Category Archives: criminal tax law

The IRS has provided guidance on taxpayers and their representatives making verbal requests for transcript information, in their update to the Internal Revenue Manual: Verbally Providing Transcript Information.

Tax transcripts are summaries of a taxpayer's tax information. There are different types of tax transcripts such as wage and income transcripts and return transcripts. Wage and income transcripts are used by tax professionals to make sure that their clients’ returns contain all of the information that has been reported to the IRS. Return transcripts are used by lenders to verify a borrower's income.  

Tax professionals with authorization (i.e., a properly completed Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization) can obtain client transcripts by: 

(1) calling IRS to request a taxpayer's tax transcripts be mailed to the taxpayer's address of record; (2) calling IRS to have a taxpayer's masked or unmasked transcripts placed in the practitioner's e-Services secure mailbox; or
(3) using IRS e-Services Transcript Delivery System (TDS) to obtain a taxpayer's masked or unmasked transcripts. 

In addition to the three methods for obtaining tax transcript information described above, taxpayers and authorized representatives can call the IRS and ask for information contained on a tax transcript to be provided verbally.

Before responding to a taxpayer and/or a taxpayer's representative's request for verbal disclosure of tax transcript information, taxpayers and their representatives need to confirm their identity and their entitlement to receive the requested tax transcript information. 

A taxpayer, after confirming their identity, can give Oral Disclosure Consent (ODC) to have tax transcript information released to a third-party only when it relates to the resolution of an open tax matter, such as an IRS-issued notice. 

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog

A federal district court found in Estate of Kelley, (DC NJ 10/22/2020), that transferee and fiduciary liability attached to the estate of an individual who, as executor, distributed the assets of his sister’s estate to himself while leaving the estate tax liability unpaid. Further, the court found that fiduciary liability attached to the decedent's daughter, executrix of his estate, who paid herself ahead of paying the estate tax liability of her father’s estate. 

Where an estate fails to pay estate taxes, a transferee of that estate is personally liable for any unpaid estate tax up to the value of the property he or she received. (Code Sec. 6324(a)(2))

Personal liability can attach to the extent of the distribution if the government establishes three elements: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive knowledge of the unpaid taxes. (Tyler, (CA3 2013) 111 AFTR 2d 2013-2300)

An executor of an estate who pays the debts of the estate, or distributes assets to himself, before paying a claim of the U.S. is personally liable for that claim to the extent of the payment or distribution. (31 USC §3713(b)) 

Code Sec. 6324 applies to individuals who receive transfers from a decedent's estate that owes estate taxes, while 31 USC §3713 provides creditor priorities that estate fiduciaries must follow. Under Code Sec. 6901, the liability of a transferee or a fiduciary is assessed, paid and collected in the same manner as the original tax. When a fiduciary is also a transferee, either statute or both statutes may apply to that individual.

Lorraine Kelley died on December 30, 2003. The estate’s co-executors were Richard Saloom, Kelley’s brother, and Richard Lecky. Saloom and Lecky filed the estate’s tax return on September 23, 2004.

After an IRS examination of the returns, Saloom, on behalf of the estate, consented to the assessment of additional liability based on a corrected gross estate. 

Between 2003 and 2007, Saloom, who was the sole beneficiary, distributed and received all of the property of Kelley's estate. By January 2008, the Kelley estate had no property and still owed over $400,000 in estate tax.

Saloom made estate tax payments to IRS and, prior to his death on March 21, 2008, instructed his daughter Rose Saloom to continue to make payments to IRS toward the tax liability owed by Kelley's estate.

As executrix of Saloom’s estate, Rose filed a state inheritance tax return listing one of his liabilities as $456,406 in indebtedness for “federal tax.” Rose, who was the sole beneficiary, distributed and received all of the property of Saloom's estate.

The district court found that Saloom was liable as a transferee and as a fiduciary for the tax liability owed by Kelley's estate. 

Saloom was liable as transferee to the extent of the distributions he received from the estate. Since he received $2.6 million in property from Kelley's estate when the estate owed IRS over $688,000 in estate taxes, he was personally liable for the entire amount of estate tax. 

In addition, Saloom was personally liable as a fiduciary under Tyler because he (1) distributed all the assets of Kelley's estate; (2) the distribution rendered the estate insolvent and unable to pay its creditor, IRS; and (3) Saloom knew that Kelley's estate owed unpaid estate taxes because he was making payments on the tax liability. 

Finally, Rose was also personally liable as a fiduciary under Tyler because she (1) distributed all of the assets of Saloom's estate to herself; (2) that distribution rendered the estate insolvent; and (3) Rose knew that Saloom was liable for Kelley's estate tax because she filed a state inheritance tax return listing one of his liabilities as $456,406 in indebtedness for “federal tax."

Have IRS Estate Tax Problem?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog

A group of 25 Democrats in the House wrote to congressional leaders asking them to provide $12.1 billion in funding for the Internal Revenue Service, including $5.2 billion for enforcement, with an eye toward cracking down on high-income tax cheats.

The letter, written by Rep. Judy Chu, D-California, a member of the House Ways and Means Oversight Subcommittee, and Bill Pascrell, D-N.J., who chairs the subcommittee, said that maintaining the funding amount, which has already been passed in the House but not yet in the Senate, would help the agency pursue wealthy tax scofflaws and safeguard tax dollars from fraud.

“The Strength of IRS Enforcement Activities Must Be A Priority For Congress, Especially Considering The Additional Measures Congress Enacted Under The CARES Act To Lessen The Financial Burden Of The COVID-19 Pandemic,”
They Wrote In A Letter Last Week.

They pointed to an article last year from the investigative news organization ProPublica showing that the IRS disproportionately pursues audits of poorer Americans, including Earned Income Tax Credit recipients, while overlooking tax fraud by the wealthy.

IRS commissioner Charles Rettig strenuously denied those accusations during a subcommittee hearing this month, pointing to information from the annual IRS Data Book, noting that the audit rate for EITC claimants is 1.1 percent, while for taxpayers earning over $10 million it’s 8.16 percent.

“There is no focus on lower-income taxpayers, but to the extent that people indicate the EITC is focused on lower-income individuals, whoever is in that population is in the audit selection process." said Rettig. Annually in fiscal ’19, in the EITC world, there were about 25 million people claiming $63 billion of the EITCs, and there was a 25 percent improper payment rate, which means that the Internal Revenue Service paid for fiscal ’19 $17.4 billion to that group that we were unable to verify that they were entitled to it.

The Congressional Budget Office has found that increasing the IRS’s budget to investigate high-income Americans would more than pay for itself, the lawmakers noted.

Increasing The Examinations and Collections Budget by $20 Billion Over a Decade’s Time Would Increase Revenues by $61 Billion, and if The Budget is Raised by $40 Billion Over 10 Years it Would Increase Revenues By $103 Billion.

They pointed to $2.3 billion in tax fraud in fiscal year 2020 identified by the IRS’s Criminal Investigation division, an increase of $500 million, or nearly 28 percent, from FY 2019. 

They contend that IRS enforcement resources should not be targeted at lower-income taxpayers, whose earnings are usually simpler to track from W-2 and 1099 forms and compare against the 1040 forms they file, as opposed to the more complex returns of wealthier taxpayers.

 “We urge you to preserve the $5.2 billion level of funding from the House-passed FSGG appropriations bill in order to ensure IRS can effectively collect taxes, including those owed by the top 1 percent of taxpayers.”

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog

The Taxpayer First Act (TFA) of 2019 requires the IRS to provide digital signature options for Form 2848, Power of Attorney, and Form 8821, Tax Information Authorization.

These improvements will help individual taxpayers, business taxpayers, and the tax professionals who serve them. These authorization forms are critical for tax professionals to either represent clients before the IRS or to prepare prior year tax returns. By signing the forms, taxpayers are giving tax professionals or other third parties permission to access or view their tax information.

Currently, submitting and processing these authorization forms is a paper operation. Tax professionals typically complete the forms and taxpayers sign them with a pen. The forms are mailed or faxed to the IRS. The faxed forms are printed or distributed electronically to the staff in the Centralized Authorization File (CAF) Unit. These teams review the forms for accuracy and fraud before adding the information to the CAF database.

Even before COVID-19, the IRS was working on CAF improvements and making the TFA requirements a reality. Here’s an important look at what’s ahead:

• In January, the IRS plans to launch a new IRS.gov secure submission platform and a new page, “Submit Forms 2848 and 8821 Online,” that will allow tax professionals to upload third-party authorization forms electronically.
• Tax professionals will enter their Secure Access username and password or complete a Secure Access registration to authenticate their identities.
• Taxpayers and tax professionals can sign the forms electronically or with ink, and then upload the image of the form to the IRS.

This new online submission process will not eliminate the reviewing and processing time by the CAF staff. But it gives tax professionals and taxpayers a safe option to electronically sign and upload these critical documents without an in-person meeting. Especially in these uncertain times, keeping taxpayers and tax professionals safe is a top IRS priority.

Just as tax professionals are required to do for every electronically filed tax return, they’ll need to verify the taxpayer’s identity if there’s an electronic signature and the client is unknown to them. The IRS is planning on using a similar process as outlined by Publication 1345, Handbook for Authorized IRS e-File Providers PDF. This verification process should be familiar to tax professionals.

This New IRS.gov Third-Party Authorization Submission Process Will Not Be The Only Electronic Option For
Forms 2848 And 8821.

Next summer, the IRS plan on launching a platform called the Tax Pro Account. At launch, the Tax Pro Account will serve as the point of entry for tax professionals to electronically initiate and sign an online third-party authorization form.

That third-party authorization form will electronically transfer into the client’s IRS online account. Clients can access their personal IRS account and electronically sign the document. The document goes directly to the CAF, posting immediately. There’s no wait time, no backlog. The Tax Pro Account is an electronic operation from beginning to end.

When they’ve completed these projects next year, tax professionals will have four submission options: 

1. upload on IRS.gov, 
2. initiate electronically via Tax Pro Account, 
3. mail to IRS and 
4. fax to IRS. Because of the risk of fraud, we cannot accept electronic signatures on mailed or faxed authorization forms.

This electronic signature process is part of a larger effort underway at the IRS following the Taxpayer First Act.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

Read more at: Tax Times blog