Monthly Archives: October 2021

According to Law360, Top Senate Republicans on three committees want details on how President Joe Biden's administration could bypass the tax treaty process to reallocate U.S. taxing rights as part of a global minimum tax agreement, according to a letter dated October 8, 2021.

U.S. Treasury Secretary Janet Yellen should explain by Oct. 15 how the Biden administration proposes to enact the Organization for Economic Cooperation and Development's so-called Pillar One proposal without the tax treaty process, the senators wrote.

The letter was sent by Republican Sens. Pat Toomey of Pennsylvania and Mike Crapo and James Risch of Idaho. Toomey is the ranking member of the Senate Banking Committee, while Crapo serves as top Republican on the Finance Committee and Risch is the ranking member of the Senate Foreign Relations Committee.

Pillar One, which would reallocate taxing rights to countries where companies have customers but no physical presence, would require changes to U.S. tax law that must go through the Senate's tax treaty process, which requires a vote with two-thirds approval, the senators said. 

"We are especially concerned, given Treasury has failed to meaningfully consult our members on the potential treaty or legislative action that would be necessary to fully carry out the Pillar One agreement," the senators said.

They added that Republicans on the Foreign Relations Committee, which has jurisdiction over tax treaties, have received no correspondence from the Biden administration, according to the letter.

Read more at: Tax Times blog

According to Law360, A comprehensive overhaul of the international corporate tax system was finalized on October 8, 2021 by 136 jurisdictions, including the United States, who agreed to a global 15% minimum tax rate and rules that would rewrite how the profits of large multinational businesses are allocated among jurisdictions.

The global pact will also reallocate earnings from about 100 of the world's largest and most profitable companies to countries worldwide, "ensuring that these firms pay a fair share of tax wherever they operate and generate profits," the OECD said.

Discussions appeared close to the finish line when Ireland, which had previously signaled commitment to its 12.5% rate, on October 7, 2021 agreed to the global pact after successfully lobbying for the term "at least" to be removed from the 15% minimum rate language. Two other holdout countries, Estonia and Hungary, also recently signed on to the agreement, including the minimum rate — a measure that will see countries collect around $150 billion in new revenues annually, according to the OECD.

Sri Lanka, Kenya, Pakistan and Nigeria have declined to endorse the deal, according to the OECD. (The next tax havens? -Not very safe.)

Specifically, the rules will apply to multinational corporations with global sales above €20 billion and profitability above a 10% ma a baby with the rgin companies that "can be considered as the winners of globalization," according to the OECD.

For companies that fall within this scope, 25% of profit above the 10% threshold will be reallocated to market jurisdictions, according to the OECD, which said the new rules will reallocate more than $125 billion in total profits.

The OECD also outlined the implementation process for the profit allocation rules and global minimum tax, called Pillars One and Two of its overhaul, including a multilateral treaty that will be used to implement Pillar One's new taxing rights. Countries are aiming to have the treaty implemented in 2023, when domestic legislation for Pillar Two is also planned to be effective, according to the OECD.

The global agreement also entails "the standstill and removal" of digital services taxes, according to the OECD. Several countries had pursued unilateral measures in the absence of global rules, prompting trade tensions with the U.S. government, which argued the taxes unfairly targeted American tech companies.

The deal has drawn criticism from some advocacy groups, which have contended that neither the minimum rate nor the profit allocation rules go far enough. Oxfam's Tax Policy Lead Susana Ruiz said in a statement Friday said the 15% minimum rate has "practically no teeth" after the last-minute addition of a 10-year grace period for full implementation of the measure.

As for the profit allocation agreement, Alex Cobham, chief executive at the Tax Justice Network, said in a statement Friday that new rules are "a tokenistic measure" that affects "only a sliver of the profits of just 100 multinationals."

Negotiations began at the OECD four years ago to address concerns that large multinational corporations were shifting income from where it was generated to low-tax jurisdictions. The OECD also took on the task of retooling a century-old international tax system, which the organization said fails to fairly allocate taxing rights now that many companies can earn substantial profits in a country without needing a physical presence.

Ursula von der Leyen, president of the European Commission, said Friday that the agreement's details will be finalized later this month during the summit of the Group of 20 industrial and emerging-market nations.

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According to Law360, an American couple owe the government almost $1 Million in FBAR Penalties and interest for willfully failing to report their overseas bank account, the U.S. told a federal court in a civil action to collect tax penalties.

Juan and Catherine Reyes did not file the report, commonly known as an FBAR, for 2010, 2011 and 2012 for a foreign bank account containing over $2 million, the U.S. said in a complaint filed in U.S. v. Juan Reyes and Catherine Reyes, case number 1:21-cv-05578, in the U.S. District Court for the Eastern District of New York on October 7, 2021.

Juan Reyes was born in Nicaragua but has lived in the U.S. for more than 60 years and is a naturalized American citizen, the U.S. said in its complaint. His parents opened an account for him at Banco de Londres y America del Sur in 1972. Catherine Reyes became a joint owner of the account around 2000, it said. 

Read more at: Tax Times blog

According to Law360, A tax preparer owes around $103,000 in Fraud Penalties, as the Ninth Circuit ruled on October 8, 2021, that the U.S. Tax Court was justified in finding he underpaid his marijuana business's taxes, hid income and failed to cooperate with the IRS. 

The Ninth Circuit affirmed in Raymond and Ruby Chico v. Comm., case number 20-71017, in the U.S. Court of Appeals for the Ninth Circuit, the lower court's decision finding that Raymond Chico owes fraud penalties under Internal Revenue Code Section 6663  for 2010 through 2012 for underreporting income from his marijuana cigarette container company, Doobtubes, and other ventures. 

The Tax Court wasn't wrong to find there was convincing evidence that Chico committed fraud, including his presenting of scant documentation supporting his tax reporting for those years and is failure to cooperate with an Internal Revenue Service investigation.

"The Tax Court did not clearly err in finding clear and convincing evidence of fraud based on the six badges of fraud present in the record," the opinion said. 

The U.S. Tax Court found in September 2019 that Raymond Chico had failed to report Doobtubes' gross receipts for the three tax years by around $180,000 and that Chico wasn't entitled to business deductions he originally claimed on tax returns. He also failed to report constructive dividends from the marijuana dispensary and failed to report income from a rental property, according to the opinion.

The lower court also held him liable for the fraud penalties, and indicated in an order in January 2020 that that liability totaled around $103,000.

Chico told the Ninth Circuit in December 2020 that there's not enough evidence indicating he fraudulently underreported his income and that he initially relied on an attorney who failed to cooperate with the IRS in its audit and was later disbarred from practicing law in California.

The U.S. rejected those arguments, saying in its own filing in February 2021 there was more than enough evidence indicating he committed fraud. This evidence includes that he understated income, kept inadequate records and failed to file business tax returns, according to the government.

In its opinion, the Ninth Circuit said: 

1. The Tax Court wasn't mistaken in finding that the evidence justified the imposition of tax fraud penalties against Chico. and
2. The Tax Court wasn't wrong to find that Chico's status as a certified tax return preparer, further strengthened the finding that he committed fraud, the appeals court said. (ya think?)

Read more at: Tax Times blog