Tuesday, January 21, 2025

IRS Issuing Partnership 'Soft Letters' To Comply With a Centralized Partnership Audit Regime

According to Law360,  the Internal Revenue Service will keep using an educational compliance tool called soft letters to prod taxpayers to comply with a centralized partnership audit regime that has recently turned its focus to larger and more complicated entities, an agency official said.

Soft letters, which the agency commonly sends out as a compliance measure in other areas, will be an ongoing effort in a relatively new practice area for pass-through entities within the IRS' Large Business and International Division, according to Clifford R. Scherwinski, director of that practice area. He spoke during the D.C. Bar Tax Conference, held in Washington, D.C., and online.

The Goal of The Letters, Which Request Additional Taxpayer Information Similar To An Examination, Is To "Understand Your Challenges As Practitioners And Taxpayers," Scherwinski Said.

So when the IRS sends out such a letter, "it's not always going to result in an audit," he said.

During a round of audits in 2023, the IRS sent 500 soft letters to LB&I partnerships with beginning- and ending-year balance sheet discrepancies, he said.

In 2021, the IRS began its focus on partnership audits of large, high-wealth entities as part of the centralized partnership audit regime enacted by the Bipartisan Budget Act 2015, which took effect in 2018. The agency dialed up those efforts in fall 2023 and identified 76 of the country's largest partnerships for audit thanks in large part to the 2022 Inflation Reduction Act's additional funding for the IRS.

The targeted partnerships have an average total of assets exceeding $10 billion, according to Scherwinski.

To improve the audit process, Scherwinski said, his practice area employed advanced data analytics techniques, as well as expertise from new hires that have experience dealing with these complicated business structures.

Scherwinski's team also looked at a stratified sample across various industries.

"We intentionally looked at ... hedge funds, real estate, publicly traded partnerships, large law firms and other industries out there, because we need to again learn from these experiences," he said. 

The goal is "to really continue to understand the tax risk that's posed" by these large, high-wealth entities that file tax returns, Scherwinski said.

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IRS Start a Fast Track Settlement Pilot Programs To Make Alternative Dispute Resolution Faster & Easier

The Internal Revenue Service announced three pilot programs that will test changes to existing Alternative Dispute Resolution (ADR) programs. IRS ADR programs are designed to help taxpayers resolve tax disputes earlier and more efficiently.

“The IRS has been revitalizing existing ADR programs as part of IRS transformation efforts in alignment with the IRS Strategic Operating Plan,” said Elizabeth Askey, Chief of the IRS Independent Office of Appeals (Appeals). “We’re committed to providing taxpayers who wish to resolve their issues without litigation a choice of effective and efficient ADR options as early as possible.”

“The IRS has historically made ADR available at various stages of the administrative process. Because ADR can be a quicker, more collaborative and cost-effective approach to case resolution, we have been working to improve ADR functionality and emphasizing its benefits,” said Michael Baillif, Director of Appeals’ ADR Program Management Office. “By increasing awareness, changing and revitalizing existing programs and piloting new approaches, we hope to make our ADR programs, such as Fast Track Settlement and Post-Appeals Mediation, more attractive and accessible for all eligible parties.”


The pilots announced by the IRS focus on Fast Track Settlement (FTS), a program that allows Appeals to mediate disputes between a taxpayer and the IRS while the case is still within the jurisdiction of the examination function, and Post-Appeals Mediation (PAM), a program in which a mediator is introduced to help foster a settlement between Appeals and the taxpayer. Among other things, the pilots:

  • Align the Large Business and International (LB&I), Small Business and Self-Employed (SB/SE) and Tax Exempt and Government Entities (TE/GE) divisions in offering FTS on an issue-by-issue basis. Previously, if a taxpayer had one issue that was ineligible for FTS, the entire case was ineligible. This Announcement increases ADR availability and flexibility by allowing FTS for single issues.
  • Provide that requests to participate in FTS and PAM will not be denied without the approval of a first-line executive. This helps ensure a more consistent and deliberate consideration of FTS and PAM requests.
  • Clarify that when requests for FTS or PAM are formally denied, taxpayers will receive an explanation for the denial. This facilitates transparency in the ADR process, even when acceptance of a request is not feasible.

Another pilot, Last Chance FTS, is a limited scope SB/SE pilot in which Appeals will call taxpayers or their representatives after a protest is filed in response to a 30-day or equivalent letter to inform taxpayers about the potential application of FTS to their case. This pilot will not impact eligibility for FTS but will simply test the awareness of taxpayers in the pilot group regarding the availability of FTS and measure the extent of participation when taxpayers are reminded of their FTS options immediately prior to the case entering Appeals’ jurisdiction.

A final pilot removes the limitation that participation in FTS would preclude eligibility for PAM. Eliminating this restriction on PAM eligibility encourages the use of ADR options.

The traditional appeals process remains available for all taxpayers.

Additional improvements in various ADR programs are under development and will be rolled out as they are finalized. The IRS remains committed to creating and maintaining a robust set of ADR offerings that allow taxpayers multiple options for successfully resolving their cases.

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Thursday, January 16, 2025

Trident Trust Receives “John Doe” Summonses For Records Relating To U.S. Taxpayers


According to DoJ, the IRS announced that U.S. District Judge John P. Cronan entered an order on December 23, 2024 authorizing the IRS to issue summonses requiring certain entities to produce information about U.S. taxpayers, including individuals and trusts, who may have used the services of a multinational group of affiliated companies that operate under the trade name “Trident Trust” (collectively, the “Trident Trust Group”) to evade federal income taxes.  

Specifically, the IRS summonses seek records from a Trident Trust Group affiliate, as well as from companies that may have facilitated electronic fund transfers and courier deliveries to Trident Trust Group entities, to identify U.S. taxpayers who may have used the Trident Trust Group’s services to create or control foreign assets and entities to potentially avoid compliance with their U.S. tax obligations.

Acting U.S. Attorney Edward Y. Kim said: 

“Today’s Action Is Part of This Office’s Steadfast Commitment To Hold Accountable Those Who Use Offshore Service Providers To Avoid Paying Their U.S. Taxes.  In Obtaining Authority To Issue These Latest John Doe Summonses, We Continue Our Joint Efforts With The IRS To Investigate Tax Evaders Who Use Foreign Financial Accounts And Sham Foreign Entities To Hide Their Assets And Income"

IRS Commissioner Danny Werfel said: “U.S. taxpayers and their facilitators who hide offshore income generating activities and assets from the U.S. government are on notice that the IRS continues to prioritize combatting offshore abusive activities.  These records will assist the IRS and its partners in finding those taxpayers, ensuring their compliance with the U.S. tax laws and delivering on our mission of a fair tax system.”

Federal tax law requires U.S. citizens, resident aliens, and trusts with gross annual income above the reporting threshold to pay taxes on all their income earned worldwide.  They must also disclose their interests in certain foreign financial accounts, assets, and entities.  Failure to report these offshore arrangements or pay associated taxes can result in serious civil and criminal consequences.  According to the allegations set forth in the documents filed in support of the petition to authorize the John Doe summonses, and other information in the public record:

The Trident Trust Group is a privately owned network of entities operating in nearly 30 jurisdictions worldwide, including known tax havens.  The Trident Trust Group has provided corporate, trust, and fund administration services for over 40 years.  It offers, among other things, services that enable customers to conceal their interests in offshore accounts and entities, including creating opaque corporate structures in jurisdictions with strict privacy laws, providing corporate directors and officers who act on their customers’ behalf, mail forwarding and retention services, and inactive companies known as “shelf companies” that are dormant and sitting “on a shelf” for purpose of later sale, that are incorporated with a standard memoranda or articles of association and have inactive shareholders, directors, and secretaries.  The Trident Trust Group advertises these services as assisting its clients in keeping confidential their beneficial ownership of assets and avoiding public reporting, including for “tax and estate planning.”

Some U.S. clients of the Trident Trust Group use or may use these services to conceal their interests in assets and avoid paying U.S. taxes on them.  For example, Trident Trust Group employees have listed themselves as the founders, directors, and officers of thousands of Panamanian companies to help their U.S. taxpayer clients potentially conceal their interests in and income from these foreign entities. 

Indeed, at least nine U.S. taxpayers who used the Trident Trust Group’s services to conceal their interests in foreign assets have reported their tax non-compliance to the IRS through the agency’s Offshore Voluntary Disclosure Program, which allowed U.S. taxpayers to voluntarily disclose their foreign accounts or entities used to evade tax liability in exchange for fixed penalties.

In this action, the Court granted the IRS permission to serve what is known as a “John Doe” summons on Nevis Services Limited, a Trident Trust Group affiliate based in Manhattan, that seeks information about U.S. taxpayers who may have used its services or those of other entities within the Trident Trust Group to establish, maintain, operate, or control: any foreign financial account or other foreign asset; any foreign corporation, company, trust, foundation, or other legal entity; or any foreign or domestic financial account or other asset in the name of such foreign entity, from 2014 through 2023.  

By Obtaining These Records, The IRS Expects To Be
Able To Identify Trident Trust Group Clients Who Used
The Group’s Services To Avoid Or Evade U.S. Taxes.

In addition, the Court also granted the IRS leave to serve summonses on twelve financial entities and courier services: 

  1. the Federal Reserve Bank of New York; 
  2. Clearing House Payments Company LLC; 
  3. HSBC Bank USA, N.A.; 
  4. the Bank of New York Mellon Corporation; 
  5. Citibank, N.A.; 
  6. UBS AG; Bank of America, N.A.; 
  7. Deutsche Bank Trust Company Americas; 
  8. FedEx Corporation; 
  9. DHL Express (USA), Inc.; and 
  10. United Parcel Service, Inc. 
There is no allegation in this action that these financial entities and courier services have engaged in any wrongdoing.  Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown.  The John Doe summonses direct these financial entities and courier services to produce records that will enable the IRS to identify U.S. taxpayers who have sent or received money or documents to or from the Trident Trust Group, along with other records relating to these transactions.

In parallel, the U.S. has sought John Doe summonses in the U.S. District Courts for the Northern District of Georgia and the District of South Dakota authorizing the IRS to issue summonses to four other U.S.-based entities in the Trident Trust Group seeking information about U.S. taxpayers who may have used the Group’s services.

A representative of Trident Trust responded to us that:

We are aware of the IRS petitions. Each of our trust and corporate services businesses is regulated in the jurisdiction in which it operates and is fully committed to compliance with all applicable regulations. All clients are assessed via a thorough onboarding process.    

“Trident Trust proactively informs the relevant authorities where any compliance process gives rise to concerns.  We also fulfil our obligations in relation to the Automatic Exchange of Information in taxation matters, including FATCA and CRS reporting.”  

They also noted that the quote from the press release referencing U.S. taxpaying clients who have used the IRS’s Offshore Voluntary Disclosure Program, as per the court documents, where voluntary disclosures occurred between 2010 and 2014.   

 Have an IRS Tax Problem?


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Monday, January 13, 2025

As of December 26, 2024, the Enforcement of BOI Reporting Is Again Temporarily Halted Due To a Nationwide Injunction

On December 24, 2004 we posted 5th Court Reinstates BOI Registry and Extends Deadline to January 13th, Where we discussed that on Monday December 23, 2024 the court reinstated the enforceability of the Corporate Transparency Act and lifted the nationwide injunction issued by the district court judge earlier this month. In so doing, the court reinstated the Jan. 1, 2025, compliance deadline for most covered businesses to report their beneficial ownership information to the Financial Crimes Enforcement Network as required by the CTA. However, due to the period when the preliminary injunction was in effect, FinCEN delayed to Jan. 13 the deadline for most businesses to file their initial beneficial ownership information


As of December 26, 2024, the Enforcement of Beneficial Ownership Information (Boy) Reporting Requirements Is Temporarily Halted Due To a Nationwide Injunction (Again).

 

This means that businesses are not required to file BOI reports with the Financial Crimes Enforcement Network (FinCEN). However, businesses can still voluntarily submit BOI reports.  

The injunction was reinstated after a panel lifted it earlier in the week. The injunction will remain in place until the court decides the case, which could include a final determination by the U.S. Supreme Court. 

Need Help Filing Your BOI Report?


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

 



 

Monday, December 30, 2024

Court Authorizes John Doe Summons For Identities of U.S. Taxpayers Who Participated in the “Gig Economy” Via a Digital Platform

According to DoJ, a federal court in California entered an order on Monday authorizing the IRS to serve a John Doe summons on JustAnswer LLC, seeking information about U.S. taxpayers who were paid for answering questions as “experts” during the years 2017-2020. The IRS is seeking the records of individuals who were paid by JustAnswer, which operates a digital platform through which members of the public can pay to have questions answered by professionals such as doctors, lawyers, veterinarians, engineers and tax professionals. JustAnswer is headquartered in Covina, California.

The “gig economy” is where people earn income providing on-demand work, services or goods through a digital platform like a website or an app. 

Well-known examples of such platforms include Airbnb, Uber, Lyft, DoorDash, Etsy, Handy and TaskRabbit. The gig economy is a recent phenomenon associated with the increased prevalence of smart phones and their applications, facilitating the development of online marketplaces and platforms in which individuals can connect to obtain and offer goods and services. Digital platforms commonly serve as intermediaries, connecting sellers or service providers with customers while also processing payments. 

In the court’s order, U.S. District Judge Dolly M. Gee for the Central District of California found that there is a reasonable basis for believing that U.S. taxpayers who were paid by JustAnswer to answer questions as experts may have failed to comply with federal tax laws.

The court’s order grants the IRS permission to serve what is known as a John Doe summons on JustAnswer. There is no indication that JustAnswer has engaged in any wrongdoing in connection with its digital platform business. Rather, the IRS uses John Doe summonses to obtain information about individuals whose identities are unknown and who possibly violated internal revenue laws, such as by not reporting income they received. This John Doe summons directs JustAnswer to produce records identifying U.S. taxpayers who have used its platform to earn income, along with other documents relating to their work.

“The gig economy has grown in recent years and with it, the concern for tax compliance issues has increased,” said Deputy Assistant Attorney General David Hubbert of the Justice Department’s Tax Division. 

“This John Doe Summons Demonstrates That Working With 
The IRS We Will Use All The Tools Available To Us To
Ensure That No Matter How U.S. Taxpayers Earn Income,
They Are Properly Reporting It And Paying Their Taxes.

Those who choose to be on the forefront of the gig economy must be aware of, and abide by, all their tax obligations.”

“Like their fellow Americans who earn income through traditional means, U.S. taxpayers who earn income from digital and other platforms that comprise the gig economy need to pay their fair share of taxes,” said IRS Commissioner Danny Werfel. 

“The World Is Getting Smaller For Tax Cheats,
And We Will Work Collaboratively With Our Partners
To Vigorously Enforce The Nation’s Tax Laws.”

Federal law requires U.S. individual taxpayers to pay taxes on all income earned worldwide. Individuals must report all income earned from the gig economy on a tax return. This includes income from part-time, temporary or “side work”; income not reported on an information return form (like a Form W-2 or 1099) or other income statement; or income paid in cash, property, goods or digital assets.

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)

Tuesday, December 24, 2024

5th Court Reinstates BOI Registry and Extends Deadline to January 13th


On December  , 2024 we posted DOJ Files an Appeal of The Nationwide Injunction Against CTA - What To Do? where we discussed that the government filed its notice of appeal of the decision of the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop Inc. v. Garland on December 5, 2024 and now according to the ABA Banking Journal, the U.S. Court of Appeals for the Fifth Circuit on Monday December 23, 2024 reinstated the enforceability of the Corporate Transparency Act and lifted the nationwide injunction issued by the district court judge earlier this month. In so doing, the court reinstated the Jan. 1, 2025, compliance deadline for most covered businesses to report their beneficial ownership information to the Financial Crimes Enforcement Network as required by the CTA.

However, due to the period when the preliminary injunction was in effect, FinCEN delayed to Jan. 13 the deadline for most businesses to file their initial beneficial ownership information. Businesses created or registered on or after Dec. 3, 2025, will have an additional 21 days from their deadline to file. Deadlines for companies created or registered on or after Jan. 1, 2025, are unchanged. (Banks are exempt from filing, but many of their business clients are covered.)

The lawsuit in Texas was filed by the National Federation of Independent Business and several of its members. The plaintiffs argued that the CTA exceeded Congress’ authority to regulate interstate commerce, that it violates the First Amendment by compelling speech and infringing freedom of association and that it violates the Fourth Amendment by forcing the disclosure of private information.

The appeals court said the U.S. Department of Justice “made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality,” noting that the reporting requirement fell within Congress’ broad authority under the U.S. Constitution’s Commerce Clause to regulate economic activity that would affect interstate commerce.

Still exempt from the filing deadlines are members of the National Small Business Association, in which an injunction applying to its members in a separate lawsuit remains in place. The plaintiffs in the NFIB case could seek further review from the Fifth Circuit or seek relief from the U.S. Supreme Court. Several other federal courts are actively considering CTA challenges.

According to recent poll data from Wolters Kluwer, as of mid-November, only about a quarter of the estimated 32.5 million covered businesses had registered. Thirty-seven percent of firms were waiting until closer to the deadline and 12% said they had insufficient resources to do the filing. Meanwhile, 9% of businesses believed they were not covered by the rule, and 32% were unsure whether the rule applied to them.

Need Help Filing Your BOI Report?


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