Offshore Voluntary Disclosure Program
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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…)




Cryptocurrency May Be Subject to US Tax: Come Into Compliance Now

Lately, we have been frequently asked the question: “I file US tax returns and pay taxes here. Are my cryptocurrency transactions taxable or reportable in the US?”

The answer for US persons and US taxpayers most likely is “yes.” US persons are generally taxable on income earned worldwide, regardless of the manner in which that income is paid (e.g. currency (foreign or domestic) or property (tangible, intangible or virtual)). Thus, if you have bought, sold or exchanged cryptocurrency, those transactions could be subject to federal tax. If your cryptocurrency is held offshore, a number of offshore reporting obligations could also apply to these holdings.

Now is the right time to come forward and resolve any US compliance issues related to your cryptocurrency holdings. As we have seen in recent cases like the Coinbase summons enforcement proceeding (which we reported upon in several previous posts), the Internal Revenue Service (IRS) has stepped up its enforcement efforts regarding undisclosed interests in cryptocurrency worldwide.

How should you come forward? Following an IRS-attended conference earlier this year, comments began circulating that the IRS was considering the creation of a formal voluntary disclosure program for cryptocurrency transactions, similar to the now-ended Offshore Voluntary Disclosure Program. (We reported on that program numerous times, here.) Unfortunately, the IRS has now squashed this rumor, stating that “IRS is not contemplating a separate program related to offshore [virtual] currencies.” A domestic program was not even mentioned.

Despite this news, a number of disclosure options remain available for bringing your US and foreign cryptocurrency into compliance. The IRS’s longstanding voluntary disclosure policy remains in full force and effect. This policy acts to reduce or eliminate the risk of criminal prosecution related to nondisclosure of domestic or foreign taxable assets, and can provide avenues to reduce civil penalties as well. Further, the IRS’s Streamlined Filing Compliance Procedures and Delinquent International Information Return Procedures are still active and may provide reduced (or no) penalties for US international tax non-compliance in appropriate cases.

Practice Point: Beyond the short answer of “yes, cryptocurrency is taxable,” a number of open questions regarding the taxation and reporting of cryptocurrency in the US remain. For example, determining what offshore crypto holdings are subject to FBAR and Form 8938 reporting remains complicated and unclear. Also, although tax reform has eliminated the use of Section 1031 exchanges to avoid currently being taxed for personal property like cryptocurrencies, the IRS’s position on exchanges that occurred prior to 2018 is still unknown. There are also open valuation questions, particularly for crypto accounts subject to access limitations like lock-up periods. The tax treatment of so-called hard and soft “forks” is also unclear. Finally, crypto exchanges are navigating a number of open reporting and compliance issues. If you have significant holdings in cryptocurrency, consult with a federal tax advisor who understands the tax aspects of this unique asset to [...]

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Weekly IRS Roundup September 3 – 7, 2018

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 3 – 7, 2018:

September 4, 2018: The IRS reminded taxpayers that they have until September 28, 2018, to apply for the Offshore Voluntary Disclosure Program.

September 5, 2018: In response to taxpayer inquiries, the IRS clarified that taxpayers generally can deduct business-related payments to charities or governmental entities even if they also receive a state or local tax credit.

September 6, 2018: The IRS released a Practice Unit on “Determining an Individual’s Residency for Treaty Purposes.”

September 6, 2018: The IRS published Revenue Procedure 2018-47, which provides guidance to regulated investment companies regarding the application of the section 4982 excise tax to amounts included in income under the new Internal Revenue Code (Code) Section 965 transition tax.

September 7, 2018: The IRS published Revenue Ruling 2018-25, establishing the interest rates applicable to over- and under-payments of tax.

September 7, 2018: The IRS released PMTA 2018-016, concluding that it can use it math error authority, not only on intake and before refunds have been issued, but also anytime within the three-year statute of limitations period under Code Section 6501(a).

September 7, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Kevin Hall in our DC office for this week’s roundup.




IRS OVDP Ending | Time Is Now for Coming into US Tax Compliance – Especially for Those with Willfulness Issues

On March 13, 2018, the Internal Revenue Service (IRS) announced that it will begin ramping down the current Offshore Voluntary Disclosure Program (OVDP) and urged taxpayers with undisclosed foreign assets to apply for the program prior to its close on September 28, 2018. We have previously reported on developments in the OVDP.

Access the full article. 




Nominations Announced for Tax Court and IRS Commissioner

On January 23, 2018, President Trump announced his intent to nominate Courtney Dunbar Jones to the US Tax Court. He previously nominated Elizabeth Copeland and Patrick Urda on August 3, 2017.

Courtney Dunbar Jones is a senior attorney in the Tax-Exempt and Government Entities division in the Office of Chief Counsel of the Internal Revenue Service (IRS). If confirmed, she will assume the position left vacant by the 2016 retirement of Judge John O. Colvin. Judge Colvin still performs judicial duties as a Senior Judge on recall.

On January 24, 2018, numerous press outlets announced that President Trump will nominate Charles “Chuck” Rettig of Hochman, Salkin, Rettig, Toscher & Perez, to serve as the next Commissioner of the IRS.

Rettig has been in private practice at Hochman, Salkin for more than 35 years and has a long record of leadership in our field. Among his many accomplishments, Rettig was instrumental in working with the IRS to establish key settlement initiatives over the last 15 years, including providing key practitioner guidance in designing the Offshore Voluntary Disclosure Program.

If confirmed, Rettig would helm an IRS that has been significantly reshaped by budget cuts and staff attrition in recent years. Rettig would also oversee the implementation of tax reform. Rettig has been a friend and mentor to many of us in the tax controversy bar over the years, and we are encouraged by the selection of someone from the private bar to the post.




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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A 360-Degree View: July and August 2017

Wrapping up July—and Looking Forward to August

Tax Controversy Activities in August:

August 7, 2017: Elizabeth Erickson and Kristen Hazel will be representing McDermott Will & Emery at the 2017 US Captive Awards in Burlington, Vermont. McDermott has been shortlisted in the Law Firm category.

August 8, 2017: Tom Jones is presenting an update on Captive Insurance Tax in Burlington, Vermont, at the Vermont Captive Insurance Association Annual Conference “Mission: Possible”— the largest captive insurance conference in the US by number of paid attendees.

August 18, 2017: Todd Welty is speaking at the Texas Society of Certified Public Accountants Advanced Estate Planning Conference about:

  • Current developments in federal transfer taxes
  • Current state of federal tax reform
  • Proposed changes to state death tax laws and the impact of those changes on estate
  • Gift and trust planning
  • Consistent basis regulations
  • The state of valuation discounts
  • Recent rulings on defined value clauses and charitable gifts

August 23, 2017: Tom Jones is presenting an update on Annual Federal & State Tax at the North Carolina Captive Insurance Association Annual Conference in Charlotte, North Carolina.

Wrapping up July:

Our July 2017 blog posts are available on taxcontroversy360.com, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, click here to subscribe to our email list.

July 14, 2017: Tracking Tax Guidance and Court Cases

July 17, 2017: New IRS CbC Resource

July 18, 2017: Courts Rejects Challenge to OVDP Transition Rules

July 19, 2017: Tax Court Rejects IRS Reliance on “Cursory” Analysis in Revenue Ruling

July 21, 2017: John Doe Intervenes in Virtual Currency Summons Enforcement Case

July 24, 2017: BEWARE: Whistleblowers Can “Out” You to the IRS!

July 26, 2017: Virtual IRS Appeals – A New Frontier?

July 27, 2017: IRS Rules (Again) That Taxpayers Are Not Entitled to Claimed Refined Coal Credits

July 28, 2017: Tax Court Hands Eaton a Complete Victory on the Cancellation of its Advance Pricing Agreements

July 31, 2017: Senate Attempts to Repeal Chevron Deference




Courts Rejects Challenge to OVDP Transition Rules

The Internal Revenue Service (IRS) currently offers non-compliant US taxpayers several different relief programs to report foreign assets and/or income to become compliant with US rules related to the disclosure of offshore income. See here for a link to the different options. The two main programs are the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures (SFCP). The IRS launched the OVDP in 2012 to enable a taxpayer with undisclosed foreign income or assets to settle most potential penalties he may be liable for through a lump sum payment of 27.5 percent of the highest aggregate value of the taxpayer’s undisclosed foreign assets for the voluntary disclosure period, which is the previous eight years. The OVDP replaced prior offshore voluntary disclosure programs and initiatives from 2009 and 2011. OVDP has a number of filing and payment requirements, including paying eight years’ worth of accuracy-based penalties. The IRS updated and revised the OVDP in 2014.

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