Category Archives: criminal tax law

The court declined to address the current US government’s request for a stay of action and remanded the matter to the Department of Homeland Security. The court stated: 

“While There Would Certainly Be Some Disruption
If The Rule Is Vacated Given The Length of Time
The Rule Has Been In Effect, The Government Has
Made No Specific Showing of Harm Beyond
Asserting That It Would Be ‘Extraordinarily Disruptive’.”

On the other hand, the court also declined to grant the Plaintiff’s injunction barring USCIS (US Citizenship and Immigration Services) from reinstating the EB-5 Modernization Rule absent compliance with the rule-making process governed by the Administrative Procedures Act. 

It is possible that USCIS will appeal the decision to the 9th Circuit Court of Appeals. It is also likely that Secretary Mayorkas will now seek to finalise the EB-5 Modernization Rule, but until then the old minimum investment amounts apply and revert back to $500,000 if in a Targeted Employment Area (TEA), otherwise $1m, and Targeted Employment Area standards go back to pre-November 2019.

You can view the case judgment HERE

Coming to America?

 

 

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or Toll Free at 888-8TaxAid (888 882-9243). 

Read more at: Tax Times blog

According to Law360, the Internal Revenue Service's continued use of information demands to cryptocurrency exchanges in its fight against tax avoidance may soon be entering a new, ambitious era of global reach and cooperation. 

That's because even as the IRS has demonstrated a willingness to repeatedly employ a powerful information-gathering mechanism, the John Doe summons, when contending with American-based exchanges, there are many exchanges based overseas that would perhaps be of interest to the IRS. 

If the IRS becomes inclined to employ similar information-gathering tactics for foreign-based exchanges, the agency would likely be able to rely, in part, on global infrastructure in the form of the Joint Chiefs of Global Tax Enforcement, or J5. If the IRS does pursue that type of initiative, it will likely bear striking similarities to the Swiss Bank Program. 

For now, U.S.-based cryptocurrency exchanges will likely continue facing information requests from the IRS, in volume and consistency that are somewhat reflective of the government's oversight role in the banking industry. But exchanges based abroad may soon feel the same pressure. 

The Internal Revenue Service began investigating potential cases of cryptocurrency-facilitated tax evasion after a 2013 Government Accountability Office report identified tax compliance risks posed by the use of cryptocurrency. Among these risks were the lack of third-party reporting on the transactions and a lack of knowledge among taxpayers over how transactions and gains made via cryptocurrency exchanges are taxed.

In the years since, the IRS has signaled, in both word and deed, a commitment to enforcement in the cryptocurrency arena. For example, in November 2016, a California federal judge authorized a John Doe summons by the IRS to obtain information from an exchange called 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.

Similarly, in March of this year, the U.S. government filed a petition asking the court to approve its summons on the Kraken cryptocurrency exchange. The IRS sought 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. The government succeeded in its petition. 

And separately, the agency successfully utilized a John Doe summons to pursue records for those who "engaged in business with or through" Circle Internet Financial Inc. and its affiliates.

In the summer of 2019, the IRS issued more than 10,000 educational letters to taxpayers who the IRS knows or believes had virtual currency transactions. The IRS also added a question to page 1 of Form 1040, U.S. Individual Income Tax Return, asking whether the taxpayer transacted in virtual currency.

Since a Limited Number of Cryptocurrency Exchanges Are Based In The U.S., It Seems Inevitable That The IRS Would Look At Exchanges Based Overseas in Pursuit of a
Comprehensive Enforcement Strategy.

When it does, he said, it'll likely rely on the J5. The J5 collaborative tax enforcement effort was launched in 2018 by five countries: the U.S., Canada, the United Kingdom, the Netherlands and Australia. The group, which is focused on tracking down instances of tax crimes, recently identified fintech companies that will be part of their investigations. 

Using various analytical tools, members of each country were put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them through The Challenge. Working within existing treaties, real data sets from each country were brought to the challenge to make connections where current individual efforts would take years to make those same connections.

Eventually, international collaboration in the cryptocurrency space may begin to resemble the efforts brought to bear by the Department of Justice-led Swiss Bank Program.

The Swiss Bank Program, started in 2013, was designed by the Department of Justice as a way for banks in Switzerland to avoid criminal prosecution if they fully disclosed pertinent information to, and cooperate with, law enforcement officials relating to efforts by Americans to avoid paying taxes to the Internal Revenue Service. Banks that were already subject to prosecution before the program was announced or that missed the deadline for submission were not eligible to participate. 

While not a perfect analogue, the Swiss Bank Program may serve as something of a template for international enforcement of cryptocurrency-facilitated tax evasion, Starling Marshall, partner in Crowell & Moring's tax and litigation groups, told Law360. Marshall previously served at the DOJ. 

For instance, one major puzzle piece that's currently missing in the crypto space is the voluntary disclosure program that was part of the Swiss Bank initiative, she said. Voluntary disclosure in that context allowed Swiss banks the opportunity to avoid criminal prosecution if they cooperated with the U.S. government by providing detailed information of interest. 

Practitioners are watching closely to see if the government institutes a similar program in the cryptocurrency space when the time is right, Marshall said. 

Taxpayers should check whether it is still possible to correct the tax return or file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties, as well as administrative costs.

Read more at: Tax Times blog

In Audit Report No. 2021-30-033, the Treasury Inspector General for Tax Administration (TIGTA) has called on IRS to improve its procedures related to the collection of assessed criminal restitution in tax-related cases. 

According To The Audit, During Fiscal Years 2016 Through 2020, Defendants Were Ordered To Pay More Than $2.7 Billion In Criminal Restitution To IRS But Paid Only $844 Million
(Or 31%) During That Same Period.

"TIGTA found that in cases for which the IRS had the authority to assess the restitution ordered, a higher percentage of restitution was paid," the audit said.

TIGTA suggested ways to ensure that the restitution ordered is properly assessed. For example, IRS Criminal Investigation (CI) should be certain that it always sends closing documents to the Small Business/Self-Employed (SB/SE) Division for the assessment of restitution. Furthermore, the division must correctly assess interest and penalties on all restitution-based assessments.

"TIGTA also found that a lack of resources within CI and the SB/SE Division contributed to the IRS not being able to adequately monitor defendants' compliance with the conditions of probation or supervised release," the audit said. Bolstering those resources would be a positive step for IRS to take, TIGTA suggested.

In addition, TIGTA found that internal controls could be improved to prevent IRS from issuing erroneous refunds for restitution payments, the audit noted.

Have IRS Tax Problems?

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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

 Careful advance preparation can help reduce the scope of a tax audit or examination and can lead to a more favorable outcome. Although a thorough understanding of the underlying facts and applicable law is a must, understanding IRS procedures is critical to preserving a taxpayer’s rights.

We summarize below and in Parts II & III, to follow later, some of the more important IRS procedural rules and guidelines governing civil IRS examinations and audits, including: how returns are selected for examination; a brief description of the types of civil examinations; an explanation of the tools available to IRS examining agents and revenue agents; dispositions in IRS audits or examinations and, if necessary, where to seek relief from an unfavorable result in an examination or audit.

Selecting Tax Returns for Examination

It is helpful to understand how tax returns are selected for examination. The IRS selects returns for examinations in several ways, some based upon objective criteria coded into a carefully protected computer program and others based upon old fashioned detective work.

The main computer program that the Service uses to identify returns for examination is the Discriminate Function System. The Discriminate Function (DIF) score is the product of a mathematical formula for identifying and selecting returns for examination. The program scores tax returns using a formula based on historic information obtained from specific examination programs. A high DIF score indicates a high potential for adjustment. The Service periodically conducts compliance studies to update and reformulate its basis for audit selection formulas.

Different types of taxpayers and returns are subject to different DIF formulas. While the specifics of the program are not public, certain items appear to cause a return to be selected for examination, such as participation in a tax shelter, large charitable contributions, home office deductions, large travel and entertainment expense or large automobile expense. Returns selected under the DIF program are then manually screened so that attachments to the return and other data that a computer cannot detect can be properly considered.

The Service also relies on information provided by third parties, such as banks, brokers and employers. Much of this information is required to be reported by payers of certain types of income on Forms W-2 or 1099. Referrals may also be made by other examining agents. For example, the return of a party related to another taxpayer being audited, such as the partners of a partnership being audited may also be selected for audit. The Service also may investigate tips regarding potential noncompliance, and select those returns for audit as a result. Examinations may also be triggered a variety of other ways, such as, by mathematical errors or missing information. Also, a claim for refund can trigger an examination.

Types of IRS Examinations

IRS civil examinations can take a variety of forms, depending upon the type of taxpayer, the complexity of the tax return and the initially determined scope of the exam. The simplest examinations conducted by the IRS are Campus Examinations. Campus Examinations are correspondence exams addressing simple problems like substantiation that can be resolved easily by correspondence and/or telephone. Area Office Examinations may be conducted for slightly more complicated issues such as small business returns and more complex non-business returns. Area Office Examinations may be conducted by correspondence, office interview or even by a field examination, depending on type and complexity of the return. In all cases, the taxpayer is asked to provide supporting documentation of questionable items. Business returns will always be examined in an office or field interview rather than a correspondence examination.

Examiners at the correspondence and office levels are much less invasive. The examining agents are required to process many cases and often have little time to completely familiarize themselves with the return. Indeed, the examiner may not have reviewed the taxpayer’s file and return until after the taxpayer has replied to all correspondence regarding the examination, and often not until the day of the interview. The scope of office examinations is generally limited to items on a checklist of issues contained in the Internal Revenue Manual. The examiners have little discretion and basically, are charged with verifying income and deductions based upon records provided. A taxpayer’s inability to produce adequate records may lead not only to disallowance of the disputed items for the year at issue, but also to audits of other years’ returns.

Field Examinations involve more complex issues. The examining agent will be a revenue agent, as opposed to an office auditor. He or she will be better trained and will have had more experience. A Field Examination consists of examination of a taxpayer’s books and records at the taxpayer’s place of business or where the books, records or source documents are maintained. The agent will review the taxpayer’s entire return and all documentation related to that return. The agent may be assisted by a technical specialist such as an “engineer agent” if the return presents a special issue such as valuation. Unlike, office auditors, revenue agents spend considerable time preparing for the examination. Prior to the examination, the revenue agent will review any prior examination reports from the same taxpayer. This may lead to scrutiny of recurring issues or inclusion of other years’ returns in the examination. Of course, the revenue agent will also look at the return for unusual or questionable items.

Taxpayer Rights During an IRS Audit

Taxpayers are guaranteed certain important rights during audits and examinations. Among these rights is the right to be provided certain information describing the examination process and other rights at the commencement of the examination. Examinations must be conducted at a reasonable time and place and taxpayers have the right to bring representation to any interview. Taxpayers have the right to record any interviews with the agent. Taxpayers also have the right not to be interviewed, except through the summons process, and must be notified of any summons to a third party and of their right to quash any such summons. Importantly, taxpayers have the right to have their tax information kept confidential.

Burden of Proof

Under prior law, there was a rebuttable presumption that IRS’s determination of tax liability is correct, and therefore (with some exceptions such as fraud), the burden of proof was on the taxpayer to show that the IRS’s determination was wrong. Under new law, the IRS has the burden of proof in any court proceeding with respect to a factual issue related to income, estate, gift, and generation-skipping transfer taxes if the taxpayer introduces credible evidence relevant to the determination of the taxpayer’s tax liability. To be eligible, the taxpayer must prove that he or she complied with required statutory and regulatory substantiation and recordkeeping requirements; cooperated with reasonable IRS requests for meetings, interviews, witnesses, documents, and information; and (if not an individual) met certain net worth limitations. Cooperation generally involves: providing reasonable assistance to the IRS in accessing witnesses, information, and documents not within the taxpayer’s control; exhausting administrative remedies, including IRS appeal rights; and establishing the applicability of a privilege. Cooperation does not require that the taxpayer agree to an extension of the limitations period. The IRS continues to have the burden of proving fraud, irrespective of the new law.

To be continued... Understanding IRS Tax Audits - Part II

Have a 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