Yearly Archives: 2020

According to the National Law Review, on December 11, 2020, and by a veto-proof majority, the US Senate joined the House of Representatives in passing the National Defense Authorization Act for Fiscal Year 2021, which includes the Corporate Transparency Act (the Act). 

The Act requires a report be filed with the Financial Crimes Enforcement Network (FinCen) that identifies each beneficial owner of an applicant forming a reporting company. While questions remain as to the full implications of the Act, it represents an important step in the right direction for the United States in the battle against money laundering and terrorist financing.

The current measure, if enacted, brings the United States closer to parity with other developed nations, which have enacted similar mandates.

What is a reporting company?

A reporting company is defined as a corporation, limited liability company or other similar entity that is created by filing a document with the secretary of state (or an equivalent office) of any state, or formed under foreign law and registered to do business in the United States in a like manner. The Act exempts many categories of companies from the reporting requirement, specifically:

• Companies that are already subject to supervision or otherwise closely regulated by the federal government (e.g., banks)
• Dormant companies
• Companies that employ more than 20 people, filed a tax return reporting gross receipts in excess of $5 million, and have a physical presence in the United States
• Any entity owned by an entity otherwise exempt

Who is a beneficial owner and/or an applicant?

A beneficial owner is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise (i) exercises substantial control over an entity or (ii) owns or controls at least 25% of the ownership interests in an entity. A few notable exceptions from the Act include:

• Minors, provided that information with respect to a parent is otherwise reported
• An individual acting as nominee, intermediary, custodian or agent on behalf of another individual
• Persons who control an entity solely because of their employment
• An individual whose only interest in a reporting company is through a right of inheritance

An applicant is defined broadly as an individual who files an application to form an entity.

What information must be reported and when?

The report shall include the name, date of birth, current address (business or residential) and unique identifying number from an acceptable document for each beneficial owner and/or an applicant, with an option for such individuals to request and use a FinCEN unique identifying number instead. Existing entities will be required to report this information within two years of the effective date, which regulations promulgated within one year of enactment will determine. The report will be required for newly formed entities at the time of formation. Finally, a reporting company will need to update the information provided to FinCEN upon a change in beneficial ownership.

Where is the information stored and who has access to it?

FinCEN will store the information received pursuant to the Act in a private database not accessible to the public. The information will be made available to Federal and state law enforcement agencies pursuant to an appropriate request—state law enforcement requests require court approval. The Department of the Treasury, the custodian of the records through FinCEN, has its own broad and separate authorization to use the information, including for purposes related to tax administration. Foreign law enforcement also may request information from the database through an appropriate agency of the federal government—but the information will not be subject to any automatic reporting or exchange of information. Finally, financial institutions will have access to the database for customer due diligence purposes.

Customer due diligence requirements for financial institutions will be updated to conform to the requirements of the Act and to take into account access by financial institutions to the information compiled under the Act. This means that the establishment of any entity account with a financial institution likely will require compliance, by the entity, with the Act—providing a practical barrier to non-compliance.

What are the penalties for violating the law?

The willful failure to provide complete and/or updated information required under the Act or willfully providing false or fraudulent information carry steep civil and criminal consequences. Violations carry civil penalties of up to $500 per day that the violation continues and criminal fines up to $10,000 and/or imprisonment for up to two years. The obligations under the Act apply to beneficial owners and to applicants. The unauthorized disclosure of information collected under the Act carries the same civil penalty but a higher criminal penalty of up to $250,000 and a higher maximum term of imprisonment of five years. Unauthorized disclosure includes both a disclosure by a government employee and a disclosure by a third-party recipient of information under the Act.

Insights

Unregistered foreign entities. Notably, the Act does not require disclosure of the beneficial owners of a foreign entity if the entity does not register to do business with a state. Presumably, an individual may still be able to access anonymously the US financial or real estate markets using a foreign entity that does not register to do business in a state. It will be interesting to see how the changes to the customer due diligence requirements for financial institutions will affect entities that are not required to file reports under the Act.

Impact. The Act goes a long way in preventing the misuse of entities to hinder the efforts of law enforcement to combat money laundering. The Act includes a provision prohibiting the issuance of any type of certificate evidencing ownership of such entity in bearer form—a longstanding target of anti-money laundering initiatives. The Act captures indirect ownership; for example, a limited liability company formed by a foreign corporation should have to report the information of a non-US person shareholder of the foreign corporation.

It remains to be seen how the regulations promulgated under the Act will deal with ownership of a reporting company by trusts, estates and other complex structures commonly used to meet the multijurisdictional requirements of private clients and their families. For example, if a corporation is wholly owned by a bank (which is exempt) as trustee, does the exception for entities owned by other exempt entities eliminate the disclosure requirements for the corporation? 

How would ownership and/or control be measured with respect to discretionary beneficiaries of trusts? 

Will the relatively new customer due diligence rules with respect to entities be looked to as a model or will the Report of Foreign Bank and Financial Accounts FBAR rules be used as a standard (31 C.F.R. § 1010.230; 31 C.F.R. § 1010.350)? 

Using the customer due diligence regulations as a guide, if a trust owns more than 25% of the equity interest in a company, the trustee would be considered the beneficial owner, regardless of whether the trustee is a natural or legal person (31 C.F.R. § 1010.230(d)(3); see also Fin. Crimes Enf’t. Network, FIN-2018-G001, Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions (2018)). Presumably, the beneficial owner requirements in the Act will go further than the customer due diligence regulations; it will be interesting to see how they approach some of these questions.

Have an International Tax Problem?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

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or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

The Tax Court has determined in Cutting, TC Memo 2020-158, that a pilot who spent most of his time in Thailand and had a Thai wife was not entitled to the foreign earned income exclusion. He was not a bona fide resident of Thailand and his principal place of business was in the U.S.

Foreign earned income is income an individual receives from sources within a foreign country that is attributable to services performed by the individual. (Code Sec. 911(b)(1)(A)) A “qualified individual” may exclude from gross income foreign earned income. (Code Sec. 911(a))

A qualified individual is an individual whose tax home is in a foreign country and who is either (1) a bona fide resident of that country for an uninterrupted period that includes the entire tax year, or (2) physically present in a foreign country or countries for a certain period. (Code Sec. 911(d)(1))

An individual’s tax home is considered to be his regular place of business (or principal place of business if more than one regular place exists). If the individual has no regular or principal place of business, the individual’s tax home is his or her regular place of abode in a “real and substantial sense.” (Reg §1.911-2(b)) The principal place of business for a pilot is his or her duty station. (Wojciechowski, TC Memo 1991-239)

Douglas Cutting, an American citizen living in Thailand, worked as a pilot for an airline with a contract with the U.S. Department of Defense. He flew mostly international routes transporting military personnel and cargo. Cutting’s income came, primarily, from his piloting work. 

Cutting's employment was governed by a collective bargaining agreement that required him to designate a home base (primary residence for records purposes) and a gateway travel airport. Cutting selected San Jose, California, to be his home base and San Jose Airport (SJC) to be his gateway travel airport. 

Cutting used his father’s address in San Jose as his mailing address because he did not own or lease a residence in the U.S. during the relevant years. 

On His IRS Form 2555, Foreign Earned Income,
He Stated That He Was Not A Resident Of Thailand and
Did Not Live With Any Family Members Abroad.

In Thailand, Cutting held only temporary transit and nonimmigrant visas, which expired after 30 days. These visas were renewed automatically each time he left Thailand to work as a pilot, giving him a fresh 30-day period each time he returned. On at least two occasions the Thai government denied Cutting's requests to extend his visas. He could not own or lease property in Thailand and did not pay any taxes to Thailand.

For 2012, 2013, and 2014, Cutting filed his returns as a single taxpayer and claimed the maximum allowable foreign earned income exclusion under Code Sec. 911. IRS disallowed these exclusions on the basis that Cutting had not established either bona fide residence or physical presence in Thailand for those years.

The Tax Court, After Analyzing The Factors Pertinent To Determining Bona Fide Residency, Found That Cutting Was Not A Bona Fide Resident Of Thailand And, Therefore, Couldn't Claim For Foreign Earned Income Exclusion.

The Court pointed out that most of the determining factors weighed against him: 

1. there was no evidence that Cutting intended to become a bona fide resident of Thailand; 
2. there was no evidence that he established a home in Thailand for an indefinite period; 
3. there was no showing that Cutting made any attempt to assimilate into the Thai culture, although his wife was Thai; 
4. he did not assume any economic burdens of life in Thailand (such as buying or renting a home) or pay taxes to Thailand; 
5. he was not a legal resident of Thailand because he only had temporary transit and nonimmigrant visas and he stated on his Form 2555 that he was not a resident of Thailand.

Further, the Court noted that Cutting choose San Jose, California, as his principal place of business when he designate it as his home base; his employer was based in the U.S. and withheld U.S. taxes from his wages; and he filed his U.S. taxes as a single taxpayer. 

On the other hand, only two factors weighed in his favor: Cutting had a physical presence in Thailand and spent most of his time in Thailand when not working. 

Have IRS Tax Problems?

 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

According to DoJ, AMIR BRUNO ELMAANI, a/k/a “Bruno Block,” the founder of the cryptocurrency “Oyster Pearl,” was charged with with tax evasion on December 9, 2020. 

As alleged, ELMAANI made millions of dollars from the sale of a new cryptocurrency but evaded reporting that income to the IRS, including by filing a false tax return, operating his business and owning assets through pseudonyms and shell companies, obtaining income through nominees, and dealing in gold and cash. 

ELMAANI was arrested on December 9, 2020 in Martinsburg, West Virginia, and was presented before United States Magistrate Judge Robert W. Trumble in the Northern District of West Virginia. 

In a separate civil action, the Securities and Exchange Commission is filing civil charges against ELMAANI today. Acting Manhattan U.S. Attorney Audrey Strauss said: 

“As Alleged, Amir Bruno Elmaani Purported To Establish A High-Tech Method Of Financing A High-Tech Business, But The Underlying Scheme Was Old Fashioned Fraud And Tax Evasion.

Elmaani allegedly generated millions by soliciting investor money through his own cryptocurrency, adding to the purportedly fixed number of tokens and converting them to other cryptocurrencies, and failing to report or pay tax on any of the proceeds. 

Thanks to the FBI and IRS-CI, Elmaani is now in custody and facing federal prosecution.” FBI Assistant Director William F. Sweeney Jr. said: “Taking advantage of the ever-so-popular cryptocurrency market, Elmaani allegedly capitalized on the investments of those who purchased virtual currency through Oyster Pearl, which he founded. 

As it turns out, Elmaani was funneling the proceeds of his alleged cryptocurrency scheme through a shell company that hid the true nature of his financial interests, ultimately never paying taxes on his earnings. 

With Minimal Reported Income In 2018, He Still Managed To Spend Over $10 Million For The Purchase of Yachts,

IRS Special Agent-in-Charge Kelly R. Jackson said: “Ensuring the integrity of our tax system is a priority of IRS-CI. Evading taxes only aims to deteriorate the confidence in this system and those who fail to pay their fair share will be investigated. 

As alleged in the Indictment :

• In September and October 2017, ELMAANI began promoting online his new cryptocurrency known as Pearl tokens. Using a variation of his online pseudonym “Bruno Block,” ELMAANI stated that he planned to develop an online data-storage platform, known as Oyster Protocol, which would allow users to purchase online data storage with Pearl tokens. 
• Instead of using his real name, ELMAANI operated almost exclusively online under the pseudonym “Bruno Block.” 
• ELMAANI concealed his true identity from his prospective employees and business associates and never met them in person. 
• In the fall of 2017 and thereafter, ELMAANI sold Pearl tokens to the investing public through an “initial coin offering” and on cryptocurrency market platforms. ELMAANI announced that he intended to take a “founder’s share” of Pearl tokens for his own personal use. 
• ELMAANI owned and controlled the subsequently established company Oyster Protocol Inc. through a shell company not associated with his true name. In a statement issued under ELMAANI’s online pseudonym on June 7, 2018, ELMAANI stated that he was retaining millions of Pearl tokens as his “ownership stake” in Oyster Protocol, but that he had to move the tokens to a different cryptocurrency wallet “in order to avoid being double-taxed.” 
• In truth, ELMAANI did not report or pay tax on any of his cryptocurrency proceeds. 
• At various points, ELMAANI used friends and family as nominees to receive cryptocurrency proceeds and transfer them or U.S. currency to his own accounts. 
• ELMAANI dealt substantially in precious metals, kept gold bars in a safe on a yacht he owned, and used large amounts of cash to pay personal expenses. 
• In late October 2018, although the number of Pearl tokens was purportedly fixed, ELMAANI used his access to the blockchain technology used to create Pearl tokens to mint new tokens, which he took for his own personal use (the “Exit Scheme”). ELMAANI thereby increased the total volume of Pearl tokens. 
• Shortly after creating the new tokens, ELMAANI converted the Pearl tokens he had obtained to other types of cryptocurrency on an online marketplace or exchange. 
• As a result of ELMAANI’s conduct, trading in Pearl tokens halted on that exchange and the price of Pearl tokens held by investors dropped substantially. 
• Pearl tokens were subsequently de-listed from the primary exchange where they were traded. 
• Subsequent to the Exit Scheme, ELMAANI used his friends and family to receive cryptocurrency and to transfer funds to a bank account in his name. 
• While ELMAANI initially attempted to hide even “Bruno Block’s” involvement in the Exit Scheme, he later effectively admitted to the conduct online under his “Bruno Block” pseudonym. 
• In a recorded call with the then-chief executive officer (“CEO”) of Oyster Protocol Inc., after the Exit Scheme, the CEO asked ELMAANI why he had to take the additional new Pearl tokens if he had already cashed out millions of dollars’ worth of Pearl tokens in the past. ELMAANI responded, in part, that “taxes are pretty nasty.” 
• ELMAANI carried out the Exit Scheme only days before the exchange he had used to cash out his Pearl tokens was set to require “know your customer” personal identifying information from its users. 

ELMAANI filed a false 2017 tax return stating that he had only approximately $15,000 of income from a “patent design” business, and he filed no return and reported no income to the IRS in 2018.

Nevertheless, ELMAANI spent, in 2018, over $10 million for the purchase of multiple yachts, $1.6 million at a carbon fiber composite company, hundreds of thousands of dollars at a home improvement store, and over $700,000 for the purchase of two homes, one of which was titled in the name of a shell company and the other in the name of two of his associates. 

ELMAANI, 28, is charged with two (2) counts of tax evasion, each of which carries a maximum sentence of five (5) years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge. The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Have a Criminal Tax Problem?

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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

Read more at: Tax Times blog

As part of the Security Summit effort, the Internal Revenue Service announced in IR-2020-267 today that starting in January the Identity Protection PIN Opt-In Program will be expanded to all taxpayers who can properly verify their identities.

The Summit partners, including state tax agencies, the nation’s tax industry and the IRS, marked the third day of the National Tax Security Awareness Week by urging taxpayers who want the proactive protection against identity theft to opt into the Identity Protection PIN program in 2021.

The IP PIN is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. The online Get An IP PIN tool at IRS.gov/IPPIN immediately displays the taxpayer’s IP PIN.

“When you have this special code, it prevents someone else from filing a tax return with your Social Security number,” said IRS Commissioner Chuck Rettig. “The fastest way to get an Identity Protection PIN is to use our online tool but remember you must pass a rigorous authentication process. We must know that the person asking for the IP PIN is the legitimate taxpayer.”

The online tool uses Secure Access authentication which uses several different ways to verify a person’s identity. Before using the “Get an IP PIN” tool, the IRS encourages taxpayers to review the requirements at IRS.gov/SecureAccess.

For those who cannot pass Secure Access authentication, there are alternatives. Taxpayers with incomes of $72,000 or less and with access to a telephone should complete Form 15227 and mail or fax it to the IRS. An IRS assistor will call the taxpayer to verify their identity with a series of questions. For additional security reasons, taxpayers who pass authentication will receive an IP PIN the following tax year.

Taxpayers who cannot verify their identities remotely or who are ineligible to file a Form 15227 may make an appointment, visit a Taxpayer Assistance Center and bring two forms of picture identification. Because this is an in-person identity verification, an IP PIN will be mailed to the taxpayer within three weeks.

Taxpayers who obtain an IP PIN should never share their code with anyone but their trusted tax provider. The IRS will never call to request the taxpayer’s IP PIN, and taxpayers must be alert to potential IP PIN scams.

Here’s what taxpayers need to know about the IP PIN before applying:

• The Get an IP PIN tool will be available in mid-January. This is the preferred method of obtaining an IP PIN and the only one that immediately reveals the PIN to the taxpayer.
• Taxpayers who want to voluntarily opt into the IP PIN program do not need to file a Form 14039, Identity Theft Affidavit.
• The IP PIN is valid for one year. Each January, the taxpayer must obtain a newly generated IP PIN.
• The IP PIN must be properly entered on electronic and paper tax returns to avoid rejections and delays.
• Taxpayers with either a Social Security number or Individual Tax Identification Number who can verify their identities are eligible for the opt-in program.
• Any primary taxpayer (listed first on the return), secondary taxpayer (listed second on the return) or dependent may obtain an IP PIN if they can pass the identity proofing requirements.
• The IRS plans to offer an opt out feature to the IP PIN program in 2022 if taxpayers find it is not right for them.

There is no change in the IP PIN program for confirmed victims of tax-related identity theft. Those taxpayers should still file a Form 14039 if their e-filed tax return rejects because of a duplicate SSN filing. The IRS will investigate their case and once the fraudulent tax return is removed from their account, confirmed victims automatically will receive an IP PIN via postal mail at the start of the next calendar year.

IP PINs will be mailed annually to confirmed victims only and participants enrolled prior to 2019. Because of security risks, confirmed identity theft victims cannot opt out of the IP PIN program. Confirmed victims also can use the Get an IP PIN tool to retrieve lost IP PINs assigned to them.

The IRS, state tax agencies, the private sector tax industry, including tax professionals, work in partnership as the Security Summit to help protect taxpayers from identity theft and refund fraud. This is the third in a week-long series of tips to raise awareness about identity theft. See IRS.gov/securitysummit for more details.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
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Read more at: Tax Times blog