Monthly Archives: July 2023

The IRS has updated IRS Publication 1586 - Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs. The publication was last updated in July 2022.

The objectives of the publication are to: 

1. Provide general information needed to avoid penalties for information return documents that are filed with missing or incorrect taxpayer identification numbers (TINs);
2. Describe the actions that must be taken or should have been taken to solicit (request) a TIN; and
3. Explain the requirements for establishing reasonable cause.

To support that the failure to include a correct TIN was due to reasonable cause and not willful neglect, filers must establish that they "acted in a responsible manner" both before and after the failure occurred and that: (a) there were significant mitigating factors (for example, an established history of filing information returns with correct TINs), or (b) the failure was due to events beyond the filer's control (for example, actions of the payee or any other person).

"Acting in a responsible manner" (except as otherwise stated in the publication) generally involves making an initial solicitation (request) for the payee's name and TIN and, if required, an annual solicitation.

The penalty amounts in the publication have been updated to reflect annual inflation adjustments. Penalties may be assessed for information returns that are: (i) filed with a missing/incorrect TIN (or other incorrect information), (ii) filed late, (iii) filed on paper when electronic filing is required (incorrect media), (iv) filed in an incorrect format, or (v) any combination of the above.

The publication notes that final regulations were promulgated providing an automatic extension for minimum essential coverage providers to furnish individual statements about such coverage and also provide an alternate method for furnishing those statements when the individual shared responsibility payment is zero.

Read more at: Tax Times blog

According to Law360, Florida woman owes far less than the roughly $246,000 in penalties she initially faced for failing to report her foreign bank accounts due to the outcome of a recent U.S. Supreme Court case, a federal judge ruled in U.S. v. Hadley, case number 8:21-cv-01357, in the U.S. District Court for the Middle District of Florida.

In an order, Magistrate Judge Amanda Arnold Sansone granted a request Sali Hadley and the federal government made a day earlier to amend a previous district court decision by instead holding her liable for $24,500.

She and the government had said they agreed to the reduced penalty in light of the February ruling by the Supreme Court that effectively capped at $10,000 per year the penalty for nonwillfully failing to file reports of foreign bank and financial accounts.

The earlier decision by the district court in Florida, which ordered Hadley to pay the larger penalty for FBARs she nonwillfully failed to file in 2011 and 2012, was delivered before the high court ruling.

An appeal followed that saw the Eleventh Circuit order the Florida court to review Hadley's case.

Read more at: Tax Times blog

The Malta Pension Plan is a tax-favorable pension plan that has been used by U.S. taxpayers in Malta. The plan allows for significant tax savings, as gains on assets contributed to the plan are not subject to tax in Malta or in the U.S. However, the IRS and Treasury have taken the position that the Malta Pension Plan is abusive and that it was not intended by the Treaty drafters.

In July 2021, the IRS added the Malta Pension Plan to its “Dirty Dozen” list of abusive tax schemes. In December 2021, Treasury published a Competent Authority Arrangement (CAA) that severely narrowed the definition of what qualifies as a pension and thus the overall tax benefits possible under the Treaty.

More recently, in early June 2023, the Treasury Department proposed regulations that would designate Malta Pension Plan arrangements as “listed transactions.” If the regulations are finalized, Malta Pension Plan arrangements will be subject to the same additional scrutiny applicable to all listed transactions, including certain disclosure requirements, increased penalty exposure, and record-keeping requirements for material advisors.

In A Significant Development Last Week, IRS Criminal Investigation (IRS-CI) Special Agents Began Visiting
Taxpayers And Advisors Who Have Participated In,
Or Advised On, Malta Pension Plans.

IRS-CI agents are issuing summons to parties to produce documents for a nationally coordinated investigation. The involvement of IRS-CI makes clear that the IRS believes that at least some Malta Pension Plan arrangements may be the product of criminal or fraudulent conduct.

We advise clients that there is no obligation to speak with an IRS-CI Special Agent and that anything disclosed to the IRS can be used in a criminal or civil case against them. If you have received an interview request from IRS CI, you should speak with an experienced tax counsel who can advise you on your rights and obligations in responding to an IRS inquiry.

Taxpayers who have already claimed the purported tax benefits of one of these four transactions on a tax return should consider taking corrective steps, such as filing an amended return and seeking independent advice. 

Where appropriate, the IRS will challenge the purported tax benefits from the transactions on this list, and the IRS may assert accuracy-related penalties ranging from 20% to 40%, or a civil fraud penalty of 75% of any underpayment of tax.

 

The IRS remains committed to having a strong, visible, robust tax enforcement presence to support voluntary compliance. To combat the evolving variety of these potentially abusive transactions, the IRS created the Office of Promoter Investigations (OPI) to coordinate service-wide enforcement activities and focus on participants and the promoters of abusive tax avoidance transactions. 

The IRS has a variety of means to find potentially abusive transactions, including examinations, promoter investigations, whistleblower claims, data analytics and reviewing marketing materials.

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Read more at: Tax Times blog