Freeman Law | TaxConnections

29 Jul 2021

A Summary Of The IRS’ Streamlined Filing Compliance Procedures

The IRS’ streamlined filing procedures were first offered by the IRS on September 1, 2012. Since that time, the IRS has made several revisions. A current summary of the IRS’ Streamlined Filing Compliance Procedures is discussed below.

Do I Qualify for the IRS’ Streamlined Filing Compliance Procedures?

To qualify for the IRS’ Streamlined Filing Compliance Procedures (either Domestic or Foreign), taxpayers must meet the following initial requirements:

The taxpayer must be an individual taxpayer or an estate of an individual taxpayer.
The taxpayer must certify in a narrative under penalties of perjury that the conduct was not willful. The relevant conduct requiring certification relates to not only the failure to report income and/or pay tax, but also to submit all required information returns, including FBARs (e., FinCEN Form 114).
The IRS must not have initiated a civil and/or criminal investigation of the taxpayer for any tax year.
The taxpayer must have a valid Taxpayer Identification Number (e., TIN).

For streamlined filings under the IRS’ Domestic procedure, the taxpayer must also meet the following requirements:

Written by Matthew Roberts | Posted in Freeman Law • IRS Streamlined Filing Procedure

15 Jul 2021

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

Opinion

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)?

Written by Jason Freeman | Posted in Freeman Law

09 Jun 2021

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

Written by Zachary Montgomery | Posted in Freeman Law • Passport Revocation Challenges

08 Jun 2021

Everything That You Need To Know About International Tax Penalties

International information return penalties are civil penalties assessed by the IRS against a United States person for failing to timely file complete and accurate international information returns required by specific Internal Revenue Code (IRC) sections. Those information returns cover a broad spectrum of reporting obligations, and include IRS Forms 5471, 5472, 3520, 3520-A, 8938, 926, 8865, 8621, 8858 and others.

U.S. taxpayers are required to report their worldwide income. International information returns require taxpayers to report information relating to foreign assets, interests in various entities, certain transactions, and information relating to foreign-sourced income.

Written by Jason Freeman | Posted in Freeman Law • International Tax Penalties

19 May 2021

Recent Tax Court Case: Unassessed Taxes Are Not Discharged In Bankruptcy

A recent Tax Court opinion demonstrates the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings. The case emphasizes the need for an attorney knowledgeable in both tax and bankruptcy cases to ensure that the the best, most-viable tax arguments are put forward in the proceedings.

A brief outline of the case is set forth below:

Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L

Opinion

Short Summary: The taxpayers challenged a proposed deficiency in the Tax Court related to their 2003 tax year. Prior to the Tax Court issuing an opinion, the taxpayers filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Columbia. The IRS participated in the bankruptcy proceedings and filed a proof of claim for tax deficiencies—however, the 2003 tax year was not included.

Written by Matthew Roberts | Posted in Bankruptcy And Taxes • Freeman Law

18 May 2021

The Tax Court Addresses The Origin-Of-The-Claim Doctrine And Legal Fees

A recent Tax Court decision addressed the deductibility of legal expenses and the so-called “origin-of-the-claim” doctrine. The Mylan decision demonstrates that the deductibility of a legal expense generally depends on the origin and character of the underlying claim or transaction out of which the legal expense was incurred. An expenditure, such as legal expenses, may be deductible in one setting but nevertheless required to be capitalized in another. Legal expenses directly connected with (or pertaining to) the taxpayer’s trade or business are deductible under I.R.C. Section 162 as ordinary and necessary business expenses, while expenses arising out of the acquisition, improvement, or ownership of property are capital expenditures under I.R.C. Section 263(a) and are not currently deductible.

Written by John Reyna | Posted in Freeman Law

06 Apr 2021

Taxes and Bankruptcy: Taxes In Bankruptcy Case

In re Minor; 127 AFTR 2d 2021-XXXX (DC CA); Case No. 2:20-cv-03626 (DC, C.D. CA)

This case involves taxes in a bankruptcy case that were priority taxes under the Bankruptcy Code.

The Debtor in this case filed for Chapter 7 bankruptcy in May, 2013 and received a discharge in May, 2015. In March, 2018, the IRS filed an amended proof of claim in the bankruptcy case for almost $26 million for unpaid federal income taxes owed by Minor for tax years 2007, 2008, 2009, and 2011 (the “IRS Claim”). The IRS Claim consisted of a secured claim of $24,857,210.48, a priority claim of $997,869.07, and an unsecured claim of $61,398.90.

The California Franchise Tax Board (“FTB”) also filed its own proof of claim, the details of which were not relevant for purposes of this case. What was relevant was that the bankruptcy trustee did not have enough funds to pay both the IRS and the FTB claims in full. Therefore, the bankruptcy trustee (“Trustee”), the IRS, and the FTB entered into a stipulation regarding the division of available funds (the “Stipulation”).

Written by Gregory Mitchell | Posted in Freeman Law • Taxes And Bankruptcy

18 Mar 2021

Tax Court In Brief: Case On Substantiation Of Expenses, And The Applicability Of Self-Employment Tax For Income Reported

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

The Week of March 8 – March 12, 2021

Clarence J. Mathews v. Comm’r, T.C. Memo 2021-28 March 9, 2021 | Wells, J. | Dkt. No. 11829-14

Short Summary: The case discusses the substantiation of expenses, and the applicability of self-employment tax for income incorrectly reported on a taxpayer’s tax return.

During 2011, Mr. Mathews (the taxpayer) worked for a trucking company. He also was a Minister of the Beulah Missionary Baptist Church. On his tax return, he reported his wage and pension income, but also included a Schedule C, Profit or Loss and stated that his profession was that of a Minister, reporting income and expenses mostly related to car and truck, repairs and maintenance and meals & entertainment.

Written by Jason Freeman | Posted in Freeman Law • Self-Employment Tax • Tax Law

11 Mar 2021

Freeman Law: The Tax Court In Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

The Week of March 1 – March 5, 2021

Brian D. Beland and Denae A. Beland | March 1, 2021 | Greaves | Dkt. No. 30241-15

Opinion

Short Summary: The Tax Court granted the taxpayers’ motion for partial summary judgment, on a finding that the IRS failed to secure timely written supervisory approval under section 6751(b)(1) of a civil fraud penalty under section 6663(a).

The taxpayer’s joint return was examined by the IRS following which the revenue agent had sent them a summons requiring their attendance at an in-person closing conference. The revenue agent provided the taxpayers with a completed, signed Form 4549, Income Tax Examination Changes, reflecting a Code Sec. 6663(a) civil fraud penalty. However, the taxpayers declined to consent to the assessment of the civil fraud penalty or sign Form 872, Consent to Extend the Time to Assess Tax, to extend the limitations period. Thereafter, the revenue agent obtained written approval from her immediate supervisor for the civil fraud penalty and sent the taxpayers a notice of deficiency determining the same.

Key Issue: Whether petitioners civil fraud penalty was timely approved by the revenue agent’s supervisor?

Written by Jason Freeman | Posted in Freeman Law • The Tax Court In Brief

09 Mar 2021

The Rahman Case Is A Cautionary Tale Of What Can Go Wrong Under The IRS Streamlined Filing Compliance Procedures

Introduction

The IRS recognizes that many taxpayers fail to timely and properly file income tax returns, information returns, and/or FBARs. Sometimes these failures are honest mistakes; but, other times such failures may be due to willful conduct.

The distinction between willful and non-willful conduct is an important one for purposes of certain programs the IRS offers to non-compliant taxpayers, i.e., the Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures (“Streamlined Procedures”). Taxpayers who have engaged in willful conduct are not permitted into the Streamlined Procedures. This is significant because the lookback period for prior years’ unpaid income tax and the amount of the penalty is generally lower under the Streamlined Procedures.[1]

Written by Matthew Roberts | Posted in Freeman Law • IRS Streamlined Filing • Voluntary Disclosure

04 Mar 2021

IRS Announces Tax Relief To Texans Due To Severe Winter Weather

One of the most devastating major winter storms in the history of the State of Texas has finally passed. Recognizing the significant emotional and financial toll the storm has taken on Texans, the IRS recently released an announcement indicating that residents and businesses in all 254 Texas counties may qualify for tax relief. See TX-2021-02 (Feb. 22, 2021). This Insight summarizes some of the more noteworthy relief provisions.

Postponement of Certain Tax Deadlines.

Both the Internal Revenue Code and the governing regulations provide authority for the IRS to provide relief to those affected by a federally declared disaster. Exercising this authority, the IRS has declared that certain taxpayers “that reside or have a business in all 254 Texas counties qualify for tax relief.” These taxpayers include:

Written by Matthew Roberts | Posted in Freeman Law • Texas • Texas Tax Relief

02 Mar 2021

Freeman Law: The Tax Court In Brief

The Week of February 22 – February 26, 2021

Llanos v. Commissioner | February 22, 2021 | Kerrigan, K. | Dkt. No. 8424-19L

Opinion

Short Summary: IRS assessed § 6702 penalties against petitioner for filing frivolous returns. Eventually the IRS issued a Final Notice of Intent to Levy, to which the taxpayer timely request a CDP hearing. At the CDP hearing, the petitioner indicated that he had not received the required notices of deficiency for the civil penalties. Petitioner did not request any collection alternatives. The settlement officer upheld the levy action, and petitioner filed in tax court. Tax court held for the IRS.

Key Issue: Whether petitioner made a “meaningful” challenge to the penalties so as to trigger a de novo review, and whether the levy action was appropriate.