Category Archives: criminal tax law

According to Law360, a joint international tax enforcement group that includes the Internal Revenue Service and agencies from four other countries will be turning its sights toward decentralized cryptocurrency exchanges and nonfungible tokens, the IRS' Criminal Investigation chief said on March 4, 2022.

The Joint Chiefs of Global Tax Enforcement, or J5, which also includes Australia, Canada, the Netherlands and the U.K., is currently planning the initiative, known as a challenge, said Jim Lee, chief of the IRS' Criminal Investigation arm, during the Federal Bar Association's annual tax law conference, held online.

"And that's exactly what they do," he said. "At the end of the day, each country walks away with operational leads."

Justin Cole, director of the office of communication in the IRS' Criminal Investigation division, told Law360 this year's challenge will occur in mid-May in London. 

Nonfungible tokens, or NFTs, first appeared in 2014 and generally function as a certificate of ownership for a work of intellectual property, such as a music file. They're distinctive data units stored on a noneditable, public ledger called a blockchain and unlike cryptocurrencies are not intended as a unit of exchange.

The NFT and cryptocurrency exchange initiative will be the J5's fourth challenge. Prior challenges have focused on enablers of tax evasion, cryptocurrency and then cryptocurrency and the financial technology industry. The J5 was formed in 2018.

Lee also touted the CI division's inclusion in a task force the U.S. Department of Justice unveiled on March 2, 2022 meant to track down violators of sanctions against Russia for its invasion of Ukraine and seize assets of Russian oligarchs.

Lee said the CI division was "a perfect fit for the task force" and will invest resources in it as appropriate.

The task force, known as KleptoCapture, is allowed to investigate and prosecute any offense related to its mission, including various tax offenses, bank fraud and money laundering, according to a DOJ statement.

Cole said the hiring of those special agents is currently part of the division's appropriated budget. He also said professional staff or support personnel can include roles such as investigative analysts, data scientists, human relations, finance and communications. A variety of professional staff workers will be hired to support the entire division, not just the new agents it hopes to hire, Cole said.

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In IR-2022-45 the Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations from earning foreign-source income or holding certain foreign assets.

Report Foreign Source Income

A U.S. citizen or resident alien's worldwide income is generally subject to U.S. income tax, regardless of where they live. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic 2-month extension to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2022.

Reporting Required For Foreign Accounts And Assets

Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Further, separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is the same as that of Form 1040. FinCEN grants filers who missed the original deadline an automatic extension until October 15, 2022, to file the FBAR. There is no need to request this extension.

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In IR-2022-45 the Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations from working in the gig economy & making virtual currency transactions

Gig Economy Earnings Are Taxable

Generally, income earned from the gig economy is taxable and must be reported to the IRS. The gig economy is activity where people earn income providing on-demand work, services or goods. Often, it's through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is:

• From part-time, temporary or side work,
• Not reported on an information return form - like a Form 1099-K, 1099-MISC, W-2 or other income statement or
• Paid in any form, including cash, property, goods or virtual currency.

For more information on the gig economy, visit the gig economy tax center.

Understand Virtual Currency Reporting And Tax Requirements

The IRS reminds taxpayers that once again there is a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions. All taxpayers filing these forms must check the box indicating either "yes" or "no." A transaction involving virtual currency includes, but is not limited to:

• The receipt of virtual currency as payment for goods or services provided;
• The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
• The receipt of new virtual currency as a result of mining and staking activities;
• The receipt of virtual currency as a result of a hard fork;
• An exchange of virtual currency for property, goods or services;
• An exchange/trade of virtual currency for another virtual currency;
• A sale of virtual currency; and
• Any other disposition of a financial interest in virtual currency.

If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange or transfer, they should check "Yes" and use Form 8949 to figure their capital gain or loss and report it on Schedule D (Form 1040).

If they received any virtual currency as compensation for services or disposed of any virtual currency they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1). More information on virtual currency can be found in the instructions for Form 1040 and on the Virtual Currencies page on IRS.gov.

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The IRS's Small Business and Self-Employed (SB/SE) and Large Business and International (LB&I) divisions have issued guidance to their examiners on scrutinizing tax returns that report net operating losses (NOLs). The guidance focuses on issues related to NOL carrybacks.

Generally, eligible taxpayers that want to carry back an NOL to claim a refund may:

1. File an application for a tentative refund within 12 months of the end of the loss year, or

2. Amend the carryback year return within the normal limitations period for filing refund claims.

However, beginning in tax year 2021, NOL carrybacks are limited to farming and insurance company losses. 

The New Guidance Provides SB/SE And LB&I Examination Employees With Step By Step Instructions For Examining Tax Returns Reporting An NOL Carryback.

The guidance also reminds examiners that while carrybacks may be limited for 2021 and later years, it is important for examiners to remain aware of carryback losses when examining returns as the rules in this area are often modified.

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