Category Archives: criminal tax law

In a memo entitled LB&I-04-0420-0009: LB&I Compliance Priorities During the COVID-19 Pandemic the IRS Large Business & International (LB&I) Division has clarified its compliance priorities for the period beginning April 14, 2020 and ending July 15, 2020.

This memorandum provides additional guidance regarding LB&I compliance activities which are postponed or allowed through July 15, 2020.

I. Activity Postponed through July 15, 2020

• LB&I will not start an examination of any new return unless it falls within Category II below.
• No time should be charged to new Discriminate Analysis Score (DAS) cases without Senior Director approval.
• Managers have discretion on prior, subsequent, and related returns associated with an existing examination.

II. Activity Continuing

•  Compliance Assurance Process, Large Corporate Compliance, FATCA, Qualified Intermediary programs and current open examinations: proceed as usual, but without in-person contact.
• New examinations arising from Voluntary Disclosure Practice cases, claims, and other pre-refund verification programs: proceed as usual, but without in-person contact.
• Work should continue on Syndicated Conservation Easements campaign, Micro Captive Insurance campaign, IRC 965 campaign and any future campaign related to the Tax Cuts and Jobs Act; but without in person contact. Existing and any new campaigns will be assessed for purposes of categorizing as postponed or allowed with clear communications to follow on which are allowed.
• Workload reviews of existing inventory will continue.
• Examiners can charge time to new cases (e.g., audit planning) where taxpayer contact will not be made until after the emergency declaration is lifted.
• Prior time limits on classification activities are suspended.
• Other consensual work initiated by taxpayers: proceed as usual, but without inperson contact, for example, Pre-Filing Agreements, Refund Claims.

While the IRS cannot anticipate and provide guidelines for every possible situation, it remains vitally important for all LB&I employees to be sensitive to the individual circumstances of taxpayers and provide them with the appropriate tax administrative actions commensurate with the taxpayer’s situation.

• Congo, Democratic Republic of the – January 13, 2019;
• Haiti – February 14, 2019; 
• Iraq – May 14, 2019; 
• Sudan – April 11, 2019; and
• Venezuela – January 24, 2019. 

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On April 10, 2019, we posted US Taxpayers Are Receiving Automated Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help!  where we discussed that we have been receiving a many calls from businesses who have received penalty notices regarding late filed or non-filed Form 5471 & 5472's and that we discussed ways to defend against these automatic assessments and request penalty abatement including the Reasonable Cause Defense and First-Time Offender Abatement (FTA) Defense.

The same arguments are equally as effective when defending the even more egregious late filing penalties, associated with Form 3520 & Form 3520-A. 

 

The key to successfully having these penalties abated, more so today than ever before, is to hire an Experienced Tax Attorney, to develop the facts and distinguish adverse case law, especially when requesting penalty abatement based upon "Reasonable Cause".

Penalties for Late Filing or Failure to File Form 3520

IRC section 6677 provides for stiff penalties if Form 3520 is not timely filed or is incomplete or incorrect. The initial penalty is the greater of $10,000 or—

• 35% of the gross value of any property transferred to a foreign trust if a U.S. person fails to report the creation of or transfer to a foreign trust;
• 35% of the gross value of the distributions received from a foreign trust by a U.S. person who fails to report receipt of the distribution; and
• 5% of the gross value of all of a foreign trust’s assets treated as owned by a U.S. person under the grantor trust rules (IRC sections 671–679) if the U.S. owner fails to report required information. The owner is also subject to an additional 5% penalty if the foreign trust itself fails to file a timely Form 3520-A [“Annual Information Return of Foreign Trust With a U.S. Owner”; see IRC section 6048(b)], does not provide all required information, or provides incorrect information. 

Penalties for Late Filing or Failure to File Form 3520-A

The U.S. owner is subject to an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust's assets treated as owned by the U.S. person at the close of that tax year if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. Criminal penalties may be imposed under sections 7203, 7206, and 7207 for failure to file on time and for filing a false or fraudulent return.

The Internal Revenue Service pledged not to transfer any new cases to its network of private debt collectors until July 15 as part of its People First Initiative announced in March. However, the agency’s failure to clearly address the status of existing cases in the pipeline has drawn attention from tax lawyers and taxpayer advocates. 

Nina Olson, executive director of the Center for Taxpayer Rights, said the IRS should make it clear that low-income, elderly and disabled taxpayers will not face collection activities by IRS debt collectors.

Olson said the IRS' lack of clarity about how it’s treating existing cases held by private debt collection agencies is particularly troubling because it hasn’t implemented the Taxpayer First Act requirement to exclude from referrals people who receive SSDI or SSI.

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