Publications

Avoiding Litigation When Auditing Government Contractors

By: Claude M. Millman
The CPA Journal
April 2019 Edition

Government contracting is big business. More than 4 million contractors serve the U.S. government, and they collectively receive more than $500 billion per year. While many people think of those federal contracts when they refer to “government contracts,” states and municipalities also have substantial contracting budgets. For example, New York City (where the author used to serve as chief procurement officer) spends close to $20 billion per year through roughly 40,000 procurement actions.

Of course, government contractors need tax preparation and auditing services. While CPAs can be of great service to such clients, government contracting involves special risks that can affect contractors and the accountants they retain. Before agreeing to audit a government contractor, it is useful to consider these issues, recognize how they may lead to controversies and litigation, and take steps to mitigate the chances that small problems will become big ones.

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IRS Issues New Guidance For Offshore Voluntary Disclosures

By: Michael Sardar
Tax Stringer
April 2019 Edition

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On March 13, 2018, the IRS announced that it would end its long-running Offshore Voluntary Disclosure Program (“OVDP”) on September 28, 2018. With the closure of one of the IRS’s most successful compliance enforcement programs, practitioners were anxious for the IRS to announce a new program to take its place. On November 20, 2018, the IRS issued a memorandum titled “Updated Voluntary Disclosure Practice,” which announced new guidance for the way the IRS would process new voluntary disclosure applications made after the closure of the OVDP.

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The People Of The State Of New York Vs. M. Robert Neulander - Brief For Amicus Curiae In Support Of Defendant-Respondent

Caroline Rule, as Counsel to the New York Council of Defense Lawyers, authored an Amicus Curiae brief in the New York Court of Appeals in regards to the case People v. Neulander in which the prosecution is appealing the Appellate Division, Fourth Department’s grant of a new trial to Mr. Neulander on the grounds of juror misconduct.  The Amicus brief urges the Court of Appeals to affirm the Appellate Division’s decision, based both on New York law and on decisions from other jurisdictions around the country.

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Understanding FBAR Disclosure Responsibilities: When Must an Entity or Connected Individual File?

By: Ian Weinstock
The CPA Journal
March 2019 Edition

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) Form 114, the Report of Foreign Bank and Financial Accounts—colloquially known as FBAR— has become famous due to the huge potential penalties imposed on taxpayers whose failure to file is deemed to be willful. As a result, tax preparers know to ask whether individual clients own foreign accounts before preparing those clients’ income tax returns. But not all foreign accounts are owned by individuals. If an entity (i.e., a nonnatural person) owns a foreign account, when does the entity itself need to file an FBAR, and when does an FBAR need to be filed by someone connected to the entity?

 

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U.S. v. Marc Berger: A Cautionary Tale for Return Preparers

By: Sharon L. McCarthy
The CPA Journal
February 2019 Edition

On December 14, 2018, former CPA Marc Berger was sentenced to eight months in prison after a federal jury convicted him on three counts of aiding and abetting tax evasion for a client. Berger’s fall from grace serves as an important cautionary tale for all return preparers of the need to adhere to high standards of integrity in return preparation, even when faced with difficult clients with complicated business and financial matters.

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Tax Controversy Corner: Challenging Penalties Under the BBA

By Megan L. Brackney
Journal of Passthrough Entities
January - February 2019 Edition

The Bipartisan Budget Act of 2015 (the “BBA”) made substantial changes to the audit procedures for passthrough entities. This column discusses how partnerships and individual partners will be able to challenge penalties under the BBA procedures. 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 in the year that the adjustment is made. The BBA contains exceptions to the new rules, such as options to modify the adjustments through filing amended returns, or for partnerships to “push out” adjustments to the partners who were partners during the tax year that is audited. The BBA and recently issued Proposed Regulations contain provisions on how penalties will be assessed. This column discusses how partnerships and partners can each raise their defenses to penalties under the new provisions. First, an example may be helpful to illustrate the difference between a partnership and partner-level defense. If a partnership engaged in a tax shelter, but the partnership’s managing partner obtained independent opinions that the transaction was permissible, the partnership itself may have a reasonable cause defense to penalties based on reliance on the advice of a tax professional. If, however, the partnership’s reliance was not reasonable because the advisor also was a promoter of the transaction, the partnership will be liable for the penalties, but an individual partner may still have his or her own defense if he or she obtained a separate opinion from an independent and competent advisor.

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The IRS's Updated Voluntary Disclosure Procedures for Offshore Accounts and Assets

By: Usman Mohammad
The CPA Journal
January 2019 Edition

On November 20, 2018, the IRS published an Interim Guidance Memo concerning voluntary disclosures, captioned “Updated Voluntary Disclosure Practice” (http://bit.ly/2UHHdLm). The memo sets forth the IRS’s current policy for handling voluntary disclosures (both offshore and domestic) following the closing of the IRS’s formal Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018.

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The IRS Whistleblower Regulations: A Hindrance to Tax Enforcement

By: Jay Nanavati
The CPA Journal
December 2018 Edition

In modernizing the tax whistleblower statute over the last 12 years, Congress has finally created a simple and enforceable entitlement to substantial compensation for tax whistleblowers. Unfortunately, in practice, the IRS’s whistleblower program still falls short of achieving its potential for improving tax enforcement. One culprit in the whistleblower program’s failure to live up to its potential is the IRS’s own whistleblower regulations.

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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.

Under 26 U.S.C. § 7216, it is a federal crime—a misdemeanor punishable by up to a year in jail and/or a $1,000 fine—for a tax return preparer to knowingly or recklessly disclose any taxpayer client’s tax return information furnished in connection with tax return preparation, or to use any such information for any purpose other than preparing or assisting in preparing a tax return. There are also civil penalties, which do not depend on knowing or reckless behavior, set forth in 26 U.S.C. § 6713: a fine of $250 for each prohibited disclosure or use, up to $10,000 total per calendar year.

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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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