Zachary Montgomery | TaxConnections

22 Nov 2022

NRA Withholdings – No Guns, Just Taxes (It Is Not About The National Rifle Association, It Refers To U.S. Federal Taxes)

The term “NRA withholding” is not a reference to deductions from a person’s paycheck to support the National Rifle Association. Instead, it is a general term that refers to federal tax withholdings on payments of U.S.-sourced income to foreign persons under Sections 1441 to 1443 of the Internal Revenue Code. Foreign persons should be mindful of their tax filing and payment obligations under this regime.

NRA Withholding, Generally

As a general matter, a foreign person is subject to U.S. federal taxes on its U.S.-sourced income. A foreign person’s U.S. income (with certain exceptions) is subject to a U.S. tax rate of 30 percent.[1] The applicable federal tax is generally withheld (i.e., the NRA withholding) from the total payment submitted to the foreign person. Taxpayers should consider the following relevant areas associated with NRA withholdings:

Who Is Subject to NRA Withholding?

Written by Zachary Montgomery | Posted in NRA Withholding • U.S. Sourced Income

06 Oct 2022

TIGTA Finds IRS Is Not Always Following Procedures For Tax Liens

In 2021, the Internal Revenue Service filed 212,251 Notices of Federal Tax Lien (“NFTLs”). To provide perspective, in 2019 (i.e., pre-COVID-19 pandemic), the IRS filed 543,604 NFTLs. The IRS is working on ramping up its enforcement efforts; however, the IRS must follow certain procedures with respect to filing NFTLs against taxpayers. The Treasury Inspector General for Tax Administration (“TIGTA”) recently performed its annual audit to review the Internal Revenue Service’s legal compliance with respect to NFTLs. While TIGTA found general compliance by the IRS, it also noted several areas of improvement.

NFTLs and Section 6320(a)

Section 6320(a) of the Internal Revenue Code explicitly provides that the IRS must file a notice of lien, assuming it complies with certain restrictions on timing, service methods, and notice information. Specifically, Section 6320(a) provides as follows:

Written by Zachary Montgomery | Posted in IRC Section 6320(a) • Notice Of Federal Tax Lien • TIGTA

21 Sep 2022

Section 965 Tax Installment Payments Are Not Guaranteed

The Section 965 transition tax. Taxpayers with international earnings are still grappling with their reporting and payment obligations under the “deemed repatriation” tax after its enactment by the Tax Cuts and Jobs Act of 2017. For a general primer on the Section 965 transition tax, see Freeman Law’s previous articles: The Section 965 Transition Tax and The Section 965 Transition Tax And IRS Audits. Section 965 provides that a taxpayer may make an election to pay its tax liability in installment payments. However, as a recent Chief Counsel Advice noted, a domestic corporation that fails to report its Section 965 tax liability is not entitled to prorate its deficiency under Section 965(h)(4) of the Internal Revenue Code.

Section 965 Tax and Installment Payments, Generally

Generally, Section 965 requires that U.S. shareholders pay a tax on their pro rata share of the untaxed foreign earnings of certain “specified foreign corporations.”[1] That is, a specified foreign corporation’s subpart F income is increased for its last tax year beginning before January 1, 2018.[2] The income is subject to an effective tax rate of 15.5 percent or 8 percent.

Written by Zachary Montgomery | Posted in Freeman Law • Section 965 • Tax Installment Payments

14 Sep 2022

That’s Not Income! | REIT’s Section 481(a) Adjustments Not Considered Gross Income

Gross Income

Mark Twain once said, “Buy land, they’re not making it anymore.” Perhaps it is this sentiment (along with returns on investments) that has led to the popularity of real estate investment trusts. However, taxpayers should be mindful of the various requirements and restrictions related to real estate investment trusts, such as income and asset thresholds. Based on a recent Private Letter Ruling, the Internal Revenue Service (“IRS”) noted that certain income (Section 481 adjustments) related to a real estate investment trust would not constitute gross income and, therefore run afoul of the income limitations of Section 856(c)(2) and (3) of the Internal Revenue Code.

Real Estate Investment Trusts, Generally

Generally, real estate investment trusts (“REITs”) are companies that own, finance, and/or operate income-producing real estate. REITs offer investment opportunities to shareholders to earn income from real estate without personally purchasing and/or operating properties. However, to qualify as a REIT, a company must meet several requirements. Section 856(a) of the Internal Revenue Code defines a REIT as a corporation, trust, or association:

Written by Zachary Montgomery | Posted in Gross Income • REIT Section 481(a)

03 Aug 2022

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

Written by Zachary Montgomery | Posted in IRS Whistleblower Claim

12 Jul 2022

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:

Written by Zachary Montgomery | Posted in IRS Letter 6316

25 May 2022

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 2024 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:

Written by Zachary Montgomery | Posted in IRS Notice CP2000

10 May 2022

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?

Written by Zachary Montgomery | Posted in IRS LT11 Notice: Letter 1058

27 Apr 2022

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.—

Written by Zachary Montgomery | Posted in Section 6330(d)(1)

02 Mar 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.

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

Written by Zachary Montgomery | Posted in Supreme Court Tax Cases • Supreme Court Update

25 Jan 2022

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:

Written by Zachary Montgomery | Posted in No Right to Intervene?—IRS Third-Party Summonses

20 Jan 2022

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 15^th), and businesses are familiar with employment tax deadlines (e.g., January 15^th). 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]

Written by Zachary Montgomery | Posted in Collection Due Process • Freeman Law