Tax News & Views Lost Deals and Lost Socks Roundup

Ippei Mizuhara, ex-interpreter for Shohei Ohtani, agrees to plea deal - Des Bieler, Washington Post:

In a court filing Wednesday and a news release, the U.S. attorney’s office for the Central District of California shared summaries of Mizuhara’s alleged wrongdoing. After Ohtani signed with the Los Angeles Angels in 2018, Mizuhara helped him set up a bank account in Phoenix. The interpreter was thus able to glean the account’s password, prosecutors said, and use his access to change its registered email address and phone number so bank officials would contact Mizuhara, rather than Ohtani, when seeking to verify wire transfers.

Mizuhara called the Phoenix bank and impersonated Ohtani approximately two dozen times, per the plea agreement. In addition to paying off gambling debts, Mizuhara was said to have used the stolen funds in other ways, including to pay for $60,000 worth of dental work and for approximately $325,000 worth of baseball cards. He intended to resell the cards, per the plea agreement, and “use the proceeds for his own personal benefit.”

Ohtani’s Ex-Translator Agrees to Plead Guilty to Tax Charge - Nathan Richman, Tax Notes ($):

A former translator has agreed to plead guilty to bank fraud and false tax return charges stemming from his theft of $16 million from baseball star Shohei Ohtani.

In a May 8 plea agreement, Ippei Mizuhara admitted that he should have reported $4.1 million of income for 2022 instead of the $137,000 he reported.

Former Ohtani Interpreter Ippei Mizuhara Pleads Guilty To Bank And Tax Fraud - Kelly Phillips Erb, Forbes ($). "The complaint against Mizuhara was filed on April 11, 2024. The plea shortens what would likely have been a lengthy—and distracting trial—involving Ohtani. Mizuhara could have been sentenced to 33 years in jail, but under the plea agreement, prosecutors will recommend a reduced sentence. The plea agreement also requires Mizuhara to pay full restitution to Ohtani."

That went fast. It's been less than two months since the news broke of the translator's scandal, and we already have a plea deal.

Tax problems don't only come from the IRS.

IRS Covid-Era Employee Tax Credit Delays Snarl Deal Closings - Erin Slowey, Bloomberg ($):

Deals are being held up as businesses wait to hear from the IRS on the pandemic-era credit at the heart of the agency’s war against fraud.

Many businesses that claimed the employee retention tax credit still haven’t received their refund while the IRS overhauls the program. Others that incorrectly claimed the credit haven’t heard whether they were accepted into the program that would require them to pay back part of the credit received. This uncertainty and unknown timeline on when businesses would expect to hear from the IRS is creating more risk for potential buyers.

The IRS audit lottery isn't the only risk for a questionable tax return position. When it comes time to sell a business, buyers don't want to take on hidden tax problems. Due diligence by the buyers tax advisors is a normal part of acquisitions.

On the Hill

Smith Still Optimistic for Stand-Alone Tax Bill Passage - Cady Stanton, Tax Notes ($):

A months long Senate stalemate on the $79 billion House-passed tax bill hasn’t dulled the optimism of the top House taxwriter and his desire for the legislation to pass as a stand-alone measure.

House Ways and Means Committee Chair Jason Smith, R-Mo., said at a May 8 event hosted by BakerHostetler that he is still hopeful that the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) will pass the Senate — even as Republicans in the chamber seem to remain unswayed on their concerns about the bill.

Smith said he recently spoke with Senate Majority Leader Charles E. Schumer, D-N.Y., “and I was like, ‘Just hold the vote. I believe the votes are there.’”

It's possible that the votes are there. It's also possible that the vote would have been held already if the votes were there.

Some Conservatives Want Corporate Rate Hike, Panel Chair Says - Samantha Handler, Bloomberg ($):

The GOP conference will have to sort out whether to raise the corporate tax rate, whether the tax cuts must be paid for, and what to do about the state-and-local tax deduction cap, Smith said at the lobbying firm BakerHostetler’s legislative summit Wednesday. Much of the 2017 tax law expires at the end of 2025, setting up a tax policy showdown as lawmakers will battle over provision extensions, and, potentially, new policy.

“When we return in the next Congress it is my expectation for the House Ways and Means Committee to get a tax bill passed in the first quarter,” Smith said.

Responding on X/Twitter, Kyle Pomerleau, Tax Fellow at the American Enterprise Institute, called that "an extremely optimistic timeline."

Extending Trump’s tax cuts would cost US trillions of dollars in new forecast - Aris Folley, The Hill:

“Most of the effects would occur after 2026,” the CBO said, while noting projections that “increased net outlays for interest would add $467 billion to those deficits.”

Next year, a chunk of individual income tax provisions in the act are set to expire, the CBO noted, adding that those provisions would “affect major elements of the individual income tax code.”

Among the tax provisions expiring after 2025 are the 37% top rate, the increased standard deduction, the cap on itemized deductions for state and local taxes, the qualified business income deduction, and the increase in the estate tax lifetime exemption.

Blogs and bits

How to appeal an IRS tax decision - Kay Bell, Don't Mess With Taxes. "And the IRS has a separate appeals office created to deal with these taxpayer-auditor disputes. There are around 1,500 appeals office employees, most of whom were auditors themselves, and generally have legal or accounting experience."

Related: IRS Exam Assistance

District Court Rejects Charitable Contribution Workaround to SALT Deduction Cap - Parker Tax Pro Library. "The court concluded that nothing in Code Sec. 170 suggested that Congress intended that charitable contributions made to state or local government sponsored funds in exchange for tax credits would be exempt from the standard rule that the amount of a charitable contribution deduction is reduced by the amount of any benefit received."

Professionalism, Compassion, and Fairness in Tax Court Trials - Guinevere Moore, Procedurally Taxing via Tax Notes. "While we can (and do) disagree about what the right result actually is, one of the things I love about the Tax Court bar is that we are, for the most part, colleagues who work together to accomplish the right result. I am lucky to count attorneys from the IRS Office of Chief Counsel as friends and colleagues as well attorneys from the petitioners’ side of the aisle. I think this drive to reach the right result in a respectful and collegial manner comes from the court. We are not only encouraged, but required to stipulate to all non-privileged matters that can be fairly reached"

International Tax Corner

Treasury Floats Foreign Trust Reporting Rules - Natalie Olivo, Law360 Tax Authority ($). "The U.S. Treasury Department proposed regulations Tuesday that provide guidance on the requirements for individuals to report their transactions with foreign trusts to the Internal Revenue Service, including the receipt of large gift"

The proposed regulations cover items that are required to be reported on Forms 3520 and 3520-A. These forms exist to notify the IRS of large cash infusions from abroad that are claimed to be non-taxable, giving the agency the opportunity to examine such claims. A recent case illustrates how the IRS can use the Form 3520 to require taxation of offshore compensation that a taxpayer claimed was a tax-free gift. The forms also notify the IRS of dealings with offshore trusts to help insure that beneficiaries properly report their trust income. Further, some foreign pension plans fall under its reporting requirements.

Aaron Boyer, a partner in Eide Bailly's International Tax team, weighs in on the proposed regulations:

In general the regulations tighten the requirements in order for a transaction to be tax free and update the compliance requirements of a variety of issues.

The primary changes of the proposed regulations include:

• Creates anti-avoidance rules under IRC 643(i) for certain transactions such as loans from trusts and use of trust property. The rules prescribe tax consequences of such transactions and the methodology to determine the tax liability.

• Expands the definition of “gift” from foreign persons and provides for inflation indexed reporting (historically a fixed $100,000 threshold).

• Provides relief to dual resident taxpayer from Form 3520 / 3520-A reporting when the dual resident claims “nonresident alien” status using treaty residency tie breaker rules.

• Requires additional information on the “Foreign Owned Grantor Trust Beneficiary Statement” and indicates that Form 3520-A instructions will be modified to detail the requirements.

• Provides a filing exception to Forms 3520 / 3520-A for transactions with certain tax-favored foreign retirement trusts, nonretirement savings trusts, and de minimis savings trusts.

• Provides that certain gifts from foreign corporations and foreign partnerships are required to be aggregated to determine if they exceed the reporting threshold.

The penalties for failing to file required Forms 3520 and 3520-A are steep. From the Form 3520 instructions:

Generally, the initial penalty is equal to the greater of $10,000 or the following (as applicable).

35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust...

35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution...

5% of the gross value of the portion of the foreign trust's assets treated as owned by a U.S. person under the grantor trust rules...

Failure to report a foreign gift can lead to penalties up to 25% of the unreported gift.

Link: Proposed regulations.

Routine Matters - Alex Parker, Things of Caesar. How to define what's routine and what's not is still threatening to halt the OECD's once-promising Amount B project–and it could blow up the entire Pillar One process."

Farhy Overruled – A Big Loss for Overseas Americans - Virginia La Torre Jeker, US Tax Talk:

This decision in combination with the recent Treasury Department proposal (March 11, 2024), spells particular hardship for the taxpayer abroad. In its fiscal year (FY) 2025 Green Book Treasury has a proposal that will essentially eliminate almost all remaining requirements for IRS agents to obtain written supervisory approval for penalties. This was noted by the National Taxpayer Advocate as a serious concern in its recent blog posting.

The US tax rules that apply to the typical American abroad are so complex that every tax practitioner I know struggles in one or more ways to advise those living overseas.

Spanish prosecutors recommend 2nd investigation into Shakira’s taxes be thrown out - Associated Press. "Spanish state prosecutors recommended Wednesday that an investigating judge shelve a probe into another alleged case of tax fraud by pop star Shakira."

Tax Crime Corner

Illinois businessman sentenced to nine years in prison for fraud and tax evasion - IRS (defendant name omitted, emphasis added):

An Illinois businessman has been sentenced to nine years in federal prison for evading nearly half a million dollars in taxes and engaging in a variety of fraud schemes.

Defendant knowingly and willfully failed to file individual income tax returns from 2015 to 2020, causing losses of $415,043 to the IRS and $75,045 to the State of Illinois. Defendant concealed his receipt of income by engaging in affirmative acts of tax evasion, including listing a relative’s Social Security number on casino tax forms, using family members as nominee owners of vehicles, and using a nominee to rent airplane hangars at the DuPage County, Ill. Airport. Among his other offenses, Defendant in 2020 fraudulently procured four loans under the Paycheck Protection Program and Economic Injury Disaster Loan Program, two sources of relief under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act that were intended to support small businesses during the Covid-19 pandemic. Defendant obtained more than $1.18 million in PPP and EIDL loans by manufacturing false tax documents and submitting them to lenders.

Expect similar cases to appear regarding the Employee Retention Credit.

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A moment of silence for Lost Sock Memorial Day.

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Joe B. Kristan, CPA