Publications

Be Aware of 26 U.S.C. § 7216: You May, to Your Surprise, Be a Tax Return Preparer

By: Caroline Rule
The American Bar Association, Section of Litigation, Criminal Litigation Committee
November 15, 2018

If you are an attorney who practices in the criminal tax area, be aware of 26 U.S.C. § 7216, which makes it a crime for a tax return preparer to make unauthorized use or disclosures of a taxpayer’s tax return information.

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Tax Consequences of Settlement and Litigation Award Payments: Determining the Correct Treatment

By Eric Smith
The CPA Journal
November 2018 Edition

When an individual receives a settlement or litigation award payment, the likely first question is whether the payment is taxable. While CPAs may know that the answer will depend upon the claim underlying the lawsuit, several other questions can arise that will likewise depend on the facts and circumstances. These questions include: What about the treatment of attorney fees that will be paid out of the settlement or award payment? What if the individual’s attorney represents multiple parties to the lawsuit? Will the settlement or award payment be subject to withholding for income and employment taxes if paid by the individual’s employer?

Determining the correct treatment of settlement and litigation award payments is a multistep process requiring the determination
of the character of the payment and the nature of the claim that gave rise to it; whether the payment constitutes an item of gross income; if the payment relates to an employment claim, whether the payment is wages for employment tax purposes; and the appropriate reporting for the payment of any attorney’s fees.

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Offshore Account Holders Should Beware: The IRS Is Still Coming

By Christopher M. Ferguson
Tax Insider (October 25, 2018)
AICPA TheTaxAdviser

The recent end of the OVDP is not the end of IRS enforcement of undisclosed offshore accounts. For most of the past decade, the IRS has maintained a safe harbor for taxpayers who want to disclose offshore account holdings that may otherwise expose them to criminal penalties, and over the years, tens of thousands of taxpayers have availed themselves of the program. But on Sept. 28, the world changed for those who have not yet revealed their foreign accounts to law enforcement.

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Federal Courts Disagree On Whether The 50% Willful FBAR Penalty Is Illegal

By: Bryan C. Skarlatos & Michael Sardar
June - July 2018 Edition
Journal of Tax Practice & Procedure

Imagine a situation in which Congress passed a statute establishing civil penalties for certain conduct, including the maximum penalty that may be imposed for such conduct, and delegated enforcement of the statute to a federal agency. What if the federal agency issued a regulation stating the maximum penalty the agency would impose under the statute and then Congress later amended the statute to increase the maximum penalty the agency could impose, but the agency never changed its own self-limiting regulation? Would the agency be bound by its regulation, or could it ignore the regulation and impose the higher penalties authorized under the new statute?

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FBAR Filing For Non-U.S. Citizens

By: Wilda Lin
October 2018 Edition
The CPA Journal

Reports of Foreign Financial and Bank Accounts (FBAR) have gained prominence since the Department of Justice began investigating the accounts of Swiss banks, starting with UBS almost a decade ago. Who must file FBARs? Many people who own foreign accounts hail from other countries, and the answer to this question is not always obvious.

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Has the New Partnership Representative Been Granted Too Much Power?

By: Kevin M. Flynn
September 2018
The CPA Journal

On November 2, 2015, Congress enacted the Bipartisan Budget Act of 2015 (BBA), which contained sweeping changes to the Internal Revenue Code’s (IRC) partnership audit, litigation, assessment, and collection procedures. The BBA repealed the partnership audit and litigation rules enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which had governed the practice of tax advisors and the IRS for more than three decades. The BBA also replaced TEFRA’s partnership “tax matters partner” with a new “partnership representative,” in whom it vested vast powers, including the sole authority to act on behalf of a partnership and to bind all partners on partnership matters covered by the BBA. In light of these expanded powers, partners must carefully consider the person that they select to be the partnership representative. The failure to do so could be financially calamitous.

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Reporting Undisclosed Foreign Assets: The Clock Is Ticking

By: Michael Sardar
August 2018 Edition
The CPA Journal

On March 13, the IRS announced that it will close the Offshore Voluntary Disclosure Program (OVDP), effective September 28, 2018. In the announcement, the IRS encouraged taxpayers who need to disclose noncompliant and unreported foreign accounts and assets to come forward before the September deadline. Qualifying taxpayers who have unreported foreign accounts can still use the OVDP to come into compliance while avoiding the risk of criminal prosecution and minimizing otherwise applicable civil penalties, but only until that date. As of this writing, it not yet known whether the IRS will announce a new program or initiative to replace the OVDP. 

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Passport Revocation and Denial for Seriously Delinquent Tax Debts: New IRS Procedures Signal More Stringent Enforcement

By: Megan L. Brackney
The CPA Journal
July 2018 Edition

In January 2018, the IRS published procedures to begin enforcement of Internal Revenue Code (IRC) section 7345, which requires the State Department to deny the application for, or revoke the passport of, any individual whom the IRS certifies as having a “seriously delinquent tax debt.” IRC section 7345 was enacted on December 5, 2015, as part of the Fixing America’s Surface Transportation Act (FAST Act).

Prior to January 2018, the IRS had not been enforcing IRC section 7345, and there were many questions about how the passport revocation/denial process would work, such as whether there would be any additional exceptions, how the IRS would exercise its discretion, and how the IRS would interact with the State Department. Recently, the IRS has answered many of these questions through the issuance of Notice 2018-01 (Jan. 16, 2018), new Internal Revenue Manual (IRM) provisions, and updates on its website.

Now that the IRS has procedures in place to enforce IRC section 7345, it is important for CPAs to advise individual clients about this new and very serious consequence to being noncompliant with their tax liabilities. Below is a description of the provisions of IRC section 7345 and the IRS guidance, followed by answers to common questions that affected individuals may have.

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Tax Controversy Corner: Consider The Constructive Partnership Rules Before Reorganizing To Elect Out Of The BBA

By: Megan L. Brackney
Journal of Passthrough Entities
May - June 2018 Edition

The Bipartisan Budget Act of 2015 (the “BBA”) made substantial changes to the audit procedures for passthrough entities. The BBA repealed the prior rules for partnership audits and replaced them with a centralized regime that, in general, assesses and collects tax at the partnership level. Tax professionals have expressed concern that assessment and collection of tax at the partnership level is inconsistent with the long-standing rules of taxation of passthrough entities, and may have unpredictable and incongruous consequences. Not surprisingly, one of the first questions that partners and practitioners asked was “how do we get out this?” Treasury and the IRS, however, want most partnerships to be covered by the BBA, and thus the election out rules have been
a controversial aspect of the BBA.

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Reporting Virtual Currency Transactions to the IRS: Time May Be Running Out for Affected Taxpayers

By: Sharon L. McCarthy
The CPA Journal
May 2018 Edition

IRS Notice 2014-21, issued on March 25, 2014, made it clear that the IRS would treat virtual currencies that can be converted into traditional currency as property for federal income tax purposes (Notice 2014-21). This means that gain from the sale and exchange of virtual currency is subject to taxation. Given that many are attracted to virtual currency because of its anonymous nature, tax preparers should expect that individual clients might not volunteer information about virtual currency transactions at tax time. Recent events suggest, however, that the IRS is not sitting back and waiting for taxpayers to fully disclose their virtual currency activities. Failure to report such transactions may result in penalties and, potentially, criminal prosecution.

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