Sunday, November 27, 2016

Gift Tax Statute of Limitations if Prior Gifts Omitted from Return

The IRS only has three years after a Form 709 is filed to assess gift taxes on a gift, so long as the gift is adequately disclosed on the return. If a gift is not disclosed, the statute of limitations does not begin to run on that gift.

The Form 709 requires disclosures of prior gifts, so that the tax on the current gifts can be properly calculated (since prior gifts can impact the rate of tax and available unified credit applicable to the current year computations).

So what happens if a gift is reported on the return, but the prior gifts are improperly reported, resulting in an underpayment of gift tax? Does the IRS have only 3 years to assess the underpayment, or does the failure to properly report the prior gifts extend the statute of limitations?

A recent Chief Counsel Advice concludes that the Code does not support an extended statute of limitations in this circumstance.

Chief Counsel Advice 201643020

Wednesday, November 23, 2016

IRS on the Hunt for Bitcoin Users

Bitcoin is the most popular of the virtual currencies. In Notice 2014-21, the IRS advised that such currencies are not money, but property, for tax purposes. Two implications of this are that persons who use Bitcoins to purchase things are treated as having sold the Bitcoin on the purchase date for the value of what they purchased – this will usually generate gain or loss to the buyer, and persons who receive Bitcoins are treated as receiving property worth the daily exchange value of Bitcoins on the date of receipt.

Likely suspecting that many taxpayers dealing in Bitcoins may inadvertently not be reporting their transactions as described above, or indeed are intentionally using Bitcoins to not report income, the IRS has issued a John Doe summons to Coinbase, the largest Bitcoin exchange firm in the U.S. seeking the records of all customers who bought virtual currenty from the company from 2013 to 2015. This is a warning that the IRS is enhancing its enforcement efforts in regard to Bitcoin transactions.

Friday, November 18, 2016

Of Course You Should Trust the IRS with Your Financial Information

The income tax provides justification for massive government intrusion into the financial privacy of its taxpayers. Its information gathering capacity and demands run wide and deep, and expand with almost every piece of enacted major tax legislation.

We would like to think that the government can be trusted with our financial data - but is that really justified? Data breaches are not limited to the private sector, the government is not too concerned about being sued like a private company if its servers are breached given sovereign immunity, and political motivations and abuse of access are also real risks.

Am I crying wolf here? You be the judge:

Recent Inspector General Report Excerpt: “TIGTA found the IRS did not ensure that encryption requirements are being enforced and ensure that nonsecure protocols are not being used in order to fully protect information during transmission. These protocols include File Transfer Protocol and Telnet, which are known insecure transfer protocols. The IRS also did not remediate high- risk vulnerabilities or install security patches on file transfer servers in a timely manner.  For example, TIGTA found 6 1 servers with high -risk vulnerabilities, 10 servers with outdated versions of Windows and UNIX operating systems still in operation, and 32 servers missing 18 unique security patches, of which four were deemed as critical. Lastly , the IRS did not ensure that corrective action plans for correcting security control weaknesses, including some of the weaknesses previously mentioned, met IRS standards.  This reduced the assurance that the weaknesses would be corrected timely”.

And another:

Recent Inspector General Report Excerpt: “taxpayers whose PII/tax return information was sent unencrypted in either internal or external e -mails during four weeks; this equates to 28,200,857 taxpayers for the full year”