Thursday, July 30, 2020

Last Call For Voluntary Disclosure For 2017 Unpaid Transition Tax!

June 17, 2020 we posted LB&I Add New TCJA Compliance Campaign Including  §965 Transition Tax & IRC §962 Election!  where we discussed that IRS LB&I has added a new compliance campaign that will examine TCJA issues. 
This new campaign will examine TCJA issues on a select pool of returns and then share what is learned by these examinations throughout the IRS. 


Issues could include computation of:
  • IRC §965 Transition Tax,
  • IRC §250 50% Deduction for Corporate Taxpayer's, 
  • IRC §960 80% Deamed Paid Foreign Tax Credit and
  • IRC §962  Election to be taxed as a Corporation.
Now Douglas O' Donald, Commissioner IRS Large Business and International division said on  during a webcast hosted by the American Bar Section of Taxation, that: 
The IRS Will Begin Distributing Letters and Placing People Into Its Audit Pipeline in "October" To Enforce The Transition Tax On Overseas Profits Included In The 2017 Tax Law!
The IRS expects to sent thousands of letters to people who the agency expects may need to comply more fully with repatriation tax. Hundreds of others, who have flouted their related compliance responsibilities, will likely be placed into the agency's purview.
For Offshore Voluntary Disclosures, including Streamlined Offshore Voluntary Disclosures, if the IRS has initiated a civil examination of taxpayer's returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the Voluntary Disclosure Procedures. 
Have a 2017 TCJA International Tax Problem?


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Wednesday, July 29, 2020

Panama Papers Accountant Scheduled for Jail Time!

On December 5, 2018, we posted Panama Papers Lead To Indictment Of 4 (3 Professionals & 1 Client), where we discussed that New York federal prosecutors announced the indictment of a lawyer and three other men on December 4, 2018 on charges of wire fraud, tax evasion and money laundering, tying the case to the 2016 leak of documents from the law firm Mossack Fonseca called the Panama Papers.

Law enforcement officials described the charges against attorney Ramses Owens, who remains at large, and investment manager Dirk Brauer, accountant Richard Gaffey and businessman Harald Joachim von der Goltz, all of whom have been arrested, as a warning to would-be tax criminals and those who would help them. The defendants could face decades in prison.

“The Charges Announced Today Demonstrate Our Commitment to Prosecute Professionals Who Facilitate Financial Crimes across International Borders and the Tax Cheats
Who Utilize Their Services.”

The unsealing of this indictment sends a clear message that IRS-CI is actively engaged in international tax enforcement, and more investigations are on the way,” said Don Fort, who leads the tax agency’s criminal investigations unit. “

Now according to Law360, prosecutors are seeking more than two (2) years in prison for a private equity magnate and his former accountant whose $3.4 million tax dodge was exposed in the Panama Papers, saying the two elderly men need to serve significant time to promote respect for U.S. tax law.

Private equity manager Harald Joachim von der Goltz, 83, and his former accountant Richard "Dick" Gaffey, 75, have both admitted to concealing von der Goltz's assets from the IRS with the help of Panamanian law firm Mossack Fonseca. Millions of the firm's documents were leaked to the press in 2016, providing a glimpse into how the world's powerful hide their wealth offshore.

The pair are scheduled to be sentenced in September, and have both argued that their age and health conditions warrant lower sentences. In recent filings, federal prosecutors said that while neither man should serve the eight years called for by the U.S. sentencing guidelines, both should spend multiple years behind bars.

  • Von der Goltz, a dual citizen of Germany and Guatemala who prosecutors say abandoned his U.S. resident status in a bid to remain uncharged, has asked for time served, citing his character, age and illnesses. 
  • Gaffey, a Massachusetts resident, has lobbied for a two-year sentence to be served in home confinement because of the risk to his health posed by COVID-19.

Prosecutors told U.S. District Judge Richard M. Berman that they would not oppose delaying the start of prison sentences for the two men, depending on the severity of the pandemic at the time. However, they asked the judge to impose unspecified sentences longer than two years on both men.
 

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Tuesday, July 28, 2020

Advice For Those Who Didn’t File An Extension on July 15, 2020

The IRS cautions taxpayers who missed the July 15 tax deadline and didn't request an extension, to file as soon as possible to reduce potential penalties. e-Filing returns can help expedite the process.

An extension to file is not an extension to pay; penalties and interest will apply to taxes owed after July 15.  

A taxpayer will usually qualify for relief if they qualify for First -Time Penalty Abatement or where they have reasonable cause for filing late.

1.     First-Time Penalty 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). or

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." 

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Monday, July 27, 2020

Tax Court Will Keep Remote Trial As An Option After the Pandemic is Over

According to Law360, The U.S. Tax Court will keep remote trials as a possible option because of the greater access it offers to petitioners, Chief Judge Maurice Foley said One July 22, 2020.

The Tax Court already has said it will conduct remote trials this fall due to the pandemic. Keeping them as a future option would reduce burdens for those who may not live near a trial location and might otherwise face travel costs, need time off of work or need child care to attend in-person trials, Foley said during a webcast by the American Bar Association Section of Taxation.

"Although Remote Trials Were Intended To Address The Pandemic, They'll Remain In The Court Toolbox," Foley Said.

"It will certainly reduce court expenses and it will also be a less intimidating setting for taxpayers."

The court announced in May it would conduct trials remotely during its fall calendar session because of the pandemic, and it issued an administrative order setting procedures for holding the remote sessions.

Nearly all remote trials will have an audio live stream for the public to listen in, Foley said during Wednesday's webcast. What's more, remote trials could increase pro-bono representation for taxpayers, he said. Without travel limitations, pro-bono programs could extend representation beyond their geographic area, he said.

"To accommodate our remote proceedings, limited entries of appearance may be filed earlier," he said. "And we anticipate an increase in taxpayers seeking assistance."

Foley said the court will post "mock trial videos" on its newly redesigned website Monday that will provide a general sense of how remote calendar calls and trials could proceed. The court has already posted information about remote proceedings, including sample standing pretrial orders and FAQs.

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IRS Field Collection Continue -- But Mostly Remotely

In a memo to field collection employees, the Director of Field Collection for the IRS's Small Business/Self-Employed Division has said that, due to COVID-19, Field Collection will continue to maximize telework and remote contact between employees and taxpayers for the vast majority of its cases. Face-to-face public contact/field activities will only occur in exceptional cases.

The COVID-19 pandemic, beginning March 2020, significantly affected Field Collection (FC) employees’ ability to conduct face to face investigative and enforcement activities with the public. Throughout the COVID-19 pandemic, Field Collection and IRS have emphasized employee safety as our number-one priority, and that will continue to be the case when the People First Initiative expires on July 15, 2020.

Effective July 16, 2020 and until further notice, Field Collection will continue to maximize telework and remote contact between employees and taxpayers for the vast majority of our cases. 

Face-To-Face Public Contact/Field Activities Will Only Occur In Exceptional Cases, As Described Below. They Will Not Be Routine Or Regularly Occurring Activities.

Field Collection employees may be permitted to conduct essential face-to-face public contact/field activities, on a voluntary basis, only when necessary and appropriate, and only with Territory Manager concurrence.

These limited face-to-face public contact/field activities may include making field contacts to view assets, serve summons, take necessary and appropriate investigative and/or enforcement actions, and conduct interviews with taxpayers, their designated representatives, and/or third parties at their homes or business locations (if there are no alternate locations where these activities can be performed), and will only be authorized when:


  • There are no effective alternatives to face-to-face contact, and the failure to act poses a risk of permanent loss to the government, such as the expiration of a statute, assets being placed permanently beyond government reach, or the continuing pyramiding of employment tax liabilities or 
  • The taxpayer or representative has requested face-to-face contact and the RO and manager agree that field contact would advance the progress of the case.

In all instances, we will consider the personal facts and circumstances relative to each individual employee including factors such as risk status and personal safety concerns relative to the proposed face-to-face public contact/field activities. 

Employees must conduct all face-to-face public contact/field activities with caution and extreme sensitivity to the taxpayer’s personal circumstances, and how the taxpayer has been impacted by the COVID-19 pandemic. Employees must apply good judgment in determining when public contact and/or enforcement action is appropriate and should use Soft Contact procedures to determine the impact of the national emergency on the taxpayer. The IRM provides employees with the necessary authorities and discretion to appropriately handle unusual situations and hardship issues.

In all instances of public contact, employees are expected to wear masks or other face coverings, practice social distancing, and adhere to CDC guidelines (handwashing, etc.) to guard against possible exposure to or spread of COVID-19. 

Where possible, employees should consider conducting the meeting with the taxpayer in an IRS facility (such as, Taxpayer Assistant Centers) equipped with plexi-glass barriers. 

Field Collection employees and managers should use this document, along with the attached checklist, and other COVID-19 related federal, state, and local guidance on health and safety, travel, restrictions on state/local business resumption status, and most importantly, knowledge as to the appropriateness of face-to-face public contact/field activities given local circumstances, when considering and approving face-to-face public contact/field activities.

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Background. As part of the IRS's Field Collection group, revenue officers (RO) are IRS civil enforcement employees who work cases that involve an amount owed by a taxpayer or a delinquent tax return. (IRM 5.1.20, Field Collecting Procedures, Collection Inventory (11/2/2016); IRS website "How To Know it's Really the IRS Calling or Knocking on Your Door: Collection")

In cases where a taxpayer may have been affected by a disaster, the IRS can use "soft contact" procedures to contact the taxpayer about a tax debt. A soft contact entails approaching the taxpayer with caution and extreme sensitivity to their personal circumstances. Stress and fatigue are factors to consider even in instances where the taxpayer did not experience any personal, monetary, or physical damage from the disaster. (IRM 5.1.12.2.7 (8/5/2014))

Due to COVID-19, the IRS has stopped field revenue officer enforcement actions, such as liens and levies. Revenue officers will continue to pursue high-income non-filers and perform "other similar activities" where necessary. See IRS provides updates on compliance, exam activities through July 15 (05/15/2020).

Limit on Field Collection activities to continue. The July 10, 2020 memo says that, until further notice, Field Collection will continue to maximize telework and remote contact between employees and taxpayers for the vast majority of its cases. Face-to-face public contact/field activities will only occur in exceptional cases, as described below. They will not be routine or regularly occurring activities.

Field Collection employees may be permitted to conduct essential face-to-face public contact/field activities on a voluntary basis, only when necessary and appropriate, and only with manager concurrence.

These limited face-to-face public contact/field activities may include making field contacts to view assets, serve summons, take necessary and appropriate investigative and/or enforcement actions, and conduct interviews with taxpayers, their designated representatives, and/or third parties at their homes or business locations (if there are no alternate locations where these activities can be performed), and will only be authorized when:

• There are no effective alternatives to face-to-face contact, and the failure to act poses a risk of permanent loss to the government, such as the expiration of a statute, assets being placed permanently beyond government reach, or the continuing pyramiding of employment tax liabilities; or

• The taxpayer or representative has requested face-to-face contact and the RO and manager agree that field contact would advance the progress of the case.

The memo stresses that ROs must conduct all face-to-face public contact/field activities with caution and extreme sensitivity to the taxpayer's personal circumstances and how the taxpayer has been impacted by the COVID-19 pandemic. ROs must apply good judgment in determining when public contact and/or enforcement action is appropriate and should use Soft Contact procedures to determine the impact of the national emergency on the taxpayer.

The memo notes that the Internal Revenue Manual provides ROs with the necessary authorities and discretion to appropriately handle unusual situations and hardship issues.

Do You Want Your Philly Cheese Steak With or Without Tax Fraud?

Two of the owners of the landmark Philadelphia cheesesteak spot Tony Luke's have been charged with carrying out an $8 million tax dodging scheme that involved false reports to government authorities and under-the-table payments to employees, federal prosecutors announced Friday.

According to DoJ, Owners of Philadelphia Cheesesteak Restaurant Indicted for Tax Evasion Allegedly Concealed $8 Million in Sales and Paid Employees “Off the Books” A federal grand jury in Philadelphia returned an indictment that was unsealed on July 24, 2020, charging the owners of a popular cheesesteak restaurant with conspiracy to defraud the IRS, tax evasion, and aiding and assisting in filing false tax returns. 

According to the indictment, Anthony Lucidonio Sr., and his son, Nicholas Lucidonio, both of New Jersey, owned and operated Tony Luke, a cheesesteak and sandwich restaurant located in South Philadelphia. From 2006 through 2016, the Lucidonios allegedly hid from the IRS more than $8 million in receipts by depositing only a portion of Tony Luke’s receipts into business bank accounts and filing with the IRS false business and personal tax returns that substantially understated their income. 

The indictment further alleges that the Lucidonios committed employment tax fraud by paying employees a portion of their wages and salaries “on the books” for some hours they worked, but then paying substantial additional wages for the remaining hours worked “off the books” in cash, without withholding and paying to the IRS the required employment taxes. From 2014 through 2015, they also allegedly filed false quarterly employment tax returns with the IRS substantially understating wages paid and taxes due. 

It is also alleged that after a dispute over franchising rights arose between the Lucidonios and another individual in 2015, the Lucidonios, concerned that their tax fraud scheme would be revealed, amended prior year tax returns to increase reported sales, but then falsely offset the increased income by inflating expenses. 

If convicted, the defendants face a maximum sentence of five (5) years in prison for the conspiracy charge and each count of tax evasion (50 yrs), and three years  (3) in prison for each false return charge (30 yrs). Defendants also face a period of supervised release, restitution, and monetary penalties. 

An indictment merely alleges that crimes have been committed. The defendants are presumed innocent until proven guilty beyond a reasonable doubt. 

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Wednesday, July 22, 2020

IRS is Gradually Ramping-Up Enforcement

On July 15, 2020 we posted IRS Is Back, Fully Staffed & Resuming Issuing Tax Notices, Tax Liens & Tax Liens where we discussed that the Internal Revenue Service is recalled about 46,000 of its employees furloughed by the government shutdown, nearly 60 percent of its workforce; with the IRS being fully staffed on or before July 15, 2020 and that the IRS has reopen facilities in remaining states on July 13 with an emphasis on telework with plans to continue to encourage it, where possible, for the foreseeable future to ensure social distancing. 

Have an IRS Tax Problem?
 
 
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Tuesday, July 21, 2020

Final Regs Provide That GILTI High-Tax Exception Is Retroactive

According to Law360, The U.S. Treasury Department finalized Monday a partial tax exemption for companies that have already paid high foreign taxes on global income, and will allow businesses to apply the exemption retroactively to the end of 2017.

The U.S. Treasury Department finalized rules Monday that will allow companies to choose to apply the global intangible low-taxed income high-tax exclusion to taxable years back to Dec. 31, 2017. 

Under the exemption, the 10.5% tax on global intangible low-taxed income, part of the 2017 Tax Cuts and Jobs Act , won't apply to foreign income that has already been taxed by other jurisdictions at rates of 18.9% or more.

Treasury proposed the expanded exclusion in June 2019. The final rules let companies choose to apply the GILTI high-tax exclusion to the taxable years of foreign affiliates that begin after Dec. 31, 2017, and before July 23, 2020, when the regulations will be published in the Federal Register.


Lawmakers initially said GILTI would act as a corporate minimum tax, ensuring that companies do not pay excessively low taxes on income from intangible assets, such as intellectual property. The conference report that both chambers of Congress passed alongside the TCJA said that the GILTI tax wouldn't apply on income already taxed at 13.125% or higher, as businesses can use foreign tax credits to cover 80% of the foreign tax imposed.

Despite those nonbinding statements, Treasury ultimately found that foreign tax credit limitations can apply, creating much higher GILTI payments for some companies.

While the department declined to give businesses full relief from the foreign tax credit limits, it did offer an exemption for companies that have paid foreign taxes at rates higher than 18.9%, which is 90% of the full U.S. 21% corporate tax rate. 

The decision proved controversial with critics who claim it goes beyond the language of the statute.

By applying the exception retroactively, the rule may help companies dealing with the economic fallout of the novel coronavirus pandemic. The GILTI system does not allow companies to carry losses forward, which practitioners say can be unduly harsh for unprofitable companies. If they can use the exception, companies can remove subsidiaries from GILTI calculations entirely, potentially allowing for more flexibility in managing economic losses.

Aside from the final rule on the high-tax exclusion, issued under Internal Revenue Code Section 951A , Treasury on Monday also issued guidance under IRC Section 954 . The measure is part of Subpart F, the longstanding regime that immediately taxes the global passive income of controlled foreign corporations, or CFCs. In order to use the GILTI high-tax exception, a company must elect to use both Section 951A and Section 954.

The proposed regulations apply based on a company's effective foreign tax rate for the aggregate of CFC income attributable to a single qualified business unit, or QBU. For the final rules, Treasury rejected comments requesting the rate apply on a CFC-by-CFC basis, noting that doing so "would inappropriately allow the blending of high-taxed and low-taxed income."

Such blending "is inconsistent with the purpose of Section 951A, which is to limit potential base erosion incentives created by a participation exemption regime," Treasury said.

The regime, under the TCJA's IRC Section 245A , generally allows companies to bring home foreign-sourced income by claiming a 100% dividends-received deduction, provided the earnings don't fall under Subpart F or GILTI.

While the final rules don't apply on a CFC-by-CFC basis, they replace the QBU-by-QBU approach with "a more targeted" way for identifying relevant foreign earnings, according to Treasury.
Have an International Tax Problem?


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or 
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