Category Archives: criminal tax law

The Internal Revenue Service, state tax agencies and tax industry today warned tax professionals of a new scam email that impersonates the IRS and attempts to steal Electronic Filing Identification Numbers (EFINs).

The latest scam email says it is from “IRS Tax E-Filing” and carries the subject line “Verifying your EFIN before e-filing.”

The IRS warns tax pros not to take any of the steps outlined in the email, especially responding to the email. The body of the bogus email states:

    In order to help protect both you and your clients from unauthorized/fraudulent activities, the IRS     requires that you verify all authorized e-file originators prior to transmitting returns through our        system. That means we need your EFIN (e-file identification number) verification and Driver's            license before you e-file.

    Please have a current PDF copy or image of your EFIN acceptance letter (5880C Letter dated            within the last 12 months) or a copy of your IRS EFIN Application Summary, found at your e-           Services account at IRS.gov, and Front and Back of Driver's License emailed in order to complete     the verification process. Email: (fake email address)

    If your EFIN is not verified by our system, your ability to e-file will be disabled until you provide        documentation showing your credentials are in good standing to e-file with the IRS.
 
    © 2021 EFILE. All rights reserved. Trademarks
    2800 E. Commerce Center Place, Tucson, AZ 85706

Tax professionals who received the scam should save the email as a file and then send it as an attachment to [email protected]. They also should notify the Treasury Inspector General for Tax Administration at www.TIGTA.gov to report the IRS impersonation scam. Both TIGTA and the IRS Criminal Investigation division are aware of the scam.

Like all phishing email scams, it attempts to bait the receiver to take action (opening a link or attachment) with a consequence for failing to do so (disabling the account). The links or attachment may be set up to steal information or to download malware onto the tax professional’s computer.

In this case, the tax preparers are being asked to email documents that would disclose their identities and EFINs to the thieves. The thieves can use this information to file fraudulent returns by impersonating the tax professional.

The attachment may contain malware that allows the thief to track keystrokes and eventually steal all passwords or take over control of the computer systems.
  
For additional information and help, tax professionals should review Publication 4557, Safeguarding Taxpayer Data, and Identity Theft Information for Tax Professionals. 

 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

In a Program Manager Technical Advice (PMTA) 2021-1, the IRS said that it may request information regarding foreign accounts held by US citizens and residents from a participating foreign financial institution (PFFI) in accordance with FATCA even if the US does not have a tax treaty or other agreement to exchange tax information with the jurisdiction of the PFFI's residence or any jurisdiction in which the PFFI operates.

Chapter 4 of the Code, i.e., Code Sec. 1471 through Code Sec. 1474, also known as the Foreign Account Tax Compliance Act or FATCA, generally requires withholding agents to withhold tax on certain payments to a foreign financial institution (FFI) unless the FFI has entered into an FFI agreement with the U.S. to, among other things, report certain information with respect to U.S. accounts.

Under Code Sec. 1471(a), an FFI that does not meet the requirements of Code Sec. 1471(b) is subject to withholding. The requirements of Code Sec. 1471(b) are met with respect to any FFI that has an agreement in effect between such institution and the IRS under which such institution agrees to (among other things) obtain such information regarding each account holder of each account maintained by such institution as is necessary to determine which (if any) of such accounts are U.S. accounts. (Code Sec. 1471(b)(1)(A))

Under Code Sec. 1471(B)(1)(E), The FFI Must Also Agree To Comply With Requests By The IRS For Additional Information With Respect To Any United States Account
Maintained By Such Institution.

An FFI may comply with Code Sec. 1471(b) by registering with the IRS to enter into an FFI Agreement to become a participating FFI (PFFI). (Reg. §1.1471-4(a)) The FFI Agreement language can be found at Rev Proc 2017-16, 2017-3 IRB.

A PFFI includes both an FFI in a jurisdiction with a Model 2 intergovernmental agreement (IGA) in effect (a reporting Model 2 FFI) and an FFI in a jurisdiction with no IGA in effect. (Reg. §1.1471-1(b)(91))

The FFI Agreement requires a PFFI to report certain information for each calendar year to the IRS on Form 8966, FATCA Report, with respect to its U.S. accounts, which includes accounts held by individuals who are U.S. citizens or residents.

The FFI Agreement also provides that the IRS may request from the PFFI any additional information to determine a PFFI's compliance with its FFI Agreement and to assist the IRS with its review of account holder compliance with tax reporting requirements.

The U.S. has entered into income tax treaties with other countries. The treaties often have an article addressing information exchanges.

The issue addressed in this PMTA 2021-1 is whether the IRS, consistent with the terms of the FFI Agreement, request from PFFIs information about certain U.S. citizens or residents, even if the U.S. does't have a tax treaty or other agreement to exchange tax information with the jurisdiction of the PFFI's residence or any jurisdiction in which the PFFI operates?

This PMTA 2021-1 concluded that yes, the IRS may. None of the provisions in the FFI Agreement relating to an IRS request for information from a PFFI is dependent on the U.S. having any treaty or other agreement to exchange tax information with the jurisdiction of the PFFI's residence or any jurisdiction in which the PFFI operates.

Read more at: Tax Times blog

On January 15, 2020 we posted 151 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are You Waiting For? and since then the Government has add Strachans (effective 10/6/2020) to this list bringing the number to 152 Offshore Banks and Foreign Financial Advisors.

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
• Cooperate in treaty requests for account information;
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

These Banks, Financial Instructions and Foreign Financial Advisors  have made substantial efforts to cooperate with the IRS investigation, including by: 

1. facilitating interviews that their Office with employees, including top level executives;
2. voluntarily producing documents in response to the Office’s requests;
3. providing, in response to a treaty request, unredacted client files for the U.S. taxpayer-clients who maintained accounts at their Banks or Financial Instruction; and
4. committing to assist in responding to a treaty request that is expected to result in the production of un-redacted client files for U.S. taxpayer-clients who maintained accounts at these Banks and Financial Instructions and with these Foreign Financial Advisors. 

This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.

 

1. With roughly 151 Foreign Banks and Financial Advisors cooperating with the DOJ & IRS and 
2. FATCA requiring the entire world to report to the IRS

it is INEVITABLE that this increased disclosure, will result in EVERY AMERICAN eventually being discovered. Banks worldwide want to know if there US clients are compliant with the IRS. 

As additional banks are added to the list, American taxpayers will continue to be subject to the 50% intentional failure to file penalty, which now applies to all taxpayers with foreign accounts who  make a voluntary disclosure after September 28 2018.

Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the  most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.   

Do You Have Undeclared Income from one of 

these Offshore Banks or 

Financial Advisors?

Is Your Name Being Handed Over to the IRS?

  

Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation 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 Tax Court has held in Aspro, Inc., TC Memo 2021-8 that payments made to a corporate taxpayer's three shareholders were dividends, not compensation for personal services rendered to the taxpayer, because the taxpayer had never previously paid dividends to the shareholders; the payments were roughly made in proportion to each shareholder's ownership; payments were made to two shareholders that were corporations, but the ostensible personal services were performed by individuals who owned those corporations; and the payments were made annually, but the personal services were performed throughout the year.

A corporation may deduct all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered. (Code Sec. 162(a)(1); Reg §1.162-7(a))

But the test of deductibility in the case of compensation payments is whether they are in fact payments purely for services. (Reg §1.162-7(a))

Aspro, Inc, the taxpayer, operated an asphalt paving business. Most of the taxpayer's revenue came from contracts with government entities. These public projects are awarded to the low bidder.

The taxpayer had three shareholders. Shareholder A, an individual, owned 20% of taxpayer. Shareholders B and C, both corporations, owned 40% each.

Shareholder A also was taxpayer's president and was responsible for the company's day-to-day management. His responsibilities included bidding on projects.

A often spoke to the individuals who owned B and C to get their advice on bidding for projects.

In 2014, taxpayer paid management fees to A, B, and C for their services in advising taxpayer on how to bid for projects. Taxpayer deducted these management fees as personal services rendered to taxpayer.

Neither in 2014 nor in any prior year did the taxpayer pay dividends to its shareholders.

The IRS denied the deduction, claiming the fees were actually dividends.

The Tax Court Ruled That The Payments Were Dividends,
And Not Personal Service Management Fees.

While the Court did not dispute that potentially a portion of payments made to A might have been compensation for personal services, since the payments were not purely compensation (as discussed below) the payments were not deductible under Reg §1.162-7(a).

The Court looked at various facts that it said were indicia that the payments were dividends. For example:

·         The taxpayer never made any dividend distributions to its shareholders during its entire corporate history. The taxpayer merely paid management fees. This lack of dividend payments indicates that the management fee payments lacked a compensatory purpose, the Court said looking at Reg §1.162-7(b)(1) (the taxpayer being a corporation with few shareholders).

·         Although the management fees were not exactly pro rata among the three shareholders, the two large shareholders always got equal amounts, and the percentages of management fees all three shareholders received roughly corresponded to their respective ownership interests. This distribution supported an inference that taxpayer paid management fees to the shareholders as dividends.

·         The fact that taxpayer paid shareholders B and C, instead of the individuals actually performing services, indicated a lack of compensatory purpose.

·         Taxpayer paid management fees as lump sums at the end of the tax year, rather than throughout the year as the services were performed.

 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