Millions of ITINs Are Set to Expire in 2019

In  IR-2019-118 the IRS stated that nearly 2 million Individual Taxpayer Identification Numbers (ITINs) are set to expire at the end of 2019 as the Internal Revenue Service continues to urge affected taxpayers to submit their renewal applications early to avoid refund delays next year.

“We urge taxpayers with expiring ITINs to take action

and renew the number as soon as possible.

Renewing before the end of the year will avoid unnecessary delays related to their refunds,” said IRS Commissioner Chuck Rettig. “To help with this process, the IRS is sharing this material in multiple languages. We encourage partner groups to share this important information to reach as many people with ITINs as possible.” 

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

will expire Dec. 31, 2019.

In addition, ITINs with middle digits 83, 84, 85, 86 or 87 that have not already been renewed will also expire at the end of the year. These affected taxpayers who expect to file a tax return in 2020 must submit a renewal application as soon as possible.

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 several languages, including English, Spanish, Traditional 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 2020 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 83, 84, 85 or 86, 87 (For example: 9NN-83-NNNN) 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, in early summer to affected taxpayers. The notice explains the steps to take to renew the ITIN if it will be included on a U.S. tax return filed in 2020. Taxpayers who receive the notice after acting to renew their ITIN do not need to take further action unless another family member is affected.
• ITINs with middle digits of 70 through 82 have previously expired. Taxpayers with these ITINs can still renew at any time, if they have not renewed already.

Family option remains available

Taxpayers with an ITIN that has middle digits 83, 84, 85, 86 or 87, as well as all previously expired ITINs, 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 2020 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 from a country other than Canada or Mexico, or dependents of 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.

Have a IRS Tax Problem?

 

  
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IRS Summons to Uncover Unreported Virtual Currency Gains Partially Enforced

In U.S. v. Coinbase, Inc., et al, (DC CA 11/28/2017) 120 AFTR 2d ¶2017-5538

IRS has been granted partial enforcement of a summons served on Coinbase, a virtual currency exchange that represents the largest U.S. exchange of bitcoin into dollars. As part of its investigation into the reporting gap among virtual currency users, IRS originally sought information concerning all U.S. persons who conducted any transaction in a virtual currency over a multi-year period.


However, The Summons Was Ultimately Narrowed To Include Information Pertaining Only Those Accounts With At Least The Equivalent Of $20,000 In Any One Transaction Type.

Have a Unreported Income? 

  
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IRS Releases Data Book for 2018 Showing Data on Tax Audits & Collection

The Internal Revenue Service on May 20, 2019 released the 2018 IRS Data Book, a snapshot of agency activities for the fiscal year.

The 2018 IRS Data Book describes activities conducted by the IRS from Oct. 1, 2017, to Sept. 30, 2018, and includes information about tax returns, refunds, examinations and appeals. The annual publication is illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload and IRS budget and workforce levels when compared to fiscal year 2017 and prior years. Included this year is a section on taxpayer attitudes from a long-running opinion survey.

“Underlying the numbers in this year’s edition of the Data Book is the hard work of IRS employees,” said IRS Commissioner Chuck Rettig. “Our employees are the backbone of this agency, delivering our mission efficiently and effectively. They work hard to help taxpayers, and the numbers outlined in the Data Book reflect their commitment.”

Revenue collection, returns processing, taxpayer service and enforcement actions

During fiscal year 2018, the IRS collected nearly $3.5 trillion, processed more than 250 million tax returns and other forms, and issued over 120 million individual income tax refunds totaling almost $395 billion.

The IRS received and processed more of every major type of form during FY 2018 than during the prior year, with the exception of estate tax returns; those filings were down slightly less than 1 percent compared to the prior year. However, filings by pass-through entities were up in FY 2018; partnerships filed almost 5 percent more forms with the IRS in FY 2018 than in the prior year, S-corporation filings were up almost 6 percent in the same timeframe.

The IRS provided taxpayer assistance through more than a half-billion visits to IRS.gov and helped more than 64.8 million taxpayers through different service channels, such as correspondence, toll-free telephone helplines or at Taxpayer Assistance Centers. There were also more than 309 million inquiries to the “Where’s My Refund?” application, up 11 percent compared to the prior year. 

Net revenue from delinquent collection activities rose to just over $40 billion, an increase of 1.6 percent compared to the prior year. IRS levies were up 8.3 percent compared to the prior year, but the agency filed about 8 percent fewer liens than in fiscal year 2017.

Compared to the prior year, there were fewer audits during fiscal year 2018. The IRS audited more than 892,000 individual income tax returns during the fiscal year, down slightly from the prior year.

 

 Have a IRS Tax Problem?

  
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Tax Preparer's Fraudulent Intent Was Sufficient To Keep Limitations Period Open For the Taxpayer

Affirming the Tax Court’s decision, the Eleventh Circuit Court of Appeals has ruled that the fraud exception to the 3-year statute of limitations on assessments applied where a married couple’s returns were fraudulently prepared by their preparer. (Finnegan, (CA 11 6/11/2019)) 
As many of us do, John and Joan Finnegan ("Taxpayers") hired someone to prepare their tax returns.
 

For eight years, Taxpayers’ return preparer included

bogus claims on their returns.

 

Taxpayers apparently were oblivious to this. The return preparer was indicted for his fraudulent behavior and pled guilty. Eventually, the IRS came calling: to recover the money it was due all along, the IRS issued a notice of deficiency to Taxpayers for those eight years.

Taxpayers challenged the notice of deficiency in the Tax Court. They argued that the IRS waited too long to collect. Generally, the IRS must make assessments within three years after a tax return is filed.
 
But there’s an exception, and the three-year window is suspended, "[i]n the case of a false or fraudulent return with the intent to evade tax." (We call this the fraud exception.)
 
Taxpayers argued that the fraud exception did not apply because the IRS could not meet its evidentiary burden and show that their returns were in fact fraudulent. Taxpayers admitted that their return preparer created fraudulent returns for his other clients, but,
Taxpayers said, the IRS could not prove that the return preparer falsely or fraudulently prepared their returns.
 
Crucially, Taxpayers conceded—time and time again—that if the Tax Court did find that their returns were fraudulent, the exception to the three-year window would be triggered.  
 
The court also rejected the couple’s argument that the Tax Court abused its discretion by accepting the preparer’s out-of-court statement admitting his culpability.
 

 

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Negligent FBAR Penalty NOT Limited to $10K Per Year

How Can The IRS Impose 13 Negligent
FBAR Penalties For 1 Year?  

Ask the federal district court of California, which recently upheld the IRS’ imposition of separate non-willful penalties against 13 foreign accounts disclosed on a single late FBAR return.   The court’s decision raises the stakes for taxpayers looking to quietly report their foreign interests to the IRS and debunks the common notion that the non-willful FBAR penalty applies on a per-year basis.

A nonwillful failure to comply with the FBAR reporting requirements can result in civil monetary penalties if (1) the breach was not due to a reasonable cause, and (2) the account balance was not properly reported.(31 U.S.C. §§ 5321(a)(5)(A) and (B)). As a result of such violations, the Internal Revenue Service is authorized to impose a maximum penalty of $10,000 on any person who fails to comply with the BSA. The penalty may be imposed separately on each joint holder of a foreign financial account (31 U.S.C. §§5321(a)(5)(A).


The statutory language of the BSA does not clarify whether the $10,000 maximum penalty is applicable per calendar year or per foreign financial account. The IRS had historically taken the position that the limitation could be imposed on each of a taxpayer’s unreported accounts and therefore, the limitation did not constitute an annual cap (IRM 4.26.16.6.4.1 (11-06-2015)). This approach was widely criticized by practitioners and in May 2015, the IRS responded by issuing interim guidance indicating that it would instead impose the nonwillful FBAR penalty limitation on an annual basis in certain circumstances going forward (SBSE-04-0515-0025 (May 13, 2015)).This guidance explicitly retained the IRS’ flexibility to apply the FBAR penalty on a per financial account basis where warranted.

In United States vs. Jane Boyd, the taxpayer had a financial interest in and/or otherwise controlled 14 financial accounts in the United Kingdom with balances collectively exceeding $10,000. Boyd was required by law to file a Foreign Bank and Financial Accounts (“FBAR”) form disclosing her interests in her U.K. bank accounts for 2010, but failed to timely do so. 

Boyd participated in the IRS’ Offshore Voluntary Disclosure Program in 2012, but later opted out in 2014.  The opt-out gave rise to an IRS examination and an initial taxpayer-favorable determination by the IRS that Boyd was not willful in failing to timely file the FBAR for 2010. 

Not so favorably, however, the IRS assessed 13 separate FBAR penalties against Boyd, treating each reported account as a separate non-willful violation.  One account was not penalized based on IRS mitigation rules. 

After Boyd refused to pay the penalties, the Government filed suit in federal district court.  Both parties later filed competing motions for summary judgment. 

The Government argued that the statutory maximum penalty of $10,000 under 31 U.S.C. § 5321(a)(5)(B) for non-willful violations related to each foreign financial account, whereas Boyd argued that, if there is a non-willful failure to file an FBAR, the penalty cannot exceed $10,000 regardless of the number of bank accounts required to have been listed on the FBAR.

The court explained that the BSA is ambiguous with respect to the applicability of the $10,000 maximum penalty but agreed with the IRS that it is more appropriately interpreted to impose the penalty on each unreported foreign financial account rather than per calendar year.

The court found support for this decision in the language of the reasonable cause exception for nonwillful FBAR violations. Specifically, the court cited that a penalty would not be imposed if there was reasonable cause for the violation and “the amount of the transaction or balance in the account at the time of the transaction was properly reported.” The court was persuaded by the IRS’ contention that by making reference to a singular account, Congress intended for taxpayers to be penalized for each foreign financial account violation rather than for a collective calendar year. On that basis, the court decided in favor of the IRS. This decision may be appealed by the taxpayer.

The implications of the Boyd decision are far reaching. Even unintentional taxpayers now face exposure to material FBAR penalties of up to $10,000 per account per year.   With the IRS benefiting from a 6-year statute of limitations period for FBAR penalties, a taxpayer with four accounts could be facing non-willful penalties upwards of $240,000.  Another example is where an unintentional failure to report three foreign financial accounts that were jointly held by two taxpayers over a three-year period could result in a total maximum monetary penalty of $180,000, as opposed to a maximum penalty of $60,000 that would otherwise be imposed under the calendar year approach.

This more-expansive penalty exposure changes the risk/reward ratio for taxpayers considering an opt-out of the IRS’ voluntary disclosure program, as well as those taxpayers assessing whether to quietly disclosure their foreign interests or otherwise apply for the IRS’ streamlined filing procedures and pay only a single 5% penalty.

Given the broad scope of direct and indirect financial interests and authorizations that implicate the BSA, as well as the numerous types of relevant foreign financial accounts, United States individuals and entities should perform annual reviews of legal and beneficial asset portfolios, bank account authorizations, executive and board of director duties, trustee and executor relationships, and any other potential positions of effective economic control.

The Boyd case suggests that the IRS could be transitioning to a more aggressive penalty approach for FBAR violations and United States taxpayers should take proactive steps to protect themselves from the increased risk.



Have an FBAR Penalty Problem?

Contact the Tax Lawyers at 

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Sources

Law360

Meadows, Collier
 

IRS Summons For Law Firm's Client Identities Can Be Enforced

According to Law360, the U.S. can enforce an Internal Revenue Service summons for client information from the Taylor Lohmeyer Law Firm because the firm failed to show attorney-client privilege protected the information, a Texas federal court found.

The court, in a order, approved a John Doe summons the government sought to obtain the names of Taylor Lohmeyer clients suspected to have used the firm to help hide taxable income in foreign countries, mainly through foreign bank accounts and entities. The government properly established that the summons was made with the legitimate purpose of combating tax evasion by identifying Taylor Lohmeyer clients, the court said.

Further, the burden to show the government made a

wrongful summons was on the firm, the court said.

The court faulted the law firm for making “blanket assertions of privilege” for its clients, and it requested a privilege log for each document Taylor Lohmeyer believes should be protected by attorney-client privilege.

Taylor Lohmeyer, in an earlier response, had argued that its clients' identities were privileged because their disclosure would reveal why they initially sought the firm’s advice — a position that failed to convince the court, which favored a case-by-case determination of client privilege.

The IRS investigation into Taylor Lohmeyer’s clients began when it audited an unnamed client who was later found to have owed more than $2 million in taxes on $5 million

in unreported offshore income.

From there, the IRS sought the identities and foreign activities of other unidentified Taylor Lohmeyer clients from 1995 to 2017, the court said.

An IRS agent found that the first unnamed client,

along with a former partner of Taylor Lohmeyer,

provided the agency with information suggesting that

the firm helped clients dodge taxes with

offshore trust structures and beneficial ownership schemes.

The case is Taylor Lohmeyer Law Firm PLLC v. U.S.

 Do You Have Undeclared Offshore Income?

 

 

Is Your Name Being Handed Over to the IRS?

  

Want to Know Which Remaining IRS Program

 is Right for You? 

 

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