Yearly Archives: 2022

The IRS collected more than $245 million as a result of whistleblowers' tips, for which it made 179 awards totaling over $36 million in 2021, the agency's Whistleblower Office said in its annual report to Congress.

According to the report, which was released June 13, 2022 the revenue was split between almost $130 million collected under Code Sec. 7623(a) and more than $115 million under Code Sec. 7623(b). Covering the period October 2020 through September 2021, the report found that the work of Whistleblower Office decreased as a result of the COVID-19 pandemic, though most operations have resumed in full.

Since the whistleblower program began in 2007, the number and amounts of awards paid annually can vary significantly, "especially when a small number of high-dollar claims are resolved in a single year," according to the report. 

The year in which an award is paid is generally not the year in which collections occurred because the IRS must wait to make a final determination of proceeds. That determination can occur only after a taxpayer has exhausted all appeals and can no longer file a claim for refund or otherwise seek to recover the proceeds from the government.

Read more at: Tax Times blog

In IR-2022-125 the Internal Revenue Service added to its annual "Dirty Dozen" scams list for the 2022 filing season, with a warning to taxpayers to avoid being misled into using bogus tax avoidance strategies. 

The IRS warned taxpayers to watch out for promoters peddling these schemes. As part of its mission, the IRS is focused on high-income taxpayers who engage in various types of tax violations.

“These tax avoidance strategies are promoted to unsuspecting folks with too-good-to-be-true promises of reducing taxes or avoiding taxes altogether,” said IRS Commissioner Chuck Rettig. 

"Taxpayers Should Not Kid Themselves Into Believing They
Can Hide Income From The IRS. The Agency Continues To Focus On These Deals, And People Who Engage In Them
Face Steep Civil Penalties Or Criminal Charges.”

The IRS has stepped up efforts on abusive schemes in recent years. As part of this wider effort, the IRS Office of Chief Counsel announced earlier this year it would hire up to 200 additional attorneys to help the agency combat abusive syndicated conservation easements and micro-captive transactions as well as other abusive schemes. (IR-2022-17).

For the conclusion of the Dirty Dozen, the IRS highlights other schemes that typically target high-net-worth individuals who are looking for ways to avoid paying taxes. Solicitations for investment in these schemes are generally more targeted than solicitations for widespread scams, such as email scams, that can hit anyone.

Hiding assets in what the taxpayer hopes is an anonymous account or simply not filing a return in the hopes of staying off the grid are tax avoidance scams that have been around for decades. The IRS warns anyone thinking about using one of these schemes – or similar ones – that the agency continues to improve work in these areas thanks to new and evolving data analytic tools and enhanced document matching. 

Concealing Assets in Offshore Accounts 

The IRS remains focused on stopping tax avoidance by those who hide assets in offshore accounts and in accounts holding cryptocurrency or other digital assets.

International tax compliance is a top priority of the IRS. New patterns and trends emerging in complex international tax avoidance schemes and cross-border transactions have heightened concerns regarding the lack of tax compliance by individuals and entities with an international footprint. As international tax and money laundering crimes have increased, the IRS continues to protect the integrity of the U.S. tax system by helping American taxpayers to understand and meet their tax responsibilities and by enforcing the law with integrity and fairness, worldwide.

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards, wire transfers or other arrangements. Some individuals have used foreign trusts, employee-leasing schemes, private annuities and structured transactions attempting to conceal the true owner of accounts or insurance plans.

Improper Reporting of Digital Assets

Digital assets are being adopted by mainstream financial organizations along with many other parts of the economy. The proliferation of digital assets across the world in the last decade or so has created tax administration challenges regarding digital assets, in part because there is an incorrect perception that digital asset accounts are undetectable by tax authorities. Unscrupulous promoters continue to perpetuate this myth and make assertions that taxpayers can easily conceal their digital asset holdings.

The IRS urges taxpayers to not be misled into believing this storyline about digital assets and possibly exposing themselves to civil fraud penalties and criminal charges that could result from failure to report transactions involving digital assets.

"The IRS is able to identify and track otherwise anonymous transactions of international accounts as well as digital assets during the enforcement of our nation's tax laws," Rettig said. "We urge everyone to come into compliance with their filing and reporting responsibilities and avoid compromising themselves in schemes that will ultimately go badly for them."

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On June 30, 2021 we posted IRS ‘Dirty Dozen’ List Warns People About Offer in Compromise ‘Mills’ - Call M&A for Real & Experience Tax Attorneys! Where we discussed that in its 2021 “Dirty Dozen” tax scams the IRS warnedpeople to watch out for Offer in Compromise mills which contort the IRS program into something it’s not, misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars. 

Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. 

 

 

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This was a deficiency case involving accrual method offshore captive ins. corp./taxpayer that was wholly owned by mining business partners' LLC, in which the Tax Court determined that transactions taxpayer executed during years at issue didn't constitute ins. contracts for tax purposes. 

According to Law360, in a unanimous, published opinion, the appeals court said it couldn't find any mistakes in the Tax Court's conclusion that Reserve Mechanical Corp. wasn't an insurance company eligible for a tax exemption under Internal Revenue Code Section 501(c)(15). Reserve provides captive insurance, meaning it is closely related to the business for which it was providing insurance.

Reserve had the same owners as Peak Mechanical Corp., the Idaho-based mining company that it insured, according to the opinion. 

But Evidence Indicates That Reserve Failed To
Sufficiently Distribute Risk Through Providing Insurance
To Many Companies, And Adequate Risk Distribution Is Typically Fundamental To Insurance, The Tenth Circuit
Said In Affirming The Tax Court.

"That court's findings and conclusions were supported by overwhelming evidence in the record," the Tenth Circuit said. "No experience, expertise, or studies supported the need for Peak to obtain the policies."

The Tax Court in 2018 agreed with determinations from the Internal Revenue Service that Reserve wasn't eligible for the special tax exemption for insurance companies under Section 501(c)(15) and was consequently liable for a 30% tax rate on certain U.S.-sourced income, according to filings. The IRS had assessed around $477,000 in taxes against Reserve for 2008 through 2010. 

In 2016, the IRS identified microcaptive insurance arrangements, in which companies set up small, in-house insurers that are taxed only on investment income, as transactions of interest with a potential for tax avoidance that must be reported to the agency under the threat of penalties. In its opinion, the Tenth Circuit said it didn't find that "the forms of the transactions involving Reserve are improper."

"We hold only that the Tax Court could properly conclude that they were not insurance transactions in substance," the appeals court said, noting it was reviewing the Tax Court decision only for clear error.

It was reasonable for the Tax Court to come to that decision based on Reserve's failure to truly distribute risk in a way typical for an insurance company, the Tenth Circuit said.

For instance, a reinsurance arrangement that Reserve entered into with a different company failed to create significant risk for Reserve, the Tenth Circuit said. And the business didn't end up receiving at least 30% of premiums from unrelated businesses, which was a self-imposed threshold that Reserve believed would help it count as an insurance company under the tax code, according to the opinion.

A different coinsurance arrangement likewise didn't create enough risk for Reserve for it to constitute a company doing business in insurance, according to the court, which said there's "certainly substantial evidence suggesting that Reserve incurred very little risk" from the arrangement, the opinion said. 

Notably, there was no effective risk distribution either in respect to direct written policies for related entities or in respect to “quota share” reins. arrangements, which involved such things as circular funds flow and premiums not negotiated at arm's length, with another offshore co./stop loss insurer that was controlled by same entity that helped form taxpayer and was ultimately found not to be bona fide ins. co. 

Similarly, “ins. in commonly accepted sense” test wasn't met when considering above and other evidence showing that, although taxpayer obtained ins. license and adhered to some formalities, it wasn't operated as bona fide ins. co. itself and there was no legitimate business purpose for stated policies.

The decision upholds the IRS’s long-standing position regarding abusive microcaptive insurance transactions.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

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