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Key Takeaways | Cryptocurrency Global Tax Enforcement: What Investors and Companies in the Industry Need to Know NOW

During a recent program discussing the latest government enforcement efforts related to cryptocurrency, we spoke with Gary Alford, one of the leading Internal Revenue Service (IRS) agents in their crypto enforcement efforts, Perry Carbone, Chief of the White Plains Office (US Attorney’s Office – SDNY) and Andy Cole, former Director of Specialist Investigations at HM Revenue & Customs in the United Kingdom, about how investors and companies in the virtual currency industry should address enforcement actions. Below are key takeaways from the conversation.

ENHANCED ENFORCEMENT – UNITED STATES

  • The time to act is now. The IRS and the US Department of Justice (DOJ) are collecting virtual currency data at a rapid pace while simultaneously moving forward with tax enforcement cases. The IRS Criminal Investigation (IRS-CI) revamped its operations to “do more with less” using new technology that will move investigations at a faster pace.
  • The IRS joined its civil and criminal units through Operation Hidden Treasure and is also working with outside experts in the field—along with specially-trained IRS agents—to pursue tax enforcement and asset seizure. This is a key agenda item for the US Department of the Treasury and is not going away any time soon.
  • The IRS and the DOJ expect taxpayers to comply voluntarily with all tax obligations. Despite these recent developments, US taxpayers have limited guidance from the IRS. Engaging with professionals in the space to evaluate the options available to taxpayers is crucial to assessing and ensuring compliance with cryptocurrency taxation.

INTERNATIONAL EFFORTS

  • Global collaboration is nothing new, but it is now on the rise. Agencies around the world are enhancing their cross-border information and resource sharing to investigate tax crimes efficiently and effectively. The J5, an important component of this global collaboration, is prepared to pool some of the world’s most sophisticated data analytical tools so that intelligence can be screened, searched and/or identified.
  • The Organisation for Economic Co-operation and Development (OECD) and its governing body will likely start requiring cryptocurrency exchanges to collect customer due diligence information. The window of anonymity around cryptocurrency transactions has closed rapidly in recent years.
  • The global Common Reporting Standard (CRS) has been in force since 2017. Under the CRS, tax authorities of over 100 countries (including most of the traditional “tax havens”) automatically exchange tax, account and payment information with each other in order to assist in tax collection and enforcement action.

FOR INDIVIDUALS

  • Moving forward, the “knowledge and willfulness” element needed for criminal cases will be much easier for the DOJ to prove because the “virtual currency question” is now at the top of Form 1040. The prominent location of this question is “a game changer” for criminal tax prosecutions.
  • Cryptocurrency tax crimes are no longer “add on” charges to other criminal prosecutions, such as narcotics or fraud crimes. The DOJ expects to bring independent cryptocurrency criminal tax cases and take these prosecutions to “the next level,” including prosecutions of more routine tax matters.
  • Individuals serving as board members on behalf [...]

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Weekly IRS Roundup April 5 – April 9, 2021

Presented below is our summary of significant Internal Revenue Serve (IRS) guidance and relevant tax matters for the week of April 5, 2021 – April 9, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 5, 2021: The IRS issued a news release announcing that it is mailing letters to certain taxpayers who claimed the 2020 Recovery Rebate Credit, explaining why they may be getting a different amount than expected.

April 5, 2021: The IRS issued a news release estimating that more than $1.3 billion of unclaimed income tax refunds are available to the estimated 1.3 million taxpayers who did not file a 2017 Form 1040 and reminding such taxpayers to file their 2017 returns before the May 17, 2021, deadline for claiming refunds.

April 7, 2021: The IRS issued a news release announcing a fourth round of Economic Impact Payments consisting of over 25 million payments totaling over $36 billion, bringing the total amount of disbursements under the American Rescue Plan of 2021 (ARPA) to more than 156 million payments worth approximately $372 billion.

April 8, 2021: The IRS issued Notice 2021-25 and an accompanying news release, providing guidance on the application of section 274(n)(2)(D) of the Code, a provision added by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 which provides for a temporary 100% deduction for food and beverages provided by a restaurant.

April 8, 2021: The IRS issued a news release reminding taxpayers who make estimated tax payments that the due date for the first estimated tax installment remains April 15, 2021.

April 8, 2021: The IRS issued a news release announcing various internal executive changes, including the appointment of Douglas O’Donnell as IRS Deputy Commissioner, Services and Enforcement, and Nikole Flax as Commissioner of the Large Business and International Division.

April 8, 2021: The IRS issued a news release reminding residents of US territories that, pursuant to recent legislation, they may be eligible to exclude up to $10,200 per person of unemployment compensation from gross income for the 2020 taxable year.

April 9, 2021: The IRS issued a news release announcing that, pursuant to ARPA, it was suspending the requirement that taxpayers repay excess advance payments of Premium Tax Credits.

April 9, 2021: The IRS issued a news release urging participants in abusive micro-captive insurance arrangements to exit the arrangements as soon as possible.

April 9, 2021: The IRS issued a news release reminding taxpayers that the deadline for filing the Report of Foreign Bank and Financial Accounts (FBAR) remains April 15, 2021.

April 9, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our Washington, DC, [...]

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Weekly IRS Roundup September 7 – September 11, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 7, 2020 – September 11, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

September 4, 2020: The IRS published Competent Authority Arrangements between the United States and the Republic of Serbia and the United States and the Commonwealth of the Bahamas. Each country previously signed an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA). The new arrangements establish procedures for IGA-related automatic exchange obligations and for the exchange of information.

September 9, 2020: The IRS publishing news release reminding self-employed individuals, investors, retirees and others with income not subject to withholding that third-quarter estimated tax payments for 2020 are due September 15.

September 9, 2020: The IRS announced that, as part of a larger effort to reach underserved communities, it is taking a number of aggressive steps to expand information and assistance available to taxpayers in additional languages, including providing the Form 1040 in Spanish for the first time.

September 10, 2020: The IRS published a notice and request for comments concerning United States gift (and generation-skipping transfer) tax return (Form 709). Form 709 is used by individuals to report transfers subject to the gift and generation-skipping transfer taxes and to compute these taxes. The IRS uses the information to collect and enforce these taxes, verify that the taxes are properly computed and compute the tax base for the estate tax. Comments are due on or before November 9, 2020.

September 10, 2020: The IRS published a notice and request for comments concerning Form 15254 (Request for Section 754 Revocation) which is a new form for a partnership to submit a revocation request from an election to adjust the basis of partnership property. Comments are due on or before November 9, 2020.

September 10, 2020: The IRS published a practice unit focusing on audit techniques for examiners assigned foreign earned income exclusion cases.

September 10, 2020: The IRS published a news release urging individuals who owe taxes but have not yet filed for 2019 to act now to avoid larger penalties that, by law, start after September 14.

September 11, 2020: The IRS released Internal Revenue Bulletin 2020-38, dated September 14, 2020, containing the following highlights: (1) Announcement 2020-15 (Exempt Organizations); (2) Announcement 2020-16 (Exempt Organizations); (3) Notice 2020-65 (Administrative, Employment Tax); (4) Notice 2020-68 (Employee Plans); (5) Revenue Procedure 2020-40 (Employee Plans); and (6) TD 9907 (Income Tax).

September 11, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s [...]

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Weekly IRS Roundup June 29 – July 3, 2020

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 29, 2020 – July 3, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

June 29, 2020: The IRS issued a news release announcing that the tax filing and payment deadline of July 15 will not be postponed. However, individual taxpayers may request an automatic extension of time to file until October 15. Individual taxpayers that file Form 1040 series returns must file Form 4868 by July 15 to obtain the automatic extension.

June 29, 2020: The IRS issued corrections to proposed regulations regarding the credit for carbon oxide sequestration under section 45Q. Among other changes, the IRS clarified that the applicable recapture period ends upon five years, and not three years, after the last taxable year in which the taxpayer claimed a tax code section 45Q credit.

June 29, 2020: The IRS published the 2019 IRS Data Book, which summarizes tax filings, revenue collections, taxpayer services, enforcement activities and agency operations. The IRS added new key information to the annual publication and addressed the agency’s response to COVID-19.

June 29, 2020: The IRS added new frequently asked questions regarding filing extension relief for Forms 1139 and 1045. The IRS clarified that Notice 2020-26, which grants a six-month extension to file Forms 1139 and 1045 for certain net operating losses (NOLs), applies to consolidated groups. The IRS also clarified that if Notice 2020-26 extended a taxpayer’s filing date to file Forms 1139 and 1045, and if the extended due date is a date on or after April 1, 2020, and before July 15, 2020, then the taxpayer will also receive relief under Notice 2020-23, which allows taxpayers to file Forms 1139 and 1045 until July 15, 2020.

July 1, 2020: The IRS issued a news release announcing that it added new retail partners that will accept cash payments for federal taxes owed by both individual and business taxpayers.

July 2, 2020: The IRS released proposed regulations and temporary regulations providing guidance regarding NOLs for consolidated groups. The temporary regulations permit consolidated groups that have acquired certain new members to elect to waive all or part of the pre-acquisition portion of certain losses where there is a retroactive statutory extension of the NOL carryback period. Public comments regarding the contemplated rules must be received by August 31, 2020.

July 3, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.




Weekly IRS Roundup October 7 – October 11, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 7 – October 11, 2019.

October 7, 2019: The IRS announced that taxpayers who requested the six-month filing extension should complete their tax returns and file on or before the October 15 deadline.

October 8, 2019: The Treasury and the IRS released the 2019–2020 Priority Guidance Plan that sets forth guidance priorities. This plan prioritizes implementation of the Tax Cuts and Jobs Act, Pub. L. 115-97, 131 Stat. 2054 and of the Taxpayer First Act, Pub. L. 116-25, 133 Stat. 981, enacted on July 1, 2019. In addition, the 2019–2020 Priority Guidance Plan reflects the deregulatory policies and reforms described in Section 1 of Executive Order 13789 (April 21, 2017; 82 FR 19317) and Executive Order 13777 (February 24, 2017; 82 FR 12285).

October 9, 2019: The Treasury and the IRS published a correction to a notice of proposed rulemaking (REG-104870-18) that was published in the Federal Register on September 9, 2019. The proposed regulations cover the timing of an income inclusion under section 451 and reflect changes made by the Tax Cuts and Jobs Act.

October 9, 2019: The Treasury and the IRS published a notice of public hearing on proposed regulations, which cross-references temporary regulations under section 245A that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations. The public hearing is being held on Friday, November 22, 2019. The IRS must receive outlines of the topics to be discussed at the public hearing by Monday, November 11, 2019.

October 9, 2019: The Treasury and the IRS issued proposed regulations that provide guidance on the tax consequences of the transition to the use of reference rates other than interbank offered rates (IBORs) in debt instruments and non-debt contracts. The proposed regulations address the possibility that an alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace an IBOR to which the terms of the debt instrument or other contract refers with a new reference rate could result in the realization of income, deduction, gain, or loss for federal income tax purposes or could result in other tax consequences. The proposed regulations will affect parties to debt instruments and other contracts that reference an IBOR.

October 9, 2019:  The IRS issued guidance on the taxation of cryptocurrencies by releasing Rev. Proc. 2019-24 and Frequently Asked Questions on Virtual Currency Transactions. For a more detailed discussion of this guidance, see our post here

October 10, 2019: The IRS published draft instructions for Form 1040 and the new Form 1040-SR available to taxpayers age 65 and older.

October 11, 2019: The IRS published its nonacquiescence with GreenTeam Materials Recovery Facility PN v. Commissioner, T.C. Memo 2017-122 and, generally, indicated it will not follow the decision in disposing of cases involving other [...]

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More IRS “Campaigns?! IRS Announces Six More Examination Campaigns

On July 19, 2019, the Internal Revenue Service (IRS) Large Business & International (LB&I) division announced the approval of six new campaigns. As in the past, the IRS stated that “LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” This brings the total number of campaigns to 59! LB&I’s campaign announcements and approved campaigns are available on the IRS’s website.

The six new LB&I campaigns are listed below, verbatim by title and description.

S Corporations Built in Gains Tax
C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners. (more…)




Weekly IRS Roundup February 18 – 22, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 18 – 22, 2019.

February 19, 2019: The IRS issued a news release promoting online resources for answering taxpayer questions, in light of high call volume during the period following Presidents Day.

February 19, 2019: The IRS issued a news release reminding farmers and fishermen to file Form 1040 and remit all taxes owed by March 1, 2019, if they had elected to forgo making quarterly estimated tax payments.

February 19, 2019: The IRS acquiesced to the decision only in Jacobs v. Commissioner, 148 TC No. 24 (2017), dealing with whether the Boston Bruins’ pre-game meals at away game hotels were de minimis fringe benefits under section 132(e)(2) of the Code.

February 21, 2019: The IRS issued a news release urging taxpayers to file reports of large cash transactions electronically, in lieu of filing a paper Form 8300.

February 22, 2019: The IRS released final regulations amending compliance monitoring regulations for the low-income housing credit of section 42 of the Code.

February 22, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our DC office for this week’s roundup.




Manafort Indictment Is a Good Reminder of FBAR Disclosure Requirements

On October 30, 2017, Paul Manafort Jr. was indicted for concealing his interests in several foreign bank accounts, as well as tax evasion and a host of other criminal charges.  The indictment reminds us how important it is to follow the strict guidelines of the reporting regime that the Internal Revenue Service (IRS) and the US Department of the Treasury have established to disclose foreign bank accounts.

Pursuant to the Bank Secrecy Act, a US citizen or resident (a US Person) is required to disclose certain foreign bank and financial accounts which he or she has “a financial interest in or signature authority over” annually.  This obligation can be triggered by direct or indirect interests; a US Person is treated as having a financial interest in a foreign account through indirect ownership of more than 50 percent of the voting power or equity of a foreign entity, like a corporation or partnership.  The US Person is required to annually disclose the interest on FinCEN 114, Report of Foreign Bank and Financial Accounts, which is commonly referred to as the FBAR.  The disclosure requirement is triggered when the aggregate value of the foreign account exceeds $10,000.  The form is filed with your federal income tax return.

The civil penalties for failing to timely disclose an interest in a foreign account can be severe, and in the case of willful violations, can reach up to 50 percent of the highest aggregate annual balance of the unreported foreign financial account each year.  The statute of limitations for FBAR violations is six years, and the willful penalty may be assessed for more than one year, creating extreme financial consequences for FBAR reporting failures.

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Fast Track Settlement Now For SB/SE Taxpayers

Today, the Internal Revenue Service (IRS) released Revenue Procedure 2017-25 extending the Fast Track Settlement (FTS) program to Small Business / Self Employed (SB/SE) taxpayers.  The IRS’s SB/SE group serves individuals filing Form 1040 (US Individual Income Tax Return), Schedules C, E, F or Form 2106 (Employee Business Expenses), and businesses with assets under $10 million.

FTS offers a customer-driven approach to resolving tax disputes at the earliest possible stage in the examination process. The program provides an independent IRS Appeals review of the dispute.  Under this approach, the IRS Appeals Officer acts as the mediator and has settlement authority.

The purpose of the program is to reduce the time to resolve cases and to provide the IRS Exam Team with the authority to settle cases based on hazards of litigation (which is generally reserved for IRS Appeals Officers).  FTS has been considered a great success by the IRS and many taxpayers.  The expansion of this successful alternative dispute resolution makes sense in light of the ever-shrinking resources of the IRS.




IRS Opposes Granting of Certiorari in Cases Addressing Definition of Return

Two petitions for certiorari pending before the Supreme Court of the United States ask the Court to resolve the question of whether a tax return filed after an assessment by the Internal Revenue Service (IRS) is a “return” for purposes of the Bankruptcy Code (BC). The answer to this question will determine whether a bankrupt taxpayer’s tax debts can be discharged or are permanently barred from discharge. According to these petitions, the courts of appeal are divided as to the answer.

BC § 523(a) generally allows a debtor to discharge unsecured debt, except for, inter alia, tax debts of debtors who: (1) failed to file tax returns; (2) filed fraudulent tax returns; or (3) filed late tax returns, where a bankruptcy petition is filed within two years of the date the late return was filed. See BC § 523(a)(1)(B)(i), (B)(ii), (C).

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