Category Archives: criminal tax law

The Treasury Inspector General for Tax Administration (TIGTA) released its report - The IRS Primarily Uses Lien Foreclosures When Pursuing Principal Residences, Which Do Not Provide the Same Legal Protections as the Seizure Process.  

The report found that in Fiscal Year 2020, the IRS used lien foreclosure suits more often than seizures when pursing principal residences, which do not provide the same legal protections as seizures. 

• For seizures, the IRS must comply with the legal provisions set forth in I.R.C. §§ 6330 through 6344, which govern many aspects of the seizure process, including requiring a thorough exploration of collection alternatives before a levy action can be taken and additional Collection Due Process appeal rights. 
• In contrast, for lien foreclosure suits, I.R.C. § 7403 offers very little discretion for the court to consider anything other than determining the merits of all claims to and liens upon the property. In addition, unlike the sale of real property at a distraint (seizure) sale, the taxpayer has no right to redeem the property after court ordered foreclosure of the Federal tax lien. Therefore, it is important that the IRS pursue a seizure rather than a suit to foreclose, whenever possible, to ensure that taxpayers are afforded all available administrative and legal protections.

Additionally, TIGTA reviewed 96 lien foreclosure cases identified on the IRS’s eApproval system between October 1, 2018, and September 30, 2020, that were in litigation status as of January 12, 2021, and 35 suit recommendations that were in declined status during this same time frame. Revenue officers generally followed procedures and internal controls; however, TIGTA identified some instances in which procedures and internal controls were not followed or were not clear. For example, TIGTA identified instances in which revenue officers were asked to make revisions on suit packages, but improper or untimely actions prevented the IRS from filing suit. TIGTA also identified cases in which suit packages were missing required forms or case actions were not timely.

Finally, while the IRS has developed a system to track lien foreclosure cases internally, once the cases are sent to the Department of Justice for litigation, there is no way to track and measure the outcome or the related costs and revenues collected on lien foreclosure cases.

TIGTA made five recommendations, including recommending that the IRS work with the Department of the Treasury Office of Tax Policy to consider a legislative proposal to amend the law (I.R.C. § 7403) so that taxpayers are afforded the same rights and protections whether the IRS is conducting a Federal tax lien foreclosure or a seizure on their property. Additionally, TIGTA recommended that the IRS make several updates to the Internal Revenue Manual to ensure that Field Collection managers and employees take timely and proper case actions when determining whether to recommend a suit to foreclose on a taxpayer’s property.

The IRS agreed with four of the five recommendations. However, the IRS disagreed with TIGTA’s recommendation to work with the Department of the Treasury to consider a legislative proposal. The IRS’s view is that, while each process has its own advantages and disadvantages, each ensures taxpayers’ rights are protected. TIGTA continues to believe that similar legal protections are needed for both processes.

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According to Law360, interests in some foreign accounts holding digital assets such as cryptocurrency would have to be disclosed to the Internal Revenue Service under a proposal put forth Monday by the U.S. Department of the Treasury.

The proposal outlined in Treasury's "Green Book" explanation of tax policies would impose a reporting mandate for foreign digital asset accounts under Internal Revenue Code Section 6038D(b). 

The Mandate Would Apply To Taxpayers Who Have
More Than $50,000 In Cryptocurrency,
Financial Accounts And Other Assets Held Overseas.

The proposal would cover any account housing digital assets maintained by a foreign digital asset exchange or asset service provider, and Treasury would be permitted to issue regulations expanding the scope of the accounts, according to the Green Book. The proposal would be effective for returns that have to be filed starting in 2023.

Section 6038D, created by the Foreign Account Tax Compliance Act, already requires reporting from anyone holding an interest in at least one specified foreign financial asset with a total value of at least $50,000, according to the Green Book. Treasury said in the Green Book that mandating people to specifically report offshore holdings of accounts with digital assets, subject to big penalties if they don't, is vital to curbing potential use of digital assets for tax avoidance.

The Green Book also calls for increased reporting from financial institutions and digital asset brokers for purposes of exchanging information with foreign governments. Some financial institutions would have to report the account balance for all accounts housed at U.S. offices and held by foreign individuals, according to the Green Book. 

Furthermore, if adopted and combined with existing law, the proposal would force brokers to report gross proceeds and other required details regarding sales of digital assets with respect to customers and substantial foreign owners in the case of some passive entities, the Green Book said.

That proposal would allow for the automatic exchange of information with other countries and provide Treasury with details on U.S. taxpayers who directly or through passive entities engage in digital asset transactions outside the country, according to the Green Book.

Treasury also wants to allow actively traded digital assets and derivatives or hedges of them to be marked to market if dealers or traders elect to under rules similar to those applying to actively traded commodities, the Green Book said.

The Green Book was released the same day President Joe Biden's administration released its budget proposal, which calls for raising the corporate tax rate to 28% and imposing a minimum tax rate of 20% on taxpayers whose incomes top $100 million.

The digital assets proposals in the Green Book together would raise about $11 billion, according to Treasury. In total, the Biden administration's budget is proposing $2.5 trillion in revenue increases.

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According to Law360, Minimum taxes would be imposed on billionaires and wealthy corporations under President Joe Biden's fiscal 2023 budget proposal, released Monday, which he said would ensure the rich pay their fair share of taxes.

Biden's budget proposes to crack down on sophisticated tax planning used by the wealthy to avoid paying federal taxes by imposing a minimum rate of 20% on taxpayers with incomes exceeding $100 million. The budget also proposes raising the corporate tax rate to 28% — reversing the cut that businesses received in the GOP's 2017 tax overhaul law  and curbing the use of tax havens by multinational corporations that attempt to undercut a global minimum tax rate.

Shalanda Young, chief of the Office of Management and Budget, told reporters the budget would reduce the federal budget deficit by $1.3 trillion this year without raising taxes on those earning less than $400,000 annually. 

The president's annual submission to Congress marks the start of negotiations between the White House and lawmakers to set spending and tax priorities for the federal government beginning this October. Biden signed the fiscal 2022 budget this month after a series of stopgap funding bills that kept the government operating at the previous year's spending levels.

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The Internal Revenue Service announced on February 15, 2022 that Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, has been revised, including expanding a section on reporting virtual currency. 

Form 14457 permits taxpayers who may face criminal prosecution for willful violation of tax law to voluntarily disclose information to the IRS that they failed to previously disclose. 

Updates and additions to this form include:

• IRS Criminal Investigation now accepts photocopies, facsimiles and scans of taxpayer signatures. Taxpayers can send this form via eFax to 844-253-5613 to reduce mailing and processing times. Previously, Part II of this form had to be mailed.
• An expanded section for reporting virtual currency.
• A penalty structure for employment tax and estate and gift issues.
• A check-box for inability to pay in full.

The updates reflect input from practitioners and stakeholders and take into account trends in the type of financial asset that taxpayers hold.

“This is an important form and process for people who recognize it’s better to step forward and address their tax situations head-on, before facing IRS enforcement action,” said Doug O'Donnell, Deputy Commissioner Services and Enforcement. “The revised form includes a number of updates, and we encourage people to review the guidelines and consult a trusted tax professional.”

Thousands of taxpayers have used the Voluntary Disclosure Practice since its inception. It serves as a compliance option for taxpayers who have potential criminal exposure and wish to come into compliance with the tax laws. Those making such disclosure are still subject to civil examination and the payment of all applicable taxes, interest and penalties.

Taxpayers who did not commit any tax or tax-related crimes and wish to correct mistakes or file delinquent returns should consider other options available to comply with their tax and reporting obligations. The IRS encourages taxpayers to consult with professional tax or legal advisors in determining which option is the most appropriate.

A taxpayer’s voluntary disclosure must be timely, accurate and complete. The taxpayer must also cooperate with the IRS in determining the correct tax liability, and make full payment of the tax, interest and any applicable penalties.

Cooperation includes full payment of all tax, interest and penalties. A taxpayer who is unable to make full payment may request that the IRS consider other payment arrangements. If a taxpayer anticipates they cannot pay the total amount of tax, interest and penalties required, they must disclose this and submit a proposed payment arrangement and a completed, and executed, Collection Information Statement (Form 433-A). The burden is on the taxpayer to establish inability to pay, to the satisfaction of the IRS, based on full disclosure of all assets and income, domestic and foreign, under the taxpayer’s control.

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