Category Archives: criminal tax law

According to Law360, a Mexican national who holds a U.S. green card doesn't owe penalties for failing to report his foreign bank accounts, even though he told the U.S. government late that he claimed Mexican residency under an international tax treaty.

Alberto Aroeste, who was assessed $100,000 in foreign bank account reporting penalties by the Internal Revenue Service for failing to report his accounts for 2012 and 2013, doesn't have to pay the outstanding $21,900 bill, U.S. District Judge Anthony K. Battaglia said in an order on November 20, 2023. Aroeste is also owed a $3,000 refund for payments he already made to the IRS, the judge added.

But Aroeste owes a $1,000 penalty for each of the two tax years for failing to tell the U.S. until he filed amended returns in 2016 that he claimed treatment under a Mexico-U.S. tax treaty as a resident of Mexico, Judge Battaglia said. Aroeste, who is in his 80s, lived with his wife in Mexico City, where he spent more than 75% of his time during the tax years at issue, according to the opinion.

Aroeste argued he was not required to file Form 8833 disclosing his treaty-based return position for 2012 and 2013 under a U.S. Treasury Department regulation that exempted people whose residency had been determined under a treaty and separate from the Internal Revenue Code. 

He Agreed With Aroeste's Argument That His Claim For
Treaty Status, Even Made Late, Entitled Him To
The Benefits Or Application Of Treaty Law.

Judge Battaglia also rejected the government's argument that Aroeste should have filed an expatriation statement form, Form 8854, with his returns, saying he agreed with Aroeste that the form is not legally binding. The form is required under IRS Notice 2009-85, but that notice failed to comply with the notice-and-comment requirements of the Administrative Procedures Act, the judge said, citing the 2022 case Mann Construction v. U.S. 

Aroeste and his wife told the court in their complaint last year challenging the FBAR penalties that they briefly joined the IRS' voluntary offshore disclosure program for reporting foreign accounts in 2014. Their current attorneys directed them to drop out in 2016, and the couple said they refiled their 2008 through 2014 returns. Alberto Aroeste refiled as a nonresident for those years, and Estela Aroeste, after she became a U.S. citizen in 2011, filed as married filing separately, according to their complaint.

The IRS began auditing the couple after they dropped out of the disclosure program, the couple said, and the agency ultimately assessed $10,000 in nonwillful penalties against Alberto Aroeste for each of his five Mexican bank accounts in 2012 and 2013. It also assessed a $5,000 penalty against his wife for each of her accounts during the same period, as well as a $500 penalty for each account she held jointly with her husband for 2013. The government abandoned its effort to recover the $27,000 debt from Estela Areoeste in May in exchange for a settlement.

The government told the court in August that in addition to missing the deadline for notifying the U.S. that he claimed protected treaty status, Aroeste originally filed jointly with his wife, which, because of her dual citizenship, prevented him from claiming protected status under the treaty outlined in Article 4 of the U.S.-Mexico Income Tax Convention. Ultimately, the government decided not to accept Aroeste's amended returns, making them invalid, the government argued.

Aroeste's lawyer, Patrick Martin of Chamberlain Hrdlicka, told Law360 that the ruling was significant. It upends the IRS' practice of stripping individuals of tax-treaty protection for failing to file forms on time, including forms that aren't legally binding, Martin said.

The IRS has tried to pin $3 million in information reporting penalties on Aroeste since it began its audit, Martin said. 

Aroeste, who has a vacation condominium in Florida, has never permanently resided in the U.S. and only had a green card because the Mexican employer he worked for was a U.S. subsidiary and required it in order to participate in its pension plan, Martin said.

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Read more at: Tax Times blog

On December 23, 2022 we posted IRS Delays Implementation Of $600 Reporting Threshold For Third-Party Payment Platforms On Forms 1099-K, where we discussed that the Internal Revenue Service announced an Initial delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming 2023 tax filing season.

Now the IRS will push back again its implementation of a law requiring peer-to-peer payment platforms such as Venmo and PayPal to report aggregate payments of $600 or more, saying Tuesday that it will instead phase in implementation beginning in 2024 with a $5,000 threshold.

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023.

This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. 

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

Expanded information reporting, which will occur as the result of the change in thresholds for Form 1099-K, is important because it increases tax compliance and can reduce burden on taxpayers seeking to follow the law. The IRS believes that expansion must be managed carefully to help ensure that Forms 1099-K are issued only to taxpayers who should receive them. In addition, it's important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist taxpayers.

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The Tax Court has determined that a failure to file information returns penalty, assessed by the IRS' Combined Annual Wage Reporting (CAWR) computer program, doesn't require supervisory approval under Code Sec. 6751(b)(1). (Piper Trucking & Leasing, LLC, (2023) 161 TC No. 3)

Piper Trucking & Leasing, LLC, a single-member limited liability company, failed to file Forms W-2 for its employees with the Social Security Administration. The SSA sent Piper two notices regarding the missing forms, but the business never responded. The SSA then referred the matter to the IRS to enforce compliance and assess any penalties.

The referral from SSA and to IRS was conducted via the CAWR program, which automatically sends delinquent employers a Letter 98C asserting a failure to file information returns penalty. If the employer does not respond to the 98C letter, the IRS' CAWR computer program, without any human intervention or supervisory approval, assesses the failure to file penalty.

Piper failed to respond to the IRS' Letter 98C. So, the CAWR program assessed the failure to file information returns penalty against Piper. When Piper failed to pay the penalties, the IRS filed a lien notice, which Piper then protested in a CDP hearing. The Appeals Officer upheld the lien notice. 

Piper was represented throughout the proceedings by its single member. Piper failed to cooperate in the CDP process. And, while Piper timely filed its Tax Court petition protesting the CDP determination, it failed to respond to the IRS' motions and to comply with other court requirements. 

Generally, the IRS can't assess penalties unless the initial determination to assert the penalties is approved in writing by the immediate supervisor of the person making the penalty determination. However, this rule doesn't apply to penalties "automatically calculated through electronic means."

The Tax Court determined that the failure to file penalty was automatically calculated through the CAWR program and, therefore, the penalty assessment didn't require supervisory approval.

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According to Law360, the U.S. Supreme Court should conclude that a one-time mandatory repatriation tax enacted under the 2017 Tax Cuts and Jobs Act is unconstitutional, a couple said Wednesday, urging the justices to reject the federal government's claims that the 16th Amendment allows a levy on unrealized gains.

The government's claims that Congress can impose a tax on any "gain" as income regardless of taxpayer realization throws out the key restriction on federal taxing authority set by the 16th Amendment in the U.S. Constitution, Charles and Kathleen Moore said in a reply brief.

Congress Understood That "These Enormous Pots of
Potential Revenue" Are Not Income And, Therefore,
Are Beyond The Reach Of Taxation, The Couple Said.

That argument, they said, also rejects the precedent the high court established in a 1920 landmark decision in Eisner v. Macomber, which affirmed that the realization of gain is the key attribute of income under the 16th Amendment.

In its own brief filed in October, the government said the Macomber decision has been watered down in subsequent rulings and should play no controlling role in the couple's case.

"That Dictum Was Poorly Reasoned And Has Been Abrogated By Many Later Decisions Limiting Macomber To The Stock-Dividend Context In Which It Arose," The Government Said.

The Moores' latest filing came just weeks before the Dec. 5 oral arguments from parties in the case. In June, the high court agreed to review the case. At issue is the mandatory repatriation tax under Internal Revenue Code Section 965, enacted as part of the 2017 tax reform. 

The Moores were hit with the levy on their investment in a controlled foreign corporation, KisanKraft Ltd., that provides equipment to small-scale farmers in India. They paid about $15,000 on their small stake, and the tax liability was based on earnings retained and invested by the company on earnings the Moores said they never received.

A Washington federal court tossed the Moores' first challenge, a decision that was later affirmed in 2022 by the Ninth Circuit, which said the one-time repatriation tax served a legitimate purpose.

The couple then asked the Supreme Court to review its challenge, filing a petition in February to reverse the Ninth Circuit decision. Since the justices agreed this summer to review the challenge, the case has drawn attention from several stakeholders, some in support of the couple, others in support of the government, and a few that were in support of neither party.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

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