A Florida man failed to prove that nearly $25 million in transfers to him were gifts that he didn’t need to report as taxable income, but the IRS can’t collect any of the nearly $1.9 million it assessed in penalties because it didn’t approve the penalties in time, the U.S. Tax Court ruled. 

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According to Law360, the US Tax Court said it will conduct remote proceedings during its fall trial calendar session because of the novel coronavirus pandemic and will allow the public to listen to the sessions. 

The court issued an administrative order Friday setting procedures for holding remote proceedings. Tax Court Judge Cary Pugh told Law360 on Monday that it is unclear what cities around the country will be accessible for proceedings in the fall, so the court can't follow its usual practice of sending judges to different cities for trials. 

Under the remote procedures, "the parties have a lead time to work the cases out, and we have some certainty with scheduling," Judge Pugh said.

"We can't just keep having a backlog," the judge said. "Parties come to Tax Court to have their cases resolved, and this is the safest way we can do it."

The Tax Court previously canceled trial sessions for March and April because of COVID-19, the respiratory disease caused by the novel coronavirus. The court then closed its building in Washington, D.C., but still allowed people to file petitions and other documents to abide by statutory deadlines. Mail sent to the building is being held until the court reopens.

Virtual Tax Court sessions will use videoconferencing software Zoomgov, which does not require a personal Zoom account and will not cost anything, according to the order issued Friday. People can attend virtual sessions using a computer or tablet's audio and video feed, or dial in to an audio-only feed over the phone.

The audio feed will allow journalists and the public to listen to the proceedings, similar to how other federal courts are conducting virtual sessions, Judge Pugh said. The U.S. Supreme Court has been holding oral arguments by teleconference. 

Parties must still participate in pretrial matters such as scheduled conference calls and pretrial calls; otherwise a judge may dismiss a case and enter a decision against the nonparticipating party, according to the order.

The order also adjusted certain trial deadlines. Before the pandemic, the court required parties to send a pretrial memo 14 days ahead of trial, but that memo is now due 21 days ahead of trial, according to the order. Pretrial memos are also now required to be filed for small tax cases, or those with $50,000 or less at stake, 21 days in advance, more than the previous seven days before trial.

On Friday the Tax Court also issued an administrative order that supersedes prior procedures for limited entry of appearances by attorneys representing clients before the court. Normally, an entry of appearance at the court is effective until a case is resolved, or the court grants an attorney's motion to withdraw. In 2019, the court began to allow limited entries of appearance during a trial session specific to the dates when the representation would be in effect.

Judge Pugh told Law360 that the court spent a lot of time coming up with the procedures but that they may change depending on their effectiveness and comments from other judges and practitioners.

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

Highlights of Reference Number:  2020-30-015 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The gross Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount paid voluntarily and on time.  The average annual gross Tax Gap is estimated to be $441 billion for Tax Years 2011 through 2013, and approximately $39 billion (9 percent) is due to nonfilers, taxpayers who do not timely file a required tax return and timely pay the tax due for such delinquent returns.  According to the IRS, high-income nonfilers, although fewer in number, contribute to the majority of the nonfiler Tax Gap.

WHY TIGTA DID THE AUDIT

In past audits, TIGTA identified serious lapses with the IRS’s nonfiler strategy.  This audit was initiated to determine whether the IRS is effectively addressing high-income nonfilers and if the new nonfiler strategy and related plans sufficiently include this segment of nonfilers.

WHAT TIGTA FOUND

The IRS is still in the process of conducting testing; however, the new nonfiler strategy appears to approach nonfiling in a more strategic manner.  However, the strategy has not yet been implemented, and TIGTA identified that the new nonfiler program is spread across multiple functions with no one area being primarily responsible for oversight.  

In addition, more needs to be done to address high-income nonfilers.  TIGTA analyzed the Individual Master File Case Creation Nonfiler Identification Process inventory for Tax Years 2014 through 2016 and identified 879,415 high-income nonfilers that did not have a satisfied filing requirement, with an estimated tax due of $45.7 billion.  

Of the 879,415 high-income nonfilers, TIGTA identified:

·    The IRS did not work 369,180 high-income nonfilers, with estimated tax due of $20.8 billion.  Of the 369,180 high-income nonfilers, 326,579 were not placed in inventory to be selected for work and 42,601 were closed out of the inventory without ever being worked.  In addition, the remaining 510,235 high-income nonfilers, totaling estimated tax due of $24.9 billion, are sitting in one of the Collection function’s inventory streams and will likely not be pursued as resources decline.

The IRS removed high-income nonfiler cases from inventory, resulting in 37,217 cases totaling $3.2 billion in estimated tax dollars 
that will not likely be worked by the IRS.

In addition, due to the policy on working single tax year cases without regard to how many returns have not been filed by a taxpayer, the IRS is missing out on opportunities to bring repeat high-income nonfilers back into compliance.  

WHAT TIGTA RECOMMENDED

TIGTA made seven recommendations, including designating a senior management official with appropriate resources and specific nonfiler duties to address nonfilers, not pausing the nonfiler program, working multiple tax year cases, and not removing high-income nonfiler cases from the inventory without resolution.  

The IRS disagreed with one of the recommendations, agreed with two recommendations, and partially agreed with four recommendations.  

• The IRS disagreed with placing the nonfiler program under its own management structure.  
• The IRS agreed not to pause the Individual Master File Case Creation Nonfiler Identification Process in the future, absent unusual circumstances.

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Every five years the US Department of Commerce Bureau of Economic Analysis (“BEA”) conducts a benchmark survey to gauge US investment abroad through a specific form (the “BE-10 Report”).

The BE-10 Report examines the 2019 fiscal year, and the deadline to comply with the filing requirements is 29 May 2020 for US persons required to file fewer than 50 forms, or 30 June 2020 for US persons required to file more than 50 forms. 

An extension of time to file for new filers is available (1) until June 30, 2020, for filers with less than 50 forms, (2) until July 31, 2020, for filers with between 50 and 100 forms, and (3) until August 31, 2020, for filers with more than 100 forms. To receive the extension, filers must request the extension by fax or email using BEA’s extension request form.

Reporting is mandatory and does not require a direct request to the filer from BEA. Failure to file BE-10 report may lead to significant civil penalties including monetary fines of between $2,500 and $25,000 (subject to inflationary adjustments). In some circumstances, criminal penalties and even imprisonment may be warranted.

BEA uses surveys to collect data about U.S.-owned business activities in other countries. The data are needed for statistics measuring the scale of direct investment abroad and the effects these activities have on the U.S. economy.

Data from these surveys contribute to many of BEA's international and national economic statistics and help answer questions such as:

• Which countries get the most direct investment from U.S. parent companies?
• Which industries are U.S. companies investing in abroad?

These statistics aid decision-making by Congress and federal officials; help analysts and researchers study the impact of direct investment on employment, wages, productivity, and tax revenues; and help American businesses make informed decisions about hiring, growth, and investment. All surveys of U.S. direct investment abroad are mandatory and confidential.

A foreign affiliate is a business enterprise located outside the United States in which a U.S. person or business holds a 10 percent or more voting interest.

Read more at: Tax Times blog