TIGTA Review of IRS Compliance With Guidelines When Issuing Levies

TIGTA reviewed levies issued for 57,775 taxpayers by Field Collection (48,781) and the Automated Collection System (8,994) during the period October 1, 2020, through September 30, 2021, and found that the IRS generally complied with legal and administrative requirements. However, there were some instances of noncompliance resulting in taxpayers’ rights being potentially violated: 

• 51 taxpayers were not notified (44) or not timely notified (7) of their CDP rights.
• 17 taxpayers did not receive a new CDP notice after an additional tax assessment was made. 
• 105 (estimated) taxpayers had levies erroneously issued while a CDP hearing was pending.
• 17 taxpayers with disqualified employment tax levies were not mailed or not timely mailed their post-levy CDP notice. 

For taxpayers with Field Collection levies (10,514) and Automated Collection System levies (1,762) and an open Power of Attorney authorization between March 1, 2020, and November 15, 2021, TIGTA identified: 

• 753 (estimated) taxpayers whose authorized Power of Attorneys were not issued a copy of the CDP notice as required.
• 421 (estimated) taxpayers who had a CDP notice issued to a representative that the taxpayer had not authorized to receive notices. 

TIGTA made eight recommendations to help improve the proper issuance of levies by the IRS, including that the IRS should remind all managers to consider disciplinary action for Collection employees whose failure to observe written regulations, orders, rules, or IRS procedures pertaining to levies resulted in a violation of taxpayers’ rights. 

The IRS agreed with seven recommendations and plans to take corrective actions.

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TC Finds Fla Man Liable For Fraud Penalty For Not Disclosing Foreign Account

According to Law360, a Florida man's estate is liable for fraud penalties after the U.S. Tax Court found on September 14, 2022 that he failed to disclose over $1 million to the IRS, used foreign bank accounts to conceal funds and filed false tax forms.

The estate of Brett L. Clemons Sr. owes fraud penalties under Internal Revenue Code Section 6663, the Tax Court said in a memorandum opinion, finding he tried to swindle the Internal Revenue Service from 2003 through 2009 by failing to report income and filed misleading documents with the agency. The court largely affirmed the assessments the IRS made against Clemons, which included nearly $455,000 in taxes, according to the opinion.

That he failed to work with the IRS while it examined his taxes and relied on foreign bank accounts also indicates that he intended to commit fraud, the court said.

"Mr. Clemons' choice to open Swiss bank accounts with secretive features provides ample evidence of concealment," the opinion said.

Clemons died in 2021 after the Tax Court held a trial in his case. The IRS had assessed taxes against him for 2003 through 2009 based mostly on undisclosed income the agency had determined based on deposits in his bank account, according to the opinion.

It Also Assessed Nearly $322,000 In Fraud Penalties
Under Section 6663, According To The Opinion.

In 2001, Clemons opened his first account in Switzerland that he used to conceal income from the IRS, and he used several accounts overseas over the years to hide income that he never reported on his income tax returns, according to the opinion.

He failed to disclose the existence of those accounts on the annual Report of Foreign Bank and Financial Accounts form that he was obligated to file, and he also filed his tax returns late, according to the opinion.

Among the Tax Court's findings were that Clemons couldn't retroactively change the treatment of his passive foreign investment company income, that he couldn't deduct various expenses connected with his employment with Hewlett-Packard U.S., and that he wasn't entitled to various Schedule C deductions and the foreign tax credit. It also rejected arguments that the IRS was too late to assess taxes against Clemons. 

The typical three-year deadline for assessing taxes doesn't apply when a person files fraudulent returns, and the agency has proven that Clemons' actions were fraudulent, according to the opinion.

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Supervisor Approval of Penalty Not Required At Initial Penalty Communication - Only Actual Assessment Requires Approval

According to  Law360, the Eleventh Circuit reversed a U.S. Tax Court decision determining the Internal Revenue Service couldn't impose penalties on a man's $25 million in transfers, saying Tuesday that a supervisor wasn't required to approve the penalties until they were assessed.

The requirement that penalties are approved in writing by IRS supervisors under Internal Revenue Code Section 6751(b) doesn't apply to those early communications, the appeals court found. It instead applies to the actual assessment, meaning the penalty was properly approved by an agency supervisor in a second letter that followed the initial communication of the penalties to Burt Kroner, according to the opinion. 

"The statute prohibits assessing a penalty unless a condition has been met, supervisory approval of the initial determination of assessment," the opinion said. "But the statute regulates assessments; it does not regulate communications to the taxpayer."

"Because The IRS Did Not Assess Kroner's
Penalties Without A Supervisor Approving
An 'Initial Determination of Such Assessment,'
We Hold That The IRS Has Not Violated
Section 6751(B)," It Added.

The Tax Court found in June 2020 that Kroner couldn't treat $24.8 million in transfers from a British business partner as gifts for tax purposes. It determined that Kroner's story advocating for treating the funds as gifts wasn't credible, and they're better considered income, according to the opinion.

But the Tax Court found that a Letter 915 — a 30-day letter the IRS sends out that proposes tax adjustments and penalties — constituted an initial determination under Section 6751(b). Since that letter was sent in August 2012, before an IRS supervisor signed off on the penalties in October 2012, the penalties can't stand, the court said.

In its opinion Tuesday, the Eleventh Circuit said the Tax Court's interpretation didn't pass muster based on the text of the statute. Communications to taxpayers and actual tax assessments are distinct from each other, and Section 6751(b) doesn't address communications, according to the opinion.

The Ninth Circuit has also determined that Section 6751(b) doesn't require initial IRS determinations of penalties to be approved by IRS supervisors, but instead requires actual assessments to be authorized with a manager's signature.

Have an IRS Tax Problem?

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Accountant's Forged Signatures On Form 872 Extended the SOL - Really?

According to Law360, a New York City couple asked the Second Circuit to scrap a U.S. Tax Court decision holding them liable for more than $800,000 in taxes and penalties, saying their signatures were forged on documents used to hold them accountable.

Om and Anjali Soni told the appeals court that $158,000 in penalties and fines for their 2004 tax return would have been barred by the Internal Revenue Service's statute of limitations if not for documents forged by their accountant giving the IRS extensions to assess taxes, according to a brief filed on August 29, 2022.

Further, they argued, the Tax Court wrongly approved a $643,000 tax deficiency on their 2004 joint tax return when it ruled that even though Anjali Soni didn't sign the return, she was bound by the doctrine of "tacit consent," which confirms the validity of a joint tax return signed by only one spouse in certain situations.

When The Tax Court Additionally Ruled That Anjali Soni
Gave Tacit Consent For Her Signature On Legal Documents Even Beyond The Tax Return, Including The Extension Documents The Couple Claims Were Forged, It Went Outside The Traditional Boundaries Of Law, The Couple Argued.

The Tax Court ruled against the Sonis in January, deciding they were liable for an income deficiency of $643,000 for 2004, plus a $29,000 late fee and a $129,000 penalty for underreporting income.

The couple claimed the deficiency stemmed from using tax preparers who wrongly advised them to claim a $1.7 million loss on an investment, eradicating any 2004 tax liability, according to the brief. However, they claim the deficiency is moot because while the return shows the couple's signatures, neither Om nor Anjali Soni signed for Anjali, and they don't know who did, according to the brief.

The couple said the new accountant they used after the IRS began investigating their return did prison time after pleading guilty in 2016 to other forgery and fraud charges, according to the brief. 

During the couple's Tax Court trial in 2019, the accountant admitted to signing the couple's names to a document giving him power of attorney in 2008, and signing ensuing documents over the next decade giving the IRS more time to assess taxes on the Sonis, without telling the couple, "for expediency's sake," according to the brief.

The accountant said he was acting as a friend of the Sonis because he had been the accountant on the $1.7 million investment deal that drew the attention of the IRS, according to the brief.

In addition to the power of attorney document, the accountant signed nine 872 forms consenting to give the IRS more time to assess tax, according to the brief. 

Without The Forged Signatures, Any Assessments Made After 2008, Three Years After The Original Return Was Filed, Would Be Time-Barred, The Couple Argued In Their Brief.

They said the Tax Court was wrong to find that they had given their accountant "implied" authority and that their subsequent actions treating the accountant as their representative throughout the IRS appeals and litigation process essentially "ratified" the documents.

The Couple Said They Were Unaware The Accountant
Had Signed Documents For Them Until They
Were Preparing For The 2019 Tax Court Trial.

J. Mark Lane of Lane Crowell LLP, who represents the Sonis, told Law360 he found it unbelievable that the IRS won the case at trial.

"If you read the transcript of the trial in this case, I think you'll see that there was insufficient evidence to support the Tax Court's decision," Lane said. "All of the evidence essentially went the other way."

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Domestic Company Cannot Pay The Transition Tax In Installments

A domestic corporation cannot pay its transition tax liabilities in installments because it had a tax deficiency due to negligence or intentional disregard of federal regulations, the Internal Revenue Service Office of Chief Counsel said on Friday, September 2, 2022.

The IRS said in Chief Counsel Memorandum 202235009 that the corporation, which was not named, was not entitled to elect to pay the transition tax in installments because the company's return did not reflect the final transition tax regulations, resulting in a deficiency assessed by the IRS. 

The Corporation Did Not Report A Portion Of Its Income, According To The Memo, Because It Is Challenging A Provision Of The Rules That Would Increase Its Net Tax Liability.

However, the resulting deficiency determined by the IRS amounted to a "deficiency due to negligence or intentional disregard" of the regulations, which barred it from making the election to pay the tax liability in installments, the memo said.

Have an IRS Tax Problem?

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Reminder PayPal, Venmo & Third-Party Payment Networks Start Reporting to the IRS Payments > $600 Starting in 2022

Third-party payment networks, such as PayPal and Venmo, must report to the IRS any transactions for goods or services in excess of $600 starting this year. 

Beginning January 1, 2022, all third-party payment processors in the United States are required to report payments received for goods and services of more than $600 a year. 

This means if you’ve sold goods or conducted a business service and collected payment through Venmo, PayPal, Cash App, Square, Stripe, Etsy, or eBay, you will receive a 1099-K Payment Card and Third-Party Network Transactions Form, and that income will be reported to the Internal Revenue Service.

The change was made to capture income made by gig workers and entrepreneurs with a side hustle. In the past, companies were only required to send an IRS Form 1099-K for gross payments exceeding $20,000 and more than 200 transactions within a calendar year.

If you’re sending or receiving money through one of these apps, you need to be proactive in making sure you aren’t mistakenly sent a 1099-K.

The House’s Build Back Better Proposal would have separately required third-party payment networks to apply backup tax withholding to such payments. However, the Build Back Better Proposal did not pass in 2021. 

But the IRS is aware of this leakage or revenue from third-party payment networks, such as PayPal and Venmo and will continue enforcement efforts to ensure the taxpayers properly report income from these third-party payment networks.

Have an IRS Tax Problem?

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

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

The REAL Facts Regarding IRS Criminal Investigation

On August we posted IRS Is Going After Tax Evaders, Not Honest Americans - Rettig Op-ed, where we discussed that IRS Commissioner Chuck Rettig published an op-ed on Yahoo Finance: IRS sets the record straight: We’re going after tax-evaders, not honest Americans.

One issue that politicians and others have not covered is what exactly IRS Criminal Investigation does and to that end, we refer you to the IRS CI’s 2021 Annual report, which explores CI’s unique role in tax administration and its relationship to law enforcement more generally.

The bulk of what CI does in terms of time and agent hours is work on general tax fraud investigations, as this shows:

According Procedurally Taxing, Building a fraud case is time intensive and can often involve high profile people and businesses. CI also assists on non tax investigations like its Illegal Source Financial Crimes Program. According to the CI Annual Report, in these cases, “special agents’ investigations focus on individuals who receive income from illegal sources, such as embezzlement, bribery, and fraud. They also focus on money-laundering schemes, where individuals launder their ill-gotten gains by making the money appear as if it came from legitimate source.”

There is lots more in the report, including solid numbers on investigations, prosecutions and employee numbers including that the IRS Criminal Investigation (CI) is comprised of nearly 3,500 employees worldwide, approximately 2,500 are Special Agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. 

Not 87,000 New Special Agents, As Falsely Reported Concerning The Recently Passed Inflation Reduction Act 2022.

CI is a key part of our tax system, with its employees investigating and at times recommending prosecution of criminal tax violations and other related financial crimes to the Department of Justice. 

While most taxpayers will never interact with CI, it is an important part of a system that depends on the community at large respecting and complying with the law.

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)

 

 

IRS Sues Widow as PR in Federal Court for Husbands $2.3M FBAR Penalty

According to Law360, An Idaho widow faces $2.3 million in penalties and interest stemming from her husband's failure to report his foreign bank accounts to the Internal Revenue Service, the U.S. alleged in a complaint filed in federal court.

Patricia Leeds is the surviving spouse of Richard Leeds, who willfully neglected to report his two Swiss bank accounts from 2006 to 2012, the U.S. said in its its complaint, filed on August 30, 2022. She is named as a defendant in her capacity as a potential successor or personal representative to her deceased husband's estate, the U.S. said.

Richard Leeds opened one account with EFG Bank in 1980, the U.S. said in its complaint, and withdrew just over $157,000 from the account between 2006 and 2009. He initially denied to the IRS that he made the withdrawals, which is evidence that he knew he had an obligation to report them, the government said.

Richard Leeds closed the account and transferred the funds in 2009 to a second EFG account, which he had opened in 1997 and put under the name Asian Group for International Studies and Training, a foreign corporation he created in Turks and Caicos in 1997, the government said. Richard Leeds was the beneficial owner, the "director" and the "president/secretary" of the corporation, the U.S. said. He asked EFG to hold correspondence about the account at the bank, the U.S. said.

Cash withdrawals from the second account totaled almost $485,000 from 2006 to 2012, the U.S. alleged. As with the first account, Richard Leeds denied withdrawing the money, it said. He closed the account in 2012 and transferred the funds, $2.5 million, to a domestic account, the government said.

Richard Leeds did not disclose his accounts to an accountant hired for preparing his tax returns, the U.S. said. He admitted to a foreign source of income but did not take the accountant's advice to consult a tax attorney, it said.

The IRS Accepted Richard Leeds Into Its Offshore Voluntary Disclosure Program In 2014, The U.S. Said. He Filed Reports For The Accounts But Opted Out Of The Program In 2018, It Said.

The IRS started an examination and assessed penalties of $1.5 million against him in 2018. The amount has grown to $2.3 million as of Aug. 15, it said. Richard Leeds died in 2021, according to the complaint.

Have Un-Reported Foreign Income?

Want To Know Which
Voluntary Disclosure Program
Is Right For You?  

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Marini& Associates, P.A. 

 

 

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