IRS "A Closer Look” at New Electronic Signature Options

The Taxpayer First Act (TFA) of 2019 requires the IRS to provide digital signature options for Form 2848, Power of Attorney, and Form 8821, Tax Information Authorization.

These improvements will help individual taxpayers, business taxpayers, and the tax professionals who serve them. These authorization forms are critical for tax professionals to either represent clients before the IRS or to prepare prior year tax returns. By signing the forms, taxpayers are giving tax professionals or other third parties permission to access or view their tax information.

Currently, submitting and processing these authorization forms is a paper operation. Tax professionals typically complete the forms and taxpayers sign them with a pen. The forms are mailed or faxed to the IRS. The faxed forms are printed or distributed electronically to the staff in the Centralized Authorization File (CAF) Unit. These teams review the forms for accuracy and fraud before adding the information to the CAF database.

Even before COVID-19, the IRS was working on CAF improvements and making the TFA requirements a reality. Here’s an important look at what’s ahead:

• In January, the IRS plans to launch a new IRS.gov secure submission platform and a new page, “Submit Forms 2848 and 8821 Online,” that will allow tax professionals to upload third-party authorization forms electronically.
• Tax professionals will enter their Secure Access username and password or complete a Secure Access registration to authenticate their identities.
• Taxpayers and tax professionals can sign the forms electronically or with ink, and then upload the image of the form to the IRS.

This new online submission process will not eliminate the reviewing and processing time by the CAF staff. But it gives tax professionals and taxpayers a safe option to electronically sign and upload these critical documents without an in-person meeting. Especially in these uncertain times, keeping taxpayers and tax professionals safe is a top IRS priority.

Just as tax professionals are required to do for every electronically filed tax return, they’ll need to verify the taxpayer’s identity if there’s an electronic signature and the client is unknown to them. The IRS is planning on using a similar process as outlined by Publication 1345, Handbook for Authorized IRS e-File Providers PDF. This verification process should be familiar to tax professionals.

This New IRS.gov Third-Party Authorization Submission Process Will Not Be The Only Electronic Option For
Forms 2848 And 8821.

Next summer, the IRS plan on launching a platform called the Tax Pro Account. At launch, the Tax Pro Account will serve as the point of entry for tax professionals to electronically initiate and sign an online third-party authorization form.

That third-party authorization form will electronically transfer into the client’s IRS online account. Clients can access their personal IRS account and electronically sign the document. The document goes directly to the CAF, posting immediately. There’s no wait time, no backlog. The Tax Pro Account is an electronic operation from beginning to end.

When they’ve completed these projects next year, tax professionals will have four submission options: 

1. upload on IRS.gov, 
2. initiate electronically via Tax Pro Account, 
3. mail to IRS and 
4. fax to IRS. Because of the risk of fraud, we cannot accept electronic signatures on mailed or faxed authorization forms.

This electronic signature process is part of a larger effort underway at the IRS following the Taxpayer First Act.

Have IRS Tax Problems?

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IRS Approves SALT Workaround for Pass-Through Entities

Before TCJA, individual taxpayers generally could deduct all state and local taxes (SALT) as itemized deductions. TCJA limited the individual SALT deduction to $10,000 for taxable years 2018 through 2025. Some states have been looking for a workaround to enable their resident taxpayers to avoid the $10,000 deduction limit. 

• IRS Has Approved a SALT Workaround for Pass-Through Entity (Notice 2020-75; IR-2020-252)
   
• Before TCJA, individual taxpayers normally could deduct all state and local taxes (SALT) as itemized deductions
   
• TCJA limited the individual SALT deduction to $10,000 for taxable years 2018 through 2025
   
• Some states have been looking for a workaround to enable their resident taxpayers to avoid the $10,000 deduction limit

• The IRS has approved the availability and functionality of this workaround in Notice 2020-75

Watch for legislation in your own state authorizing a PTE election for state taxes to be paid on behalf of the owner by the entity.

Have IRS Tax Problems?

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An Innocent Spouse Request Does Not Stop a Levy During the 21-Day Period After the Levy

According to Procedurally Taxing, an Innocent Spouse Request does not stop a Levy during the 21-day period after the Levy, when the bank was holding the funds in the joint account after receipt of the levy. 

The case of Landers v. United States, 3:20-cv-00455-G (N.D. Tex. 2020) raises the issue of the timing of the injunction against collection vis a vis the completion of a bank levy.  

This case appears to break ground not previously broken, as Ms. Landers seeks to undo the levy because she filed her innocent spouse request during the 21-day period the bank was holding the funds in the joint account after receipt of the levy.  

The court decides that the language stopping collection resulting from the filing of an innocent spouse request does not stop the bank levy during the 21-day period.  

The opinion goes through an analysis of the Anti-Injunction Act to get there.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
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or Toll Free at 888 8TAXAID (888-882-9243) 

IRSAC Inadequate IRS Funding Is a Threat

The Internal Revenue Service Advisory Council (IRSAC) conveys the public's perception of IRS's activities and plays a significant role as external evaluator regarding the reorganization and its implementation. The Council advises the IRS regarding tax administration policy, programs, and initiatives, and they sees a danger in chronic underfunding of the agency.

IRSAC made the point in its annual report, which also highlighted the importance of the Taxpayer First Act and opportunities to expand the e-filing and online application process.

The 2020 Public Report includes recommendations on 26 issues, which cover a broad range of topics, including:

• Funding of the IRS
• The Taxpayer First Act
• Expansion of e-File
• Proposal for an early exam program for Large Business
• Telephone response times for the Practitioner Priority Service
• Resources for Native American taxpayers and federally recognized tribes
• Taxpayer Digital Communications

Inadequate IRS funding is a fundamental risk to tax administration. “A tax system rooted in voluntary compliance requires appropriate levels of customer service and enforcement, both of which depend upon adequate and consistent funding,” the report said. “Congressional appropriations provide the vast share of operating funds for the IRS to administer the nation’s tax system, and collect over $3.1 trillion in net revenue.”

In Fiscal Year 2019, More Than 80 Percent of Federal Government Spending Was Funded By
Federal Taxes Collected By The IRS.

Yet “Overall Funding For The IRS Has Decreased Roughly 20 % On An Inflation-Adjusted Basis Since FY2010,”
Added Charles Read, CEO Of GetPayroll In Lewisville, Texas.

“The result of these budget reductions since FY 2010 is a 22 percent decline in the number of employees at the agency and a 30 percent decline in the number of employees working in enforcement roles.”

Among IRSAC’s recommendations are advocacy for funding at a level no lower than the FY2010 benchmark adjusted for inflation, or $14.3 billion, or at minimum a level that will provide for a net increase in staffing on a sustained yearly basis; and advocating for consistent or multi-year funding for long-term initiatives, including the customer service strategy, training strategy and business modernization plan.

Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
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or Toll Free at 888 8TAXAID (888-882-9243) 

IRS Commissioner Rettig Disagrees With AICPA on COVID-19 Penalty Relief

According to AccountingTODAY, during a House Ways and Means Oversight Subcommittee hearing, Rep. Judy Chu, D-California, submitted the AICPA letter for the congressional record and asked Rettig to respond to how its backlog of millions of pieces of mail from the pandemic is still affecting taxpayers who are being sent penalty notices and the tax professionals who are trying to help them without an easy way to get through to the IRS.

“The IRS closed its facilities to protect its workforce for several weeks this spring and I recognize that it created a huge backlog of mail that the IRS is still working through,” she said. “But I’m disturbed that the IRS is continuing levy and lien notices while processing that backlog of mail. Taxpayers and businesses who have in fact filed on time are being penalized because the IRS still has not processed their filings.”

She noted that the AICPA letter from Nov. 5 included some “commonsense options that the IRS can implement to alleviate the financial difficulties for these tens of thousands of taxpayers.”

She asked him why the IRS wasn’t setting up a dedicated way to address these concerns. “Commissioner Rettig, my understanding is that the IRS has not established an expedited phone service for tax professionals to dispute the lien and levy notices that are being sent to taxpayers despite the backlog,” she said. “Do you have a current estimate of how large the mail backlog is could you also provide a rationale for not setting up such a process to date and whether we can have such a process?”

Rettig Responded That The IRS Has “An Aggregate Of About 3 Million Pieces Backlogged, Of Which About A Million Are Tax Returns, Which Is Not Unusual For Us.”

As for the AICPA letter, he pointed out that he worked for 36 years on the outside as a tax attorney before joining the IRS. “I’m in touch with thousands of practitioners on the outside, AICPA as well as others, and what they were asking for was for us to go beyond the first-time abate and beyond reasonable cause for individuals with a comment saying first-time abate for a failure to file, failure to pay, failure to estimate penalty, you get an automatic abatement and one of their comments was, well if somebody already has one of those they don’t get a second one but then they default to reasonable cause,” he said. 

“We have procedures in place. The individuals in the Internal Revenue Service were not merely career employees who looked at this, but more than 10 people who came onboard from private practice with similar experience to mine looked at this as well and were not willing to provide an open forum for people, professionals particularly, who might not be addressing their responsibilities during this. So we took a hard look at that and AICPA is aware, as are other practitioners.”

Have IRS Tax Problems?

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or Toll Free at 888 8TAXAID (888-882-9243) 

Another Chiropractor Finds Paying Taxes a Pain in the Neck

On September 11, 2019, we posted IRS Not Agree with Chiropractic Adjustments  - Chiropractor Sentenced to Prison for Tax Evasion, where we discussed that the owner of a chiropractic business was sentenced to Six (6) months in prison for tax evasion after pleading guilty to the charge in June 2019. 

Previous to that we posted on September 26, 2017, Utah Chiropractor Sentenced to Prison for Tax Evasion and Obstructing the IRS, where we discussed that yet another chiropractor, who also owned a health care products business, was sentenced to 33 months in prison for tax evasion and corruptly endeavoring to obstruct the internal revenue laws

And now according to DoJ, a Montana chiropractor and his wife pleaded guilty on November 20, 2020 to tax evasion.

According to court documents and statements made in court, Jonathan Wilhelm, owned and operated Pro Chiropractic PC (Pro Chiro) and Big Sky Spinal Care Center Inc. (Big Sky). From 2013 through 2018, the Wilhelms directed payments to cash and then did not report the cash transactions on Pro Chiro’s and Big Sky’s books and records, which they provided to a return preparer to prepare the businesses’ tax returns. 

The Wilhelms knew that omitting the cashed checks and cash payments resulted in an understatement of taxable income totaling $284,691 for tax years 2013, 2014, 2015, 2017, and 2018. In total, the defendants caused a tax loss to the IRS of $74,486.

U.S. Magistrate Judge Kathleen L. DeSoto (Same Judge as 2019 chiropractor tax evasion case) has scheduled a sentencing for March 12, 2021. 

At sentencing the defendants each face a maximum sentence of five (5) years. The defendants also each face a period of supervised release, restitution, and monetary penalties.

 Have an IRS Criminal Tax Problem? 

  
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Marini& Associates, P.A. 

 

 

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orToll Free at 888-8TaxAid (888) 882-9243



Final Regs Provide That GILTI High-Tax Exclusion Rules Apply Retroactively

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.

Have an International Tax Problem?

 Contact the Tax Lawyers at 

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or Toll Free at 888-8TaxAid

IRS Criminal Investigation Releases 2020 Annual Report & Identifies $2.3 Billion in Tax Fraud

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. 

As The Only Federal Law Enforcement Agency
With Jurisdiction Over Federal Tax Crimes,
CI Has One of the Highest Conviction Rates
In Federal Law Enforcement − At 90.4%.

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.  

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or Toll Free at 888-8TaxAid

Interest on Exam Changes Properly Assessed Because Taxpayer Applied Overpayments To Future Years

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.

Have an IRS Tax Problem?

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Marini & Associates, P.A.   

for a FREE Tax Consultation contact us at:

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Toll Free at 888-8TaxAid (888) 882-9243