Category Archives: criminal tax law

According to Law360 improving the Internal Revenue Service's ability to combat high-income tax evasion could lead to $2.3 trillion in additional tax revenue over the next 20 years, according to a report published Thursday by the U.S. Treasury Department.

Boosting the budget for the IRS, allowing the agency to use third-party information reporting to verify businesses' income, overhauling antiquated agency technology and regulating paid tax preparers would all help close the tax gap, or revenue lost due to noncompliance, according to Treasury's report.

"Working to close the tax gap reflects a commitment to ending our two-tiered tax system, one where most American workers pay their full obligations, but high earners who accrue income from opaque sources often do not," the report said. 

The tax enforcement initiatives, if enacted, would lead to $700 billion in additional tax revenue raised over the next decade and $1.6 trillion in the second decade, according to Treasury's report. Those additional revenues in the first decade equate to about a 10% reduction in the tax gap, Treasury said.

Treasury released the report after President Joe Biden unveiled his American Families Plan last month, which included the tax enforcement initiatives and higher taxes on wealthy individuals to help offset plans to expand tax credits for child care, working adults and health insurance.

Biden's tax enforcement plan calls for an $80 billion investment in the IRS over the next 10 years to hire new enforcement officers, overhaul the agency's information technology infrastructure and improve taxpayer services, according to the report. Those investments would be directed toward combating tax evasion by those earning more than $400,000 in income, Treasury said.

He Increase In The IRS Budget Would Represent A Nearly 40% Increase Over Its 2011 Levels But Is "Necessary" Given The Breadth Of Responsibilities That The Agency Has, Which Have Only Increased Over Time, Treasury Said.

Biden's plan also calls for financial institutions to increase the information they report to the IRS on business income beginning in 2023, but those new reporting requirements wouldn't apply to smaller entities that fall under a "gross flow" threshold, according to the report. The new reporting regime would apply to banks and other financial institutions, including cryptocurrency exchanges, Treasury said.

"Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold," the report said.

Allowing the IRS and Treasury to regulate paid tax preparers would also improve tax compliance, as oftentimes those tax preparers who are unregulated "make costly mistakes" inaccurately reporting income to the agency, the report said.

Senate Finance Committee Chair Ron Wyden, D-Ore., told Law360 in a statement that he is working on legislation to implement pieces of Biden's tax enforcement plan.

"The Treasury Department has put forward a comprehensive plan to rebuild the IRS and crack down on tax cheats who are stealing billions from the American people," Wyden said. "Increased funding and staffing, information reporting, and an emphasis on pass-through businesses are critical to making real progress in collecting taxes owed."

A spokesperson for the House Ways and Means Committee Democrats said that they support Biden's call for increasing the IRS' budget, and would work with the administration to develop legislation in accord with its tax enforcement plan.

Have IRS Tax Problems?

     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

J. Russell George, the Treasury inspector general for tax administration, testified before a Senate Finance Committee panel on May 11, 2021 to address the persisting problem of the tax gap.

The title given to the hearing was "Cl
osing the Tax Gap: Lost Revenue from Non-Compliance and the Role of Offshore Tax Evasion."

At the outset of his testimony, George made clear the issue warrants serious and immediate attention. "Finding effective solutions to address the tax gap and its components would yield substantial additional tax revenue," he said.

The tax gap is defined as the difference between the estimated amount taxpayers owe and the amount they voluntarily and timely pay for a tax year. The gross tax gap, which is the amount that is owed by taxpayers before collections resulting from IRS enforcement actions and other late taxpayer payments are taken into account, is estimated to be $441 billion annually, George noted.

According to George, the underreporting of income taxes comprises the largest component of the tax gap at $352 billion annually. Individual taxpayers are responsible for the largest share of the underreporting tax gap at $245 billion. 

However, Russell waved a cautionary flag in his testimony. "The tax gap estimates are generally outdated because they are for tax years of a decade earlier, so their usefulness may be limited," he said. "Recently, the IRS commissioner testified that he believes the annual tax gap is at least $1 trillion," George added.

George offered a series of recommendations which, in his opinion if taken together, would significantly improve tax compliance, including: 

• more effectively prioritizing high-income taxpayers; 
• a stronger impetus by the IRS Large Business and International Division to identify corporate non-compliance; 
• addressing the negative impact of Internet platform companies on tax compliance; 
• dealing with the ongoing problem of adequate resources for IRS and its potential impact on enforcement revenue (he highlighted the reductions in most types of examinations and the nonpayment of taxes owed); and 
• improving international tax compliance.

Have IRS Tax Problems?

     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

On March 24, 2021 we posted Some Cryptocurrency Investors Are Receiving A New Round of Letters From The Internal Revenue Service, where we discussed that the letters are a fresh signal that the IRS is increasing its focus on cryptocurrency tax compliance, after first being slow to stay abreast of the growing industry and on April 5, 2021 we posted In a 2nd Crypto Summons the Judge Orders US To Justify Broad Doc Request, where we discussed that the IRS found 5 US taxpayers used this cryptocurrency for their noncompliance, combined with a dearth of third-party reporting in cryptocurrency generally, has led the IRS to believe that there are more Kraken users who aren't compliant with their cryptocurrency tax reporting obligations, the government said.

Now the IRS recently selected TaxBit, subcontracting under DPI Inc., to provide data analysis and tax calculation support for taxpayers with cryptocurrency. TaxBit provides tax automation software to enterprises, consumers, and government entities.

"This is a milestone moment for the cryptocurrency industry. It indicates regulators are embracing the asset class, but doing so in a way that ensures a straightforward approach to conform with existing regulations. We believe this is an important step for the enablement of widespread cryptocurrency adoption." Austin Woodward, Co-Founder and CEO of TaxBit.

TaxBit’s Tax Automation Software Is Already Being Used By Companies, Consumers And Other Government Agencies, But The Deal With The IRS Represents A Major Step In Demonstrating How Seriously The IRS Is Taking Tax Compliance For Users Of Digital And Virtual Currencies Like Bitcoin, Ether And Dogecoin.

But With The Taxpayers Themselves, As Well As The CPAs
And Attorneys Who Represent Them During Audits.

The IRS has been cracking down on cryptocurrency users who fail to report their gains, adding a question to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. 

The agency won a high-profile court case in 2018 against the popular crypto exchange Coinbase to get access to their customer information through John Doe summonses. Last week a federal court in California authorized the IRS to serve a John Doe summons on another popular cryptocurrency exchange, Kraken, and its owner Payward Ventures. TaxBit could be finding itself poring over the information made available through these efforts. However, much of it will come from the standard processes used by the IRS for selecting returns that set off red flags for further examinations and audits.

TaxBit will be helping the IRS scrutinize returns going back several years. “It really is case by case,” said Wilks. “These really can range from 2016 or 2017 and forward. Typically, if you think about an IRS audit cycle, they don’t start auditing taxpayers until usually a couple of years after they’ve filed, so these are not necessarily audits that are coming from 2020 or 2019 activity. These are really from the last few years.”

The Software Should Help Automate The Process
For IRS Auditors of Determining How Much Money
Was Made From Crypto Transactions.

It Will Generate A Report That Will Go To The IRS,
and In Turn To Taxpayers.

 “They’re just looking to get an accurate view of the gains and losses,” Wilks explained. “If you imagine a CPA trying to get through a million lines of data and calculating gains and losses using a FIFO methodology or something, that would take an unrealistic amount of time, so the idea is that we have technology that can do that in a matter of minutes. 

But beyond that we have CPAs and attorneys who work here and who can then look at that information and we can get further insights into what may be missing. This report is provided to the IRS, but it’s also reported to the taxpayer, so it’s a resource on both sides to help them make sure that they’re getting a complete picture.”

TaxBit expects  to start receiving the initial data and to begin sending the reports by early next year. “We’re Actually Expecting Them Any Day Now At This Point, So It Will Be Within The Next 12 Months,” Said Wilks.

Have an IRS Cryptocurrency 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) 

Sources:

accountingTODAY

TaxBit

Read more at: Tax Times blog

According to Law360, U.S. taxpayers could hold as much as
$2 trillion in assets in low-tax haven jurisdictions, a top research and analytics officer at the Internal Revenue Service said during a Senate hearing. IRS Analytics Officer Barry Johnson told a Senate Committee on May 11, 2021 that "the Tax Gap attributable to International Activities, Specifically Overseas Accounts, could be quite large."

He testified that the agency has yet to develop reliable statistics on foreign offshore evasion, but that information collected through the Foreign Account Tax Compliance Act for the 2017 tax year shows that U.S. taxpayers hold $3.7 trillion abroad. More than half of that, or $2 trillion, is held in "what the OECD considers to be tax haven countries," he said.

IRS Commissioner Chuck Rettig recently testified that the annual tax gap, or the difference between the taxes owed and what is collected, could exceed $1 trillion. Republican lawmakers are challenging Rettig on that number, pointing to the agency's official estimate of $441 billion. 

President Joe Biden is pushing to boost the IRS enforcement budget, contending that it will yield a collection of new revenue that will help pay for his $2 trillion infrastructure plan. 

Johnson said that while the official IRS figure on the tax gap hasn't changed, he believes Rettig's estimate is a reasonable update, given factors such as the rise of the gig economy and the use of microcaptive insurance for evasion.

Treasury Inspector General for Tax Administration J. Russell George, also testifying on May 11, 2021, said the IRS faces challenges in international tax compliance. 

"The IRS can more effectively reduce the tax gap by developing compliance strategies for the changing domestic and global economies, and using its resources and information reporting more effectively," he said.

Do You Have Undeclared Income
from a Tax Haven?

Read more at: Tax Times blog