IRS Crypto Crackdown Going Global!

According to Law360, the Internal Revenue Service's continued use of information demands to cryptocurrency exchanges in its fight against tax avoidance may soon be entering a new, ambitious era of global reach and cooperation. 

That's because even as the IRS has demonstrated a willingness to repeatedly employ a powerful information-gathering mechanism, the John Doe summons, when contending with American-based exchanges, there are many exchanges based overseas that would perhaps be of interest to the IRS. 

If the IRS becomes inclined to employ similar information-gathering tactics for foreign-based exchanges, the agency would likely be able to rely, in part, on global infrastructure in the form of the Joint Chiefs of Global Tax Enforcement, or J5. If the IRS does pursue that type of initiative, it will likely bear striking similarities to the Swiss Bank Program. 

For now, U.S.-based cryptocurrency exchanges will likely continue facing information requests from the IRS, in volume and consistency that are somewhat reflective of the government's oversight role in the banking industry. But exchanges based abroad may soon feel the same pressure. 

The Internal Revenue Service began investigating potential cases of cryptocurrency-facilitated tax evasion after a 2013 Government Accountability Office report identified tax compliance risks posed by the use of cryptocurrency. Among these risks were the lack of third-party reporting on the transactions and a lack of knowledge among taxpayers over how transactions and gains made via cryptocurrency exchanges are taxed.

In the years since, the IRS has signaled, in both word and deed, a commitment to enforcement in the cryptocurrency arena. For example, in November 2016, a California federal judge authorized a John Doe summons by the IRS to obtain information from an exchange called Coinbase. Coinbase challenged the summons, and the following November the judge ordered the company to comply with a narrowed request for information on accounts with transactions greater than $20,000.

Similarly, in March of this year, the U.S. government filed a petition asking the court to approve its summons on the Kraken cryptocurrency exchange. The IRS sought information on people who have accounts with Kraken and have conducted at least $20,000 in transactions in any given year from 2016 through 2020. The government succeeded in its petition. 

And separately, the agency successfully utilized a John Doe summons to pursue records for those who "engaged in business with or through" Circle Internet Financial Inc. and its affiliates.

In the summer of 2019, the IRS issued more than 10,000 educational letters to taxpayers who the IRS knows or believes had virtual currency transactions. The IRS also added a question to page 1 of Form 1040, U.S. Individual Income Tax Return, asking whether the taxpayer transacted in virtual currency.

Since a Limited Number of Cryptocurrency Exchanges Are Based In The U.S., It Seems Inevitable That The IRS Would Look At Exchanges Based Overseas in Pursuit of a
Comprehensive Enforcement Strategy.

When it does, he said, it'll likely rely on the J5. The J5 collaborative tax enforcement effort was launched in 2018 by five countries: the U.S., Canada, the United Kingdom, the Netherlands and Australia. The group, which is focused on tracking down instances of tax crimes, recently identified fintech companies that will be part of their investigations. 

Using various analytical tools, members of each country were put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them through The Challenge. Working within existing treaties, real data sets from each country were brought to the challenge to make connections where current individual efforts would take years to make those same connections.

Eventually, international collaboration in the cryptocurrency space may begin to resemble the efforts brought to bear by the Department of Justice-led Swiss Bank Program.

The Swiss Bank Program, started in 2013, was designed by the Department of Justice as a way for banks in Switzerland to avoid criminal prosecution if they fully disclosed pertinent information to, and cooperate with, law enforcement officials relating to efforts by Americans to avoid paying taxes to the Internal Revenue Service. Banks that were already subject to prosecution before the program was announced or that missed the deadline for submission were not eligible to participate. 

While not a perfect analogue, the Swiss Bank Program may serve as something of a template for international enforcement of cryptocurrency-facilitated tax evasion, Starling Marshall, partner in Crowell & Moring's tax and litigation groups, told Law360. Marshall previously served at the DOJ. 

For instance, one major puzzle piece that's currently missing in the crypto space is the voluntary disclosure program that was part of the Swiss Bank initiative, she said. Voluntary disclosure in that context allowed Swiss banks the opportunity to avoid criminal prosecution if they cooperated with the U.S. government by providing detailed information of interest. 

Practitioners are watching closely to see if the government institutes a similar program in the cryptocurrency space when the time is right, Marshall said. 

Taxpayers should check whether it is still possible to correct the tax return or file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties, as well as administrative costs.

Have a Virtual Currency Tax Problem?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact us at

www.TaxAid.com or www.OVDPLaw.com

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

TIGTA Finds IRS Criminal Restitution Procedures Need Improvement

In Audit Report No. 2021-30-033, the Treasury Inspector General for Tax Administration (TIGTA) has called on IRS to improve its procedures related to the collection of assessed criminal restitution in tax-related cases. 

According To The Audit, During Fiscal Years 2016 Through 2020, Defendants Were Ordered To Pay More Than $2.7 Billion In Criminal Restitution To IRS But Paid Only $844 Million
(Or 31%) During That Same Period.

"TIGTA found that in cases for which the IRS had the authority to assess the restitution ordered, a higher percentage of restitution was paid," the audit said.

TIGTA suggested ways to ensure that the restitution ordered is properly assessed. For example, IRS Criminal Investigation (CI) should be certain that it always sends closing documents to the Small Business/Self-Employed (SB/SE) Division for the assessment of restitution. Furthermore, the division must correctly assess interest and penalties on all restitution-based assessments.

"TIGTA also found that a lack of resources within CI and the SB/SE Division contributed to the IRS not being able to adequately monitor defendants' compliance with the conditions of probation or supervised release," the audit said. Bolstering those resources would be a positive step for IRS to take, TIGTA suggested.

In addition, TIGTA found that internal controls could be improved to prevent IRS from issuing erroneous refunds for restitution payments, the audit noted.

Have IRS Tax Problems?

     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) 

Understanding IRS Tax Audits - Part I

 Careful advance preparation can help reduce the scope of a tax audit or examination and can lead to a more favorable outcome. Although a thorough understanding of the underlying facts and applicable law is a must, understanding IRS procedures is critical to preserving a taxpayer’s rights.

We summarize below and in Parts II & III, to follow later, some of the more important IRS procedural rules and guidelines governing civil IRS examinations and audits, including: how returns are selected for examination; a brief description of the types of civil examinations; an explanation of the tools available to IRS examining agents and revenue agents; dispositions in IRS audits or examinations and, if necessary, where to seek relief from an unfavorable result in an examination or audit.

Selecting Tax Returns for Examination

It is helpful to understand how tax returns are selected for examination. The IRS selects returns for examinations in several ways, some based upon objective criteria coded into a carefully protected computer program and others based upon old fashioned detective work.

The main computer program that the Service uses to identify returns for examination is the Discriminate Function System. The Discriminate Function (DIF) score is the product of a mathematical formula for identifying and selecting returns for examination. The program scores tax returns using a formula based on historic information obtained from specific examination programs. A high DIF score indicates a high potential for adjustment. The Service periodically conducts compliance studies to update and reformulate its basis for audit selection formulas.

Different types of taxpayers and returns are subject to different DIF formulas. While the specifics of the program are not public, certain items appear to cause a return to be selected for examination, such as participation in a tax shelter, large charitable contributions, home office deductions, large travel and entertainment expense or large automobile expense. Returns selected under the DIF program are then manually screened so that attachments to the return and other data that a computer cannot detect can be properly considered.

The Service also relies on information provided by third parties, such as banks, brokers and employers. Much of this information is required to be reported by payers of certain types of income on Forms W-2 or 1099. Referrals may also be made by other examining agents. For example, the return of a party related to another taxpayer being audited, such as the partners of a partnership being audited may also be selected for audit. The Service also may investigate tips regarding potential noncompliance, and select those returns for audit as a result. Examinations may also be triggered a variety of other ways, such as, by mathematical errors or missing information. Also, a claim for refund can trigger an examination.

Types of IRS Examinations

IRS civil examinations can take a variety of forms, depending upon the type of taxpayer, the complexity of the tax return and the initially determined scope of the exam. The simplest examinations conducted by the IRS are Campus Examinations. Campus Examinations are correspondence exams addressing simple problems like substantiation that can be resolved easily by correspondence and/or telephone. Area Office Examinations may be conducted for slightly more complicated issues such as small business returns and more complex non-business returns. Area Office Examinations may be conducted by correspondence, office interview or even by a field examination, depending on type and complexity of the return. In all cases, the taxpayer is asked to provide supporting documentation of questionable items. Business returns will always be examined in an office or field interview rather than a correspondence examination.

Examiners at the correspondence and office levels are much less invasive. The examining agents are required to process many cases and often have little time to completely familiarize themselves with the return. Indeed, the examiner may not have reviewed the taxpayer’s file and return until after the taxpayer has replied to all correspondence regarding the examination, and often not until the day of the interview. The scope of office examinations is generally limited to items on a checklist of issues contained in the Internal Revenue Manual. The examiners have little discretion and basically, are charged with verifying income and deductions based upon records provided. A taxpayer’s inability to produce adequate records may lead not only to disallowance of the disputed items for the year at issue, but also to audits of other years’ returns.

Field Examinations involve more complex issues. The examining agent will be a revenue agent, as opposed to an office auditor. He or she will be better trained and will have had more experience. A Field Examination consists of examination of a taxpayer’s books and records at the taxpayer’s place of business or where the books, records or source documents are maintained. The agent will review the taxpayer’s entire return and all documentation related to that return. The agent may be assisted by a technical specialist such as an “engineer agent” if the return presents a special issue such as valuation. Unlike, office auditors, revenue agents spend considerable time preparing for the examination. Prior to the examination, the revenue agent will review any prior examination reports from the same taxpayer. This may lead to scrutiny of recurring issues or inclusion of other years’ returns in the examination. Of course, the revenue agent will also look at the return for unusual or questionable items.

Taxpayer Rights During an IRS Audit

Taxpayers are guaranteed certain important rights during audits and examinations. Among these rights is the right to be provided certain information describing the examination process and other rights at the commencement of the examination. Examinations must be conducted at a reasonable time and place and taxpayers have the right to bring representation to any interview. Taxpayers have the right to record any interviews with the agent. Taxpayers also have the right not to be interviewed, except through the summons process, and must be notified of any summons to a third party and of their right to quash any such summons. Importantly, taxpayers have the right to have their tax information kept confidential.

Burden of Proof

Under prior law, there was a rebuttable presumption that IRS’s determination of tax liability is correct, and therefore (with some exceptions such as fraud), the burden of proof was on the taxpayer to show that the IRS’s determination was wrong. Under new law, the IRS has the burden of proof in any court proceeding with respect to a factual issue related to income, estate, gift, and generation-skipping transfer taxes if the taxpayer introduces credible evidence relevant to the determination of the taxpayer’s tax liability. To be eligible, the taxpayer must prove that he or she complied with required statutory and regulatory substantiation and recordkeeping requirements; cooperated with reasonable IRS requests for meetings, interviews, witnesses, documents, and information; and (if not an individual) met certain net worth limitations. Cooperation generally involves: providing reasonable assistance to the IRS in accessing witnesses, information, and documents not within the taxpayer’s control; exhausting administrative remedies, including IRS appeal rights; and establishing the applicability of a privilege. Cooperation does not require that the taxpayer agree to an extension of the limitations period. The IRS continues to have the burden of proving fraud, irrespective of the new law.

To be continued... Understanding IRS Tax Audits - Part II

Have a 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

J5 Host ‘Challenge’ Aimed at FINtech Organizations Perpetrating Tax Crimes Around the World

According to IR-2021-64 issued on March 25, 2021, the Joint Chiefs of Global Tax Enforcement (J5) brought together investigators, cryptocurrency experts and data scientists in a coordinated push to track down individuals and organizations perpetrating tax crimes around the world this week.

The event, known as 'The Challenge,' includes experts from each country with the mission of optimizing data from a variety of open and investigative sources available to each country, including offshore account information. 

Using various analytical tools, members of each country were put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them through The Challenge. Working within existing treaties, real data sets from each country were brought to the challenge to make connections where current individual efforts would take years to make those same connections.

"While a great deal of preparation goes into these events, the Challenges are by no means a rehearsal for us," said Jim Lee, Chief, IRS Criminal Investigation. 

"As Evidenced From The Last Couple of Years, These Challenges Result In Real Enforcement Actions Taken By The J5.

They serve as an opportunity to continue to share information and further develop leads, but they also jumpstart investigations. I expect we will see results from this Challenge in the months and years to come."

This year the challenge focused on Financial Technology (FINtech) companies. FINtech companies invent new and innovative financial solutions, mainly making use of the digital opportunities the internet offers. 

Many FINtech companies develop and market new financial products and payment possibilities like cryptocurrency, payment processing platforms like PayPal, crowdfunding loans, and insurance. 

With These Products, FINtech Companies Are Competing With Large Traditional Financial Institutes Like Banks and
Insurance Companies and Profits
In The Billions Of Dollars Are Not Unheard Of.

"In a fast-changing digital world, the J5 also must adjust and change," said Niels Obbink, General Director of FIOD. "During this challenge, experts have worked hard to focus on the legal opportunities countries have to start J5 investigations aimed at FINtech companies."

Many FINtech companies have adopted compliance regulations and are partnering with governments and law enforcement in prohibiting financial crime. 

However, Due To The Online Nature Of The Products, The Novelty And The Lack Of Regulation And Compliance In Some Areas, The FINtech Industry Can Be Used By Tax Avoiders And Money Launderers To Commit Crimes.

All FINtech companies have one attribute in common: they trade in intangible online assets and services. Because of that intangible nature, they can trade from anywhere in the world, only limited by the availability of the Internet. Government regulation on cryptocurrency and financial services have led to the need for FINtech companies having a physical presence in particular countries or areas.

This year's Challenge followed a virtual February meeting of all five J5 Chiefs where each country reiterated their dedication to the alliance and expressed excitement about the operational results to come. In early March, the Chief Executive Officer and an associate of Sky Global were indicted on charges that they participated in a criminal enterprise that facilitated the transnational importation and distribution of narcotics through the sale and service of encrypted communications devices. Earlier this week, a ten-count indictment was returned by a federal grand jury in Brooklyn charging Jason Peltz with securities fraud, money laundering, tax evasion and a variety of other offenses. Both cases were worked under the umbrella of the J5.

The J5 includes the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty's Revenue and Customs (HMRC) from the UK and the Internal Revenue Service Criminal Investigation Division (IRS-CI) from the US. Please visit the J5 webpage for more information about the J5.

Taxpayers should check whether it is still possible to correct the tax return or
 file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties,
as well as administrative costs.

Have a Virtual Currency Tax Problem?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact us at

www.TaxAid.com or www.OVDPLaw.com

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

All That You Wanted to Know About Form 706NA - Part II

 We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.  

Based on our estate counsel Robert Blumenfeld's 32 years of experience as a senior attorney at the International office of the IRS, some of the strange and exotic problems that he discovered upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.
 

As he pointed out, one of the critical areas for each estate is to focus on is the decedent’s citizenship and domicile. To assist the IRS in reaching a conclusion, it is best to include the death certificate (required) as well as the birth certificate, passport, and any documents revealing the fact that the decedent expatriated from one country. This information may well be beneficial in avoiding an IRS examination. The problem is that once the IRS examines a tax return for one issue (i.e. citizenship or domicile), it opens the door for the IRS to examine a number of other issues that they might not have otherwise addressed. Kind of like opening Pandora's box. 

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information. Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity. 

Question two addresses debt obligations  or other property located in the United States. One of the major problems that I saw as an auditor was that people will value the house or condominium in the United States allocating no value to the contents. In most cases this is not a big deal but in the case of an expensive property, I, as the auditor always requested (summoned if the estate did not cooperate) a copy of the insurance policy plus the floater. Generally I found nothing specific but from time to time, I found an art collection worth several million dollars, an automobile collection worth over million dollars, and an extensive collection of rare China worse close to $1 million. If the client is wealthy or as expensive real estate in the United States, obtain a copy of the insurance floater before you prepare the 706NA to avoid great embarrassment. 

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years. 

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at  the examination.

Have a US Estate Tax Problem?

 

Estate Tax Problems Require

an Experienced Estate Tax Attorney

 

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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

 

Robert S. Blumenfeld  - 

 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.

 

Georgia Man Sentenced to 57 Months in Prison for Tax Fraud

According to DoJ, federal district court in Cincinnati, Ohio, sentenced an Atlanta, Georgia, man to 57 months in prison for tax evasion. This sentence included an enhancement for failing to report income from drug trafficking. 

According to court documents and statements made in court:

• From at least 2011 to 2016, Darryl Brown earned at least $1 million. 
• To evade paying taxes on this income, Brown did not file returns. 
• He created nominee businesses, opened bank accounts and lines of credit in the names of those businesses, and then used the accounts to pay for his luxury lifestyle. 
• This included extravagant overseas trips, Rolex and Cartier watches, and luxury clothing and vehicles. 

• Brown further used cash to purchase money orders in structured amounts to avoid triggering reporting requirements to the Department of Treasury and the IRS. Brown then used the money orders to pay off the balances on his nominee accounts. 
• In total, Brown caused a tax loss of more than $250,000. 

U.S. District Judge Timothy S. Black in the Southern District of Ohio also ordered Brown to serve three (3) years of supervised release and pay restitution to the IRS in the amount of $377,240. 

Have a Criminal Tax Problem?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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

A "Hold Mail" Request for a Foreign Bank is Evidence of Intent To Conceal A Foreign Account From The U.S.

A district court in U.S. v. Goldsmith, (DC CA 5/25/2021) has found several reasons for holding that a U.S. holder of a foreign bank account was liable for a willfully not filing FBARs, including the fact that he opened the account as a numbered account, instituted a "hold mail" order on the account, and divested the account of U.S. securities when the foreign bank said otherwise it would disclose the account to the IRS.

Mr. Goldsmith was the owner of a Swiss bank account that, for the years in question, contained more than $10,000. Although his accountant asked him each year if he held a foreign account, the bank informed him of potential U.S. reporting requirements, there was other evidence that he knew he should have filed FBARs, Mr. Goldsmith did not file FBARs. 

• The IRS imposed a civil penalty for his willful violation of the FBAR rules.
• Mr. Goldsmith appealed to district court.
• The district court agreed with the IRS that Goldsmith's failure to file FBARs was willful.

The district court first reviewed various cases that discussed what a willful violation is and concluded that a willful violation may be found where the violation results from conduct qualifying as either (1) knowing and intentional or (2) reckless, including due to willful blindness. 

The court said that willful intent may be proven by circumstantial evidence and reasonable inferences drawn from the facts; it came to these conclusions because it said that direct proof of the taxpayer's intent is rarely available.

The district court said that Mr. Goldsmith's violation was willful because of the following facts:

1. Upon the death of Mr. Goldsmith's mother, Mr. Goldsmith inherited both the Swiss bank account and an interest in commercial property. Mr. Goldsmith disclosed the commercial property interest to his accountant but not the bank account despite the accountant explicitly asking him if he had a foreign account.

2. He set up the account, after his mother's death, specifically as a numbered account, in that his name was not associated with the account.

3. In 2000, the Swiss bank asked Mr. Goldsmith to sign a form, as part of an IRS program, which referenced "new U.S. withholding tax and reporting obligations" and gave Mr. Goldsmith a choice between disclosing his account to the IRS or divesting all of his U.S. securities. Mr. Goldsmith chose to divest the account of all U.S. securities rather than disclose the account to the IRS.

4. In addition to avoiding U.S. securities, Mr. Goldsmith also paid a regular fee to the Swiss bank to institute a "hold mail" order, or in other words, for the bank not to send him any mail in the U.S.

 The court pointed out that many other courts have interpreted a "hold mail" request of foreign bank qualifies as evidence of intent to conceal a foreign account from the U.S. government.

Do You Have Undeclared Offshore Income?

 

Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 

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