When Money Costs Too Much: Section 8300 Filing Requirements and Penalties

By Megan L. Brackney
The CPA Journal
June 2020 Edition

The Internal Revenue Code and the Bank Secrecy Act (BSA) require that persons engaged in a trade or business file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, any time the business receives more than $10,000 in cash in a single transaction (or two or more related transactions) in the course of their trade or business [IRC section 6050I(a); 31 USC 5331] . The business must also furnish annual statements notifying the customers who made the payments that it reported the transactions to the IRS [IRC section 6050I(e)]. Congress enacted these reporting requirements in the 1980s to enable the IRS to monitor large cash transactions and detect money laundering schemes, and there are significant civil and criminal penalties for failure to comply.

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The Government’s New Stance That the Non-Willful Civil FBAR Penalty Applies to Every Account on an Untimely-Filed FBAR, Rather Than to the Single Untimely FBAR Form

By: Caroline Rule
Journal of Tax Practice & Procedure
Summer 2020 Edition

Recent litigation has focused on the government’s new position that the $10,000 non-willful civil FBAR penalty applies per account listed on an non-willfully untimely-filed annual FBAR—a Report of Foreign Bank or Financial Accounts that must be filed by a U.S. person “who has a financial interest in or signature authority over foreign financial accounts” if the aggregate value of the accounts “exceeds $10,000 at any time during the calendar year.” The FBAR is filed in the following calendar year. Until recently, the rule recognized by courts has been that the non-willful civil penalty applies per single untimely filed FBAR form, not per account listed on that FBAR.

This issue, of first impression in an appellate court, is pending before the Ninth Circuit in J. Boyd. The same issue is currently before the Eastern District of Texas in Bittner, and the Central District of California in Patel, et al

In Boyd, the taxpayer did not file timely FBARs reporting 13 foreign accounts, but was not willful. The government believes that it was proper when, “[i]n assessing the thirteen separate FBAR penalties against Boyd, the IRS treated each account that was not listed on a timely filed FBAR as a separate non-willful violation.” The District Court agreed, holding that: “Each non-willful FBAR violation relates to a foreign financial account, and the IRS may penalize each such violation with a penalty not to exceed $10,000.”

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Foreign Asset Reporting and U.S. Territories

By Usman Mohammad
The ABA Tax Times
Vol. 39 No. 3 - Spring 2020

Puerto Rico, American Samoa, Guam, The United States Virgin Islands, The Northern Mariana Islands—these are all United States territories or possessions. Individuals born in these territories are deemed by law to be either United States citizens or United States nationals. Yet these locations are separated from the contiguous United States by vast bodies of water. Many U.S. citizens from the contiguous United States have never been to any of the territories. Travel from the contiguous United States to any one of these territories involves a multiple-hour trip by either air or sea. In many ways, these locations seem foreign and exotic to most Americans.

The FBAR, Form 8938, Form 3520, Form 5471, Form 8621—these are all information reporting forms used to report various types of foreign assets to different bureaus within the U.S. Department of the Treasury, such as the Internal Revenue Service (the IRS) or the Financial Crimes Enforcement Network (FinCen). When most people think of “foreign” assets, they think of assets located in foreign countries, such as Switzerland, Israel, China, the United Kingdom, or Russia.

What about an asset—such as a bank account—located in a U.S. territory or possession? Is it a foreign or a domestic asset? The answer, unfortunately, is not so simple.

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Accounting for Sales with Contingent Obligations: Methods and Considerations

By Stephen A. Josey
The CPA Journal
May 2020 Edition

Typically, the sale of a capital asset held by an individual is a straightforward affair from a tax accounting perspective. Under the most common scenario, the buyer will offer a one-time cash payment to the seller in exchange for the subject property, and the seller will report the gain or loss on the property and, if there is a gain, pay tax on the gain subject to the applicable rate [Internal Revenue Code (IRC) sections 1, 1001]. If there is a loss, the seller can claim that loss against other capital gains, potentially apply a portion of the loss to offset ordinary income, and if any loss remains, carry that loss forward to future-year returns [IRC sections 1211(b), 1212(b)(1)].

What happens, however, when a sale contract provides for the possibility of payments outside of the year of the sale? Buyers and sellers are increasingly incorporating such terms in sale contracts, as these provisions offer a level of risk mitigation for the buyer by deferring payments and tying them to conditional outcomes, while also providing potential upsides to sellers if the sale proves lucrative for the buyer.

For example, a contract may provide for a partial cash payment from the buyer to the seller in the year of the sale, but also provide that the buyer shall pay the seller a future percentage of earnings derived from the asset for a set number of years. Alternatively, a buyer and seller may agree to a payment structure whereby proceeds will become payable upon the realizations of certain milestones related to the purchased asset. How do taxpayers account for and report the sale of a capital asset when the amount ultimately payable is unknown in the year of the transaction?

This article will discuss the three methods—installment, closed transaction, and open transaction—available to taxpayers for reporting sales that involve contingent consideration potentially payable outside the year of the sale. Each of the methods described below has its own benefits and pitfalls that taxpayers and tax professionals should examine before electing a particular approach.

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Prosecuting PPP Fraud May Be Harder Than It Seems

By Christopher M. Ferguson
May 12, 2020 

Once the May 14 deadline for arguably undeserving recipients of PPP loans to return the funds "no questions asked" has passed, the government will no doubt seek to make examples of undeserving PPP loan recipients.

For anyone following developments in the massive small business stimulus program known as the Payroll Protection Program (PPP), May 14 is an important date. That is the deadline imposed by the Treasury Department and Small Business Administration (SBA) for arguably undeserving recipients of PPP loans to return the funds “no questions asked.” According to Treasury Secretary Mnuchin, the IRS and SBA will be auditing all loans in excess of $2 million and will be prosecuting instances of fraud. Secretary Mnuchin has also indicated that further guidance will be forthcoming to clarify, and likely limit, the criteria the government will use to determine who is deserving (and not deserving) of the loans.

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Tax Controversies: Audits, Investigation, Trials

By: Robert S. Fink
39th Ed. 2020

The 39th edition of “Tax Controversies: Audits, Investigations, Trials” has been published and is available on Lexis-Nexis. Authored by Kostelanetz & Fink co-founder Robert S. Fink and the attorneys of Kostelanetz & Fink, Tax Controversies is the recognized guide to all stages of tax examination, investigation, litigation, and prosecution -- civil or criminal -- including coverage of:

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Focus on IRS Tax Fraud Enforcement

By Megan L. Brackney
Tax Notes Federal
April 27, 2020 

Given that combating tax fraud is a top agency priority, it is a good time to review the law and procedures related to tax fraud. In this article, Megan Brackney discusses the ways the IRS identifies and addresses fraud, the consequences of committing tax fraud, and some tips for practitioners.

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The New Exemption from Required Information Reporting: Revenue Procedure 2020-17 Provides Relief for Certain Tax-Favored Foreign Trusts

By Nicholas S. Bahnsen
The CPA Journal
April 2020 Edition

In March 2020, the IRS announced an exemption to the information reporting requirements applicable to foreign trusts. Under this exemption, qualified individuals no longer need to report transactions with or ownership of applicable tax-favored foreign trusts on Forms 3520 and 3520-A. This article outlines the new exemption and the special procedures for requesting an abatement or refund of penalties previously assessed with respect to these tax-favored foreign trusts, and serves as a reminder that taxpayers may have still other filing and reporting requirements related to these trusts that remain unaffected by the exemption.

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International Enforcement: What’s Old, What’s New and What We Can Expect

By Caroline D. Ciraolo
Journal of Tax Practice and Procedure
Spring 2020 Edition

At the 35th Annual UCLA Extension Tax Controversy Institute, Caroline D. Ciraolo and her fellow panelists addressed international tax compliance and enforcement, including what’s old, what’s new and what we can expect going forward.

“We cannot continue to operate in the same ways we have in the past, siloing our information from the rest of the world while organized criminals and tax cheats manipulate the system and exploit vulnerabilities for their personal gain. The J5 [Joint Chiefs of Global Tax Enforcement] aims to break down those walls, build upon individual best practices, and become an operational group that is forward-thinking and can pressurize the global criminal community in ways we could not achieve on our own.” Don Fort, Chief of IRS Criminal Investigation (July 2, 2018).

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The IRS’s Offshore Voluntary Disclosure Program Has Ended—Now What?

By Christopher M. Ferguson
NYSSCPA Tax Stringer
April 1, 2020

On Sep. 28, 2018, the IRS’s Offshore Voluntary Disclosure Program (OVDP) came to an end; however, offshore tax and reporting noncompliance persists in today’s increasingly global economy. Tax advisors are still helping clients who have been—or continue to be—noncompliant with their offshore tax and reporting obligations. This Q&A addresses some of the common issues that taxpayers and their advisors are dealing with in a post-OVDP world.

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