We are very proud to be part of the team that prepared the Supreme Court amicus brief on behalf of the American College of Tax Counsel seeking certiorari on this very important issue concerning IRS John Doe summonses and the attorney-client privilege and tax attorneys.
Click Here for Full Article.
Posted in Uncategorized
We are pleased to announce that Steven Toscher, Michel Stein and Evan Davis will be speaking at the upcoming Spidell webinar, “Cryptocurrency Tax Compliance in the Post $30,000 Bitcoin World” on Wednesday, June 23, 2021, 10:00 a.m. – 12:00 p.m. (PST).
The IRS is coming down on taxation of cryptocurrency. When you ask your client about use of Bitcoin and other forms of cryptocurrency, be ready to handle the tax treatment. At this webinar you will:
Click Here for More Information
Posted in Uncategorized
On May 13, 2021, the Supreme Court in CIC Services, Inc. v. Internal Revenue Service held that the Anti-Injunction Act did not bar an action to enjoin an IRS listed transaction notice because it allegedly failed to comply with the Administrative Procedures Act (“APA”) notice and comment provisions. See, https://www.taxlitigator.com/and-now-for-something-completely-different-supreme-court-holds-suit-to-enjoin-irs-notice-not-barred-by-the-anti-injunction-act-by-robert-s-horwitz/. On the same day, a district court issued an opinion in Mann Construction v. United States, Docket No. 1:20-cv-11307 (ED Mich. 5/13/2021), holding that the APA did not apply to listed transaction notices. Given the Supreme Court’s decision in CIC Services, Inc., Mann Construction received little attention. Since the district courts in both cases are in the Sixth Circuit, if Mann Construction is appealed and affirmed, it could result in a dismissal of CIC Services when it is remanded back to district court.
First, the facts: In 2007 the IRS issued Notice 2007-83. The Notice designated as listed transactions certain trust arrangements claiming to be welfare benefit funds that involved cash value life insurance and purported to result in federal income and employment tax benefits. Persons required to disclose or register such transactions, who failed to do so, were subject to penalties under IRC sec. 6707A.
Six years after the Notice was issued, Mann Construction set up a Death Benefit Trust. With its S corporation return for 2013, the company attached a Form 8275 disclosure statement describing the Death Benefit Trust and the rationale for its claiming deductions with respect to the trust on its return. It did not file a Form 8886, the reportable transaction disclosure statement. The IRS audited Mann Construction, disallowed the deductions, which resulted in increased tax liabilities for its two shareholders, and assessed 6707A penalties against the company and its shareholders. They paid the penalties, filed claims for refund and six months later filed a refund action in district court.
The complaint alleged four causes of action, three of which were for violation of the APA: (a) that the Notice was unauthorized agency action; (b) that the Notice was arbitrary and capricious; and (c) that it was issued in violation of the APA’s notice and comment procedures. The fourth cause of action was that Mann Construction’s Death Benefit Trust was not a listed transaction. The Government moved to dismiss for failure to state a claim. The Court granted the motion as to all but the claim that the Notice was issued in violation of APA notice and comment procedures, since plaintiffs “plausibly alleged that the Notice is a legislative rule that should be set aside for failure to comply with notice and comment.” The parties then filed cross-motions for summary judgment.
The Court framed the issue as “whether the IRS was required to provide public notice and an opportunity for comment before promulgating the Notice.”
The APA sets up a three-step procedure for notice and comment rulemaking: (a) issued a general notice of proposed rulemaking; (b) allow interested parties an opportunity to participate; and (c) include in the final rule a “concise general statement of [its] basis and purpose.” Not all rulemaking is subject to these procedures if Congress exempts them from the procedures. In its summary judgment motion, the Government argued that Congress authorized the IRS to promulgate listed transaction notices without a notice and comment period. The taxpayers argued that they were not exempted from APA’s notice and comment rulemaking procedures.
Sec. 6707A defines “listed transaction” by reference to transactions identified by the Secretary for purposes of sec. 6011 and defines “reportable transaction” by reference to the regulations promulgated under sec. 6011. Treas. Reg. sec. 6011-4 states that reportable transactions are ones the IRS has “identified by notice, regulation, or other form of published guidance as a listed transaction.” The Government argued that by incorporating the regulation into the statute, Congress intended the IRS to continue following the regulation, including identifying listed transactions via notice. Although neither sec. 6707A nor the regulations mention the APA, in Marcello v Bonds, 349 U.S. 302 (1955), the Court held that the Immigration & Naturalization Act (“INA”), rather than the APA, governed deportation proceedings even though the INA did not have any clause expressly superseding the APA, because the legislative history of the INA made it clear the INA was to be the sole source for deportation procedures. In subsequent cases the courts had looked to the statutory text and structure and legislative history to determine whether the APA applied.
The taxpayers argued that the APA is to apply unless the statutory procedure could not be reconciled with it. The Court acknowledged that listed transaction notices could be issued after a notice and comment period, but that doing so would undermine a principal purpose of the 6707A regime: to allow the IRS to identify questionable transactions as early as possible. In incorporating the regulations, Congress “endorsed the flexible reporting regime that the IRS had already developed.” The Court held that listed transaction notices under sec. 6707A can be issued without following APA notice and comment rulemaking procedures. It therefore granted the Government’s motion, denied the taxpayers’ motion, and ordered the case dismissed.
The case probably gives us a preview of what the IRS will argue on remand in CIC Services: that the notice and comment rulemaking provisions of the APA do not apply to listed transaction notices under sec. 6707A, such as the captive insurance listed transaction notice. The Court made clear, however, that whether the APA applies to a particular IRS notice or rule depends on an examination of the language of the statute, the statutory scheme and the legislative history. And since this is a district court decision, it is not binding precedent on other courts and at best has persuasive value.
Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com.
Posted in Uncategorized
We are pleased to invite you to register now for the 13th Annual NYU Tax Controversy Forum Webinar to be held June 24 and 25. You do not want to miss this program.
Co-Chairs Bryan Skarlatos and Steven Toscher are pleased to announce this year’s NYU Tax Controversy Forum which will feature updates on what the IRS is doing to enhance compliance through communication and enforcement. Panels will highlight the new IRS focus on intra-agency collaboration, new initiatives with respect to penalties and fraud referrals, and IRS’ handling of tax collection challenges. Tune in from your computer, at home or the office, to hear Tax Compliance and Procedure Updates from senior IRS personnel. We are excited that the following officials of the IRS have agreed to speak at this year’s program.
Posted in Uncategorized
We are pleased to announce that Evan Davis, along with Ian M. Comisky, Deborah L. Connor and Andrew Winerman will be speaking at the upcoming 13th Annual NYU Tax Controversy Forum webinar, “Shining a Light on Dirty Money: Corporate Transparency and Anti-Money Laundering Acts of 2020” on Friday, June 25, 2021, 3:30 p.m. – 4:30 p.m. (PST).
Last year, Congress passed the first major overhaul of the Bank Secrecy Act (“BSA”) in fifty years. The new law requires certain entities to report the identities of their beneficial owners, enhances the government’s ability to obtain foreign bank records, creates new reporting requirements for crypto currencies and antiquities dealers, expands the powers and duties of FinCEN, enhances inter-agency information sharing, and establishes a new whistleblower program for violations of the BSA. This panel explains these new provisions and how they could affect your clients.
Click Here for more information.
Posted in Uncategorized
We are pleased to announce that Sandra Brown, along with Jonathan Black, Sharyn Fisk and Lois Dietrich will be speaking at the upcoming 13th Annual NYU Tax Controversy Forum webinar, “Focus on Tax Practitioners: Ethical and Penalty Issues” on Thursday, June 24, 2021, 3:00 p.m. – 4:00 p.m. (PST).
Tax practitioners are the gatekeepers to the country’s tax system and are subject to standards and penalties designed to ensure that practitioners give taxpayers clear and impartial advice about how to comply with the tax law. The Office of Professional Responsibility is charged with enforcing these standards and penalties and the IRS recently established the Office of Promoter Investigations to focus on practitioners who promote abusive tax transactions. This panel discusses tax practitioner standards and how the IRS enforces those standards.
Click Here for more information.
Posted in Uncategorized
We are pleased to announce that Michel Stein Sandra Brown and Evan Davis will be speaking at the upcoming CalCPA webinar, “Cryptocurrency Tax Compliance in the Post $50,000 Bitcoin World” on Tuesday, June 15, 2021, 9:00 a.m. – 10:00 a.m. (PST).
The program will provide tax advisers and compliance professionals with a practical look at IRS guidance to calculating and reporting income and gain on cryptocurrency (e.g., Bitcoin) transactions. We will discuss the IRS position on cryptocurrency as property rather than cash, analyze IRS efforts to increase compliance, and define proper reporting and the tax treatment for hard forks, “mining,” and exchanging cryptocurrency. We will address recently released IRS Revenue Ruling 2019-24 and the updated FAQs regarding the taxation of cryptocurrency, with a particular focus on the recent IRS enforcement initiatives to identify virtual currency activity, how the IRS soft letter campaign fits into the voluntary disclosure practice, and the risks of criminal prosecution related to unreported and improperly reported cryptocurrency transactions.
Click Here for more information.
Posted in Uncategorized
We are pleased to announce that Steven Toscher and Michel Stein will be speaking at the upcoming CSTC webinar, “New Developments in Cryptocurrency Reporting and Enforcement” on Wednesday, June 9, 2021, 10:00 a.m. – 11:40 a.m. (PST).
The program will provide tax advisers and compliance professionals with a practical look at IRS guidance to calculating and reporting income and gain on cryptocurrency (e.g., Bitcoin) transactions. We will discuss the IRS position on cryptocurrency as property rather than cash, analyze IRS efforts to increase compliance and define proper reporting and the tax treatment for hard forks, “mining” and exchanging cryptocurrency. We will address recently released IRS Revenue Ruling 2019-24 and the updated FAQs regarding the taxation of cryptocurrency, with a particular focus on the recent IRS enforcement initiatives to identify virtual currency activity, how the IRS soft letter campaign fits into the voluntary disclosure practice and the risks of criminal prosecution related to unreported and improperly reported cryptocurrency transactions.
Click Here for more information.
Posted in Uncategorized
Whenever I read a new FBAR willful penalty I get a distinct feeling of déjà vu all over again, to quote the great Yogi Berra. Elements:
Conclusion: the taxpayer willfully failed to file an FBAR report. Case in point: the Eleventh Circuit’s recent opinion in United States v. Rum, Docket No. 19-14464 (April 23, 2021). The defendant, Said Rum, was a naturalized U.S. citizen who owned and operated several businesses. In 1998 he opened a numbered account at UBS with $1.1 million transferred from his accounts in the U.S. He claimed he did so to conceal the funds from potential judgment creditors. He directed UBS to hold mail. Despite no judgment being entered against him, he did not repatriate the funds to the U.S.
Between 2002 and 2008, UBS sent Rum account statements containing a statement that the information was being provided to help in preparing his U.S. income tax returns. In 2002, UBS advised him that it was required to report his earnings from U.S. securities to the IRS. Rather than fill out a W-9, Rum directed UBS to not invest in any U.S. securities and signed a form that he was liable for tax in the U.S. as a U.S. person. In October 2008, UBS notified Rum that it was closing accounts of U.S. citizens. Rum transferred the funds in his UBS account to a numbered account at Arab Bank in Switzerland.
Rum admitted he never told his return preparer about the Swiss accounts. He listed the Swiss accounts on a mortgage application to show his financial position, but did not list his foreign account or report income from his foreign account on his tax returns and did not disclose it on applications for federal aid for his children’s college tuition. He signed his returns under penalties of perjury. The “No” box was checked in response to the question on Schedule B whether he had any foreign financial accounts.
In 2008, Rum’s 2006 tax return was audited. He told the revenue agent that he had closed the UBS account but did not tell her about the Arab Bank account. The agent determined a tax deficiency but did not propose a fraud penalty or any FBAR penalty. Rum filed an FBAR for 2008 in October 2009, after the June 30 filing deadline, and only after he was notified by UBS that his account was within the scope of a Treaty Request from the IRS. In November 2009, after being notified by Arab Bank that it was closing his account, Rum transferred his offshore funds to an account in the U.S.
During 2009, Rum had approximately $300,000 investment income from his foreign accounts. He only reported $40,000 of that income. The IRS audited his 2005 and 2007-2010 income tax returns. The IRS determined deficiencies in tax and fraud penalties. Given the amount in his offshore account, the assertion of deficiencies and fraud penalties, he was not eligible for the willful penalty to be mitigated under the Internal Revenue Manual (IRM) guidelines. The IRS asserted a 50% FBAR willful penalty for 2007, which was sustained on appeal.
Since Rum failed to pay the FBAR assessment, the Government filed a suit to reduce the assessment, plus interest and late fees, to judgment. The district court granted summary judgment for the Government and Rum appealed. He raised the following claims on appeal: (a) that the district court used the wrong standard for determining willfulness; (b) that genuine issues of material fact were in dispute, precluding summary judgment; (c) that Reg. §1010.820(g)(2) limits the maximum FBAR penalty to $100,000; (e) the IRS’s factfinding procedures were arbitrary and capricious; and (f) that the district court erroneously rejected his challenge to interest and late fees. The Eleventh Circuit rejected all of Rum’s arguments and affirmed the district court.
The first issue addressed by the Eleventh Circuit was the standard of review. Since both parties urged a de novo standard of review for the willfulness determination, whether there were genuine issues of material fact and for legal issues, and this was the standard of review adopted by the Fourth Circuit in the Horowitz and Williams cases, the Eleventh Circuit adopted the de novo standard for these issues. For questions regarding the IRS’s decision to impose the willful penalty and amount of the penalty, the arbitrary and capricious standard was adopted.
The Court then turned to the issue of what is the proper standard for determining willfulness for the civil FBAR willful penalty. In Safeco. Ins. Co. v. Burr, 551 U.S. 47 (2007), the Supreme Court held that willfulness includes recklessness for purposes of determining willfulness for alleged violations of the Fair Credit Reporting Act. The Third Circuit in Bedrosian, the Fourth Circuit in Horowitz and the Federal Circuit in Norman had all held that willfulness for purposes of the FBAR civil penalty includes reckless disregard. In Malloy v. United States, 17 F.3d 329, the Eleventh Circuit held that willfulness for purposes of the trust fund recovery penalty includes reckless disregard of a “known and obvious risk that trust funds may not be remitted to the Government, such as failing to investigate or to correct mismanagement after being notified that withholding taxes have not been duly remitted.” The Eleventh Circuit concluded that willfulness for purposes of the civil FBAR penalty includes reckless disregard.
Under the Safeco standard as articulated by the courts of appeal in Bedrosian, Horowitz and Norman, recklessness exists if the defendant “(1) clearly ought to have known that (2) there was a grave risk an accurate FBAR was not being filed and if (3) he was in a position to find out for certain very easily.” Applying this standard to the undisputed facts, the Eleventh Circuit held that Rum acted with reckless disregard and thus willfully failed to file an FBAR for 2007. Thus there was no genuine issue of material fact and the district court correctly granted summary judgment on the issue of willfulness.
After determining that the district court correctly held that Rum acted willfully, the remaining dominos fell in quick succession. First, the regulation setting the maximum FBAR willful penalty at $100,000 was promulgated prior to the amendment making the maximum FBAR willful penalty 50% of the amount in the account. In amending the penalty provision, Congress did not intend for the maximum penalty to be $100,000. As a result, the Eleventh Circuit joined the Fourth and Federal Circuits in rejecting the argument that the maximum penalty is $100,000.
Next to fall was the claim that the IRS’s factfinding procedure for determining the amount of the penalty was arbitrary and capricious. The IRM had guidelines for determining the amount of the penalty, the revenue agent’s recommendation required managerial approval and was reviewed by IRS area counsel, Form 886-A explained the facts and law upon which the determination was based and Rum had an opportunity to appeal the determination. Thus, the IRS’s factfinding procedures were not arbitrary and capricious. His argument about interest and late fees was similar to that concerning the IRS’s factfinding and was rejected as being without merit.
So there you have it. Another FBAR willful appeal, another Court of Appeals upholding the Government’s positions. The appeal in United States v. Schwarzbaum (SD Fla 2020) is pending before the Eleventh Circuit. Luckily for Mr. Schwarzbaum, the United States voluntarily dismissed its cross-appeal.
Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com.
Posted in Uncategorized
The Biden administration’s vision for increased information reporting, depending on implementation specifics, may have a new obstacle to contend with: the Supreme Court’s recent decision shortening the reach of the Anti-Injunction Act (AIA).
In its decision, the Supreme Court gave as one reason why the AIA did not apply was that there were several steps between a reporting rule and an assessment.
“Robert Horwitz of Hochman Salkin Toscher Perez PC also noted that if the IRS received a Form 1099 with an interest or dividend income reporting discrepancy, it would not automatically make an assessment on the taxpayer, but rather would inform the taxpayer and ask for an explanation.”
Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com.
Click Here to read full article.
Posted in Uncategorized
TAXLITIGATOR - Tax Controversy (Civil & Criminal) Report 