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Archive for Zachary Montgomery

Tough Luck, Taxpayer! – IRS Continues To Levy On Social Security Benefits

Zachary Montgomery - Tough Luck, Taxpayer!—IRS Continues to Levy on Social Security Benefits

Many taxpayers (if not all) would agree with the sentiment expressed on a wall plaque that recently caught my eye: “Dear IRS: I would like to cancel my subscription. Please remove my name from your mailing list.” That feeling is intensified for those taxpayers who owe the Internal Revenue Service money for back taxes. The IRS has various tools at its disposal to collect outstanding tax liabilities: notices, liens, personal visits, etc. However, levies are perhaps one of the most powerful tools (weapons?) the IRS wields against taxpayers. In a recent decision by the Eleventh Circuit Court of Appeals, the Court affirmed the lower court’s determination to dismiss the taxpayer’s lawsuit against the IRS. The IRS, the Court held, acted lawfully when it continued to collect the taxpayer’s Social Security benefits from a levy it issued prior to the ten-year collection statute expiration date.

Section 6331

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“Extreme Personal Hardship” Doesn’t Excuse Trust Fund Recovery Penalties

"Extreme Personal Hardship” Doesn’t Excuse Trust Fund Recovery Penalties

Trust Fund Recovery Penalties (or TFRPs) refer to the tax penalties assessed against the responsible person(s) of a business (e.g., directors, officers, etc.) that failed to collect, account for, or pay over taxes on behalf of its employees. As a result, the failure of a business to pay over employment taxes does not necessarily stop with the business. Directors and officers may be personally liable for their actions (or inactions) with respect to the business’ employment taxes. In a recent decision by the Fifth Circuit Court of Appeals, the Court affirmed the lower court’s determination that the president and owner of certain businesses was personally responsible for trust fund recovery penalties. Further, while the taxpayer experienced “extreme personal hardship,” as well as business difficulties, those circumstances did not excuse his underlying tax responsibilities.

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Ill and Illiterate – Torres v. Commissioner

Ill and Illiterate - Torres v. Commissioner

Distinguished physicist, Albert Einstein, once said, “The hardest thing in the world to understand is the income tax.” Likewise, the constantly growing Internal Revenue Code is difficult to understand. But perhaps it is even more difficult to understand when one cannot read, or one is suffering from a debilitating illness. In a recent memorandum opinion, the Tax Court dealt with a taxpayer who (1) argued that a deduction qualified under either Section 162 or 165, and (2) argued that he should not be subject to the addition to tax under Section 6651(a)(1). While the taxpayer’s inability to read and illness excused the assessment under Section 6651(a)(1), the taxpayer’s arguments to claim a tax deduction ultimately failed.

Sections 162 and 165

As a general rule, a trade or business shall be allowed a deduction for all of the ordinary and necessary expenses paid or incurred during the taxable year.[1] Expenses are “ordinary” if they are ordinary, usual, or customary or is related to a transaction of common or frequent occurrence for a given type of business.[2] Additionally, expenses are “necessary” if they are helpful and appropriate to the taxpayer’s business, though the expenses need not be essential.[3]

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Passport Revocation Challenges – Shitrit v. Commissioner

Passport Revocation Challenges—Shitrit v. Commissioner

Section 7345. Perhaps it’s the challenge it poses to U.S. taxpayers and their rights and freedoms (i.e., international travel). Perhaps it’s the type of method employed by the U.S. government to promote federal tax compliance. Or perhaps U.S. taxpayers don’t want to think about passport issues after being stuck inside for over a year. Regardless of the reasons, U.S. taxpayers continue to pose challenges to Section 7345 of the Internal Revenue Code. I covered one such challenge in a previous blog regarding the constitutionality of Section 7345: Is Section 7345 Constitutional? – Jones v. Mnuchin. However, in a recent memorandum opinion, the Tax Court dispensed with a taxpayer’s contest of certain tax issues related to Section 7345 based on mootness and jurisdictional grounds.

Section 7345, Generally

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Release The Kraken?—In Re Tax Liability Of John Does

Release The Kraken?—In Re Tax Liability Of John Does

No, I’m not referring to Laurence Olivier’s (or Liam Neeson’s) quote as Zeus in Clash of the Titans. The “Kraken” is actually a reference to Payward, Inc. dba Kraken—a digital currency exchange and trading platform. In one of its more recent investigations in the digital currency realm, the Internal Revenue Service is seeking information on cryptocurrency transactions (and the associated taxpayers) related to Kraken. Currently, the United States is seeking to serve John Doe summonses on Kraken to uncover helpful information as a part of its ongoing cryptocurrency investigation. However, such summonses are not without limit, as a federal court in California is currently evaluating whether the summons at issue conforms with the requirements of Section 7609(f).

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Be Careful: Tax Returns May Be Used As Evidence Against You—In Re Mallett

ZACHARY MONTGOMERY- FREEMAN LAW

Around this time of year, taxpayers (and CPAs) may be scrambling to file federal income tax returns or, at the very least, extensions. For many, seeing the current year’s tax return in the rear-view mirror provides a serious feeling of relief. However, taxpayers should pause before quickly hitting the “file” button. The information and representations provided on a federal tax return can later be used as evidence against the taxpayer. Here, a taxpayer sought bankruptcy relief related to a loan incurred for education. However, the bankruptcy court ultimately used the taxpayer’s representations and treatment of the loan (specifically, the interest) on her tax returns as an admission against her.

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Good News For The Taxpayer With Foreign Accounts—United States v. Boyd

Good News For The Taxpayer With Foreign Accounts—United States v. Boyd

In previous blogs, Freeman Law discussed recent federal cases related to 31 U.S.C. § 5321—specifically, whether Section 5321 authorizes the IRS to impose multiple non-willful penalties for the untimely filing of a single accurate FBAR that includes multiple foreign accounts. In United States v. Bittner,[1] the District Court for the Eastern District of Texas held for the taxpayer (i.e., non-willful FBAR penalties should be assessed on a per-reporting basis, not a per-account basis). For more information, see the following Insight Blogs: The Largest Non-Willful FBAR Penalty Case Ever? and Court Strikes Down Largest Non-Willful FBAR Penalty Ever. Now, that case is currently pending with the Fifth Circuit Court of Appeals.

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Is Section 7345 Constitutional? Jones v. Mnuchin

Is Section 7345 Constitutional?—Jones v. Mnuchin

There have been numerous constitutional challenges of U.S. tax laws since the Sixteenth Amendment was passed in 1913. As the Internal Revenue Code has grown over the years so have the court battles. A recent challenge involves Section 7345. According to that code provision, taxpayers who have “seriously delinquent tax debt” may have their U.S. passports denied, revoked, or limited. In a recent decision issued by a U.S. district court, the court found that Section 7345 was (and is), in fact, constitutional.

Section 7345, Generally

On December 4, 2015, former President Obama signed the Fixing America’s Surface Transportation Act (the “FAST Act”).[1] In an effort to promote tax compliance, Section 7345 was enacted by Section 32101 of the FAST Act.[2]According to Section 7345, if the Secretary of Treasury receives certification by the Commissioner of the Internal Revenue Service that an individual taxpayer has a seriously delinquent tax debt, the Secretary of Treasury shall transmit such certification to the Secretary of State for action with respect to the denial, revocation, or limitation of the individual’s passport.[3]

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TIGTA Recognizes Noncompliant Exempt Orgs May Be Flying Under The IRS’ Radar

TIGTA Recognizes Noncompliant Exempt Orgs May Be Flying Under The IRS’ Radar

According to 2019 data, the Internal Revenue Service recognized approximately 1.9 million tax-exempt organizations in the United States. Of this population, more than 263,000 of the organizations were identified as either churches or religious organizations. This likely accounts for why the Internal Revenue Service received nearly 1.6 million tax-exempt returns in 2019. Unfortunately, tax-exempt organizations, including charities and religious organizations, may perpetrate fraud and abuse federal tax laws. The Treasury Inspector General for Tax Administration (“TIGTA”) recently performed an audit to assess the effectiveness of the Internal Revenue Service’s efforts to ensure the compliance of tax-exempt organizations.

Section 501 and the EO Function Examinations Unit

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But, Your Honor, There’s A Coronavirus Pandemic, Part II—United States v. Ishmael

But, Your Honor, There’s A Coronavirus Pandemic, Part II—United States v. Ishmael

In a previous blog, I provided an overview of Section 3582(c) with respect to the modification of prison terms. In addition, I looked at two recent cases (United States v. Higa [Hawaii] & United States v. McGrath [Ohio]) that dealt with defendants who cited the COVID-19 pandemic in their respective motions for compassionate release. For more information on those cases, see the following Insight Blog: But, Your Honor, There’s A Coronavirus Pandemic – Higa & McGrath.

Now, another recent criminal case provides another data point with respect to defendants serving prison time related to tax crimes who file a motion for compassion release under Section 3582(c)(1)(A) and invoke the COVID-19 pandemic. This time the district court is located in Pennsylvania. And, this time the district court denied the defendant’s motion.

Compassionate Release, Generally

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But, Your Honor, There’s A Coronavirus Pandemic—Higa & McGrath

But, Your Honor, There’s A Coronavirus Pandemic—Higa & McGrath

While Texas was being pelted by snow and freezing temperatures and rolling blackouts, I decided to catch up on a little light reading related to tax crimes. Who doesn’t like good reading material when the house is pitch black and all you have is the glow from your phone’s display to light up the page? Nevertheless, I came across two recent court decisions—one in Hawaii, one in Ohio—whereby each defendant was serving prison time related to tax crimes and each defendant filed a motion for compassionate release under Section 3582(c)(1)(A) and each defendant invoked the COVID-19 pandemic. Two cases with similar backgrounds/fact situations are always interesting for comparison purposes. In this case, one court granted the defendant’s motion, while the other court denied the defendant’s motion.

Modification of Prison Terms, Generally

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Substitute Return Penalties Are Valid – Llanos v. Commissioner

Substitute Return Penalties Are Valid—Llanos v. Commissioner

Comedian Jerry Seinfeld one said, “The IRS! They’re like the Mafia, they can take anything they want!” It’s a sentiment probably shared by most U.S. citizens—much to the chagrin of taxpayers. As many now, the Internal Revenue Service is not limited in simply administering the Internal Revenue Code or collecting taxes from individuals. The Service’s power reaches farther than that. Its power also includes filing substitute tax returns on behalf of taxpayers—a veritable correction called upon when a voluntary tax system is not so voluntary. Additionally, the IRS also has the power to assess additions to tax and penalties in various circumstances. As the Ninth Circuit recently affirmed, the IRS has the power to assess such additions to tax and penalties on substitute tax returns it files on behalf of taxpayers.

Section 6651 Penalties, Generally

Generally, the Internal Revenue Service may assess certain additions to tax for failure to file tax returns or failure to pay taxes. Section 6651 prescribes the various situations and penalty amounts that is may assess as follows:

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