Yearly Archives: 2021

TIGTA Issued a report entitled Results of the 2020 Filing Season and Effects ofCOVID-19 on Tax Processing Operations which found that unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, and Unpostables functions and the Accounts Management inventory, include returns, etc. for taxpayers who still have not received their tax year 2019 tax refunds.

As of December 25, 2020, the IRS had more than 11.7 million paper-filed individual and business returns that still needed to be processed. The backlog of returns, correspondence, and other types of work resulting from the pandemic has and will continue to have a significant impact on the associated taxpayers. For example, the unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, Unpostables functions and the Accounts Management inventory, include taxpayers who have yet to receive their Tax Year 2019 tax refunds. 

The IRS’s ability to resolve these backlogs could be affected by the need to divert resources to issue additional Economic Impact Payments or an unforeseen closure of IRS Tax Processing Centers due to the pandemic. The ability of these taxpayers to contact the IRS to receive updated information about the status of their refunds is a further challenge as staffing issues continue to hinder the IRS’s ability to provide adequate customer service. 

Much of The Work Performed at The IRS’s Tax Processing Centers is Not Conducive To a Telework Environment.

This work includes the receiving, sorting, and distributing of mail and the processing of paper tax returns, which requires manually inputting information from the tax return into IRS systems, correcting errors, and corresponding with the taxpayer, if needed. 

As of November 14, 2020, the IRS had more than 2.9 million pieces of unopened mail and 4.7 million individual paper tax returns to process. In addition, the IRS had more than 600,000 returns in its Error Resolution inventory, nearly 3.7 million cases in its Accounts Management inventory, and more than 1.3 million returns in its fraud program inventories as of this same period. 

When the IRS closed its offices nationwide, it stopped answering 81 of its 87 toll-free taxpayer assistance telephone lines and closed all 358 Taxpayer Assistance Centers. In addition, 10,792 of the 11,014 Volunteer Income Tax Assistance/Tax Counseling for the Elderly partner sites remained closed as of May 24, 2020. The IRS had reopened 80 of its toll-free telephone lines as of November 5, 2020, and 263 of its Taxpayer Assistance Centers as of November 16, 2020. 

 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 Law360, a California federal judge raised concerns about the scope of another Internal Revenue Service summons on cryptocurrency exchange, this time it concerns Kraken Inc. The IRS is seeking information on its customers' tax compliance, saying the U.S. must make its case explaining why he shouldn't reject it.  

The federal government needs to explain why the John Doe summons should not be denied for being too broad in scope, Chief Magistrate Judge Joseph C. Spero in San Francisco said in an order on March 31, 2021. While the summons seeks basic account data on a group of Kraken users, such as their registration information and transaction history, it also requests broad categories of information such as correspondence between the cryptocurrency exchange and those users, according to the order.

The U.S. "must specifically address why each category of information sought is narrowly tailored to the IRS' investigative needs, including whether requests for more invasive and all-encompassing categories of information could be deferred until after the IRS has reviewed basic account registration information and transaction histories," Judge Spero said.

On Tuesday, the U.S. filed a petition asking the court to approve its summons to the cryptocurrency exchange. The IRS is seeking information on people who have accounts with Kraken and have conducted at least $20,000 in transactions in any given year from 2016 through 2020, according to the government's petition, which didn't name Kraken as a party to the suit. 

The IRS doesn't know the identities of these individuals, but it's looking to use the summons to potentially assess taxes on Kraken users who haven't complied with their tax reporting obligations for their cryptocurrency holdings, the U.S. said.

In Support of Its Summons Request, The U.S. Said An IRS Investigation Had Already Found That Five Individuals

This 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.

On March 31, 2021, Judge Spero said the U.S. had likely proved that the John Doe summons satisfies three requirements under Internal Revenue Code Section 7609(f) , one of which is that there's reason to believe that the subject of the summons might not be compliant with tax obligations. But that provision also requires John Doe summonses to be "narrowly tailored," and the information the IRS seeks from Kraken might be too broad, the judge said. 

That Information Includes User Preferences, Identifying Information of Those Customers and Correspondence Between Kraken and Its Customers, According To The Order.

In a separate case, the U.S. Department of Justice announced on April 1, 2021 that the IRS would be allowed to proceed with a John Doe summons of customers of Circle Internet Financial Inc. and its affiliates. Similar to the Kraken summons, the Circle summons would request information about U.S. taxpayers with at least $20,000 in cryptocurrency transactions from 2016 to 2020.

The information requests follow a decision from a California federal judge in November 2016 that authorized a John Doe summons by the IRS to obtain information from another virtual currency exchange, Coinbase. Coinbase challenged the summons, and the following November the judge ordered the company to comply with a narrowed request for information on accounts with transactions greater than $20,000.

 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 the DoJ , a federal court in the District of Massachusetts entered an order on April 1, 2021 authorizing the IRS to serve a John Doe summons on Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC (collectively “Circle”), seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020.  “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. 

The IRS is Seeking The Records of Americans
Who Engaged in Business With or Through Circle,
A Digital Currency Exchanger Headquartered in Boston.

“The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes.”

“Tools Like The John Doe Summons Authorized Today
Send The Clear Message To U.S. Taxpayers That The IRS
Is Working To Ensure That They Are Fully Compliant
In Their Use Of Virtual Currency,”
Said IRS Commissioner Chuck Rettig.

“The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.” 

Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. 

In The Court’s Order, U.S. Judge Richard G. Stearns
Found That There Is A Reasonable Basis For Believing
That Cryptocurrency Users May Have Failed
To Comply With Federal Tax Laws.

The court’s order grants the IRS permission to serve what is known as a “John Doe” summons on Circle. The United States’ petition does not allege that Circle has engaged in any wrongdoing in connection with its digital currency exchange business. Rather, according to the court’s order, the summons seeks information related to the IRS’s “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with any provision of any internal revenue laws[.]” According to the copy of the summons filed with the petition, the IRS is requesting that Circle produce records identifying the U.S. taxpayers described above, along with other documents relating to their cryptocurrency transactions. 

The IRS issued guidance regarding the tax treatment of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes. The guidance explains that receipt of virtual currency as payment for goods or services is treated as income and that a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis). 

According to Law360, a number of observers have expected federal agencies to ramp up cryptocurrency-related enforcement this year. The DOJ released its crypto enforcement framework in October, and in December, the U.S. Treasury Department's financial crimes unit proposed a rule that would require institutions to submit transaction reports verifying the identities of customers transferring convertible virtual currencies such as cryptocurrencies worth more than $10,000 in a single day.

The Financial Crimes Enforcement Network cited national security concerns related to illicit finance as justification for the proposed rule, but the rule has been met with considerable pushback from the industry.

David A. Hubbert, acting assistant attorney general for the DOJ's Tax Division, emphasized that tax compliance is also in the agency's sights.

"Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer," Hubbert said in a statement. "The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes."

Have an 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 issued Notice 2021-21 which provides the following general relief for the filing of Forms 1040 and a limited set of other forms due on April 15, 2021:

For an Affected Taxpayer, the due date for filing Federal income tax returns in the Form 1040 series and making Federal income tax payments in connection with one of these forms having an original due date of April 15, 2021, is automatically postponed to May 17, 2021. Affected Taxpayers do not have to file any form, including Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to obtain this relief. This relief includes the filing of all schedules, returns, and other forms that are filed as attachments to the Form 1040 series or are required to be filed by the due date of the Form 1040 series, including, for example, Schedule H and Schedule SE, as well as Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E, and 8938. Finally, elections that are made or required to be made on a timely filed Form 1040 series (or attachment to such form) will be timely made if filed on such form or attachment, as appropriate, on or before May 17, 2021.

The Notice provides that interest and penalties will also not apply for that period of time for Affected Taxpayers:

         As a result of the postponement of the due date for Affected Taxpayers to file Federal income tax             returns and make Federal income tax payments from April 15, 2021, to May 17, 2021, the period             beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in the calculation             of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to             pay the Federal income taxes postponed by this notice. Interest, penalties, and additions to tax                 with respect to such postponed Federal income tax filings and payments will begin to accrue on             May 18, 2021.

The IRS makes clear in Notice 2021-21 is more limited than last year’s broad grant of relief.  The Notice provides:

Businesses and any other type of taxpayer who file Federal income tax returns on forms outside of the Form 1040 series are not Affected Taxpayers for purposes of the relief described in this section III.B.

No extension is provided in this notice for the payment or deposit of any other type of Federal tax, including Federal estimated income tax payments, or for the filing of any Federal return other than the Form 1040 series and the Form 5498 series for the 2020 taxable year.

There are still some April 15 deadlines. The following federal tax actions are among those that were not mentioned in the abovementioned IRS announcements and thus continue to have April 15 deadlines.

·         Paying first quarter 2021 individual estimated tax (Code Sec. 6654(c)(2))

·         Filing calendar year 2020 trust and estate income tax returns and paying any previously unpaid tax (Code Sec. 6072(a))

·         Filing 2020 calendar year C corporation income tax returns (Form 1120) and paying any previously unpaid tax (Code Sec. 6072(a))

·         Depositing calendar year corporation first installment of estimated income tax for 2021  (Code Sec. 6655(c)(2))

·         Filing Forms 990-T (Exempt Organization Business Income Tax Return), for Code Sec 401(a) or Code Sec. 408(a) trusts, for years ending 12/31/20 (2020 Instructions for Form 990-T)

·         Filing Form 1120-POL (U.S. Income Tax Return for Certain Political Organizations) for years ending 12/31/20 (Code Sec. 6072(a))

·         Filing 2020 gift tax returns and paying any gift tax (Code Sec. 6075(b)(1))

·         Filing certain generation-skipping transfer tax returns of calendar year taxpayers and paying any tax due (Reg § 26.2662-1(d)(1)(i))

·         Depositing payroll taxes for March if the monthly deposit rule applies. (Reg § 31.6302-1(c)(1))

·         Filing estate tax returns of decedents who died on July 15, 2020 and paying any estate tax that is due with the returns. (Estate tax returns must be filed within nine months after the date of the decedent's death. (Code Sec. 6075(a))

And, there are post-April 15, pre-May 17 deadlines. In addition, there are actions that continue to have deadlines that are after April 15, 2020, and before May 17, 2020 For example, for decedents who died on days from July 16, 2020, through August 16, 2020, the estate return and payment will be due before May 17, 2021. And first quarter 2021 quarterly employment tax returns will be due on April 30. (Reg § 31.6071(a)-1(a)(1))

 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