Fluent in English, Spanish & Italian | 888-882-9243

call us toll free: 888-8TAXAID

Monthly Archives: August 2019

DC Hold That Boyle Applies to E-Filing!

August 7, 2019

On May 16, 2019 we posted E Filing Errors as Reasonable Cause? Not For Now!  where we discussed a recent US Court of Appeals for the Fifth Circuit decision, Haynes v. United States, No. 17-50816 (5th Cir. Jan. 29, 2019), indicates that many of those taxpayers will face uncertainty if their returns are late due to preparer errors or technological issues when electronically filed (e-filed). 
 
The court in Haynes declined to rule on whether the Supreme Court decision in United States v. Boyle, 469 US 241 (1985), applied to e-filing a tax return. The court instead remanded the case to resolve factual issues. 

To exacerbate this uncertainty or solidify the IRS' continue position that United States v. Boyle, 469 US 241 (1985), should be applied to not allow reasonable cause for taxpayers who rely on their accountant to e-file their return, unless they request proof of e-filing; the government notified the court that the IRS had refunded the late-filing penalty at issue, effectively mooting the case and leaving this issue unresolved.
 
Well now the District Court of Appeal for Tennessee has held in INTRESS v. U.S., 124 AFTR 2d 2019-XXXX, (DC TN), 08/02/2019, that Boyle does apply to electronic filings.
 

"It Appears That At Least until E-Filing Is Universally Mandatory, or Paper Filing Becomes Sufficiently Unwieldy, Boyle Continues to Apply."
This is just another example of how bad facts make bad law. In this case the taxpayer's tax preparer and bookkeeper was negligent when they failed to transmit the taxpayer's Form 4868. As discussed in Haynes, Boyle was cited for the proposition that an agent's act are imputed to its principal.
 
Since the tax preparer and bookkeeper in Interess was negligent, this negligent sould be imputed to the taxpayer preventing them from having reasonable cause to waive this late filing penalty.
 
It's my belief that that this decision is cumbersome at best and makes unnecessary conclusions regarding and/or ignoring technological changes between when Boyle was decided and its application to electronic filing now. 
 
I believe the taxpayer incorrectly plead this case as Boyle not applying, rather than the tax preparer and bookkeeper was not negligent, since the tax preparer and bookkeeper was negligent and this negligence would be imputed to the taxpayer resulting in their non-qualification for Reasonable Cause abatement.
 
For example, the court states that "Although the facts of Boyle in the instant case differ greatly, they share one fundamental similarity that is fatal to the plaintiff's position: taxpayers are not obligated to use tax preparation services." The court goes on the state that a taxpayer can hire a pay professional, not have the Paid Professional electronically file the return, but instead get a paper copy indicating that the return was Self Prepared.  
Really?
 
The court then goes on to disallow the taxpayer a First Time Penalty Abatement, by artificially adding a reasonable cause requirement ,which is not in the manual.
 
To qualify for the FTA waiver, a taxpayer must meet the following criteria:  

  • Filing compliance: Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS.
  • Payment compliance: Must have paid, or arranged to pay all tax due (can be in an installment agreement as long as the payments are current).
  • Clean penalty history: Has no prior penalties (except an estimated tax penalty) for the preceding three years. Note: If the taxpayer received reasonable cause relief in the past, they are still eligible for FTA.

I believe that a reasonable cause argument can still be made by differentiating Interess  from a taxpayer's case where the CPA/accountant was not negligent, i.e. transmitted the tax filing on time and did not receive notice of rejection, with the CPA/accountant's nonnegligent being attributed to the taxpayer principal and therefore allowing the taxpayer to sustain a reasonable cause argument.
 
The Current State Of The Law Has Not Kept Pace With Our Digital Economy.
 
 
 
At the center of this quandary is whether a taxpayer can have reasonable cause where he relies upon a third party to perform a ministerial act, like e-filing an original tax return. The answer we now know is NO. 
 
This negative response may thwart the efficiencies gained by technology.
Been Assessed a Late Filing Penalty For
An E-Filed Return?

 Contact the Tax Lawyers at 

Marini& Associates, P.A.  
 

 

for a FREE Tax HELP Contact Us at:
www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243  

Read more at: Tax Times blog

TIGTA Report Show Amended Tax Returns Still Prone to Fraudulent Refunds

August 6, 2019

The Internal Revenue Service hasn’t done enough to improve its procedures for reviewing amended tax returns to reduce erroneous and fraudulent tax refunds, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, followed up on earlier reports by TIGTA that found risks of fraudulent and erroneous tax refunds from amended returns.

In the new report, TIGTA reviewed a valid sample of 235 of more than 1.1 million amended tax returns processed in 2017 and identified 33 (that is, 14 percent) questionable amended returns with refunds totaling $74,974.

Based on the results of the sample, TIGTA estimated the IRS issued nearly $359.9 million in potentially erroneous tax refunds claimed on 158,397 amended tax returns in 2017.

It forecast that the IRS could issue nearly $1.8 billion over the next five years. Of the 33 returns identified as questionable, 23 resulted from employee processing errors totaling $58,204 in potentially erroneous tax refunds.

Based on the results of the sample, TIGTA estimates the IRS issued nearly $279.4 million in potentially erroneous tax refunds claimed on 110,398 amended tax returns in 2017. It also forecast that the IRS could issue nearly $1.4 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.

In previous reports, TIGTA has recommended:

  • that the IRS revise Form 1040 to allow taxpayers to amend their original tax return using that same form.
  • In addition, TIGTA had also recommended that the IRS expand electronic filing to include amended tax returns.

It estimated the IRS could potentially save more than $17 million in processing costs during fiscal year 2012 if it had allowed taxpayers to e-file their amended tax return.

The IRS disagreed with this recommendation at the time, but said it would consider the format and appearance of the Form 1040X to include more specific information related to changes to income in conjunction with the implementation of e-filing of amended returns.

In the new report, TIGTA recommended that

  • the IRS review the questionable amended tax returns it identified and implement adequate processes to identify and correct employee errors to reduce erroneous refunds.
  • It also suggested the IRS should request funding to expand electronic filing for the 2020 filing season.
  • TIGTA recommended the IRS update its internal processes to identify and review amended tax returns with claims for refundable credits that were denied during the original tax return processing,
  • as well as modify the Form 1040X to allow individuals to use the Identity Protection Personal Identification Number when filing an amended tax return.

IRS management agreed with five of TIGTA’s seven recommendations, but disagreed with one suggestion on the need to hold amended tax returns for processing until a taxpayer confirms their identity when they are a victim of identity theft. The IRS believes its current verification processes provide enough account protections.

“... In its current state, amended return processing is reliant on manual processes; however, we developed automated tools for our employees to use that replicate, to the greatest extent possible, the systemic checks and validations to which original returns are subjected.”

Have a Tax Problem?
 
Contact the Tax Lawyers at
Marini & Associates, P.A. 
 
 for a FREE Tax Consultation Contact US at
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888-8TaxAid (888 882-9243). 
 
 

 

Read more at: Tax Times blog

No Statute of Limitations Defense Where Fraud is Involved!

August 6, 2019

The Tax Court found in Kohan, TC Memo 2019-85 that a dentist's underreporting of income was due to fraud. Therefore, there was no period of limitations to assess the taxes he owed.

IRC Sec. 6501(a) generally requires the IRS to assess a tax within three years after the filing of a return.
However, when a taxpayer has filed a false or fraudulent return with the intent to evade tax, there is no period of limitations, and the tax may be assessed at any time. (Code Sec. 6501(c)(1))
Circumstances that may indicate fraudulent intent, often referred to as "badges of fraud," include but are not limited to:
  1. understating income,
  2. keeping inadequate records, 
  3. giving implausible or inconsistent explanations of behavior, 
  4. concealing income or assets, 
  5. failing to cooperate with tax authorities, 
  6. engaging in illegal activities, 
  7. supplying incomplete or misleading information to a tax return preparer, 
  8. providing testimony that lacks credibility, 
  9. filing false documents (including false tax returns), 
  10. failing to file tax returns, and 
  11. dealing in cash.

(Schiff, (CA 2 1990) 67 AFTR 2d 91-1062)

Dr. Kohan was a dentist in New York. He was reimbursed by insurance companies for some of the work he did. But many of his patients paid him in cash. He would occasionally use this cash to pay for his employees' lunches or give them cash bonuses. He took the rest of the cash home with him.
In 2001, Dr. Kohan acquired the building in which his practice was conducted. Although Dr. Kohan's brother was listed as the purchaser on the title certificate for the property, his brother appears to have acted as a nominee.
The dentist hired a CPA to prepare his tax returns. He presented her with forms showing how much he received from insurance. But he did not disclose the cash payments, nor payments he received by check or credit card.
IRS audited his 2008 and 2009 tax returns.
Kohan conceded that he understated his income by $366,185 for 2008 and $380,124 for 2009. IRS found that these understatements were chiefly attributable to Dr. Kohan's underreporting the gross receipts of his dental practice. All of these receipts were deposited into his personal bank account.
Dr. Kohan admitted that his recordkeeping practices were poor. He did not keep a general ledger for his dental practice, and he kept no receipts for cash expenditures. He failed to keep separate bank accounts for his business and his personal affairs. He delegated his responsibility to identify business expenses to his office manager, who had no accounting or bookkeeping experience.
He told the IRS that his recordkeeping was poor because, among other reasons, he did not have a computer in the office. But he did take deductions in 2008 and 2009 for almost $20,000 in computer software and related expenses.

In addition, IRS felt that Dr. Kohan did not cooperate with it during the examination. He declined to produce his receipts book or the payment information included on patients' charts. He declined to produce the income and expense summaries that he supplied to his CPA for use in preparing his tax returns. And he falsely told the IRS auditor that he leased the dental office building from a relative whom he refused to name.

IRS did not issue notices of deficiency for the 2008 and 2009 tax years until 2017. The dentist contended that assessments were barred by the three-year statute of limitations.
The Tax Court found that the assessments were not time-barred because the underpayments were due to fraud. The Tax Court found that eight of the 11 badges of fraud overwhelmingly demonstrated that Dr. Kohan acted with fraudulent intent for both tax years at issue and the Court of Appeals agreed.
 
Have a Tax Problem?
 
 Contact the Tax Lawyers at
Marini & Associates, P.A. 
 
 for a FREE Tax Consultation Contact US at
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888-8TaxAid (888 882-9243). 
 
 

Read more at: Tax Times blog

Tax Treaties Face Additional Obstacles After 10 Years of Delay

August 6, 2019


On July 31, 2019 we posted Senate OKs Tax Treaties With Spain, Japan, Switzerland & Luxembourg, where we discussed that Senate approved on July 17, 2019 three bilateral tax treaties with Switzerland, Luxembourg and Japan, one day after approving a treaty with Spain.The treaties were approved after years of inaction on the agreements, a development welcomed by a trade group that represents multinational corporations.

This first round of approved treaties were protocols, which update existing treaties that are, in part, designed to help prevent companies from being subject to double taxation.

Pending new tax treaties that weren’t among those voted on when the U.S. Senate recently ended a years-long impasse could face additional delays, in part because the U.S. Treasury Department wants to add a caveat that may complicate the approval process.

But three treaties that remain pending are unlikely to move through the Senate with the same relative ease of the first four, in part because these new agreements could override a provision in the Tax Cuts and Jobs Act unless Treasury intervenes. Specifically, Treasury has requested reservations concerning the TCJA’s base erosion and anti-abuse tax provision that could require the U.S. to renegotiate the treaties. The Hungary and Poland treaties would replace ones from the 1970s and the Chile treaty would be that nation’s first with the U.S.

Because These Are New Treaties Rather Than Protocols,
They Could Override The TCJA.

 

These new treaties would trump the statute due to the “later in time” principle, which refers to the 1888 U.S. Supreme Court case Whitney v. Robertson .
The ruling states that if treaties and legal provisions are inconsistent, “the one last in date will control the other." If the new treaties override the U.S. tax overhaul, it would mean the TCJA’s base erosion and anti-abuse provision wouldn’t apply.

Have an International Tax Problem?

 

 Contact the Tax Lawyers at

Marini & Associates, P.A. 
 
 for a FREE Tax Consultation Contact US at
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888-8TaxAid (888 882-9243).


Source

Law360

Read more at: Tax Times blog

Live Help