Monthly Archives: October 2020

On August 26, 2020 we posted IRS Is Not Sending Notices for Unpaid Taxes Until it Catches Up on Mail Backlog, where we discussed on August 21, 2020, the IRS announced that it has suspended the mailing of three notices – the CP501, the CP503 and the CP504 – that go to taxpayers who have a balance due on their taxes. 

Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers.

Now the IRS will resume issuing the 500 series balance due notices to taxpayers later this month. These notices were paused on May 9 due to COVID-19.

Although the IRS continued to issue most agency notices, the 500 series were suspended temporarily because of a backlog of mail at the IRS due to COVID-19. 

In late October or early November some taxpayers will begin seeing the updated 500 series notices with current issuance and payment dates.

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According to DoJ, on October 14, 2020, a Federal Grand Jury in the District of Puerto Rico returned an indictment charging Gabriel F. Hernández, with ten counts of wire fraud, in violation of Title 18, United States Code, Section 1343.  The indictment was unsealed after the arrest of the defendant by federal law enforcement officers from IRS-CI.

“As I have said in the past, persons who are involved in committing fraud are encouraged to come forward to authorities – that includes individuals that are fraudulently using Puerto Rico’s tax laws to evade federal taxes,” said U.S. Attorney Muldrow. 

“This Case Should Also Serve As A Warning To Anyone Considering Seeking To Evade Taxes By Illegally Exploiting Federal And Puerto Rico Tax Laws.”

“Federal and Puerto Rican tax laws have been put in place to invigorate the economy and provide financial relief to Puerto Rico.  IRS Criminal Investigation will vigorously pursue any individuals and professionals that fraudulently enrich themselves by abusing government tax incentive programs,” said Tyler R. Hatcher, Special Agent in Charge of the IRS-CI Miami Field Office.

According to allegations in the indictment, Hernández, a CPA who served as Tax Manager and Partner-in-Charge of the Tax Division of a large public accounting, tax, consulting and business advisory firm (BDO), devised a scheme to defraud the Internal Revenue Service of the United States Department of the Treasury. The scheme involved the submission of false information to the government of Puerto Rico in an attempt to fraudulently provide Company A with federal tax relief via the provisions of Act 20.

Act 20, also known as the Export Services Act, offers tax incentives for Puerto Rican companies to export services to other jurisdictions. The tax benefits on income derived from customers outside Puerto Rico in relation to services rendered from Puerto Rico included a fixed income tax rate of 4% for eligible export services, a 100% tax-exemption on dividends from earning and profits, and a 60% tax-exemption on local municipal taxes.

In December 2018, Hernández formed Company A under Puerto Rico law for an undercover special agent of the IRS-CI posing  as a wealthy United States taxpayer from Arizona. 

In December 2019, Hernández caused to be prepared and filed a fraudulent tax-exemption application with the Office of Industrial Development and fraudulently obtained Act 20 tax exemption status
for Company A.

In December 2019, Hernández also determined that Company A would report $500,000 in business earned income in Puerto Rico, which would reduce Company A’s federal taxes. Then in July 2020, Hernández caused a Puerto Rico corporate tax return for Company to be prepared and filed with the Puerto Rico Department of Treasury (Hacienda), falsely claiming that $500,000 was earned in Puerto Rico by Company A.

Hernández also caused the preparation and filing of false 2020-2021 Business Volume Declarations with the Municipality of San Juan based on the false earnings. The defendant unjustly enriched himself and others by receiving fees in exchange for these false and fraudulent acts.

The indictment further alleges that, as part of the scheme, the defendant defrauded the IRS, and unlawfully evaded the assessment and payment of taxes, by engaging in financial transactions devoid of any economic substance (sham transactions). 

The Transactions Were Intended to Create The Illusion of A Consulting Business Earning Income From Services Performed Within Puerto Rico, Rather Than Within
The Mainland United States.

The defendant and others communicated by e-mail and telephone with undercover special agents of the IRS-CI in interstate and foreign commerce as part of the scheme. The defendant and others misrepresented, concealed, and hid, acts done in furtherance of the scheme.

If found guilty, the defendant faces a maximum statutory sentence of up to 20 years in prison and a fine up to $250,000 for charges relating to wire fraud. 

• An indictment is a charging document containing allegations. 
• All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Want REAL Advice on How to Qualify For 

Puerto Rico Benefit Tax Benefits Under Act 20 and Act 22? 

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Marini & Associates, P.A.

for a FREE Tax Consultation 

at: www.TaxAid.us or www.TaxLaw.ms or

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A New Hampshire woman owes the federal government around $824,000 in penalties for failing to report her foreign bank accounts but doesn't owe $885,608 of fraud penalties, plus interest because the U.S. didn't show she intended to evade taxes, a federal court ruled.

An Ocean Boulevard woman is alleged to have failed to report interest from $3 million worth of bank accounts she held in Switzerland, then the Czech Republic, for which the Internal Revenue Service now claims she owes $885,608 in penalties.

By not seeking professional tax advice on foreign accounts she knew were earning income, Annette DeMauro was willful in failing to file her foreign bank account reports for 2007 through 2009, the U.S. federal court for the District of New Hampshire ruled.

But while DeMauro took steps to conceal her foreign accounts and money transfers, she did so in an attempt to hide assets from her abusive ex-husband, said the ruling by Judge Joseph Laplante. 

The U.S. Therefore Failed To Meet Its Burden For Assessing Enhanced Late-Filing Penalties, He Said.

In a complaint filed with the U.S. District Court of New Hampshire, Demauro is accused by the federal secretary of the Treasury of failing to file Report of Foreign Bank and Financial Report (FBAR) forms for 2007, 2008 and 2009. The federal government alleges her failure to file the forms was “willful” and she now owes FBAR penalties of $274,695 for each of those three years.

In the court complaint, the government also seeks interest and late-payment penalties, bringing the total Demauro allegedly owes to $885,608, “plus interest or other statutory additions accruing after March 2, 2017.”

Demauro's attorney summarizes Demauro’s defense as claiming the government has not demonstrated she willfully failed to file the reports, that she is not liable for the penalties and she’s owed at least $51,675 in taxes “wrongfully collected” from her.

In her counterclaim, Demauro is described as 80 years old and “not sophisticated in tax and financial matters.” Her suit says she never filed a tax return until after her second divorce in 2001 and first opened the Swiss bank account, on the advice of her divorce lawyer, to protect money from theft by a former husband.

“Ms. Demauro did not even know what an FBAR was until after she was contacted by the IRS and notified of the audit,” her counterclaim states.

In The District Court District Of New Hampshire Decision On 08/28/2020 The Court Finds In Favor of The United States
On Its Willful FBAR-Penalty Claim, See 31 U.S.C. §§ 5314, 5321, But Against The United States on the Counterclaims Challenging The IRS's Fraudulent-Failure-To-File Penalties,
See 26 U.S.C. § 6651.

With respect to FBAR, the United States showed by a preponderance of the evidence that DeMauro acted recklessly, and thus “willfully,” by failing to seek professional tax advice on foreign accounts she knew were earning income, even though she had consistently relied on professionals in the past and also had paid taxes on real property gained through her divorce. Even if DeMauro did not consciously avoid learning about the FBAR reporting requirement, she at the very least should have surmised that there was a grave risk she was not meeting her tax-filing obligations. Her conduct therefore constitutes a willful civil violation.

For DeMauro's Counterclaims, However, The United States Did Not Meet Its Burden of Showing By Clear And Convincing Evidence That DeMauro Failed To Timely File Returns 

With The Specific, Fraudulent Intent To Evade Taxes.

While the United States correctly notes that DeMauro took steps to conceal her foreign bank accounts and money transfers, she credibly testified that she did so in an attempt to hide assets from her abusive ex-husband—an explanation that even the IRS investigating agent believed and found compelling—and because she trusted the many professionals around her to handle the finer details of her finances. Given these mitigating explanations, the counterclaims pose a closer question than the affirmative FBAR claim. 

On this record, the court finds that the United States did not meet its burden for assessing enhanced late-filing penalties by clear and convincing evidence, and thus orders the return of penalties already exacted. A separate entry of judgment shall follow this order.

The case is U.S. v. Annette B. DeMauro, case number 1:17-cv-00640, in the U.S. District Court for the District of New Hampshire.

Sources

Law360

Read more at: Tax Times blog

According to Law360, The Internal Revenue Service can request information from state governments in its investigations of federal tax crimes, the Tenth Circuit said Tuesday, affirming a Colorado federal court's decision to toss a suit from pot businesses challenging the agency's summonses.

The three-judge panel concluded that a lower court correctly upheld the IRS' summonses for information on Green Solution LLC and other companies owned by Eric Speidell and on Medicinal Wellness Center LLC and other businesses owned by Judy Aragon and Steven Hickox.

The appeals court applied a precedent it set earlier this year establishing that the federal government has the ability to request state-based information in investigations of federal tax crimes and it rejected the companies' arguments that the IRS acted outside its authority.

"Over The Last Several Years, Multiple Colorado Marijuana Dispensaries Have Challenged The IRS' Ability To Investigate And Impose Tax Consequences Upon Them,
" U.S. Circuit Judge Mary Beck Briscoe Said In The Opinion. "The Dispensaries Have Lost Every Time."

The cannabis companies had argued the IRS lacks the authority to issue the summonses, and told the Tenth Circuit in August that the court's ruling in Standing Akimbo v. U.S. should not apply in their cases.

James D. Thorburn, an attorney for the cannabis companies, told the circuit panel during oral arguments last month that the burden is on the government to make an affirmative case that the documents sought are existent, described with particularity and relevant. The IRS urged the circuit panel to follow precedent the court set in Standing Akimbo and toss the companies' appeals.

In the earlier case, the Tenth Circuit found in April that the IRS satisfied proper requirements when it requested business information from the Colorado Department of Revenue in its audit of dispensary Standing Akimbo.

The government had argued that the factors that led to the Tenth Circuit's decision in Standing Akimbo, such as the submission of affidavits by IRS revenue agents explaining the need for the records requested, are similar to the proceedings in Speidell's series of appeals. The parallels in proceedings should make clear that the summonses should be enforceable, the government said.

The appeals court opinion "quoted liberally" from its ruling in Standing Akimbo in its decision and concluded that the IRS' investigation in the case also met a four-part test established in U.S. v. Powell , a 1964 U.S. Supreme Court decision. The judgment in Powell stipulated an agency must state a legitimate purpose for seeking information outside its possession that is relevant to an investigation and proper administrative procedures must be followed.

In the Green Solution and Medicinal Wellness case, the companies failed to prove that the IRS investigation was "quasi-criminal," as they alleged, and provided no evidence to support that argument, such as a referral by the agency to the U.S. Department of Justice to prosecute the marijuana businesses, the opinion said.

Speidell and several Green Solution entities he owned were issued summonses by the IRS in 2016 seeking information from state agencies about the businesses' 2013 and 2014 tax returns to determine whether the companies improperly claimed federal business expense deductions, according to court documents. 

Those Deductions Are Disallowed For State-Regulated Marijuana Businesses Under IRC Section 280E .

A Colorado federal court denied Speidell's attempts to quash the summonses in the series of cases during 2018 and 2019, according to court documents. Medicinal Wellness Center LLC and its related entities, which joined Speidell in urging the reversal of the lower court's order on appeal, were also required to hand over documents under the ruling, according to court documents., Tax Division.

The consolidated cases are Eric D. Speidell et al. v. U.S., case numbers 19-1214, 19-1215, 19-1216, 19-1217 and 19-1218, in the U.S. Court of Appeals for the Tenth Circuit.

Read more at: Tax Times blog