Category Archives: criminal tax law

As time has progressed since the passage of the check the box rules, the IRS has created more and more exceptions to the disregarded treatment. The following is a summary of the principal exceptions, but is not intended to be exhaustive. If any readers think we have missed anything major, please feel free to comment to this posting.

1. Status is modified if the single owner of the entity is a bank. Treas. Regs. Section 301.7701-2(c)(2) (iii). 

2. Status is modified for certain tax liabilities. Treas. Regs. Section 301.7701-2(c)(2)(iii). These include: (1) federal tax liabilities of the entity with respect to any taxable period for which the entity was not disregarded; (2) federal tax liabilities of any other entity for which the entity is liable; and (3) refunds or credits of federal tax. 

3. Disregarded status ignored or modified for taxes imposed under Subtitle - Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A 24, and 25 of the Code) and taxes imposed under Subtitle A including Chapter 2 - Tax on SelffEmployment Income. Treas. Regs. Section 301.7701-2(c) (2) (iv) (A). 

4. Status is modified for certain excise taxes, as described in Treas.Regs. Section 301.7701-2(c)(2J(v). Although liability for excise taxes isn't dependent on an entity's classification, an entity's classification is relevant for certain tax administration purposes, such as determining the proper location for filing a notice of federal tax lien and the place for hand-carrying a return under Code Section 6091

5. Conduit financing proposed regulations will treat a disregarded entity as separate from its single member. Code Section 7701 (I).

6. Special rules will apply in hybrid situations. Hybrid situations are circumstances where an entity is not disregarded in one jurisdiction but is disregarded in another.

7. Final regulations (TD 9796) that treat domestic disregarded entities wholly owned, directly or indirectly, by foreign persons  as domestic corporations solely for purposes of making them subject to the reporting requirements under Internal Revenue Code, Section 6038A that apply to 25% foreign-owned domestic corporations.

 

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In CCA 202114020, the IRS ruled on the issue of whether a taxpayer who received Bitcoin Cash as a result of the August 1, 2017, Bitcoin hard fork has gross income under section 61 of the Internal Revenue Code (Code)?

The IRS reached the conclusion that, yes, a taxpayer who received Bitcoin Cash as a result of the August 1, 2017, Bitcoin hard fork has gross income because the taxpayer had an accession to wealth under section 61 of the Code. See Revenue Ruling 2019-24. The date of receipt and fair market value to be included in income will be dependent on when the taxpayer obtained.

IRC Sec. 61(a)(3) provides that gross income means all income from whatever source derived, including gains from the sale or exchange of a property. The term "property" includes services and the right to use property, but it does not include money. (Code Sec. 1273(b)(5))

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and a store of value other than a representation of the U.S. dollar or a foreign currency. (FAQ 1, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))

Cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. Distributed ledger technology uses independent digital systems to record, share, and synchronize transactions, the details of which are recorded in multiple places at the same time with no central data store or administration functionality. (FAQ 3, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))

A "hard fork" occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the existing distributed ledger. A hard fork may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. Following a hard fork, transactions involving the new cryptocurrency are recorded on the new distributed ledger, and transactions involving the legacy cryptocurrency continue to be recorded on the legacy distributed ledger. (FAQ 22, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))

An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. (FAQ 22, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))

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According to Law360, the gap between taxes owed each year and those actually paid could be more than $1 trillion, much larger than the most recent estimate of $441 billion, IRS Commissioner Chuck Rettig told the Senate Finance Committee on Tuesday.

IRS Commissioner Chuck Rettig told the Senate Finance Committee on April 13, 2021 that his agency is making the most of its resources, but "we do get outgunned." 

The Ballooning Of The Tax Gap, Rettig Said, Can Be Partly Attributed To The Growth In Popularity Of Cryptocurrency, Which Was Still A Relative Novelty The Last Time The Internal Revenue Service Released An Official Estimate Of The Tax Gap, Which Covered Tax Years 2011 Through 2013.

There are now more than 8,600 virtual currencies with a global market capitalization of about $2 trillion, he said. Rettig added that the estimates for 2011 through 2013 didn't have information about foreign-sourced and illegally sourced income.

"I Think It Would Not Be Outlandish To Believe That
The Actual Tax Gap Could Approach And Possibly Exceed
$1 Trillion Per Year," Rettig Said.

The $441 billion tax gap estimate, according to the IRS, is an average gross yearly estimated tax gap based on data from tax years 2011 through 2013. After late payments and enforcement work are factored in, the estimated net tax gap is $381 billion, according to the agency's website.

Rettig also noted that a recently released report found that the top 1% of all earners fail to report about 20% of their income and that some outside estimates have said the tax gap could exceed $7.5 trillion over the next decade.

The IRS will issue a new estimate next year, Rettig said. Meaningfully reducing the tax gap will take a multifaceted effort, he said.

Rettig said the agency has lost about 17,000 employees in the enforcement area over the last decade. It has about 6,500 frontline revenue agents who now handle the most complex individual and corporate tax matters and substantially all of them are dedicated to the most egregious cases, wealthy individuals or the largest corporations, he said. The IRS is using its resources to the best of its ability, he said, but it needs more.

"We do get outgunned. I mean there's no other way to say it," he said. "We are today able to identify evidence of tax fraud and signatures of tax fraud, if you will, and tax evasion that even two years ago we could not identify. But it's an example of we're heading in the right direction. We need to get there ahead of time."

President Joe Biden's Fiscal 2022 Budget Request Calls For A 10.4% Funding Increase For The IRS.

The request would include an increase of $417 million in funding to improve tax compliance and revenue collection under a multiyear project.

 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

According to the DoJ, as tax filing season continues, the Department of Justice's Tax Division reminds taxpayers to pay careful attention to their reporting and filing obligations and to timely pay all taxes due. Willfully filing false tax returns or deliberately evading paying taxes are serious criminal offenses. 

“Our criminal prosecutors are prepared for tax filing season too,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Tax Division. “Honest, law abiding taxpayers should know that the Tax Division is aggressively using its resources and expertise to identify, investigate, and prosecute those attempting to defraud and obstruct the IRS.” 

Throughout the past year, the Tax Division, in collaboration with U.S. Attorney’s Offices, other Justice Department litigating offices and the IRS, has investigated and prosecuted a broad array of tax offenses from businesses and white-collar professionals underreporting income to employment tax fraud to identity theft. Enforcement efforts are continually ongoing. Here are a few recent examples: 

Prosecution of Business Owners 

• 

  On Dec. 1, 2020, a New York City restaurateur was sentenced to 24 months in prison for tax
  evasion. Adel Kellel, the owner of Raffles Bistro, diverted business income for personal expenses, including rent for a high-end Manhattan apartment, college tuition payments for his children, and purchases from luxury retailers. As part of his sentence, Kellel was ordered to pay $613,478 to the IRS. 

• On Oct. 20, 2020, two biofuel company owners were sentenced to prison for conspiracy to defraud the IRS and preparing a false tax claim, among other offenses. Ben Wootton, 55 of Savannah, Georgia, was sentenced to 70 months and Race Miner, 51, of Marco Island, Florida, was sentenced to 66 months, after a jury convicted both defendants and their company, Keystone Biofuels Inc., in April 2019. 

Prosecution of White-Collar Professionals & Individuals 

• On Dec. 21, 2020, two Atlanta-area tax professionals pleaded guilty to promoting a syndicated conservation easement tax scheme involving more than $1.2 billion in fraudulent charitable deductions. Stein Agee of Canton, Georgia, and Corey Agee of Atlanta, Georgia, are currently awaiting sentencing for their role in the scheme. 
• On Nov. 2, 2020, a New Jersey man was sentenced to 78 months in prison for conspiring to defraud the United States, filing false claims, and obstructing the internal revenue laws, following his conviction at trial. According to evidence presented at trial, between 2015 and 2016, Kenneth Crawford Jr. and his co-conspirators promoted and sold a “mortgage recovery” tax fraud scheme in which they obtained fraudulent refunds from the IRS for their clients. As a result of Crawford’s scheme, more than $2.5 million in fraudulent refunds were sought from the IRS. 
• On Aug. 21, 2020, a North Carolina risk consultant pleaded guilty to filing a false tax return and illegally possessing a firearm. From 2011 through 2017, Charles Atkins underreported income from several risk consulting businesses, causing a tax loss of more than $800,000 to the IRS. Atkins is currently awaiting sentencing. 4/8/2021 Justice Department Tax Enforcement Already in Gear | OPA | Department of Justice https://www.justice.gov/opa/pr/justice-department-tax-enforcement-already-gear 2/2 Employment Tax Prosecutions 
• On April 7, 2021, the manager of the San Diego Home Cooking restaurant chain was sentenced to 30 months in prison for employment tax fraud. According to court records, from the last quarter of 2014 through 2017, Aleksandar Sreckovic did not file employment tax returns nor pay employment taxes for San Diego Home Cooking, causing a tax loss of over $1.5 million. Instead of paying employment taxes, Sreckovic paid other creditors and his own personal expenses. 
• On March 24, 2021, A Montana businessman pleaded guilty today to employment tax fraud. According to court documents, Thomas O’Connell owned and operated three plumbing businesses, Quality Plumbing and Heating, Orbit Plumbing and Heating, and Orbit PHC, each based in Great Falls. From at least 2005 through 2016, O’Connell did not pay employment taxes for several quarters, despite being obligated to ensure such taxes were paid to the IRS. Instead, he directed payments to other creditors and to his own personal expenses. The total tax loss to the IRS from O’Connell’s conduct is more than $550,000. 

Identity Theft Prosecutions 

• On Oct. 7, 2020, a Las Vegas, Nevada, man was sentenced to 70 months in prison for mail and wire fraud conspiracy, following his jury trial convictions. The trial evidence proved that from January 2009 through April 2011, Terry Williamson and his co-conspirators filed false tax returns with the IRS to fraudulently obtain tax refunds. To facilitate the fraud, they used the names and social security numbers of deceased taxpayers. More than 480 fraudulent tax refund checks totaling almost $2 million were deposited into Williamson’s account. More information about the Tax Division’s enforcement efforts in these and other areas can be found on the division’s website.

Have as 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