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Monthly Archives: May 2021

TIGTA Offers Senators Cure For Reducing The Tax Gap

J. Russell George, the Treasury inspector general for tax administration, testified before a Senate Finance Committee panel on May 11, 2021 to address the persisting problem of the tax gap.

The title given to the hearing was "Cl
osing the Tax Gap: Lost Revenue from Non-Compliance and the Role of Offshore Tax Evasion."

At the outset of his testimony, George made clear the issue warrants serious and immediate attention. "Finding effective solutions to address the tax gap and its components would yield substantial additional tax revenue," he said.

The tax gap is defined as the difference between the estimated amount taxpayers owe and the amount they voluntarily and timely pay for a tax year. The gross tax gap, which is the amount that is owed by taxpayers before collections resulting from IRS enforcement actions and other late taxpayer payments are taken into account, is estimated to be $441 billion annually, George noted.

According to George, the underreporting of income taxes comprises the largest component of the tax gap at $352 billion annually. Individual taxpayers are responsible for the largest share of the underreporting tax gap at $245 billion. 

The Amounts Attributable To Nonfiling and Nonpayment of Taxes Are $32 Billion And $39 Billion, Respectively.

However, Russell waved a cautionary flag in his testimony. "The tax gap estimates are generally outdated because they are for tax years of a decade earlier, so their usefulness may be limited," he said. "Recently, the IRS commissioner testified that he believes the annual tax gap is at least $1 trillion," George added.

George offered a series of recommendations which, in his opinion if taken together, would significantly improve tax compliance, including: 

  • more effectively prioritizing high-income taxpayers; 
  • a stronger impetus by the IRS Large Business and International Division to identify corporate non-compliance; 
  • addressing the negative impact of Internet platform companies on tax compliance; 
  • dealing with the ongoing problem of adequate resources for IRS and its potential impact on enforcement revenue (he highlighted the reductions in most types of examinations and the nonpayment of taxes owed); and 
  • improving international tax compliance.

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

Read more at: Tax Times blog

TaxBit Selected By the IRS to Help Catch Crypto Tax Evaders

On March 24, 2021 we posted Some Cryptocurrency Investors Are Receiving A New Round of Letters From The Internal Revenue Service, where we discussed that the letters are a fresh signal that the IRS is increasing its focus on cryptocurrency tax compliance, after first being slow to stay abreast of the growing industry and on April 5, 2021 we posted In a 2nd Crypto Summons the Judge Orders US To Justify Broad Doc Request, where we discussed that the IRS found 5 US taxpayers used this cryptocurrency for their noncompliance, combined with a dearth of third-party reporting in cryptocurrency generally, has led the IRS to believe that there are more Kraken users who aren't compliant with their cryptocurrency tax reporting obligations, the government said.

Now the IRS recently selected TaxBit, subcontracting under DPI Inc., to provide data analysis and tax calculation support for taxpayers with cryptocurrency. TaxBit provides tax automation software to enterprises, consumers, and government entities.

"This is a milestone moment for the cryptocurrency industry. It indicates regulators are embracing the asset class, but doing so in a way that ensures a straightforward approach to conform with existing regulations. We believe this is an important step for the enablement of widespread cryptocurrency adoption." Austin Woodward, Co-Founder and CEO of TaxBit.

TaxBit’s Tax Automation Software Is Already Being Used By Companies, Consumers And Other Government Agencies, But The Deal With The IRS Represents A Major Step In Demonstrating How Seriously The IRS Is Taking Tax Compliance For Users Of Digital And Virtual Currencies Like Bitcoin, Ether And Dogecoin.

TaxBit Will Soon Be Working With The IRS,
And Its Reports Will Be Shared Not Only With The IRS,

But With The Taxpayers Themselves, As Well As The CPAs
And Attorneys Who Represent Them During Audits.

The IRS has been cracking down on cryptocurrency users who fail to report their gains, adding a question to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. 

The agency won a high-profile court case in 2018 against the popular crypto exchange Coinbase to get access to their customer information through John Doe summonses. Last week a federal court in California authorized the IRS to serve a John Doe summons on another popular cryptocurrency exchange, Kraken, and its owner Payward Ventures. TaxBit could be finding itself poring over the information made available through these efforts. However, much of it will come from the standard processes used by the IRS for selecting returns that set off red flags for further examinations and audits.

TaxBit will be helping the IRS scrutinize returns going back several years. “It really is case by case,” said Wilks. “These really can range from 2016 or 2017 and forward. Typically, if you think about an IRS audit cycle, they don’t start auditing taxpayers until usually a couple of years after they’ve filed, so these are not necessarily audits that are coming from 2020 or 2019 activity. These are really from the last few years.”

The Software Should Help Automate The Process
For IRS Auditors of Determining How Much Money
Was Made From Crypto Transactions.

It Will Generate A Report That Will Go To The IRS,
and In Turn To Taxpayers.

 “They’re just looking to get an accurate view of the gains and losses,” Wilks explained. “If you imagine a CPA trying to get through a million lines of data and calculating gains and losses using a FIFO methodology or something, that would take an unrealistic amount of time, so the idea is that we have technology that can do that in a matter of minutes. 

But beyond that we have CPAs and attorneys who work here and who can then look at that information and we can get further insights into what may be missing. This report is provided to the IRS, but it’s also reported to the taxpayer, so it’s a resource on both sides to help them make sure that they’re getting a complete picture.”

Taxpayers, As Well As Their Accountants and Attorneys,
May Start Seeing The Reports As Soon As Next Year.

TaxBit expects  to start receiving the initial data and to begin sending the reports by early next year. “We’re Actually Expecting Them Any Day Now At This Point, So It Will Be Within The Next 12 Months,” Said Wilks.

Have an IRS Cryptocurrency 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
Toll Free at 888 8TAXAID (888-882-9243) 




Read more at: Tax Times blog

US Taxpayers Still Hold $2T Abroad In Tax Havens!

According to Law360, U.S. taxpayers could hold as much as
$2 trillion in assets in low-tax haven jurisdictions, a top research and analytics officer at the Internal Revenue Service said during a Senate hearing. IRS Analytics Officer Barry Johnson told a Senate Committee on May 11, 2021 that "the Tax Gap attributable to International Activities, Specifically Overseas Accounts, could be quite large."

He testified that the agency has yet to develop reliable statistics on foreign offshore evasion, but that information collected through the Foreign Account Tax Compliance Act for the 2017 tax year shows that U.S. taxpayers hold $3.7 trillion abroad. More than half of that, or $2 trillion, is held in "what the OECD considers to be tax haven countries," he said.

IRS Commissioner Chuck Rettig recently testified that the annual tax gap, or the difference between the taxes owed and what is collected, could exceed $1 trillion. Republican lawmakers are challenging Rettig on that number, pointing to the agency's official estimate of $441 billion. 

President Joe Biden is pushing to boost the IRS enforcement budget, contending that it will yield a collection of new revenue that will help pay for his $2 trillion infrastructure plan. 

Johnson said that while the official IRS figure on the tax gap hasn't changed, he believes Rettig's estimate is a reasonable update, given factors such as the rise of the gig economy and the use of microcaptive insurance for evasion.

Treasury Inspector General for Tax Administration J. Russell George, also testifying on May 11, 2021, said the IRS faces challenges in international tax compliance. 

He Cited A 2018 TIGTA Report That Found The Agency Wasn't Adequately Enforcing FATCA Rules, Despite Spending More Than $380 Million To Carry Out The Law.

"The IRS can more effectively reduce the tax gap by developing compliance strategies for the changing domestic and global economies, and using its resources and information reporting more effectively," he said.

Do You Have Undeclared Income
from a Tax Haven

Is Your Name Being Handed Over to the IRS?
Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 
Marini & Associates, P.A.   
for a FREE Tax Consultation contact us at:
www.TaxAid.com or www.OVDPLaw.com 
Toll Free at 888-8TaxAid (888) 882-9243

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Form 706 NA Deceptive Simple?


For those of you whose practice involves international tax, I would like to take this opportunity to explain the deceptive simplicity of the form 706 NA. 

You must have a client who is a nonresident alien who dies. He/she owns US situs assets so you look at section 2014 of the Internal Revenue Code; you correctly determine that since these assets exceed $60,000 in value, the estate is required to file a form 706NA which is the form analogous to a 706 in the hands of a nonresident alien. The form itself is deceptively simple-two pages-what kind of problems can this create? Once you start reading the form, you realize that to complete it properly, you may have to incorporate almost every schedule which appears in a 706. 

The deceptive part of the form occurs when you are trying to determine which of decedent’s US assets (based on section 2014) are taxable by the United States.
The United States has more than 20 tax treaties or conventions with foreign countries designed, for the most part, to eliminate double taxation. It is critically important for you, the preparer, to determine which, if any, treaties may exist to reduce the tax liability of your client.
The IRS, on its website, has a list of the countries which currently  share estate tax treaties/conventions with the United States. Even this provides only a partial clue.
Example- You have a client who was a German who lived in Brazil. Since the decedent was a German citizen,  you make the assumption that treaty benefits will be available to his/her estate. Not always so. Some of the treaties base their benefits on decedents who are domiciliaries of but not necessarily citizens of a particular country. Ergo, you learn that the estate of the German client domiciled in Brazil cannot utilize the benefit of the German treaty.
Additionally, since some treaties are predicated on domicile while others are predicated on both domicile and citizenship, you may find yourself in an anomalous situation where you have more than one treaty you can elect to apply. In this particular case, use the treaty which best suits your client.
As a rule, the 20 or so treaties are generally address estates of decedents who were citizens of Europe, England or Canada. There are no treaties with South or Central America or Africa. Remember, however, that some treaties are based on citizenship, not domicile. Therefore the estate of an English citizen domiciled in Sudan could benefit by the UK tax convention. 

The benefits as well as the applications of the treaties very widely. This is a result of the fact that these treaties were negotiated over various periods of years from the 1950s to the year 2000. The treaties themselves must be read carefully. They are, for the most part, extremely poorly drafted and difficult to fathom. In the case of confusion, look up the meaning of what the treaty means in a publication called the technical explanations of treaties which are a little bit better written but still no works  of Shakespeare. Remember, if you fail to utilize an existing treaty and it costs your client a significant amount of money, you may become involved with your insurance carrier. For those of us who are attorneys, remember the hornbook, Prosser On Torts.  As I recall, and it's been a while, the first topic addressed is “negligence, the basis of liability”. If you fail to find and utilize an existing treaty, you are negligent and potentially headed for big trouble. 

Some of you feel that the IRS will find incorrect your failure to utilize an estate tax treaty. Not so. First of all, not all estate tax returns are selected for examination, so if the return you filed failing to utilize a treaty is not examined, there is no way that treaty benefits will inure your to your client's estate.  Second, even if the estate is examined, it is not the job of the auditing attorney to tell you that you failed to utilize a treaty. Utilization of a treaty is not mandatory. Therefore, if you file the 706NA utilizing the situs rules of section 2014, the IRS agent will merely agree with your situs depiction and not discuss the availability of the treaty.  

If you feel that you are able to utilize one of the existing treaties, you are required to use a form 8833. In this form you explain which treaty you are using, why you feel it is applicable to your particular situation, and determine the treaty benefits of utilizing the treaty. 

Over my 32 years as a senior attorney with the IRS in the international estate tax forum, I audited perhaps 1,800 to 2,000 706 NA's. Utilization of the treaty benefit was not frequent, and I recall situations where some estates could have benefited to the tune of roughly $1 million in tax savings.  

Need Help Preparing Form 706 NA?



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