Charles Rettig Archives - TAX CONTROVERSY 360

Finding John Doe, Part II: IRS Secures Another Victory to “Root Out” Virtual Currency Tax Noncompliance

by Julian André, Kevin Spencer, Katharine Suominen and McDermott Will & Emery | May 7, 2021 | IRS Guidance, Tax Reform

The Internal Revenue Service (IRS) has scored another significant victory in its rapidly increasing virtual currency tax enforcement efforts. On May 5, 2021, the US District Court for the Northern District of California entered an order authorizing the IRS to serve a John Doe summons on popular cryptocurrency exchange, Payward Ventures Inc. d/b/a Kraken (Kraken). Specifically, the court’s order grants the IRS permission to serve a John Doe summons on Kraken in order to obtain information on US taxpayers who conducted the equivalent of at least $20,000 in total transactions for each year from 2016 to 2020.

If the IRS follows its playbook from the Coinbase summons, its victory here and with the Poloniex summons (upheld by a court in Massachusetts a few weeks ago), will likely result in thousands of US taxpayers receiving a letter from the IRS regarding their virtual currency transactions. As noted in its response to the court, over the past few years the IRS has learned a great deal about analyzing these transactions and is in possession of information from foreign virtual currency exchanges it’s also analyzing. This victory, coupled with the IRS’ increased knowledge of virtual currency transactions, is a big step in its efforts to, as stated in the IRS’ court filing, “root out tax noncompliance.”

As we previously noted in “Finding John Doe: IRS Steps up Enforcement Efforts to Take the Anonymity Out of Virtual Currency,” the court ordered the government to submit a response explaining its need for the information requested in its summons to Kraken. The government’s response indicates that the IRS has made significant progress in its analysis of summoned data from other cryptocurrency exchanges, such as Coinbase, and its ability to follow leads in the cryptocurrency marketplace. The court’s order approving the summons significantly reinforces the strength of the IRS’ crypto pursuit. These efforts are not solely focused on identifying tax noncompliance at a single exchange like Kraken but to identify the conduct for individuals transacting in cryptocurrency with Kraken accounts who may have additional accounts at other exchanges.

In citing its need for additional information to the court, the IRS expressly stated that in its experience from processing the Coinbase summons information, it has learned that taxpayers will use aliases, false addresses, post office boxes, fictitious entity names or other means to disguise their true identity. Taxpayers who create and use false information are more likely to evade their taxes, the IRS argued. The summons approved by the court requires Kraken to produce extensive records and data regarding its accountholders. Among other things, the summons requires Kraken to produce the following for each US-based account with at least $20,000 in annual transactions:

Account registration records and user profile information, including name, date of birth, taxpayer ID number, physical address, email address and telephone number
History of any IP addresses used to access the account
Payment [...]

Continue Reading

Skip Jail and Clean Up Your Tax Problems

by Jenny L. Johnson Ware, Kevin Spencer and Le Chen | Jul 16, 2020 | IRS Appeals, IRS Audits, IRS Guidance, Tax Reform

If you have knowingly failed to report income or claimed deductions you know you are not entitled to, or just decided not to file your tax returns and pay the tax owed, you may be liable for civil penalties and even jail time for criminal tax evasion. Taxpayers with civil and criminal tax exposure may want to fix their past mistakes but are afraid of what will happen if they “come clean.” So, the majority of offenders keep offending year after year. But did you know there is an Internal Revenue Service (IRS) program that can help taxpayers get out of that “evasion” cycle, and clean up past tax issues, usually without criminal liability?

The IRS has a longstanding program through which taxpayers can make voluntary disclosures of tax underreporting and tax criminal evasion. Such disclosures may help taxpayers limit their criminal exposure, although disclosure does not automatically guarantee immunity from criminal prosecution.

The latest iteration of the voluntary disclosure program is known as the Voluntary Disclosure Practice (VDP). (Here is a link to the IRS’s VDP program description.) Under the terms of the program, a taxpayer must submit Part I of Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, which contains basic identifying and procedural information necessary to determine if the taxpayer is eligible to participate in the VDP program. The IRS uses this information to verify that the taxpayer is not already under criminal investigation, which is a bar to entering into the VDP program. Once the taxpayer has been “precleared,” the taxpayer must submit Part II of Form 14457, which seeks detailed information regarding the nature of the tax reporting failures and the associated unpaid tax liabilities. If the taxpayer is approved to participate in the VDP program, the taxpayer’s case is transferred to the appropriate IRS civil division for examination. Ultimately, the taxpayer must cooperate with the IRS to determine its correct tax liability and must make good faith arrangements to pay all unpaid liabilities, including interest and penalties. Typically, this will include the filing of corrected tax returns for six years; the payment of the correct tax and interest for those returns; and the payment of enhanced penalties for one tax year.

The current version of Form 14457 was released in April 2020. On July 14, 2020, Carolyn A. Schenck, the National Fraud Counsel for the IRS Fraud Enforcement Program, stated that the IRS is planning to issue additional instructions for Form 14457 to provide further guidance on the mechanics of the VDP. Conforming additions will be made to the Internal Revenue Manual.

Practice Point: The risk of criminal prosecution for tax offenses is increasing due to significant improvements in IRS enforcement strategies. IRS commissioner Charles Rettig was formerly in private practice defending taxpayers and has implemented significant changes in IRS programs and leadership. There is an unprecedented degree of coordination among the enforcement divisions and emphasis on preventing tax fraud, with Eric Hylton, previous deputy [...]

Continue Reading

Senate Confirms Rettig as Next IRS Commissioner; Desmond Next?

by Kevin Spencer and McDermott Will & Emery | Sep 13, 2018 | IRS Audits, Tax Reform, Trial Courts, Uncategorized

On September 12, 2018, the Senate confirmed, by a vote of 64-33, Charles P. Rettig to be Commissioner of the Internal Revenue for the term expiring November 12, 2022. We previously discussed the nomination of Mr. Rettig and his background here.

The IRS Commissioner presides over the United States’ tax system and is responsible for establishing and interpreting tax administration policy and for developing strategic issues, goal and objectives for managing and operating the IRS. This includes responsibility for overall planning, directing, controlling and evaluating IRS policies, programs, and performance. The IRS Commissioner is also required by statute under Internal Revenue Code (Code) Section 7803 to ensure that all IRS employees are familiar with and act in accord with the Taxpayer Bill of Rights.

The nomination of Michael J. Desmond to be Chief Counsel of the Internal Revenue Service (IRS) remains pending in the Senate. We previously discussed the nomination of Mr. Desmond and his background here.

The IRS Chief Counsel serves as the chief legal advisor to the IRS Commissioner on all matters pertaining to the interpretation, administration, and enforcement of the Internal Revenue Code, as well as all other legal matters. Attorneys in the IRS Chief Counsel’s Office serve as lawyers for the IRS. Their role is to provide the IRS and taxpayers with guidance on interpreting Federal tax laws correctly, represent the IRS in litigation, and provide all other legal support required to carry out the IRS mission

Nominations Announced for Tax Court and IRS Commissioner

by K. Christy Vouri-Misso, McDermott Will & Emery and McDermott Will & Emery | Jan 24, 2018 | Trial Courts, Uncategorized

On January 23, 2018, President Trump announced his intent to nominate Courtney Dunbar Jones to the US Tax Court. He previously nominated Elizabeth Copeland and Patrick Urda on August 3, 2017.

Courtney Dunbar Jones is a senior attorney in the Tax-Exempt and Government Entities division in the Office of Chief Counsel of the Internal Revenue Service (IRS). If confirmed, she will assume the position left vacant by the 2016 retirement of Judge John O. Colvin. Judge Colvin still performs judicial duties as a Senior Judge on recall.

On January 24, 2018, numerous press outlets announced that President Trump will nominate Charles “Chuck” Rettig of Hochman, Salkin, Rettig, Toscher & Perez, to serve as the next Commissioner of the IRS.

Rettig has been in private practice at Hochman, Salkin for more than 35 years and has a long record of leadership in our field. Among his many accomplishments, Rettig was instrumental in working with the IRS to establish key settlement initiatives over the last 15 years, including providing key practitioner guidance in designing the Offshore Voluntary Disclosure Program.

If confirmed, Rettig would helm an IRS that has been significantly reshaped by budget cuts and staff attrition in recent years. Rettig would also oversee the implementation of tax reform. Rettig has been a friend and mentor to many of us in the tax controversy bar over the years, and we are encouraged by the selection of someone from the private bar to the post.