Category Archives: criminal tax law

According to Law360, a California federal judge raised concerns about the scope of another Internal Revenue Service summons on cryptocurrency exchange, this time it concerns Kraken Inc. The IRS is seeking information on its customers' tax compliance, saying the U.S. must make its case explaining why he shouldn't reject it.  

The federal government needs to explain why the John Doe summons should not be denied for being too broad in scope, Chief Magistrate Judge Joseph C. Spero in San Francisco said in an order on March 31, 2021. While the summons seeks basic account data on a group of Kraken users, such as their registration information and transaction history, it also requests broad categories of information such as correspondence between the cryptocurrency exchange and those users, according to the order.

The U.S. "must specifically address why each category of information sought is narrowly tailored to the IRS' investigative needs, including whether requests for more invasive and all-encompassing categories of information could be deferred until after the IRS has reviewed basic account registration information and transaction histories," Judge Spero said.

On Tuesday, the U.S. filed a petition asking the court to approve its summons to the cryptocurrency exchange. The IRS is seeking information on people who have accounts with Kraken and have conducted at least $20,000 in transactions in any given year from 2016 through 2020, according to the government's petition, which didn't name Kraken as a party to the suit. 

The IRS doesn't know the identities of these individuals, but it's looking to use the summons to potentially assess taxes on Kraken users who haven't complied with their tax reporting obligations for their cryptocurrency holdings, the U.S. said.

In Support of Its Summons Request, The U.S. Said An IRS Investigation Had Already Found That Five Individuals

This 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.

On March 31, 2021, Judge Spero said the U.S. had likely proved that the John Doe summons satisfies three requirements under Internal Revenue Code Section 7609(f) , one of which is that there's reason to believe that the subject of the summons might not be compliant with tax obligations. But that provision also requires John Doe summonses to be "narrowly tailored," and the information the IRS seeks from Kraken might be too broad, the judge said. 

That Information Includes User Preferences, Identifying Information of Those Customers and Correspondence Between Kraken and Its Customers, According To The Order.

In a separate case, the U.S. Department of Justice announced on April 1, 2021 that the IRS would be allowed to proceed with a John Doe summons of customers of Circle Internet Financial Inc. and its affiliates. Similar to the Kraken summons, the Circle summons would request information about U.S. taxpayers with at least $20,000 in cryptocurrency transactions from 2016 to 2020.

The information requests follow a decision from a California federal judge in November 2016 that authorized a John Doe summons by the IRS to obtain information from another virtual currency exchange, Coinbase. Coinbase challenged the summons, and the following November the judge ordered the company to comply with a narrowed request for information on accounts with transactions greater than $20,000.

 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

The IRS issued Notice 2021-21 which provides the following general relief for the filing of Forms 1040 and a limited set of other forms due on April 15, 2021:

For an Affected Taxpayer, the due date for filing Federal income tax returns in the Form 1040 series and making Federal income tax payments in connection with one of these forms having an original due date of April 15, 2021, is automatically postponed to May 17, 2021. Affected Taxpayers do not have to file any form, including Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to obtain this relief. This relief includes the filing of all schedules, returns, and other forms that are filed as attachments to the Form 1040 series or are required to be filed by the due date of the Form 1040 series, including, for example, Schedule H and Schedule SE, as well as Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E, and 8938. Finally, elections that are made or required to be made on a timely filed Form 1040 series (or attachment to such form) will be timely made if filed on such form or attachment, as appropriate, on or before May 17, 2021.

The Notice provides that interest and penalties will also not apply for that period of time for Affected Taxpayers:

         As a result of the postponement of the due date for Affected Taxpayers to file Federal income tax             returns and make Federal income tax payments from April 15, 2021, to May 17, 2021, the period             beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in the calculation             of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to             pay the Federal income taxes postponed by this notice. Interest, penalties, and additions to tax                 with respect to such postponed Federal income tax filings and payments will begin to accrue on             May 18, 2021.

The IRS makes clear in Notice 2021-21 is more limited than last year’s broad grant of relief.  The Notice provides:

Businesses and any other type of taxpayer who file Federal income tax returns on forms outside of the Form 1040 series are not Affected Taxpayers for purposes of the relief described in this section III.B.

No extension is provided in this notice for the payment or deposit of any other type of Federal tax, including Federal estimated income tax payments, or for the filing of any Federal return other than the Form 1040 series and the Form 5498 series for the 2020 taxable year.

There are still some April 15 deadlines. The following federal tax actions are among those that were not mentioned in the abovementioned IRS announcements and thus continue to have April 15 deadlines.

·         Paying first quarter 2021 individual estimated tax (Code Sec. 6654(c)(2))

·         Filing calendar year 2020 trust and estate income tax returns and paying any previously unpaid tax (Code Sec. 6072(a))

·         Filing 2020 calendar year C corporation income tax returns (Form 1120) and paying any previously unpaid tax (Code Sec. 6072(a))

·         Depositing calendar year corporation first installment of estimated income tax for 2021  (Code Sec. 6655(c)(2))

·         Filing Forms 990-T (Exempt Organization Business Income Tax Return), for Code Sec 401(a) or Code Sec. 408(a) trusts, for years ending 12/31/20 (2020 Instructions for Form 990-T)

·         Filing Form 1120-POL (U.S. Income Tax Return for Certain Political Organizations) for years ending 12/31/20 (Code Sec. 6072(a))

·         Filing 2020 gift tax returns and paying any gift tax (Code Sec. 6075(b)(1))

·         Filing certain generation-skipping transfer tax returns of calendar year taxpayers and paying any tax due (Reg § 26.2662-1(d)(1)(i))

·         Depositing payroll taxes for March if the monthly deposit rule applies. (Reg § 31.6302-1(c)(1))

·         Filing estate tax returns of decedents who died on July 15, 2020 and paying any estate tax that is due with the returns. (Estate tax returns must be filed within nine months after the date of the decedent's death. (Code Sec. 6075(a))

And, there are post-April 15, pre-May 17 deadlines. In addition, there are actions that continue to have deadlines that are after April 15, 2020, and before May 17, 2020 For example, for decedents who died on days from July 16, 2020, through August 16, 2020, the estate return and payment will be due before May 17, 2021. And first quarter 2021 quarterly employment tax returns will be due on April 30. (Reg § 31.6071(a)-1(a)(1))

 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 June 19, 2019 we posted Negligent FBAR Penalty NOT Limited to $10K Per Year, where we discussed that the federal district court of California, upheld the IRS’ imposition of separate non-willful penalties against 13 foreign accounts disclosed on a single late FBAR return. In United States vs. Jane Boyd, the taxpayer had a financial interest in and/or otherwise controlled 14 financial accounts in the United Kingdom with balances collectively exceeding $10,000. The IRS assessed 13 separate FBAR penalties against Boyd, treating each reported account as a separate non-willful violation.  One account was not penalized based on IRS mitigation rules and the District Court agreed with the IRS assessment.

The Court of Appeals for the Ninth Circuit, reversed the district court decision and has held that the $10,000 non-willful FBAR penalty (for failure to file the FBAR) applies per FBAR form, not per the number of financial accounts (e.g., bank accounts) required to be reported on the form. This ruling aligns with all district court rulings concerning this issue.

The penalty for violating the FBAR requirement is set forth in 31 USC § 5321(a)(5). The amount of the penalty depends on whether the violation was non-willful or willful.

The maximum penalty amount for a non-willful violation of the FBAR requirements is $10,000 (adjusted for inflation for violations after 2015). (31 USC § 5321(a)(5)(B)(i))

Since one FBAR can contain reports on multiple financial accounts, each containing more than $10,000, it is unclear if the $10,000 non-willful penalty under 31 USC § 5321(a)(5)(B)(i) applies per account or only per the one form that should have been filed.

The district court hearing the Boyd case had held that the penalty for a non-willful FBAR violation relates to each account required to be shown on the FBAR. Thus, IRS could impose the statutory maximum penalty of $10,000 for each of the taxpayer's thirteen accounts that should have been reported on one FBAR. (US v. Boyd, (DC CA) 123 AFTR 2d 2019-1651)

But subsequent to the district court's decision in Boyd, three other district courts came to the opposite conclusion. They found that the $10,000 non-willful penalty applies only to the FBAR form itself, not the number of accounts required to be shown on the FBAR. (US v. Bittner (DC TX) 126 AFTR 2d ¶2020-5011, US v. Kaufman, (DC CT) 127 AFTR 2d ¶2021-342, and US v. Giraldi, (DC NJ) 127 AFTR 2d ¶2021-510)

Ms. Boyd had a financial interest in multiple financial accounts in the United Kingdom during 2010. She was required to report these accounts on a timely-filed FBAR, but she did not.

The IRS found that that she had committed 13 non-willful violations of the FBAR reporting requirements, i.e., one for each account she failed to report. And the IRS assessed a penalty totaling more than $10,000, for the 13 violations.

The Court of Appeals for the Ninth Circuit, in reasoning that was similar to the reasoning in Bittner, Kaufman, and Giraldi, reversed the district court and found that the FBAR non-willful penalty applies per form, not per account. Therefore "the maximum penalty for such a violation shall not exceed $10,000."

Read more at: Tax Times blog

According to Law360, the IRS underestimated the income that the top 1% of earners fail to report to the agency in its random audit program, finding they fail to report more than 20% of their income, according to a paper released on March 22,2021.

The paper was prepared by researchers at the National Bureau of Economic Research in conjunction with researchers at the Internal Revenue Service. They examined the agency's National Research Program, which conducts the random audits, between 2006 and 2013 and found that those examinations often don't uncover the full extent of wealthy individuals' tax avoidance.

The report estimated that about 21% of the top 1% of earners' income goes unreported in the program, almost a third of which can be attributed to "sophisticated evasion" that is undetected by the agency's random audits. The share of taxpayers' income that goes unreported is greater for upper-income earners, most likely due to a lack of IRS information on foreign bank accounts and resources at the agency to examine more complex tax planning, according to the report.

"Offshore tax evasion goes almost entirely undetected in random audits," according to the report.

The wealthiest Americans are able to evade paying their full share of taxes because the IRS' random audit process isn't equipped to examine more complicated pass-through entities, according to the report.

The authors noted that the IRS might be limited in the resources needed to conduct audits of high-income earners who may have engaged in complex tax planning. They also said that conducting those kinds of examinations can be costly, whether they lead to litigation or a more strenuous audit process. Those factors "can pose practical limits on the extent to which the tax authority can pursue these types of tax evasion by high-income people," according to the report.

The IRS should invest in new audit tools that could help the agency uncover unreported income in the most complex scenarios involving wealthy taxpayers, as that may help the agency "generate substantial tax revenue," the report said.

The report detailed how wealthy taxpayers may be avoiding taxes through foreign bank accounts and pass-through entities. But there could be other ways that high-income earners evade taxes, such as the use of syndicated conservation easements or microcaptive insurance schemes, the report said.

"The potential existence of many more such schemes underscores the main point of our theoretical results, that we should expect sophisticated evasion to be concentrated at the top of the income and wealth distribution," the report said.

Another group published a report that found audits of high-income individuals and corporations by the IRS to be at an all-time low. The Transactional Records Access Clearinghouse, a research organization associated with Syracuse University, said less than two out of every 100 taxpayers reporting more than $1 million of income were audited last year. The group attributed the decline in audits to fewer revenue agents at the IRS.

 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