No IRS Whistleblower Awards for Non Title 26 Tax Violations

Violations of non-tax laws—including those enforced by the Internal Revenue Service—cannot form the basis of a whistleblower award under tax code Section 7623, the IRS Office of Chief Counsel said in a program manager technical advice memorandum.  

This memorandum (PMTA 2012-10 ) addresses whether I.R.C. § 7623 authorizes payment of whistleblower awards based on information related to violations of laws outside Title 26. For the reasons discussed below, violations of non-tax laws, such as the provisions of Titles 18 and 31 for which the IRS has delegated authority, cannot form the basis of an award under section 7623.  

Although IRS has delegated authority for enforcing certain Bank Secrecy Act and money laundering provisions under Titles 18 and 31, amounts recovered for violations of those titles may not be considered for purposes of computing a Section 7623 award, the office said in PMTA 2012-10.

 

...

III. CONCLUSION

Based on each of the reasons discussed above, amounts recovered for violations of non-tax laws may not be considered for purposes of computing an award under section 7623.

Information that pertains to Title 18 or Title 31 violations but nonetheless leads to recovered amounts for a Title 26 violation, however, may provide the basis of an award under section 7623.

Nothing in section 7623 precludes the IRS from paying an award in situations where the information provided relates to either a Title 18 or Title 31 violation, but the IRS’s investigation based on that information leads to detection of violations of tax laws. In such circumstances, the IRS may pay an award so long as, based on the information provided, the IRS recovers proceeds directly associated with a violation of tax laws.

If, on the other hand, the IRS receives information pertaining to a Title 26 violation that leads not to a recovery under Title 26, but to a recovery for violations of Titles 18 or 31, then the IRS may not pay an award under section 7623.

The IRS may pay awards under section 7623, based on a whistleblower’s information, only if it recovers amounts related to violations of tax laws.

If you have a Tax Problem, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

 

 

District Court - Bankruptcy Court Cannot Enjoin IRS's Future Exercise of Rights to Setoff & Recoupment

The U.S. District Court for the Eastern District of New York ruled Sept. 15, 2012, that A bankruptcy court has no jurisdiction to enjoin the Internal Revenue Service's future exercise of its rights to setoff and recoupment.

Relivant portions of the Decision …

VI. Recoupment and Setoff

 

The final dispute at issue in this appeal is whether the Bankruptcy Court had jurisdiction to enjoin the IRS from the future exercise of any right to setoff or recoupment against the Trustee.  

"The right of setoff (also called 'offset') allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding the absurdity of making A pay B when B owes A." Citizens Bank v. Strumpf, 516 U.S. 16, 18, 116 S. Ct. 286 (1995) (internal quotation marks omitted). Setoff is a longstanding common law defense that provides a defendant with the right not to part with one's funds. See id. at 21; In re Chateaugay Corp., 94 F.3d 772, 777-79 (2d Cir. 1996). It is also granted to the Federal Government by several statutes, including 26 U.S.C. § 6402, which provides that when a taxpayer has made an overpayment, the Secretary of the Treasury may, within the "applicable period of limitations," credit that overpayment against any tax "liability" owed to the IRS by that taxpayer. See 26 U.S.C. § 6402(a). 

Recoupment, on the other hand, involves a special subset of setoff that applies in cases in which the factual basis for the claim and the setoff defense are related. See Reiter v. Cooper, 507 U.S. 258,264, 113 S. Ct. 1213 (1993). The benefit of recoupment over setoff is that recoupment rights survive even if the defending party could not bring an affirmative claim due to the expiration of the applicable statute of limitations. This is true, however, only if the original suit, to which the recoupment is lodged as a defense, is timely. See id.; Davidovich v. Welton (In re Davidovich), 901 F.2d 1533, 1537 (10th Cir. 2001).

 The Bankruptcy Court held that because the IRS failed to object to the provision of the plan barring the exercise of setoff and recoupment rights prior to confirmation, it is barred from objecting after the fact according to principles of res judicata. 

 

That is not to say, however, that the IRS is free to exercise its rights to setoff or recoupment against each of the potential liabilities of the Trustee it identifies in its papers.

Specifically, the IRS notes that it will seek approximately $140,000 in unpaid taxes that the

Trustee allegedly owes from 2002, notwithstanding the fact that the Bankruptcy Court, and now

this Court, has held that the Trustee was discharged from this liability pursuant to the procedures

set forth in 11 U.S.C. § 505(b )(2). Trustee argued below that there is no right to setoff as a result of this discharge, which argument the Bankruptcy Court elected not to address in light of its conclusion that res judicata was sufficient to expunge the IRS's rights.

 Because I do not agree with the Bankruptcy Court on this issue, I address the implication of Section 505(b) with regard to the IRS's setoff rights here.

Thus, the breadth  of cases holding that the setoff of prepetition debts trumps the discharge provisions found in other sections of the Bankruptcy Code are not particularly helpful to the IRS's position. 

For the foregoing reasons, the final order of the Bankruptcy Court is hereby affirmed in part and reversed in part.That part of the order enjoining the IRS from exercising any future right to setoff or recoupment is vacated.

 

 

US V. EDWARD P. BOND, Liquidating Trustee, 18, 116 S. Ct. 286 (September 17, 2012).

 

 

Tax treaties hurt Credit Suisse

CREDIT Suisse could see clients in western Europe withdraw up to a net $37bn (£23bn) in the next few years as Switzerland bows to pressure to stop foreigners using secret offshore accounts to evade taxes.

Swiss bank secrecy has come under heavy pressure in recent years as cash-strapped governments have sought to fight tax evasion.

In a webcast of a presentation to a conference in New York, finance chief David Mathers said Credit Suisse had already seen more than 30bn francs (£20bn) in net outflows from mature offshore markets since 2009, part of it due to the tax disputes.

“Cross-border transformation including new tax treaties could result in 25-35bn francs outflows over the next few years,” the bank said according to slides for the presentation.

If you have Unreported Income From Swiss Banks, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).


Source

CityA.M.

Prop. Regs Would Withdraw Onerous Covered Opinion Rules and Modify Disclaimer Rules

Prop. Regs Would Withdraw Onerous Covered Opinion Rules and Modify Disclaimer Rules
in Circular 230

Under the rules in Circular 230, which govern tax practice before the IRS, tax practitioners must meet minimum standards of conduct with respect to written tax advice, and those who do not are subject to disciplinary action, including suspension or disbarment.

Sections 10.35 and 10.37 of Circular 230 contain comprehensive rules for written tax advice. Practitioners have been complaining about the detailed rules in Section 10.35 on covered opinions since they were issued in 2004. According to practitioners, the rules are overly broad, difficult to apply, and do not necessarily produce higher quality tax advice. Practitioners have also complained that the rules unduly interfere with their client relationships and are not an ethical standard that everyone, including clients, can easily understand. Some practitioners have also opined that these rules (1) may reduce, rather than enhance, tax compliance due to the perception that a covered opinion takes more time to produce and is more expensive for the client than other tax advice; and (2) increase the likelihood that practitioners will provide oral advice to their clients when written advice is more appropriate because the covered opinion rules do not govern oral advice.

Another concern the IRS said it has been hearing from practitioners is about the unrestrained use of disclaimers on nearly every practitioner communication, regardless of whether the communication contains tax advice. Practitioners have said this practice discourages compliance with the ethical requirements because some practitioners have concluded that, if they include a disclaimer, they are free to disregard the standards in Circular 230 regarding written tax advice. The disclaimers also lead to confusion for clients because clients often do not understand why the disclaimer is present and its consequences. In addition, practitioners have complained that the disclaimer's widespread overuse causes clients to ignore the disclaimers altogether, and may render their use in some circumstances irrelevant.

As a result of these continuing complaints, the IRS has issued proposed regulations (REG-138367-06 (9/17/12)) that would eliminate the covered opinion rules in Section 10.35, expand the requirements for written advice under Section 10.37, and withdraw the proposed regulations in Section 10.39 governing requirements for state or local bond opinions. The proposed regulations would also broaden the scope of the procedures to ensure compliance (i.e., Section 10.36) by requiring that a practitioner with principal authority for overseeing a firm's federal tax practice take reasonable steps to ensure the firm has adequate procedures in place for purposes of complying with Circular 230. The proposed regulations would clarify that practitioners must exercise competence when engaged in practice before the IRS and that the prohibition on a practitioner endorsing or otherwise negotiating any check issued to a taxpayer with respect to a federal tax liability applies to government payments made by any means, electronic or otherwise. In addition, the proposed regulations would expand the categories of violations subject to the expedited proceedings in Section 10.82 to include failures to comply with a practitioner's personal tax filing obligations that demonstrate a pattern of willful disreputable conduct and also clarify the Office of Professional Responsibility's scope of responsibility.

Compliance Tip: The proposed regulations are not effective until finalized.

 

Source:

 

(Parker's Federal Tax Bulletin: September 27, 2012)

Tax Court: The Overstatement of a Depreciable Asset, Not Subject to 40% Overstatement Penalty.

This case is before the Court on petitioner's motion for summary judgment, filed pursuant to Rule 121, to which respondent objects.

The Court previously held in BLAK Invs. v. Commissioner, 133 T.C. 431 (2009) (prior Opinion), that the period of limitations for assessment of tax resulting from the adjustment of partnership items with respect to the transaction at issue is open for the year 2001 under section 6501(c)(10).

Subsequently, petitioner stipulated that "BLAK Investments was a sham, lacked economic substance, and was formed and/or availed of to claim deductions of artificial losses solely for tax purposes" and conceded that a 20% accuracy-related penalty under section 6662(a) applies to the entire underpayment of tax resulting from the transaction.

 

The sole issue remaining for decision is whether petitioner is liable for the higher 40% penalty rate for a gross valuation misstatement under section 6662(h).

Under section 6662(h), a taxpayer may be liable for a 40% penalty on any portion of an underpayment of tax attributable to a gross valuation misstatement. A gross valuation misstatement exists if the value or adjusted basis of any property claimed on a tax return is 400% or more of the amount determined to be the correct amount of such value or adjusted basis. Sec. 6662(h)(2)(A). Whether there is a gross valuation misstatement in the partnership context is determined at the partnership level. Sec. 1.6662-5(h)(1), Income Tax Regs.

The Court has held that when the Commissioner asserts a ground unrelated to value or basis of property for totally disallowing a deduction or credit and a taxpayer concedes the deduction or credit on that unrelated ground, any underpayment resulting from the concession is not attributable to a gross valuation misstatement. See McCrary v. Commissioner, 92 T.C. 827, 851-856 (1989). Petitioner conceded the deductions on the grounds that BLAK Investments is a sham and lacks economic substance—grounds unrelated to the value or basis of the Treasury notes, foreign currency, or any other property in the transaction.

Nonetheless, it has long been the Court's view that the gross valuation misstatement penalty does apply when the Court determines that an underpayment stems from deductions or credits that are disallowed because a transaction lacks economic substance or a participant is a sham. See Petaluma FX Partners, LLC v. Commissioner, 131 T.C. 84, 104-105 (2008), aff'd in pertinent part, rev'd in part and remanded, 591 F.3d 649 (D.C. Cir. 2010).

The Courts of Appeals are split on this issue. The Courts of Appeals for the First, Second, Third, Fourth, Sixth, and Eighth Circuits have affirmed the imposition of the valuation overstatement or misstatement penalty where the underpayment results from a sham transaction lacking economic substance. On the contrary, the Courts of Appeals for the Fifth and Ninth Circuits hold that when a deduction or credit is disallowed in full, the resulting underpayment is not attributable to a valuation overstatement.

The Court concluded that the Repondant's arguments were moot, irrelevant, or without merit. To reflect the foregoing, the Court Granted the Petitionier's request fot a summary judgement, finding that the petitioner was not liable for the higher 40 percent penalty rate for a gross valuation misstatement under Internal Revenue Code Section 6662(h).

IRS not agree with you interpretation of the Statute of Limitations, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

BLAKInvestments v. Commissioner, T.C., No. 1283-07, T.C. (T.C. Memo. 2012-273), Filed September 25, 2012.

 

US Taxpayers Living in Mexico - This is Your Last Chance To Report your Offshore Account!

 

We previoustly posted More Swiss Bank Files Being Transferred to the IRS! - where we discussed that Credit Suisse AG has handed over more internal documents to U.S. authorities.

"The documents concerned comprise e-mail correspondence, including attachments, with clients domiciled in the U.S., as well as internal e-mail correspondence, including attachments, about clients domiciled in the U.S. and the U.S. cross-border business in general during the period from June 2001 to March 2011."

Other banks that confirmed that they sent documents, including employee names, to the U.S. are the private-banking unit of HSBC Holdings, Julius Baer Group AG, Zuercher Kantonalbank and Basler Kantonalbank.

So if you are US taxpayer, living in Mexico, who had an account with one of theses Swiss Banks and you have not made a voluntary disclosure, YOU ARE ABOUT TO BE DISCOVERED!

Technically, once the IRS has obtained your identity from these records, you do not qualify for voluntary disclosure.

The mere fact that the Service served a John Doe summons, made a treaty request or has taken similar action does not make every member of the Joe Doe class or group identified in the treaty request or other action ineligible to participate.

However, once the Service or the Department of Justice obtains information under a John Doe summons, treaty request or other similar action that provides evidence of a specific taxpayer's noncompliance with the tax laws or Title 31 reporting requirements, that particular taxpayer will become ineligible for OVDP and Criminal Investigation's Voluntary Disclosure Practice.

For this reason, a taxpayer concerned that a party subject to a John Doe summons, treaty request or similar action will provide information about him or her to the Service should apply to make a Voluntary Disclosure as soon as possible.

If you are a US Person Living in Mexico and have Unreported Income From Swiss Banks, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Communiction between IRS Appeals and Area Counsel not prohibited ex-parte communications.

NORMAN HINERFELD, Petitioner v. COMMISSIONER OF INTERNALREVENUE, Respondent, Docket No. 20946-08L. 139 TC No. 10, Filed September 27, 2012. 

The Tax Court has held that communications between IRS's Appeals Division and Area Counsel regarding an amended offer in compromise (OIC) did not fall in the category of prohibited ex parte communications. The case concerned an OIC with regard to unpaid trust fund recovery penalties under Code Sec. 6672.

 

R issued to P a final notice of intent to levy with regard to P’s unpaid trust fund recovery penalties totaling $471,696. P timely requested a collection due process (CDP) hearing with the Office of Appeals (Appeals) and submitted to Appeals an offer-in-compromise (OIC) of $10,000, followed by an amended OIC of $74,857. The settlement officer assigned to the case recommended that the amended OIC be accepted and submitted the matter to R’s Area Counsel for review in accordance with I.R.C. sec. 7122(b). Upon review, Area Counsel discovered that P and his wife were named as defendants in a lawsuit alleging that P had fraudulently conveyed assets to his wife. Area Counsel recommended that P’s amended OIC be rejected, and the

Appeals Team Manager agreed. Appeals issued to P a final notice of determination rejecting his amended OIC and determining that it was appropriate to proceed with the proposed levy. P filed a timely petition for review with the Court. 

P argued that the discussions where Area Counsel alerted SO Berger to the lawsuit and the possibility of a fraudulent conveyance and recommended rejection of his OIC constituted prohibited ex partecommunications which compromised the independence of Appeals. Consequently, P  contended, the case should be remanded for a supplemental hearing. IRS contended that the discussions between Area Counsel and Appeals were not prohibited ex parte contacts. 

Held: Although the matter was raised for the first time in P’s post trial briefs, the Court will consider P’s argument that Appeals and Area Counsel engaged in prohibited ex parte  communications during the CDP hearing. 

Held, further, Appeals and Area Counsel were obliged to communicate with regard to P’s amended OIC in accordance with I.R.C. sec. 7122(b), and consequently their communications were not prohibited ex parte communications within the meaning of Rev. Proc.2000-43, 2000-2 C.B. 404.

Held, further, Appeals did not abuse its discretion in deciding to accept Area Counsel’s recommendation to reject P’s amended OIC or in determining to proceed with the proposed levy.

The Tax Court pointed out that Q&A 11 of Rev Proc 2000-43, specifically addresses communications between Appeals and the Office of Chief Counsel. Acknowledging the need for Appeals employees to obtain legal advice from the Office of Chief Counsel, it provides three limitations on communications between Appeals employees and Office of Chief Counsel attorneys:

 (1) Appeals employees must not communicate with Chief Counsel attorneys who have previously provided advice to IRS employees who made the determination Appeals is reviewing; (2) requests for legal advice where the answer is uncertain should be referred to the Chief Counsel's National Office and handled as requests for field service advice or technical advice; and

 (3) although Appeals employees may obtain legal advice from the Office of Chief Counsel, they remain responsible for making independent evaluations and judgments concerning the cases appealed to them, and Counsel attorneys are prohibited from offering advice that includes settlement ranges for any issue in an appealed case.

 

If you have IRS Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).