Final Transparency Regs Move Closer to Release - Andrew Velarde, Tax Notes ($):
Treasury released proposed regs (RIN 1506-AB49) on beneficial ownership in December 2021 that provide details on reporting requirements and exemptions. Specifically, reporting requires information such as names, addresses, and identifying numbers from the reporting entity, the beneficial owner, and the company applicant. The company applicant is the individual who files or directs and controls the filing of the formation or registration documents. A beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of the company. Exempt from the reporting requirement are large operating companies with 20 or more full-time U.S. employees, more than $5 million in sales, and a physical operating presence in the United States.
This may sound like the most boring possible story to lead the roundup, but it will get interesting when small corporations and LLCs start getting hit with $10,000 fines for failing to properly disclose their ownership. It promises to be a foot-fault penalty nightmare.
This Grandmother Didn't Submit the Proper Banking Form. Now the IRS Wants $2.1 Million From Her. - Scott Shackford, Reason.
The Institute for Justice, representing Monica Toth, an 82-year-old grandmother living in the Boston area, filed a petition with the Supreme Court on Friday asking them to determine whether federal "civil penalties" imposed by the federal government for violating regulations count as "fines." While a reasonable person might assume "penalties" and "fines" are the same thing, the federal government's position is that they are not, and, therefore, the IRS can demand millions in such penalties from people without triggering the Excessive Fines Clause of the Eighth Amendment.
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Her father, who had in the meantime become a successful businessman, gifted Toth several million dollars in a Swiss bank account shortly before dying in 1999. The federal Bank Secrecy Act, passed in 1970, requires citizens to report various banking records and information to the government. It also requires any citizen with more than $10,000 in foreign bank accounts to fill out a Report of Foreign Bank and Financial Accounts (FBAR) annually.
Toth had not been filing these FBARs until 2010, which is when she says she discovered the requirement. According to the Institute for Justice, she had previously been filing her taxes by hand using forms from the local library. Once she knew of the requirement, she disclosed the existence of the account to the IRS and told them she hoped her filings would put her back into compliance with the law.
The FBAR requirement is enforced by the Treasury's Financial Crimes Enforcement Network - the same folks that will handle the ownership transparency regs.
Hindsight Amendments Fail to Save Taxpayers From Penalties - Mary Katherine Browne, Tax Notes ($). "The Tax Court rejected a couple’s argument that they shouldn’t be liable for penalties because they amended their tax returns months after the IRS obtained information on their unreported foreign income in a John Doe summons."
The IRS also uses John Doe summonses to get cryptocurrency information. As this case shows, waiting too long to report income can be expensive.
Link to opinion: T.C. Memo. 2022-91
D.C. attorney general sues billionaire, alleging income tax evasion - Michael Brice-Saddler, Washington Post:
The lawsuit, which Racine filed Aug. 22 in D.C. Superior Court, alleges that Saylor has for years fraudulently claimed to be a resident of lower-tax jurisdictions despite living in a 7,000-square-foot penthouse on the Georgetown waterfront. The complaint further alleges that MicroStrategy, despite knowing Saylor was a D.C. resident, conspired in the scheme “instead of accurately reporting his address to local and federal tax authorities and correctly withholding District taxes.” Both Saylor and MicroStrategy issued statements on Wednesday, denying the allegations in the suit.
Firms See New Plants, Prospects, and Gulf Drilling in IRA’s Wake - Doug Sword, Tax Notes ($):
Luxembourg-based FREYR Battery said in an August 8 filing that the reconciliation bill contained “game changing financial incentives to spur development” of a clean-battery supply chain and that it was accelerating plans it has with a Koch Industries subsidiary to build a huge U.S. battery plant.
FREYR said the reconciliation bill has “catalyzed” its plans for its proposed U.S. “Gigafactory” and that it now expects to announce a site location by the end of the year. A plant with a similar capacity to annually produce 50 gigawatt-hours of battery cells is estimated to be 8 million square feet in size and cost $2.6 billion, according to co-developer General Motors Corp.
Related: Carbon Capture - It's Not Just for Giants.
Tax Pros Hope Energy Tax Payments Can Avoid Past Flaws - Kat Lucero, Law360 Tax Authority ($):
The Inflation Reduction Act created the so-called direct pay and transferability mechanisms to transform the way tax-exempt entities, such as public utilities, and companies with limited tax liability can directly receive all or most of the value of clean energy credits without solely relying on complicated tax equity financing to access the incentives.
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The new law also limited direct pay to companies claiming the expanded carbon capture and sequestration tax credits and the new production tax credits for advanced manufacturing and clean hydrogen. In return for the limitations, the transferability option was included in the law.
California Bill to Expand Manufacturing Tax Break Heads to Governor - Paul Jones, Tax Notes ($). "A.B. 1951 would expand an existing sales and use tax exemption for purchases of qualifying manufacturing and R&D equipment, for a period of five years beginning in 2023 and extending through 2027. Under the existing exemption, up to $200 million of a taxpayer's purchases of that equipment each year is already taxed at a lower sales tax rate — 3.3125 percent rather than the state’s normal 7.25 percent sales and use tax rate — and the partial exemption expires in July 2030. If Gov. Gavin Newsom (D) signs A.B. 1951, the state sales tax rate for qualifying purchases would be zero, with the $200 million per-taxpayer cap still in effect, until 2028."
Defense Bill Would Ramp Up Reporting for Lawyers and Tax Pros - Kelly Phillips Erb, Bloomberg. "The version of the bill that passed the House earlier this year would require 'professional service providers who serve as key gatekeepers to the U.S. financial system adopt anti-money laundering procedures that can help detect and prevent the laundering of corrupt and other criminal funds into the United States.'"
French use AI to track swimming pool tax evaders - Kay Bell, Don't Mess With Taxes. "French homeowners are required to declare swimming pools, since they can affect taxes on the property. Generally, the addition of the water feature means an increase in the real estate's value."
IRS Issues Broad 2019 and 2020 Failure to File Penalty Relief - Kristine Tidgren, Ag Docket. "To take advantage of this relief, specified returns for tax years 2019 and 2020 must be filed on or before September 30, 2022."
LLCs and Self-Employment Tax - Part Two - Roger McEowen, Agricultural Law and Taxation Blog. "Of course, the self-employment tax and the net investment income tax are only two pieces of the puzzle to an overall business plan."
Are NFTs Subject to Sales and Other State and Local Taxes? - Russ Fox, Taxable Talk. "If you’re selling or purchasing NFTs, or you are a company facilitating the sales of NFTs, you should speak with your tax professional regarding handling sales and use tax issues."
Taxes On $31 Million Kobe Bryant Verdict Make IRS Big Winner - Robert Wood, Forbes. "The $16M payment will be taxed as ordinary income to Vanessa Bryant, which means 37% goes to federal tax and 13.3% to California tax. That cuts the payment in half."
FBAR Willful Penalty (with Collection Suit) after OVDP Drop Opt-Out - Jack Townsend, Federal Tax Crimes "Remember, that if he had a good nonwillful story, he could have made a Streamlined Filing; I assume he entered OVDP because he (or his counsel) thought he did not have a good nonwillful story."
IRS Criminal Investigation in the News - Leslie Book, Procedurally Taxing. "Building a fraud case is time intensive and can often involve high profile people and businesses."
Congress Could End Tax Breaks for Gifts to Non-Profits with Political Agendas - Steven Rosenthal, TaxVox. "There is no reason taxpayers should be subsidizing gifts to explicitly political organizations. And Congress can easily limit federal tax benefits for these gifts."
New Mexico and the Question of Tax Competitiveness - Timothy Vermeer, Tax Policy Blog. "Why hasn’t New Mexico benefited more from outmigration the way Arizona has? Between 1997 and 2021 Arizona’s real gross state product increased 100 percent while New Mexico’s only grew 41 percent. Why are Californians driving through or flying over New Mexico to reach Texas?... According to the Tax Foundation’s annual State Business Tax Climate Index, New Mexico is bounded by states with greater tax competitiveness."
Calif. Man Gets 14 Years For 'Evil' Investment Fraud - Elliot Weld, Law360 Tax Authority ($; Defendant name removed):
Defendant would then allegedly offer an investment opportunity that promised a return as high as 100% in a matter of weeks...
"But these investment opportunities did not actually exist. Rather, [Defendant] would spend the money on maintaining a life of luxury for himself and his Hooters calendar model girlfriends, gambling and private jets," the government's sentencing memorandum reads.
From the Department of Justice Press release:
Defendant did not report any of the money he received from victims in 2011 or 2012 on his personal income tax returns that he filed jointly with his then-wife. Instead, Defendant only reported income from gambling winnings in 2011 and 2012 – estimated to be more than $1 million – all of which was purportedly offset by gambling losses.
To be sure, stealing $7 million is a bad thing, regardless of whether you put it on your 1040.
Rapper 50 Cent Failed Math Problem on Missed Election - Nathan Richman, Tax Notes:
A rapper’s former business consultants might have negligently failed to tell him about a bankruptcy tax election, but he didn’t have enough proof of how his tax liability would have changed to hold the consultants liable, according to a bankruptcy court.
Curtis James Jackson III, known professionally as 50 Cent, showed that his former business consulting firm improperly paid itself from his bankruptcy estate, Judge Ann M. Nevins of the U.S. Bankruptcy Court for the District of Connecticut concluded in her August 29 opinion in In re Jackson. But Jackson failed to prove that the firm caused him to pay extra taxes or improperly accepted payment from one of his non-bankrupt businesses, she said.
Related: 50 Cent to Judge: That Cash Was Fake
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