The month of October began and ended with two celebrity names receiving unfavorable news in their tax controversy matters. On October 5th, Michael “the Situation” Sorrentino, of “Jersey Shore” acclaim, and his brother received prison sentences in Newark, New Jersey federal court. To round the month out, on November 1st, Wesley Snipes lost his Tax Court battle in which he alleged the IRS abused its discretion in not accepting his offer-in-compromise.
Having a “seriously delinquent tax deficiency” as determined under IRC §7345 can enable the IRS to certify an individual’s tax debt to the State Department, which allows the State Department to revoke, deny, or limit an individual’s passport. A taxpayer has “seriously delinquent tax debt” when he or she owes more than $51,000 including late fees and penalties (which is indexed to inflation) and when a levy has been issued or a lien has been filed by the IRS. IRC §7345(b). The right to a Collection Due Process hearing also must have lapsed or have been exhausted in order to be subject to certification.
FIRPTA, or the Foreign Investment in Real Property Tax Act, is part of the United States’ continued efforts to tax all income/gain connected to the United States. Real estate agents, escrow agents, and buyers should be aware of FIRPTA because it mandates income tax withholding and paying over to the IRS 15% of the sales price on the purchase of a U.S. real property interest from a foreign person under certain circumstances. 26 U.S.C. § 1445. In other words, buyers may not be able to pay all of the purchase price to the seller—some may have to be paid to the IRS. This can include situations where a foreign person (or entity) sells, exchanges, liquidates, redeems, gifts, or transfers in any other way a real property interest. The obligation is imposed on a buyer as well as a buyer’s agent and/or settlement/escrow officer.
On May 10, 2017, Attorney General Sessions issued a Memorandum titled Department Charging and Sentencing Policy. Prosecutors were instructed to “charge and pursue the most serious, readily provable offense” and “disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences.”
On July 10, 2017, the U.S. District Court for the District of Columbia issued a permanent injunction prohibiting the IRS from charging a fee for the issuance and renewal of preparer tax identification numbers (PTINs), after concluding that the IRS lacked statutory authority to charge such user fees. Steele, et al. v. United States of America, No. 14-cv-1523 (D. D.C. June 1, June 10, 2017). The Court also ordered the IRS to refund all PTIN user and renewal fees paid since the inception of the PTIN program. In response to the Court’s order, the IRS suspended its collection of PTIN user fees and issued a statement indicating it is working with the Department of Justice to determine how to proceed regarding the Court’s order to refund past PTIN fees paid.
In November, 2016, the IRS served a John Doe summons on Coinbase, one of the largest institutions holding bitcoins for clients, seeking information about virtually all bitcoin transactions by U.S. customers over a multi-year period (2013-2015). Initially, aggrieved customers filed an action challenging the summons (perhaps fearing that Coinbase would not do so), but subsequently Coinbase intervened, and the U.S. sought to enforce the summons issued to Coinbase. The matter is currently pending in the Northern District of California. United States v. Coinbase, Inc., No. 3:17-cv-01431-JSC (N.D. Cal. March 16, 2017). Interestingly, in March of 2017, the IRS filed a declaration noting that only 1,000 individual returns from 2013 to 2015 reported gain or loss from the sale of bitcoin (while anecdotal evidence suggests that there were hundreds of thousands of transactions). The IRS considers bitcoin property, rather than a currency (IRS Notice 2014-21), and the failure of taxpayers to report transactions certainly suggests the potential for significant non-compliance. Although the decision is still pending, if the IRS prevails, there could be audits coming down the line.