Wednesday, June 30, 2021

IRS ‘Dirty Dozen’ List Warns People About Offer in Compromise ‘Mills’ - Call M&A for Real & Experience Tax Attorneys!


WASHINGTON – The Internal Revenue Service continued its “Dirty Dozen” tax scams with a warning for people to watch out for predators using tax-related schemes ranging from fake charities to scams targeting seniors and immigrants.

The IRS continues to see a group of ruses by dishonest people who trick others into doing something illegal or which ultimately causes them harm. Predators encourage otherwise honest people to do things they don’t realize are illegal or prey on their good will to take something from them.

Here are five of this year’s “Dirty Dozen” scams. 1. Fake charities, 2. Immigrant/senior fraud 3. Seniors beware, 4. Offer In Compromise ‘Mills’ and 5. Unscrupulous Tax Return Preparers. 

Offer In Compromise ‘Mills’ 

Offer in Compromise mills contort the IRS program into something it’s not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars.

“We’re Increasingly Concerned That People Having Trouble Paying Their Taxes Are Being Duped Into Misleading Claims About Settling Their Tax Debts For ‘Pennies On The Dollar’,” Said IRS Commissioner Chuck Rettig. 

The IRS urges people to take a few minutes to review information on IRS.gov to see if they might be a good candidate for the program and Avoid Costly Promoters Who Advertise On Radio And Television.”


The IRS Reminds Taxpayers To Beware Of Promoters Claiming Their Services Are Needed To Settle With The IRS, That Their Tax Debts Can Be Settled For “Pennies On The Dollar” 
or That There Is A Limited Window Of Time To Resolve Tax Debts Through (OIC).

An “offer,” or OIC, is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. However, some promoters are inappropriately advising indebted taxpayers to file an OIC application with the IRS, even though the promoters know the person won’t qualify. This costs honest taxpayers money and time.

Taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage. 

Companies Advertising On TV Or Radio
Frequently Can’t Do Anything For Taxpayers ...

For more information about Tax Relief Companies see the information on fake charity scams on the Federal Trade Commission web site detailing how Tax relief companies use the radio, television and the internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. 

The truth is that most taxpayers don't qualify for the programs these fraudsters hawk, their companies don't settle the tax debt, and in many cases don't even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don't provide refunds, and leave people even further in debt.

The majority of tax settlement companies charge their clients an initial fee that can easily run anywhere between $3,000 to $6,000, depending on the size of the tax bill and proposed settlement. In most cases, this fee is completely nonrefundable. This fee quite often mysteriously mirrors the amount of free cash the client has available. This is generally the amount of cash the company says it will save the client in tax payments.

Clients have also complained to the Better Business Bureau (BBB) and the Federal Trade Commission (FTC) that some of these firms have not produced any of the promised results and, in fact, the organization was a scam. Many firms also materially misrepresent their fees to clients, perhaps charging them initially with a lower fee before coming back for more once they are deeply involved in the process.

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IRS Announces ‘Dirty Dozen’ Tax Scams for 2021

The Internal Revenue Service today began its "Dirty Dozen" list for 2021 with a warning for taxpayers, tax professionals and financial institutions to be on the lookout for these 12 nefarious schemes and scams.

This year's "Dirty Dozen" will be separated into four separate categories:

  • pandemic-related scams like Economic Impact Payment theft;
  • personal information cons including phishing, ransomware and phone "vishing;"
  • ruses focusing on unsuspecting victims like fake charities and senior/immigrant fraud; and
  • schemes that persuade taxpayers into unscrupulous actions such as Offer In Compromise mills and syndicated conservation easements.

The agency compiled the list into these categories based on who perpetuates the schemes and who they impact. In addition to today's scams the IRS will highlight the other schemes over the next three days.

The IRS urges all taxpayers to be on guard, especially during the pandemic, not only for themselves, but also for other people in their lives.

"We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis," said IRS Commissioner Chuck Rettig. "We provide this list to alert taxpayers about common scams that fraudsters use against their victims. At the IRS, we are dedicated to stopping these criminals, but it's up to all of us to remain vigilant to protect ourselves and our families."

Taxpayers are encouraged to review the "Dirty Dozen: list in a special section on IRS.gov and should be alert to these scams during tax filing season and throughout the year.

Economic Impact Payment theft

A continuing threat to individuals is from identity thieves who try to steal Economic Impact Payments (EIPs), also known as stimulus payments.

Taxpayers should remember that the IRS website, IRS.gov, is the agency's official website for information on payments, refunds and other tax information.

Unemployment fraud leading to inaccurate taxpayer 1099-Gs

Because of the COVID-19 pandemic, many taxpayers lost their jobs and received unemployment compensation from their state. However, scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made on these fraudulent claims went to the identity thieves.

The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn't receive.

Additional protection to help protect taxpayers

IRS makes IP PINs available to all taxpayers – adding another layer of security

To help taxpayers avoid identity theft, the IRS this year made its Identity Protection PIN (IP PIN) program available to all taxpayers. Previously it was available only to victims of ID theft or taxpayers in certain states. The IP PIN is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer's personally identifiable information.

Using an IP PIN is, in essence, a way to lock a tax account. The IP PIN serves as the key to opening that account. Electronic returns that do not contain the correct IP PIN will be rejected and paper returns will go through additional scrutiny for fraud.

Reducing fraud

The IRS and its Security Summit partners in the states and the private-sector tax community have made changes to help reduce identity theft-related refund fraud that are noticeable to the average person filing a return.

Multi-factor authentication can help

It is important for taxpayers filing in 2021 to know that online tax software products available to both taxpayers and tax professionals will contain options for multi-factor authentication. Multi-factor authentication allows users to better protect online accounts. One way this is accomplished is by requiring a security code sent to a mobile phone in addition to the username and password used to access the account.

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LB&I Extends Document Request Enforcement Suspension Through Sept. 30

In a memo LB&I-04-0621-0005 (6/16/2021)the IRS's Large Business & International division (LB&I) has said it is extending the suspension of information document request (IDR) enforcement procedures through September 30, 2021, and that other exam activities will continue under normal procedures (with some exceptions) through September 30, 2021. An IDR is issued on IRS Form 4564, Department of the Treasury/Internal Revenue Service Information Document Request. It is a form that the IRS uses during a tax audit to request information from the taxpayer.

  • In March 2020, LB&I said that IDR enforcement procedures would be suspended through July 15, 2020. (IRS memo: Approval for Deviation from IDR Process and Enforcement Control Number: LB&I-04-0320-0007 (3/25/2020))
  • In April 2020, LB&I clarified its compliance priorities for the period ending July 15, 2020. Generally, LB&I would not begin new return examinations before July 15, 2020. However, LB&I managers had the discretion to open an examination into prior year, subsequent year and related returns associated with an existing examination. 
  • In a December 2020 memo, LB&I said it was extending, in general, the suspension of IDR enforcement procedures through June 30, 2021.

In addition, in general, the LB&I exam activities would continue under normal procedures (with some exceptions) through June 30, 2021 "and thereafter." Exceptions to this rule were:

  1. Appointments (whether in person or virtual) could be scheduled depending upon the facts and circumstances of the taxpayer. While in-person contact was allowed, IRS would continue to support performing its work virtually to accommodate its employees or taxpayers who may have concerns with in-person contact, which may require the need for statue extensions. Virtual appointments would continue to be conducted by WebEx or teleconference. 
  2. The hold on new Discriminate Analysis Score (DAS, a computer model the IRS uses to score examination potential for corporate returns with total assets of $10 million or more) cases would continue. IRS managers would have discretion in approving prior, subsequent, and related returns associated with an existing DAS examination.
The IRS has extended the guidance in the December 2020 memo through September 30, 2021. While the December 2020 memo said that the LB&I exam activities would continue under normal procedures (with some exceptions) through June 30, 2021 "and thereafter," the new memo says that the LB&I exam activities will continue under normal procedures (with some exceptions) through September 30, 2021. It deletes the "and thereafter" language.

This memo extends the approval period to deviate from IDR enforcement procedures and applies to the IDR enforcement process for taxpayers who are unable, due to the COVID-19 pandemic, to respond timely to an IDR. Notwithstanding this deviation, managers retain the discretion to continue with the IDR enforcement process when in their judgment the interests of tax administration warrant, for example cases with short statues or fraud development. 

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Tuesday, June 29, 2021

Understanding IRS Tax Audits - Part II

 On June 22, 2018 we posted Understanding IRS Tax Audits - Part I where we discussed that 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.


Understanding IRS Tax Audits - Part II

We have summarize below and in Parts I & III 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.

Interacting with the IRS Agent

When possible, the taxpayer’s representative, not the taxpayer, should interact with the agent. Indeed, in most cases, the meetings should take place at the representative’s office, not the taxpayer’s place of business. Direct contact between the agent and the taxpayer (or taxpayer’s employees) should be minimized. Agents are trained in interviewing techniques designed to elicit information. They will ask open ended questions, and will listen carefully to the responses. Taxpayers who meet with an agent should be careful to answer only the question asked.

Absent having been served an administrative summons, a taxpayer has the right to refuse to be interviewed. Although, historically examining agents have been reluctant to press for taxpayer interviews, examining agents have become more aggressive in seeking taxpayer interviews and using summonses to compel them. If interviewed pursuant to a summons or otherwise, the taxpayer has a right to counsel and may assert appropriate privileges.

Care should be taken to create a complete record of all information provided to the examining agent. Maintain a detailed record of all documents and records provided to the examining agent. Maintain a record of any oral communication with the agent whether in person or by telephone. Confirm any material oral agreements in writing.
How Agents Gather Information
During the examination, the agent may request various types of documentation to verify items of income and expense on the return, including records, such as receipts, invoices, books, and worksheets. Revenue agents may also review prior or subsequent tax returns or the returns of related taxpayers.

Generally, agents have broad powers to compel production of relevant information. Nevertheless, certain types of information may be subject to privilege or otherwise not subject to compelled production. Once provided, the privilege is likely to have been waived. For example, an agent may ask to see invoices to substantiate a deduction claimed for professional services, such as accounting or legal fees. The descriptions of the services provided could contain information leading to another adjustment. If the descriptions of the services may be privileged, the taxpayer may be able to withhold the actual invoices in favor of some other proof of payment, or may be able to provide redacted invoices.

There has been much discussion about whether tax work papers can be so compelled. Tax work papers prepared in connection with the preparation of the tax return can be reviewed. However, audit accrual work papers, which may reflect opinions and estimates related to questionable items on the return, present a more complex question. Agents are cautioned in the Internal Revenue Manual to exercise restraint in this area, but the Service is becoming more aggressive, particularly where listed transactions are involved.

Keep in mind that the taxpayer’s books and records may contain confidential information of another taxpayer, such as IP or the terms of a contract. The taxpayer may be under a contractual obligation to keep this information confidential. If the agent can not be convinced to accept redacted documents, the taxpayer may want to decline to produce the document unless an administrative summons is issued compelling its disclosure.

An agent will typically request documents and other information by issuing an Information Document Request (Form 4564). Initial requests at the beginning of an examination are typically fairly broad with subsequent requests focusing on specific issues. Keep careful track of IDR requests and items produced. Always maintain a duplicate copy of any documents that are provided and include a transmittal letter with any response describing the documents produced.

If a taxpayer fails to produce requested items, the Service can summons a taxpayer or third party for books, records or testimony. Agents are directed to make an attempt to obtain information informally before issuing a summons. Agents are instructed to consider issuing a summons when a taxpayer fails to make requested records available within a reasonable period of time; where the records submitted are known or suspected to be incomplete and the examining agent believes that additional records containing relevant and material matter may be in the possession of the taxpayer or a third party; and when the examining agent is in doubt as to the availability of pertinent records and wishes to obtain oral testimony as to what records may exist and their location.

When an administrative summons is issued, the summoned person must personally appear at the time and place specified with any requested items. The summoned person has the right to counsel, the right to assert the attorney-client privilege, and the right to raise the self-incrimination privilege under the 5th Amendment. The IRS can issue administrative summonses to third parties believed to hold relevant information. Notice of summons issued to a third party must be given to the taxpayer within 3 days of the date on which service is made to the third party and no less than 23 days before the summons return date. This is to allow the taxpayer sufficient time to file a petition to quash.
If a summoned party ignores the summons or otherwise fails to fully comply, the Service may bring legal proceedings to enforce the summons in federal district court. A court will generally enforce a summons if there is a legitimate purpose for the examination; the information demanded may be relevant to that purpose; the information is not already in the possession of the Service; the information or document is not privileged and the Service has complied with the applicable administrative requirements of the Code and regulations.

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


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Advice For Attorneys - Using Your IOTA Trust Account to Hide Your Personal Income Is Not Tax Planning, It's Tax Evasion!

According to the DoJ, a Texas attorney and former member of the Idaho legislature, John O. Green, and his client, Texas inventor Thomas Selgas, were sentenced yesterday for conspiracy to defraud the United States and tax evasion. 

Selgas Was Sentenced To 18 Months In Prison And Green To 6 Months.

Selgas and Green were convicted by a jury in Federal District Court in Dallas on Jan. 15, 2020. According to the evidence presented at trial, Selgas conspired with Green, an attorney licensed to practice in Texas, to defraud the United States by obstructing the IRS’s efforts to assess and collect Selgas’s taxes. 

Selgas and his wife owed approximately $1.1 million in taxes that Selgas refused to pay. When the IRS sought to collect those taxes, Selgas concealed, with the assistance of Green, substantial funds by using Green’s Interest on Lawyers Trust Account (IOLTA) rather than using financial accounts in Selgas’s own name. 

An IOLTA is an escrow bank account used by a lawyer to hold money in trust for clients. 

From 2007 to 2017, Selgas deposited proceeds from the sale of gold coins and other income into Green’s IOLTA. At the direction of Selgas, Green would then use that escrow account to pay the personal expenses of Selgas and his wife, including their credit card bills. 

This use of the IOLTA concealed Selgas’s income from the IRS and thwarted its ability to identify funds he possessed, which could be used to offset the taxes owed. 

Selgas and Green also filed a false tax return on behalf of MyMail Ltd., an intellectual property development and licensing partnership Selgas co-founded, omitting a substantial portion of the partnership’s actual income. 

In addition to the term of imprisonment, U.S. District Judge Karen Gren Scholer ordered Selgas to serve three (3) years of supervised release and to pay approximately $1,323,776.92 in restitution to the United States. 

Judge Scholer ordered Green to serve three (3) years of supervised release and to pay approximately $679,501.50 in restitution to the United States. 

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Friday, June 25, 2021

Your Bigger & Better IRS! - With MORE Enforcement in 2022!


The IRS has released details of its fiscal year 2022 (FY 2022) budget request. The request is for $13.16 billion, which is $1.24 billion (10.4%) more than the FY 2021 enacted level of $11.92 billion.

The request includes the following:

  1. Putting taxpayers first. ($176.09 million and an additional 294 full time employees (FTE)) This investment includes: $27 million to add increased security and flexibilities to how the IRS identity proofs and authenticates taxpayers to allow secure access to taxpayer online services such as Identity Protection (IP) PINs in accordance with National Institute of Standards and Technology (NIST) standards; and $149.09 million to develop and implement a Taxpayer Experience Strategy to improve the American taxpayer's experience with the IRS through expanded digital services, increased multilingual services, and an increased presence in hard to reach communities.

  2. Ensure fairness of the tax system. ($340.27 million, +1,833 FTE) Highlights of this investment include:

    • $154.87 million to increase the audit coverage rate of large corporations (with balance sheet assets > $10 million), pass through entities, and high wealth individuals with adjusted gross income of more than $10 million. Currently, this audit rate is half of what it was in FY 2010-2010;
    • $41.09 million to expand oversight of cyber-crimes and allow for applied data analytics which IRS can leverage to connect the most remote financial transaction between apparent disparate actors which can be the key piece of evidence to break open the most complex financial investigation;
    • $13.47 million to enhance taxpayer confidence in the tax-exempt sector which is essential to preserving and protecting charitable tax deductions and the retirement savings of everyday Americans;
    • $32.90 million to addresses pre-refund audit coverage;
    • $77.06 million for additional examination and collection employees to increase the individual audit and collection coverage rates; and
    • $20.87 million to enhance overall enforcement efforts, increase the number of convictions and expand the IRS's capabilities in core tax enforcement areas.


    3. Improve live assistance. ($318 million, +4,203 FTE).

    4. IT modernization. ($78.14 million, +18 FTE).

    5. Electrical vehicles. ($2.96 million, +0 FTE).

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US District Court Reinstates EB-5 Investment Amount to $500,000

On December 9, 2009 we posted EB-5 Investments Increased to $900,000 and $1.8 Million Starting November 21, 2019, where we discussed that the Final Rule was scheduled to be published on Wednesday, July 24, 2019, in the Federal Register is set to raise investment amounts for the EB-5 program from $500,000 to $900,000 for TEA investments and $1 million to $1.8 million for non-TEA investments. Other major program changes include the centralization of TEA's in the Department of Homeland Security (DHS) and a clarification of procedures for removing conditions on permanent residence. This is the first significant revision to the EB-5 program's regulations since 1993.

Now according to CBI The US District Court for the Northern District of California has ruled that Former Acting Homeland Security Secretary Kevin McAleenan was not following correct procedures while serving in his position under the Federal Vacancies Reform Act when he introduced the EB-5 Modernization Final Rule, and accordingly the Court has ruled that the new regulations which took effect on 21 November 2019 must be “set aside”. US Magistrate Judge Jacqueline Scott Corley made the ruling on June 22, 2021, in the case of Behring Regional Center LLC V. Chad Wolf, et al. 

She Also Ruled That The Ratification of The EB-5 Modernization Final Rule By Current Secretary Of Homeland Security Alejandro Mayorkas in March 2021 Did Not Fix The Fault Arising From McAleenan’s Improper Appointment.

The court declined to address the current US government’s request for a stay of action and remanded the matter to the Department of Homeland Security. The court stated: 

“While There Would Certainly Be Some Disruption
If The Rule Is Vacated Given The Length of Time
The Rule Has Been In Effect, The Government Has
Made No Specific Showing of Harm Beyond
Asserting That It Would Be ‘Extraordinarily Disruptive’.”

On the other hand, the court also declined to grant the Plaintiff’s injunction barring USCIS (US Citizenship and Immigration Services) from reinstating the EB-5 Modernization Rule absent compliance with the rule-making process governed by the Administrative Procedures Act. 

It is possible that USCIS will appeal the decision to the 9th Circuit Court of Appeals. It is also likely that Secretary Mayorkas will now seek to finalise the EB-5 Modernization Rule, but until then the old minimum investment amounts apply and revert back to $500,000 if in a Targeted Employment Area (TEA), otherwise $1m, and Targeted Employment Area standards go back to pre-November 2019.

You can view the case judgment HERE

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Tuesday, June 22, 2021

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.

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