Friday, December 23, 2022

IRS Delays Implementation Of $600 Reporting Threshold For Third-Party Payment Platforms On Forms 1099-K

On March 1, 2022 we posted IRS Reminds Taxpayers To Report Gig Economy Income & Virtual Currency Transactions, where we discussed that in IR-2022-45 the Internal Revenue Service reminded taxpayers of their reporting and potential tax obligations from working in the gig economy & making virtual currency transactions.

Now the Internal Revenue Service announced on December 23, 2022, a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season.

As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.

As part of this, the IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) including Venmo, PayPal and CashApp that would have generated Form 1099-Ks for taxpayers.

“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. 

“To Help Smooth The Transition And Ensure Clarity For Taxpayers, Tax Professionals And Industry, The IRS Will Delay Implementation Of The 1099-K Changes.

The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year; changed from the previous threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.

Under the law, beginning Jan. 1, 2023, a TPSO is required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099K, Payment Card and Third-Party Network Transactions.

The transition period described in Notice 2023-10, delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.

Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.

The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.

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Tuesday, December 13, 2022

No Foreign Income No Schedules K-2 & K-3 Required For Partnerships & S Corps

The IRS has issued draft instructions for partnerships and S corporations completing 2022 Schedules K-2 and K-3. According to Thompson Reuters these draft instructions add new exceptions to the requirement to file and furnish Schedules K-2 and K-3 for tax years beginning in 2022. 

For tax years beginning in 2021, the IRS required pass-through entities (partnerships, S corporations and LLCs) with items of international tax relevance to complete Schedule K-2 and Schedule K-3 to report such items.

Schedule K-2, which is an extension of Schedule K (Form 1065 and Form 1120-S), is used to report items of international tax relevance from the operation of a partnership or S corporation.

Schedule K-3, which is an extension of Schedule K-1 (Form 1065 and Form 1120-S), is generally used by a pass-through entity to report to partners or shareholders their share of the items reported on Schedule K-2. Generally, partners and shareholders must include the information reported on Schedule K-3 on their tax or information returns.

The IRS was widely criticized by the tax community for how it handled these reporting requirements in 2021. 

As A Result Of This Criticism, The IRS Provided Additional Exceptions To The Schedule K-2 And K-3 Filing Requirement; The Domestic Filing Exception And The Form 1116 Exception.

These exceptions are found in the filing instructions for Schedules K-2 and K-3. 

Domestic Filing Exception.  Partnerships and S corporations qualify for the domestic filing exception if they meet the following criteria:

  1. No or limited foreign activity. The instructions define foreign activity as (a) paying or accruing foreign income taxes; (b) foreign-source income or loss; (c) an ownership interest in a foreign partnership; foreign corporation; foreign branch or disregarded foreign entity.

    A domestic partnership is considered to have limited foreign activity when (a) its only foreign activity is passive foreign income and the partnership paid or accrued no more than $300 of creditable foreign taxes on that income and (b) such income and taxes are shown on a payee statement (such as a Schedule K-1 from another partnership or a Form 1099 furnished or treated as furnished to the partnership.

  2. U.S. citizen or resident alien partners. During 2022, all a partnership's direct partners were (a) an individual who is a U.S. citizen or resident alien; (b) a decedent's estate that's not a foreign estate if all beneficiaries are U.S. citizens or resident alien individuals; (c) a domestic grantor trust if all beneficiaries and grantors are U.S. citizens or resident alien individuals; or (d) a domestic non-grantor trust if all beneficiaries are U.S. citizens or resident alien individuals.

  3. Partner/shareholder notification. Partnerships must notify their partners no later than two months before the due date (without extension) for filing the partnership's 2022 return that partners will receive a Schedule K-3 from the partnership only if the partner requests the schedule. For calendar year partnerships, this notification must be provided to partners by January 15, 2023. This notice can be provided electronically or by mail. S corporation shareholders must receive this notification no later than the date the S corporation furnished Schedule K-1 to the shareholder. The notice can be attached to the Schedule K-1 and should state that shareholders will not receive Schedule K-3 unless the shareholder requests schedule.

  4. No Schedule K-3 requests by the one-month date. The partnership or S corporation doesn't receive a request from any partner or shareholder for Schedule K-3 on or before the one-month date. The one-month date for calendar-year partnerships and S corporation for the 2022 tax year is February 15, 2023.

Form 1116 Exception. A domestic partnership that doesn't meet all the above requirements may still avoid filing Schedules K-2 and K-3 under the Form 1116 exception. The Form 1116 exception applies (1) if the partnership's partners are eligible for the Form 1116 exemption and (2) the partners notify the partnership that they are eligible for the exemption by the one-month date.

If only some of the partnership's partners notify the partnership that they are eligible for the Form 1116 exemption ("exemption notice"), the partnership doesn't need to complete the Schedule K-3 for those partners. However, the partnership must complete Schedules K-2 and K-3 for the other partners to the extent it doesn't qualify for the domestic.

If the pass-through entity doesn't meet the domestic filing exception because the creditable foreign taxes paid or accrued by the partnership are greater than $300, it may be advisable to have each partner state (in writing) whether they meet the Form 1116 exemption for the tax year. Partners meet the Form 1116 exemption if they had less than $300 of creditable foreign taxes paid or accrued for the tax year (or $600 for those filing as married filing jointly).

According to the instructions, a pass-through entity that doesn't receive an exemption notice from a partner or shareholder must presume such partner or shareholder would have to file a Form 1116 or Form 1118, Foreign Tax Credit (Corporations) to claim the credit. In this circumstance, the pass-through must complete Schedules K-2 and K-3, including Parts II and III, accordingly.

Practitioners with partnership and S corporation clients that may qualify for the domestic filing exception to filing Schedules K-2 and K-3 must send out notices to partners and shareholders no later than January 15, 2023.

Have as IRS Tax Problem?

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Toll Free at 888 8TAXAID (888-882-9243) 

Thursday, December 1, 2022

IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised!

On October 29, 2019 we ORIGINALLY posted The IRS is Now Criminally Prosecuting Employers For Failure To Pay Withheld Payroll Taxes! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes.

The November 2022 Lowlights From DoJ include the following employment tax prosecutions:

  1. The sole shareholder and president of an Iowa landscaping and construction company, pleaded guilty to evading payment of his company's employment taxes. The company withheld approximately $1 million in payroll taxes but failed to pay over that amount to the IRS. While the shareholder, Kevin Alexander, admitted that he was liable for paying the company's taxes, he sought to conceal some of his assets from the IRS. 
  2. The former operator of several Key West staffing agencies, Oleksandr Morgunov, pleaded guilty to defrauding the IRS out of more than $7.9 million in employment taxes. Under Morgunov the staffing agencies facilitated the employment of individuals not authorized to work in the U.S.
  3. The former owner of two car rental companies, Ari Weingrad, pleaded guilty to willfully failing to pay over withheld employment taxes to the IRS. Weingrad knew he was responsible for collecting, accounting for and paying over withheld payroll taxes, but willfully failed to remit them.
  4. Yigal Ziv, who owned and operated a software company, pleaded guilty to employment tax violations. Ziv was responsible for withholding employment taxes from his employees and filing his business's quarterly employment tax returns. However, although Ziv withheld taxes from his employees' wages, he didn't remit those taxes to the IRS. In addition, he failed to file employment tax returns. 

Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

Have Payroll Tax Problems?
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Wednesday, November 30, 2022

No Equitable Tolling, As In Boechler, For Jurisdictional 90-Day Filing Deadline

According to Law360The U.S. Tax Court can't consider a California company's day-late challenge to an IRS bill, the court ruled on November 29, 2022, despite a recent U.S. Supreme Court decision in Boechler concluding that a different tax code deadline was not jurisdictional and didn't necessarily bar late cases.

Hallmark Research Collective's suit challenging the deficiency notice from the Internal Revenue Service is barred by the 90-day deadline for such cases under Internal Revenue Code Section 6213(a), the Tax Court's 17 judges said in a unanimous opinion

In coming to its conclusion, the court said the deadline is not analogous to a different tax code deadline that the Supreme Court determined was not jurisdictional in the case Boechler PC v. Commissioner of Internal RevenueHallmark had asked the court to reconsider its initial dismissal of the case.

The Tax Court Said The Actual Text, Placement And
History Of Section 6213(A) Indicate That Congress
Intended For The Deadline To Be Jurisdictional.

That Congress has made several amendments to the statute to give taxpayers more flexibility to meet the deadline shows it knew the Tax Court didn't have the authority to give deadline relief itself, the court added.

Hallmark filed its 2015 return late and failed to file its return for 2016, after which the IRS prepared a return on its behalf and sent a deficiency notice outlining taxes, penalties and additions to tax owed for both years, according to the Tax Court's opinion. The company filed its Tax Court petition challenging the deficiency notice one day late in September 2021, after which the Tax Court dismissed its case, finding it lacked jurisdiction because of the untimely petition, according to the opinion.

But the Supreme Court issued its opinion in law firm Boechler PC's case just a few weeks after the Tax Court dismissed the Hallmark case. In their opinion from April, the justices said that statutory filing deadlines must be clearly stated as jurisdictional in order for them to be construed as such.

IRC Section 6330(d)(1)'s filing deadline, the one in dispute in Boechler, doesn't clearly connect to the authority given to the Tax Court to consider collection due process cases, the Supreme Court found. That meant that the Tax Court had the authority to consider the day-late case filed by Boechler, according to the high court.

Hallmark then asked the Tax Court to reconsider dismissing its Section 6213 case, arguing that the Supreme Court's reasoning was applicable to the dispute over the deficiency statute. But the Tax Court found on November 29, 2022 that Section 6213 does clearly predicate the court's jurisdiction on timely filings of deficiency cases, using the same "clear statement" rule that the Supreme Court used in the Boechler case, according to the opinion.

The 90-day deadline requirement being placed in the jurisdictional portion of Section 6213 supports the Tax Court's conclusion that the deadline is meant to be a time bar, the court said. The actual language of the statute also supports this conclusion, as does the fact that Congress has repeatedly amended the statute to accommodate some extenuating circumstances that could inhibit compliance with the deadline, according to the opinion.

"Congress recognized that the Tax Court does not have the power to extend the jurisdictional deadline imposed by Section 6213," the court said. "Thus, Congress, in the course of its amendments, has treated the deadline of Section 6213(a) (and its predecessor statutes) as a jurisdictional deadline that the Tax Court cannot alter or toll."

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

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Tuesday, November 29, 2022

Another Criminal Prosecution For Willfully Failing to Pay Employment Taxes

A Miami business owner pleaded guilty on November 29, 2022 to willfully failing to pay over employment taxes to the IRS. A sentencing date will be set by U.S. District Judge K. Michael Moore.

According to court documents and statements made in court, Ari Weingrad owned and operated two car rental companies, Rent Max Miami, Inc. and Rent Max North, Inc., both of which had locations throughout Florida. 

As the sole owner and CEO of Rent Max Miami, and as the co-owner and president of Rent Max North, Weingrad knew he was responsible for collecting, accounting for and paying over payroll taxes withheld from his employees’ wages to the IRS. 

Between 2011 and 2016, Weingrad withheld from his employees but did not pay over more than $850,000 in employment taxes owed to the IRS. Instead, he caused Rent Max Miami to spend corporate funds to pay discretionary expenses, including a $50,000 cashier’s check to himself, a $45,000 in cashier’s checks payable to his wife, and expenses related to a 55-foot yacht.

Weingrad faces a maximum penalty of five (5) years in prison for willful failure to pay over employment taxes. He also faces, as well as a period of supervised release restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

 Thinking Not Paying Your Taxes?

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  Contact the Tax Lawyers at
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US Man Living In Shanghai Owes $2.3M In FBAR After Dropping Out of His OVDP

According to Law360, an American living in Shanghai owes the Internal Revenue Service $2.3 million after failing to report at least a dozen foreign bank accounts on his 2010 tax forms, the U.S. government told a federal court in a complaint in 
U.S. v. William A. Chen, case number 1:22-cv-03562, in the U.S. District Court for the District of Columbia.

William A. Chen opened the bank accounts in China during 2005 when he planned to relocate from the U.S., the government said in a complaint filed Nov. 22. He failed to disclose their existence and any interest earned on them, according to the government.

Chen opened the accounts at HSBCStandard Chartered BankDeutsche BankIndustrial and Commercial Bank of China, Shanghai Pudong Development Bank, Morgan Stanley and Bank of China, the government said in its complaint. He moved to Shanghai in 2006 and currently lives in the city, according to the government.

Chen hired PwC to prepare his 2006 and 2007 tax forms but had checked "no" on Form 1040's Schedule B question asking if he had any foreign accounts, according to the government.

Chen began filing Report of Foreign Bank and Financial Accounts in 2008, the government said, but did not fully disclose his accounts in 2008 or in 2010, the U.S. said. The 2010 failure involved 12 foreign accounts held with HSBC, Standard Chartered Bank and Deutsche Bank, the government said. The aggregate highest balance of the accounts totaled $5.7 million, according to the government.

Chen entered the 2014 Offshore Voluntary Disclosure Program in 2015 but dropped out in 2018. The penalties and interest against him total $2.3 million, the government said.

Have an FBAR Penalty Problem?  

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Diamond Dealer Did Not Make the Cut and Agrees To Pay $1.3M In FBAR Penalties

According to Law360A diamond dealer agreed Thursday to pay $1.3 million as part of a consent judgment in New Jersey federal court settling allegations that he failed to report his overseas bank accounts.

Favi Cahan of Toms River, New Jersey, agreed that he willfully failed to file Reports of Foreign Bank and Financial Accounts from 2005 to 2008, according to the decision entered by the U.S. District Court for the District of New Jersey. The U.S. had accused him of owing $1.5 million in penalties and interest.

Cahan became a permanent U.S. resident around 1990, according to court documents. The U.S. claims Cahan traveled to Switzerland in 1997 and opened a bank account at UBS, declaring himself the beneficial owner of assets deposited.

Simultaneously, Cahan granted a brother, Jehuda Cahan, power of attorney over the account, and gave a Swiss asset manager named Felix Kramer full discretion to invest the funds, the U.S. said. By the end of 1997, the U.S. said, the account's balance was about $2.1 million.

From 2005 to 2008, Favi Cahan directed 19 transfers from his UBS account, drawing down the balance from about $1.9 million at the beginning of 2005 to about $1 million in 2008, the U.S. said.

IRS assessed civil penalties against him in 2020 for $425,000 for each year from 2005 through 2007 and $100,000 for 2008, for a total of $1.375 million. By March 2022, he had accrued interest on his unpaid liabilities and incurred other additions such that his outstanding debt had grown to more than $1.5 million, the government said.

Favi Cahan describes himself as "a scion of the Cahan family — Belgian diamond dealers of renown,'' who distinguished himself "as an aficionado in the influential Antwerp Diamond Bourse'' on, which redirects to the website for FCD Corp., a jeweler in Manhattan's Diamond District.

A section on FCD's website said Favi Cahan was a senior executive at Israeli diamond wholesaler LID before he moved to New York City in 1990 and "transferred his passion and talents to 47th Street," joining "the prestigious Diamond Dealers Club."

Have an IRS Tax Problem?

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