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Weekly IRS Roundup April 1 – 5, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 1 – 5, 2019.

April 2, 2019: The IRS issued a news release providing tips on payment options, penalty waivers, refunds and other filing related recommendations.

April 3, 2019: The IRS issued a notice inviting individuals to apply for positions with the Taxpayer Advocacy Program (TAP) from April 8 – May 3.

April 3, 2019: The IRS issued Revenue Procedure 2019-17 providing guidance regarding qualified residential rental projects financed with tax exempt bonds under Section 142(d) of the code.

April 3, 2019: The IRS issued a news release reminding taxpayers who make quarterly payments that the first estimated quarterly payment for 2019 is due Monday, April 15.

April 4, 2019: The IRS issued a news release reminding taxpayers with foreign assets of the annual April 15 Foreign Bank and Financial Accounts (FBAR) filing deadline.

April 5, 2019: The IRS issued a news release dispelling what the agency terms five myths about tax refunds.

April 5, 2019: The IRS released Treasury Decision 9855 specifying which return to use for taxpayers who owe excise taxes under Sections 4960, 4966, 4967 or 4968 of the code.

April 5, 2019: The IRS issued final regulations authorizing the disclosure of certain expense items from business tax returns to the Census Bureau.

Special thanks to Terence McAllister in our New York office for this week’s roundup.

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Court Holds that Willful Failure to File FBAR Standard is the Lesser Standard of Recklessness

On December 2, 2016, the US District Court for the Central District of California found that taxpayers who failed to file a Report of Foreign Bank and Financial Accounts (FBARs) for three foreign accounts, one of which, in the court’s view, was intentionally kept secret from all persons except their children, for over a decade were “at least recklessly indifferent to a statutory duty.” Read more about the case here. The court found that the taxpayers were “sophisticated,” pointing to evidence that they ran a successful camera shop, and that they lacked credibility having made several misrepresentations on their failed attempt to apply to the Offshore Voluntary Disclosure Program (OVDP) and for making unbelievable assertions at trial. The court did not apply the heightened standard of willfulness applicable to criminal trials, a violation of a known legal duty, finding that civil trials apply the lesser standard of reckless disregard of a statutory duty. Additionally, the court rejected the defendants’ argument that the government had to show willfulness under the clear and convincing standard of proof and applied the typical civil preponderance of the evidence standard of proof. The taxpayers’ lawyer has stated that they will appeal the decision.

Practice note: Ensuring that OVDP applications are complete and truthful is crucial to their acceptance and, as demonstrated here, can and will be used against the taxpayer in any later proceedings. The taxpayers in this case had a number of factors working against them, and, as shown here, offshore reporting cases will often turn on their own specific facts. As more and more FBAR enforcement cases are being docketed around the country, it will be interesting to see whether reviewing courts will apply a uniform standard for willfulness under the FBAR statute.

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IRS Requires “Whole Story” from Taxpayers Seeking to Qualify under Streamlined Filing Compliance Procedures

The Internal Revenue Service (IRS) recently modified the non-willfulness certification form that individual taxpayers must submit to enroll in the streamlined filing compliance procedures (SFCP).  One requirement under the SFCP is that that the taxpayer certify that his or her failure to disclose foreign assets was not due to willful conduct.  Before the recent change, the IRS only provided minimal direction, which caused it to receive non-willfulness narratives that did not provide adequate information.  This resulted in certifications that were either questioned or rejected.

On February 16, 2016, the IRS revised the certification forms to include more robust direction and instructed the taxpayer to draft his or her non-willfulness narrative to include the whole story including favorable and unfavorable facts.  A more detailed analysis of the recent changes can be found here.

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