Monthly Archives: February 2022

We previously posted numerous blog posts regarding that US Taxpayers are receiving automated $10,000 Penalty Assessments for late filed Form 5471's, where we discussed that we have been receiving a lot of calls from taxpayers who have recently received penalty notices regarding late filed or non-filed Form 5471. (See also, We Can Help You Eliminate Your $25,000 Late Form 5472 Penalties for $5,000 Per Penalty!)

The Internal Revenue Service imposes an automatic penalty of $10,000 whenever an individual or company is late in filing an information return disclosing their interest in a foreign corporation, regardless of whether there is any associated underreported of income or tax deficiencies.

U.S. persons including businesses with at least a 10 percent interest in a foreign corporation or who are officers of a foreign corporation in which any U.S. person owns or acquires a 10 percent interest are required to file a Form 5471 with their tax return to disclose their ownership.

The IRS has begun to automatically applying the $10,000 penalty for each Form 5471 that was filed after the due date. 

There are basically two remaining ways to defend against these automatic assessments and request penalty abatement for filing an international information return after the due date:

1.   Follow the Delinquent Information Return Procedure - Bhe taxpayer can file through the Service's procedures for delinquent international information returns. This procedure is appropriate for taxpayers who can establish reasonable cause for their failure to file or whose failure to file has caused no or nominal tax non-compliance. In our opinion the Delinquent Information Return Procedure is no longer available after November 9, 2020, as it currently provides: 

           Taxpayers may attach a reasonable cause statement to each delinquent information return             filed for which reasonable cause is being asserted. During processing of the delinquent             information return, penalties may be assessed without considering the attached reasonable     cause statement. (What ?????)  

      This is nothing like FAQ #18, in our opinion, which originally established the Delinquent Information Return Procedure. So basically this is nothing more than a delinquent filing with the Reasonable Cause Defense for the assessment of the penalty. (See #2 Reasonable Cause Defense).

      Also in our opinion you should be prepared to go to the appeals division of the IRS, to get this penalty abated, based upon reasonable cause.

2.   Reasonable Cause Defense - Under Section 6038 of the tax code, which lays out the information reporting requirements for individuals and businesses with an interest in foreign corporations and the penalties for delinquent filing, penalties may be abated if a reasonable cause exists for the failure to file. However, neither the statute nor the applicable regulations define a reasonable cause standard for the abatement. Treasury Regulations Section 301.6651-1(c) provide a definition of what constitutes reasonable cause for failure to file corporate income tax returns and says that "if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to reasonable cause." 

3.   Ask for a First-Time Offender Abatement (FTA) - Generally, an FTA can provide penalty relief if the taxpayer has not previously been required to file a return or has no prior penalties (except the estimated tax penalty) for the preceding three years with respect to the same IRS  File (IRM §20.1.1.3.6.1). With respect to a Form 5472 late-filing penalty, the IRM provides for an FTA if an FTA was applied to the taxpayer's related Form 1120 late-filing penalty or no penalty was assessed on the related Form 1120 (IRM §21.8.2.20.2).

Statute of Limitations Issue- Though a $10,000 penalty may discourage some from filing in

international information return after the deadline, there is a greater exposure to not late filing and

information return and that is that the statute of limitations for tax returns which is generally three

years does not apply for returns that are missing the information reports and the statute remains open

indefinitely. Under the indefinite statute of limitations, not only can the IRS make adjustments to

items related to the international information returns, but they also can examine any other area on

the tax return.

Has Your Company Been Assessed an
Automatic $10,000 Penalty for a Late Form 5471?

 

 

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation 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

At a conference sponsored by New York University, acting IRS Chief Counsel William M. Paul addressed several concerns regarding Frequently Asked Questions (FAQs) that IRS issues. 

One issue addressed was the extent to which practitioners and taxpayers may rely on FAQs. Mr. Paul noted that IRS initiated a greater reliance on issuing FAQs after the signing into law of the Tax Cuts and Jobs Act (PL 115-97) and again regarding the relief measures in response to the COVID-19 pandemic.

Paul said that there is an IRS working group that has been considering various aspects of FAQs, including the extent to which practitioners and taxpayers may rely on them.

"IRS Is Comfortable With The View That If A Taxpayer Relies in Good Faith un an FAQ and That Reliance is Reasonable Under All The Facts and Circumstances, the Taxpayer Should Have a Reasonable Cause Defense and Should Not Be Subject To a Negligence Penalty or Other Accuracy-Related Penalty,”

Paul added. IRS won’t assert FAQs in support of its positions on audit or in litigation, he said. “The flip side of that is that if an FAQ is incorrect as applied to a particular taxpayer’s facts, then the law will control.” 

IRS hopes to soon unveil a system that will archive FAQ guidance. Users of the new system will be able to search for FAQs and see the ways in which they may have been edited by IRS. "We're going to find a way to archive them so that you can keep track — you can go find an FAQ.

Until then we advise you that if you rely on an FAQ, printed out and put it in the file because these FAQs have a habit of disappearing overnight with no notice.

Have an IRS Tax Problem?

Read more at: Tax Times blog

According to Law360, those involved in the mining of cryptocurrencies will likely be exempt from the broker reporting requirements included in last year's infrastructure legislation, an official with the U.S. Department of the Treasury told a group of senators.

Operators in the digital asset marketplace who are not in a position to provide the Internal Revenue Service with useful information will likely be exempt from the law's broker reporting requirements in forthcoming regulations, Jonathan Davidson, assistant secretary for legislative affairs at Treasury, said in a letter to the senators dated Friday.

"Persons who are just validating transactions through a consensus mechanism are not likely to know whether a transaction is part of a sale," Davidson said in the letter, which was posted on Twitter by Sen. Rob Portman, R-Ohio. "And persons who are only selling storage devices used to hold private keys or persons who merely write software code are not carrying out broker activities."

Blockchains can employ a variety of consensus mechanisms, including both mining and staking, to verify transactions and create new tokens. The infrastructure law, which Congress passed last year with bipartisan majorities in both chambers, earmarked roughly $550 billion to rebuild the nation's infrastructure. Part of the revenue for the $1.2 trillion package is supposed to come from enhanced tax reporting of cryptocurrency transactions.

Internal Revenue Code Section 6045 requires those engaging in business activities as brokers to furnish information returns for each one of their customers. 

Some groups criticized that language for being overly broad, arguing it would rope in a wide range of operators that don't act like traditional financial brokers, such as miners and digital wallet providers. But as Davidson's letter shows, those fears were unfounded, Portman said.

"Appreciate the Treasury Department affirming that crypto miners, stakers and those who sell hardware and software for wallets are not subject to tax reporting obligations," Portman said in a tweet. "As I have said from the start, this requirement only applies to brokers."

As part of a colloquy that Portman and Sen. Mark Warner, D-Va., conducted on the Senate floor last summer, the lawmakers said those actors solely involved in cryptocurrency mining and staking won't be subject to the broker reporting requirements. The same goes for those solely engaged in providing hardware and software allowing crypto users to access their private keys, the lawmakers said.

Those statements are "consistent with the Treasury Department's view that ancillary parties who cannot get access to information that is useful to the IRS are not intended to be captured by the reporting requirements for brokers," Davidson said.

In light of the legislation, Treasury also will consider the extent to which centralized and decentralized exchanges should be treated as brokers, Davidson said.

Treasury's "interpretation can always change, which is why Congress should act," Toomey said. "There is clear, broad consensus over the definition of broker, and it's imperative Congress put this bipartisan clarification into law."

For her part, Lummis told Law360 that the letter from Treasury doesn't adequately address the senators' concerns. 

"Last week's letter shows that Treasury agrees that the definition should be narrowly applied, but the letter does not go as far as promised, especially relating to the guidance the Treasury Department agreed to last year and relating to decentralized finance," she said. 

Read more at: Tax Times blog

The Justice Department announced on February 17, 2022 the selection and appointment of Eun Young Choi to serve as the first Director of the National Cryptocurrency Enforcement Team (NCET).

Ms. Choi is a seasoned prosecutor with nearly a decade of experience within the department, and most recently served as Senior Counsel to the Deputy Attorney General. She will assume her duties full-time effective today.

“With the rapid innovation of digital assets and distributed ledger technologies, we have seen a rise in their illicit use by criminals who exploit them to fuel cyberattacks and ransomware and extortion schemes; traffic in narcotics, hacking tools and illicit contraband online; commit thefts and scams; and launder the proceeds of their crimes,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division. 

Eun Young is an accomplished leader on cyber and cryptocurrency issues, and I am pleased that she will continue her service as the NCET’s inaugural Director, spearheading the department’s efforts in this area.” 

The NCET was established to ensure the department meets the challenge posed by the criminal misuse of cryptocurrencies and digital assets, and comprises attorneys from across the department, including prosecutors with backgrounds in cryptocurrency, cybercrime, money laundering and forfeiture. 

The NCET will identify, investigate, support and pursue the department’s cases involving the criminal use of digital assets, with a particular focus on virtual currency exchanges, mixing and tumbling services, infrastructure providers, and other entities that are enabling the misuse of cryptocurrency and related technologies to commit or facilitate criminal activity. 

The NCET will set strategic priorities regarding digital asset technologies, identify areas for increased investigative and prosecutorial focus, and lead the department’s efforts to coordinate with domestic and international law enforcement partners, regulatory agencies and private industry to combat the criminal use of digital assets. 

Finally, the NCET will enhance the Criminal Division’s existing efforts to provide support and training to federal, state, local, and international law enforcement to build capacity to aggressively investigate and prosecute serious crimes involving cryptocurrency and digital assets in the United States and around the world.

The NCET’s work will be furthered through close collaboration with components across the department, including the Criminal Division’s Computer Crime and Intellectual Property Section and Money Laundering and Asset Recovery Section; the U.S. Attorneys’ offices; the National Security Division; and the FBI, including the FBI’s new Virtual Asset Exploitation Unit, a specialized team of cryptocurrency experts dedicated to providing analysis, support, and training across the FBI, as well as innovating its cryptocurrency tools to stay ahead of future threats. 

“The department has been at the forefront of investigating and prosecuting crimes involving digital currencies since their inception,” said Director Choi. “The NCET will play a pivotal role in ensuring that as the technology surrounding digital assets grows and evolves, the department in turn accelerates and expands its efforts to combat their illicit abuse by criminals of all kinds. I am excited to lead the NCET’s incredible and talented team of attorneys, and to get to work on this important priority for the department. I would like to thank Assistant Attorney General Polite and the Criminal Division’s leadership for this opportunity.”   

Prior to her service as Senior Counsel to Deputy Attorney General Lisa O. Monaco, Director Choi began her career at the department as an Assistant U.S. Attorney for the Southern District of New York, where she served as the office’s Cybercrime Coordinator and investigated and prosecuted cyber, complex fraud and money laundering crimes, with a particular focus on network intrusions, digital currency, the dark web and national security investigations. 

She served as lead prosecutor in a variety of cases, including the investigation of a transnational organization responsible for the hacking of J.P. Morgan Chase and a dozen other financial companies; the operation of Coin.mx, an unlicensed virtual currency exchange; and the only U.S. prosecution brought in connection with the “Panama Papers.” 

In addition, she successfully argued the appeal before the Second Circuit in the case against Ross Ulbricht, the founder and chief administrator of the Silk Road, the first darknet marketplace. 

Earlier in her career, she served as a law clerk to the Honorable Naomi Reice Buchwald of the U.S. District Court for the Southern District of New York, and the Honorable Reena Raggi of the U.S. Court of Appeals for the Second Circuit. She is a graduate of Harvard College and Harvard Law School. 

 Have a Virtual Currency Tax Problem?

Read more at: Tax Times blog