Monday, May 3, 2021

IRS Extends Electronic Signatures On Various Non-E-Fileable Forms Until December 31, 2021

In a memo to IRS employees and on an IRS webpage, the IRS says it is expanding a temporary deviation from its regular procedures that will allow electronic or digital signatures on various forms that currently require handwritten signatures, i.e., that are not e-fileable. The decision was made due to taxpayer representatives' concerns about securing handwritten signatures during the coronavirus pandemic. 

The memo notes that electronic and digital signatures may be created by many different technologies. No specific technology is required for this purpose during this temporary deviation.

IRS's webpage says that taxpayers can send the following forms with digital signatures if they are postmarked from August 28, 2020, through December 31, 2021:

  • Form 11-C, Occupational Tax and Registration Return for Wagering;

  • Form 637, Application for Registration (For Certain Excise Tax Activities);

  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

  • Form 706-A, U.S. Additional Estate Tax Return;

  • Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions;

  • Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust;

  • Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations;

  • Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts;

  • Form 706 Schedule R-1, Generation Skipping Transfer Tax;

  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

  • Form 730, Monthly Tax Return for Wagers;

  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;

  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;

  • Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;

  • Form 1120-H, U.S. Income Tax Return for Homeowners Associations;

  • Form 1120-IC DISC, Interest Charge Domestic International Sales - Corporation Return;

  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;

  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;

  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;

  • Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

  • Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship;

  • Form 1128, Application to Adopt, Change or Retain a Tax Year;

  • Form 2678, Employer/Payer Appointment of Agent;

  • Form 3115, Application for Change in Accounting Method;

  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts;

  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner;

  • Form 4421, Declaration - Executor's Commissions and Attorney's Fees;

  • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes;

  • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues;

  • Form 8038-G, Information Return for Tax-Exempt Governmental Bonds;

  • Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales;

  • Form 8283, Noncash Charitable Contributions;

  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms;

  • Form 8802, Application for U.S. Residency Certification;

  • Form 8832, Entity Classification Election;

  • Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent;

  • Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement; and

  • Elections made pursuant to Internal Revenue Code section 83(b).

The IRS previously allowed electronic or digital signatures for a smaller group of forms through June 30, 2021. 

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IRS Issues Updated Drafts of Int'l Tax Forms For Partnerships & S Corps

The IRS, in a News Release, has provided information about, and copies of, new and updated 2021 draft Forms K-2 and K-3 for domestic passthrough entities that have items of international tax relevance that are reported to partners and/or shareholders.

The early drafts of the Schedules K-2 and K-3 proposed for the 2021 Form 1065 were originally released in July 2020. In September 2020, the American Institute of Certified Public Accountants submitted a letter to the IRS saying the proposed international changes to Schedules K-2 and K-3 may result in significant overreporting of information that isn't relevant in determining U.S. federal income tax. 

The redesigned forms and instructions are meant to help partnerships, S corporations and U.S. people who must file Form 8865 for controlled partnerships by explaining how to provide international tax information. 

The Forms Only Apply To Those Required To File Forms 1065, 1120-S Or 8865 If The Entity Has Items Of International Tax Relevance Such As Foreign Activities Or Foreign Partners.

The IRS has now released updated drafts of Forms K-2 and K-3 for partnerships has well as new drafts of these schedules to be used by S corporations (Schedule K-2, Shareholders’ Pro Rata Share Items – International; and K-3, Shareholder’s Share of Income, Deductions, Credits, etc. – International), and foreign partnerships (Schedule K-2 (Form 8865), Partners’ Distributive Share Items – International; and Schedule K-3 (Form 8865), Partner’s Share of Income, Deductions, Credits, etc. - International). 

According to the IRS, these new and updated forms are designed to make it easier for partners and shareholders of passthrough entities with items of international tax relevance to compute their U.S. income tax liability with respect to those items, including claiming deductions and credits. The IRS also said that domestic passthroughs with no items of international tax relevance won't need to use these forms.  

According to the IRS, these new and updated forms are designed to make it easier for partners and shareholders of passthrough entities with items of international tax relevance to compute their U.S. income tax liability with respect to those items, including claiming deductions and credits. The IRS also said that domestic passthroughs with no items of international tax relevance won't need to use these forms.  

Both Schedule K-2 (Form 1065) and Schedule K-2 (Form 8865) request the following information: 

  • Part A. Is the partnership a withholding foreign partnership?
  • Part B. Is the partnership (including the home office or any branch) a qualified derivatives dealer?
  • Part 1. Partnership's other current year international information; including, among other items, gains on personal property sales and partner loan transactions. 
  • Part 2. Foreign credit limitation; including gross income and deductions.
  • Part 3. Other information for preparation of Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) or Form 1118, Foreign Tax Credit - Corporations.
  • Part 4. Information on partners’ Section 250 deduction with respect to foreign-derived intangible income (FDII).
  • Part 5. Distributions from foreign corporations to partnership.
  • Part 6. Information on partners’ Section 951(a)(1) and Section 951A inclusions.
  • Part 7. Information to complete Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.
  • Part 8. The Schedule K-2 (Form 1065) requests information about a partnership’s interest in foreign corporation income (Code Sec. 960). The Schedule K-2 (Form 8865) asks for partners' information for base erosion and anti-abuse tax (Code Sec. 59A) purposes.

The Schedule K-2 (Form 8865) ends with Part 8. However, the Schedule K-2 (Form 1065) continues to request information on: 

  • Part 9. Partners’ information for base erosion and anti-abuse tax (Code Sec. 59A); and 
  • Part 10. Foreign partners' character and source of income and deductions. 

The Schedule K-2 (Form 1120-S) requests much the same information as the other two Schedules K-2. 

The Schedule K-3 for Form 1065, Form 8865, and Form 1120-S follows the structure of their respective Schedule K-2 and is provided by a passthrough entity to each partner or shareholder. 

There are no instructions for Schedules K-2 and K-3 (Form 1120-S) or Schedules K-2 and K-3 (Form 8865). The IRS plans to release draft instructions for these schedules in the summer of 2021. 


Have an International Tax Problem? 
 

Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
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Friday, April 30, 2021

Draft Schedules K-2 And K-3 Released To Enhance Reporting Of International Tax Matters By Pass-Through Entities

The Treasury and the IRS released on April 30, 2021 updated early drafts of new Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). The schedules are designed to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits.

The early release drafts of the schedules are intended to give a preview of the changes before final versions are released.  The release of an early draft of the instructions for the schedules is planned for this summer.

The redesigned forms and instructions will also give useful guidance to partnerships, S corporations and U.S persons who are required to file Form 8865 with respect to controlled foreign partnerships on how to provide international tax information.  The updated forms will apply to any persons required to file Form 1065, 1120-S or 8865, but only if the entity for which the form is being filed has items of international tax relevance (generally foreign activities or foreign partners).

The Changes Do Not Affect Partnerships And S Corporations With No Items Of International Tax Relevance.

The Treasury Department and the IRS released prior drafts of Schedules K-2 and K-3 for the Form 1065 in July 2020 and engaged with stakeholders to solicit input on the changes.  Helpful comments were received, and changes have been made to the schedules and instructions as appropriate.

To promote compliance with adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the Treasury Department and the IRS intend to provide certain penalty relief for the 2021 tax year in future guidance. 

Have as 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) 





LB&I Releases Practice Unit: Reasonable Cause and Good Faith


The IRS has updated its Practice Unit on the reasonable cause defense to certain penalties. This Practice Unit provides auditors with information on how to determine whether a taxpayer has a reasonable cause defense to a proposed penalty. 

Certain penalties are not imposed if the taxpayer can prove “reasonable cause” for the return position giving rise to the penalty (“reasonable cause defense”). Penalties that have a reasonable cause defense include:

  • Most accuracy related penalties under Code Sec. 6662, and the civil fraud penalty under Code Sec. 6663. (Code Sec. 6664(c))

  • The Code Sec. 6662A reportable transaction understatement penalty (when the transaction is adequately disclosed). (Code Sec. 6664(d))

  • The penalty for erroneous claims for refund or credit. (Code Sec. 6676(a))

  • Failure to file and/or failure to pay under Code Sec. 6651. (Code Sec. 6651(a)(1))

  • Understatement of taxpayer's liability by return preparer under Code Sec. 6694. (Code Sec. 6694(a)(3))

In some cases, to take advantage of the reasonable cause defense, the taxpayer must also show that they acted in good faith or that their failure to comply was not due to willful neglect. 

Whether the taxpayer has a reasonable cause defense to a penalty depends on which penalty the IRS seeks to impose. However, in general, reasonable cause depends on all the facts and circumstances. 

According to the Practice Unit, an auditor should determine whether the taxpayer acted with reasonable cause on a case-by-case basis. The most significant of the facts and circumstances the auditor must consider is the taxpayer’s effort to report their proper tax liability.

  • Example 1. On their return, a taxpayer reports amounts from an erroneous information return but does not know the amounts are incorrect. This type of error may indicate that the taxpayer has reasonable cause for reporting the incorrect amounts on their return. However, there must be additional facts suggesting the taxpayer made a reasonable effort to ascertain the correct amounts. 
  • Example 2. On their return, the taxpayer makes an isolated computation or transposition error. This type of error may indicate the taxpayer’s good faith effort to report their proper tax liability. 

Other factors for an auditor to consider are the taxpayer’s experience, knowledge, education, and whether the taxpayer relied on the advice of a tax advisor.

When the auditor considers a taxpayer’s reliance on the advice of a tax advisor, the auditor should consider whether:

  1. The taxpayer's reliance on the advice of a tax advisor was objectively reasonable.
  2. The taxpayer provided their tax advisor with all the necessary information to evaluate the tax matter.
  3. The tax advisor had enough knowledge and expertise related to the tax matter to provide advice.
  4. The taxpayer "actually relied" on their tax advisor's advice.
  5. The taxpayer exercised the care that a reasonably prudent person would have used under the circumstances when relying on the tax advisor's advice.

Generally, A Taxpayer Does Not Have Reasonable Cause
If The Penalty Relates To The Late Filing Of A Tax Return
Or Payment Of A Tax Obligation.

The taxpayer is responsible for timely filing and payment, and this responsibility cannot be delegated. However, an auditor should consider factors that might excuse late filing or late payment such as whether the taxpayer's records were unavailable (for example, due to disaster or casualty) or whether there was a law change of which the taxpayer could not reasonably have been expected to be aware.

In addition, a taxpayer's forgetfulness is not generally a basis for reasonable cause; however, it could be if there is a medical reason for such forgetfulness (e.g., the taxpayer has dementia).

Have as 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) 






Thursday, April 29, 2021

We Can Help You Eliminate Your $25,000 Late Form 5472 Penalties for $5,000 Per Penalty!

On June 21, 2016 we posted  US Taxpayers Are Receiving Automated $10,000 Penalty Assessments For Late Filed Form 5471's & 5472's - We Can Help! where we discussed that we have been receiving a lot of calls from businesses who have recently received penalty notices regarding late filed or non-filed Form 5471 & 5472's. 

On November 3, 2020 we posted, New $25,000 Penalty for Not Reporting SMLLC with Foreign Owner Now Being Assessed by the IRS, we where we discussed that the IRS has now issued final regulations and they treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner, but only for the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A. and that for Tax Years beginning after December 31, 2017, the TCJA Act increased the late filed Form 5472 penalty to $25,000 From $10,000 for Each Return that must be filed.

There are ways to defend against these automatic assessments and request penalty abatement. The defenses that you should consider when assess the penalty for filing an international information return after the due date.

  1. Follow the Delinquent Information Return Procedure – No longer available after November 9, 2020 - see Reasonable Cause Defense below.

Taxpayers who have identified the need to file delinquent international information returns who are not under a civil examination or a criminal investigation by the IRS and have not already been contacted by the IRS about the delinquent information returns should file the delinquent information returns through normal filing procedures. Taxpayers may attach a reasonable cause statement to each delinquent information return filed for which reasonable cause is being asserted. During processing of the delinquent information return, penalties may be assessed without considering the attached reasonable cause statement. It may be necessary for taxpayers to respond to specific correspondence and submit or resubmit reasonable cause information.

  1. Ask for a First-Time Offender Abatement (FTA) - Generally, an FTA can provide penalty relief if the taxpayer has not previously been required to file a return or has no prior penalties (except the estimated tax penalty) for the preceding three years with respect to the same IRS  File (IRM §20.1.1.3.6.1). With respect to a Form 5472 late-filing penalty, the IRM provides for an FTA if an FTA was applied to the taxpayer's related Form 1120 late-filing penalty or no penalty was assessed on the related Form 1120 (IRM §21.8.2.20.2).
  2. Reasonable Cause Defense - Under Section 6038 of the tax code, which lays out the information reporting requirements for individuals and businesses with an interest in foreign corporations and the penalties for delinquent filing, penalties may be abated if a reasonable cause exists for the failure to file. However, neither the statute nor the applicable regulations define a reasonable cause standard for the abatement. Treasury Regulations Section 301.6651-1(c) provide a definition of what constitutes reasonable cause for failure to file corporate income tax returns and says that "if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to reasonable cause." And

Though a $25,000 penalty may discourage some from filing in international information return after the deadline, there is a greater exposure to not late filing and information return and that is that the statute of limitations for tax returns which is generally three years does not apply for returns that are missing the information reports and the statute remains open indefinitely. Under the indefinite statute of limitations, not only can the IRS make adjustments to items related to the international information returns, but they also can examine any other area on the tax return.  

Has Your Company Been Assessed an
Automatic $25,000 Penalty for a Late Form 5472?

 

 
Contact the Tax Lawyers at
Marini & Associates, P.A. 
 
 for a FREE Tax Consultation Contact US at
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or Toll Free at 888-8TaxAid (888 882-9243)



Bitcoin Fog Operator Accused By Feds of Money Laundering

According to Law360, the purported operator of cryptocurrency mixing service Bitcoin Fog was arrested in Los Angeles on April 27, 2021and accused of laundering hundreds of millions of dollars worth of bitcoin.

Roman Sterlingov, a citizen of Russia and Sweden, is facing money laundering and unlicensed money transmission charges in Washington, D.C., federal court for running what the FBI and IRS say is an "illicit bitcoin money transmitting and money laundering service."

According to the government, Bitcoin Fog operates as a "tumbler" or "mixer" service, which allows customers to send bitcoin to recipients in a way that conceals the source of the cryptocurrency. The process disassociates incoming bitcoin from certain bitcoin addresses or transactions and then commingles that bitcoin with other incoming bitcoin prior to conducting further transactions.


This Procedure Allows Criminals To Launder Their Funds
By Concealing The Source And Location
Of Their "Dirty" Bitcoin, Authorities Say.



Bitcoin Fog, one of the original bitcoin tumbler services operating on the darknet, has been for around a decade and has processed total transactions valued at roughly $336 million, according to a statement of facts filed by an IRS special agent. The darknet is a hidden network of websites that are not accessible through normal means, but rather through browsing tools such as Tor.

The largest senders of bitcoin through Bitcoin Fog have been illicit darknet markets, the government says, such as Silk Road, Agora, Evolution and AlphaBay, which trafficked in drugs and other illegal goods.

"Investigators obtained records of Sterlingov's true-name accounts at several cryptocurrency exchanges," the statement of facts says. "Sterlingov's accounts revealed the vast majority of cryptocurrency deposited into his accounts was originally sourced and traced back to Bitcoin Fog clusters."

Neither Sterlingov nor Bitcoin Fog have registered with the Treasury Department as a money services business despite conducting transactions with U.S. customers, as required under federal law, the government says.

Sterlingov made his initial appearance in L.A. federal court on April 27, 2021, according to the U.S. Attorney's Office for the Central District of California, and his detention hearing has been continued to May 4. He remains in federal custody.

According To The Statement Of Facts, Bitcoin Fog Charged A Variable Fee Of 2% To 2.5% On Each Deposit, But The Amount Of Money Sterlingov Made From Bitcoin Fog Is Unclear.

Investigators say based on the bitcoin tumbler's transaction activity over time, Sterlingov would have made about $8 million in commissions if he cashed out the administrative fees around the time of the transactions.

However, given that the value of bitcoin has skyrocketed since Bitcoin Fog launched in the fall of 2011, going from $2 per bitcoin to a current value of $50,000, Sterlingov's profits that were kept in bitcoin would have appreciated significantly, according to the government. The current value of the Bitcoin Fog "cluster," including customer funds under Sterlingov's control as well as his own money, is almost $70 million, investigators say.

The case is U.S. v. Sterlingov, case number 1:21-mj-00400, in the U.S. District Court for the District of Columbia.

 Have a Virtual Currency Tax Problem?




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Tuesday, April 27, 2021

On Dec. 31 IRS Closing Some Payment PO Boxes and Says Don't Mail to Them Now


In an e-News for Tax Professionals, the IRS has announced that on December 31, 2021, it is closing several individual payment P.O. boxes in San Francisco, CA and Hartford, CT and has noted that mailing to those addresses now could result in delays.

Effective January 1, 2022, the following San Francisco and Hartford P.O. Boxes will be permanently closed: 

Form 1040 --------------------------- P.O. Box 7704, San Francisco, CA 94120-7704.

Form 1040ES ------------------------ P.O. Box 510000, San Francisco, CA 94151-5100.

Form 4868 --------------------------- P.O. Box 7122, San Francisco, CA 94120-7122.

Installment Agreements ------------ P.O. Box 7125, San Francisco, CA 94120-7125.

Form 1040 --------------------------- P.O. Box 37008, Hartford, CT 06176-7008.

Form 1040 --------------------------- P.O. Box 37910, Hartford, CT 06176-7910.

Form 1040ES ------------------------ P.O. Box 37007, Hartford, CT 06176-7007.

Form 4868 --------------------------- P.O. Box 37009, Hartford, CT 06176-7009.

Form 4868 --------------------------- P.O. Box 37911, Hartford, CT 06176-7911.

Installment Agreements ------------ P.O. Box 37004, Hartford, CT 06176-7004.

To ensure the IRS's timely receipt of any payments, the IRS encourages taxpayers and tax professionals to avoid mailing payments to these closing addresses.  

To help ensure timely receipt, IRS encourages you to avoid mailing to these closing addresses as there could be mail delays. Please check Where to File on irs.gov for active addresses, before mailing your payments. However, payments mailed to these closed payment locations after Jan. 1, 2022, will be returned to sender. If you receive an IRS payment letter, send your payment to the address located in the letter.

IRS encourages taxpayers to use IRS Direct Pay. It's fast, secure and easy to pay a tax bill or estimated tax payment directly from a checking or savings account. Users receive instant confirmation that their payment has been made. See Publication 3891, Lockbox Addresses for 2021, for more information.

Have as 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)