IRS Reminds Taxpayers That They Should Continue To Report All Digital Asset Income

In IR-2023-12, dated January 24, 2023, the Internal Revenue Service reminded taxpayers that they must again answer a digital asset question and report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term "digital assets" has replaced "virtual currencies," a term used in previous years.

The question, which appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, was revised this year to update terminology.

In addition, the instructions for answering the question were expanded and clarified to help taxpayers answer it correctly. All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets.

For the 2022 tax year it asks: "At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"

What is a digital asset?

A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency
• Stablecoins
• Non-fungible tokens (NFTs)

Everyone must answer the question

Everyone who files Form 1040, Form 1040-SR or Form 1040-NR must check one box, answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just those who engaged in a transaction involving digital assets in 2022.

When to check "Yes"

Normally, a taxpayer must check the "Yes" box if they:

• Received digital assets as payment for property or services provided;
• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
• Received digital assets resulting from a reward or award;
• Received new digital assets resulting from mining, staking and similar activities;
• Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset.

How to report digital asset income

Besides checking the "Yes" box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2022 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses, or Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, in the case of gift.

If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business.

When to check "No"

Normally, a taxpayer who merely owned digital assets during 2022 can check the "No" box as long as they did not engage in any transactions involving digital assets during the year. They can also check the "No" box if their activities were limited to one or more of the following:

• Holding digital assets in a wallet or account;
• Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
• Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

For more information, see page 15 of the Tax Year 2022 1040 (and 1040-SR) InstructionsPDF. For a set of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.

Have an IRS Tax Problem?

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TIGTA Says That IRS' $80 Billion Funding Boost Spending Plan Is On Track

On August 16, 2022 we posted Inflation Reduction Act of 2022 Is Law, where we discussed what's in the Inflation Reduction Act allocates $80 billion to increase enforcement by the IRS.

Now according to Law360, the Internal Revenue Service is on track to deliver the spending plan for the Inflation Reduction Act's nearly $80 billion funding boost to the Treasury Department by the Feb. 17, 2023 deadline, according to a Treasury Inspector General for Tax Administration report released on Monday, January 16, 2023.

The IRS is taking actions to develop the spending plan detailing how the agency wants to spend Inflation Reduction Act funding over a decade on technology, workers and service improvement, according to the report. The plan, requested by Treasury Secretary Janet Yellen, must also include metrics for focus areas and goals the agency will strive to reach.

The IRS is working to monitor the implementation of Inflation Reduction Act tax provisions, coordinate organizational transformation efforts and track funding and spending, TIGTA said. According to the report, the agency is on track to timely implement all provisions before the filing season begins.

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CCM Holds That Crypto Value Drop Isn't A Loss

A taxpayer who bought cryptocurrency in 2022 and saw its value plummet to less than a cent, but retained ownership over it at the end of the year, can't take a loss on the steep decline in value, the Internal Revenue Service's Office of Chief Counsel said in memorandum released Friday.

In Chief Counsel Advice Memorandum 202302011, dated January 17, 2023, the IRS said that such a taxpayer hasn't actually suffered a loss yet for the purposes of a deduction under Internal Revenue Code Section 165. Even if the decline in value had been a loss, the taxpayer still couldn't take the deduction because it would be categorized as miscellaneous and blocked under IRC Section 67(g), the agency said.

Planning Point: Sell your crypto currency, recognize your loss, and then repurchase your crypto currency, as not subject to the wash sale rules.

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) 

An Expatriating Taxpayer, With FBAR Penalties, May Create New Precedent For Collection Outside the US? - Don't Think So!

According to Law360, as a result of a Floridian who moving his assets offshore in the wake of an $18 million penalty for failing to report foreign bank accounts, the U.S. should be allowed to seize the overseas funds, the U.S. told a Florida federal court on January 6, 2023 in U.S. v. Isac Schwarzbaum, case number 9:18-cv-81147, in the U.S. District Court for the Southern District of Florida.

Isac Schwarzbaum has not paid any amount he owes, forcing the U.S. to repatriate the funds he has deposited in several Swiss banks, the U.S. said in a motion to repatriate foreign assets.

"Schwarzbaum's blatant refusal to pay the judgment deprives the United States of funds to which it is legally entitled, and it also undermines the authority of the court," the U.S. said. 

"Schwarzbaum's Actions May Encourage Others To Simply Refuse To Pay, Or Move Assets Offshore, Unless The United States Pursues Enforced Collection Efforts." 

The Internal Revenue Service penalized Schwarzbaum in 2013 and 2014 for his willful failure to file Reports of Foreign Bank and Financial Accounts, or FBARs, for 2006 through 2009 on his Swiss accounts, according to court documents. The U.S. government sued in 2018 after he failed to pay the penalties, and a Florida federal district court found in March 2020 that he willfully failed to file.

However, the Eleventh Circuit found that the IRS erroneously used the highest balances of his foreign bank accounts to compute the penalties rather than their balances as of June 30, the deadline for filing FBARs, and made its own calculations of the penalty amount. The IRS should have redone the calculations, the Eleventh Circuit said in remanding the case. This remand did not vacate the entire judgment, the Florida court later ruled.

The IRS Recalculated Schwarzbaum's Penalties At 

$17.9 Million As Of Sept. 12, 2022.

Schwarzbaum has no intention of paying the money he owes, the U.S. said in its motion. He sold his home in Florida and moved the proceeds overseas, it said. Schwarzbaum also has fled the country for Switzerland, the U.S. added, and has no intention of returning.

The Question Now Is How Does The IRS Levy On Assets
Outside The US or Against a Taxpayer
Who Is No Longer AUS Resident?

Can't Wait To See The Answer To This One!

Do You Have Undeclared Offshore Income?

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for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

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

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

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

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

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

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

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

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

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

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

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

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

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

Have an IRS Tax Problem?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

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

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

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

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

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

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

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

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

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

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

1. No or limited foreign activity. The instructions define foreign activity as (a) paying or accruing foreign income taxes; (b) foreign-source income or loss; (c) an ownership interest in a foreign partnership; foreign corporation; foreign branch or disregarded foreign entity.
   
   A domestic partnership is considered to have limited foreign activity when (a) its only foreign activity is passive foreign income and the partnership paid or accrued no more than $300 of creditable foreign taxes on that income and (b) such income and taxes are shown on a payee statement (such as a Schedule K-1 from another partnership or a Form 1099 furnished or treated as furnished to the partnership.
   
   
2. U.S. citizen or resident alien partners. During 2022, all a partnership's direct partners were (a) an individual who is a U.S. citizen or resident alien; (b) a decedent's estate that's not a foreign estate if all beneficiaries are U.S. citizens or resident alien individuals; (c) a domestic grantor trust if all beneficiaries and grantors are U.S. citizens or resident alien individuals; or (d) a domestic non-grantor trust if all beneficiaries are U.S. citizens or resident alien individuals.
   
   
3. Partner/shareholder notification. Partnerships must notify their partners no later than two months before the due date (without extension) for filing the partnership's 2022 return that partners will receive a Schedule K-3 from the partnership only if the partner requests the schedule. For calendar year partnerships, this notification must be provided to partners by January 15, 2023. This notice can be provided electronically or by mail. S corporation shareholders must receive this notification no later than the date the S corporation furnished Schedule K-1 to the shareholder. The notice can be attached to the Schedule K-1 and should state that shareholders will not receive Schedule K-3 unless the shareholder requests schedule.
   
   
4. No Schedule K-3 requests by the one-month date. The partnership or S corporation doesn't receive a request from any partner or shareholder for Schedule K-3 on or before the one-month date. The one-month date for calendar-year partnerships and S corporation for the 2022 tax year is February 15, 2023.

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

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

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

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

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

Have as IRS Tax Problem?

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

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

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

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

Thinking of Borrowing From Your Company's

Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

Have Payroll Tax Problems?

 

 

 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