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Archive for Jason Freeman

FBAR Penalties: Another Court Holds That FBAR Penalties Can Exceed The Regulatory Ceiling

FBAR Penalties: Another Court Holds That FBAR Penalties Can Exceed The Regulatory Ceiling

The Report of Foreign Bank and Financial Accounts (i.e., the “FBAR”) was for many years confined to the lonely backwaters of Title 31 of the United States Code—the intriguingly-named Bank Secrecy Act.  For years, compliance levels were abysmal.  But penalties were generally not enforced.  To put the situation in perspective, in the course of more than a decade, you could probably have counted the number of penalties assessed against non-compliant account holders on one hand—maybe, just maybe, two hands—at least according to contemporary reports from the Treasury Department to Congress.

But my how the times have changed.  FBAR penalties are most certainly enforced these days.  Some might argue that they are enforced with a vengeance—a vengeance that is disconnected with the purpose behind the FBAR filing requirement.  Truly, the penalties associated with failing to file an FBAR are among the most punitive civil penalties on the books.

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Tax Law Legal And Tax Update: Complimentary Webinar

Freeman Tax Law Webinar

Everyone Is Invited To Attend This Law Legal And Tax Update

You are invited to attend a Freeman Law Webinar hosted by lawyers Jason Freeman, Matthew Roberts, John Reyna and Greg Mitchell at 2:00PM Central Time (Texas) on Wednesday, July 28th 2021. Freeman will provide attendees a law legal and tax update.

The topics to be discussed include:

  • IRS Enforcement Trends And Cryptocurrency Updates
  • Excess Benefit Transactions And Reasonable Compensation
  • Lifting The Automatic Stay To Proceed With State Court Litigation
  • Tax Court Updates

Click Here To Attend Complimentary Webinar

Freeman Law Legal and Tax Update Webinar-
July 28, 2:00 pm CT

The FBAR (Report of Foreign Bank and Financial Accounts): Everything You Need to Know

The FBAR (Report of Foreign Bank and Financial Accounts): Everything You Need to Know
What is the Report of Foreign Bank and Financial Accounts (FBAR)?

Congress enacted the statutory basis for the requirement to report foreign bank and financial accounts in 1970 as part of the “Currency and Foreign Transactions Reporting Act of 1970,” which came to be known as the “Bank Secrecy Act” or “BSA.” These anti-money laundering and currency reporting provisions, as amended, were codified at 31 USC 5311 – 5332, excluding section 5315.

The Secretary of the Treasury subsequently delegated the authority to administer civil compliance with Title II of the BSA to the Director of FinCEN.  IRS Criminal Investigation (CI), however, maintains authority to enforce the criminal provisions of the BSA.

While FinCEN retains rule-making authority with respect to FBAR reporting, FinCEN redelegated civil FBAR enforcement authority to the IRS.

The FBAR regulations require that a United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, file an FBAR to report:

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Federal Court Imposes Willful FBAR Penalties On Long-Time CPA

Federal Court Imposes Willful FBAR Penalties On Long-Time CPA

In a recent decision, a federal district court found that a long-time CPA/tax-return preparer recklessly failed to file FBARs to disclose several foreign financial accounts.  As avid readers of our Insights are aware, many federal courts have found that reckless reporting failures are sufficient to impose “willful” FBAR penalties—and those penalties can be quite signficant.

The case was United States v. Kronowitz.  And it is yet another reminder that courts addressing FBAR reporting failures tend to look critically at the account holder’s background, including educational and professional.  Account holders with tax-related backgrounds or professionals with substantial business experience are often held to a higher standard.

The Foreign Accounts

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Like-Kind Exchanges of Cryptocurrency – Recent IRS Guidance

Like-Kind Exchanges of Cryptocurrency—Recent IRS Guidance

In a recent Chief Council Advisory, the IRS found that certain cryptocurrencies did not qualify as like-kind exchanges under section 1031 prior to the Tax Cuts & Jobs Act of 2017.  The IRS’s ruling, while limited to coin exchanges involving Bitcoin, Ether, or Litecoin, provides insight on the IRS’s current thinking on the subject.

The ruling presented the following stated question: If completed prior to January 1, 2018, does an exchange of (i) Bitcoin for Ether, (ii) Bitcoin for Litecoin, or (iii) Ether for Litecoin qualify as a like-kind exchange under § 1031 of the Code?

The ruling set forth the following conclusion: No. If completed prior to January 1, 2018, an exchange of (i) Bitcoin for Ether, (ii) Bitcoin for Litecoin, or (iii) Ether for Litecoin does not qualify as a like-kind exchange under § 1031 of the Code.

Background on Virtual Currency

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The Tax Court in Brief: Independent Contractor Case

The Tax Court in Brief: Independent Contractor Case

Delgado v. Commissioner, T.C. Memo. 2021-84 | July 7, 2021 | Greaves, J. | Dkt. No. 191-20

Short Summary

Two companies paid the Petitioner for services performed as an independent contractor.  The companies submitted Forms 1099-MISC, Miscellaneous Income, to the IRS reporting the payments.  For the tax period, the Petitioner timely filed two Forms 1040EZ, Income Return, reporting zero income.  Based on the two Forms 1099-MISC it received, the IRS issued a Notice of Deficiency, which provided an increase in tax liability as well as a section 6662(a) penalty.  Petitioner timely petitioned the court for redetermination based on the Petitioner’s interpretation of section 7701(a)(26).

Key Issues:

  • Whether the IRS’s determination of the Petitioner’s tax liability and accuracy-related penalties is correct?
  • Whether the Petitioner engaged in a trade or business as defined by section 7701(a)(26)?

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The Rescission Doctrine: Unwinding A Transaction For Tax Purposes

The Rescission Doctrine: Unwinding A Transaction For Tax Purposes

What are the tax consequences of unwinding a transaction?

And just when, if ever, is a taxpayer entitled to the transactional equivalent of a mulligan—a do-over?  The ability to unwind a transaction depends upon the particular facts and circumstances of the transaction and the manner in which a transaction is unwound and documented.  But where the requirements are met, the so-called “rescission doctrine” offers a potential avenue to unwind a transaction without tax consequences.

Where it applies, the rescission doctrine returns the parties to their original position—the status quo ante.  When the necessary conditions are met, in other words, the transaction is disregarded for federal income tax purposes.  A rescission may potentially be effected by mutual agreement of the parties, by one of the parties declaring a rescission of the contract without the consent of the other if sufficient grounds exist, or by applying to the court for a decree of rescission.”

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Battling The Counterfeiters: White-Collar Intellectual Property Enforcement

Battling The Counterfeiters: White-Collar Intellectual Property Enforcement

By: Jason B. Freeman, JD, CPA

Contributing Authors: Bryce Couch, Jessica Lee, Alexandra Duncan, and Vrinda Bhuta

This CLE paper explores criminal intellectual property violations.  There are a wide range of potentially applicable statutory provisions. Part One broadly discusses criminal copyright infringement, focusing on 17 U.S.C. Section 506 and 18 U.S.C. Section 2319. Part Two explores the Trademark Copyright Act, as well as its relation to its civil law counterpart, the Lanham Act, and its evolution since 1984. Part Three explores the theft of trade secrets, both those illegally obtained for the benefit of a foreign government, instrumentality, or agent and those merely sold for profit. Part Four explores the enactment of the Digital Millennium Copyright Act—a 1998 bill that responded to the increasing prevalence of web-based technology—highlighting the anti-circumvention and anti-trafficking measures necessary to prevent internet piracy. Part Five explores counterfeit and illicit labels, as well as counterfeit documentation and packaging, in the context of certain classes of copyrighted works under 18 U.S.C. § 2318. Part Six explores the sentencing guidelines for copyright claims under U.S.S.G. Section 2B5.3 and EEA claims under US.S.G. Section 2B1.1.

Criminal Copyright Infringement
I. Introduction: History and Purpose

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Tax Court In Brief: A Single Shareholder Corporation

JASON FREEMAN, JD - Tax Court Case

Bell Capital Management, Inc. v. Commissioner, T.C. Memo. 2021-74 | June 14, 2021 | Wells, J. | Dkt. No. 21714-07

Short Summary

A single shareholder (“Shareholder”) owned 100% of the stock and served as the sole director for the petitioner.  For a period of 5 years, petitioner paid the Shareholder wages until a change in compensation structure.  Moving forward, petitioner leased the Shareholder’s services through offshore employee leasing transactions (OEL transactions).  During this period, petitioner furnished Shareholder with space to perform personnel services, loaned Shareholder an automobile for business use, and provided health insurance benefits, at petitioner’s cost.  Additionally, Shareholder signed petitioner’s Form 1120S, in his capacity as president.  Shareholder, further, listed himself on an annual corporate registration as CEO, CFO and President, as well as, admitted such status to the SEC as part of a settlement.  After the years of exclusive service to the petitioner (“Years at Issue”), Shareholder began leasing his services to other operations.

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Tax Court In Brief: Short Summaries And Opinions

Tax Court In Brief: Short Summaries And Opinions

Ervin v. Commissioner, T.C. Memo. 2021-75 | June 23, 2021 | Lauber, J. | Dkt. No. 485-15

  • Opinion 

Short Summary

For nearly a decade, the taxpayer and his wife failed to file Federal income tax returns and made no payments.  The couple were indicted and convicted for tax evasion for a three-year period of the near-decade non-payment.  The following year, the taxpayer was ordered to pay restitution for the entire period of non-filing and non-payment.

After remanded to custody, the IRS completed a civil examination for the taxpayer’s individual income tax liabilities for a six-year period, which included years subject to the criminal court’s order for restitution. IRS prepared and certified a substitute for return for the relevant years. IRS, then, sent taxpayer two notices of deficiency for two three-year periods, providing for penalties.

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Tax Court In Brief: IRS Examination Of Joint Tax Returns

Tax Court In Brief: IRS Examination Of Joint Tax Returns

Martin v. Comm’r, T.C. Memo. 2021-35 | March 24, 2021 | Holmes, J. | Dkt. No. 10115-15

Short Summary:  The IRS examined the taxpayers’ 2009 and 2010 joint income tax returns.  After the exam concluded, the IRS issued a notice of deficiency determining the taxpayer had unreported income.  In addition, the notice of deficiency denied certain losses from prior years, disallowed certain deductions related to taxpayer-husband’s business, and determined that penalties were appropriate.

Key Issue:

  • Whether the taxpayers had additional, unreported income; were permitted to claim certain deductions; and were liable for the late-filing penalty and the accuracy-related penalty?

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Tax Court In Brief: What Happened When Tax Return Preparer Assisted Clients In Creating New Entity As S Corporation

Tax Court In Brief: What Happened When Tax Return Preparer Assisted Clients In Creating New Entity As S Corporation

Bailey v. Commissioner, T.C. Memo. 2021-55 | May 10, 2021, | Pugh, J. | Dkt. No. 5477-14

Short Summary

Mr. Bailey working as an unenrolled tax return preparer assisted clients (Uwe Zink and Gary Skuro) in creating a new entity, Interradiology, Inc. (Interradiology) organized under the laws of Arizona and elected to be treated as an S corporation for Federal tax purposes in 2017. Therefore, Mr. Bailey prepared and filed Forms 1120S, U.S. Income Tax Return for an S Corporation, for Interradiology for tax years 2007 through 2012. Also, he held 10% of the shares of Interradiology during the tax year 2008 and 20% during tax years 2009 through 2012.

Mr. Bailey prepared and filed petitioners’ Forms 1040, U.S. Individual Income Tax Return, for the years in issue. He timely filed their 2008 and 2012 Forms 1040, but he untimely filed their 2009, 2010, and 2011 Forms 1040 on March 9, 2011, November 29, 2011, and February 19, 2013, respectively. The 2010 and 2011 returns both reported tax due, which the IRS assessed before the issuance of the notices of deficiency for those years.

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