Monday, September 27, 2021

New $67 User Fee For Estate Tax Closing Letters

The Internal Revenue Service announced that starting Oct. 28, 2021 a new $67 user fee will apply to any estate that requests a closing letter for its federal estate tax return.

The new user fee was authorized under final regulations, TD 9957, available today in the Federal Register. Closing letter requests must be made using The IRS will provide further procedural details before the user fee goes into effect.

By law, federal agencies are required to charge a user fee to cover the cost of providing certain services to the public that confer a special benefit to the recipient. Moreover, agencies must review these fees every two years to determine whether they are recovering the cost of these services.

Under The Final Regulations, The IRS Has Determined That Issuing Closing Letters Is A Service That
Confers A Special Benefit Warranting A User Fee.

That’s because, though obtaining a closing letter from the IRS can be helpful to an executor of an estate, it is not required by law. Moreover, the estate has the option of obtaining from the IRS, free of charge, an account transcript, showing certain information from the estate tax return, comparable to that found in a closing letter. 

As noted in the final regulations, account transcripts can be used to confirm that an estate tax return examination has been completed and the IRS file has been closed, which is the reason most often cited for requesting a closing letter.

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TIGTA Highlights Improvements To Identify Fraudulent Individual International Tax Returns

TIGTA initiated this audit to evaluate IRS processes to identify and prevent potentially fraudulent individual international tax returns. Nonresident aliens (hereafter referred to as nonresidents) are generally required to file a tax return to report their U.S. source income and pay any tax due. In contrast, residents of a U.S. territory generally report their U.S. source income on their territory tax return (i.e., do not have a U.S. tax return filing requirement), unless these individuals have self-employment income of $400 or more, or are eligible to claim certain tax credits.

The IRS does not have sufficient processes in place to identify potentially fraudulent individual international tax returns at the time these returns are filed. TIGTA’s review of Tax Year 2018 tax returns identified 8,332 international tax returns with potentially erroneous or fraudulent refunds totaling nearly $20.6 million that were not identified by the IRS.

The IRS currently has no processes and procedures in place to ensure the legitimacy of ****** at the time returns are filed. ****** are taxed at a reduced rate or are exempt from U.S. taxes on certain U.S. source income. TIGTA identified 130,448 international tax returns with a ****** or which the IRS

These Individuals Reduced or Eliminated The Federal Income Tax Paid On Nearly $2 Billion In Income.

The IRS also has not implemented processes to verify that international taxpayers ****** at the time the return is filed. TIGTA identified 50,297 ******, that were incorrectly filed by residents of a U.S. territory and nonresidents. As a result of incorrectly filing *** ***, these individuals received erroneous Earned Income Tax Credits, Additional Child Tax Credits, and American Opportunity Tax Credits totaling more than $83.7 million.

TIGTA made 15 recommendations. TIGTA recommended that the IRS improve the identification and prevention of potentially fraudulent individual international tax returns, require individuals who report a ****** to provide documentation ******, and develop processes to address claims for which the documentation is not provided. TIGTA also recommended that the IRS develop processes to systemically identify and address international taxpayers who are potentially filing ****** to receive refundable tax credits.

The IRS agreed with 12 of the 15 recommendations. The IRS did not agree to require ****** documents for ****** or to work with the Department of Education to obtain and perfect eligible educational institution Employer Identification Number data.

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Wednesday, September 22, 2021

Minn. Court Approves IRS John Doe Summons To MoneyGram For Transactions With Panamanian Law Firm (POLS)

On July 30, 2021 we posted Court Orders Fedex, CitiBank & Others to Give the IRS Panama Offshore Account Info! where we discussed that in the case of In the Matter of Tax Liabilities of John Does, case number 1:21-mc-00424-GHW, a federal judge said that he will allow the IRS to obtain from couriers and financial institutions, including FedEx and Bank of America, records of individuals who may have used Panamanian offshore service providers to hide assets, the U.S. Justice Department said on July 29, 2021.

U.S. District Judge Gregory H. Wood, of the Southern District of New York, approved Internal Revenue Service summonses to seek the information from financial institutions including CitibankWells Fargo Bank and couriers including FedEx Corp. and UPS Inc. 

The Summonses Request Information on Deliveries and Electronic Fund Transfers Between 

Panama Offshore Legal Services and Clients Who 
Have Used Its Services To Create or Control
Foreign Assets To Avoid Tax Obligations, The DOJ Said.

The IRS is investigating taxpayers who may have used Panama Offshore Legal Services, which is part of a collective of related entities known as the POLS Group, to facilitate concealing income and assets from U.S. tax authorities between 2013 and 2020. The government has been seeking information from other entities, including MoneyGram Payment Systems, through a separate summonses request in Minnesota to investigate those who may have violated U.S. laws by hiding taxable income and assets.

POLS is a Panamanian law firm that advertises services including the creation of foundations and corporations as well as offshore financial accounts while promising clients "100% anonymity, privacy and confidentiality," according to the DOJ.

Now The IRS Has Obtained Permission To Serve A John Doe Summons On MoneyGram Payment Systems, Inc.

The summons seeks information on any U.S. taxpayer that used Panama Offshore Legal Services (POLS) to establish, maintain, operate, or control any foreign financial account or other asset.  

A U.S. person that has a financial interest in, or signature authority over, a foreign financial account must file a FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, commonly referred to as an FBAR) when the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year. (Instructions to FinCEN Form 114)

In addition, U.S. individuals who have a financial interest in, or signature authority over, a financial account in a foreign country or who have received a distribution from, were a grantor of, or a transferor to, a foreign trust, must report that interest on Part III, Schedule B, Form 1040. (Instructions to Schedule B (Form 1040))

To encourage U.S. taxpayers to report their offshore accounts and assets, the IRS offered several versions of an Offshore Voluntary Disclosure Program (OVDP). The OVDP allowed U.S. taxpayers to voluntarily disclose foreign accounts or entities used to evade U.S. taxes in exchange for reduced penalties. The last OVDP closed on September 28, 2018. 

The Minnesota court in this case found that the IRS satisfied the three statutory prerequisites for issuing a John Doe summons:

  1. First, the IRS's investigation concerns an ascertainable group of people. (Code Sec. 7609(f)(1))
  2. Second, the IRS provided information showing that there is a reasonable basis for believing that U.S. individuals using POLS's services may fail or have failed to comply with any provision of any internal revenue law. (Code Sec. 7609(f)(2))
  3. Third, the information the IRS sought on those using POLS's services, including their identities, is not readily available from other sources. (Code Sec. 7609(f)(3))

The court also found that the information the IRS sought to summon was narrowly tailored to information pertaining to the failure or potential failure of the group to comply with internal revenue laws. (Code Sec. 7609(f)

Finally, the court noted that the IRS provided evidence that POLS accepts payments for its services via wire transfer from MoneyGram and that POLS customers are directed to make payments through MoneyGram. 

Do You Have Undeclared Offshore Income?

Want to Know Which
Voluntary Disclosure Program
is Right for You?

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

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Tuesday, September 21, 2021

IRS Ends Declines & Withdrawals Campaign For Foreign-Related Issues

The Internal Revenue Service retired a compliance campaign that had enabled U.S. taxpayers to voluntarily resolve returns deemed noncompliant due to past unreported foreign financial assets or a failure to file foreign-information returns.

The IRS' Large Business and International Division said on September 17, 2021 that it was ending the offshore voluntary disclosure program's Declines and Withdrawals Campaign, which the agency introduced in July 2019. It was intended to serve as a temporary follow to the more-formal OVDP, halted in late 2018.

The Campaign Had Addressed Taxpayers Who Applied
For Early Admission To The OVDP But Were Either
Denied Access To Or Pulled Out From The Program
of Their Own Accord, LB&I Noted.

It said the IRS would address continued noncompliance through a variety of treatment streams, particularly letters and examinations.

The division, which oversees C corporations, subchapter S corporations under the U.S. tax code and partnerships with assets of over $10 million, had undertaken the post-OVDP campaign to help it improve decision-making on which business tax returns require scrutiny, identify potential sources of noncompliance and efficiently use resources.

Do You Have Undeclared Offshore Income?

Want to Know Which
Voluntary Disclosure Program
is Right for You?

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

for a FREE Tax Consultation contact us at: or 
or Toll Free at 888-8TaxAid (888) 882-9243


Monday, September 20, 2021

Return To In-Person Tax Court Trials Adds Zoom or In-Person Choice For Attys

According to Law360, the U.S. Tax Court's return to in-person trial sessions this winter, will require tax practitioners to weigh their witnesses, clients, technology and expenses when deciding whether to conduct an in-person trial or request a virtual proceeding. 

On Aug. 27, the Tax Court issued Administrative Order 2021-01, which said beginning in the winter 2022 term the court will default to holding in-person trial sessions with an option to request a virtual proceeding. The order overrides a previous administrative order from 2020 that said the court would conduct only virtual proceedings because of the coronavirus pandemic.

The order presents representatives of Tax Court clients with a novel choice: whether it would be better to hold an in-person trial or to request a virtual session. When evaluating the options, tax attorneys have to think about their role not only as an advocate but also as a people manager, according to Igor S. Drabkin, a principal at Holtz Slavett & Drabkin APLC.

Things attorneys have to consider include "whether someone is unable or unwilling to show up [to the courtroom],'' Drabkin said, "and the cost factor is a consideration in certain cases with limited resources."

Each Case Should Be Evaluated Separately When Deciding Whether It's Worthwhile To Request A Virtual Proceeding Or To Keep It In Person, Drabkin Said.

The answer largely will depend on the complexities in the trial and the issues involved, he said. For example, an online trial is more cost-efficient because parties will not have to drive or fly to the Tax Court, which allows witnesses who live out of state or outside the country to appear before a judge without considerable expense, he said. The Tax Court holds sessions at its building in Washington, D.C., and in various courtrooms around the country.

Meanwhile, an in-person trial provides the opportunity for a taxpayer or a witness to make a personal impression upon the judge, especially in the case of a taxpayer's testimony and their personal story, Drabkin said. For example, an in-person trial may be more appropriate in a penalty case that hinges upon the taxpayer's intent or state of mind, he said.

"An in-person trial will maybe allow the taxpayer to make a better impression [and for a judge to understand] their vulnerabilities or lack of sophistication," he said.

On the other hand, if witnesses or attorneys have health concerns and holding an in-person trial would make them more vulnerable, that may weigh the scales in favor of a virtual session, Hill said. Virtual proceedings may also be better suited for arguing motions, he said.

"My Experience Is That It Was Very Effective [Arguing A Motion] Remotely ... And It's Less Wear And Tear On The Attorneys Coming From Out Of Town," Hill Said.

Either party can request a virtual trial by filing a motion to proceed remotely, which can be filed after the petition is initially filed and up to 31 days before the first day of the trial session, the administrative order said.

However, it is unclear what will happen when one party wants an in-person session and the other party wants the proceeding to be remote, Garber said. The court will likely weigh the complexity of the case against any hardships such as travel costs, which could be especially important when evaluating smaller cases, he said.

A representative from the Tax Court confirmed to Law360 that each motion to proceed remotely will be determined case by case.

The motion to proceed remotely also potentially could be used to change a scheduled in-person trial to a remote trial at the last minute, since the request can be filed up to 31 days before the session. That means it could conceivably be used as a litigation tactic by either side to require the other party to cancel their travel plans and pivot to conducting the trial remotely, Hill said.

Timothy Jacobs, a tax partner at Hunton Andrews Kurth LLP, said that going forward, there's an opportunity for the Tax Court to continue using its virtual platform for the sake of efficiency and cost.

"It is an easier mechanism for pro se taxpayers and even the Tax Court itself for travel time, efficiency in terms of getting a large docket cleared and making sure there are no scheduling conflicts," he said. "Those are much easier in a Zoom world than in person."

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In Sutherland the Tax Court Denies Spouse Equitable Innocent Spouse Relief

The Tax Court has found in 
Sutherland, TC Memo 2021-110 that a wife was not entitled to equitable innocent spouse relief because she had knowledge or reason to know that the couple's tax liability would not be paid.

A court may grant innocent spouse relief under Code Sec. 6015(f) under the equitable relief rules of Rev Proc 2013-34, Sec. 4.03, 2013-43 IRB. That section lists seven factors for consideration in determining whether relief should be granted. The listed factors are: 

  1. Marital status, 
  2. Economic hardship, 
  3. Significant benefit, 
  4. Subsequent compliance with Federal tax laws, 
  5. Legal obligation to pay the outstanding tax liability, 
  6. Knowledge or reason to know that the tax liability would not be paid, and 
  7. Mental or physical health.

Ms. Sutherland (Donna) was and still is married to Mr. Sutherland (Scott). Scott owned a business. While Donna was not an employee of the business, she helped with the bookkeeping. The business was audited, and the IRS found that it had not submitted to the IRS the payroll taxes that it was collecting from its employees. In addition, the couple failed to file income tax returns for 2005 and 2006.

The IRS brought a criminal case against Scott for failure to remit the payroll taxes. He pleaded guilty, and as part of his plea agreement he was required to submit delinquent income tax returns for several years, including 2005 and 2006.

The 2005 and 2006 returns showed tax liabilities of $19,000 and $21,000, respectively, which remain unpaid. Donna signed those returns in the courthouse cafeteria less than an hour before Scott's sentencing in 2011. She testified as to her belief that signing the returns might help Scott avoid prison time. She did not review the returns with any care before signing them.

Subsequently, Donna filed a Form 8857, Request for Innocent Spouse Relief, which the IRS denied. 
Donna conceded that she only qualified for innocent spouse relief under the Rev Proc 2013-34 equitable relief rules.

The Tax Court agreed with the IRS and denied Donna's request for relief. The Court found that six of the seven factors were neutral with regards to Donna. But the Court found that factor 6 (knowledge or reason to know that the tax liability would not be paid) weighed against her.

The Court said that the critical question was whether, at the time the returns were filed, Donna knew that Scott would not, or could not, pay the tax liability at that time or within a reasonable period after filing the returns. The Court said it could consider (among other things) whether Donna knew of any financial difficulties that might prevent timely payment.

The Court Found That It Was Reasonable To Assume That
When Donna Signed The Income Tax Returns
Just Before Scott Was Being Sentenced,
She Knew That He Would Not Be Able
To Pay The Tax Liability.

Further, since she had done bookkeeping for the business, she should have known that the business was in no financial position to pay the payroll taxes.

For these reasons the Court concluded that Donna knew or should have known, when signing the returns in June 2011, that Scott would not or could not pay the tax liability at that time or within a reasonable period of time after the filing of the returns.

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TIGTA Finds That After COVID Many Taxpayers Received Inaccurate Collection Notices

During the start of COVID-19, the IRS was impacted in many ways. IRS sites closed for months, thus postponing everyday operations such as mailing notices and receiving and processing correspondence from taxpayers. During this time, the IRS had to act and make decisions as to how to proceed, and some of the decisions potentially caused confusion and undue burden to numerous taxpayers who received erroneous Collection notices. 

Upon Reopening Its Print Sites, The IRS Decided To Issue Millions Of Notices To Taxpayers That Had Generated
During The Shutdown, Many With Erroneous
Notice Dates And Payment Due Dates.

TIGTA’s review of these notices identified that the IRS issued 
89,338 premature Notices and Demand for tax that were generated for 87,542 individual taxpayers who filed Tax Year 2019 tax returns before the COVID-19 filing date extension of July 15, 2020. 

The notices showed that balances were owed even though the taxes were not actually due because of the filing extension. Although the majority of these Notices and Demand included stuffers to explain the correct notice and payment due dates, taxpayers could be confused as to how to proceed, whether they received a stuffer of explanation with their notice or not, simply due to the original notices including incorrect information. The IRS had the opportunity to prevent undue burden to taxpayers by purging the outdated and incorrect notices and sending them at a later date.

However, the IRS was effective in providing relief to taxpayers as outlined in its People First Initiative, including properly suspending defaults on Installment Agreements, passport certifications to the State Department, new account transfers to private collection agencies, systemic filings of Notices of Federal Tax Lien, systemic and automated levies, and seizures. TIGTA did identify that, for 23 levies (14 taxpayers) issued by revenue officers, there was no indication of the required levy approvals during the People First Initiative time frame. 

The IRS took corrective action by contacting these taxpayers and issuing refunds or credit transfers on the levied funds. Additionally, TIGTA identified that 40 of 49 Notice of Federal Tax Lien filings by revenue officers were made in error, but the IRS took corrective action to withdraw them.

TIGTA recommended that the IRS implement changes to its processes to avoid sending erroneous notices causing taxpayer burden. IRS management partially agreed with the recommendation. While they acknowledge that this is not an action management would take under ideal conditions, they believe their solution (to send the incorrect notices) was appropriate given the extraordinary situation. However, management further stated that, should future circumstances cause the IRS to be faced with a similar decision, they will take this report’s recommendation into consideration. 

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