IRS Requests Comments on OVDP Information Collection | OVDP Lawyer

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On February 28, 2018, the IRS issued a request for comments from the general public with respect to the its OVDP Information Collection practices. Let’s explore this new development in more detail.

OVDP Information Collection: Background Information on the OVDP

The IRS Offshore Voluntary Disclosure Program (“OVDP” now closed) remains today the primary voluntary disclosure route for taxpayers who violated their US international tax requirements willfully. It is also a valid option for taxpayers who wish to avoid the uncertainty associated with the Streamlined Compliance Procedures. This uncertainty often arises with respect to being able to establish non-willfulness and the potential follow-up audit. Finally, given the differences between the OVDP penalty calculation rules and those of the Streamlined Domestic Offshore Procedures (“SDOP”), some taxpayers may find it beneficial to go through the OVDP rather than SDOP.

The idea behind the OVDP is to allow US taxpayers to voluntarily disclose their prior noncompliance with US international tax requirements, including FBAR, in return for a fixed, lower penalty. One of the great benefits of the OVDP is that it generally eliminates the risk of a criminal prosecution.

OVDP Information Collection: Forms For Which Comments are Requested

The IRS requests comments for all Forms 14452, 14453, 14454, 14457, 14467, 14653, 14654, 14708 and 15023. In other words, while this request is formally made under the OVDP, it also covers the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Moreover, by including the brand-new Form 15023 (which was just created a few months ago), this request for comments (which supposed should cover only the OVDP Information Collection) also extends to the new IRS Decline and Withdrawal Campaign.

OVDP Information Collection: Requested Comments

The IRS requests comments on five matters related to the OVDP Information Collection, SDOP, SFOP and Form 15023:

“(a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.”

OVDP Information Collection: Deadline for Comments

The IRS requests that all written comments be received on or before April 30, 2018.

Contact Sherayzen Law Office for Professional Help With OVDP and Other Offshore Voluntary Disclosure Options

If you have undisclosed foreign accounts and foreign income, contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers to resolve their prior US international tax noncompliance, and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!

South Korean Cryptocurrency Taxation of Exchanges | IRS Tax Lawyer

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In January of 2018, South Korea announced that it will start taxing cryptocurrency exchanges. This is a highly important development in international tax law concerning cryptocurrencies, because South Korea is a major hub for cryptocurrency trading. Let’s delve a bit deeper into South Korean cryptocurrency taxation.

South Korean Cryptocurrency Taxation of Exchanges

The first important point to make is that the new law affects only South Korean cryptocurrency exchanges, such as Bithumb and Coinone.

South Korean Cryptocurrency Taxation Starts With Tax Year 2017

The new South Korean cryptocurrency taxation will apply retroactively to any income derived from digital currency in the calendar year 2017. In other words, any profits the exchanges realized in 2017 on the trading of cryptocurrencies will be subject to the South Korean corporate taxation.

South Korean Cryptocurrency Taxation Rates

There is no new special tax rate created for cryptocurrency exchanges. Rather, the current corporate income tax rates will apply. In other words, the cryptocurrency exchanges are likely to pay a 22 percent tax rate for corporate profits exceeding an annual threshold of KRW 20 billion and an additional 2.2 percent local income tax (which constitutes 10 percent of the corporate income tax rate).

South Korean Cryptocurrency Taxation Deadlines

The deadline to pay the corporate income tax for the tax year 2017 will be March 31, 2018. The deadline to pay the 2017 local income tax will be April 30, 2018.

South Korean Cryptocurrency Taxation is Part of the South Korean Overhaul of the Cryptocurrency Market

The extension of corporate taxation to cryptocurrency exchanges is part of a major overhaul of the entire South Korean cryptocurrency market.  In fact, the South Korean government has instituted a number of non-tax measures to address concerns about money laundering and tax evasion.  For example, South Korea recently prohibited the opening of new virtual accounts for cryptocurrency investors while the cryptocurrency traders are required to change the names of their accounts to make them identifiable.

Cryptocurrency Trading is Taxable in the United States

Sherayzen Law Office reminds US taxpayers cryptocurrency exchanges are taxable in the United States as capital gains. Contact Sherayzen Law Office to schedule a consultation to learn more about US taxation of cryptocurrencies.

IRS Fails to Recover a Large Erroneous Refund | Litigation Tax Attorney

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In a recent case, the IRS failed to recover a large erroneous refund of $21 million that it gave to a company called Starr International Co. Inc. (“Starr”). The opinion was released on January 31, 2018 by the District Judge Christopher R. Cooper (U.S. District Court for the District of Columbia) who granted Starr’s summary judgment motion. Let’s delve deeper into why the IRS was not able to recover this erroneous refund.

The Starr Case: Initial 2007 Request for Erroneous Refund

The story that led to a such a large erroneous refund is very interesting and related to the US-Swiss tax treaty. In 2007, as a shareholder of AIG stocks, Starr received dividends from AIG. In December of 2007, Starr filed a request with the US Competent Authority (“CA”) to claim a reduced withholding tax rate on the AIG dividends.

Then, without waiting for the CA response, Starr filed a refund claim with the IRS for the tax year 2007, seeking a refund in the amount it would have been entitled to had the CA granted the request for treaty benefits. It should be pointed out that Starr indicated on its Form 1120-F that this was a protective refund claim (to avoid the later Statute of Limitations problems) and informed the CA of the claim.

Once it was informed about the Starr’s protective refund claim, the CA instructed the Ogden Service Center not to issue a refund for 2007. Moreover, in October of 2010, the CA denied Starr’s request for treaty benefits for 2007.

The Starr Case: Request for 2008 Large Erroneous Refund Granted

This denial did not have the intended effect. On the contrary, Starr filed another refund request with the IRS for $21 million for 2008 and amended its refund claim for 2007. Starr also did it in a very clean and honest manner – on its 2008 Form 1120-F (next to the line indicating the refund amount), Starr wrote “see statement 1”. Statement 1 disclosed that CA did not grant treaty benefits to Starr and presented its counter-arguments arguing that CA’s decision was erroneous.

In 2011 the IRS erroneously granted Starr’s refund request for 2008 and issued a refund for $21,151,745.75. At the same time, the IRS did not issue any refund for the amended 2007 claim.

The Starr Case: Erroneous Refund for 2008 Leads to Lawsuit to Recovery Refund for 2007 and IRS Lawsuit to recover the 2008 Erroneous Refund

Emboldened by its 2008 erroneous refund, Starr decided to file a lawsuit in the D.C. District court to claim a refund for 2007. The lawsuit was filed in 2014 after Starr must have believed that the Statute of Limitations for the IRS to recover the 2008 erroneous refund had expired. It appears that this part of the case still continues as Starr has appealed the recent ruling in the government’s favor.

In the meantime, in response to Starr’s ever expanding appetite for refunds, the IRS decided to attempt to curb the Starr’s ambitions by recovering the 2008 erroneous refund. In 2015, the government amended its answer to Starr’s 2014 lawsuit and added a counterclaim seeking to recover the 2008 refund. Here, the most interesting part of the case begins.

The Starr Case: the IRS Arguments for the IRS Statute of Limitations to Recover 2008 Erroneous Refund

Generally, the IRS has only two years to initiate a lawsuit to recover a refund. There is, however, an exception. If a taxpayer obtains any part of the refund through fraud or misrepresentation, the Statute of Limitations may be extended to five years. The government bears the burden of proof to show that an extension of the statute of limitations is justified.

The IRS based its claim for the extension of the Statute of Limitations on three different arguments. First, the IRS stated that Starr made a misrepresentation when it indicated on line 9 of Form 1120-F that Starr was entitled to a $21 million refund; the IRS argued that it should have put “0″ on it.

Additionally, the IRS also made a second variation on the same argument, relying on Rev. Proc. 2006-54, which sets forth the procedures for requesting treaty benefits from the CA. Section 12.04 expressly states that denials of requests for discretionary treaty benefits are final and not subject to administrative review. Based on this section, the government asserted that Starr, in contradiction to the established procedure, sought an administrative review of the CA’s denial of its refund claim by not making it clear that it was not entitled to a refund claim.

Second, the IRS argued that the Starr’s failure to inform the CA about it 2008 refund claim was another misrepresentation. Here, the IRS again relied on Rev.Proc. 2006-54, which states that a taxpayer must update the CA on all material changes regarding issues under consideration.

Finally, the government argued that Starr made the third misrepresentation when it failed to notify the Ogden Service Center (where the Starr’s claim for 2008 erroneous refund was filed), that it lacked the jurisdiction to issue the 2008 refund.

The Starr Case: the Court Refuted All IRS Arguments and Denied the IRS Request to Recover 2008 Erroneous Refund

The district court judge disagreed with all of the three IRS arguments. With respect to the first argument, the court disagreed with the government’s position, because had Starr requested $0 on its refund claim and then litigated the merits of the claim in court, it would have been entitled only to $0 even if it won. The court noted that this has been the government’s position in the past. Moreover, Treas. Reg. §301.6402-3(a)(5) requires that refund claims contain a statement of the amount overpaid.

In this context, the court addressed the government’s argument that, by filing a refund claim, Starr was looking for a back-door administrative review of the CA’s denial of its claim. The court noted that a refund claim is not a request for administrative review, but a normal way for a taxpayer to obtain a refund that the IRS already withheld.

Moreover, the refund claim was an absolute jurisdictional requirement for seeking a judicial review of CA’s denial of Starr’s claim for refund. Had Starr failed to file a refund claim before going to court, the court would have lacked the subject matter jurisdiction to hear the case.

With respect to the government’s second argument, the court stated that it is irrelevant because Starr filed its 2008 refund claim when CA already made the final decision to deny the refund claim. In other words, there were no issues under CA’s consideration at the time when Starr filed its refund claim.

Finally, the court completely disagreed with the government’s argument that Starr should have informed the Ogden Service Center that it lacked jurisdiction to issue the refund. The court stated that there is simply no regulation, statute or an IRS instruction that would require the taxpayers to inform the IRS of what falls and what does not fall within its jurisdiction.

Since the government failed its burden of proof that Starr obtained its refund through misrepresentations, the court granted Starr’s motion for summary judgment and found that the IRS was not entitled to extend the Statute of Limitations to five years.

Contact Sherayzen Law Office for Help With Tax Litigation

If you or your business are being sued by the IRS, contact Sherayzen Law Office for professional help with tax litigation.

2017 FBAR Deadline | FinCEN Form 114 FBAR Lawyer & Attorney

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FinCEN recently confirmed the 2017 FBAR deadline and the automatic extension option.

2017 FBAR Deadline: FBAR Background

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, is commonly known as FBAR.  US taxpayers should use this form to report their financial interest in or signatory authority over foreign financial accounts. Failure to timely file the FBAR may result in the imposition of draconian FBAR penalties.

2017 FBAR Deadline: Traditional FBAR Deadline

Prior to 2016 FBAR, the taxpayers had to file their FBARs for each relevant calendar year by June 30 of the following year. No filings extensions were allowed. The last FBAR that followed this deadline was 2015 FBAR (its due date was June 30, 2016).

2017 FBAR Deadline: Changes to FBAR Deadline Starting 2016 FBAR

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”) changed the FBAR deadline starting with 2016 FBAR.  Section 2006(b)(11) of the Act requires the FBARs to be filed by the due date of that year’s tax return (i.e. usually April 15), not June 30.

Furthermore, during the transition period, the IRS granted to US taxpayers an automatic extension of the FBAR filing deadline to October 15. The taxpayers do not need to make any specific requests in order for extension to be granted.

In other words, starting 2016 FBAR, the Act adjusted the FBAR due date to coincide with the federal income tax filing deadlines. Moreover, the new FBAR filing deadline will follow to the letter the federal income tax due date guidance. The federal income tax due date guidance states that, in situations where the tax return due date falls on a Saturday, Sunday, or legal holiday, the IRS must delay the due date until the next business day.

2017 FBAR Deadline

Based on the new law, the 2017 FBAR deadline will be April 17, 2018 (same as 2017 income tax return due date). If a taxpayer does not file his 2017 FBAR by April 17, 2018, then the IRS will automatically grant an extension until October 15, 2018. Failure to file 2017 FBAR by October 15, 2018, may result in the imposition of FBAR civil and criminal penalties.

Section 1041 Definition of Divorce | Divorce Tax Attorney & Lawyer

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26 U.S.C. §1041(a)(2) states that transfers of property between former spouses are not taxable as long as they are “incident to divorce”. The question is what is the definition of divorce for Section 1041 purposes?

Section 1041 Definition of Divorce: 26 U.S.C. §71(b)(2)

The Treasury regulations specifically refer to 26 U.S.C. §71(b)(2) for the definition of divorce or separation instrument (see Treas Reg §1.1041-1T(b), Q&A-7). 26 U.S.C. §71(b)(2) lays out three definitions of divorce or separation instrument:

“(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse.”

The regulations specifically states that the definition of divorce or separation instrument under 26 U.S.C. §71(b)(2)(A) also includes a modification or amendment to such decree or instrument. Treas Reg §1.1041-1T(b), Q&A-7.

Section 1041 Definition of Divorce: Void Ab Initio Annulments

Additionally, for the purposes of 26 U.S.C. §1041, the definition “divorce” is expanded to include divorce annulments and the cessations of marriage that are deemed void ab initio due to violations of state law. Treas Reg §1.1041-1T(b), Q&A-8.

Void ab initio annulments dissolve a marriage retroactively from its very beginning. In other words, the legal outcome of such an annulment is to treat the annulled marriage as if it never happened. While the state law differs from state to state, there are generally four grounds under which a marriage is voided ab initio: bigamy, related parties (i.e. spouses are related within a certain degree of consanguinity or affinity), incompetence and situations where one of the spouses is less than sixteen years old.

Contact Sherayzen Law Office for Help with Tax Issues Concerning a Section 1041 Transfer of Property

If you need help with tax issues concerning a divorce or a transfer of property pursuant to a divorce, contact Sherayzen Law Office for professional legal help.