Monthly Archives: March 2021

In a memo to all IRS employees, the IRS says it is implementing a temporary deviation from its regular procedures that will allow electronic or digital signatures on various forms that currently require handwritten signatures, i.e., that are not e-fileable. The decision was made due to taxpayer representatives' concerns about securing handwritten signatures during the coronavirus pandemic.

The memo notes that electronic and digital signatures may be created by many different technologies. No specific technology is required for this purpose during this temporary deviation.

The memo is effective for the forms listed below, that are signed and postmarked from January 1, 2021, through June 30, 2021.

The forms are:

• Form 3115, Application for Change in Accounting Method;
• Form 8832, Entity Classification Election;
• Form 8802, Application for U.S. Residency Certification;
• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
• Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
• Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
• Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
• Form 1120-L, U.S. Life Insurance Company Income Tax Return;
• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
• Form 1128, Application to Adopt, Change or Retain a Tax Year;
• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts;
• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner;
• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms; and
• Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues; Form 8038-G, Information Return for Tax-Exempt Governmental Obligations; and Form 8038-GC, Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales.

This is effective for the forms listed above, that is in them postmarked from January 1, 2021 through June 30, 2021.

The IRS previously allowed electronic or digital signatures for a smaller group of forms through December 31, 2020. 

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

On March 11, 2021 the DoJ announced the filing of a criminal Information against RAHN+BODMER CO. (“R+B”), a financial institution located in Zurich, Switzerland. The Information charges R+B with one count of conspiring to help U.S. accountholders evade their U.S. tax obligations, file false federal tax returns, and otherwise defraud the Internal Revenue Service (“IRS”) by hiding hundreds of millions of dollars in offshore bank accounts at R+B. 

They also announced a deferred prosecution agreement with R+B (the “Agreement”), under which R+B admits to its unlawful conduct in assisting U.S. accountholders in violating their legal duties. R+B’s admissions are contained in a detailed Statement of Facts attached to the Agreement. 

The Agreement Requires R+B To Provide Ongoing Assistance To The Department of Justice And To Pay A Total of $22 Million In Restitution, Forfeiture, And Penalties.

If R+B abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charge. 

Rahn+Bodmer now admits, it aided U.S. taxpayers in evading their tax responsibilities to the tune of more than $16 million. 

This venerated banking institution knowingly offered banking services that assisted its U.S. customers in evading their tax obligations, and affirmatively schemed to conceal from the IRS the assets and income of U.S. accountholders. 

Through a years-long scheme, the R+B bank hid the assets of U.S. accountholders to shield them from their tax obligations. Today’s admission and agreement provide a clear path to recovery of funds owed to the U.S. government, and sends a strong signal that offshore accounts are not beyond the reach of special agents with IRS CI.” 

From at least in or about 2004 and continuing until at least in or about 2012, R+B conspired with certain of its U.S. accountholders and others to defraud the United States with respect to taxes, file false federal tax returns, and commit tax evasion. 

R+B’s bankers assisted U.S. accountholders in concealing their ownership and control of assets and funds held in undeclared R+B accounts, which enabled those U.S. accountholders to evade their U.S. tax obligations. R+B admitted to holding undeclared accounts on behalf of approximately 340 U.S. taxpayers, who collectively evaded approximately $16.4 million in U.S. taxes between in or about 2004 and in or about 2012. 

The assets under management that R+B held for undeclared U.S. accountholders increased from approximately $391 million in 2004 to approximately $550 million in 2007, its peak year for undeclared assets under management. In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, R+B undertook the following actions, among others: R+B opened “numbered” or “pseudonym” accounts for U.S. accountholders in order to reduce the risk that U.S. tax authorities would learn their identities. 

R+B opened and maintained accounts for U.S. accountholders in the names of non-U.S. corporations, foundations, trusts, or other legal entities, thereby helping U.S. taxpayers conceal their beneficial ownership of the accounts. 

R+B agreed to hold bank statements and other account-related mail in Switzerland, rather than send them to the U.S. accountholders in the United States, which helped ensure that documents reflecting the existence of the accounts remained outside the United States and beyond the reach of U.S. tax authorities. 

After Liechtenstein and the United States signed a Tax Information Exchange Treaty in December 2008, R+B transferred the undeclared assets of certain U.S. taxpayers from accounts held in the names of sham foundations organized under the laws of Liechtenstein to new accounts held in the names of new sham foundations organized under the laws of Panama, in an effort to further conceal the accounts from U.S. tax authorities. 

R+B allowed U.S. accountholders and third-party asset managers to make withdrawals by check from undeclared accounts in amounts of less than $10,000, in an apparent attempt to conceal transactions from U.S. authorities. 

On occasion, R+B opened accounts for U.S. taxpayers who were exiting UBS AG and other Swiss banks, and allowed these U.S. taxpayers to continue to conceal their undeclared assets at R+B. 

R+B additionally opened “escrow” accounts on behalf of a Swiss attorney to facilitate the transfer of undeclared assets of U.S. accountholders that had been converted to gold and other precious metals held in a vault at UBS. 

R+B helped U.S. accountholders to repatriate funds to the United States in a manner designed to ensure that U.S. tax authorities did not discover the undeclared accounts, including by transferring the funds of one U.S. accountholder in increments of approximately $100,000 to another Swiss bank before the U.S. accountholder routed the funds to a diamond dealer in Manhattan, where the U.S. accountholder ultimately received them.

R+B, through its bankers, made regular visits to the United States to solicit, open, and service undeclared accounts of U.S taxpayers. Under today’s resolution, R+B is required to cooperate fully with the Department of Justice and affirmatively disclose new information it may later uncover regarding U.S.-related accounts. 

R+B is also required to disclose information consistent with the Department’s Swiss Bank Program relating to accounts closed between January 1, 2009, and December 31, 2019. 

Read more at: Tax Times blog

According to Law360, each year, the Internal Revenue Service proposes millions of dollars in penalties against taxpayers. Knowing how to defend against proposed penalties is essential for taxpayers and their advisers, and they will fare better when they understand the tools in their penalty defense toolbox. 

IRC Section 6751(b) imposes procedural requirements that the IRS must follow before determining and assessing certain penalties. These requirements must be satisfied when the IRS seeks to impose certain penalties, including the discretionary and nonautomatically-calculated penalties. IRC Section 6751 was added to the code in the 1998 Restructuring and Reform Act to address Congress’ concern that the IRS was asserting penalties as a bargaining chip in cases where there was no basis for a penalty.

IRC Section 6751 imposes two requirements on the IRS:

1. The IRS must “include with each notice of penalty ... the name of the penalty, the Section of the Code under which the penalty is imposed, and a computation of the penalty.” and
2. An “initial determination of … [the] assessment” of certain penalties, including the section 6662[5] penalties, must “be personally approved (in writing) by the immediate supervisor of the individual making such determination.”

Failure To Comply With These Requirements

May Result In The Prohibition Of Any Penalties,

Regardless Of The Substantive Merits.



Because the term “initial determination” was not defined in the statute or the regulations, the plain language of the text left open to debate the question of when an initial determination must be made and supervisory approval obtained. Yet, it took almost twenty years before courts began interpreting this provision.

The Tax Court first addressed the meaning of the initial determination in 2016 in Graev v. Commissioner, 147 T.C. 460 (2016). In Graev, the court in a divided opinion rejected the taxpayer’s argument that supervisory approval was not properly obtained because it interpreted the term assessment to mean the recording of a penalty liability of a taxpayer after a court decision becomes final and unappealable. In other words, it was premature to determine whether the IRS has complied with IRC Section 6751 because there had not yet been an assessment. 

The following year, the U.S. Court of Appeals for the Second Circuit heard a similar case in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) , aff’g in part, rev’g in part T.C. Memo. 2015-42, 

and rejected the Tax Court’s holding in Graev, instead holding that the written approval requirement requires such approval no later than the date that the IRS issues a notice of deficiency (or files and answer or amended answer) asserting the penalty. After Chai, the Tax Court vacated its earlier decision in Graev (which was also appealable to the Second Circuit), and followed Chai. 

Since Graev and Chai, the supervisory approval requirement has been the subject of significant litigation and has resulted in several clarifications about the supervisory approval rule. These can be summarized as follows: 

• Penalties determined based on a substantial understatement of tax ground are exempt from the supervisory approval requirement because such penalties are automatically calculated through electronic means.
• Supervisory approval need not be made on a particular document, and different penalties can be asserted at different times so long as the approval requirements are met.
• Supervisory approval must occur no later than the first communication that advises the taxpayer that penalties will be proposed and giving the taxpayer the right to appeal.
• Notifying a taxpayer of a tentative proposed adjustments and inviting it to a conference to discuss does not constitute the initial determination; there must be a definite determination in a formal communication such as a 30-day letter, 60-day letter, notice of deficiency or notice of final partnership administrative adjustment.
• The IRS bears the initial burden of production under IRC Section 7491(c)[14] to offer evidence of compliance with IRC Section 6751(b)(1).
• The written supervisory approval requirement applies in deficiency, partnership, and collection due process cases, as well as situations involving assessable penalties.

Resulting in communication by the IRS in an informal document request or notice of proposed adjustment of a potential penalty does not constitute an initial determination that requires compliance with IRC Section 6751. This would appear to be true even if the informal document request or notice of proposed adjustment stated that the IRS had determined to apply a penalty but asked for the taxpayer’s position. In other words, preliminary communications of proposed penalties in these types of documents would not be sufficient to satisfy a conclusive requirement in the statute that affixes to the term "determination."

As The Tax Court Has Stated, ‘Determination’ Is Not A Synonym For A Mere Suggestion, Proposal,
or Initial Informal Mention of The Possibility
of the Assertion of A Penalty.

The IRS often concludes that a penalty should be imposed well before communicating to the taxpayer its formal right to pursue IRS appeals or litigation in the Tax Court. The Tax Court has strived to create a more administrable bright-line test in this regard, but arguably the potential for using penalties as a bargaining chip remains under this test.

When the IRS asserts discretionary penalties subject to the supervisory approval requirement, taxpayers should ensure that the IRS has complied with the requirements of IRC Section 6751.

Possible ways to determine whether the penalty approval requirements have been met include requesting the administrative file from the appeals officer, or, if necessary, in filing a Freedom of Information Request or pursuing through discovery once in court. If the IRS cannot prove that it fulfilled these obligations in a timely manner, the taxpayer may be able to avoid the penalties in full.

In many older cases, because of the IRS’ failure to adhere to IRC Section 6751 requirements and the prior uncertainty in the law, some taxpayers have been able to take advantage of the IRS’ procedural foot-fault to avoid penalties. Going forward, the IRS presumably will be much more diligent in ensuring that IRC Section 6751 requirements are met before a penalty is formally communicated to a taxpayer.

 
But once a case reaches IRS appeals or litigation to remove any inappropriately determined penalties from the case  taxpayers should be proactive to increase any chances of a settlement on the merits.

Have as IRS Tax Problem?

 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

The IRS has released a new draft of the instructions for Form 1040 and Form 1040-SR, U.S. Tax Return for Seniors, that incorporates recently legislative changes made by the Consolidated Appropriations Act, 2021 (CAA, 2021, PL 116-260). The draft instructions also contain other new information including information about virtual currency reporting.

IRS released a previous draft of the instructions to Form 1040 and Form 1040-SR in October 2020. 

In 2019, the IRS added the question, "At any time during [the tax year], did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" to the Form 1040.

In the October 2020 draft instructions, the IRS said that a transaction involving virtual currency does not include the holding of virtual currency in "a wallet or account," or the transfer of virtual currency from one wallet or account the taxpayer owns or controls to another that the taxpayer owns or controls.

The October 2020 draft instructions also noted that, "A transaction involving virtual currency includes:

• The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork;
• An exchange of virtual currency for goods or services;
• A sale of virtual currency; and
• An exchange of virtual currency for other property, including for another virtual currency."

The new draft instructions point out that, “Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency ("real currency"), that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.”

The instructions then say that, “The IRS uses the term 'virtual currency' to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.”  

This definition of virtual currency (including the statement that regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes) matches the definition that the IRS uses in its FAQs regarding virtual currency transactions. 

The new draft instructions also revise the list of what transactions include, providing that "A transaction involving virtual currency includes, but is not limited to  (revisions in italic):

• The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork;
• • An exchange of virtual currency for goods or services;
• • A purchase or sale of virtual currency;
• • An exchange of virtual currency for other property, including for another virtual currency; and
• • An acquisition or disposition of a financial interest in virtual currency."

Have as IRS Tax Problem?

 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