Appeal Court Upholds IRS Summons For Cannabis Business Docs

According to Law360, a Michigan federal court correctly dismissed a suit by cannabis business owners seeking to quash a third-party summons issued by the IRS requesting their companies' records because the summons aided a criminal investigation, the Sixth Circuit said Friday.

A three-judge panel determined that the summons issued to a data software company by the Internal Revenue Service seeking financial records of the various cannabis businesses that Kimberly and Richard Gaetano owned were valid to determine whether they underreported their federal taxes, according to its opinion.

The summons was essential to the agency's criminal investigation into whether the couple owed federal taxes, and the IRS proved that the summons met exceptions to the notice requirement under Internal Revenue Code Section 7609, U.S. Circuit Judge Ralph B. Guy Jr. said in the opinion.

"In sum, because the exception in Section 7609(c)(2)(E) applies, the bar of sovereign immunity remains, and subject-matter jurisdiction does not exist," Judge Guy said.

During the criminal investigation of the couple, the IRS issued a summons to the owners of Portal 42 LLC, a data software company that provides point-of-sale systems for cannabis businesses, of which the Gaetanos were clients. The summons sought the Gaetanos' records held by Portal 42 from the beginning of 2015 to Sept. 1, 2019, according to the opinion, and the couple wasn't notified of the summons by the IRS.

The Gaetanos filed suit against the IRS in 2019, requesting that the summons be quashed because they should have been notified under Section 7609, and argued that the summons was issued in bad faith.

During the lower court proceedings, the couple conceded that Portal 42 wasn't a third-party recordkeeper that required the IRS to notify the Gaetanos under an exception to Section 7609, and the IRS testified that it was investigating whether the Gaetanos underreported their federal taxes for their cannabis businesses.

The Michigan federal court determined that the IRS met the exceptions under Section 7609 that allowed the summons to be issued without notice to the Gaetanos and dismissed the couple's suit. The Gaetanos appealed that ruling, arguing that the criminal investigation conducted by the IRS was invalid because no quarterly tax period ends on Sept. 1, according to court documents.

In Its Opinion, The Sixth Circuit Affirmed That The Lower Court Correctly Determined The Summons Was Connected To The IRS’ Investigation Into Whether The Gaetanos Underreported Their Federal Tax Liability,
Per An IRS Agent’s Affidavit.

The couple also failed to prove how the summons was required to meet a four-factor test established by the U.S. Supreme Court in its 1964 decision in U.S. v. Powell stipulating when a summons is valid.

In its Powell ruling, the Supreme Court stipulated that an agency must state a legitimate purpose for seeking information outside its possession that is relevant to an investigation and proper administrative procedures must be followed.

In the Gaetanos' case, the IRS agent's testimony alone most likely would have satisfied the Powell standard, but the lower court didn't have to address the issue because it correctly dismissed the suit for a lack of jurisdiction under Section 7609, the appeals court said.

"We cannot proceed to the Powell test when Section 7609 does not confer jurisdiction over this action," Judge Guy said. "As such, the Gaetanos have placed the cart before the horse."

Have an IRS Tax Problem?

                                                                Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

 

 

 

IRS Reminds Taxpayers That FBAR Deadline Remains April 15 - However There Is An Automatic Extension to October 15

As an IRS practitioner you may have seen Issue Number IR-2021-83 Stating that the IRS reminds holders of foreign Bank accounts that the FBAR deadline remains April 15:

The FBAR is an annual report, due April 15 following the calendar year reported and the extension of the federal income tax filing due date and other tax deadlines for individuals to May 17, 2021, does not affect the FBAR requirement. 

However, you’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR.

Have an IRS Tax Problem?

                                                                Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

IRS Certification of Seriously Delinquent Tax is Not Unconstitutional

The Tax Court has determined in Rowan, (2021) 156 TC No. 8, that the IRS properly certified to the Treasury Secretary that a taxpayer’s tax debt was “seriously delinquent.” The Tax Court found that Code Sec. 7345 does not run afoul of the Fifth Amendment Due Process Clause or the Universal Declaration of Human Rights because it merely provides for the certification of certain tax-related facts; it does not restrict in any manner the right to international travel.

IRC Sec. 7345 authorizes the IRS to send to the Treasury Secretary a certification that an individual has a “seriously delinquent tax debt.” With certain exceptions, a “seriously delinquent tax debt” is an individual’s unpaid, legally enforceable federal tax liability, which has been assessed and which is greater than $50,000 (adjusted for inflation) and with respect to which the IRS has filed a Notice of Lien (for which the collection appeals rights have been exhausted or lapsed) or issued a Levy. (IRC Sec. 7345(b)). 

IRC Sec. 7345(d) requires the IRS to contemporaneously notify a taxpayer of any certification. Once IRS notifies a taxpayer that a Code Sec. 7345(a) certification has been made, the taxpayer may challenge that certification in a civil action filed either in the Tax Court or in a federal district court. The court first acquiring jurisdiction over a certification challenge has sole jurisdiction over that action. (Code Sec. 7345(e)(1))

For more than two decades, Dr. Robert Rowan (“Rowan”) failed to pay his federal taxes. Rowan, a U.S. citizen, is a medical doctor licensed to practice in California. He frequently travels to developing countries to offer medical services free of charge to populations that would not otherwise have access to adequate medical care. He also has family members in Singapore and mainland China, where he travels for personal reasons.

After Rowan ran up a $474,846 unpaid tax bill, which the IRS tried to collect without success, the IRS certified to the Treasury Secretary that he had a seriously delinquent tax debt (“certification”). In turn, the Treasury Secretary notified the SOS of the certification. 

Rowan held a valid passport when the certification was made, and as of August 2020, the SOS had not taken any action to revoke Rowan’s passport. 

When Rowan received notice of the certification, he petitioned the Tax Court to determine that the IRS’s certification of his tax debt as "seriously delinquent" was invalid.

Rowan claimed that IRC Sec. 7345 is unconstitutional because it infringes on the right to international travel and, therefore, violates the Due Process Clause of the Fifth Amendment to the U.S. Constitution. Rowan also claimed that IRC Sec. 7345 violated his human right to travel under the Universal Declaration of Human Rights (UDHR). 

The IRS responded that it did not err in certifying Rowan’s tax liabilities as seriously delinquent tax debt because: (1) IRC Sec. 7345 is constitutional; (2) UDHR can't be used to invalidate IRC Sec. 7345; and (3) his tax debts are enforceable.

In This First Case To Consider The Merits of a IRC Sec. 7345 Certification, The Tax Court Agreed With The IRS
That It Did Not Err In Certifying Rowan’s Tax Liabilities
As Seriously Delinquent Tax Debt.

The Tax Court rejected as meritless Rowan’s claims that Code Sec. 7345 is unconstitutional because it infringes on his right to international travel.

The Court held that a plain reading of the text of IRC 7345 shows that it doesn’t impose any restriction on international travel, but merely provides a way for the IRS to certify the existence of a seriously delinquent tax debt and for the Treasury Secretary to transmit that certification to the SOS. All passport-related decisions are left to the SOS and the SOS’s authority to revoke a passport doesn’t derive from IRC Sec. 7345, so IRC Sec. 7345 doesn't restrict the right to international travel.

Similarly, the Court summarily rejected Rowan’s arguments regarding the UDHR. Because IRC Sec. 7345 does not impose a limit on the right to travel, the UDHR's protection of the right to travel as a "human right" cannot provide any ground for invalidating the IRS’s certification of Rowan's tax debt as seriously delinquent under IRC Sec. 7345.

Finally, the Court found that the IRS produced Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for Rowen’s tax years at issue. These and other documentation in the record showed that the period of limitations on collection remained open for all relevant years. Therefore, Rowan's tax debts were enforceable. 

The Court noted that the constitutionality of the authority granted to the SOS by FAST Act section 32101(e) was not an issue in the case and, therefore, the Court expressed no view on that issue.

Have an IRS Tax Problem?

                                                                Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Source  

Thomson Reuters

TIGTA Reports That the IRS is Swamped with a Backlog of Unprocessed Returns Going Back to 2019

TIGTA Issued a report entitled Results of the 2020 Filing Season and Effects ofCOVID-19 on Tax Processing Operations which found that unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, and Unpostables functions and the Accounts Management inventory, include returns, etc. for taxpayers who still have not received their tax year 2019 tax refunds.

As of December 25, 2020, the IRS had more than 11.7 million paper-filed individual and business returns that still needed to be processed. The backlog of returns, correspondence, and other types of work resulting from the pandemic has and will continue to have a significant impact on the associated taxpayers. For example, the unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, Unpostables functions and the Accounts Management inventory, include taxpayers who have yet to receive their Tax Year 2019 tax refunds. 

The IRS’s ability to resolve these backlogs could be affected by the need to divert resources to issue additional Economic Impact Payments or an unforeseen closure of IRS Tax Processing Centers due to the pandemic. The ability of these taxpayers to contact the IRS to receive updated information about the status of their refunds is a further challenge as staffing issues continue to hinder the IRS’s ability to provide adequate customer service. 

Much of The Work Performed at The IRS’s Tax Processing Centers is Not Conducive To a Telework Environment.

This work includes the receiving, sorting, and distributing of mail and the processing of paper tax returns, which requires manually inputting information from the tax return into IRS systems, correcting errors, and corresponding with the taxpayer, if needed. 

As of November 14, 2020, the IRS had more than 2.9 million pieces of unopened mail and 4.7 million individual paper tax returns to process. In addition, the IRS had more than 600,000 returns in its Error Resolution inventory, nearly 3.7 million cases in its Accounts Management inventory, and more than 1.3 million returns in its fraud program inventories as of this same period. 

When the IRS closed its offices nationwide, it stopped answering 81 of its 87 toll-free taxpayer assistance telephone lines and closed all 358 Taxpayer Assistance Centers. In addition, 10,792 of the 11,014 Volunteer Income Tax Assistance/Tax Counseling for the Elderly partner sites remained closed as of May 24, 2020. The IRS had reopened 80 of its toll-free telephone lines as of November 5, 2020, and 263 of its Taxpayer Assistance Centers as of November 16, 2020. 

Have an IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Court Approves John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency

According to the DoJ , a federal court in the District of Massachusetts entered an order on April 1, 2021 authorizing the IRS to serve a John Doe summons on Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC (collectively “Circle”), seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020.  “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. 

The IRS is Seeking The Records of Americans
Who Engaged in Business With or Through Circle,
A Digital Currency Exchanger Headquartered in Boston.

“The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes.”

“Tools Like The John Doe Summons Authorized Today
Send The Clear Message To U.S. Taxpayers That The IRS
Is Working To Ensure That They Are Fully Compliant
In Their Use Of Virtual Currency,”
Said IRS Commissioner Chuck Rettig.

“The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.” 

Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. 

In The Court’s Order, U.S. Judge Richard G. Stearns
Found That There Is A Reasonable Basis For Believing
That Cryptocurrency Users May Have Failed
To Comply With Federal Tax Laws.

The court’s order grants the IRS permission to serve what is known as a “John Doe” summons on Circle. The United States’ petition does not allege that Circle has engaged in any wrongdoing in connection with its digital currency exchange business. Rather, according to the court’s order, the summons seeks information related to the IRS’s “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with any provision of any internal revenue laws[.]” According to the copy of the summons filed with the petition, the IRS is requesting that Circle produce records identifying the U.S. taxpayers described above, along with other documents relating to their cryptocurrency transactions. 

The IRS issued guidance regarding the tax treatment of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes. The guidance explains that receipt of virtual currency as payment for goods or services is treated as income and that a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis). 

According to Law360, a number of observers have expected federal agencies to ramp up cryptocurrency-related enforcement this year. The DOJ released its crypto enforcement framework in October, and in December, the U.S. Treasury Department's financial crimes unit proposed a rule that would require institutions to submit transaction reports verifying the identities of customers transferring convertible virtual currencies such as cryptocurrencies worth more than $10,000 in a single day.

The Financial Crimes Enforcement Network cited national security concerns related to illicit finance as justification for the proposed rule, but the rule has been met with considerable pushback from the industry.

David A. Hubbert, acting assistant attorney general for the DOJ's Tax Division, emphasized that tax compliance is also in the agency's sights.

"Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer," Hubbert said in a statement. "The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes."

Have an IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

 

In a 2nd Crypto Summons the Judge Orders US To Justify Broad Doc Request

According to Law360, a California federal judge raised concerns about the scope of another Internal Revenue Service summons on cryptocurrency exchange, this time it concerns Kraken Inc. The IRS is seeking information on its customers' tax compliance, saying the U.S. must make its case explaining why he shouldn't reject it.  

The federal government needs to explain why the John Doe summons should not be denied for being too broad in scope, Chief Magistrate Judge Joseph C. Spero in San Francisco said in an order on March 31, 2021. While the summons seeks basic account data on a group of Kraken users, such as their registration information and transaction history, it also requests broad categories of information such as correspondence between the cryptocurrency exchange and those users, according to the order.

The U.S. "must specifically address why each category of information sought is narrowly tailored to the IRS' investigative needs, including whether requests for more invasive and all-encompassing categories of information could be deferred until after the IRS has reviewed basic account registration information and transaction histories," Judge Spero said.

On Tuesday, the U.S. filed a petition asking the court to approve its summons to the cryptocurrency exchange. The IRS is seeking 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, according to the government's petition, which didn't name Kraken as a party to the suit. 

The IRS doesn't know the identities of these individuals, but it's looking to use the summons to potentially assess taxes on Kraken users who haven't complied with their tax reporting obligations for their cryptocurrency holdings, the U.S. said.

In Support of Its Summons Request, The U.S. Said An IRS Investigation Had Already Found That Five Individuals

With Kraken Accounts Failed To Report Millions In Cryptocurrency Transactions To The Agency.

This noncompliance, combined with a dearth of third-party reporting in cryptocurrency generally, has led the IRS to believe that there are more Kraken users who aren't compliant with their cryptocurrency tax reporting obligations, the government said.

On March 31, 2021, Judge Spero said the U.S. had likely proved that the John Doe summons satisfies three requirements under Internal Revenue Code Section 7609(f) , one of which is that there's reason to believe that the subject of the summons might not be compliant with tax obligations. But that provision also requires John Doe summonses to be "narrowly tailored," and the information the IRS seeks from Kraken might be too broad, the judge said. 

That Information Includes User Preferences, Identifying Information of Those Customers and Correspondence Between Kraken and Its Customers, According To The Order.

In a separate case, the U.S. Department of Justice announced on April 1, 2021 that the IRS would be allowed to proceed with a John Doe summons of customers of Circle Internet Financial Inc. and its affiliates. Similar to the Kraken summons, the Circle summons would request information about U.S. taxpayers with at least $20,000 in cryptocurrency transactions from 2016 to 2020.

The information requests follow a decision from a California federal judge in November 2016 that authorized a John Doe summons by the IRS to obtain information from another virtual currency exchange, 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.

Have an IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

 

Additional Tax Deadlines Extended To May 17 - Notice 2021-21

The IRS issued Notice 2021-21 which provides the following general relief for the filing of Forms 1040 and a limited set of other forms due on April 15, 2021:

For an Affected Taxpayer, the due date for filing Federal income tax returns in the Form 1040 series and making Federal income tax payments in connection with one of these forms having an original due date of April 15, 2021, is automatically postponed to May 17, 2021. Affected Taxpayers do not have to file any form, including Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to obtain this relief. This relief includes the filing of all schedules, returns, and other forms that are filed as attachments to the Form 1040 series or are required to be filed by the due date of the Form 1040 series, including, for example, Schedule H and Schedule SE, as well as Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E, and 8938. Finally, elections that are made or required to be made on a timely filed Form 1040 series (or attachment to such form) will be timely made if filed on such form or attachment, as appropriate, on or before May 17, 2021.

The Notice provides that interest and penalties will also not apply for that period of time for Affected Taxpayers:

         As a result of the postponement of the due date for Affected Taxpayers to file Federal income tax             returns and make Federal income tax payments from April 15, 2021, to May 17, 2021, the period             beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in the calculation             of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to             pay the Federal income taxes postponed by this notice. Interest, penalties, and additions to tax                 with respect to such postponed Federal income tax filings and payments will begin to accrue on             May 18, 2021.

The IRS makes clear in Notice 2021-21 is more limited than last year’s broad grant of relief.  The Notice provides:

Businesses and any other type of taxpayer who file Federal income tax returns on forms outside of the Form 1040 series are not Affected Taxpayers for purposes of the relief described in this section III.B.

No extension is provided in this notice for the payment or deposit of any other type of Federal tax, including Federal estimated income tax payments, or for the filing of any Federal return other than the Form 1040 series and the Form 5498 series for the 2020 taxable year.

There are still some April 15 deadlines. The following federal tax actions are among those that were not mentioned in the abovementioned IRS announcements and thus continue to have April 15 deadlines.

·         Paying first quarter 2021 individual estimated tax (Code Sec. 6654(c)(2))

·         Filing calendar year 2020 trust and estate income tax returns and paying any previously unpaid tax (Code Sec. 6072(a))

·         Filing 2020 calendar year C corporation income tax returns (Form 1120) and paying any previously unpaid tax (Code Sec. 6072(a))

·         Depositing calendar year corporation first installment of estimated income tax for 2021  (Code Sec. 6655(c)(2))

·         Filing Forms 990-T (Exempt Organization Business Income Tax Return), for Code Sec 401(a) or Code Sec. 408(a) trusts, for years ending 12/31/20 (2020 Instructions for Form 990-T)

·         Filing Form 1120-POL (U.S. Income Tax Return for Certain Political Organizations) for years ending 12/31/20 (Code Sec. 6072(a))

·         Filing 2020 gift tax returns and paying any gift tax (Code Sec. 6075(b)(1))

·         Filing certain generation-skipping transfer tax returns of calendar year taxpayers and paying any tax due (Reg § 26.2662-1(d)(1)(i))

·         Depositing payroll taxes for March if the monthly deposit rule applies. (Reg § 31.6302-1(c)(1))

·         Filing estate tax returns of decedents who died on July 15, 2020 and paying any estate tax that is due with the returns. (Estate tax returns must be filed within nine months after the date of the decedent's death. (Code Sec. 6075(a))

And, there are post-April 15, pre-May 17 deadlines. In addition, there are actions that continue to have deadlines that are after April 15, 2020, and before May 17, 2020 For example, for decedents who died on days from July 16, 2020, through August 16, 2020, the estate return and payment will be due before May 17, 2021. And first quarter 2021 quarterly employment tax returns will be due on April 30. (Reg § 31.6071(a)-1(a)(1))

On the IRS website: Section 965 installment payments for Form 1040 filers postponed (4/6/2021), the IRS has said that the relief provided by Notice 2021-21 also postpones the due date of an individual's section 965(h) installment payment (related to the pre-2018 Code Sec. 965 transition tax) to May 17. The IRS points out that the relief does not apply to section 965(h) installment payments with respect to taxpayers who are not Affected Taxpayers.

Have an IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)