Tax News & Views Crypto, Clean Cars, and Paczki Roundup

Prosecutors Announce First Crypto Basis Indictment Nathan Richman, Tax Notes ($): "The Justice Department has obtained what the former IRS Criminal Investigation division chief called perhaps the first legal-source cryptocurrency tax indictment."

From the Department of Justice press release (defendant names omitted, emphasis added):

According to the indictment, between 2017 and 2019, Defendant, of Austin, filed false tax returns that underreported or did not report the sale of $4 million worth of bitcoin in which he had substantial gains. All taxpayers are required to report any sale proceeds and gains or losses from the sale of cryptocurrency, such as bitcoin, on a tax return. In 2017, Defendant allegedly used the proceeds from the sale of approximately $3.7 million worth of bitcoin to purchase a residence. Defendant allegedly filed a false 2017 tax return that inflated the price he originally paid for the bitcoin, thereby underreporting his capital gain from the sale. In 2018 and 2019, Defendant allegedly sold bitcoin for more than $650,000, and allegedly failed to report his sales of bitcoin on his 2018 and 2019 tax returns.

The indictment also charges that after selling some of his bitcoin to an individual in exchange for cash, Defendant made a series of bank deposits of the cash in amounts less than $10,000 each to avoid triggering currency transaction reporting requirements.

The "structuring" charge might highlight a problem for those who look to cryptocurrency as a way around paying taxes. Not everyone accepts Bitcoins, and if you need to turn it into a lot of cash, you trigger cash transaction reporting on Form 8300. If you try to get around the $10,000 threshold with small deposits, you are likely to trigger rules requiring banks to report "suspicious" transactions. Either way, you find yourself on the IRS's radar.

The IRS was planning to apply Form 8300 to crypto transactions for 2023, but those plans have been postponed for now.

Clean Vehicles and Dirty Money

IRS Temporarily Extends Clean Vehicles' Reporting Deadline - Jared Serre, Law360 Tax Authority ($). "Seller reports for eligible vehicles sold in 2023 must be reported to the IRS by Feb. 15, according to Revenue Procedure 2024-12, as opposed to the 15-day window at the end of a calendar year. The date also applies to vehicles placed in service on or after Jan. 17, the agency said."

US Eyes Requiring Reports On All-Cash Real Estate Transfers - Kevin Pinner, Law360 Tax Authority ($):

Professionals involved in real estate transfers in the U.S. would be required to report on the beneficial owners of trusts and other legal entities that receive residential property in any all-cash transactions under draft regulations released Wednesday that aim to tackle tax evasion and corruption.

Real estate attorneys and agents dealing with settlements, title insurance and escrows would need to file a report each time a nonfinanced transfer of residential real estate is made to any legal entity except an individual, the Financial Crimes Enforcement Network said in a notice of proposed rulemaking.

...

The U.S. residential real estate market has been used for decades to launder money from drug trafficking, terrorism and massive corruption schemes, but only a limited program has addressed the issue thus far, according to a senior FinCEN official who requested anonymity.

Link: FinCEN Fact Sheet

Deficit Doomcasting

Two Roads Diverge as TCJA Future Muddles CBO Forecast - Doug Sword, Tax Notes:

The long-term trend of tax collections from individuals growing as a portion of the economy — and corporate income taxes declining — will hasten following the Tax Cuts and Jobs Act’s scheduled expirations after 2025, according to new Congressional Budget Office projections.

The two paths that could be taken — extending the TCJA or letting it expire — is a recurring theme in a CBO report that projects federal budget figures through 2034. Tax collections are expected to be higher and deficits lower in the two years following the TCJA’s scheduled expiration. The opposite could be expected if the provisions of the TCJA are extended, which the CBO has estimated would cost $3.5 trillion over 10 years.

CBO Projects Debt to Exceed Record in 4 Years - Center for a Responsible Federal Budget. "CBO also projects that the trust funds for highways and Social Security Old-Age and Survivors Insurance will be exhausted by the end of the decade. Our preliminary analysis of the report is available here, and a full analysis will be published later today."

IRS News: Employer Child Care Credits, WV Storminess, IRA Credits

Never Heard of the Employer’s Child Care Credit? Just Ask the IRS - Jonathan Curry, Tax Notes ($):

Few people seem to know about the section 45F credit for employer-provided child care resources and even fewer bother claiming it, but the IRS is ready to answer your questions.

...

The credit allows businesses to reduce their income tax liability by up to $150,000 per year by providing a credit for 25 percent of qualified expenditures, which can include the costs of building or expanding a child care facility, the operational costs associated with a child care facility, and the costs of contracting with a child care facility. A 10 percent credit is available for child care resource and referral service expenditures.

Link: IRS press release

West Virginia taxpayers impacted by severe storms, flooding, landslides and mudslides qualify for tax relief; various deadlines postponed to June 17 - IRS. "The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes Boone, Calhoun, Clay, Harrison and Kanawha counties. Individuals and households that reside or have a business in these localities qualify for tax relief."

Treasury Offers New Resource for IRA Energy Credit Awareness - Alexander Rifaat, Tax Notes ($):

Treasury has unveiled a general resources page dedicated to the Inflation Reduction Act on its website in a bid to increase uptake of the various energy tax credits enacted as part of the legislation.

Providing a webpage that serves as a one-stop shop for the plethora of guidance released is key to increasing uptake of the subsidies, according to Treasury Deputy Secretary Wally Adeyemo.

Related: How the Inflation Reduction Act is Boosting Energy Efficiency Incentives Alerts 2022/11

Blogs and Bits

IRS tax notices do's and don'ts - Kay Bell, Don't Mess With Taxes. "Don't ignore it. If the IRS says you didn't pay enough tax, penalties and interest on the due amount will add to any tax liability. If you ignore the matter, the amount you owe will keep growing. Notices also often have deadlines for responding. If you miss them, you'll find yourself facing more tax troubles."

IRS collection notices are back: what to expect - Jim Buttonow, NATP Blog. "On Dec. 19, 2023, the IRS announced that the moratorium on collection and non-filer enforcement is over. In January 2024, the IRS restarted its primary collection function, the Automated Collection System (“ACS”). Many taxpayers who owe tax for years before 2022 are now seeing IRS collection notice activity. They can face follow-up collection enforcement through liens, levies and passport restrictions if they do not pay or get into a collection agreement on their back balances owed."

IRS Updates 1099-K Guidance For Taxpayers Who Use Apps Like PayPal And Venmo - Kelly Phillips Erb, Forbes ($). "And those Taylor Swift tickets that you sold for a gain? That is taxable, even if you're not in the business of selling Eras Tour tickets—and you may well receive a Form 1099-K. That's because the gain on the sale of a personal item is taxable (sadly, the loss on the sale of a personal item is not deductible)."

Identity Protection PINs: What to Know- Erin Collins, NTA Blog. "An Identity Protection PIN (IP PIN) is a unique six-digit number known only to the taxpayer and the IRS; it helps prevent the misuse of the taxpayer’s Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) on fraudulent federal income tax returns. In calendar year 2022, about 525,000 taxpayers opted in to the IRS’s IP PIN program."

IRS Updates Auto Depreciation Limits for 2024 - Bailey Finney, Eide Bailly. "The tax law has special depreciation limits for motor vehicles - often incongruously called the "luxury auto" rules. The IRS has released (Rev. Proc. 2024-13) the updated limits, which apply to vehicles far below the Rolls-Royce level."

International Tax Corner

Predicting the Global Min Tax's Cash Haul - Alex Parker, Things of Caesar. "Last month the Organization for Economic Cooperation and Development issued a new estimate of revenue effects from its 15% global minimum tax, also known as “Pillar Two.” The new working paper updated a November 2023 one, using data from as recently as 2020. The new report estimated that the policy would reduce profit-shifting by half, and low-taxed profit by two-thirds. It also had a slightly downward revision of the potential revenue gains for governments, from $220 billion annually in a January 2023 estimate to $155-$192 billion in the newest paper."

Foreign Earned Income Exclusion for US Expats - Olivier Wagner, 1040 Abroad. "The Foreign Earned Income Exclusion is an IRS exclusion that American expats can use to reduce their taxable income (or in some cases completely eliminate) i.e. their U.S. tax owing. It is the most common and the most widely used tool to reduce US expat tax owing that the IRS offers."

US Estate Tax: Location of Assets, More “Situs” Rules - Virgina La Torre Jeker, US Tax Talk. "Unfortunately, the US estate tax often catches the non-US citizen non-domiciliary’s family by surprise and when it does, it bites hard."

Law Firm Tax Partner Sentenced in Germany to 3 1/2 Years for Fraudulent Tax Shelters - Jack Townsend, Federal Tax Crimes. "An earlier news item finally reached my consciousness this morning and gave me a déjà vu experience. A Freshfields (prominent law firm) former tax partner who gave legal advice for clients to exploit an abusive tax shelter... was sentenced to 3 ½ years incarceration for his role. The shelter has attracted the name 'Cum-Ex.'"

Tax in the Courts

Rocklin business owners plead guilty to conspiracy to evade over 1 million dollars in taxes - IRS (Defendant names removed, emphasis added):

According to court documents, Defendants are the co-owners of Western Baler and Conveyor (WBC), a Rocklin‑based business that sells and services industrial conveyor belt systems. During the period of the conspiracy, WBC grossed several million dollars annually. Beginning in 2016, Defendants attempted to decrease their personal and company tax burdens by disguising personal expenses as company expenses. For example, Defendant S remodeled his home, installed horse stables, and built a swimming pool and paid for all of it through WBC checks made to look like company expenses. At the same time, Defendants padded WBC expenses to get off-the-books cash kickbacks. Defendants ultimately underpaid their personal and company taxes by a combined amount of over $1 million.

In 2018 and 2019, a confidential informant (CI) working with law enforcement met with Defendant S on multiple occasions, helping to reveal how the conspiracy worked. Over several meetings, the CI provided Defendant S large amounts of cash in exchange for WBC checks for the same or similar amounts; Defendants would then divide the cash and keep it as income, while using the WBC checks to make it look like that money had instead been spent on company expenses to decrease their tax burden.

It worked fine, until it didn't.

What Day is it?

It's Paczki Day! "Similar to a donut, Paczki are a sugary pastry that combines glossy doughs with a delicious fruit filling."

Tax News & Views Crypto, Clean Cars, and Paczki Roundup

We're Here to Help

Joe B. Kristan, CPA