Tax News & Views Claims, Schemes, and Bagels Roundup

July 26, 2023

IRS Zeroes In on Erroneous ERC Claims - Lauren Loricchio, Tax Notes ($):

The IRS is closely examining erroneous employee retention credit claims — and there will be consequences for fraudsters and promoters of ERC-related schemes, according to an agency official.

“The IRS has identified widespread fraud related to the ERC, and we have really ramped up our activity to address it accordingly,” said Lloyd Kinlaw, a technical data analyst in the agency’s Office of Fraud Enforcement.

For what it's worth, it won't go great for people who hired the fraudsers and promoters either.

Related: What to Know About the Employee Retention Credit.


Taxpayers see wave of summer email, text scams; IRS urges extra caution with flood of schemes involving Economic Impact Payments, Employee Retention Credits, tax refunds - IRS:

Emails messages are hitting inboxes with titles like: "Third Round of Economic Impact Payments Status Available." The IRS routinely sees hundreds of taxpayers forwarding these messages each day; the IRS has seen thousands of these emails reported since the July 4 holiday period.

The third round of Economic Impact Payments occurred in 2021, more than two years ago. And this particular scheme, which plays off this real-world tax event, has been around since then. But while the stimulus payments ended long ago, the related scheme has evolved and changed as scam artists look for new ways to adjust their message to trick people.

The IRS also warns of "The misleading 'You may be eligible for the ERC' claim."


Fight over deduction for state and local taxes snags GOP tax bill - Julie Zauzmer Weil, Washington Post:

Forming what they call the SALT Caucus, the Republicans are working with a group of Democrats to achieve a single goal: Undoing a 2017 provision that capped the amount taxpayers can deduct from their federal income taxes for state and local taxes (abbreviated as SALT). 

President Donald Trump’s signature tax law limited that deduction to $10,000. That sum affected fewer people in red states where tax rates tend to be lower and many more people in blue states with higher rates, including New York, New Jersey and California.

It's an uphill climb, given the amount of revenue that would be lost by a repeal of the cap and the way the advantage of the deduction skews to high-income filers.


Iowa DOR Issues Guidance on New Passthrough Entity Tax Election - Emily Hollingsworth, Tax Notes ($):

The DOR guidance explains that S corporations, general partnerships, limited liability companies (excluding single-member LLCs), limited liability partnerships, or limited partnerships can annually elect to pay a PTET and their owners can claim a credit against the net tax.


PTET elections for tax year 2022 will be due by December 31 or by the due dates of their 2022 IA 1065 or 2022 IA 1120S — including extensions — whichever comes later, the DOR said. For tax years 2023 and after, the PTET election will follow the same deadline as returns IA 1065 and IA 1120S.

Related: Iowa issues guidance on retroactive pass-through entity tax.


IP PINs recommended to thwart tax ID thieves - Kay Bell, Don't Mess With Taxes. "'The IP PIN is the number one security tool currently available to taxpayers from the IRS,' the Electronic Tax Administration Advisory Committee (ETAAC) said in its 2022 annual report to Congress. 'This tool is the key to making it more difficult for criminals to file false tax returns in the name of the taxpayer. In our view, the benefits of increased IP PIN use are many.'"

In Major Shift, IRS Announces It Will End Most Unannounced Visits To Taxpayers - Kelly Phillips Erb, Forbes. "This is a significant turnabout for the 2,300 IRS Revenue Officers, whose duties include visiting taxpayers to resolve their account balances by collecting unpaid taxes and unfiled tax returns. Despite recent misrepresentations, those visits were made by IRS Revenue Officers who were unarmed."

What Is a Backdoor Roth IRA? - Bernice Napach, Wall Street Journal. "Before you decide to use the backdoor Roth IRA maneuver, however, there are some wrinkles you need to be aware of. If you have several different IRAs, the conversion isn’t quite as simple, and you could end up with a surprise tax bill."


Ticket Wins $1.08B Powerball Jackpot Of $558.1M Cash $351.6M After Tax - Robert Wood, Forbes. "Curiously, only 24% is withheld and sent directly to the government. The spread between the 24% withholding tax rate and the 37% tax rate on these numbers is another whopping $72,553,000 in tax. That’s a big check to write come April 15th."

Adequate Disclosure of Gift Starts Statute of Limitations on Assessment - Keith Fogg, Procedurally Taxing. "In Schlapfer v. Commissioner, T.C. Memo 2023-65, the Tax Court held that providing information about a gift to the IRS during the Offshore Voluntary Disclosure Program (OVDP) served to start the statute of limitations running on the gift tax disclosed as part of the package of information provided to the IRS."

A Global Look at Protecting Vulnerable Persons from Financial Fraud (The Case of the Wicked Stepdaughter) - Virginia La Torre Jeker, US Tax Talk. "Plans can be put in place to help the elderly with financial safety.  It is important to learn about the options. Safeguarding finances of the elderly or mentally challenged person can be approached by different means, including the use of joint accounts, powers of attorney and trust structures. Each possibility comes with its own set of US tax issues when US persons are involved."


No Labels Talks About Taxpayers - Joseph Thorndike, Tax Notes Opinions. "In many respects, 'taxpayer' has replaced 'citizen' in modern political discourse. The word has become so commonplace that even many liberals and progressives use it uncritically."

Problem of Earmarking Tax Revenues - Annette Nellen, 21st Century Taxation. "So, it's good that fewer people are smoking, but important programs lose funding as a result. What an odd system!"


The Short Form: What You Need to Know about the Global Tax Deal - Noah Peterson, Tax Policy Blog. "Pillar Two would ensure that large multinational corporations pay an effective tax rate of at least 15 percent—an attempt to stop companies from moving their profits to tax havens (i.e., low-tax or no-tax jurisdictions)."

W&M OECD International Tax Hearing Wrap‐Up - Adam Michel, Liberty Taxed. "In my remarks, I explain how the OECD has lost its way in advocating for higher and more complicated taxes and detail the economic costs of its proposals. I conclude with thoughts on how U.S. policy should respond."


Fifth Circuit: Filing of False Payment Plan Statement Is Sufficient Evidence of Tax Evasion - Parker Tax Pro Library. "The Fifth Circuit held that a district court did not abuse its discretion by denying a taxpayer's motion for mistrial after a jury convicted him of tax evasion under Code Sec. 7201 for submitting a fraudulent Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, which understated his income and did not accurately list his personal assets."


Hunter Biden Heads to Court: What to Know - Sadie Gurman, Wall Street Journal:

U.S. District Judge Maryellen Noreika is widely expected to approve the plea deal. But given the high-profile nature of the case, legal observers said the judge, whom Trump nominated to the bench in 2017, is likely to ask a lot of questions about the agreement, in part to make sure the public knows she has fully vetted its terms. Republicans have decried the plan as a sweetheart deal for the Democratic president’s son. 


While the judge is expected to sign off on the plea agreement, Hunter Biden will likely have to return to court to be sentenced. Noreika will likely set a date for that sentencing hearing on Wednesday.

Judge says member of Hunter Biden’s legal team ‘misrepresented her identity’ on eve of plea deal hearing - Josh Gerstein, Politico. "In a brief order Tuesday afternoon, U.S. District Court Judge Maryellen Noreika wrote that an employee at Latham & Watkins, a law firm representing the president’s son, had called the court clerk’s office and falsely claimed to work for a Republican lawyer in the hopes of persuading the clerk to remove documents that apparently contained Biden’s personal tax information."


Ore. 'Serial Nonfiler' Owes Tax On $750K, Tax Court Says - Anna Scott Farrell, Law360 Tax Authority ($). "The owner of an Oregon storage business who failed to file federal income tax returns for at least 14 years used fictitious trusts and tax-protester arguments to hide more than $750,000 in income from the IRS, the U.S. Tax Court said Tuesday."

What was the nature of the frivolity? I'm glad you asked! From the Tax Court opinion (taxpayer name omitted):

Petitioner began advancing frivolous arguments at the commencement of this case, and he has not stopped since, despite our warnings that he should desist. He asserted in his Petition that he is exempt from Federal income tax because he is “a citizen of the State of Oregon” and “not a federal citizen.” And he urged that the notice of deficiency was invalid because “it was not signed under penalties of perjury by duly authorized assessment officer.” A notice of deficiency is not required to be signed “under penalties of perjury.” And given the restrictions against assessment set forth in section 6213, a notice of deficiency is not required to be signed by “a duly authorized assessment officer.” All of these arguments have been identified by the Commissioner as frivolous. 


Four months after filing his Petition, petitioner moved to have this case dismissed for lack of jurisdiction, setting forth a plethora of arguments pulled off tax-protester websites. He asserted (among other things) that the IRS “lacks personam jurisdiction over [taxpayer name], who is an American, Citizen of Oregon (expressly not a federal citizen and not resident alien).” And he asserted that the IRS “failed to execute the required procedurally proper Assessment Certificate(s) which corresponds to each Notice of Deficiency.”

Given the taxpayers use of bogus trusts, the amount of income not reported, and his lack of cooperation with the IRS, the $10,000 frivolous argument penalty is a better result than he might have expected.


Florida attorney charged in fraudulent charitable contribution tax scheme - IRS (defendant name omitted):

According to the indictment, Defendant, of Davie, Florida, organized and sold an illegal tax shelter called the Ultimate Tax Plan to assist high-income individuals in reducing their taxes. Defendant allegedly marketed the scheme as a way for clients to claim charitable contribution tax deductions without giving up control over the assets they purportedly donated to charity and advised that clients could still access their donated assets for their own personal use through tax-free loans and execute an "exit strategy" to buy back their donations at a significantly discounted rate. The indictment further alleges that, to execute the scheme, Defendant prepared the boilerplate transaction documents, prepared appraisals of the purported donations, assisted clients in filing false tax returns, and controlled the charities that received the purported donations. For several clients, Defendant and his co-conspirators allegedly created backdated transaction documents to make it appear that a client had made a charitable contribution in a prior year and, in turn, assisted clients to falsely claim charitable tax deductions for the prior year.


The indictment alleges that Defendant violated the terms of his permanent injunction through various means, including filing tax returns, assisting clients in taking charitable tax deductions, and providing advice on charitable tax deductions.

When shopping for tax advice, permanent injunctions are considered a red flag.

Since 2013, Defendant and his co-conspirators allegedly earned more than $10 million from selling the Ultimate Tax Plan. Defendant allegedly used that income to purchase a multi-million-dollar estate and a luxury vehicle collection that included Lamborghinis, Rolls Royces, Mercedes Benzes, a Bentley, and a Ferrari.

These things aren't necessarily the markers of credibility one might think them to be. 



It's MAT-toon, if you're from there. Today is National Bagelfest Day, which apparently started, oddly enough, in the southern Illinois town of Mattoon: "National Bagelfest Day is a celebration that started in Mattoon, Illinois. The idea for the event was introduced by Murray Lender, the man who owns the Bagel Factory and Lender’s Bagels. It all started in 1986 when Murray decided to host a breakfast for the people of his town in Mattoon."

Related: Mad Gasser of Mattoon.

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