Yearly Archives: 2020

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

In August 1989, the U.S. and Hong Kong concluded an agreement to exempt from income tax, on a reciprocal basis, income from the international operation of ships (the “shipping agreement”). The shipping agreement was effective for tax years beginning on or after January 1, 1987. (Notice 97-40, 1997-2 CB 287)

On July 14, 2020, the President issued an Executive Order (EO) on Hong Kong Normalization, which, among other things, directed the Commerce Department to give Hong Kong notice of intent to terminate the shipping agreement. (E.O. 13936)

IRS has announced that he termination of the shipping agreement is effective for tax years beginning on or after January 1, 2021. 

Need International Tax & Shipping Advice?

 

 

Marini & Associates, P.A. 

 

for a FREE Tax HELP Contact us at:
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or Toll Free at 888 8TAXAID (888-882-9243)

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On October 19, 2020 we posted TIGTA Lists 10 Most Serious Challenges for IRS for FY 2021, where we discussed that TIGTA, in an Oct. 14 memorandum to Treasury Secretary addressed the 10 most serious management and performance challenges confronting IRS in fiscal year 2021. TIGTA has a statutory requirement to submit an annual report on the subject. Herein we would like to discuss problem #9 INCREASING INTERNATIONAL TAX COMPLIANCE

Complexity and change in the international tax environment require that the IRS collaborate with tax administrations of foreign countries to enforce compliance. The IRS must continue to focus significant efforts on global tax cooperation and tax administration practices that can prevent and resolve disputes among countries to increase certainty for taxpayers. 

In most cases, foreign persons are subject to U.S. tax of 30 percent (or lower treaty rate) on their U.S. source income. A foreign individual is any person that is not a U.S. person, including a nonresident alien, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate. The U.S. tax owed is generally withheld from payments made to foreign persons by a withholding agent. A withholding agent is any U.S. or foreign entity (individual, corporation, partnership, etc.) that takes receipt of, has control or custody of, or disposes of or makes a payment of any income to a foreign individual that is subject to withholding. Withholding agents are required to file Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, to report on an individual taxpayer basis the income and withholding for each foreign person. For Tax Year 2017, the IRS received 6.3 million Forms 1042-S from 49,618 withholding agents. These agents reported U.S. tax withholdings totaling more than $528 billion.

In response to our prior recommendations, the IRS has implemented processes to improve its identification of reporting discrepancies for Federal tax withheld on U.S. source income paid to foreign individuals. However, these processes did not identify some withholding tax discrepancies. TIGTA reported that IRS processes did not identify 1,919 withholding agents with reporting discrepancies totaling more than $182.7 million. 

Our Review Also Identified 366 Withholding Agents That Claimed $506 Million More In Credits For Tax Withheld Than Was Reported On The Forms 1042-S.

In addition, partnerships conducting business in the United States are required to withhold taxes on certain income paid to foreign partners. A foreign partner can be a foreign corporation, foreign partnership, and any other person who is not a U.S. citizen. The withholding serves as an incentive for foreign partners to file the appropriate U.S. tax return. However, TIGTA reported that the IRS’s compliance efforts in this area can be improved. TIGTA identified significant errors in the database that the IRS uses to track withholding reported by partnerships, which limits the IRS’s ability to verify withholding credits and accurately identify potential nonfilers.

Foreign individuals are also required to pay tax related to the sale of U.S. real estate. Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 imposes an income tax on foreign persons selling U.S. real property interests. Buyers are required to withhold a percentage of the anticipated taxes due on the amount realized from the sale. A foreign seller of U.S. property can claim a credit for the tax withheld by the buyer. If the seller’s tax liability is less than the amount of tax withheld, the seller gets a refund of the difference. TIGTA reported that the IRS’s reconciliation processes do not effectively identify and address FIRPTA reporting and payment noncompliance.(TIGTA, Ref. No. 2020-40-014, Millions of Dollars in Discrepancies in Tax Withholding Required by the Foreign Investment in Real Property Tax Act Are Not Being Identified or Addressed (Mar. 2020))

Extensive data inaccuracies in the FIRPTA database, incorrect and unclear guidelines, and employee errors contributed to these discrepancies.

The IRS also has not established processes to use Form 1099-S, Proceeds from Real Estate Transactions, to identify buyers that do not report and pay FIRPTA withholdings. 

Finally, employee errors resulted in 1,835 foreign individuals potentially receiving more than $60 million in FIRPTA withholding credits than they were entitled.

                                                                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