Category Archives: criminal tax law

On October 19, 2020 we posted TIGTA Lists 10 Most Serious Challenges for IRS for FY 2021, where we discussed that TIGTA, in an Oct. 14 memorandum to Treasury Secretary addressed the 10 most serious management and performance challenges confronting IRS in fiscal year 2021. TIGTA has a statutory requirement to submit an annual report on the subject. Herein we would like to discuss problem #9 INCREASING INTERNATIONAL TAX COMPLIANCE

Complexity and change in the international tax environment require that the IRS collaborate with tax administrations of foreign countries to enforce compliance. The IRS must continue to focus significant efforts on global tax cooperation and tax administration practices that can prevent and resolve disputes among countries to increase certainty for taxpayers. 

In most cases, foreign persons are subject to U.S. tax of 30 percent (or lower treaty rate) on their U.S. source income. A foreign individual is any person that is not a U.S. person, including a nonresident alien, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate. The U.S. tax owed is generally withheld from payments made to foreign persons by a withholding agent. A withholding agent is any U.S. or foreign entity (individual, corporation, partnership, etc.) that takes receipt of, has control or custody of, or disposes of or makes a payment of any income to a foreign individual that is subject to withholding. Withholding agents are required to file Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, to report on an individual taxpayer basis the income and withholding for each foreign person. For Tax Year 2017, the IRS received 6.3 million Forms 1042-S from 49,618 withholding agents. These agents reported U.S. tax withholdings totaling more than $528 billion.

In response to our prior recommendations, the IRS has implemented processes to improve its identification of reporting discrepancies for Federal tax withheld on U.S. source income paid to foreign individuals. However, these processes did not identify some withholding tax discrepancies. TIGTA reported that IRS processes did not identify 1,919 withholding agents with reporting discrepancies totaling more than $182.7 million. 

Our Review Also Identified 366 Withholding Agents That Claimed $506 Million More In Credits For Tax Withheld Than Was Reported On The Forms 1042-S.

In addition, partnerships conducting business in the United States are required to withhold taxes on certain income paid to foreign partners. A foreign partner can be a foreign corporation, foreign partnership, and any other person who is not a U.S. citizen. The withholding serves as an incentive for foreign partners to file the appropriate U.S. tax return. However, TIGTA reported that the IRS’s compliance efforts in this area can be improved. TIGTA identified significant errors in the database that the IRS uses to track withholding reported by partnerships, which limits the IRS’s ability to verify withholding credits and accurately identify potential nonfilers.

Foreign individuals are also required to pay tax related to the sale of U.S. real estate. Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 imposes an income tax on foreign persons selling U.S. real property interests. Buyers are required to withhold a percentage of the anticipated taxes due on the amount realized from the sale. A foreign seller of U.S. property can claim a credit for the tax withheld by the buyer. If the seller’s tax liability is less than the amount of tax withheld, the seller gets a refund of the difference. TIGTA reported that the IRS’s reconciliation processes do not effectively identify and address FIRPTA reporting and payment noncompliance.(TIGTA, Ref. No. 2020-40-014, Millions of Dollars in Discrepancies in Tax Withholding Required by the Foreign Investment in Real Property Tax Act Are Not Being Identified or Addressed (Mar. 2020))

Extensive data inaccuracies in the FIRPTA database, incorrect and unclear guidelines, and employee errors contributed to these discrepancies.

The IRS also has not established processes to use Form 1099-S, Proceeds from Real Estate Transactions, to identify buyers that do not report and pay FIRPTA withholdings. 

Finally, employee errors resulted in 1,835 foreign individuals potentially receiving more than $60 million in FIRPTA withholding credits than they were entitled.

                                                                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

On October 19, 2020 we posted TIGTA Lists 10 Most Serious Challenges for IRS for FY 2021, where we discussed that TIGTA, in an Oct. 14 memorandum to Treasury Secretary addressed the 10 most serious management and performance challenges confronting IRS in fiscal year 2021. TIGTA has a statutory requirement to submit an annual report on the subject. Herein would like to discuss problem #7 IMPROVING TAX REPORTING AND PAYMENT COMPLIANCE:

One of the IRS’s key responsibilities is to ensure that taxpayers comply with the tax law. The gross Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount paid voluntarily and on time. 

The Average Annual Gross Tax Gap Is Estimated To Be
$441 BILLION For Tax Years 2011 Through 2013, And Approximately $39 BILLION (9 Percent) Is Due To Nonfilers.

Nonfilers are taxpayers who do not timely file a required tax return and timely pay the tax due for such delinquent returns. According to the IRS,high-income nonfilers, although fewer in number, contribute to the majority of the nonfiler Tax Gap.

In May 2020, TIGTA reported that the IRS was not working high-income nonfiler cases owing billions of dollars. TIGTA’s analysis of Tax Years 2014 through 2016 data identified 879,415 high-income nonfilers who did not have a satisfied filing requirement with an estimated tax due of $45.7 billion. The top 100 high-income nonfilers for Tax Years 2014 through 2016 have estimated tax due of approximately $9.9 billion, making up 22 percent of the $45.7 billion associated with the 879,415 high-income nonfilers.

TIGTA also reported that the IRS could better use Currency Transaction Reports (CTR) to improve its compliance activities. Federal law requires financial institutions to report currency (cash or coin) transactions of more than $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to more than $10,000 in a single day. The Financial Crimes Enforcement Network Form 112, Currency Transaction Report, is used to report these transactions. The IRS considers CTR information useful to identify cash activity that may not be reported accurately on the income tax return. It may lead the examiner to discover sources of unreported income. However, some subjects of the CTRs with significant dollar amounts of cash transactions may not be filing income tax returns. 

Large corporation (those with assets of $10 million or more) tax noncompliance contributes an estimated $26 billion to the average annual underreporting Tax Gap. The IRS uses a computer model, the Discriminant Analysis System (DAS), to systemically score the examination potential for Form 1120, U.S. Corporation Income Tax Return, tax returns with total assets of $10 million or more. Generally, the higher the score, the greater the audit potential. However, TIGTA reported that the IRS could improve the DAS model to better identify returns with a higher likelihood of potential tax adjustment. We analyzed 10,755 returns closed in the DAS workstream during FYs 2015 through 2018 and found that 47 percent were closed with no change to the tax return. Although the IRS is updating the DAS model to improve the no-change rates, TIGTA found that it is not leveraging all available examination information, such as the examination scope and knowledge on productive issues, when developing new formulas, and it plans to test new formulas only on returns that are nearly a decade old.

“Although no longer listed, achieving operational efficiencies should remain an area of continued focus for the IRS,” George added.

The agency is facing “significant” resource challenges, he said, citing IRS’s budget reduction in real terms over the past decade and the loss of some 29,000 full-time positions, including more than 14,600 key enforcement personnel. 

                                                                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

J. Russell George, the Treasury inspector general for tax administration (TIGTA), in an Oct. 14 memorandum to Treasury Secretary Steven Mnuchin, offered his perspective on the 10 most serious management and performance challenges confronting IRS in fiscal year 2021. TIGTA has a statutory requirement to submit an annual report on the subject.

Each year, TIGTA evaluates IRS programs, operations, and management functions to identify the most vulnerable areas in the Nation’s tax system. For Fiscal Year (FY) 2021, the IRS’s top management and performance challenges, in order of priority, are:

1. Responding to the COVID-19 Pandemic;
2. Enhancing Security of Taxpayer Data and Protection of IRS Resources;
3. Implementing Tax Law Changes;
4. Addressing Emerging Threats to Tax Administration;
5. Supporting an Enhanced Taxpayer Experience;
6. Modernizing IRS Operations;
7. Improving Tax Reporting and Payment Compliance;
8. Reducing Fraudulent Claims and Improper Payments;
9. Increasing International Tax Compliance; and
10. Protecting Taxpayer Rights

The memorandum described the onset of the COVID-19 pandemic as “the most significant change” to the list since last year, noting that it “has dramatically impacted” IRS and the taxpayers it serves. 

“Although no longer listed, achieving operational efficiencies should remain an area of continued focus for the IRS,” George added.

The agency is facing “significant” resource challenges, he said, citing IRS’s budget reduction in real terms over the past decade and the loss of some 29,000 full-time positions, including more than 14,600 key enforcement personnel. 

                                                                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

According to the DoJ, Robert F. Smith, the Chairman and Chief Executive Officer of a San Francisco based private equity company, Vista Equity Partners, entered into a Non-Prosecution Agreement (the agreement) with the Department of Justice, for his involvement from 2000 through 2015 in an illegal scheme to conceal income and evade millions in taxes by using an offshore trust structure and offshore bank accounts. In that agreement, Smith admits his involvement in the illegal scheme and agrees to cooperate with ongoing investigations and to pay back taxes and penalties and full.

This may be a part of a Voluntary Disclosure, which should prevent him from being federally prosecuted and from jail time?

“It is never too late to do the right thing,” said U.S. Attorney Anderson. “It is never too late to tell the truth. Smith committed serious crimes, but he also agreed to cooperate. Smith’s agreement to cooperate has put him on a path away from indictment.” Could this have been part of a Voluntary Disclosure, which would prevent him from being federally prosecuted and from jail time?

According to the agreement, 

• Smith, a resident of Austin, Texas, formed the Excelsior Trust in Belize, and a shell company, Flash Holdings, in Nevis in 2000. 
• Smith used third-parties to conceal his beneficial ownership and control of the Excelsior Trust and Flash Holdings. 
• In reality, Smith controlled both offshore structures and made all substantive decisions regarding Flash Holdings’ operations, transactions, income, investments and assets. 
• Smith used the Excelsior Trust to conceal his ultimate ownership and control over Flash Holdings. 
• He further used Flash Holdings to hide his interest in private equity investments. 

Smith admits that he formed these foreign entities in order to use them to avoid the payment of U.S. taxes. Furthermore, Smith admits that he knowingly and intentionally used the Excelsior Trust and Flash Holdings and their associated foreign bank accounts in the British Virgin Islands and Switzerland to conceal from the IRS, and the U.S. Treasury Department, income earned and distributed to Flash Holdings from private equity funds. 

As a result of the overall scheme, 

• Smith willfully did not report to the IRS over $200 million of partnership income. 
• Smith also failed to report his ownership of his foreign bank accounts in BVI and Switzerland as required by law. 

Over the years, Smith used millions of this unreported income to acquire and make improvements to real estate used for his personal benefit. 

• Smith admits that, in 2005, he used approximately $2.5 million in untaxed funds to purchase and renovate a vacation home in Sonoma, California. 
• In 2010, Smith again used untaxed funds to purchase two ski properties and a piece of commercial property in France. 
• In 2011 and 2012, Smith used approximately $13 million of untaxed funds to build and make improvement to a residence in Colorado and to fund charitable activities at the property. 

Under the terms of the agreement, Smith has agreed to continue cooperating with the Department of Justice in other related investigations. Further, Smith has agreed to pay approximately $56 million in taxes and penalties stemming from the unreported income and another $82 million in penalties stemming from his concealment of his offshore bank accounts. 

Taken altogether, Smith will pay more than $139 million in taxes and penalties. Additionally, Smith agrees to abandon his protective claims for a refund totaling approximately $182 million that were filed with the IRS. The protective refund claims consisted, in part, of claims filed with the IRS for charitable contribution deductions on Sept. 21, 2018, and Oct. 11, 2019. As a result of the agreement, Smith shall take no further direct or indirect tax benefit from such claims.

Do You Have Undeclared (Offshore) Income ?

 

Want to Know if which Voluntary Disclosure
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