Yearly Archives: 2023

On July 21, 2023 the Treasury Inspector General For Tax Administration (TIGTA) released its report of the IRS Independent Office of Appeals Collection Due Process Program which found that the IRS Independent Office of Appeals (Appeals) properly informed taxpayers that Collection Due Process and Equivalent Hearings were conducted by an impartial hearing officer. 

Appeals hearing officers verified applicable law or administrative procedures were met; allowed taxpayers to raise issues at the hearing related to the unpaid tax; and made a determination on the proposed levy, the filing of the Notice of Federal Tax Lien, or both after considering the collection action balances efficient tax collection with the taxpayer’s concern that the collection action be no more intrusive than necessary. 

However, TIGTA reviewed a statistically valid stratified sample of 106 cases and identified that Appeals did not always classify taxpayer requests properly or provide only one hearing with respect to the taxable period related to the unpaid tax. 

In addition, similar to prior audits, TIGTA identified incorrect Collection Statute Expiration Date (CSED) posting errors in ** (** percent) of the 106 sampled taxpayer cases in which the IRS either incorrectly extended the CSED, allowing the IRS additional time to collect the delinquent taxes; or incorrectly shortened the CSED, resulting in the IRS having less time to collect the delinquent taxes.

 Based on the sample results, TIGTA estimates that ** and 1,790 taxpayer accounts had their CSEDs incorrectly extended and shortened, respectively, during Fiscal Year 2022. 

Because prior year’s review included a still open recommendation to reinforce the procedures for Appeals personnel to ensure that the correct CSEDs are posted to taxpayer accounts, TIGTA is not making any further recommendations related to this issue in this year’s report. 

Marini& Associates, P.A. 

 

 

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According to Law360, an IRS supervisor would have to sign off on penalties before they're included in pre-assessment notices subject to U.S. Tax Court review under rules the agency proposed on April 10, 2023, which intend to resolve conflicting court interpretations of an oft-litigated piece of the tax code.

The proposed rules from the Internal Revenue Service and the U.S. Department of the Treasury look to clear up confusion surrounding the application of Internal Revenue Code Section 6751(b), which requires an IRS supervisor to provide approval in writing of certain tax penalties.

For penalties reviewable by the Tax Court and included in pre-assessment notices to taxpayers, such as notices of deficiency, a supervisor would need to provide sign-off before the notice is actually issued to the taxpayer under the proposed regulations. Penalties the IRS proposes for the first time in court would need to be approved in writing by a supervisor before the agency first asks that the court consider the penalties, according to the proposal.

For Penalties That Don't Get Reviewed By
The Tax Court Before They're Assessed, An
IRS Supervisor Would Need To Sign Off
On Them Only Before Assessment,
The Proposed Rules Said.

Section 6751(b) has been subject to many court challenges, and the Tax Court specifically "has imposed increasingly earlier deadlines" by which a supervisor must sign off on penalties, "formulating tests that are difficult for IRS employees to apply," the proposed rules said.

"The proposed regulations are intended to clarify the application of Section 6751(b) in a manner that is consistent with the statute and its legislative history, has nationwide uniformity, is administrable for the IRS and is easily understood by taxpayers," the IRS and Treasury said.

The proposed rules sketched out the progressively tighter deadlines for supervisory approval established by the courts. The Tax Court in 2016 initially concluded that there was no timing requirement for supervisory approval, saying in Graev v. Commissioner that sign-off must be obtained any time before penalties are assessed.

But the Second Circuit departed from that take on Section 6751(b), saying in Chai v. Commissioner that supervisory approval has to be obtained while the supervisor still has authority over the penalty. Implicit in "supervisor approval" is that a supervisor has discretion to approve or reject the penalty, the rules said, and that discretion goes away once a notice of deficiency or similar pre-assessment document is issued.

The Tax Court then adopted that holding and began to roll back the deadline for supervisor approval, the proposed rules said. By the time the Eleventh Circuit reversed the Tax Court in Carter v. Commissioner, the Tax Court had decided that supervisory approval has to be obtained before a penalty is first communicated to a taxpayer.

Several appeals courts have since rejected this first-communication rule. But two of those courts, the Ninth Circuit and the Eleventh Circuit, created different standards for satisfying the supervisory approval requirement, leading to confusion, the IRS and Treasury said.

"The difficulty in applying or anticipating how courts will construe these rules has resulted in otherwise appropriate penalties on taxpayers not being sustained and has undermined the efficacy of these penalties as a tool to enhance voluntary compliance by taxpayers," the proposed rules said.

"In addition, the evolving standards regarding interpretations of Section 6751(b) have served to increase litigation, which consumes significant government resources," they added.

It's appropriate to require supervisory approval of notices issued pre-assessment and reviewable by the Tax Court before they are actually issued, the rules said. That's effectively the rule established by the Second Circuit in the Chai case, and it lets a supervisor give their sign-off while they still have the authority to approve or reject a penalty, the rules said.

There's not an earlier deadline mentioned in either the statute or the legislative history, the proposed rules added. Likewise, it makes sense to require a supervisor's sign-off before penalties are raised for the first time in the Tax Court, the proposed rules said, given that "once a penalty is raised, the Tax Court decision will control whether it is assessed."

For penalties that don't get reviewed by the Tax Court, it's reasonable to require a supervisor's sign-off at any point before the penalties are assessed. Since there's no Tax Court review for those penalties, the supervisor's discretion over them can't be made pointless, the proposed rules said.

"Consistent with the language of Section 6751(b), supervisory approval can be made at any time before assessment without causing any tension in the statutory scheme for assessing penalties," the IRS and Treasury said.

Have An IRS Tax Penalty
That You Want To Contest?

Marini & Associates, P.A. 

Read more at: Tax Times blog

Beginning on January 1, 2024, many corporations, limited liability companies, and other entities created or registered to do business in the United States must report information about their beneficial owners—the persons who ultimately own or control the company, to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

The Financial Crimes Enforcement Network (FinCEN) has issued FAQs on the beneficial ownership information (BOI) reporting requirements that will take effect on January 1, 2024.

In September 2022, FinCEN issued final regs implementing the Corporate Transparency Act (CTA). The CTA requires certain business entities created or registered to do business in the U.S. to report identifying information about their beneficial owners to FinCEN.

To supplement the guidance provided in the final regs, FinCEN recently issued a series of frequently asked questions (FAQs). The FAQs provide the following information:

• Unless exempt, entities would need to report their beneficial ownership information (BOI) to FinCEN if they had to file a document with their state, territory, or Tribal government to create or register the entity to do business in that jurisdiction (reporting entity).

Sole-proprietors using a fictitious or doing business as (DBA) name may also need to file DOI information if they had to register their DBA with a state agency. 

• A reporting entity will need to provide FinCEN with its legal name and any trade name or DBA, its address, the jurisdiction in which it was formed or first registered, and its taxpayer identification number.

• For each beneficial owner, the reporting company will need to provide the individual's legal name, birthdate, address and identifying number and copy of a driver's license, passport, or other approved document.

Per the FAQs, a "beneficial owner" of a reporting entity is any individual who exercises substantial control over the entity or who owns or controls at least 25% of the entity.

A beneficial owner:

• Directly or indirectly exercises “substantial control” over a company, or
• Directly or indirectly owns or controls 25% or more of a company’s ownership interests.

A person can be a beneficial owner when they have significant influence over the activities and decisions of the entity, even if they don’t own a substantial portion of the company’s stock or hold a formal title such as, but not limited to, CEO or President.

“Beneficial owners” could be found beyond the normal scope of ownership potentially extending to certain family members. These rules are complex and should be examined thoroughly to ensure compliance.

For entities created or registered to do business in the U.S. before January 1, 2024, their initial BOI reports are due by January 1, 2025. For entities created or registered to do business in the U.S. on or after January 1, 2024, their BOI reports are due within 30 calendar days of receiving notice that their entity's creation or registration is effective.

Updated reports will be required when there is a change to previously reported information about the reporting entity or its beneficial owners. These reports will be due within 30 calendar days after a change occurs.

Corrected reports will be required when previously reported information was inaccurate when filed. Corrected reports will be due within 30 calendar days of the error's discovery.

Have A Beneficial Ownership Problem?

Marini & Associates, P.A. 

Read more at: Tax Times blog

The US District Court for the District of Colorado on June 1, 2023, held that the US Department of Justice (DOJ) can assert and seek judgment for federal income tax deficiencies using a common law right of action, bypassing the usual statutory tax deficiency procedures outlined in the Internal Revenue Code (IRC). 

This decision in  in United States v. Liberty Global, Inc., might encourage the DOJ to seek tax collections through court judgments moving forward without following the IRC’s deficiency procedures. 

On its 2018 income tax return, Liberty Global, Inc. (LGI), a multinational telecommunications company, took the position that income earned by some of its controlled foreign corporations (CFCs) between January 1 and the close of the CFCs’ respective non-calendar tax years was not subject to certain IRC sections, including 951A (global intangible low-taxed income) and 965 (repatriation tax), and distributions of income from its CFCs during such period were tax-free under IRC Section 245A. LGI undertook a series of transactions that triggered CFC income and repatriated CFC profits during this period. The Internal Revenue Service (IRS) introduced retroactive temporary regulations to deny the benefits of this tax planning.

LGI originally filed its 2018 tax return in accordance with the temporary regulations, but later filed an amended return claiming a refund. The amended return took the position that the temporary regulations were invalid under the Administrative Procedure Act (APA). LGI prevailed on that position before the district court after filing a refund action.

The DOJ subsequently filed a separate complaint against LGI seeking to recover approximately $237 million in tax and $47 million in penalties, asserting that the transactions at issue lacked economic substance, and the substance of the transactions should be recognized over the form. 

The Complaint Was Filed Four Days Prior To The Expiration
Of The Three-Year Period Prohibiting Assessments.

LGI Moved To Dismiss The Amended Complaint On
The Ground That The IRS Did Not Issue A Notice
Of Deficiency Pursuant To IRC Section 6213(A).

A notice of deficiency is a prerequisite to assessing income tax. The government objected to the motion on the ground that it had a common law right to sue for an outstanding tax debt independent of the deficiency procedures.

The district court denied the motion to dismiss in a strongly worded order, concluding that “dual avenues of tax collection exist and are well recognized” and finding that the LGI’s interpretation of IRC Section 6213(a) was erroneous. To reach its conclusion, the district court had to determine that (1) there was sufficient support for the DOJ’s asserted common law right to sue on a tax deficiency and (2) that IRC Section 6213 does not prohibit such an action.

As to the first point, the district court acknowledged that this was a question of first impression in the US Court of Appeals for the Tenth Circuit but relied on a group of cases that, while distinguishable on various grounds, arguably endorsed the notion that the DOJ had such a right. The court also relied on the fact that neither it nor the parties could find any case law that explicitly rejected a dual process for tax collection. Regarding the second point, the court concluded that IRC Section 6123 was not a bar to the DOJ’s common law action and thereby rejected the key basis for LGI’s motion:

Defendant’s argument that section 6213(a) requires a notice of deficiency to issue before any recovery of unpaid income taxes can occur is based on a misleading alteration of the cited provision. The section provides in relevant part that “no assessment of a deficiency in respect of any tax imposed by subtitle A, or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer” and the taxpayer has had the opportunity to challenge that assessment in Tax Court if desired. See 26 U.S.C. § 6213(a). Defendant, purporting to quote this provision, asserts that “no levy or proceeding in court for [the collection of a tax deficiency] shall be made, begun or prosecuted until such notice has been mailed to the taxpayer.

The bracketed substitution of the phrase “collection of a tax deficiency” for “assessment of a deficiency” does nothing to enhance the clarity of the quoted language and in fact contorts its meaning. Defendant would rework the notice requirement to apply not only after administrative assessment but presumably to any recovery of unpaid income taxes. Section 6213 applies to the IRS’s assessment and collection of tax deficiencies; it does not refer to the government’s full panoply of remedies for recovery of unpaid taxes.

The district court interpreted the statute as requiring Section 6213(a) notice before collecting the assessed taxes. An “assessment” is a formal recording of a tax debt by the IRS. According to the court, it’s not the exclusive means through which the government can seek to obtain a judgment against a taxpayer for asserted deficiencies. Thus, because the government’s amended complaint did not operate to make an assessment, the court concluded that it is not barred by IRC Section 6213(a).

Although raised in LGI’s motion to dismiss, the LGI order declined to consider the implications of IRC Section 7422(e). This section allows a taxpayer to challenge a notice of deficiency in the US Tax Court after initiating a refund suit and gives the Tax Court jurisdiction over both the deficiency and refund suit. Is the common law right of action inconsistent with IRC Section 7422(e) in that it avoids the need for a notice of deficiency and eliminates the taxpayer’s ability to move their refund action to the Tax Court, or is the common law right more akin to the government’s right to offset in refund court? 

Liberty Global may embolden the DOJ to attempt to collect tax deficiencies by way of court judgment outside of the deficiency procedures provided by the IRC. 

We will closely monitor this case as it develops because it may require a new strategy when considering disputing a tax issue in courts other than the Tax Court.

 

 

for a FREE Tax Consultation at: 

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Sources:

Lexology

United States v. Liberty Global, Inc., 

Read more at: Tax Times blog