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Monthly Archives: September 2022

IRS Using Voice and Chat Bots to Improve the Taxpayer’s Collection Experience

Additional IRS customer service voice bot features have been rolled out ahead of schedule, according to an IRS official, who touted the agency’s foray into artificial intelligence.

First launched in January by the IRS' Collection division, automated voice bots enable taxpayers to quickly access information, receive answers to common questions, and perform certain functions. Amid long wait times and the IRS' inability to field calls from the vast majority of taxpayers, the Automated Collection System (ACS) was created to reduce call volumes, allowing human representatives to resolve more complicated matters.

Darren Guillot, deputy commissioner of collection and operations support in the IRS' Small Business/Self Employed Division, told an audience at a July tax event that the voice bots would be programmed before the end of 2022 to handle a wider range of inquiries. This includes account transcript requests and accessing payment histories and current balances owed.

In a September 29 IRS "Closer Look" post, Guillot said these features are now live, much earlier than expected. "The initial estimate for delivery of this new functionality was 2024 but working closely with our partners in IRS' Information Technology (IT) on the urgency of this customer need, the experts in IT found a way to deliver it two years ahead of schedule," he wrote.

The voice bots could already help taxpayers set up payment plans and provide information on collection notices or related topics. Guillot said the bots have taken 4.8 million calls and have retained the 40% containment rate, as it was in July. Since June 14, 7,600 installment agreements for a combined $50 million in outstanding balances were created or modified using the automated system, according to Guillot. He also previously said at a New York University tax forum that the voice bots were a success as of the end of the five-month pilot program.

Since the last update on the voice bots' development, the IRS has received a $80 billion spending increase over the next decade. It's likely the agency will continue to implement artificial intelligence in both customer service and compliance enforcement.

Voice bots were preceded by chat bots, which perform the same functions but through text interactions on the IRS website. Production began in 2021 after the agency received funding to follow through on its proof-of-concept built the year before.

"Since that chat bot launched, it has handled more than 450,000 interactions, and 42% of those interactions were resolved without being escalated to an ACS phone assistor," Guillot said.

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FinCEN Issues Final Rule on Beneficial Ownership Reporting Under Corporate Transparency Act

The Financial Crimes Enforcement Network (FinCEN) has issued a final rule implementing the beneficial ownership information reporting provisions under the Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act for Fiscal Year 2021 (P.L. 116-283). The CTA amended the Bank Secrecy Act by adding a new provision on beneficial ownership reporting (31 USC §5336).

The rule is intended to:

  • enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use; and
  • provide essential information to national security, intelligence, and law enforcement agencies, state, local, and tribal officials, and financial institutions, to help prevent illicit actors from laundering or hiding money and other assets in the United States.

The rule requires reporting companies to file reports with FinCEN that identify the beneficial owners of the entity and the entity’s company applicants. The rule also describes who must file a report, what information must be reported, and when a report is due.

Reporting Companies

There are two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by filing a document with a secretary of state or any similar office under state or tribal law. A foreign reporting company is an entity formed under the law of a foreign country that is registered to do business in a state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

FinCEN expects limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships to be reporting companies. FinCEN also expects companies with simple management and ownership structures to be the majority of reporting companies.

Twenty-three types of entities are exempt from “reporting company” treatment, including certain governmental authorities, tax-exempt organizations, banks, broker or dealers, investment companies, insurance companies, accounting firms, and others.

An entity that is a “large operating company” is not a reporting company if it:

  • employs more than 20 full time employees in the United States;
  • has an operating presence at a physical office within the United States; and
  • filed a federal income tax or information return in the United States for the previous year demonstrating over $5,000,000 in gross receipts or sales (excluding gross receipts or sales from sources outside the United States).

Other legal entities, including certain trusts, are also excluded to the extent that they are not created by filing a document with a secretary of state or similar office.

Beneficial Owners

A beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines “substantial control” and “ownership interest.”

A beneficial owner does not include a minor child; an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; a reporting company employee (but not a senior officer) whose substantial control over or economic benefits from the entity are derived solely from his or her employment status; an individual whose only interest in a reporting company is a future interest through right of inheritance; or a creditor of a reporting company.

Company Applicants

A company applicant is: (1) the individual who directly files the document that creates the entity (for a foreign reporting company, the document that first registers the entity to do business in the United States); and (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Reporting companies existing or registered on the effective date of the rule are not required to identify and report on their company applicants. Reporting companies formed or registered after the effective date must report company applicant information but do not need to update it.

Beneficial Ownership Information Reports

In the report filed with FinCEN, a reporting company must identify itself and report four pieces of information about each of its beneficial owners: name, birth date, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of that document). Reporting companies created after January 1, 2024, must also provide this information and document image for company applicants.

An individual who provides his or her information to FinCEN directly can obtain a unique identifying number assigned by FinCEN (“FinCEN identifier") which can then be provided to FinCEN on a report instead of the required information about the individual.

Effective Date and Reporting Deadlines

The rule is effective January 1, 2024. Reporting companies created or registered before the effective date have until January 1, 2025, to file their initial reports. Reporting companies created or registered after the effective date have 30 days after receiving notice of their creation or registration to file their initial reports.

A reporting company has 30 days to report changes to the information in its previously filed reports. It also must correct inaccurate information in previously filed reports within 30 days of when it becomes aware or has reason to know of the inaccuracy.

FinCEN has provided a fact sheet which summarizes the new rule.

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IRS Can Issue Summons to Bank Serving as Crypto Broker in Search of Tax Evaders

The Internal Revenue Service (IRS) can issue a "John Doe" summons to a bank that provided services for customers of cryptocurrency prime broker SFOX, a New York judge ordered Thursday. The ruling will allow the tax agency to continue looking for potential tax evaders in an ongoing probe.

The summons requires M.Y. Safra Bank to provide information about the SFOX customers who may not have reported and paid taxes on crypto transactions. In August, the IRS received authorization from a California judge to serve a "John Doe" summons on SFOX itself.

A New York City bank must produce records on U.S. cus

tomers of a digital asset trading platform who may owe tax on unreported crypto transactions, a federal judge ordered.

The IRS was handed a win September 21 when the U.S. District Court for he Southern District of New York granted the agency's ex parte petition for leave to serve a so-called John Doe summons to M.Y. Safra Bank following an investigation into the crypto trading platform SFOX. Judge Paul Gardephe agreed there was a "reasonable basis for believing" at least 10 individuals may have failed to disclose and pay tax on crypto transactions conducted by the taxpayers via SFOX, which uses M.Y. Safra's banking services.

These currently unidentified taxpayers, and potentially others, may have failed to report to the IRS profits from crypto sales and pay tax on applicable gains, which the agency can determine by obtaining bank records from M.Y. Safra. The IRS, and the federal government overall, have become hawkish on tax evasion schemes that take advantage of Web 3.0 (the newest iteration of the World Wide Web, often denoted by decentralized platforms and blockchains) crypto technologies.

"The government's ability to obtain third-party information on those failing to report their gains from digital assets remains a critical tool in catching tax cheats," IRS Commissioner Chuck Rettig said. "The court's granting of the John Doe summons reinforces our ongoing, significant efforts to ensure that everyone pays their fair share. Taxpayers earning income from digital asset transactions need to come into compliance with their filing and reporting responsibilities."

As the IRS explained in its petition, taxpayers "must report income, gain, or loss from all taxable transactions involving virtual currency on their federal income tax returns for the year of the transactions, regardless of the amount or whether they received a payee statement or information return." Regarding its desire to crack down on crypto noncompliance, the agency argued that evaders are drawn in by the prospect of "pseudo-anonymity."

In a September 22 statement, the Justice Department described SFOX as "a cryptocurrency prime dealer and trading platform that connects digital currency exchanges, over-the-counter virtual currency brokers, and liquidity providers globally." The platform has more than 175,000 users and has facilitated over $12 billion since it was founded in 2014.

Although M.Y. Safra had been issued summonses, the Justice Department clarified there was "no allegation" that the bank engaged in any wrongdoing. The John Doe summonses serve only to identify the unknown individuals suspected of having outstanding tax liabilities.

The IRS previously was permitted to hand ndown summonses to SFOX itself pursuant to an order from the U.S. District Court for the Central District of California in another case. In a statement regarding that case, SFOX said it would review "internally and with external legal counsel around next steps," and "always adheres to the law."

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TIGTA Review of IRS Compliance With Guidelines When Issuing Levies

TIGTA reviewed levies issued for 57,775 taxpayers by Field Collection (48,781) and the Automated Collection System (8,994) during the period October 1, 2020, through September 30, 2021, and found that the IRS generally complied with legal and administrative requirements. However, there were some instances of noncompliance resulting in taxpayers’ rights being potentially violated: 

  • 51 taxpayers were not notified (44) or not timely notified (7) of their CDP rights.
  • 17 taxpayers did not receive a new CDP notice after an additional tax assessment was made. 
  • 105 (estimated) taxpayers had levies erroneously issued while a CDP hearing was pending.
  • 17 taxpayers with disqualified employment tax levies were not mailed or not timely mailed their post-levy CDP notice. 

For taxpayers with Field Collection levies (10,514) and Automated Collection System levies (1,762) and an open Power of Attorney authorization between March 1, 2020, and November 15, 2021, TIGTA identified: 

  • 753 (estimated) taxpayers whose authorized Power of Attorneys were not issued a copy of the CDP notice as required.
  • 421 (estimated) taxpayers who had a CDP notice issued to a representative that the taxpayer had not authorized to receive notices. 
TIGTA made eight recommendations to help improve the proper issuance of levies by the IRS, including that the IRS should remind all managers to consider disciplinary action for Collection employees whose failure to observe written regulations, orders, rules, or IRS procedures pertaining to levies resulted in a violation of taxpayers’ rights. 
The IRS agreed with seven recommendations and plans to take corrective actions.

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Read more at: Tax Times blog

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