On February 28, 2023, the Supreme Court decided Bittner v. United States—a rare Supreme Court foray into Financial Crimes Enforcement Network or FinCEN reporting of foreign bank and financial accounts under the Bank Secrecy Act (“BSA”). The BSA is codified under Title 31 (Money and Finance) of the United States Code rather than Title 26 (the Internal Revenue Code) so the section references in this post are to Title 31. At issue was how to calculate penalties for nonwillful violations of the BSA’s recordkeeping and reporting obligations for foreign transactions and accounts. By a narrow 5-4 majority, the Supreme Court held that the penalty for a nonwillful violation of the reporting requirements shall be assessed on a per-form basis rather than a per-account basis, a result favorable for those taxpayers with nonwillful failures.
The Supreme Court, today, denied New Hampshire’s motion for leave to file a bill of complaint challenging Massachusetts’ COVID-related tax regulations. The decision comes little more than a month after the Acting Solicitor General of the United States filed an amicus brief urging the court to deny the motion. In addition to New Hampshire, the decision will leave New Jersey and other states (nearly fourteen states had filed amicus briefs urging the Court to take the case) disappointed. The case was seen as an indirect threat to New York’s convenience of the employer rule, which operates similarly to the temporary regulations adopted by Massachusetts. See earlier coverage here and here.
Continue Reading Supreme Court Denies New Hampshire’s Challenge to Massachusetts Telecommuter Tax Rule; Convenience of the Employer Lives to See Another Day
In February, a U.S. Tax Court opinion in Anikeev v. Commisioner addressed challenging issues regarding the IRS’s existing policy with respect to the taxation of credit card rewards and other rebates. The case involves Mr. and Mrs. Anikeev, each of whom held a Blue Cash American Express Card (“Blue Card”) during 2013 and 2014, on which they accumulated a substantial amount of reward dollars through the use of their cards. At issue in Anikeev is whether the reward dollars were taxable income to the Anikeevs. Basing its decision on longstanding IRS policy, the court determined that the overwhelming majority of the rewards were not taxable to the Anikeevs, although the decision does address how the Service could potentially reform its policy regarding credit card rewards to prevent the same result in the future.
Continue Reading Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy on Credit Card Rewards
On remand from the Eleventh Circuit, the Tax Court, in Romano-Murphy v. Comm’r, determined that the failure of the IRS to provide a pre-assessment appeals hearing invalidated the IRS’s assessment of trust fund recovery penalty under section 6672 and proposed levy to collect the same. In July 2006, the IRS sent a letter to the chief operating officer of a healthcare staffing company proposing assessment of a trust fund recovery penalty against her for the business’s failure to withhold and pay over employment taxes. The letter indicated that the COO had the opportunity to protest the decision to the IRS Office of Appeals. The COO sent a response requesting an Appeals conference in September of 2006, but the IRS failed to act on it and then subsequently assessed the penalty. The COO later requested a collection due process hearing after receiving a notice of intent to levy and notice of federal tax lien filing. As is typically the case, the Settlement Officer issued a determination that the assessment and collection activity, including the proposed levy, were valid, leading to the COO’s challenge in Tax Court.
Continue Reading Tax Court Reverses Course on TFRP after Remand from Eleventh Circuit
A question appears at the bottom of Schedule B (Interest and Dividend Income) of the Form 1040 (U.S. Individual Income Tax Return) that asks individual taxpayers if during the taxable year they had any interest in or signature or other authority over a bank, securities, or other financial account in a foreign country during the tax year. Based upon a review of historical tax forms, the question first appeared on the 1976 Schedule B. The historic Form 1040 instructions for 1976 and 1977 indicate that the FBAR was originally designated as Form 4683 for 1976 and subsequently revised and renumbered as the Form 90-22.1 in 1977.
Continue Reading Is a Circuit Split Brewing over FBAR Willfulness Penalties?
Consistent with its ongoing employment tax enforcement efforts, the Justice Department recently announced developments in two cases involving the failure to properly withhold and remit federal employment taxes from employee wages.
On April 25, the Justice Department announced that Kae Wook Lee, the sole owner and CEO of Mona Lisa 7 Corporation, was sentenced to twelve months and one day in prison for failing to collect and remit federal employment taxes related to his operation of a karaoke bar in Queens, New York. The Justice Department’s press release states that Lee manipulated receipts from operations and paid employees in cash without collecting, accounting for, or remitting employment taxes to the IRS. The press release also states that he concealed the cash payroll from his accountant and executed false tax returns underreporting wages and the amount of employment taxes owed. In addition to the prison sentence, Lee was ordered to serve two years of supervised release and pay $612,500 in restitution.Continue Reading Justice Department Announces Employment Tax Enforcement Actions
On April 11, 2019, the IRS announced the results of a national two-week education and enforcement campaign to combat employment tax crimes. Payroll taxes account for approximately 70% of all revenue collected by the U.S. Treasury. Given the significance of payroll tax collections to the federal government, IRS revenue officers across the country visited nearly 100 businesses during the two-week period to discuss suspected employment tax noncompliance by the businesses. These revenue officers informed the businesses about how to catch-up on previously owed payroll taxes, how to stay current in collecting and remitting payroll taxes, and the potential civil and criminal penalties that businesses and individuals face with respect to noncompliance.
Continue Reading IRS Announces Results of Employment Tax Campaign
The Justice Department has again demonstrated its willingness to prosecute corporate executives for failing to remit employment taxes. On March 22, 2019, the Department of Justice issued a press release to announce that the U.S. District Court for the Eastern District of North Carolina sentenced a North Carolina man to 30 months in prison, restitution of $1.686 million, and three years of supervised released following completion of his sentence. The executive served in various official capacities for OneCare, Inc., a mental health service provider, including as the corporation’s President. From 2010 to 2013, OneCare withheld, but failed to pay over, employment taxes in the amount of almost $1.7 million. On May 2, 2018, the executive was charged with, among other charges, one count of Willful Failure to Collect or Pay Over Tax. He ultimately entered into a plea agreement that required him to plead guilty to a single count of Willful Failure to Collect or Pay Over Tax.
Continue Reading Justice Department Continues Aggressive Enforcement for Trust Fund Tax Failures
On March 5, 2019, the U.S. District Court for the District of Maryland determined that an employee was potentially entitled to relief under section 7434(a) of the Internal Revenue Code when an employer purposefully reports a portion of their wages on Form 1099-MISC as income from self-employment rather than on the Form W-2. In Greenwald v. Regency Mgmt. Svcs., LLC, a memorandum opinion, the court allowed the case to proceed to discovery based on the plaintiffs allegations.
The plaintiffs in the case are former employees who were employed as commissioned sales associates. The plaintiffs did not allege that any hourly wages were reported or withheld upon improperly during the course of their employment, but instead alleged that the defendants failed to withhold on and reported post-termination commission payments on Forms 1099-MISC rather than Forms W-2, forcing the plaintiffs to pay SECA tax. The plaintiffs alleged that willfully reporting the post-termination commission payments on Form 1099-MISC entitled them to damages under section 7434(a), as well as other claims under state law.Continue Reading Federal Court Allows Claim to Proceed Against Employer for Fraudulent W-2s
The U.S. District Court for the District of Connecticut has joined a growing debate among lower courts regarding the appropriate civil penalty applicable to willful FBAR violations through its ruling in United States v. Garrity. The FBAR statute, regulations, instructions, and related guidance require that taxpayers annually report to the Treasury…