The Newport Beach Tax Attorney Blog

AICPA Requests More Penalty Relief

The American Institute of CPAs is seeking additional taxpayer relief following the announcement that the Internal Revenue Service would provide late filing penalty relief for certain taxpayers affected by the COVID-19 pandemic for tax years 2019 and 2020.

In a September 8, 2022, a letter to the agency and the Department of the Treasury, AIPCA asked the IRS for a number of additional relief measures, including expanding the scope of relief to include non-automatically assessed penalties, amended returns, and all international information returns; and include failure to pay penalties and have the relief cover additional forms; provide relief to more tax years.

The IRS, in August 2022, announced that it would be providing, announcing that certain taxpayers would be eligible for relief from failure to file penalties for tax years 2019 and 2020, assuming those tax forms are filed no later than September 30, 2022, with refunds automatically refunded or applied to outstanding debt. The relief has been offered as a result of the processing delays due to the ongoing pandemic.

"The AICPS appreciate the IRS providing relief from failure to file for years 2019 and 2020; however, as previously stated, the IRS is urged to expand the relief to also cover failure to pay penalty," AICPA states in the letter. "We think there are many taxpayers who sent payments to IRS but due to the IRS backlog or post office delays or other delays with banks, etc., IRS didn’t receive or record the payment timely (or the IRS said it was not received timely)."

The organization argues that there are "many checks that are still sitting in unopened envelopes, and there is concern that the IRS employees may make mistakes and process payments not with the dates the envelopes were mailed, but with the dates the envelopes were received or opened."

AICPA adds that relief should be provided to those suffering COVID hardship and paid late.

"We suggest that relief be provided for failure to pay if payment was received by IRS by a certain date after the due date," the letter states.

Given the ongoing nature of the pandemic and the new variants that are being discovered, AICPA also asked that the penalty relief be extended to cover tax year 2021. It noted that the federal government does acknowledge that the pandemic is ongoing and there were high incidents of outbreaks in the winter of 2021-2022.

AICPA also asked for further clarification that the relief does not affect applications for first-time abatement of penalties.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

Infrastructure Bill Impacts Cryptocurrency Reporting Laws

On Friday November 5, 2021, Congress passed the Infrastructure Investment and Jobs Act, which interestingly includes new reporting requirements on brokers of cryptocurrency, specifically persons responsible for regularly providing service effectuating transfers of any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.

Currently, cryptocurrency reporting generally is only required in the context of reporting requirements applicable to capital property (which may not be required for transactions under $600), or where the currency is used as compensation to employees or independent contractors. The bill requires reporting of any other transactions where the current rules do not apply.

The provision is included due to the concern that large amounts of cryptocurrency transactions are not being reported as taxable income, and the taxation of that income helps to offset the total cost of the bill. Additionally, the penalties imposed on taxpayers for failure to file information returns are extended to apply to this new requirement, helping to raise more revenue.

Another provision expands a section of the U.S. tax code called 6050I to include digital assets. Section 6050I requires that people who receive more than $10,000 in cash and equivalents file a report with the IRS. The report includes details about who paid them, including names and Social Security numbers. Any failure to report details about those sending payments is considered a felony offense.

The infrastructure bill provision would require similar from businesses and exchanges when they receive more than $10,000 in cryptocurrency.

Almost immediately upon the release of the legislative text, lawmakers and industry experts expressed concerns about the provision, claiming that the text of the bill is too broad, and could potentially extend the reporting requirements to cryptocurrency “miners” (people who generate new cryptocurrency by verifying complex chained transactions). Nevertheless, the amount of revenue generated by the provision made it essential to include in the bill, and amendments have been included to narrow the focus of the provision.

The reporting requirements do not take effect until a few years.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Updates Countries which the U.S. Exchanges Tax Information

Rev. Proc. 2021-32, I.R.B. 2021-42, September 28, 2021

The IRS has supplemented the list of countries with which the U.S. has an agreement relating to the exchange of tax information. Chile has been added to the list. The Dominican Republic and Singapore have been added in Section 4 of this revenue procedure to the list of jurisdictions with which the Treasury and IRS have determined that it is appropriate to have an automatic exchange relationship. Under these agreements the U.S. consents to provide, as well as receive, information and appoints the Treasury Secretary or his delegate as the competent authority. The regulations under Code Sec. 6049 require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. With respect to Chile, this revenue procedure is effective for interest paid on or after January 1, 2022. Rev. Proc. 2020-15, I.R.B. 2020-23, 905, is superseded. For a complete list of countries click here.

IRS Announces Issuing Refunds for Compensation Overpayments

On July 13, 2021, the IRS announced it would issue another round of refunds this week to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year. The refund average is $1,265, which means some will receive more and some will receive less. Refunds by direct deposit will begin July 14 and refunds by paper check will begin July 16. The Service previously issued refunds for unemployment compensation exclusion in May and June. It would continue to issue refunds throughout the summer.

The American Rescue Plan Act of 2021 (ARP) excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000. Most taxpayers need not take any action and there is no need to call the IRS. However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.

Click here to read the full announcement.

IRS Coronavirus Economic Relief for Transportation Services News

2021ARD 129-1

Internal Revenue Service: Frequently asked questions: Coronavirus Economic Relief for Transportation Services (CERTS)

Coronavirus Economic Relief for Transportation Services (CERTS) Frequently Asked Questions

The Coronavirus Economic Relief for Transportation Services (CERTS) Act, Division N, Title IV, Subtitle B of the Consolidated Appropriations Act of 2021, authorizes the Department of the Treasury to provide grants to eligible motorcoach companies, school bus companies, passenger vessel companies, and pilotage companies (Recipients) that have experienced annual revenue losses of 25% or more as a result of COVID-19. Recipients must generally prioritize the use the grants for payroll costs, though grants may be used for certain operating expenses (including the acquisition of services and equipment needed to protect workers and customers from COVID-19) and the repayment of debt accrued to maintain payroll. Funds not used for eligible activities within one year of receipt of the grant must be returned to the Treasury Department.

Additional non-Federal income tax information on the CERTS Act grant program can be found at the Coronavirus Economic Relief for Transportation Services (CERTS) Program webpage.

Q1. Is the receipt of a CERTS Act grant taxable to the Recipient under the Internal Revenue Code (Code)? (added July 6, 2021)

Yes. The receipt of a CERTS Act grant is not excluded from the Recipient's gross income under the Code and therefore is taxable.

Q2. When a Recipient uses the funds received from the CERTS Act grant program for eligible activities, such as for certain payroll costs and for the acquisition of services and equipment needed to protect workers and customers from COVID-19, are all of those expenses deductible under the Code? (added July 6, 2021)

Yes, to the extent the costs are otherwise deductible under the Code. The Code generally permits the payment of wages, salaries, and benefits to employees and other amounts paid to carry on a trade or business to be deducted as ordinary and necessary business expenses.

[ REPUBLISHED FROM IRS]

FTB Provides Additional Tax Guidance PPP Loan Forgiveness

On June 2, 2021, the California Franchise Tax Board (FTB) issued much anticipated guidance concerning loan forgiveness related to the Paycheck Protection Program (PPP). Originally, California enacted legislation to tax the PPP loan forgiveness by not allowing businesses to deduct necessary and ordinary operating expenses (including payroll) paid using emergency PPP funds. California based its legislation on an IRS ruling that held the same. The federal government subsequently enacted legislation reversing the IRS from taking this position based on certain income requirements. Uncertainty arose whether California would reverse course and conform with the federal government. California delayed doing so right away due to concerns it had related to jeopardizing billions of dollars in federal stimulus aid it had received. The federal stimulus funds California received had strings attached. To receive the stimulus funds California had to agree not to lower any any taxes. Allowing businesses to deduct legitimate business expenses lowers the taxes it owes. Of course this is the right result. Moreover, legislation to not allow the deduction of legitimate business expenses increases taxes. After many months of uncertainty, public unrest and debate, California worked it out and enacted legislation to conform with the IRS. On April 29, 2021, AB 80 was enacted which allowed more income exclusion (from second draw PPP loans and EIDL advance grants) and allowed the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers, for tax years beginning on or after January 1, 2019.

The FTB guidance confirms:

The FTB will follow the SBA guidance regarding how to determine whether the 25% gross receipts threshold is met. This means taxpayers may compare any calendar quarter in 2020 to the comparable calendar quarter in 2019 (or total 2020 gross receipts to total 2019 gross receipts);

Taxpayers do not have to provide documentation or certification if they meet the 25% gross receipts threshold, they may simply deduct all expenses paid with PPP forgiven loan amounts;

Multistate taxpayers should use total gross receipts (not just California-source gross receipts) to determine whether the 25% gross receipts threshold is met; and

For taxpayers who do not meet the 25% gross receipts threshold, the disallowance of deductions must be reported on the tax return for the taxable year in which they reasonably expect the PPP loan will be forgiven. This would mean deductions must be reduced on the 2020 return if in 2020 the taxpayer reasonably expected that the PPP loan would be forgiven in 2021.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation, please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

The FTB’s updated webpage regarding PPP loan forgiveness is at:

www.ftb.ca.gov/about-ftb/newsroom/covid-19/paycheck-protection-program-loan-forgiveness.html

The FAQs for Paycheck Protection Program is available at:

www.ftb.ca.gov/about-ftb/newsroom/covid-19/faqs-for-paycheck-protection-program.html

OC Man Sentenced to 2 years in Prison for Laundering Bitcoin

Cryptocurrency News Alert: 6.7.2021

An Orange County was sentenced today to 24 months in federal prison for operating an illegal virtual-currency money services business that exchanged up to $25 million – some of it on behalf of criminals – through in-person transactions and a network of Bitcoin ATM-type kiosks.

Kais Mohammad, a.k.a. "Superman29,"of Yorba Linda, was sentenced by United States District Judge Josephine L. Staton.

Mohammad pleaded guilty in September 2020 to a three-count criminal information charging him with operating an unlicensed money transmitting business, money laundering, and failing to maintain an effective anti-money laundering program. Mohammad has agreed to forfeit to the government 17 Bitcoin ATMs, $22,820 in cash, 18.4 Bitcoin and 222.5 Ethereum cryptocurrency.

From December 2014 to November 2019, Mohammad owned and operated Herocoin, an illegal virtual-currency money services business. As part of his business, Mohammad offered Bitcoin-cash exchange services, charging commissions of up to 25 percent – significantly above the prevailing market rate.

Using the moniker "Superman29," Mohammad advertised his business online to buy and sell Bitcoin in transactions up to $25,000. In a typical transaction, he met clients at a public location in Southern California and exchanged currency for them. Mohammad generally did not inquire as to the source of the clients' funds and, on certain occasions, he knew the funds were the proceeds of criminal activity. Mohammad knew at least one Herocoin client was engaged in illegal activity on the dark web.

Mohammad processed cryptocurrency deposited into the machines, supplied the machines with cash that customers would withdraw, and maintained the server software that operated the machines. Mohammad was able to monitor transactions on the machines and identify each transaction that occurred on them.

During the time of Herocoin's operation, Mohammad, a former bank employee who trained others on compliance matters, intentionally failed to register his company with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN). Mohammad was aware that he was required to – but chose not to – develop and maintain an effective anti-money laundering program, file currency transaction reports for exchanges of currency in excess of $10,000, conduct due diligence on customers, and file suspicious activity reports for transactions over $2,000 involving customers he knew, or had reason to suspect, were involved in criminal activity.

With respect to his Bitcoin ATM network, Mohammad's machines allowed customers to conduct financial transactions without requiring any identification and permitted customers to conduct multiple, consecutive transactions of up to $3,000 each without ever reporting suspicious activity to regulators or law enforcement.

After FinCEN contacted Mohammad in July 2018 about his need to register his company, Mohammad did so, but he continued to fail to comply fully with federal law concerning money laundering, conducting due diligence and reporting suspicious customers.

"Rather than use his knowledge to create a robust compliance program, (Mohammad) avoided one altogether and profited by making his business an efficient, unchecked, and nearly anonymous conduit for money laundering and other crimes," prosecutors wrote in their sentencing memorandum.

From February 2019 to August 2019, Mohammad also conducted multiple in-person transactions with undercover agents who represented they worked at a "karaoke bar" that employed women from Korea who entertained men in various ways, including engaging in sexual activity. On August 28, 2019, Mohammad met with an undercover law enforcement agent and exchanged $16,000 in cash, which the agent represented were the proceeds from illegal activity, for 1.58592 Bitcoin. Mohammad never filed a currency transaction report or suspicious activity report for these transactions.

In total, Mohammad exchanged between $15 million and $25 million from in-person exchanges and transactions occurring at his Bitcoin kiosks.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)