Yearly Archives: 2022

According to DoJ, the former owner of a drywall business in Queens pleaded guilty on February 11, 2022 to helping prepare a false corporate tax return for his business. 

According to court documents, Osvaldo Caceres, of Queens, New York, owned and operated OSVI Drywall Corporation. Caceres helped prepare the company’s corporate tax return for the tax period ranging from Feb. 1, 2013, through Jan. 31, 2014, which underreported the business’s gross receipts. Caceras caused a total tax loss to the IRS of $926,379.

Sentencing is scheduled for June 14. Caceres faces a maximum penalty of three years in prison, as well as a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors. 

Have an IRS Tax Problem?

Read more at: Tax Times blog

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