Posted on April 18, 2022 in Taxation Law

In recent years, virtual currencies have become a popular investment. Many people have been able to realize significant gains through buying, selling, and trading cryptocurrencies, and they have also used these currencies to complete multiple types of digital transactions. As the use of virtual currencies has continued to rise, the federal government has taken steps to ensure that assets and transactions are reported properly so that they can be taxed by the IRS. The way these currencies are treated may change in the future based on proposals from the administration of President Joe Biden.

Changes to Cryptocurrency Taxes Could Raise Billions in Tax Revenue

A budget proposal released by the Biden administration in March 2022 included several possible changes to how virtual currencies may be treated. These include:

• Cryptocurrency taxes may shift to using mark-to-market rules. Currently, virtual currencies are treated as property, and capital gains taxes are applied when cryptocurrencies are sold or traded. Under a mark-to-market system, increases in value of cryptocurrencies would be treated as income, and in some cases, owners would be required to pay income taxes to the IRS. However, virtual currencies would not be considered to be securities or commodities, and mark-to-market rules would only apply for currencies classified in a new third category of assets. The Treasury Department will determine which types of currencies are included in this category depending on whether they are actively traded, whether they are regularly bought and sold using currency issued by the United States or other countries, and whether reliable price quotes are available.

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 Posted on April 05, 2022 in Taxation Law

U.S. taxpayers who own assets in other countries must meet a number of requirements when filing tax returns with the IRS. Reporting of foreign assets can be complex, and in some cases, taxpayers may wish to avoid providing the IRS with more information than is necessary. Form 8938 (Statement of Specified Foreign Financial Assets) will provide information about multiple types of foreign accounts, and taxpayers may be required to submit this form along with their annual tax return. However, there are some exceptions to this requirement, and depending on the tax strategies a person uses and the extent of their assets, they may be able to avoid submitting Form 8938 in certain situations.

Exceptions to Form 8938 Requirements

Taxpayers who are considered “specified individuals” or “specified domestic entities” are required to submit Form 8938 if they own foreign assets with a value above a certain threshold. However, a person who is not required to file a tax return for a certain year will not need to submit Form 8938.

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 Posted on March 24, 2022 in Taxation Law

There are a variety of situations where taxpayers may be accused of violating U.S. tax laws. These violations may be uncovered during a tax audit, or a taxpayer may have failed to properly report foreign assets and income. In cases where a person may face criminal charges or civil penalties for non-compliance with tax laws, they may be able to come into compliance by voluntarily disclosing information to the IRS. Taxpayers who are considering a voluntary disclosure will need to be aware of some recent changes to tax forms used to report information to the IRS.

What Is Voluntary Disclosure Practice?

Taxpayers are encouraged to disclose information to the IRS that may affect the determination of the taxes they are required to pay. Some disclosures may be civil in nature, for example if the taxpayer has made an honest and nonwillful mistake and omitted disclosure of a foreign account required to be disclosed via annual Forms 114 (FBAR). Such disclosures may be made to the IRS via Streamlined Disclosure Procedures where taxpayers may be required to pay a civil penalty without criminal prosecution. However, the IRS Criminal Investigation (CI) division is focused on uncovering criminal violations of tax laws, and depending on its findings, it may choose to pursue criminal charges against non-compliant taxpayers. If such a taxpayer voluntarily discloses applicable information to the IRS, this may affect the CI division’s decisions on whether to recommend criminal prosecution. Voluntary Disclosure Practice is an option if a taxpayer has willfully violated tax laws, and taxpayers will be required to cooperate with the IRS to determine their tax liabilities and make arrangements to pay the taxes they owe, as well as any applicable penalties or interest.

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 Posted on March 15, 2022 in Property Taxes

Homeowners in California will often be subject to high property taxes. However, the state’s laws do provide some benefits for property owners by limiting the amount that property taxes can be increased each year. When a home is bought or sold, a reassessment will be performed to determine the property taxes that will apply based on the home’s current market value. In certain cases, homeowners may be able to avoid a reassessment by transferring the value of their current home to a new property. A recent change in the law has affected when these “base year value transfers” may be performed.

Proposition 19 and Base Year Value Transfers

California’s Revenue and Taxation Code was amended in 2021 after the passage of Proposition 19. New provisions regarding base year value transfers went into effect on April 1, 2021. These included changes to who may perform these types of transfers and the time limits for doing so. 

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 Posted on February 22, 2022 in Taxation Law

There are a variety of situations where taxpayers may need to respond to claims that they owe taxes to the IRS. In some cases, different forms of relief may be available that will absolve a person of their tax debts or allow them to reduce the amount they owe. Some taxpayers may be able to ask for innocent spouse relief, including when the IRS seeks to recover tax debts from a person after their divorce based on an audit of a joint tax return filed while they were married. A person may believe that they will qualify for innocent spouse relief if they had not signed a joint tax return, but they will need to understand how the IRS will address this issue.

The Tacit Consent Doctrine

Married couples will often divide different types of responsibilities, and one spouse may primarily handle matters related to a couple’s finances, including preparing and filing joint tax returns. In these situations, the other spouse may not have a full understanding of the income and assets that have been reported to the IRS, the types of deductions and credits that have been claimed, or other issues that affect the taxes they have paid or the refunds they have received.

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 Posted on February 14, 2022 in Tax Appeals

There are a variety of reasons why taxpayers may disagree with decisions made by the IRS. Following a tax audit, the IRS may perform a tax assessment and take steps to collect tax debts. However, if a taxpayer believes that the IRS made errors when determining tax deficiencies, they may file an appeal in the U.S. Tax Court. There are multiple issues that may be addressed during a tax appeal, and understanding the types of cases that are litigated in U.S. Tax Courts can help a taxpayer determine their options for resolving tax-related concerns.

Top U.S. Tax Court Issues in 2021

According to a report submitted to Congress by the Taxpayer Advocate Service, the top issues addressed in U.S. Tax Court litigation in 2021 were:

• Gross income - Section 61 of the Internal Revenue Code (IRC) details the types of income that may be considered when determining a taxpayer’s gross income, including compensation received for performing services, commissions, fringe benefits, interest, dividends, royalties, business income, pensions, and annuities. However, controversies may arise regarding what constitutes gross income and the taxes that should apply to the income a taxpayer receives.

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 Posted on February 08, 2022 in Tax Audits

California’s Employment Development Department (EDD) handles state payroll taxes, as well as unemployment benefits. While the EDD has struggled to address the large amount of unemployment insurance claims during the COVID-19 pandemic, it is beginning to return to normalcy, and it has resumed payroll tax audits. Businesses that are facing these types of audits will need to understand their requirements, as well as the post-audit issues that they may encounter.

Issues and Records Addressed in an EDD Audit

Audits performed by EDD will review a company’s records to ensure that wages and other payments made to employees have been reported correctly and that an employer is in compliance with its requirements under the California Unemployment Insurance Code (CUIC). An initial EDD audit will generally cover a period of up to 3 years, and it may review records for the 12 most recent quarters. Worker classification is one of the primary issues addressed in an audit, and it may determine whether workers have been incorrectly classified as independent contractors rather than employees. 

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 Posted on January 31, 2022 in Taxation Law

Taxpayers who owe tax debts to the IRS may have multiple options for addressing these issues. In some cases, a taxpayer may propose an offer in compromise that will allow them to pay less than the total amount owed and resolve their tax liabilities. While certain restrictions have traditionally applied in these cases, some recent policy changes by the IRS may provide benefits for taxpayers who make an offer in compromise. 

Changes to Tax Refund Offsets

In the past, when a taxpayer made an offer in compromise, they would agree that the IRS would be able to offset any tax refund they received for the current year and apply that amount toward their tax debt. For example, if a taxpayer had tax debts from 2017, and they proposed an offer in compromise in 2019, when they filed a tax return for the tax year of 2019, the IRS would be able to offset some or all of the tax refund they were eligible to receive for that year.

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 Posted on December 22, 2021 in Taxation Law

U.S. taxpayers who own foreign investments must meet certain requirements when reporting accounts and other assets to the IRS. A Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, must be filed for each year in which a person has a financial interest in one or more accounts outside of the United States, and the aggregate value of these accounts is at least $10,000. Failure to report applicable accounts on an FBAR can result in significant penalties, and due to a recent court ruling, these penalties may be even higher for taxpayers who fail to report multiple accounts.

Appeals Court Addresses Non-Willful FBAR Penalties

A recent case heard by appellate judges in the Fifth Circuit addressed penalties for non-willful violations of the requirement to file an FBAR. Non-willful violations usually involve cases in which a taxpayer failed to file an FBAR or report one or more accounts because they were not aware of their requirements. The current maximum penalty for a non-willful violation is $12,921, and this amount is adjusted every year based on inflation.

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 Posted on December 02, 2021 in Taxation Law

The first few months of the year are often known as “tax season,” since this is when taxpayers will gather the necessary financial information to file their annual tax returns. While 2021 is not over yet, it is a good idea to begin preparing to address these issues, since filing a tax return as soon as possible after the new year will allow a person to receive a tax refund more quickly. When doing so, taxpayers will want to understand the changes to tax laws and IRS policies that may affect them. Some issues to be aware of include:

• Child Tax Credit - For 2021, the amount of the Child Tax Credit was increased to $3,000 or $3,600 for children 5 years old or younger. However, the amount of the credit is reduced for taxpayers who earn more than $75,000 when filing a single tax return, $112,500 when filing as head of household, and $150,000 for married couples who file jointly. In addition, the IRS began making advance cash payments of the Child Tax Credit to parents between July and December of 2021. Taxpayers can claim any remaining amount of the Child Tax Credit that had not been paid. If a person received payments totaling more than they will be able to claim on their tax return for 2021, they may need to repay some or all of the excess amount.

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