Category Archives: criminal tax law

According to Law360, the Internal Revenue Service Commissioner Danny Werfel told the UCLA Tax Controversy Conference audience on October 24, 2024 that the agency will no longer automatically assess penalties for the late reporting of large foreign gifts, with the announcement eliciting applause from the audience of several hundred tax attorneys and tax professionals.

Werfel appeared for the second year in a row as a keynote speaker for the event at the Beverly Hills Hotel in Beverly Hills, California, and credited the policy change to the lobbying of National Taxpayer Advocate Erin Collins, who was sitting in the audience near the front.

Failure to disclose large foreign gifts can result in penalties of up to 25% of the gift under Internal Revenue Code Section 6039F, with the penalty being automatically assessed even though the gift is likely not a taxable event. The penalty can be challenged in court and overturned, but only if it is paid first. 

"So We Have Decided To Stop Assessing Penalties 
Immediately For Late-Filed Forms 3520, Part IV,
Which Deals With Foreign Gifts,"
Werfel Said As The Crowd Applauded.

"And Also, Erin Just Said, 'That's Not All,'
We Also Will Now Review Reasonable Consideration Statements That Are Attached To These Late-Filed Forms Before
We Issue A Penalty. So Those Are The Two Changes."

"So victory for your taxpayer advocate there," Werfel continued. "I think this is an important change for taxpayers and I think this room understands the type of situations this was causing for a person maybe with parents living overseas, a parent dies, now you're dealing with the estate, you're dealing with grief, you're dealing with all the moving pieces, and maybe in the middle of all this you late-file your form, even though it's not a taxable event, and then all of a sudden you get hit with a penalty."

"What we were seeing is a there were a lot of immigrants who had families overseas who were receiving gifts and not knowing about the form, not a big surprise because taxes are complex," Collins said. "Who thinks about filling out a form for a non-taxable event?"

"So victory for your taxpayer advocate there," Werfel continued. "I think this is an important change for taxpayers and I think this room understands the type of situations this was causing for a person maybe with parents living overseas, a parent dies, now you're dealing with the estate, you're dealing with grief, you're dealing with all the moving pieces, and maybe in the middle of all this you late-file your form, even though it's not a taxable event, and then all of a sudden you get hit with a penalty."

Collins was named the taxpayer advocate in February 2020, with the role being the Internal Revenue Service's independent watchdog. Collins spent 20 years as the director of KPMG's western tax controversy services, and before that spent 15 years as an attorney in the IRS Office of Chief Counsel.

Collins said late-filers can explain in an attached form called a reasonable consideration statement why they were late in filing the form and the circumstances that surrounded it. Challenged penalties are overturned about 67% of the time, Collins said, which demonstrates that the IRS is spending a lot of wasted energy on the issue with little to show for the effort. 

Collins said. "Because it's taking a lot of our employees' time and then for taxpayers, it's a really scary thing to open up that piece of paper and see that large penalty. So it's a win-win, I think, for both taxpayers and for the IRS."

"We don't want to penalize people for doing to the right thing and voluntarily coming in and falling on their sword and saying, 'I didn't know,' for whatever reason, and then they get penalized," she continued. "So it really is a good thing for taxpayers."

 On automatic assessment of other foreign information forms, Collins said "I want them all to stop,"

Collins said. "Have the IRS review them before they assess the penalty because of the very high rate of abatement, anywhere from 60% to 80%, depending on the year."

She added that she hoped the IRS "will take additional steps over systemic assessment. Give people an opportunity to say, 'I have reasonable cause and under the law you should not be assessing.'"

In addition to a first-time abatement for Section 6039F penalties, the group recommended a review of reasonable cause prior to penalty assessment. Section 6039F contains exceptions for penalties based on reasonable cause, but over the past several years, the IRS has been assessing penalties without first making this consideration, according to the letter.

Have an 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

On March 5, 2024 we posted Federal Court Rules Corporate Transparency Act Unconstitutional - Do You Still Need to File BOI?  where we discussed that in National Small Business United v. Janet Yellen, a Northern District of Alabama Federal Judge ruled on March 1, 2024, that the CTA was unconstitutional. Citing privacy concerns, and a myriad of legal reasoning and precedent around the scope of Congress’s power.

Now during the week of Sept 23rd challengers of the Corporate Transparency Act's beneficial ownership information reporting requirements argued their position in the first case to reach a federal appellate court, however, it was unclear whether the 11th Circuit panel was receptive. (National Small Business United (NSBU) v. Yellen (No. 24-10736).)

NSBU, however, is not challenging the Corporate Transparency Act as applied in a particular circumstance, but rather has said the law "has no constitutional applications." Prevailing on a facial challenge requires clearing a "very high bar," the government has argued in its briefing and NSBU has failed to do so, said the government, because of the "many valid applications" of the statute as to "companies engaged in interstate commercial activity at the time they file reports."

NSBU has argued that facial challenges should be evaluated under a different standard when enumerated powers are at issue. "If Congress lacks constitutional power to enact a federal statute, then that statute is facially invalid and has no constitutional applications," it said in briefing.

The Treasury Department's Financial Crimes Enforcement Network made its interpretation of the ruling clear in a statement issued by FinCEN stated that the ruling applies (ONLY) to the plaintiffs in NSBU.

Choosing to file means potentially losing a filing fee and any cost incurred for taxpayers who decide to use an advisor. However, filing provides peace of mind, staying in CTA compliance means there's no chance of facing more stringent financial and criminal penalties for failure to file.

Need Help Filing Your BOI Report?

     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

The Internal Revenue Service released the tax gap projections for tax year 2022, a detailed analysis showing the nation’s projected gross tax gap at $696 billion. This reflects the difference between projected ‘true’ tax liability and the amount of tax that is actually paid on time. 

The new tax gap projections reflect an increase over the tax year 2014-2016 estimates and the tax year 2017-2019 projections. The 2022 projection is an increase of $200 billion over tax years 2014-2016. 

However, the IRS noted the increase for 2022 is similar to the 41 percent increase in the economy since the 2014-2016 time period as measured by the Gross Domestic Product. With the new study also showing the voluntary compliance rate among taxpayers remaining steady at 85%, the IRS noted the tax gap increase ultimately reflects growth in the economy and changes in the sources of income – not a change in taxpayer behavior involving filing or paying their taxes. 

In addition, the new tax gap projections reflect the time period before the IRS began increasing tax compliance work following passage of the Inflation Reduction Act (IRA) in August of 2022. Since then, the IRS has stepped up compliance activity in a variety of areas with the additional funding, including the agency collecting an initial $1.3 billion from high-income non-filers following IRA funding. 

“This is a critical study about the nation’s tax system, and the results underscore there remains a sizable tax gap between taxes that are legally owed but aren’t actually being paid,” said IRS Commissioner Danny Werfel. “

While the bottom line for the new tax gap numbers shows the increase basically reflects growth in the larger economy, the size of the gap also vividly illustrates the ongoing need for adequate funding for the IRS. 

We need to focus both on compliance efforts to enforce existing laws as well as improving service to help taxpayers with their tax obligations to help address the tax gap. The new projections are published in Tax Gap Projections for Tax Years 2021 and 2022 (IRS Publication 5869).  

Gross tax gap

The projected $696 billion gross tax gap is the difference between projected ‘true’ tax liability for a given period and the amount of tax that is paid on time. The gross tax gap covers three key areas – non-filing of taxes, underreporting of taxes and underpayment of taxes. 

• Non-filing, which means tax not paid on time by those who do not file on time:
• $63 billion in tax year 2022, representing 9% of the gross tax gap.
• Underreporting, which reflects tax understated on timely filed returns.
• $539 billion in tax year 2022, representing 77% of the gross tax gap.
• Underpayment, or tax that was reported on time, but not paid on time.
•  $94 billion in tax year 2022, representing 14% of the gross tax gap. 

The tax year 2021 and 2022 tax gap projections translate to about 85% of taxes paid voluntarily and on time, which is consistent with recent levels. The projections are based largely upon the compliance behavior estimated from the most recent set of completed audits (from tax years 2014-2016). 

After IRS compliance efforts and other late payments are factored in, the projected share of taxes eventually paid is 86.9% for tax year 2022, down slightly from the 87% for tax years 2014-2016. 

Is Consistently Shows That Compliance Is Higher 
When There Is Third-Party Information Reporting,
And Even Higher When Also Subject To Withholding.

With the help of Inflation Reduction Act resources, the IRS is taking a variety of steps to help improve voluntary compliance by improving taxpayer services and offering new technology tools to work in concert with additional compliance work. In fiscal year 2023, the latest year for which data is available, the IRS collected more than $4.6 trillion in taxes, penalties, interest and user fees. 

The voluntary compliance rate of the U.S. tax system is vitally important for the nation. A one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional tax receipts. 

Have an 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

FinCEN announced on October 11, 2024 that victims of Hurricane Milton have until May 1, 2025 to file Reports of Foreign Bank and Financial Accounts (FBARs) for the 2023 calendar year.  

FBAR filings for calendar year 2023 would otherwise be due on or before October 15, 2024. FinCEN is offering this expanded relief to any area that is designated both by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance and by the Internal Revenue Services (IRS) as eligible for tax filing relief, as a result of Hurricane Milton.  

If, after the date of this announcement, the IRS designates other areas affected by this natural disaster as eligible for tax filing relief, the areas will receive FBAR relief from FinCEN automatically.  

Deadlines for FBAR filings will be the same as those set forth in IRS designations.  Information on actions that the IRS has taken in response to Hurricane Milton can be found at: 

https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

 In addition, FinCEN will work with any FBAR filer who lives outside the disaster areas but who must consult records located in the affected areas to meet the deadline.  

FBAR filers who live outside the affected areas and who are seeking assistance in meeting their filing obligations (including workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization) should contact the FinCEN Regulatory Support Section at 800-767-2825 or electronically at [email protected]. 

FBAR relief is part of a coordinated federal response to the damage caused by natural disasters and is based on local damage assessments by FEMA.  

Have an 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