IRS Approves Temporary Use of E-Signatures For Certain Forms - Great News From The IRS For International Practitioners Form 8832 & 8802.

The Internal Revenue Service today announced in IR-2020-194 that it will temporarily allow the use of digital signatures on certain forms that cannot be filed electronically.

The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals during the COVID-19 pandemic, allowing both groups to work remotely to timely file forms.

“We take the health and safety of the nation’s taxpayers, the tax professional community and our employees very seriously,” said IRS Commissioner Chuck Rettig. 

“Expanding The Use Of Digital Signatures Is An Important Step During COVID-19 To Help Tax Professionals."

"We understand the importance of digital signatures to the tax community, and we will continue to review our processes to determine where long-term actions can help reduce burden for the tax community, while appropriately balancing that with critical security and protection against identity theft and fraud.”

The Form 1040, U.S. Individual Income Tax Return, already uses an electronic signature when it is filed electronically, either by using a taxpayer self-selected PIN, if self-prepared, or a tax-preparer selected PIN, if using a tax professional. More than 90% of Form 1040s are filed electronically. 

The IRS Recommends All Taxpayers Consider E-Filing Forms This Year, Whenever Possible, Because Of COVID-19.

The below list of forms is available at IRS.gov and through tax professional’s software products. These forms cannot be e-filed and generally are printed and mailed. The IRS will not specify which digital signature product tax professionals must use. There are several commercial products available.

The following forms can be submitted with digital signatures if mailed by or on Dec. 31, 2020: 

• Form 3115, Application for Change in Accounting Method;

• Form 8832, Entity Classification Election;

• Form 8802, Application for U.S. Residency Certification; 

• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit; 

• Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;

• Form 1120-C, U.S. Income Tax Return for Cooperative Associations; 

• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

• Form 1120-L, U.S. Life Insurance Company Income Tax Return; 

• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and 

• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

The IRS will closely monitor this temporary option for e-signatures and determine if additional steps are needed.

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IRS Has Updated Its Taxpayer And Third Party Authentication Procedures

In Memo wi-21-0720-0774, the IRS has updated its taxpayer and third party authentication procedures. 

The IRS may disclose returns and return information to third parties a taxpayer has authorized to receive that information. (IRC § 6103). Generally, the IRS may disclose return information to third parties if the taxpayer's consent to such disclosure is in writing and is signed and dated by the taxpayer. (Reg. § 301.6103(c)-1(b)(1)).

Taxpayers may use Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization to consent to the IRS's disclosure of their return information to a third party. (Form 2848, Instructions) 

The IRS issues a nine-digit number (CAF number) to third parties seeking to access a taxpayer's return information using Form 2848 or Form 8821. Once issued, a third party uses their CAF number as an identifier on all their future CAF authorizations. 

The IRS has updated its taxpayer and third party authentication procedures in two ways: 

1. In certain circumstances, when a taxpayer calls the IRS seeking return information, IRS employees will ask taxpayers to provide additional authentication of their identity. These circumstances include when a taxpayer does not have any open account issues or notices, and the taxpayer calls the IRS: 
• to request verbal account information (other than refund status); 
• to request transcript or tax account information to be sent to an address that is not the taxpayer’s address of record; or 
• about an Identity Protection Personal Identification Number (IP PIN) that is lost, misplaced, or was not received by the taxpayer. 
2. Before releasing any return information to a third party who calls the IRS seeking a taxpayer's return information using a Form 2848 or Form 8821, IRS employees will need to authenticate the identity of the third party.
• To authenticate the third party’s identity, the IRS employee will ask for the third party's Centralized Authorization File (CAF) number, Social Security number (SSN), date of birth and the address listed on the third party's tax return. The third party must correctly answer all the IRS employee's authentication questions to obtain the taxpayer's return information. 

An IP PIN is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. (IP PIN FAQs)

The guidance also supplies a limited exception to the third party authentication procedures when the taxpayer calls the IRS and the third party is either part of the phone conversation, or is present in the room with the taxpayer, and the CAF authorization is already on file with the IRS. In this case, an IRS employee can discuss the taxpayer's return information with the third party without performing the above third party authentication procedures. 

If there is no Form 2848 or Form 8821 on file with the IRS, the taxpayer can verify the identity of the third party, but the disclosure authority is limited to the duration of the call or meeting, and the taxpayer must remain part of the conversation throughout. If the taxpayer leaves the conversation, the employee must end the call or meeting.

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Last round of ITINs Will Expire In 2020 - Early Renewal To Prevent Refund Delays

The IRS issued IR-2020-181 on August 17, 2020 advising that more than 1 million Individual Taxpayer Identification Numbers are set to expire at the end of 2020 as the Internal Revenue Service completes the expiration of ITINs assigned prior to 2013. The IRS continues to urge affected taxpayers to submit their renewal applications early to avoid refund delays next year. 

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years and those issued before 2013 will expire. This year ITINs with middle digits 88 will expire Dec. 31, 2020. Additionally, ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, that were assigned before 2013 and have not already been renewed, will also expire at the end of the year.

 

ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. ITIN holders who have questions should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.

 

The IRS continues a nationwide education effort to share information with ITIN holders. To help taxpayers, the IRS offers a variety of informational materials, including flyers and fact sheets, available in up to seven languages, including English, Spanish, Chinese, Russian, Vietnamese, Korean and Haitian/Creole on IRS.gov.

 

Who should renew an ITIN

• Taxpayers whose ITIN is expiring and who expect to have a filing requirement in 2021 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 88 (For example: 9NN-88-NNNN) or 90, 91, 92, 94, 95, 96, 97, 98 or 99 (that meet the criteria above) need to be renewed even if the taxpayer has used it in the last three years. The IRS will begin sending the CP-48 Notice, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, to affected taxpayers in late summer. The notice explains that taxpayers will need to take action to renew the ITIN if it will be included on a U.S. tax return filed in 2021. Taxpayers who receive the notice after acting to renew their ITIN do not need to take further action unless another family member is affected.
• As a reminder, ITINs with middle digits 83 through 87 expired last year. Middle digits 73 through 77, 81 and 82 expired in 2018. Middle digits 70, 71, 72, and 80 expired in 2017, and 78 and 79 expired in 2016. Taxpayers with these ITIN numbers who expect to have a filing requirement in 2021 can renew at any time.

 

Family option remains available

Taxpayers with an expiring ITIN have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together, even if family members have an ITIN with middle digits that have not been identified for expiration. Family members include the tax filer, spouse and any dependents claimed on the tax return.

 

How to renew an ITIN

To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7. See the Form W-7 instructions for detailed information.

 

Spouses and dependents residing outside of the U.S. only need to renew their ITIN if filing an individual tax return, or if they qualify for an allowable tax benefit (e.g., a dependent parent who qualifies the primary taxpayer to claim head of household filing status.) In these instances, a federal return must be attached to the Form W-7 renewal application.

 

There are three ways to submit the Form W-7 application package. Taxpayers can:

• Mail the form, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.
• Work with Certified Acceptance Agents (CAAs) authorized by the IRS to help taxpayers apply for an ITIN. CAAs can authenticate all identification documents for primary and secondary taxpayers, verify that an ITIN application is correct before submitting it to the IRS for processing and authenticate the passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
• In advance, call and make an appointment at a designated IRS Taxpayer Assistance Center to have each applicant’s identity authenticated in person instead of mailing original identification documents to the IRS. Each family member applying for an ITIN or renewal must be present at the appointment and must have a completed Form W-7 and required identification documents. See the TAC ITIN authentication page for more details.

 

Avoid common errors now and prevent delays next year

Federal tax returns that are submitted in 2021 with an expired ITIN will be processed. However, certain tax credits and any exemptions will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, applicable credits and exemptions will be restored, and any refunds will be issued.

 

Additionally, several common errors can slow down some ITIN renewal applications. These mistakes generally center on:

• mailing identification documentation without a Form W-7,
• missing information on the Form W-7, or
• insufficient supporting documentation, such as U.S. residency documentation or official documentation to support name changes.

 

The IRS urges any applicant to check over their form carefully before sending it to the IRS. As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents other than U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:

• U.S. medical records for dependents under age 6,
• U.S. school records for dependents under age 18, and
• U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18.

 

To expand ITIN services, the IRS encourages individuals to apply for the Acceptance Agent Program

To increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS continues to actively recruit Certifying Acceptance Agents and accepting applications year-round. Interested individuals are encouraged to review all CAA program changes and requirements and submit an application to become a CAA.

Have IRS Tax Problem?

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CC's Memo Determines that Daily Fantasy Sports Operators is Liable For Excise Taxes On Wagering

In Legal Advice issued by the Chief Counsel's office in 2020-009 ("Memo"), the IRS has determined that an organization operating daily fantasy sports (DFS) games is liable for the excise tax on wagers and the occupation excise tax on wagering businesses and is required to register as a wagering business with the IRS. 

IRC §4401(a) generally imposes a tax on "wagers." A wager is (A) any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers, (B) any wager placed in a “wagering pool” with respect to a sports event or a contest, if such pool is conducted for profit, and (C) any wager placed in a lottery conducted for profit. The tax on wagers is imposed on the person engaged in the business of accepting wagers ("wagering business"). (IRC §4401(C)).

Each person engaged in the wagering business must pay a $500 annual “occupation tax.” Generally, every person required to pay the tax on wagers is required to register with the IRS. 

Generally, traditional fantasy sports are games where participants assemble simulated, “fantasy” teams with rosters of actual players from the real teams in a sports league (such as the National Football League (NFL) or the National Basketball Association (NBA)). The participants accumulate points based on the actual game performances of the selected players. Scoring is based on the selected players’ performance statistics or measures that are converted into points. Each participant then receives a “total fantasy score” that is determined by compiling the individual fantasy scores of each player in the participant’s roster or lineup. The participants compete against one another based on their total fantasy score. (Humphrey v. Viacom, Inc., (DC NJ 2007) 2007 WL 1797648)

A version of fantasy sports, daily fantasy sports (DFS), takes place on a DFS operator’s website and is accessed via computer or mobile software applications. DFS operators’ offerings cover several actual professional sports leagues, as well as college sports, and some e-sports. 

DFS has many key differences from traditional fantasy sports games. For example, unlike traditional fantasy sports games, DFS contests are not tied to a specific sporting event, but typically occur daily, and the participants tend to be a much larger group of strangers.

Also, rather than drafting players as they do in traditional fantasy sports games, each DFS participant is given an equal amount of fictitious money known as a “salary cap.” The DFS operator sets each player’s “salary” or “price” commensurate with the player’s perceived value, not unlike how bookmakers set wagering odds in traditional sports gambling. A participant may select the same players for their fantasy team as other participants so long as those selections do not exceed that participant’s salary cap.

Another important distinction between traditional fantasy sports and DFS is the treatment of the entry fee associated with each. Although participants in both types of fantasy sports typically pay a fee to participate, the pool of money generated by entry fees is generally given entirely to the winner or winners of the traditional fantasy league. In contrast, in DFS a portion of the fees collected is not paid out to the winner or winners but is retained by the DFS operator. 

The office of Chief Counsel has determined that a DFS operator is liable for (1) the excise tax on wagers; and (2) the wagering occupation excise tax and, therefore, is required to register as a wagering business with the IRS. 

Have IRS Gambling Tax Problem?

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IRS Is Not Sending Notices for Unpaid Taxes Until it Catches Up on Mail Backlog

Rep. Richard Neal, D-Massachusetts, who chairs the tax-writing House Ways and Means Committee, asked the Internal Revenue Service to quit mailing notices for unpaid taxes to taxpayers who may have been affected by the mail backlog at the agency due to the COVID-19 pandemic.

Many taxpayers have been receiving balance-due notices from the IRS even though they sent in their tax payments to the IRS months ago, because trailers full of mail have remained unopened since the start of the pandemic. 

This Spring, as Many IRS Offices Were Shuttered,
a Backlog of Millions of Pieces of
Unopened Mail Accumulated 
in Trailers Set Up Outside Agency Facilities.

As more IRS employees returned to work to deal with tax season, they began to sort through and process the mail, but that hasn’t stopped more correspondence from coming in every day.

“IRS officials reported that, due to office closures, the IRS has accumulated a staggering backlog of unopened mail,” Neal wrote in a letter Wednesday to IRS Commissioner Charles Rettig. 

At One Point This Summer,
The IRS Had Approximately 12 Million Pieces
of Unopened Correspondence in its Inventory.

Despite this unprocessed mail, the IRS reportedly has been sending notices to taxpayers whose correspondence and payments remain unopened. Therefore, many of the taxpayers receiving these notices already have made the payments that the IRS seeks.

On August 21, 2020, the IRS announced that it has suspended the mailing of three notices – the CP501, the CP503 and the CP504 – that go to taxpayers who have a balance due on their taxes. Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers.

These automatic follow-up notices will be temporarily stopped until the backlog of mail is reduced. The IRS will continue to assess the mail inventory to determine the appropriate time to resume the follow-up notices. 

However, Taxpayers Who Have Received But Not Yet
Responded To A CP14 Balance Due Notice
Are Encouraged To Promptly Respond.

In addition, the IRS has previously announced that these payments in the unopened mail will be posted and credited on the date the IRS received them – rather than the date the agency opened and processed them. The IRS reminds taxpayers in this situation they should not cancel their checks and should ensure funds continue to be available so the IRS can process them to avoid potential penalties and interest. To provide fair and equitable treatment, the IRS is also providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing.

As the IRS works to stop these mailings at our processing centers, some taxpayers and tax professionals may still receive these notices during the next few weeks due to delivery of existing mailings.

Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending.

Have IRS Tax Problem?

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No Way To Handle an IRS Collection Matter - Florida Man Sentenced to Three (3) Years in Prison for Obstruction

According to DoJ, a Florida man was sentenced to 36 months in prison today for corruptly obstructing the due administration of the internal revenue laws. 

According to evidence presented at trial, since 1999, Dennis J. Nagle, 67, refused to voluntarily pay federal income taxes. As a result, by 2014, he had an outstanding tax balance of more than $400,000. 

When the IRS attempted to collect Nagle’s unpaid taxes by filing liens and levying his paychecks and pension, Nagle obstructed the IRS’s collection efforts. Nagle submitted false forms to his employer claiming he was exempt from federal tax withholding, attempted to pay off his tax debts with checks written on a closed bank account, and threatened to file criminal complaints against IRS collection officers. 

In total, Nagle sent the IRS at least 15 worthless payments, purportedly totaling more than $1.9 million dollars. 

A jury convicted Nagle on Jan. 30, 2020. In addition to the Three (3) Years in Prison, U.S. District Judge Paul G. Byron ordered Nagle to serve one (1) year of supervised release and to pay approximately $221,502 in restitution to the United States. 

Have IRS Tax Problem?

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You Do Have to Report Bribe Income on Your Form 1040

According to DoJ, Ronald Olson, a vice president and deputy operation manager for Turner Construction Company (“Turner”), pled guilty on July 29, 2020, to charges of evading taxes on more than $1.5 million in bribes he received from building sub-contractors and is scheduled to be sentenced on December 9, 2020.

In related proceedings, co-conspirator Michael Campana, a subordinate construction manager at Bloomberg, LLC (“Bloomberg”), was sentenced last Friday, July 24, 2020 to 24 months in prison, for evading taxes on more than $420,000 in the same scheme. 

In addition, two managers of a construction contractor – Anthony Guzzone and Vito NiGro – were respectively charged on July 14 and July 22, 2020, for evading taxes on more than $1.4 million and $1.8 million in bribes that they respectively received in the same scheme.

 

“When Bribery Is Coupled With Tax Evasion,
Both The Bribery Victims And The Taxpaying Public 
Are Forced To Bear The Hidden,
Unfair Costs Of Corruption."

Between 2011 and 2017, Guzzone was a construction project manager for Bloomberg, a global financial firm that was engaged in various building projects in New York City and elsewhere, while Olson and Nigro were executives at Turner, which performed construction projects for Bloomberg.  For most of that time, beginning in 2013, Campana was also a construction manager at Bloomberg.  Each of the defendants participated in a scheme to obtain bribes from construction sub-contractors, who paid kickbacks to the defendants in exchange for being awarded various construction contracts and sub-contracts performed for Bloomberg.

 

In all, the defendants are charged with failing to pay taxes, between 2010 and 2017, on bribes exceeding $5.1 million.  The defendants received such bribes in various forms, including millions of dollars in cash, as well as construction labor and materials for work on their individual homes and properties, and the direct payment of personal expenses.  Such personal expenses included charges related to Campana’s 2017 wedding, such as approximately $40,000 paid by sub-contractors to a catering hall in New Jersey, over $13,000 to a photography studio, and over $23,000 to a travel agent for airline tickets purchased in connection with Campana’s honeymoon, as well as Super Bowl tickets worth almost $8,000 provided to Guzzone.  Each of the defendants evaded federal income tax on this bribery income, by failing to declare it on income tax returns for various years between 2010 and 2017.

 

The taxpayers should have reported this income on their Form 1040, Schedule C. As ridiculous as it sounds, the federal government requires that money acquired through illegal means be reported and taxed just like legitimate income. It's right there on the official IRS tax instructions: 

"Income From Illegal Activities, Such As Money From Dealing Illegal Drugs, Must Be Included In Your Income on Form 1040,  Line 21, or on Schedule C or Schedule C-EZ (Form 1040) if From Your Self-Employment Activity."

Not surprisingly, very few criminals ever declare this type of income. However some do, when they have either been caught during that tax year or think they are about to be caught. Their goal is to avoid getting charged twice: once for their initial crime and again for evading the taxes on their ill-gotten gains. Don't forget that it was tax charges that ultimately put away Al Capone.

 

Where a taxpayer informs the IRS that they made millions from embezzling, stealing money or dealing drugs; legally the IRS can't inform law enforcement, unless a law-enforcement agency gets a court order granting it access to a specific taxpayer's return. 

The IRS is prohibited from proactively alerting other agencies about criminal activity, unless terrorism is involved. And even in that case, it still needs a court order to disclose anything, but the IRS can initiate the legal process on its own. The rules are all spelled out in an IRS guide to "section 6103," the law that covers tax-return confidentiality. Like many legal statutes, it's complex and filled with loopholes. 

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