Publications

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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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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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 The BBA repealed the prior rules for partnership audits and replaced them with a centralized regime that, in general, assesses and collects tax at the partnership level in the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 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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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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