STOP BOI Filings (for now) - Texas DC Issues Nationwide Injunction Against The CTA And Its Impending January 1, 2025 Filing Deadline

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction in favor of the plaintiffs in the case of Texas Top Cop Shop, Inc. et al. vs. Garland. 

In so ruling, “[t]he Court has determined that the CTA and Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. 

It has not made an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.” 

The Court Went Further And Ruled That This Is A
Nationwide Injunction, Applying Against Enforcement Of
The CTA And Its Impending January 1, 2025 Filing Deadline.

The Court stated: “…the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”

The CTA required that an estimated 32.6 million existing business entities disclose their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network before 2025. The government argued that the law’s function, to crack down on anonymous shell companies and deter money laundering, terrorism financing, and other illicit economic activity, falls within Congress’s regulatory duties.

But the CTA still fails to pass muster, even if anonymous corporate operations can be regulated by Congress, because the Constitution’s Commerce Clause can’t be leveraged to compel the disclosure of information for law enforcement purposes, the court’s opinion said.

We note this is a preliminary injunction, and we urge reporting companies to pay attention for additional updates and proceedings in this and other cases which could modify or change this order.

You have to also ask yourself whether this District Court has the power to enjoin the government from enforcing the CTA, in that it only has jurisdiction over the parties who filed. So is in enjoining the enforcement against everyone except the parties, within this District Court's jurisdiction?

Need Help Filing Your BOI Report?

     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)

 

 

The Filing Deadline For The Corporate Transparency Act (CTA) Is Fast Approaching!

On October 3, 2024 we posted Only 90 Days Left To File BOI Report, where we discussed that Starting January 1, 2024, many business entities will be required to report information to the U.S. government about who ultimately owns or controls them, including the business’ owners and officers. This new beneficial ownership information (BOI) reporting requirement is part of the Corporate Transparency Act (CTA), which aims to help law enforcement combat financial crime and protect the U.S. financial system from bad actors. If your U.S. entity was in existence before January 1, 2024, you must file your Beneficial Owners Report by January 1, 2025, which is less than 30 days away. Failing to meet this federal requirement could result in steep penalties: Civil fines of up to $500 per day. Criminal penalties could include up to two years of imprisonment. The government isn’t taking non-compliance lightly, and neither should you. The Clock Is Ticking! This isn’t just a formality; it’s the law. The process can take time, especially if you're new to the reporting requirements or have complex ownership structures.  Disclaimer: The information contained herein is for informational purposes and should not be relied upon or construed as tax or legal advise, generally, nor regarding any specific issue or factual circumstance. Need Help Filing Your BOI Report?      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 Delays Again $600 Venmo Payment Reporting Requirement Until 2026

 On November 22, 2023 we posted IRS Delays Again $600 Venmo Payment Reporting Requirement Until 2025, now in Notice 2024-85 The IRS provides that calendar years 2024 and 2025 will be regarded as the final transition period for purposes of IRS enforcement and administration of the minimum reporting threshold for Form 1099-K, Payment Card and Third Party Network Transactions.  

Under Notice 2024-85, a third party settlement organization (TPSO) will be required to report payments in settlement of third party network transactions with respect to a participating payee when the amount of total payments for those transactions is more than: 

• $5,000 during calendar year 2024; 
• more than $2,500 during calendar year 2025; and 
• more than $600 during calendar year 2026 and after.  

Notice 2024-85 Also Provides That For Calendar Year 2024, 

The IRS Will Not Assert Penalties Under Section 6651 or 6656 For A TPSO’s Failure To Withhold And Pay Backup 

Withholding Tax During The Calendar Year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. 

Expanded information reporting, which will occur as the result of the change in thresholds for Form 1099-K, is important because it increases tax compliance and can reduce burden on taxpayers seeking to follow the law. The IRS believes that expansion must be managed carefully to help ensure that Forms 1099-K are issued only to taxpayers who should receive them. In addition, it's important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist 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)

Tax Court Doubles Down on Farhy & IRS Not Having the Right to Assess 5471 Reporting Penalties

The United States Tax Court issued its opinion in Raju J. Mukhi v. Commissioner, 162 T.C. No. 8, where the court affirmed its ruling that the Internal Revenue Service lacked authority to assess $120,000 in penalties against Raju J. Mukhi under Internal Revenue Code Section 6038(b) for failing to file information returns disclosing his ownership of a foreign corporation from 2002 through 2013.

Raju J. Mukhi created three foreign entities between 2001 and 2005, through which he opened several foreign brokerage accounts. From 2005 to 2008, Mukhi transferred and withdrew millions of dollars through these entities.

Raju Mukhi pled guilty in 2014 to subscribing to false U.S. individual income tax returns and failing to file a foreign bank and financial accounts report (FBAR). Mukhi had created three foreign entities between 2001 and 2005, two trusts and a corporation. He failed, however, to timely file: 

• Forms 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, for tax years 2005-2008; 

• Forms 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, for tax years 2005-2010; and 

• Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, for tax years 2002-2013.

The IRS assessed a total of over $11 million in foreign reporting penalties, including over $10.9 million under Code Sec. 6677 for failure to file Forms 3520 and 3520-A, and $120,000 under Code Sec. 6038(b) for failure to timely file Forms 5471. 

The Tax Court upheld the agency's authority to assess nearly $11 million in penalties against Mukhi for failing to report foreign trusts (Form 3520), it wouldn't allow the IRS to penalize him for failing to submit an information form revealing his ownership of Sukhmani Partners II Ltd., one of three foreign corporations Mukhi had created (Form 5471).

IRS Lacks Authority to Assess Section 6038(b) Penalties: The court reaffirmed its previous decision in Farhy v. Commissioner, holding that the IRS does not have the authority to assess penalties under Section 6038(b) of the Internal Revenue Code. The Tax Court made this decision in light of the fact that the U.S. Circuit Court of Appeals for the District of Columbia reversed the Tax Court's decision in Farhy. 

The circuit court held that the IRS does, in fact, have statutory authority to assess penalties for failure to report control of foreign businesses under Code Sec. 6038(b). According to the D.C. Circuit, the "text, structure, and function" of Code Sec. 6038 show that Congress intended for the penalty to be assessable. After the D.C. Circuit's decision in Farhy, the IRS filed a motion for reconsideration in Mukhi.

In its second look at the IRS' authority to assess Code Sec. 6038(b) penalties in Mukhi, the Tax Court noted that the parties had stipulated the case is appealable to the 8th U.S. Circuit Court of Appeals. Therefore, said the Tax Court, the D.C. Circuit's decision in Farhy is not binding.

Despite the ruling on Section 6038(b) penalties, the court upheld the majority of the challenged penalties, which totaled approximately $11 million.

The court addressed various aspects of the collection due process, including the IRS's consideration of Mukhi's offers in compromise and the determination of his reasonable collection potential.

IRS Motion for Reconsideration: On June 7, 2024, the IRS filed a motion for reconsideration, asking the Tax Court to reconsider its holding regarding the Section 6038(b) penalties. The IRS cited the D.C. Circuit's May 3, 2024 decision in Farhy v. Commissioner, which reversed the Tax Court's earlier ruling on this issue.

The Mukhi case is appealable to the Eighth Circuit, while the Farhy case was decided by the D.C. Circuit. This creates potential for a circuit split on the issue of IRS authority to assess Section 6038(b) penalties.

Potential Supreme Court Review: If different circuit courts reach conflicting decisions on this issue, it may eventually lead to a review by the U.S. Supreme Court.

This case has significant implications for taxpayers with foreign reporting requirements and the IRS's ability to assess certain penalties. It highlights the ongoing legal debate surrounding the IRS's authority to assess penalties under Section 6038(b) and the potential for further litigation and appeals in this area.

Need To Successfully Contest Form 5471,
5472, 8938, & 3520 Late Filing Penalties?

     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 Stops Texas Professional from Organizing and Selling “Tax Plans” To Deduct Personal Expenses

According to DoJ, The U.S. District Court for the Northern District of Texas entered permanent injunctions on November 1, 2024 against Charles Dombek and The Optimal Financial Group LLC barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies. 

The injunctions also prohibit Dombek from preparing any federal tax returns for anyone other than himself and Optimal from preparing certain federal tax returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.

According to the government’s complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a tax scheme throughout the United States to illegally reduce customers’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or claim personal expenses as bogus business deductions. 

As alleged by the government, Dombek promoted himself as the “premier dental CPA” in America. The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed tax returns for their customers reflecting the sham transactions, expenses and deductions. The government contended that the total harm to the treasury from the scheme could have been $10 million or more.

Each year the IRS highlights some of the tax scams that put taxpayers at risk of losing money, personal information, data and more. In the IRS’s most recent list it specifically warned taxpayers “to beware of promoters peddling bogus tax schemes aimed at reducing taxes or avoiding them altogether.”

Working with the IRS, the Justice Department’s Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers and tax scheme promoters over the past decade. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

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)

1st Circuit Holds No 4th Amendment Privilege for Crypto Accounts

Those who thought their cryptocurrency transactions would remain anonymous or a secret from the Internal Revenue Service should think again according to Law360.

Nearly 50 years ago, the U.S. Supreme Court held that information customers voluntarily provide to banks is not subject to Fourth Amendment privacy protections, and therefore can be disclosed to law enforcement. In September of 2024 him, in James Harper v. Daniel Werfel, the U.S. Court of Appeals for the First Circuit expanded this principle to cryptocurrency exchanges.

This ruling, as well as those of various district courts, confirms the ability of the IRS to identify taxpayers engaged in financial transactions involving cryptocurrency exchanges. Much as for taxpayers decades ago who believed their use of Swiss bank accounts would allow them to conceal their income, this ruling is another wake-up call for any who may still have similar thoughts about using digital asset currency exchanges.

The issuance of John Doe summonses remains one of the strongest tools in the IRS' enforcement arsenal. These summonses allow the IRS to obtain information on large numbers of taxpayers in one fell swoop. 

In Recent Years, The IRS Has Issued Such Summonses To
Major Cryptocurrency Exchanges, Such As Coinbase,
Kraken And Circle Financial, Seeking Taxpayer Information.

The First Circuit's decision in Harper upheld the IRS' right to issue John Doe summonses to cryptocurrency exchanges, finding that cryptocurrency users do not have a Fourth Amendment reasonable expectation of privacy in their records held by exchanges.

While the use of John Doe summonses isn't new, this is the first time a court of appeals has expressly approved their use. For years, federal prosecutors have been champing at the bit by ramping up investigations of and enforcement against taxpayers who use digital assets to evade tax liabilities.

Harper should serve as a signal to taxpayers and cryptocurrency exchanges alike that the IRS-CI will not be letting up anytime soon.

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)

FinCEN Provides BOI Reporting Relief to Victims of Recent Natural Disasters

On October 3, 2024, we posted Only 90 Days Left To File BOI Report, where we discussed that there was only 90 days remain to ensure your business complies with the Corporate Transparency Act (CTA). 

On October 7, 2024 the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced that certain victims of Hurricane Milton, Hurricane Helene, Hurricane Debby, Hurricane Beryl, and Hurricane Francine will receive an additional six months to submit beneficial ownership information reports, including updates and corrections to prior reports. 

FinCEN has issued five Notices extending the filing deadlines to for reporting companies that 1) have an original reporting deadline beginning one day before the date the specified disaster began and ending 90 days after that date, and 2) are located in an area that is designated both by the Federal Emergency Management Agency as qualifying for individual or public assistance and by the Internal Revenue Service as eligible for tax filing relief. 

Please refer to the applicable Notice for specific information.

• Notice regarding Hurricane Milton: https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Milton-508FINAL.pdf 
• Notice regarding Hurricane Helene: https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Helene-508FINAL.pdf
• Notice regarding Hurricane Debby: https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Debby-508FINAL.pdf
• Notice regarding Hurricane Beryl: https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Beryl-508FINAL.pdf
• Notice regarding Hurricane Francine: https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Francine-508FINAL.pdf

FinCEN is providing this relief to reporting companies that meet two requirements.  

First, the deadline for the reporting company to file an initial or updated BOI report must fall on or between October 4, 2024, and January 2, 2025.  I

Second, the reporting company must have its principal place of business in an area designated both by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance, and by the Internal Revenue Service (IRS) as eligible for tax filing relief as a result of Various Hurricanes.  

If, after the date of this announcement, the IRS designates other areas affected by this natural disaster as eligible for tax filing relief, the reporting companies with their principal place of business in those areas will also receive the same BOI reporting relief from FinCEN automatically, i.e., reporting companies with an initial or updated BOI report due on or between October 4, 2024, and January 2, 2025, with a principal places of business located in these other areas, will also have an additional six months from their original deadline to submit BOI reports.   

For example, the initial BOI report of a reporting company created or registered before January 1, 2024, normally would be due by January 1, 2025.  If such a company has its principal place of business in an area designated both by FEMA as qualifying for individual or public assistance and by the IRS as eligible for tax filing relief as a result of a Hurricane, the company’s initial BOI report is now instead due by July 1, 2025.  

Similarly, the initial BOI report of a reporting company created or registered on July 25, 2024, normally would be due by October 23, 2024.  If such a company has its principal place of business in an area designated both by FEMA as qualifying for individual or public assistance and by the IRS as eligible for tax filing relief as a result of a Hurricane, the company’s initial BOI report is now instead due by April 23, 2025. 

In addition, FinCEN will work with any reporting company whose principal place of business is outside the disaster areas but that must consult records located in the affected areas to meet the deadline.  

Reporting companies with a principal place of business outside the affected areas and that are seeking assistance in meeting their filing obligations should contact FinCEN at  www.fincen.gov/boi.

Need Help Filing Your BOI Report?

     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)