Archive for May 16, 2013

IRS Criminal Investigation Annual Report

IRS Criminal Investigation (CI) released its Annual Report for fiscal 2012.

Investigations initiated (5,125) and prosecution recommendations were both up in fiscal 2012 compared to the prior year. Filings of indictments and other charging documents rose 13 percent. Meanwhile, convictions and those sentenced both gained roughly 12 percent (2,634) from 2011.  The Service was able to convict on 93% of the files opened. The 28-page report summarizes a wide variety of IRS CI activity on a range of tax related issues during the year ending Sept. 30, 2012.

Noticeably absent from the report is the concept that perhaps CI should have been investigating the Exempt Organizations function of the IRS.

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2013 Finance Act – Part 2 – Irish Tax System

Finance Act 2013 contains the legislative provisions for a number of changes to the Irish tax system under all the main tax heads including Income Tax, Corporation Tax, Capital Gains Tax, Excise, Value Added Tax, Stamp Duty and Capital Acquisitions Tax.

Due to the amount of changes it is not possible to detail each individual provision so I decided to focus on a cross section of amendments to give a general overview.  The legislative provisions I have selected will have an affect on most if not all Irish individuals whether resident and domiciled or resident and non-domiciled; employed or unemployed; retired or still working; self employed or PAYE workers; corporate structures or individuals, etc.  This is a ten-part Worldwide Tax Blog Series:

Universal Social Charge – Part 1

The Remittance Basis for Income Tax – Part 2

The Remittance Basis for Capital Gains Tax – Part 3

Taxation of Certain Social Welfare Benefits – Part 4

Mortgage Interest Relief – Part 5

Donations To Approved Bodies – Part 6

Farm Restructuring Relief – Part 7

FATCA – The US Foreign Account Tax Compliance Act – Part 8

Close Company Surcharge – Part 9

Stamp Duty – Part 10

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2. THE REMITTANCE BASIS FOR INCOME TAX

This legislative amendment was introduced as an anti-avoidance measure to ensure that an individual who is resident and/or ordinarily resident in Ireland but non-domiciled cannot avoid paying the correct tax on the remittance of income into Ireland. Read More

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First Drones… Now Robo Audits

In its continuing quest to collect more taxes, the IRS is targeting small business. For the past several years, individuals instead of being audited by a live human being, are being audited by computer and unresponsive mail audits. In order to get more money, the IRS is expanding this secret surveillance to audit small businesses. By using the Robo audits, the IRS can attack more small businesses, and attempt to collect more money.

The way this works is the IRS uses many of its matching computer information documents. For example, if you are a restaurant business and tips are put on credit card receipts, the IRS will track those tips, determine an average percentage and apply that as additional wages to your employees. This way they can collect more taxes from the employer in the form of 941 employment taxes, and they can also go after the employee to collect more income tax.

The problem with these audits is that there is no educated human being to speak to concerning the issues. Typically the IRS proposes an absurdly large amount of tax due by disallowing many of the proper deductions taken by the business and inflating the gross receipts. It sends a bill to the taxpayer and the taxpayer has a short period of time, 90 days, to file its case in US Tax Court. If not, the taxpayer is stuck having to try to come up with this huge amount of tax and infighting and expensive battle in the US Court of Federal Claims. Read More

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New Administrative Authority Issued In Connection To The Tax Treatment Of Repair & Maintenance Expenditures

On April 30of 2013, the Internal Revenue Service (hereinafter “the Service”) issued Rev. Proc. 2013-24, providing guidance pursuant to the Industry Issue Resolution Program (hereinafter “IIR Program”) for taxpayers that have a depreciable interest in steam or electric power generation property primarily used in the trade or business of generating or selling steam (e.g., or steam in the form of heat) or electricity.

Rev. Proc. 2013-24, Appendix A also provides safe harbor definitions of “units of property” and “major components” that may be used by taxpayers to determine whether expenditures to maintain, replace, or improve steam or electric power generation property must be capitalized under I.R.C. § 263(a).

Rev. Proc. 2013-24 further encompasses:

  • Procedures for obtaining automatic consent to change to a method of accounting that uses all, or some of, the safe harbor definitions of “units of property” provided within Appendix A; and
  • An extrapolation methodology within Appendix B outlines that an eligible taxpayer may use in connection with a change in method of accounting for determining the amount of an I.R.C. § 481(a) adjustment.

Read More

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Bitcoin Might As Well Be Gummy Bears

If you don’t know what Bitcoin is, then perhaps this is not the post for you.  Bitcoin is an online currency that can be mined and then traded between online users.  It’s a fairly new concept so that leads to questions about how it is taxed, but really it has a lot of similarities to gummy bears.

The Internal Revenue Code does not contain the word Bitcoin anywhere in it, so there is not exactly one Code section I can point to that has all the answers, but we can still apply the other Code sections to this new online currency.  The tax Code is quite clear that whether you receive cash, Bitcoin, or pounds of gummy bears, if you provide a service or sell a good and you receive something in return, whatever you received is income for you the day you receive it.  By accepting 742 pounds of gummy bears or 16 Bitcoins instead of $1,900 cash, you haven’t avoided taxes.  Income is still income regardless of what form it arrives in.  In that respect, Bitcoin is exactly the same as gummy bears.  The income is calculated the day you receive the Bitcoin, not the day you decide to cash it out.  Read More

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Happy Mother’s Day – Too Much Hype For and Against Living Trusts

A lifetime trust, also known as a living trust, can be the difference between people controlling their estate and being subject to the expense, confusion, and problems that sometimes affect unplanned estates.Nevertheless, a whole industry has grown around overselling living trusts when they are not really needed. Now, AARP and Kiplinger have gone in the other direction proclaiming that trusts are expensive and not needed. In the June 2013 Personal Finance issue, the newsletter gives really bad advice to avoid trusts.Frequently, as a tax attorney, I get a call from clients saying “what can we do with Mom’s assets? She has dementia, and is being influenced by an acquaintance or family member to give them chunks of money.” Unfortunately, it is too late. Unless the family wants to go to court with an expensive and embarrassing lawsuit to prove that their mom is incompetent, there is not much that can be done. Read More
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Bitcoin – Not for Avoiding Taxes

Bitcoin has become the rage in the past few months by the so-called asset protection industry. There have been claims that this cryptocurrency cannot be detected by governments and transactions are not taxable. Not true! 


Under the Internal Revenue Code, gross income means all income from whatever source. Trading Bitcoin currency for services or goods is clearly income for US Tax purposes. There is no argument. Just like bartering transactions, the question becomes “what is the value of the Bitcoin transferred?”  With Bitcoin, the answer is online.

If you want to transact business in Bitcoin that is your option. But, the transactions must be included in gross income or you will be committing tax fraud that can be easily proved by the government.

Anyone interested in tax planning and asset protection can get real results by consulting their tax lawyer.

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Making the AFR Work For You

Interest rates are crazy low.  Keeping your money in the bank is going to earn you less than 1 penny on the dollar each year.  That kind of sucks, but it does mean that the IRS published Applicable Federal Rate (AFR for short) is also quite low.  The May 2013 short-term (1-3 years) AFR is .20%, mid-term (3-9 years) is 1.0% and the long-term (9+ years) is only 2.6%.  Of course that’s only useful information if you understand what the AFR can be used for.

The AFR is basically the lowest acceptable rate that the IRS will allow for transactions.  If you are trying to buy a house and you are getting a loan from your parents for the down payment, there are a few options.  If your parents are trying to make money on this deal they will loan it at about the same rate the bank would – let’s say 5%.  If your parents aren’t really in it to make money (but they don’t want to outright gift it to you) and they just want to loan you the money so you can afford your first house, then the AFR might come into play. Read More

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Nexus Oddities of the Marketplace Fairness Proposal

On May 6, 2013, the Senate passed S. 743, the Marketplace Fairness Act (69-27). That is the farthest this bill has gotten in the past almost 20 years. President Obama has indicated he supports it, but it’s not clear if the House will act upon it or pass it.

Basically, this bill provides a mechanism where states can become authorized to collect sales tax from remote (non-present) vendors.

A “remote sale” is one where the vendor “would not legally be required to pay, collect, or remit State or local sales and use taxes unless provided by this Act.” A small seller exception applies for vendors with remote sales of $1 million or less in the prior calendar year.

S. 743 does not eliminate the longstanding, difficult issues of determining whether a vendor has sales tax nexus in a state. For example, if an employee is in the state for two days to help a customer, is nexus created? If yes, the vendor has sales tax collection obligations even without S. 743. If nexus is not created, sales into that state are used to determine if the vendor meets the small seller exception. Errors in knowing if a vendor has nexus may become more significant with S. 743. Read More

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How Can Theft Prevention, Reporting and Return Filing Be Improved?

Changing the April 15 due date, moving taxpayer information to the cloud, and allowing personal identification numbers (PINs) for taxpayers who want them were all on the table at a Thursday hearing held by the IRS Oversight Board to explore ways to combat fraud and improve tax administration. The board, composed of presidential appointees with tax, technology, or business expertise, advises the IRS on the best ways to meet taxpayer needs.

Fraud and Identity theft

Fraud and identity theft are still rampant, according to Michael Phillips, acting principal deputy inspector general, Treasury Inspector General for Tax Administration (TIGTA), who cited billions of dollars fraudulently claimed on refundable credits such as the American Opportunity tax credit. He said “the IRS recently prevented $12.1 billion of potentially fraudulent refunds from being issued, but more work needs to be done”.

Fraud comes in many forms, observed James R. White, director of tax issues for the United States Government Accountability Office (GAO). Given its many sources, such as failure to file, underreporting, and off-shore tax evasion, Read More

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