Category Archives: criminal tax law

On July 20, 2020, the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued final regulations on the high-tax exclusion to the global intangible low-taxed income (GILTI) regime (the Final Regulations). The final high-tax exclusion rules allow taxpayers to opt out of the GILTI regime if certain foreign affiliates are already paying at least 18.9% in offshore taxes and allows retroactive relief for all applicable tax years.

GILTI High-Tax Exclusion

The Final Regulations give U.S. persons who own at least 10%, directly or indirectly, of the vote or value of a controlled foreign corporation (CFC) (U.S. Shareholders) the option to opt out of the GILTI regime if such CFC is subject to tax in a foreign country at an effective rate greater than 90% of the maximum U.S. corporate rate (i.e., currently a foreign effective tax rate of 18.9%, based on a U.S. corporate tax rate of 21%). 

The election is effective for the year in which it is made and all subsequent tax years, unless the election is revoked, and can be retroactively applied for tax years beginning after December 31, 2017 and before July 23, 2020. 

The Final Regulations Also Allow For Elections To Be Made On Amended Returns, Though U.S. Shareholders Must Then Also File Amended Tax Returns Within Specific Time Frames.

U.S. Shareholders must apply the GILTI high-tax exclusion consistently, such that an election made by a U.S. Shareholder will generally apply to all 10%-owned CFCs.

A U.S. Shareholder must determine a CFC's effective foreign tax rate for purposes of the exclusion at the CFC level. The effective foreign tax rate is calculated based on the effective foreign tax rate imposed on the aggregate of all items of net tested income of a CFC attributable to a single "tested unit." 

For purposes of the high-tax exclusion, a tested unit includes (i) a CFC; (ii) an interest in certain pass-through entity held, directly or indirectly, by a CFC; or (iii) certain branches whose activities are carried on directly or indirectly by a CFC. Additionally, if a tested unit makes a disregarded payment to another tested unit, the Final Regulations require gross income to be reallocated among the tested units to appropriately associate the income with the tested unit in which it is subject to tax.

Coordination with the Subpart F High-Tax Exception

Under the complementary Subpart F high-tax exception, a controlling U.S. Shareholder of a CFC may elect to exclude an item of the CFC's foreign base company income or insurance income from Subpart F income when the relevant income item is subject to tax in a foreign country at an effective rate of more than 90% of the maximum U.S. corporate rate (i.e., currently a foreign effective tax rate of 18.9%, based on a U.S. corporate tax rate of 21%).

In a separate set of proposed regulations also issued on July 20, 2020 (the Proposed Regulations), the Treasury and the IRS announced their intent to conform the rules implementing the Subpart F high-tax exception to the GILTI high-tax exclusion, and to provide for a single election under Code Section 954(b)(4) for purposes of both regimes. If the Proposed Regulations are finalized, the conformed Subpart F high-tax exclusion rules will be more restrictive than those that currently govern the election.

 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

Read more at: Tax Times blog

The Internal Revenue Service today released the Criminal Investigation Division's annual report, highlighting the agency’s successes and criminal enforcement actions taken in fiscal year 2020, the majority of which occurred during COVID-19. 

A Key Achievement Was The Identification of
Over $10 Billion In Tax Fraud and Other Financial Crimes. 

"The special agents and professional staff who make up Criminal Investigation continue to perform at an incredibly high-level year after year," said IRS Commissioner Chuck Rettig. "Even in the face of a global pandemic, the CI workforce initiated nearly 1,600 investigations and identified $2.3 billion in tax fraud schemes. This is no small feat during a challenging year, and their work is critical to protecting taxpayers and the integrity of our tax system."

Key focuses of CI in fiscal year 2020 included COVID-19 related fraud, cybercrimes, with an emphasis on virtual and cryptocurrencies, traditional tax investigations, international tax enforcement, employment tax, refund fraud and tax-related identity theft.

In response to COVID-19 related crimes, CI special agents quickly adapted their investigative techniques to initiate cases into fraudulent claims for Economic Impact Payments, Paycheck Protection Program loans, and refundable payroll tax credits from the Coronavirus Aid, Relief, and Economic Security Act.

In fiscal year 2020, CI initiated 1,598 cases, applying 73% of its time to tax related investigations. 

• The number of CI special agents increased by one percent, following special agent hiring to offset planned retirements. 
• CI continued increasing its usage of data analytics and strengthening its international partnerships to assist in finding the most impactful cases. 
• One important partnership remained the Joint Chiefs of Global Tax Enforcement (J5); a transnational committee comprised of tax organizations from five countries. In FY 2020 alone, more information was shared regarding cryptocurrency, tax crimes, and related enforcement, than in the previous ten years combined. 
• CI also saw the first guilty pleas for a case under the J5 umbrella. 

The high conviction rate reflects the thoroughness of CI investigations and the high caliber of CI agents. CI is routinely called upon by prosecutors and partner agencies across the country to lead financial investigations on a wide variety of financial crimes.

The 2020 report is interactive, summarizes a wide variety of CI activity during the year and features examples of cases from each field office on a wide range of financial crimes. The federal fiscal year begins Oct. 1 and ends on Sept. 30.

Have a Criminal 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

Read more at: Tax Times blog

A federal district court in Goldring, (DC LA 9/28/2020) 126 AFTR 2d ¶2020-6254, has held that the IRS properly assessed interest on a taxpayer’s underpayment. The couple elected to apply an overpayment to future years, so that overpayment wasn’t available to apply to the underpayment for the year at issue. 

The IRS is authorized to credit any overpayment of tax against any outstanding tax liability owed by the taxpayer making the overpayment and refund any balance of the overpayment to that taxpayer. (Code Sec. 6402(a); Reg. §301.6402-1)

However, a taxpayer’s election to apply an overpayment to a subsequent year is irrevocable and binds both the taxpayer and the IRS. (Code Sec. 6513(d))

Once The Taxpayer Makes The Election To Apply An Overpayment To A Subsequent Year, IRS Cannot Offset
The Overpayment Against Any Additional Tax For The Year
Of The Overpayment. (Rev Rul 77-339, 1977-2 CB 475; Rev Rul 55-448, 1955-2 CB 595)

On her 2010 return, taxpayer Goldring reported a lawsuit settlement as capital gain, overpaid her tax liability and elected to carry the overpayment forward to future tax years. The IRS disputed Goldring’s characterization of part of the lawsuit settlement ("disputed amount") as capital gain.  

In 2020, a federal district court determined that the disputed amount was interest and, therefore, was taxable as ordinary income. (Goldring, (DC LA 4/13/2020) 125 AFTR 2d 2020-1701)

After the district court determined that the disputed amount was ordinary income, the IRS assessed Goldring with additional tax for 2010 and accrued interest from the due date of her 2010 return. 

Goldring argued that she shouldn't owe interest because she had enough of an overpayment in 2010 to cover the additional tax; therefore, interest did not accrue on her underpayment from the due date of her 2010 return.

The district court determined that the IRS properly assessed interest on Goldring’s 2010 underpayment.

Contrary to Goldring’s argument, the IRS could not use her 2010 overpayment to offset the additional tax assessed for 2010 because Goldring elected to carry over to a subsequent year that overpayment, and the IRS was bound by her election. Since the IRS had no funds it could use to offset the additional tax for 2010, interest began to accrue on the underpayment on the due date of Goldring’s 2010 return.

Read more at: Tax Times blog

The IRS recently changed its' procedure for handling delinquent information returns. The 2012 OVDP FAQ# 18 originally provided automatic penalty relief, but was only available to taxpayers who were fully tax compliant. 

Then the IRS modified the Delinquent International Information Return Submission Procedures and clarified how taxpayers may file delinquent international information returns in cases where there was reasonable cause for the delinquency. Taxpayers who had unreported income or unpaid tax were not precluded from filing delinquent international information returns. However, unlike the procedures described in OVDP FAQ#18, penalties may have been imposed under the Delinquent International Information Return Submission Procedures if the Service does not accept the explanation of reasonable cause. 

Now the IRS has recently changed their website on Delinquent International Information Return Submission Procedures (DIIRSP) which now provides:

Taxpayers who have identified the need to file delinquent international information returns who are not under a civil examination or a criminal investigation by the IRS and have not already been contacted by the IRS about the delinquent information returns should file the delinquent information returns through normal filing procedures.

Penalties may be assessed in accordance with existing procedures.

• All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return.
• All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.
• Taxpayers may attach a reasonable cause statement to each delinquent information return filed for which reasonable cause is being asserted. 
• During processing of the delinquent information return, penalties may be assessed without considering the attached reasonable cause statement. 
• It may be necessary for taxpayers to respond to specific correspondence and submit or resubmit reasonable cause information.

Information returns filed with amended returns will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.

These procedures now clearly provide for normal filing of late delinquent returns, with a reasonable cause statement, which may be considered after the filing and after the automatic assessment of penalties. 

This Procedure Is No Different Than Filing Any Late Return
and is Evidence that the DIIRSP Has Been Eliminated.

What Does This Mean For Streamlined Offshore And Domestic Procedures?

We previously posted Comm'r Warns Taxpayers - Streamlined Offshore Procedures Won't Last Forever! where we discussed that while there is still a trickle of non-willful taxpayers cleaning up under the Streamlined Offshore Procedures, the IRS has made it clear that this the Streamlined Offshore Procedures won't last forever and this may be non-willful taxpayer's last chance to report previously undisclosed foreign accounts under this program. 

These IRS' ending the OVDP program, the Delinquent Information Return Program  and the proposed ending of the Streamlined Offshore Procedures, reflect an ongoing efforts by the U.S. government to make offshore tax compliance a priority.

Read more at: Tax Times blog