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Monthly Archives: July 2023

$38 Million Collected From Taxpayer’s Incorrect Use of of Puerto Rico Act 20/22/60 Which Has Now Resulted in 100 Criminal Prosecutions

July 17, 2023

The IRS demonstrating its new capability to aggressively audit high-income tax dodgers said they collected $38 million in delinquent taxes from more than 175 high-income taxpayers in the past few months.


In one case, an individual had used money owed to the government to buy a Maserati and a Bentley, and roughly 100 high-income people tried to get favorable tax treatment through Puerto Rico without meeting certain tax requirements. Many of those cases are now facing criminal investigation.


The Internal Revenue Service announced its plan to pursue as many as 100 criminal investigations into potential abuses of Puerto Rico’s Act 20/22/60 tax incentive programs. 

In a July 14, 2023, release the IRS revealed that thanks to Inflation Reduction Act resources:

It Recently Identified About 100 High-Income Individuals Claiming Benefits In Puerto Rico Without Meeting The Residence And Source Rules Involving U.S. Possessions.

"These wealthy individuals are attempting to avoid U.S. taxation on U.S. source income, and we expect many of these cases to proceed to criminal investigation."

In addition to targeting high-income taxpayers improperly claiming benefits under Act 20/22/60, the IRS will investigate the professionals who assisted the taxpayers at issue. 

The IRS will attempt to contact and interview accountants, attorneys, financial advisors, and other individuals who promoted the Puerto Rico residency programs.

Taxpayers And Professional Advisors Contacted By The
IRS As Part Of This Enforcement Effort Should Engage Experienced Tax Counsel Before Speaking To The IRS!


 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






Sources

AP
Kostelanetz
Bloomberg

Read more at: Tax Times blog

IRS To Cease Reducing Non-willful FBAR Penalties to $10,000 Per Year Based on Bittner

July 13, 2023

 

According to Law360, the Internal Revenue Service will no longer reduce the penalty for taxpayers who non-willfully fail to file Reports of Foreign Bank and Financial Accounts, according to an agency memorandum. 

The IRS has eliminated mitigation provisions for calculating non-willful FBAR penalties following the U.S. Supreme Court's judgment earlier this year in Bittner v. U.S limiting those fines to $10,000 for each year an FBAR isn't properly filed instead of $10,000 for each account undisclosed, according to the memo, published Tuesday and dated July 6.

The memo sets the nonwillful FBAR penalty at $10,000 but notes that the IRS' internal guidance for calculating willful FBAR penalties is unaffected by the change stating:

"While the Court’s holding pertained only to the calculation of penalties for non-willful reporting violations, the Court noted: 

The statute then adds an even more specific rule for a subclass of willful violations-those that involve “a failure to report the existence of an account or any identifying information required to be provided with respect to an account.” In cases like that, the law authorizes the Secretary to impose a maximum penalty of either $100,000 or 50% of the “balance in the account at time of the violation”-whichever is greater. So here, at last, the law does tailor penalties to accounts.” 

Penalties for willful reporting violations apply per-account and guidance in IRM 4.26.16 regarding the calculation of penalties for willful reporting violations remains unchanged. The Court’s decision does not address FBAR recordkeeping violations"

“Violation” for purposes of 31 USC 5321(a)(5) is not defined in the statute. The IRS has historically interpreted “violation” to mean the failure to report a given account properly. The Supreme Court, however, held that the failure to file a legally compliant FBAR constitutes a single violation, regardless of the number of unreported or improperly reported accounts."  

We personally don't see how the penalty for willful failure to file an FBAR, which Statutorily allows for penalty of up to 50% of the "balance in the account at the time of the violation, can be used as an analogy for non-willful penalty which is per year and does not Statutorily provide for $10,000 penalty per account. 

We Think That Taxpayers Should Challenge Subsequent
Non-willful Penalties, Based On This Memo, As It's Not Statutorily Supported by the Nonwillful Penalty
Provisions of 31 USC 5321(a)(5)!

This decision is also inconsistent as it comes at a time that the US is currently dropping many of its lawsuits for non-willful penalties based upon number of accounts - see: 

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

Yes Yet Another FBAR Penalty Being Dropped Based Upon Bittner

July 13, 2023


The U.S. dropped a lawsuit that sought $835,000 in penalties against a Texas customs broker for failing to report his Mexican bank accounts, with the government saying a U.S. Supreme Court ruling has reduced the bill to $80,000, which the broker has paid.

Miguel E. Mireles, a U.S. citizen originally from Mexico, has already satisfied the reduced bill for his failure to report his Mexican bank accounts for tax years 2006 through 2013 through a $90,000 balance he has with the Internal Revenue Service, the U.S. said in its agreement with Mireles. Mireles agreed not to seek a refund for any remaining balance, which stems from $208,000 in payments he has made on three different penalty liabilities.

The Supreme Court in February restricted how much the IRS could fine a taxpayer for nonwillful failure to file Reports of Foreign Bank and Financial Accounts, or FBARs. The Bank Secrecy Act's $10,000 maximum penalty for nonwillful reporting applies per form and not per bank account, the justices said in their opinion in Bittner v. U.S. 

The IRS had originally calculated FBAR penalties against Mireles for $90,000 to $110,000 per year for the eight-year period during which he failed to report his accounts, according to the agreement. Under the new Bittner standard, those penalties were reduced to $10,000 per year.

Since 1995, Mireles has run a company that provides "customs brokerage services, processed foreign trade operations and border trade services for goods transferred between the United States and Mexico and vice versa," the government said in its 2021 complaint seeking to enforce the penalties.

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

Crypto Exchange Must Comply With IRS Summons

July 12, 2023

According to Law360, in an order on June 30, 2023, U.S. Magistrate Judge Joseph C. Spero said Payward Ventures Inc., which does business as Kraken, has to hand over information to the Internal Revenue Service on customers who conducted transactions of at least $20,000 in any year from 2016 through 2020. That information includes names, dates of birth, addresses and phone numbers, according to the order, which said such information could aid the agency in its probe of the tax compliance of cryptocurrency holders.

The federal judge narrowed an IRS summons for customer information from cryptocurrency platform Kraken and also has to furnish transactional ledgers spanning the same period, the order said. 

But Judge Spero found that some of the agency's five requests, including its request for a customer questionnaire that included information on wealth sources and employment, were overly broad under the factors for such IRS summons outlined by the U.S. Supreme Court in U.S. v. Powell. 

"While This Information Might Shed Light On A Tax Violation By An Account Holder, At This Stage Of The Government's Investigation, It Is Only Speculating On That Point." 


The federal government filed a petition in February seeking to force Kraken to comply with the summons, which had been approved by the court in May 2021. The summons had sought documents on the identities of Kraken customers and their transactions of at least $20,000 in the aggregate, including names, taxpayer identification numbers and addresses, as well as transaction information, like details on the purchases and sales of cryptocurrency and on account funding, according to filings. 

The IRS has been probing the tax compliance of cryptocurrency holders. It sent 10,000 letters to holders in 2019 as part of its investigation into potential reporting errors or omissions by digital currency owners on their tax returns. The agency had issued a summons seeking customer information to cryptocurrency exchange Coinbase, but the agency has had a challenging time identifying Coinbase account holders and still doesn't know the identities of about 750 account holders largely due to missing taxpayer identification numbers, an IRS agent said in a declaration.

Kraken has contended that the Coinbase litigation set certain standards for IRS John Doe summonses for cryptocurrency accounts, including limits on the volume of accounts the IRS can seek information on in such third-party summonses. 

But Judge Spero said in his order On June 30, 2023that both the U.S. and Kraken "have made statements that border on mischaracterizing the holding and legal significance of Coinbase."


"The Court Recognizes That The Limitations Placed
On The Summons In Coinbase, While Instructive,
Are Not Binding In This Case," The Order Said.


Judge Spero said the IRS can obtain some of the basic information it sought in its summons. But it doesn't now need historical account information or information from know-your-customer questionnaires that users fill out, according to the order, which noted the agency can pursue more summonses if it decides it needs more information to conduct its investigation. 

"We fought the IRS because they sought intrusive and unnecessary information about U.S. clients, including IP addresses, employment information, sources of wealth, net worth, and banking details," the spokesperson said. "We appreciate that the court rejected all these demands, recognizing that the IRS requests were 'much broader than what is necessary.'


Have an Unreported Crypto Income?  
 


 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

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