Monthly Archives: August 2022

In a Field Attorney Advice 20223301F, the IRS Chief Counsel's Office determined that a penalty should be assessed against a tax preparer who advised their client that a reserve for estimated liabilities could be excluded from income. 

Generally, federal tax rules prohibit a taxpayer from using reserves to offset gross revenue. Instead, those rules require that liabilities be "fixed" before becoming deductible under the "all events test" in Code Sec. 461. During the tax year at issue, reserves were treated differently for financial statement purposes.

The parent of a consolidated group that had undergone a "technical termination" during a reorganization was advised by the firm preparing its tax return that it could employ the reserve method of accounting for tax purposes and include income items net of its reserves (e.g., the estimated cost of its anticipated discounts and disputed claims

According to the Chief Counsel's Office, the return position the preparer advised the taxpayer to take ran contrary to settled law applicable to the facts and circumstances. The IRS should therefore assess the preparer penalty for willful or reckless conduct under Code Sec. 6694(b).

The Chief Counsel's Office determined that the penalty under Code Sec. 6694(b) was proper because all of the tax professionals involved in giving the taxpayer advice had to have been aware of Code Sec. 461 and its corresponding regulations when providing the advice. 

They knew the taxpayer couldn't use book accounting to exclude or deduct estimated liabilities for tax reporting, so their written advice that the taxpayer should do just that intentionally disregarded the rules and regulations.

Have an IRS Tax Problem?

for a FREE Tax HELP Contact us at:
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Read more at: Tax Times blog

The IRS is set to receive billions in new funding to catch wealthy tax evaders, but the effects may not be visible for years and enforcement could initially drop as agency workers are pulled away to train new agents.

The Internal Revenue Service will receive $45.6 billion in enforcement funding as part of a nearly $80 billion funding increase included in the Inflation Reduction Act, Democrats' tax, climate and health care bill signed into law Aug. 16 by President Joe Biden.

However, former senior agency officials told Law360 it will take years for the IRS to ramp up enforcement efforts following the funding boost. Hiring a large number of workers will take time, as will training them. Further, existing employees will be involved in training new personnel, and senior agency management will need to put plans in place to avoid significant disruptions to their work, they said.

"As you get new funding to hire more auditors, instead of revenue going up it often goes down" initially, according to former IRS Commissioner Lawrence Gibbs, who is now with Miller & Chevalier Chtd. "You're taking experienced agents out of the line working to train new agents and that's an extremely important task."

Measures of enforcement performance often decline somewhat the first year or two after the agency receives new funding, said Mark Matthews, a former deputy commissioner of services and enforcement at the IRS and a former chief of the agency's Criminal Investigation division. That's because the most effective agents are typically taken offline to train new workers, said Matthews, who is now at Caplin & Drysdale.

"The programs with the longest training cycles like criminal investigation generally will take longer to show progress statistically," he said.

The New Funding Will Be Directed At Enforcing Compliance Among The "Wealthiest Taxpayers" With Complex
Tax Situations, Meaning The Agents Pursuing
Them Will Need Extensive Training.

IRS Commissioner Chuck Rettig told agency employees this month that the law provides needed resources to address noncompliance among large corporate and wealthy taxpayers, along with pass-throughs and multinational companies with international tax issues. Doing so will require sophisticated and specialized teams that can analyze complex structures to ensure fairness in the system, he said.

Eric Hylton, a former commissioner of the agency's Small-Business/Self-Employed division and former deputy chief of the Criminal Investigation division, told Law360 that fully training compliance personnel generally takes about three years.

Training includes a year of classroom and on-the job instruction for revenue agents, who perform audits, and revenue officers, who collect taxes, he said. Revenue agents receive additional training.

Special agents in the IRS' Criminal Investigation division receive training for six months at the Federal Law Enforcement Center, then do one to two years of on-the-job training with an experienced special agent, said Hylton, who is now national director of compliance at Alliantgroup.

To reduce the training burden on existing workers, CI is using contractors and recent retirees for some academy and on-the-job training roles, Cole said. The division is also increasing its use of technology in training, he said.

Improved technology will play a part in boosting collections, Koskinen said. Audit rates for wealthy people and corporations have dropped much more than others, and increasing them to be on par with historical rates "will generate significant funds," Koskinen said.

Treasury Secretary Janet Yellen has directed the IRS to submit a report within six months detailing how it plans to spend the nearly $80 billion provided by the Inflation Reduction Act. Meanwhile, Rep. Bill Pascrell Jr., D-N.J., who chairs the House Ways and Means Oversight Subcommittee, has called on Rettig to provide him a spending plan by Aug. 30.

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, under its Statistics of Income (SOI) program, has published tables for the Tax Year 2019 Foreign-Controlled Domestic Corporation study. (IRS Tax Stats Dispatch 2022-06)

The tables are based on data from the Form 1120 series for domestic corporations with 50%-or-more stock ownership by a single foreign "person." The data are classified by industry group, country, and age of the corporation.

According to SOI, there were 134,000 federal income tax returns filed by foreign-controlled domestic corporations (FCDCs) for tax year 2019. These returns accounted for 2.1% of all corporate returns filed for that year.

"However, the FCDCs were often large companies, with a combined $15.9 trillion of assets and $6.4 trillion of receipts," SOI stated. 

"They reported 13.9% of the assets and 17.9% of the receipts of all corporations." Manufacturing companies accounted for $2.9 trillion of the FCDC receipts.

Domestic companies with owners based in Japan produced $1 trillion of receipts, followed by owners from the United Kingdom and the Netherlands, with $900 billion each.

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

According to Law360, the estate of a dual U.S.-Canadian citizen owes penalties of more than $157,000 for her failure to disclose accounts in Canada and New Zealand, the U.S. Court of Federal Claims ruled in Flint et al. v. U.S., case number 21-1202, in the U.S. Court for Federal Claims.

The court found on August 23, 2022 that Margaret J. Jones failed to file the required disclosures of foreign bank and financial accounts for more than $3 million kept in Canada and New Zealand, where her husband was born. 

Jones' Estate Said The IRS Then Used This Self-Disclosure To Impose An FBAR Penalty Of $157,000 For Failing To Disclose The Existence Of The Foreign Bank Accounts.

"The government lured Mrs. Jones in based upon the IRS promise and the explicit provisions of the contract," the estate said in its complaint. "They then later switched their position and alleged her good faith misunderstanding of the law was irrelevant and she should be strictly liable for other 'willfully blind' penalties."

The accounts date back nearly six decades to when Jones' husband began placing funds in them, around the end of World War II. By the time the IRS caught up, they held millions across 11 accounts, according to Tuesday's ruling.

Jones knew about the accounts but never told her tax preparer, the government said, indicating that she was willfully attempting to hide the assets. It therefore assessed a penalty even after she admitted to the existence of the accounts.

To qualify for the for streamlined programs, the IRS defines non-willful as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirement of the law.”

The court was unpersuaded by the claims that Jones was tricked by the government. Judge Horn said the government had not in fact changed its position, and noted that the contract specified that the taxpayer may have to pay penalties if found to have deliberately hidden assets.

Have an FBAR Penalty Problem?  

 

 Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for a FREE Tax Consultation at: 

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog