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Archive for Zachary Montgomery

Filing An IRS Whistleblower Claim – Insight From Director Hinman

Filing An IRS Whistleblower Claim – Insight From Director Hinman

The Tax Relief and Health Care Act of 2006 established the Whistleblower Office of the Internal Revenue Service (“IRS”). According to the IRS, the Whistleblower Office is responsible for assessing and analyzing incoming tips to maintain the integrity of the U.S. federal income tax system.[1] Moreover, the Whistleblower Office pays monetary awards to eligible individuals whose information is used by the IRS.[2] That is, taxpayers can personally benefit by providing to the IRS credible evidence of tax underpayments or violations of the internal revenue laws.

Overview of the Whistleblower Office

John Hinman serves as the new director of the Whistleblower Office. In a recent article released by the IRS, he provided a general overview of the Whistleblower Office as follows:

Our nation’s tax system is built on the principle of voluntary compliance. When this principle is observed, taxpayers file tax returns and pay their taxes timely and accurately without the need for compliance activity by the IRS. Voluntary compliance is aided by the knowledge that non-compliance with tax laws will be addressed through examinations, collection activities, criminal investigations and other tax enforcement work. The IRS uses increasingly sophisticated data analytics and other methods to detect non-compliance with tax laws, but we can’t find it all by ourselves. We need help from whistleblowers – people with firsthand knowledge of non-compliance who are willing to share what they know with us so we can investigate it when warranted.

The IRS Whistleblower Office was established by the Tax Relief and Health Care Act of 2006. Each year, the IRS receives thousands of award claims from individuals who identify taxpayers who may not be abiding by our nation’s tax laws. My office ensures that award claims are reviewed by the appropriate IRS business unit, determines whether an award should be paid and the percentage of any award, and ensures that approved awards are paid.

Since the inception of the Whistleblower Office in 2007, the IRS has paid more than $1.05 billion in over 2,500 awards to whistleblowers. The information provided by these individuals led to the successful collection of over $6.39 billion from non-compliant taxpayers. The awards paid to whistleblowers generally range between 15 to 30 percent of the proceeds collected and attributable to their information.[3]

Section 7623

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You Received An IRS Letter 6316, Now What?

You Received An IRS Letter 6316, Now What?

Audits are nothing new. Taxpayers may find themselves in the unfortunate situation of opening their mailboxes to an IRS examination letter. The IRS Letter 6316 (“Letter 6316”) is one such letter. The IRS issues these particular letters as part of its National Research Program, and the IRS is certainly issuing them—I have spoken with multiple taxpayers who have received such letters in the last few months alone. Taxpayers must pay attention to these letters, as well as others, and understand their rights and responsibilities with respect to each. Our firm has previously described other IRS notices/letters: You Received an IRS CP518 Notice, Now What?You Received an IRS CP504 Notice, Now What?You Received an IRS CP15 Notice (re: Form 3520 Penalty), What Now?You Received an IRS LT11 Notice (or Letter 1058), Now What?; and You Received an IRS Notice CP2000, Now What?. This article discusses the Letter 6316 and how a taxpayer should respond.

What is the Letter 6316?

Generally, a taxpayer receives the Letter 6316 from the IRS as part of the IRS’s National Research Program (“NRP”). The IRS letter’s first line states as much: “We’ve selected your federal income tax return for the tax period shown above for a compliance research examination.” Despite many taxpayers’ initial thoughts, the IRS examination letter is not necessarily spurred by errors or issues on the taxpayers’ federal income tax return(s).

According to the IRS, the IRS needs reliable compliance estimates to determine which key areas of noncompliance to address and which treatments to apply to maximize the use of its limited resources.[1] Consequently, data provided by NRP examinations give the IRS the information to meet these needs.[2]

The IRS expounds on NPR examinations in Notice 1332:

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You Received An IRS Notice CP2000, Now What?

You Received An IRS Notice CP2000, Now What?

You might receive an IRS Notice CP2000 (“CP2000”) in the mail. The IRS issues these particular notices to taxpayers based on discrepancies between tax return reporting and third-party reporting. Taxpayers must pay attention to these notices, as well as others, and understand their rights and responsibilities with respect to each. Our firm has previously described other notices: You Received an IRS CP518 Notice, Now What?You Received an IRS CP504 Notice, Now What?You Received an IRS CP15 Notice (re: Form 3520 Penalty), What Now?; and You Received an IRS LT11 Notice (or Letter 1058), Now What?. This article discusses the CP2000 and how a taxpayer should respond.

What is the CP2000?

Generally, a taxpayer receives the CP2000 from the IRS when his/her tax return does not match certain information reported by other third parties (e.g., employers, financial institutions, etc.). The IRS utilizes an automated system to compare the third-party information to a taxpayer’s tax return to identify potential discrepancies.[1] After a discrepancy is identified and reviewed, the IRS issues the CP2000, proposing certain adjustments to a taxpayer’s income, deductions, credits, and/or payments. The CP2000 prominently displays the following language at the top of page 1: We are proposing changes to your [year] Form 1040 tax return. This is not a bill.

The IRS describes (1) the purpose of these notices, (2) what a taxpayer needs to do, and (3) what kinds of property can be levied as follows:

What this notice is about

The income or payment information we have on file doesn’t match the information you reported on your tax return. This discrepancy may cause an increase or decrease in your tax or may not change it at all. The notice explains what information we used to determine the proposed changes to your tax return. . . .

What a taxpayer needs to do

Read your notice carefully. It explains the information we received and how it affects your tax return.

Complete the notice response form and state whether you agree or disagree with the notice. The response form explains what actions to take. (Your specific notice may not have a response form. In that case, the notice will have instructions on what to do). You can return your response by:

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You Received An IRS LT11 Notice (or Letter 1058), Now What?

You Received An IRS LT11 Notice (or Letter 1058), Now What?

IRS LT11 Notices (“LT11”) and Letters 1058 are no laughing matter. The IRS issues these particular “final” notices to taxpayers before it takes certain levy actions. Taxpayers must pay attention to these notices, as well as others, and understand their rights and responsibilities with respect to each. Our firm has previously described other notices: You Received an IRS CP518 Notice, Now What?You Received an IRS CP504 Notice, Now What?; and You Received an IRS CP15 Notice (re: Form 3520 Penalty), What Now?. This article discusses the LT11 and Letter 1058 and how a taxpayer should respond.

What is the LT11/Letter 1058?

The LT11 and Letter 1058 are alternative forms of IRS final levy notices. Generally, a taxpayer receives the LT11 or Letter 1058 from the IRS after receiving a series of prior notices—CP503, CP504, CP504B, etc. These notices are generally what stand between the IRS and seizing a taxpayer’s assets.

The LT11 prominently displays the following language at the top of page 1: Notice of Intent to Levy and Your Collection Due Process Right to a Hearing. Similarly, the Letter 1058 includes the following language on page 1: Final Notice—Notice of Intent to Levy and Notice of Your Rights to a Hearing.

The IRS describes (1) the purpose of these notices, (2) what happens if a taxpayer does not respond, and (3) what kinds of property can be levied as follows:

What this notice or letter is about

We haven’t received your payment for overdue taxes. We intend to seize your property or rights to property. You must contact us immediately. . . .

What happens if I don’t respond to this notice of letter or don’t pay?

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A Win For Taxpayers—Section 6330(d)(1) Is A Nonjurisdictional Deadline

A Win For Taxpayers—Section 6330(d)(1) Is A Nonjurisdictional Deadline

Collection Due Process Hearings And Jurisdiction

Collection Due Process (“CDP”) hearings are crucial to taxpayers. Taxpayers have a right to a Collection Due Process hearing with the IRS Independent Office of Appeals before levy action is taken. According to the IRS, a “CDP hearing is an opportunity to discuss alternatives to enforced collection and permits you to dispute the amount you owe if you have not had a prior opportunity to do so.”[1] When a taxpayer receives a notice of determination from IRS Appeals, the taxpayer has 30 days to petition the U.S. Tax Court. The U.S. Supreme Court in Boechler, P.C. v. Commissioner recently held that a Tax Court petition may still be considered by the Tax Court even if it is late. 

I.R.C. § 6330(d)(1) – Collection Due Process Hearings

The statute at issue in Boechler is Section 6330(d)(1). For reference, the statutory language is reproduced below:

(d) Proceeding after hearing.

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Supreme Court Update On Tax Cases (March 1, 2022)

Supreme Court Update On Tax Cases (March 1, 2022)

Multiple federal tax cases continue to make their way to the U.S. Supreme Court, and it has certainly been interesting to monitor changes and updates to the Court’s docket. I previously wrote a blog on the oral arguments held on January 12, 2022, in Boechler, P.C. v. Comm’r[1] that addressed whether the time limit in Section 6330(d)(1) is a jurisdictional requirement for Tax Court petitions. See CDP Proceedings—Is the Time Limit in Section 6330(d)(1) a Jurisdictional Requirement for Tax Court Petitions?. Even Freeman Law is awaiting the Court’s decision on its Petition for Writ of Certiorari in   Rivero v. Fidelity Invs., Inc.[2] Last week, however, the Supreme Court denied certiorari for three tax cases described in more detail below.

Supreme Court Tax Case Denials

On February 22, 2022, the U.S. Supreme Court granted two petitions for a writ of certiorari. At that same time, it denied a multitude of other petitions, including three pertinent tax cases: (1) Maehr v. United States Dep’t of State; (2) Montero v. United States; and (3) Harris v. Comm’r of Internal Revenue.

  1. Maehr v. United States Dep’t of State[3]

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No Right to Intervene?—IRS Third-Party Summonses

No Right to Intervene?—IRS Third-Party Summonses

Third-party summonses. Taxpayers, individuals, and companies, alike, should be aware of the Internal Revenue Service’s (“IRS”) power to issue third-party summonses. Even more, interested parties should note that only parties who receive notice of a third-party summons may intervene in district court regarding the summons’ enforcement. In a recent decision, the Sixth Circuit Court of Appeals held that certain third parties were not entitled to notice of the summonses, and, therefore, the district court lacked subject-matter jurisdiction over the proceedings to quash the summonses.

Section 7609, Generally

Subchapter A of 26 U.S. Code, Subtitle F, Chapter 78, generally addresses the IRS’ procedures for “examination and inspection” related to the discovery of liability and enforcement of title. Section 7609 of the Internal Revenue Code addresses the special procedures related to third-party summonses. Section 7609 provides, in part:

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CDP Proceedings – Is the Time Limit in Section 6330(d)(1) a Jurisdictional Requirement for Tax Court Petitions?

CDP Proceedings - Is the Time Limit in Section 6330(d)(1) a Jurisdictional Requirement for Tax Court Petitions?

In the tax universe, deadlines are normal and expected. Most Americans are familiar with income tax filing deadlines (e.g., April 15th), and businesses are familiar with employment tax deadlines (e.g., January 15th). Statutory deadlines also apply to taxpayers involved in collections. When a taxpayer receives a notice of determination from IRS Appeals, the taxpayer has 30 days to petition the U.S. Tax Court. However, if the taxpayer files its petition late—even one day late—is the taxpayer completely barred from having the petition considered by the Tax Court? That issue is currently being considered by the U.S. Supreme Court in Boechler, P.C. v. Commissioner of the Internal Revenue Service.

Boechler, P.C. v. Comm’r,[1] Background

On June 5, 2015, the Internal Revenue Service (“IRS”) issued a letter to Boechler, P.C. (“Boechler”), noting a “discrepancy” between prior tax submissions. Not receiving a response, the IRS imposed a 10% intentional disregard penalty. Boechler, in turn, did not pay the penalty, and the IRS issued a notice of intent to levy. In response, Boechler timely filed a request for Collection Due Process (“CDP”) hearing but did not “establish grounds for relief” from IRS Appeals. Accordingly, on July 28, 2017, IRS Appeals mailed a notice of determination to Boechler, sustaining the levy—although the notice was not delivered until July 31, 2017. Per the notice (and per statute), Boechler had 30 days from the date of the notice to petition the U.S. Tax Court—i.e., until August 28, 2017.[2][3]

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IRS Criminal Investigation’s Top Ten Cases of 2021

IRS Criminal Investigation’s Top Ten Cases of 2021

Many (if not most) people and organizations approach a new year by setting new goals or implementing changes. This exercise, however, requires a reflection on the previous year’s events, successes, and failures. And government agencies are not exempt from taking time to reflect on the prior year’s accomplishments. IRS Criminal Investigation (CI) recently selected its “Top Ten Cases of 2021,” and the list involves quite a range of prominent investigations during the past tax year.

IRS CI, Generally

According to its mission statement, Criminal Investigation “serves the American public by investigating potential criminal violations of the Internal Revenue Code (IRC) and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.”[1] IRS CI’s four main strategies are compliance, money laundering, international, and terrorism.[2] Additionally, CI pursues investigations that align with its mission, considering factors, such as: whether the investigation is high profile, whether the investigation involves egregious allegations, the deterrent of the investigation, and conformity with the CI’s Annual Business Plan (ABP).[3]

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A Current “Playoff Picture” Of Non-Willful FBAR Violation

A Current “Playoff Picture” Of Non-Willful FBAR Violation

It’s that time of year again. Various football teams scramble at the end of the regular season for a chance at the playoffs. And with each game’s conclusion spectators get an updated “playoff picture” with respect to where each team stands. In that same spirit, as we begin 2022, it is helpful to see a “playoff picture” of the current legal landscape for FBAR violations, specifically non-willful violations. Certainly, football playoff games are more eventful than federal court decisions; however, such court decisions are no less impactful, particularly for those taxpayers with unreported foreign accounts.

FBARs, Generally

The Bank Secrecy Act, passed by Congress in 1970, authorized the Department of Treasury to collect certain information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions outside the United States. Further, in April 2003, the Financial Crimes and Enforcement Network (“FinCEN”) delegated its enforcement authority with respect to FBARs to the Internal Revenue Service.[1]

U.S. persons must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. For purposes of FBAR reporting, a “U.S. person” includes a citizen or resident of the United States, an entity created or organized in the United States or under the laws of the United States (including corporations, partnerships, and limited liability companies), a trust formed under the laws of the United States, or an estate formed under the laws of the United States.[2]

31 U.S.C. § 5321

A U.S. person may be subject to certain civil and/or criminal penalties for FBAR reporting violations. 31 U.S.C. § 5321(a)(5) states, in part, as follows:

(5) Foreign financial agency transaction violation.—

(A) Penalty authorized.—

The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.

(B) Amount of penalty.—

Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.[3]

Section 5321 also addresses penalties for willful violations, see 31 U.S.C. § 5321(a)(5)(C); however, this article is focused on the current landscape for non-willful violations and, specifically, what constitutes a violation.

Current FBAR Violations Map

FBAR Penalties

FBAR PENALTIES

 

Breakdown of Major Court Decisions

The following federal cases addressed the issue (either directly or in dictum) of whether non-willful FBAR violations apply per FBAR filing or per foreign account. Each decision was issued in 2021 (save one), and the majority decisions occurred during the fourth quarter.

  • United States v. Boyd, 991 F.3d 1077 (9th Cir. Mar. 24, 2021)—Largely setting the 2021 landscape for FBAR violations, Boyd squarely addressed the meaning of “violation” and held it applied per FBAR filing. Accordingly, this decision is reflected in solid red in each state that comprises the Ninth Circuit Court of Appeals. For more information and discussion on this decision, see our previous Insight Blogs: Good News for the Taxpayer with Foreign Accounts—United States v. Boyd and Recent FBAR Case Allows Multiple Penalties for Single Failure to File FBAR.
  • United States v. Bittner, 19 F.4th 734 (5th Cir. Nov. 30, 2021)Bittner also directly addressed the meaning of “violation” and decided a non-willful violation applied per account, putting the Fifth Circuit directly at odds with the Ninth Circuit. This decision is reflected in solid blue in each state that comprises the Fifth Circuit Court of Appeals. For more information and discussion on this decision, see our previous Insight Blogs: The Largest Non-Willful FBAR Penalty Case Ever?Court Strikes Down Largest Non-Willful FBAR Penalty Ever, and Why Taxpayers in Louisiana, Texas, and Mississippi Should Consider the IRS’s Streamlined Compliance Procedure Program Now.
  • United States v. Horowitz, 978 F.3d 80 (4th Cir. Oct. 20, 2020)—As noted by the Fifth Circuit in Bittner, the Fourth Circuit has suggested that it would take a per-FBAR-filing view, rather than a per-foreign-account view. See Horowitz, 978 F.3d at 81 (“[a]ny person who fails to file an FBAR is subject to a maximum civil penalty of not more than $10,000[.]”). Accordingly, this dictum is reflected in a checkered, red pattern in each state that comprises the Fourth Circuit Court of Appeals.
  • United States v. Solomon, No. 20-82236-CIV, 2021 WL 5001911, at *1 (S.D. Fla. Oct. 27, 2021)—Like Bittner(albeit a month prior), the U.S. District Court for the Southern District of Florida determined that non-willful FBAR penalties should be applied per foreign account. The Solomon decision has been appealed, so it remains to be seen how the Eleventh Circuit will rule (given the history of Boyd and Bittner). Thus, the map currently reflects a striped, blue pattern in the state of Florida—although any decision by the Eleventh Circuit on this issue will also affect Alabama and Georgia. For more information and discussion on this decision, see our previous Insight Blog: Beware of Your FBAR Obligations—U.S. v. Solomon.
  • United States v. Giraldi, No. 20-2830 (SDW) (LDW), 2021 WL 1016215, at *1 (D.N.J. Mar. 16, 2021)—Over a week before the Ninth Circuit’s decision in Boyd, the District Court for the District of New Jersey also held that non-willful FBAR penalties should apply per FBAR filing. Accordingly, this decision is reflected in solid red in the state of New Jersey.
  • United States v. Kaufman, No. 3:18-CV-00787 (KAD), 2021 WL 83478, at *1 (D. Conn. Jan. 11, 2021)—Like Boyd and Giraldi, the District Court for the District of Connecticut decided that non-willful violations should apply per FBAR filing, not per foreign account. Accordingly, this decision is reflected in solid red in the state of Connecticut. For more information and discussion on this decision (as well as others), see our previous Insight Blog: Do FBAR Penalties Survive Death? A Texas Court Says “Yes”.

Conclusion

It is apparent that various federal courts have taken divergent views on the term “violation” with respect to Section 5321—whether it should apply only to each taxpayer’s FBAR filing or whether it should apply to any foreign account held by a taxpayer. The Boyd and Bittner decisions create a direct federal appellate split on the issue. Additionally, the Solomon case will provide the Eleventh Circuit the opportunity to provide input on this issue. Regardless, the legal landscape for FBARs (and non-willful violations) is still in flux and the subject of much discussion. Whether this issue is ultimately addressed by the U.S. Supreme Court or by a change in the laws by Congress remains to be seen. However, one thing is certain: taxpayers should be mindful of their FBAR obligations in this current environment.

Have a question? Contact Zachary Montgomery, JD, CPA Freeman Law, Texas.

Beware Of Your FBAR Obligations – United States V. Solomon

Beware Of Your FBAR Obligations - United States v. Solomon

Free Attendee Ticket – Freeman Law International Tax Symposium

FBARs are no laughing matter. In recent years, the Internal Revenue Service, as well as other tax agencies around the world, have stepped up their efforts with respect to international civil tax enforcement. In particular, the Internal Revenue Service oversees investigations concerning FBAR compliance and assesses and collects civil penalties for those U.S. persons who fail to report foreign accounts. The penalties are steep—now a $12,921 maximum annual penalty. However, one relevant question is whether those penalties apply per FBAR filing or per account. In a recent decision by the Southern District of Florida, the Court determined that such FBAR penalties should be applied per account.

FBARs, Generally

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Section 6700 Penalties – False Or Fraudulent Statements

Section 6700 Penalties – False Or Fraudulent Statements

Promoting abusive tax shelters. Taxpayers and tax return preparers should be aware of the various penalties that exist and can be assessed for certain actions (or nonactions). One such action includes promoting an abusive tax shelter. In a previous blog, Freeman Law provided an expansive overview of tax shelter penalties: Tax Shelter Penalties: Listed Transactions and Reportable Transactions. However, in a recent memorandum, the Office of Chief Counsel of the Internal Revenue Service commented on what constitutes a “false or fraudulent” statement under Section 6700.

Section 6700, Generally

Under Subchapters A and B of 26 U.S. Code Chapter 68, taxpayers may be subject to certain additions to tax and assessable penalties. Taxpayers who promote abusive tax shelters can be subject to Section 6700 of the Internal Revenue Code. Section 6700 generally provides as follows:

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