these accounts.

The OVDP Process

Authorities established the Offshore Voluntary Disclosure Program for people who’ve previously failed to report overseas holdings.

Participants initiate the process by filling out and submitting forms and corroborating documents, including returns, penalty calculations, statements from accounts, FBAR forms, and asset valuations.

Once you submit acceptable iterations of these forms, the IRS will issue a full submission due date. At this time, individuals may be required to file form 3250, 3250A, 5471, and 5472. Moreover, participants should pay past tax debts during this stage to avoid further interest penalties.

Finally, the ODVP examiner will review the taxpayers’ full submission. They may request an IDR during this phase, as well as changes to tax returns. At this stage, participants meet with their OVDP examiners to discuss penalty computations and consequences.

Let An FBAR Lawyer Handle It For You

The OVDP process is nuanced, at times tricky, and requires detailed knowledge of U.S. tax law. It’s not a process you want to go through alone; doing so could cost you more than you should pay!

Our tax controversy team is here to handle it for you. We have successfully navigated countless parties across the choppy Foreign Asset Tax Sea and delivered them safely on compliant shores.

Get in touch today to start exploring your options. The consultation is on us.

The Consequences of FBAR Non-Compliance

contact an FBAR attorney in Chicago about your situationOffshore account holders who fail to comply with Foreign Bank and Financial Accounts Reporting (FBAR) regulations could face massive fines and even prison time. The IRS is warning anyone with financial interests in, or signature authority over, overseas accounts valued at $10,000 or more to disclose before it’s too late.

In 2010, lawmakers passed the Foreign Account Tax Compliance Act (FACTA), which requires foreign governments and banks to hand over identifying information about depositors. More than 100 countries are on board, which means the days of brushing foreign assets under the carpet are over.

Penalties for Not Coming Clean with the IRS

The consequences of not complying with FBAR laws can be significant. Those who fail to disclose foreign assets could face:

Options for FBAR Compliance

Complying with disclosure regulations can be intimidating — especially for folks with past issues. But never fear, you have options!

Offshore Voluntary Disclosure Program (OVDP)

While the penalties associated with the OVDP can be steep (up to 50% of the account’s highest value), they’re still better than willfully failing to disclose foreign assets. Plus, those who participate can receive amnesty from criminal prosecution. This program is not available to those who are already under investigation.

Streamlined Program

Easier and less expensive, the Streamlined Program is available to individual taxpayers who can certify that their noncompliance was not willful. Like the OVDP, individuals who are already under investigation are not eligible.

E-commerce Law: Price Scraping Can Lead To Legal Troubles

price scraping legal mattersPrice scraping tools help companies match competitors’ prices. But be warned: using them can lead to FTC anti-competition allegations.

What Is Price Scraping?

Price scrapping programs mine product and pricing information from competitor websites. Popular brands include Upstream Commerce and Mozenda.Typically, businesses use them to ensure that their prices stay in-line with the market; some companies manually change prices based on the price scraping data, while others set it up to change automatically, based on a predetermined metric.

Though helpful to many businesses, the problem with these systems is twofold.

  1. Businesses that become overly dependent on the price scraping data may not develop their own (potentially more profitable) sale program and only lower prices when competitors do.
  2. The FTC may classify excessive price scraping initiatives as anti-competitive since one company’s price increase has a market-wide ripple effect. In a market in which demand is inelastic, one company’s price increase could result in all of the companies raising their prices if all are using a similar price-scraping software.

While regulations have not yet been put into effect to control online price-scraping technologies in the U.S., some regulatory efforts in the European Union have already begun, leading an FTC attorney to believe that it is only a matter of time before the use of these technologies falls under similar scrutiny in the U.S.

Potential Antitrust Problems

E.U. authorities have opened two investigations into companies that have allegedly used price scraping tools for anti-competitive reasons. Though U.S. authorities have yet to follow suit, the potential for private antitrust litigation looms.

Take Uber. The ride share company is currently on the hot seat for its price surge algorithm. Some people say it’s a price-fixing scheme. Why? Because the algorithm reportedly manipulates price based on the demand of all Uber drivers in a given area.

Uber’s case is similar to a DOJ action targeting online poster sellers. In that case, several poster companies agreed to use the same algorithm to standardize prices. What made the case slightly different, however, was that it featured a prior agreement.

Potential Robinson-Patman Problems For Distributors

The Robinson-Patman Act forbids sellers for charging buyers who are competing for products different prices for the same products. If that occurs, a buyer who is disfavored by the use of the pricing algorithm may be able to successfully sue the company under the Robinson-Patman Act.

The FTC has decreased its enforcement of violations under the Robinson-Patman Act in the past few years. Before the presidential election, however, some folks were calling for stepped-up enforcement. Even if the FTC does not pursue enforcement, private actors still could file lawsuits.

A longstanding Supreme Court decision barred manufacturers from forcing distributors to charge specific prices. To get around it, manufacturers started the “suggested retail price” program. And though the Supreme Court overturned that decision in 2007, companies must still contend with state laws that forbid vertical price-fixing.

Price scraping tools aren’t all bad. However, as FTC attorneys, we advise companies to be careful with pricing algorithms. Again, though the Federal Trade Commission may not take action, the risk of private antitrust lawsuits may simply outweigh the potential benefits.

Connect With An FTC Lawyer About A Price Scraping Matter

Do you have a price scraping question? Want to make sure your pricing algorithm complies with federal, state, and local laws? Our e-commerce legal team can do that for you. Get in touch today.

FTC v. Qualcomm: Motion to Dismiss FTC Patent Antitrust Claim

The Federal Trade Commission (FTC) and technology giant Qualcomm are at loggerheads. And the kerfuffle involves Apple.

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Qualcomm FTC Patent Antitrust Lawsuit_FTC Attorney

Discovery Phase

FTC v. Qualcomm: The FTC’s Side

The FTC asserted that Qualcomm grossly and illegally overcharged for patent chip technology. The agency also suggested that Qualcomm abused its market position.

Additionally, agents alleged that because Qualcomm is a major baseband chip provider it can force companies, like Apple, to sign expensive licensing deals for technology not even used in its chips.

By pursuing the issue, the FTC believes it’s protecting innovation, competition, and consumer pricing.

During discovery on April 12, 2017, the FTC expressed concerns that if discovery (and the rest of the suit) did not move along at a good pace, their ability to obtain equitable and effective relief would be jeopardized.

FTC v. Qualcomm: Qualcomm’s Side

One of Qualcomm’s arguments is that Apple allegedly put the FTC up to an unsubstantiated lawsuit. This is something they say Apple has done before. Apple is presently withholding billions of dollars in royalty payments from Qualcomm.

Qualcomm has been under worldwide scrutiny with fines in South Korea ($854 million), China ($975 million), the EU, and elsewhere. Additionally, Blackberry was awarded $814.89 million in a similar dispute with Qualcomm.

Qualcomm maintains that the FTC has no evidence of anticompetitive harm to its rivals. The motion to dismiss is based on the fact that competitors have not yet produced a single instance where they have suffered loss as a result of Qualcomm’s patent royalties. After the FTC responds to the motion on May 12, 2017, Judge Lucy Koh will decide whether to dismiss.

Connect With An FTC Compliance Lawyer

Is the FTC knocking on your door? Do you want to make sure the FTC doesn’t come knocking? Either way, we can help. Get in touch today with our FTC defense team to begin the conversation. The consultation is on us.

Who Needs To Be Concerned About Foreign Disclosures?

The Internal Revenue Code requires individuals and business to report foreign holdings. Failing to comply may result in serious criminal and civil penalties.

The Internal Revenue Service administers the Offshore Voluntary Disclosure Program, through which parties can avoid criminal liability by reporting previously undisclosed accounts. An experienced OVDP attorney can help you avoid criminal penalties and work to reduce civil penalties.

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Foreign Disclosure of Interest — OVDP attorney infographic

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Report of Foreign Bank and Financial Accounts

Individuals and businesses with signatory authority or financial interest over foreign bank accounts are required to file the Financial Crimes Enforcement Network Form 114 — the Report of Foreign Bank and Financial Accounts, or FBAR.

People with foreign accounts over $10,000 or more during any portion of the year are required to report their interests via the form. The potential penalties for failing to do so are severe.

The Disclosure Responsibility

Authorities require signatory parties of foreign holdings to report it using Schedule B of the 1040 income tax return (part III, line 7a). Then, they must fill out Form 8938 where they disclose the account’s balance along with additional information if the total balance exceeds $50,000 or more on the last day of the year.

If an account is greater than $75,000 on any day during the year,  the IRS requires Form 8938, even if the balance is lower than $50,000 on the final day. People who don’t check the appropriate box and submit the required forms on time may incur serious penalties.

Potential Penalties

Failures to file the required FBAR and additional forms may result in penalties that depend on whether the failure is deemed to be willful or non-willful. The civil penalties for violations that are non-willful include the following:

Willful violations may bring fines of up to $100,000 or 50 percent of the aggregate values of the foreign accounts in addition to the interest, back taxes and accuracy penalties. Authorities can bring both criminal and civil charges against violators. When businesses do not report their interests, the IRS may hold the owners responsible.

Resolving the Reporting Problem with the Offshore Voluntary Disclosure Program

The IRS offers the Offshore Voluntary Disclosure Program to parties that have violated FBAR and other foreign disclosure requirements. Participants, for the most part, are protected from criminal prosecution. However, the IRS can assess eight years of tax data rather than the statutorily allowed six years. An OVDP attorney may help them with obtaining lower penalties for every year in which a violation occurred.

Opting Out of the OVDP

If the violations were not willful, some taxpayers may opt out of the OVDP. If you’ve not had criminal tax convictions in 10 years or have had previous FBAR problems, an attorney might be able to help mitigate penalties. Though, money in the foreign bank accounts must not have come from criminal sources or activities. Additionally, taxpayers who incurred penalties for under-reporting incomes may face higher hurdles. Finally, people who opt out of the OVDP must cooperate with the IRS.

Other Options

Thinking of ignoring the foreign disclosure requirement? We urge you to reconsider.

The IRS is keen to uncover foreign bank accounts. Some taxpayers might make quiet disclosures by filing amended returns for prior years, but doing so may leave them vulnerable to criminal prosecution.

Failing to report interests in foreign bank accounts may lead to severe civil and criminal penalties. The OVDP might help to protect some taxpayers from criminal prosecution while simultaneously reducing penalties. An experienced OVDP attorney can advise clients on OVDP options.

When Do You Have To File An FBAR?

Understanding FBAR

Congress passed the Bank Secrecy Act in 1970, and the Foreign Accounts Tax Compliance Act in 2010. These laws require US citizens with foreign bank accounts, mutual funds, or trusts to file disclosures with the Financial Crimes Enforcement Network (FinCEN), a division of the US Department of the Treasury. These reports must be filed annually.

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infographic_When Do You Have To File An FBAR

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The law requires US citizens or residents with $10,000 or more in foreign assets, at any time during the year,  to file via the BSA E-Filing System. Under the current regulations, there is a six-year statute of limitations on FBAR filings.

FinCEN’s allows third parties, including FBAR attorneys, to file on clients’ behalf.

File An FBAR: Exceptions

FBAR exceptions exist. Certain jointly owned foreign financial accounts, most US military banking accounts, Nostro accounts, and qualified IRA plans, for example, aren’t subject to FBAR reporting requirements. Plus, individuals with supervisory and signature authority, but no financial interest in the account, are exempt.

Businesses and FBAR Requirements

The law requires certain individuals and businesses with indirect ownership of foreign accounts to file FBAR’s every year. These include:

Expats and Foreign Earned Income Exclusion

Expats or citizens working outside the US are also required to file an FBAR even if they qualify for foreign earned income exclusions or tax credits. For 2017, the threshold for foreign earned income exclusion is $102,100. Affected parties earning more must pay US federal income taxes on the amount earned above the threshold.

Need To File An FBAR?

Do you need to file an FBAR? If so, we can guide you through the process and handle all the paperwork.

FTC Compliance: Internet Advertising Campaign Regulations

FTC defense lawyer for Internet advertising campaignA well-executed Internet advertising campaign can make a business, but it must comply with Federal Trade Commission marketing and advertising regulations.

When the FTC catches companies shirking promotional rules, it can dole out devastating fines. Want to keep the agency off your back? Hire an FTC attorney for a marketing compliance review.

Rules For Internet Advertising Campaigns

The Federal Trade Commission, which derives its power from the Federal Trade Commission Act, promulgates and enforces Internet advertising regulations. Primarily, the commission bars businesses from using deceptive and misleading advertising strategies.

Situations vary and the devil is typically in the details, but the top three Internet advertising campaign don’ts are as follows.

  1. Don’t make false claims.
  2. Paid promoters, influencers, and affiliate marketers who promote brands in exchange for money or products must conspicuously disclose this material relationship. If they don’t, the brand can be held responsible.
  3. Don’t make scientific claims without substantive proof to back them up.

Factual Omissions Can Qualify As “False Claims”

Failing to provide pertinent information in a marketing campaign also falls under “noncompliance.”  If companies fail to disclose information that could impact consumers’ product understanding, the FTC can hold them liable for deceptive advertising.

Potential Enforcement Actions

The FTC uses a number of enforcement actions depending on the severity of the matter. It may issue cease-and-desist orders, fencing-in provisions, corrective advertising orders, or numerous other informational remedies, including bans and fines.

Connect With An Internet Marketing Attorney

Is the FTC investigating your marketing campaign? Want to avoid future run-ins with the agency? Either way, we can help. Get in touch today to begin the conversation. The consultation is on us.