Fluent in English, Spanish & Italian | 888-882-9243

call us toll free: 888-8TAXAID

Blog

SC Not Hear IRC § 965 Transition Tax Challenge

May 2, 2023

According to Law360, an American expatriate who runs an Israeli law firm will not get a chance to challenge regulations implementing the transition tax for overseas profits after the U.S. Supreme Court in Monte Silver Ltd. v. Internal Revenue Service et al., case number 22-907, on May 1, 2023 declined to hear the case

The top court's refusal to hear the case ends the challenge by Monte Silver, who had argued the Internal Revenue Service failed to undertake the required analysis of the regulations under the Regulatory Flexibility Act. Silver sued the government in 2019 over the regulations governing the one-time mandatory transition tax on overseas income, a provision of the 2017 Tax Cuts and Jobs Act. Companies had eight years to pay the deemed tax on foreign income.


Silver had claimed that he and his firm would incur compliance costs as a result of the rules each time the firm distributed a dividend to him, the firm's sole shareholder. He also had argued the rules shouldn't be enforced until the IRS analyzed their impact on small businesses, as required by the RFA.

In December, The D.C. Circuit uled That Silver Lacked Standing To Challenge The Regulations Under Article III Of The U.S. Constitution Because He Hadn't Been Injured By Them.

The injuries he claimed could be tied to other tax laws and rules, the appeals court found.

The court ruled Silver did not show that granting the requested relief would redress a past injury because he had already borne the costs of compliance in determining his liability and he didn't owe any tax. The court also found that Silver had failed to show imminent future injury, another way to satisfy Article III standing.

The U.S. District Court for the District of Columbia dismissed Silver's claim in 2021, finding that Silver failed to show his burden to comply with the new regulations would change if the government granted the relief he requested.

Silver also did not present facts showing that he would be harmed in the future by the regulations, the district court ruled. He alleged that he could end up paying costs to comply with the regulations but did not present actual facts showing that he would suffer an imminent injury, the opinion said.

  Have an IRS Tax Problem?


 Contact the Tax Lawyers at

Marini & Associates, P.A. 


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

IRS Commissioner Defends Higher Staffing to House Committee

April 28, 2023

According to Law360, the IRS needs the additional funding promised in August under the Democrats' Inflation Reduction Act to hire more accountants, data scientists and economists to examine the nearly 400,000 tax filings made each year by wealthy individuals, partnerships and corporations, IRS Commissioner Daniel Werfel told a House committee Thursday.

The Internal Revenue Service currently has only about 2,600 employees with the specialized skills to audit these complex returns, and they can't keep up with the work of processing the approximately 390,000 such returns filed annually, Werfel said in testimony before the House Ways and Means Committee.

"When we have multiple sources of income, like large partnerships, corporations, billionaires and multimillionaires, it takes up to 15 times longer for the IRS to assess and then audit those returns," Werfel told the committee. 


"It Takes About Five Hours, On Average,
To Audit A Middle- And Low-Income Taxpayer
When Those Audits Do Occur.
 

It Takes 250 Hours, Or More, To Audit
A Wealthy Or More Complex Return."

Werfel's remarks came a day after the House of Representatives voted 217-215, mostly along party lines, to pass the Limit, Save, Grow Act, or H.R. 2811. The bill would tie an increase to the limit on the federal government's borrowing authority to a clawback of the increased IRS funding for enforcement and operations support, along with a repeal of most of the Inflation Reduction Act's climate and clean energy tax credits.

Earlier this month, Werfel released the agency's plan to spend the increased enforcement funding on hiring the personnel needed to carry out enforcement work, including attorneys, accountants and data scientists. The IRS is receiving $45.6 billion for enforcement as part of the nearly $80 billion funding increase over a decade provided by the new law.

The Spending Plan Calls For Hiring And Onboarding 
The First Groups Of Compliance Specialists To Focus 
On High-Income Individuals And Large Corporations 
And Partnerships In The 2023 Fiscal Year.


Under the plan, the agency would start using new compliance tactics for the wealthy and large corporations in the 2025 fiscal year.

Werfel echoed the statements made by Treasury Secretary Janet Yellen when she testified before the committee in March, saying that IRS enforcement resources will not be used to raise audit rates for households making less than $400,000 annually relative to historical levels. 

He Noted That Audit Rates Of Wealthy Corporations Have Dropped From As High As 30% In 2010 To About 5% Currently, Which Encourages These Taxpayers To Take Risks When Filing Their Returns Because They Don't Fear Getting Audited.


"But if we have the right amount of resources, and if we are effective in looking at these complex returns, then we can rebalance that and they'll take less risk, and that will be beneficial to the U.S. government," Werfel said.


  Have an IRS Tax Problem?


Like Your Freedom?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 


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

Is It Time To Request Refunds For Form 5471, 5472, 8938, and 3520 Late Filing Penalties?

April 25, 2023


On April 3, 2023, Judge Paige Marvel of the U.S. Tax Court issued its opinion in Fahy v. Commissioner, 160 T.C. No. 6 (2023) where he held that the IRS was without the authority to assess the Form 5471 imposed by Internal Revenue Code Section 6038(b). The Farhy case involved the penalties for failure to timely file Forms 5471 (“Information Return of U.S. Persons With Respect to Certain Foreign Corporations”). 

The IRS was correct on the substance of the applicable law (i.e., that the taxpayer owed the penalties in question). 

The Only Issue Before The Tax Court Was Whether
The IRS Had Followed Proper Procedure In Attempting
To Assess And Collect Those Penalties By Levy.

The IRS maintained, as it has for several years, that it has statutory authority to systematically levy penalties for failure to file some international information returns without

  1. Having to pursue civil litigation to collect the penalties or 
  2. providing deficiency procedures that otherwise allows taxpayers, before making a payment, to contest the penalties before the Tax Court. 

Judge Marvel Disagreed And Prevented The IRS From Proceeding With The Collection Of The Penalties By Levy Because They Were Not “Assessable Penalties” Under The Code.

While this taxpayer victory may appear to be a panacea for anyone who has ever paid a penalty for the late filing (or failure to file) of a Form 5471, it may represent a real opportunity for taxpayers whose claims for a “reasonable cause” exception to the penalty for failing to timely file international information returns were summarily rejected by the IRS. 

Although the opinion doesn’t explicitly address penalties for Forms 5472 or 8938, those penalties are both imposed under the authority of Internal Revenue Code Section 6038(b). Therefore, the IRS will have similar problems with assessing penalties for those forms. 

The penalties for failure to file Form 3520 with respect to gifts from foreign persons are not imposed under Internal Revenue Code Section 6038(b). However, the Tax Court’s logic in deciding that Form 5471 penalties cannot be assessed applies equally with respect to the penalties for not filing 3520.

The implications of the Farhy case are uncertain but could be far-reaching, it is potentially applicable to numerous other penalties for failure to file international information returns that the IRS has systematically assessed following the same procedures it followed in Farhy. 

The associated issues that need to be considered are:    

  1. The complete list of information returns for which the IRS may have improperly assessed penalties in the past;
  2. The running of the statute of limitations with respect to penalty refund claims;
  3. Whether the IRS is legally obligated to refund any improperly assessed and collected penalties upon receipt of a properly filed refund claim; 
  4. The proper procedure for claiming a refund for penalties that were improperly assessed and collected in the past;
  5. The likelihood that the IRS would prevail on appeal of the Tax Court’s decision in Farhy; 
  6. Whether the IRS will proceed with civil litigation to recover the penalties; and
  7. What happens if IRS heads to Congress to get Congress to overrule the Tax Court decision. 
    • Given the partisan nature of taxes it is anyone’s guess if a bill of this nature would pass any time soon. 
    • If Congress changes the statute will the change, be retroactive? 

There are many unknows, but this may be a good time to file previously unfiled Forms 5471, 5472, 8938, and 3520 and demanded be a good time to request a refund for any failure to file (or late filing) penalty associated with Forms 5471, 5472, 8938, and 3520.

If the Tax Court’s decision is upheld and not reversed by Congress, the chances of the IRS suing for penalties maybe remote in most cases. If the Tax Court’s decision is later reversed filing the Forms now may start the statute of limitations running.

Want To Request Refunds For Form 5471, 5472,
8938, & 3520 Late Filing Penalties?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 


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

Should I Stay or Should I Go? – Expatriation Right For You?

April 19, 2023

 On January 27, 2023, we posted Should I Stay or Should I Go? - Expatriations Are Up In 4th Quarter of 2022 , where we discussed that the number of people losing or renouncing their U.S. citizenship rose back to over 1,000 in the period of October through December, from 748 in the third quarter, the IRS said in a list of those choosing to expatriate. 

Now the number of people expatriated from the U.S. fell by about half during the first quarter of 2023 compared with the previous quarter, the Internal Revenue Service said in a notice released dated April 18, 2023.

The Number Of People Losing Or Renouncing Their U.S. Citizenship Dropped to 536 For 1st Qtr of 2023.

From > 1,000 In The Previous Quarter of 2022, The IRS
Said In A List Of Those Choosing To Expatriate.


The number of people losing or renouncing their U.S. citizenship dropped to 536 in the period of January through March, from more than 1,000 in the fourth quarter of last year, the IRS said in a list of those choosing to expatriate. The list includes those losing U.S. citizenship under Internal Revenue Code Section 877(a) and Section 877A , the notice said.

It also includes long-term residents who are treated as losing citizenship under IRC Section 877(e)(2), the agency said. The number of people losing or renouncing their U.S. citizenship rose back to over 1,000 in the period of October through December, from 748 in the third quarter, the IRS said in a list of those choosing to expatriate. 


The list includes those losing U.S. citizenship under Internal Revenue Code Section 877(a)  and Section 877A .

It also includes long-term residents who are treated as losing citizenship under IRC Section 877(e)(2), the agency said.


According to CNBC the top reason why Americans abroad want to dump their U.S. citizenship include:
  • Nearly 1 in 4 American expatriates say they are “seriously considering” or “planning” to ditch their U.S. citizenship, a survey from Greenback Expat Tax Services finds.  
  • About 9 million U.S. citizens are living abroad, the U.S. Department of State estimates.
  • More than 4 in 10 who would renounce citizenship say it’s due to the burden of filing U.S. taxes, the Greenback poll shows.

Should I Stay or Should I Go?


Need Advise on Expatriation?

 


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

Live Help