Monday, August 12, 2019

DC Magistrate Ruled That Willful FBAR Regulations are Invalid

On August 7, 2018 we posted Court of Claims Rejects Colliot & Wadhan: Willful FBAR Penalty Not Limited to $100,000, where we discussed that July 31, 2018 in Norman v. United States, Ct. Fed. Cl. Dkt 15-872, the Court held that the taxpayer Norman was liable for the FBAR willful penalty and this Court rejected the Colliot holding that the FBAR willful penalty was limited to a maximum of $100,000, because the regulations had not been changed to reflect the statutory amendment increasing the maximum FBAR willful penalty. 

Now another DC court has also rejected Colliot & Wadhan and concluded that the Willful FBAR Penalty Not Limited to $100,000 in Rum, (DC FL 8/2/2019) 124 AFTR 2d ¶2019-5113
A federal magistrate has recommended that a reg,which imposes a lower penalty for willful failure to file an FBAR than a more recent statute, be found invalid.

Under 31 USC 5314(a), every U.S. person that has a financial interest in, or signature or other authority over, a financial account in a foreign country must report the account to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR).
The penalty for violating the FBAR requirement is set forth in 31 USC 5321(a)(5)31 USC 5321(a)(5)(A) provides that the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation, of 31 USC 5314(a). The maximum amount of the penalty depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC 5321(a)(5)(B)(i)) The maximum penalty amount for a willful violation "shall be increased to the greater of" $100,000 or 50% of the balance in the account at the time of the violation. (31 USC 5321(a)(5)(C)31 USC 5321(a)(5)(D))
The penalty amounts described above reflect a 2004 law change that increased the maximum civil penalties that can be assessed for willful failure to file an FBAR. Before that change, the maximum willful penalty was $100,000. Regs that were promulgated before the statutory increase continue to reflect the former $100,000 maximum (as opposed to the "greater of $100,000 or 50%..."), even though these regs have since been renumbered and amended to account for inflation. (31 C.F.R. 1010.820(g); "the reg")
The Treasury Department has delegated the authority to enforce the assessment of civil FBAR penalties to the IRS. (31 CFR 1010.810(g)IR 2003-48)
A Texas district court held that 31 CFR 1010.820(g) can be applied consistently with 31 USC 5321(a)(5), and thus the reg has not been implicitly invalidated or superseded. The court therefore limited the penalty to the $100,000 limit in the reg. (Colliot, (DC TX 2018) 121 AFTR 2d 2018-1834) and a Colorado district court came to the same conclusion. (Wadhan, (DC CO 7/18/2018) 122 AFTR 2d 2018-5208)
The Court of Federal Claims, said that Colliot was wrongly decided and that the reg was invalid. (Norman, (Ct Fed Cl 7/31/2018) 122 AFTR 2d 2018-5089)
Crucially, the court said, the amended statute dictates that the usual maximum penalty "shall be increased" to the greater of $100,000 or 50% of the account. (31 USC 5321(a)(5)(C)(i)) Congress used the imperative, "shall," rather than the permissive, "may." Therefore, the amendment did not merely allow for a higher "ceiling" on penalties while allowing the Treasury Secretary to regulate under that ceiling at his discretion. Rather, Congress raised the new ceiling itself, and in so doing, removed the Treasury Secretary's discretion to regulate any other maximum.
The court said that "in order to be valid, regs must be consistent with the statute under which they are promulgated." Because 31 USC 5321(a)(5)(C)(i) mandates that the maximum penalty be set to the greater of $100,000 or 50% of the balance of the account, the reg is no longer consistent with the amended statute.
The IRS had found that Said Rum failed to file an FBAR for the 2007 tax year, and that the failure was willful. The account balance in question was over $1 million and the IRS assessed a 50% penalty under 31 USC 5321.
Rum argued that the maximum penalty should only be $100,000 as per 31 CFR §1010.820(g).
A federal magistrate, looking at ColliotWadhan, and Norman, found that 31 USC § 5321 has superseded 31 CFR §1010.820(g)(2). The magistrate found the reasoning of Norman persuasive and recommended that the reg be found to be no longer valid.
Have Undeclared Income from an Offshore Bank Account?
Been Assessed a 50% Willful FBAR Penalty?

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Student Faces $400K Crypto Tax Liability on Holdings Worth $125K

More specifically, this student recently took to Reddit to share his story and ask the cryptocurrency community for advice. In a post entitled ”Did I ruin my life by trading crypto?” the student recounted how this all began.

The student grew $5,000 to $880,000

He supposedly began investing in cryptocurrencies in May of 2017. This came after the student – who has decided to remain anonymous – heard that a friend to him was about to invest heavily in Ethereum.

”I said hell with it, signed up on Coinbase and threw $5000 into crypto. Mind you this is like half of my life savings, but in the grand scheme of things it’s not too much to lose,” the college student states in his Reddit post.

He notes that he subsequently ”struck gold a few times,” complete with ”hitting 10x’s on multiple alt coins”. In December of 2017, the anonymous student was sitting on a portfolio of cryptocurrency assets worth $880,000.

The author of the post points out that he has in hindsight regretted not realizing his gains.
”Now I should have listened. I should have cashed out, yes. Once I hit $1 million was going to… I would have been set. And then, JUST like that the market tanks going into the new year,” he writes.

Didn’t know about cryptocurrency taxes

Although the ensuing market downturn would be significant on its own, the author notes also making poor investment choices. ”I gambled in more than a few bad ICOs to start 2018, had some money in coins that absolutely plummeted with no chance of recovering, etc.”

Moreover, although the student’s current cryptocurrency portfolio is valued at around $125,000, he faces a tax liability of $400,000. This is due to his taxes being calculated at the end of the 2017 calendar year. His losses, however, have occurred during 2018.

He also mentions not having paid any taxes or filed any tax returns for 2017 yet. Neither did the student prepare any sort of financial buffer before the market downturn.

”I didn’t know anything about taxes so I never bothered to set aside anything. They really never do teach this stuff,” he recounts in the Reddit post.

Furthermore, the student is working part-time as a Barnes & Noble retail associate, making $12 per hour. He also shared a link to the 1099-K reported by Coinbase this spring, asking for advice on his situation.

The student also argued that all of his activity was crypto-to-crypto trades. Moreover, he didn’t ”ever cash out to fiat and transfer any USD into my bank accounts from these tradings.”

Several responding to the Reddit post have urged the student to consult with a Certified Public Accountant. Nevertheless, they also note that the results of this tax battle will likely ”not be a high point in [the college student’s] life.”

Have Tax Problems With Cryptocurrency?
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
for a FREE Tax HELP Contact us at: or or
Toll Free at 888-8TaxAid (888) 882-9243


J5 International Tax Hunt Continues!

On July 17, 2018 we posted The J5 International Tax Hunt is On!, where we discussed that the tax authorities of the UK, US, Australia, Canada and Netherlands have set up a joint committee to improve international enforcement against tax crime and money laundering.

The first meeting of the so-called J5 Group (Joint Chiefs of Global Tax Enforcement) was held during July 2018 where plans where developed to detect cyber criminals and enablers of offshore tax crime.

Now the heads of a five-nation group that’s cracking down on transnational tax crimes said On June 5, 2019 that their first year of collaboration has sparked new cases and sped development of existing ones but hasn’t yet led to a prosecution.

However, Group Members Said They Have Been Involved In Over 50 Investigations Involving
"Sophisticated International Enablers Of Tax Evasion, Including A Global Financial Institution and Its Intermediaries Who Facilitate Taxpayers To Hide Their Income And Assets."

In addition, details of “many investigations are on the way” even though they can’t be shared publicly now, said the U.S. member of the group, Don Fort, chief of the Internal Revenue Service’s Criminal Investigation unit.

Fort and his four counterparts in the Joint Chiefs of Global Tax Enforcement gave reporters in Washington, D.C., an update on their work since they formed the so-called J5 in July 2018.


“A year in, there’s a lot of thirst for specific information, but to ruin the surprise for you now: We don’t have specific case information,” the IRS chief said.

Fort added that he and the other tax enforcers had spent the first of their two-day conference in the U.S. capital discussing the need for patience in developing criminal cases that cross borders and are inherently complex.

“I can speak for my own organization,” Fort said, referring to the IRS Criminal Investigation unit.

“The average amount of time it takes to bring a criminal case and refer that to the Department of Justice is about a year and a half.”

He added, “We’ve only been in existence a year, and many of those first months were spent setting up the infrastructure of the various groups” within the J5.
Working within existing treaties and laws, J5 countries shared information and were able to open new cases, more rapidly develop existing cases in the enforcement process, and find efficiencies to reduce the time it takes to work cases.”

The group claims there have been more data exchanges between J5 partner agencies in the past year than the previous ten years combined. While working within existing treaties and laws, that shared information means that the members can open new cases more quickly, develop existing cases more rapidly, and find efficiencies to reduce the time it takes to work cases.

Hans van der Vlist, General Director FIOD, praised the group’s cooperation, saying that it is “becoming more effective and operational.” He noted that just two weeks ago, they were able to remove an important online mixer for cryptocurrencies and are now analyzing the mixer’s information. Online mixers are companies that pool cryptocurrency funds together and create a series of new transactions - allegedly to hide the source of the funds. In that way, it’s like an ultra-sophisticated version of money laundering.

Those successes, Fort told reporters, were due to the tax enforcement chiefs being able to contact each other directly about high-priority cases, and to their lines of direct communication with J5-assigned investigators within their agencies.

“We’re cutting out a lot of the red tape and middle-management levels to make sure that we’re dealing with our priorities,” he said.

More resources have been pledged to the group from its member governments this year as the J5 focuses on “enablers” of international tax evasion as well as crime that overcomes cybersecurity safeguards or involves cryptocurrencies.

The latter priority was highlighted during the enforcement chiefs’ Washington conference with a series of training sessions, hosted by the IRS at the World Bank, in detecting transnational tax crimes on the dark web. A total of 120 law enforcement officers from 20 countries took part in the training.

Beyond tax evasion, “highly harmful, high-end enablers of tax evasion,” which were previously thought to be beyond the reach of the member countries, are also responsible for fraud, money laundering and smuggling — all areas of J5 cooperation, according to the group.

“When we launched the J5, we were clear that we wanted to use our combined powers and expertise to close the net on offshore tax evaders, international organized crime groups and those who help them. In just 12 months, that net has tightened with 18 suspected enablers in our sights and a further 50 cases in the pipeline,” said Simon York, director of the fraud investigation service of the U.K.’s HM Revenue & Customs.

“Tax crimes continue to evolve in their level of sophistication and complexity, which is why it is essential that we collaborate with our international partners to combat tax evasion,” said Stephane Bonin, director general of the Canada Revenue Agency.

Have Undeclared Income From an Offshore Account?
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Friday, August 9, 2019

The REAL Truth About Offirs in Compromise

My colleague Steve Klitzner posted in his newsletter The Truth About Offers In Compromise where he discusses the realities regarding Offers In Compromise. He goes on to state "In the real world, people and businesses settle for less all the time.  So when they come to Steve with a tax problem, they want to know if they can make a deal with the IRS. Who would turn down $90,000 to resolve a $100,000 debt?  The IRS, that’s who."
On April 15, 2019 we posted Know Your Choices to Pay Your Tax Bill! - Part 2, where we discussed that an Offer in compromise (OIC) is an agreement between a taxpayer and IRS that settles the taxpayer's tax liabilities for less than the full amount owed.  Taxpayers who can fully pay the liabilities through an installment agreement or other means, won't qualify for an OIC in most cases. IRS says that to qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
IRS may compromise a tax liability on any of the following grounds:
  1. Doubt as to liability. There must be a genuine dispute as to the existence of amount of the correct tax debt.
  2. Doubt as to collectibility. Such doubt exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.
  3. To promote effective tax administration. An offer may be accepted on this ground if: (a) collection in full of the tax owed could be achieved, but (b) requiring payment in full would either create an economic hardship, or would be unfair and inequitable because of exceptional circumstances. (Reg. § 301.7122-1(b))
To request an OIC, the taxpayer must apply using Form 656, Offer in Compromise. The taxpayer also must submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses.

A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).

The OIC application generally must be accompanied by a $186 application fee. However, the fee is waived for certain low income taxpayers or if the OIC is based on doubt as to liability. (Form 656-B, Notice 2006-68, 2006-31 IRB 105, Sec. 4.03)
Except with regard to offers filed by low-income taxpayers, or based only on doubt as to liability, an OIC must be accompanied by a nonrefundable payment that depends on how the taxpayer is offering to pay.
A taxpayer may propose to pay in a lump sum, i.e., an offer payable in five or fewer installments within five or fewer months after the offer is accepted. If such an offer is made, the taxpayer must include with the Form 656 a payment equal to 20% of the offer amount. This payment is required in addition to the $186 application fee.
A taxpayer may propose to make periodic payments, i.e., six or more monthly installments made within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment also is required in addition to the $186 application fee. (Code Sec. 7122(c)(1)).
Some people are just not eligible.  They own too much or earn too much.  For others, we can get an agreement where they pay as little as $100 to settle the entire debt. 
The IRS reported acceptance rate is 42%, but our success rate is better than that, because we only submit Offers for those who truly qualify for the program. 

Need a Real Offer in Compromise
To Settle Your IRS Taxes? 
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
for a FREE Tax HELP Contact us at: or or
Toll Free at 888-8TaxAid (888) 882-9243



Thursday, August 8, 2019

IRS To Cancel a 250,000 US Passports

On July 17, 2018 we posted Don't Be 1 of the 362,000 Americans Waiting To Have Their Passports Revoked Because They Owe Back Taxes!  where we discussed that the IRS issued Notice 2018-1 on January 16, 2018, which provides guidance for implementation of the new IRC 7345 and also discussed that the IRS webpage on Revocation or Denial of Passport in Case of Certain Unpaid Taxes contains the following alert:
Now IRS as indicated that at least 362,000 Americans have “seriously delinquent” overdue tax payments and will be denied passports or passport renewals if they do not pay the money they owe, The Wall Street Journal reports

Now as of August, the US Internal Revenue Service had started action to revoke the passports or residence rights of at least 260,000 US individuals.
The power to recommend passport revocation for serious tax defaulters was granted to the IRS under the Fixing America's Surface Transportation Act, signed into law in December 2015, but only brought into effect in February 2018. The Internal Revenue Service has stated it plans to use the power against US persons who owe more than USD51,000 in taxes and penalties.

However, first the IRS need to send the taxpayer either a Notice of Federal Tax Lien or a Notice of Intent to Levy. Taxpayers receiving either notice are entitled to appeal to a Collection Due Process hearing, to negotiate a resolution of this debt.

Second, the IRS can apply for a passport revocation or denial only if it first notifies the taxpayer of its intention, and allows 30 days for a response. It can go ahead with the application only if this request is ignored or not satisfactorily answered.

The IRS also uses Form CP508C  - Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department advising the taxpayer that:

We have certified to the State Department that your
tax debt is seriously delinquent.  

We show that you still owe > $51,000. 
This amount includes penalty and interest computed to
30 days from the date of this notice. 
Even then, the taxpayer can halt the revocation by agreeing to pay the tax in instalments, or by offering a compromise. And in the last resort, where revocation is granted, the State Department will not actually execute it until 90 days after the grant, giving the taxpayer time to resolve it.

Payment Of Taxes
If you can’t pay the full amount you owe, call 888 8TaxAid immediately to help you can make alternative payment arrangements such as an installment agreement or an offer in compromise to have your certification reversed. If you disagree with the tax amount or the certification was made in error, you should call 888 8TaxAid immediately! If you’ve already paid the tax debt, please send proof of that payment to the address on the Notice CP 508C.
If you recently filed your tax return for the current year and expect a refund, the IRS will apply the refund to the debt and if the refund is sufficient to satisfy your seriously delinquent tax debt, the account is considered fully paid. 

Passport Status

If your U.S. passport application is denied or your U.S. passport is revoked, the State Department will notify you in writing.  If you need your U.S. passport to keep your job, once your seriously delinquent tax debt is certified, you must fully pay the balance, or make an alternative payment arrangement to have your certification reversed.  

Once You’ve Resolved Your Tax Problem With The IRS,

The IRS Will Reverse The Certification Within 30 Days Of Resolution Of The Issue And Provide Notification To The State Department As Soon As Practicable.



If you’re leaving in a few days for international travel, need to resolve passport issues and have a pending application for a U.S. passport, you should call 888 8TaxAid immediately. If you already have a U.S. passport, you can use your passport until you’re notified by the State Department that it has been revoked. 
If your passport is cancelled or revoked, after you’re certified, you must resolve the tax debt by paying the debt in full, making alternative payment arrangements or showing that the certification is erroneous.
The IRS will reverse your certification within 30 days of the date the tax debt is resolved and provide notification to the State Department as soon as practicable.
Those who discover they have not been in compliance with their US tax obligations, including filing of income tax returns or FBAR reports, may avail themselves of the IRS Streamlined Offshore Procedure, which does not include the draconian FBAR penalty for Non-US Domiciliary's.
If You Face This Problem, You Should Consult with Experienced Tax Attorneys, As There Are Several Ways Taxpayers Can Avoid Having the IRS Request That the State Department Revoke Your Passport. 

 Want To Keep Your US Passport?

Contact the Tax Lawyers at 
Marini & Associates, P.A.

for a FREE Tax Consultation Contact us at:
Toll Free at 888-8TaxAid (888)882-9243.