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Manhattan Tax Law Blog

How Does the IRS Appeals Process Work?

Yes, even the IRS knows that they do not and cannot get everything right. The IRS can make mistakes during audits, collection actions and in other areas. Thankfully, individual and business taxpayers have the right to appeal an IRS decision. In fact, according to the IRS, its Office of Appeals, an independent branch of the IRS, hears more than 100,000 cases each year. Obviously, there are other reasons why an audit or collection case may go to appeals, including but not limited to mere disagreements between taxpayer and IRS representative. 

What Is Innocent Spouse Relief And When Will the IRS Grant It?

When spouses file joint returns, each spouse is jointly and severally liable for all past due taxes. If the IRS believes that there is a tax deficiency on a jointly-filed return, it can undertake collection efforts against either or both spouses. Even if spouses divorced in the current year but filed joint returns in previous years, the IRS can pursue both spouses for past due taxes, interest and penalties in years where the couple filed joint returns.

This can lead to unjust outcomes, particularly if one spouse did not know and had no reason to know of the other spouse's malfeasance. The IRS has carved out exceptions to the rule of joint and several liability. These exceptions are known generally as Innocent Spouse Relief.

Congress Seeks Additional Guidance from IRS Regarding Bitcoin

Bitcoin is a private currency that is not under the control of a central bank. For these reasons, Bitcoin is attractive to many investors. For these same reasons, Bitcoin transactions are viewed suspiciously by the IRS and taxing authorities.

The use of Bitcoin and other so-called “virtual currencies” has increased dramatically in recent years. In fact, while Bitcoin’s value has fluctuated wildly in recent weeks and days, overall Bitcoin’s value has nearly quadrupled in the last year.

American Citizens with Foreign Accounts Must Comply with FATCA

The federal government devotes extensive time and resources to ensure that American taxpayers with foreign holdings pay appropriate taxes on these accounts. The Foreign Account Tax Compliance Act (FATCA) is one of the primary laws in this field. FATCA imposes many responsibilities on individual and business taxpayers with foreign holdings.

Perhaps most importantly, taxpayers who meet the FATCA threshold must file a Statement of Specified Foreign Financial Assets, known as Form 8938, along with their tax return. Taxpayers with foreign accounts must also file Form 114, the Report of Foreign Bank and Financial Accounts (FBAR). Failure to file either or both of these documents can bring on severe financial consequences. We will go into greater detail about various aspects of FATCA below.

What Are the Trends in the IRS Criminal Investigation Report?

IRS Criminal Investigation (IRS-CI) recently released its annual report. This report contains substantial information regarding the types of cases it investigates and the number of cases it recommends for prosecution.

Anyone reviewing this report will have a greater understanding of the IRS's priorities going forward, as well as overall trends in the data. Perhaps the most obvious trend is that IRS-CI, along with other areas of the IRS, has had reduced funding in recent years. This reduced funding is reflected in the number of investigations and prosecutions. Secondly a review of the report will show that IRS-CI investigates a broad range of cases touching on many cases in different areas of criminal law.

Thinking about expatriation? Beware the Exit Tax.

The IRS's continued focus on offshore assets has led some American citizens and green card holders to at least consider the possibility of expatriation. Considering the gravity of this decision, citizens and permanent residents must account for many factors. One such factor is the Expatriation Tax, more commonly referred to as the Exit Tax.

The IRS is Getting Tougher (But Also Nicer!) in 2017

The IRS is constantly updating and refining its tax collection processes. In recent months, the IRS has formally announced many changes to its tax collection procedures. For taxpayers with delinquent taxes, some of these changes may create additional challenges. Some of these changes, however, could be welcome news.

Let's start with the good news first

IRS Permanently Establishes Fast Track Settlement Program for Small Businesses

In March, the IRS officially rolled out a Fast Track Settlement program (FTS) for small businesses and self-employed individual taxpayers. The FTS for small businesses is in effect for businesses that file Form 1040, Schedules C, E, F or Form 2106. Moreover, it applies to small businesses with assets less than $10 million. The IRS claims that the FTS can resolve disputes "within 60 days after acceptance into the program."

How does the Fast Track Settlement program work?

Companies enrolled in the FTS, along with a Small Business Examiner or Small Business Group Manager of the IRS, try to resolve their issues before an IRS Appeals Officer who serves as a neutral mediator of the dispute. The mediator's goal will be to help the taxpayer and the IRS reach agreement. It is understandable that some companies may be concerned about the impartiality of the Appeals Officer. In its own documentation, the IRS acknowledges that an unbiased mediator is critical to the success of the program.

The Department of Treasury is scrutinizing large cash residential real estate purchases

Investors who are thinking of paying cash for residential real estate in New York City should know that the federal government may be looking closely at their transaction. The Department of the Treasury's Financial Crimes Enforcement Network (FINCEN) announced recently that it renewed an order requiring title companies in certain areas of the United States to reveal the names of individuals paying cash for "high-end" residential real estate. The compliance with the order requires completion of IRS Form 8300 and a review of the subject transaction.

Where is FINCEN targeting?

This Geographic Targeting Order (GTO) applies to New York City and five other parts of the country, including Miami and surrounding areas, Los Angeles, the Bay Area, San Diego and San Antonio. New York City and the Miami area have been targets of this GTO since 2015. In New York City, title companies must report all real estate transactions in Manhattan of $3 million, and of $1.5 million or more in Brooklyn, Queens, the Bronx and Staten Island. This renewal order went into effect on February 24, 2017, and will be in effect for 180 days.

The Alternative Minimum Tax: Its Purpose and Potential Drawbacks

With the recent release of President Trump's 2005 tax return, many millions of Americans were introduced to the Alternative Minimum Tax (AMT). In fact, of the $38.4 million Trump paid in taxes in 2005, $31 million came from the AMT. With the AMT in the news, this is a good time to look at why the AMT exists, as well as potential pitfalls associated with the law.

The purpose of the AMT

As the name implies, the AMT forces taxpayers who reach certain income thresholds to pay some minimum amount of income tax. With an AMT, higher earners and the wealthiest should not, at least in theory, avoid paying income tax through the use of various deductions. All taxpayers, including individuals, families and businesses could be subject to the AMT if their income reaches certain levels. As a result, taxpayers should calculate their taxes under both the standard tax laws and the AMT.

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