FBAR Filing Deadline For Hurricane Victims Extended

FinCEN announced on October 6, 2022, that victims of Hurricane Fiona in Puerto Rico; Hurricane Ian in Florida, North Carolina, and South Carolina; and storms and floods in parts of Alaska have until February 15, 2023 to file Reports of Foreign Bank and Financial Accounts (FBARs) for the 2021 calendar year.

The FBAR for calendar year 2021 otherwise would be due on or before October 15, 2022.

FinCEN is offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance as a result of Hurricane Fiona; Hurricane Ian; or storms and floods in parts of Alaska. Should FEMA designate FBAR filers in other localities affected by these natural disasters as eligible for individual assistance at a later date, they will receive the same filing relief automatically.

In addition, FinCEN will work with any FBAR filer who lives outside the disaster areas but who must consult records located in the affected areas in order to meet the deadline.

FBAR filers who live outside the affected areas and who are seeking assistance in meeting their filing obligations (including workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization) should contact the FinCEN Regulatory Support Section at 800-767-2825 or electronically at frc@fincen.gov.

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Available IRS Payment Plans – Part I

 

For the 2021 filing season, the IRS projects that some taxpayers will file and owe. Many will be able to pay, but a lot of them will need to make other arrangements because they can’t pay their full tax bills to the IRS.

When taxpayers can’t pay their tax bills, they have a number of options, including payment plans, to pay off their outstanding taxes and accrued penalties and interest. Of the 16 million taxpayers who owe back taxes, 97 percent of them qualify to use a payment plan that’s fairly easy to set up and would likely give them the best payment terms.
The IRS has three simplified payment plans:

• Guaranteed Installment Agreements (GIA):36-month payment terms for balances of $10,000 or less.
• Streamlined Installment Agreements (SLIA):72-month payment terms for balances of $50,000 or less.
• Streamlined Processing for Balances Between $50,000-$100,000:84-month payment terms for balances between $50,000 and $100,000.

Advantages of 36-, 72-, and 84-month agreements
These are the three most common IRS payment plans. They’re all easy to obtain from the IRS, because they:

• Require minimal, if any, financial disclosure to the IRS;
• Don’t require an IRS manager to approve the payment terms;
• Don’t require taxpayers to liquidate assets to pay the IRS; and,
• Can be set up in one phone call or interaction with the IRS.

The GIA (36 months) and SLIA (72 months) can be completed online using the Online Payment Agreement tool at IRS.gov. The GIA and SLIA are also attractive to taxpayers who don’t want a public record of their tax debt, because these agreements don’t require the IRS to file a public notice of federal tax lien. Taxpayers who owe between $25,000 and $50,000 must agree to pay by automated direct debit or payroll deductions to avoid a tax lien.

The “Streamlined Processing” 84-month payment plan works a little differently. The IRS started the 84-month plan as a pilot program in 2016 to make it easier for taxpayers who owe between $50,000 and $100,000 to get into a payment plan with the IRS. Taxpayers can avoid filing their financial information with the IRS if they agree to pay their tax bill by direct debit or payroll deductions. If they don’t agree to these automated payments, the IRS requires taxpayers to provide a Collection Information Statement (IRS Form 433-A or 433-F). Even with streamlined processing, the 84-month plan has one catch: The IRS will file a federal tax lien.

The pilot program for the 84-month plan is still in effect today. The IRS hasn’t completed its study on whether the 84-month plan is an effective collection option. One thing is clear about the program: It likely provides better payment terms and relieves burden for taxpayers.

The rules
GIAs are for taxpayers who owe the IRS $10,000 or less. As the name suggests, the payment plan is “guaranteed” if the taxpayer meets all conditions of the GIA:

• It’s for individual income taxes only;
• Total balances owed, including penalties and interest, must be $10,000 or less
• The taxpayer must pay within 36 months;
• All required tax returns have been filed; and,
• The taxpayer has not entered into an installment agreement in the previous five years.

SLIAs can be used by individual taxpayers who meet these conditions:

• It’s for income taxes and other assessments, including unpaid trust fund penalty assessments;
• The total assessedbalance is $50,000 or less (not including accruals of penalties and interest after the original assessment of tax, penalties, and interest);
• The taxpayer must pay within 72 months; and,
• All required tax returns have been filed.

Taxpayers can set a GIA or SLIA by:

• Using the online payment agreement tool at IRS.gov;
• Filing Form 9465 with the IRS; or,
• Contacting the IRS by phone

Terms may be shorter for old tax debt

Taxpayers should be aware that they may not get the full length of time to pay their outstanding tax balances if their debt is old. For each of these simple payment plan options, the IRS will limit the terms if the collection statute of limitations (generally 10 years from the date that tax is assessed) is shorter than the prescribed payment terms.

For example, if a taxpayer’s collection statute expires in 24 months, any GIA, SLIA, or 84-month plan will be limited to 24 months. Taxpayers who can’t afford these payments may have to consider a payment plan based on their ability to pay.

Ability-to-pay installment agreements require taxpayers to file a Collection Information Statement and prove their average monthly income and necessary living expenses. In addition, the IRS often asks taxpayers to liquidate or borrow against their assets to pay their outstanding tax bill in ability-to-pay agreements.

Fees apply
There is a setup fee for all IRS installment agreements. The fees range from $225 for installment agreements set up by phone and paid by check, to $31 for agreements set up online and paid by automatic direct debit. Taxpayers who meet low-income thresholds can get the fee waived.

Tips for all three agreements
The GIA, SLIA, and 84-month payment plans are usually the best way to set up a payment plan with the IRS. They’re usually quick and easy to set up and likely provide taxpayers with better payment terms than most other options.

Taxpayers who can’t pay according to the GIA and SLIA terms face tax liens if they owe more than $10,000. Taxpayers also need to request the GIA or SLIA before the IRS files a tax lien. After the lien is filed, taxpayers must pay their full balance to get the lien released, or pay down the balance to $25,000 to start lien-withdrawal proceedings.

Here are a few other tips related to these simple agreements:

1. Avoid a tax lien – pay down the balance to get into a SLIA. Here’s the best plan for taxpayers who owe more than $50,000: Get an extension to pay of up to 120 days, get funds to pay the balance down to under $50,000, and obtain a SLIA. Doing so will avoid the filing of a tax lien.
2. For SLIA, it’s the “assessed” balance – not the total amount owed. The $50,000 SLIA threshold is based on the taxpayer’s assessed balance– not the total amount they owe. The assessed balance includes tax, assessed penalties and interest, and all other assessments for each tax year. It doesn’t include accrued penalties and interest after the original assessment. For example, if a taxpayer’s original assessment is under $50,000 for an older tax year, he may accrue additional penalties and interest that puts the total balance over $50,000. In this situation, they would still qualify for a SLIA based on the original assessed balance. Taxpayers can also designate payments to reduce their “assessed balance only” to help them qualify for a SLIA.
3. Apply and pay automatically to reduce fees.The IRS increases installment agreement setup fees if taxpayers pay by check. Reduce the setup fee by agreeing to automatic direct debit payments. Automatic payments also avoid a monthly reminder letter from the IRS about the payment due.
4. Pay by direct debit or payroll deduction to avoid default. IRS installment agreements have a high default rate. To avoid a default, taxpayers must make their monthly payments. The best way to avoid missing a payment is to have the payment automatically deducted from the taxpayer’s financial accounts.
5. Don’t owe again.The second most common cause of defaulted installment agreements is filing future tax returns with unpaid balances. Taxpayers need to change their withholding and/or make estimated tax payments to avoid owing taxes that they can’t pay in the future.
6. Taxpayers can miss one payment a year. Most IRS payment plans allow taxpayers to miss one payment per year and not default. It’s best for the taxpayer to notify the IRS in advance if they can’t make a payment.
7. If the taxpayer’s financial situation worsens, get an ability-to-pay plan. Taxpayers can always renegotiate their payment plans if their financial circumstances change. For example, if a taxpayer loses their job, they may not be able to pay the IRS. In these cases, the taxpayer can contact the IRS and provide documentation on their ability to pay. This may mean a lower payment or even payment deferral (called currently not collectible status). Be careful here: If the taxpayer owes more than $10,000 and can’t pay within 72 months, the IRS is likely to file a tax lien.
8. Remember to ask for penalty abatement at the end of the plan. One important action to take at the end of a payment plan is to request abatement of the failure to pay penalty. Taxpayers should consider using first-time abatement or reasonable cause abatement if they qualify.

Each year, more than 3 million taxpayers get into a payment plan with the IRS. With tax reform, we can expect that more taxpayers will need a payment plan in 2019. Taxpayers who owe less than $100,000 should first look at 36-, 72-, or 84-month payment plans with the IRS. Many will also benefit from the help of a qualified tax professional to find the best option.

Need Help with an Installment Payment Plan?

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5th Circ. Not Reconsider It's Affirmation of $690K In Trust Penalties

 On September 30, 2021 we posted Dist. Ct. Determined That A Liechtenstein Stiftung Is A “Foreign Trust” For Us Tax Purposes, where we discussed that the court held that an estate will not recover almost $600,000 in penalties and interest it had paid for failing to report foreign financial accounts after a federal court determined there was no dispute that it had established an entity qualifying as a foreign trust. 

Now according to Law360, the Fifth Circuit on October 11, 2022 rejected a request to rethink its decision upholding $690,000 in Internal Revenue Service late penalties for an estate whose founder allegedly failed to report a foreign trust.

In a per curiam decision, a three-judge panel said it would not reconsider its decision last month to reject the estate's request for a refund, despite Daphne Rost's assertion the circuit failed to address the government's failure to help her father, John Rebold, correctly classify his trust as foreign to the IRS.

In declining the rehearing request, the panel let stand its affirmation of a Texas federal court's decision that Rebold's trust obviously qualified as a foreign trust, and he should have reported $3 million in transfers to its Swiss bank account for 2005 and 2007.

Received a CP15 Notice and 25% Penalty
For Late Filing Form 3520A?

Or 

Received a CP15 Notice and $10,000 Penalty
For Failure To File 3520?

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Ian Tax Relief May Have Extended Penalty Relief To Fla LLCs Until February 15 To File Their Late 2019 & 2020 Form 5472

 Here's one you may not have seen coming.

Notice 2022 – 36 provides penalty relief for 2019 & 2020 where tax returns that were filed on or before September 30, 2022.

Single member LLC would've had to file its Form 1120, with the associated Form 5472,  on or before September 30, 2022, to obtain this relief.

However, in the attached FL–2022–19, the IRS provides victims of hurricane IAN until February 15, 2023 to file returns for deadlines falling on or after September 23, 2022 and before February 15, 2023.

So, it appears that taxpayers now have until February 15, 2023 to file their 2019 & 2020 late filed Form 1120, with the associated Form 5472,  for single member LLC is owned by a foreigner to obtain penalty waiver relief pursuant to Notice 2022–36.

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IRS Using Voice And Chat Bots To Improve The Taxpayer's Collection Experience

Additional IRS customer service voice bot features have been rolled out ahead of schedule, according to an IRS official, who touted the agency’s foray into artificial intelligence.

First launched in January by the IRS' Collection division, automated voice bots enable taxpayers to quickly access information, receive answers to common questions, and perform certain functions. Amid long wait times and the IRS' inability to field calls from the vast majority of taxpayers, the Automated Collection System (ACS) was created to reduce call volumes, allowing human representatives to resolve more complicated matters.

Darren Guillot, deputy commissioner of collection and operations support in the IRS' Small Business/Self Employed Division, told an audience at a July tax event that the voice bots would be programmed before the end of 2022 to handle a wider range of inquiries. This includes account transcript requests and accessing payment histories and current balances owed.

In a September 29 IRS "Closer Look" post, Guillot said these features are now live, much earlier than expected. "The initial estimate for delivery of this new functionality was 2024 but working closely with our partners in IRS' Information Technology (IT) on the urgency of this customer need, the experts in IT found a way to deliver it two years ahead of schedule," he wrote.

The voice bots could already help taxpayers set up payment plans and provide information on collection notices or related topics. Guillot said the bots have taken 4.8 million calls and have retained the 40% containment rate, as it was in July. Since June 14, 7,600 installment agreements for a combined $50 million in outstanding balances were created or modified using the automated system, according to Guillot. He also previously said at a New York University tax forum that the voice bots were a success as of the end of the five-month pilot program.

Since the last update on the voice bots' development, the IRS has received a $80 billion spending increase over the next decade. It's likely the agency will continue to implement artificial intelligence in both customer service and compliance enforcement.

Voice bots were preceded by chat bots, which perform the same functions but through text interactions on the IRS website. Production began in 2021 after the agency received funding to follow through on its proof-of-concept built the year before.

"Since that chat bot launched, it has handled more than 450,000 interactions, and 42% of those interactions were resolved without being escalated to an ACS phone assistor," Guillot said.

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FinCEN Issues Final Rule On Beneficial Ownership Reporting Under Corporate Transparency Act

 The Financial Crimes Enforcement Network (FinCEN) has issued a final rule implementing the beneficial ownership information reporting provisions under the Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act for Fiscal Year 2021 (P.L. 116-283). The CTA amended the Bank Secrecy Act by adding a new provision on beneficial ownership reporting (31 USC §5336).

The rule is intended to:

• enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use; and
• provide essential information to national security, intelligence, and law enforcement agencies, state, local, and tribal officials, and financial institutions, to help prevent illicit actors from laundering or hiding money and other assets in the United States.

The rule requires reporting companies to file reports with FinCEN that identify the beneficial owners of the entity and the entity’s company applicants. The rule also describes who must file a report, what information must be reported, and when a report is due.

REPORTING COMPANIES

There are two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by filing a document with a secretary of state or any similar office under state or tribal law. A foreign reporting company is an entity formed under the law of a foreign country that is registered to do business in a state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

FinCEN expects limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships to be reporting companies. FinCEN also expects companies with simple management and ownership structures to be the majority of reporting companies.

Twenty-three types of entities are exempt from “reporting company” treatment, including certain governmental authorities, tax-exempt organizations, banks, broker or dealers, investment companies, insurance companies, accounting firms, and others.

An entity that is a “large operating company” is not a reporting company if it:

• employs more than 20 full time employees in the United States;
• has an operating presence at a physical office within the United States; and
• filed a federal income tax or information return in the United States for the previous year demonstrating over $5,000,000 in gross receipts or sales (excluding gross receipts or sales from sources outside the United States).

Other legal entities, including certain trusts, are also excluded to the extent that they are not created by filing a document with a secretary of state or similar office.

BENEFICIAL OWNERS

A beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines “substantial control” and “ownership interest.”

A beneficial owner does not include a minor child; an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; a reporting company employee (but not a senior officer) whose substantial control over or economic benefits from the entity are derived solely from his or her employment status; an individual whose only interest in a reporting company is a future interest through right of inheritance; or a creditor of a reporting company.

COMPANY APPLICANTS

A company applicant is: (1) the individual who directly files the document that creates the entity (for a foreign reporting company, the document that first registers the entity to do business in the United States); and (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Reporting companies existing or registered on the effective date of the rule are not required to identify and report on their company applicants. Reporting companies formed or registered after the effective date must report company applicant information but do not need to update it.

BENEFICIAL OWNERSHIP INFORMATION REPORTS

In the report filed with FinCEN, a reporting company must identify itself and report four pieces of information about each of its beneficial owners: name, birth date, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of that document). Reporting companies created after January 1, 2024, must also provide this information and document image for company applicants.

An individual who provides his or her information to FinCEN directly can obtain a unique identifying number assigned by FinCEN (“FinCEN identifier") which can then be provided to FinCEN on a report instead of the required information about the individual.

EFFECTIVE DATE AND REPORTING DEADLINES

The rule is effective January 1, 2024. Reporting companies created or registered before the effective date have until January 1, 2025, to file their initial reports. Reporting companies created or registered after the effective date have 30 days after receiving notice of their creation or registration to file their initial reports.

A reporting company has 30 days to report changes to the information in its previously filed reports. It also must correct inaccurate information in previously filed reports within 30 days of when it becomes aware or has reason to know of the inaccuracy.

FinCEN has provided a fact sheet which summarizes the new rule.

Have an IRS Tax Problem?

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IRS Can Issue Summons To Bank Serving As Crypto Broker In Search Of Tax Evaders

 The Internal Revenue Service (IRS) can issue a "John Doe" summons to a bank that provided services for customers of cryptocurrency prime broker SFOX, a New York judge ordered Thursday. The ruling will allow the tax agency to continue looking for
potential tax evaders in an ongoing probe.

The summons requires M.Y. Safra Bank to provide information about the SFOX customers who may not have reported and paid taxes on crypto transactions. In August, the IRS received authorization from a California judge to serve a "John Doe" summons on SFOX itself.

A New York City bank must produce records on U.S. customers of a digital asset trading platform who may owe tax on unreported crypto transactions, a federal judge ordered.

The IRS was handed a win September 21 when the U.S. District Court for he Southern District of New York granted the agency's ex parte petition for leave to serve a so-called John Doe summons to M.Y. Safra Bank following an investigation into the crypto trading platform SFOX. Judge Paul Gardephe agreed there was a "reasonable basis for believing" at least 10 individuals may have failed to disclose and pay tax on crypto transactions conducted by the taxpayers via SFOX, which uses M.Y. Safra's banking services.

These currently unidentified taxpayers, and potentially others, may have failed to report to the IRS profits from crypto sales and pay tax on applicable gains, which the agency can determine by obtaining bank records from M.Y. Safra. The IRS, and the federal government overall, have become hawkish on tax evasion schemes that take advantage of Web 3.0 (the newest iteration of the World Wide Web, often denoted by decentralized platforms and blockchains) crypto technologies.

"The government's ability to obtain third-party information on those failing to report their gains from digital assets remains a critical tool in catching tax cheats," IRS Commissioner Chuck Rettig said. "The court's granting of the John Doe summons reinforces our ongoing, significant efforts to ensure that everyone pays their fair share. Taxpayers earning income from digital asset transactions need to come into compliance with their filing and reporting responsibilities."

As the IRS explained in its petition, taxpayers "must report income, gain, or loss from all taxable transactions involving virtual currency on their federal income tax returns for the year of the transactions, regardless of the amount or whether they received a payee statement or information return." Regarding its desire to crack down on crypto noncompliance, the agency argued that evaders are drawn in by the prospect of "pseudo-anonymity."

In a September 22 statement, the Justice Department described SFOX as "a cryptocurrency prime dealer and trading platform that connects digital currency exchanges, over-the-counter virtual currency brokers, and liquidity providers globally." The platform has more than 175,000 users and has facilitated over $12 billion since it was founded in 2014.

Although M.Y. Safra had been issued summonses, the Justice Department clarified there was "no allegation" that the bank engaged in any wrongdoing. The John Doe summonses serve only to identify the unknown individuals suspected of having outstanding tax liabilities.

The IRS previously was permitted to hand ndown summonses to SFOX itself pursuant to an order from the U.S. District Court for the Central District of California in another case. In a statement regarding that case, SFOX said it would review "internally and with external legal counsel around next steps," and "always adheres to the law."

Have an IRS Tax Problem?

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