FBAR Deadline Is June 30th, but It’s Not a Midnight Deadline

Posted on June 26, 2014 by Russ

Almost every tax deadline is a postmark deadline. If your return is postmarked by midnight of the deadline day it’s considered timely filed. If you file it electronically, and it’s filed by midnight, it’s timely. Of course, with every rule there’s an exception. That exception is definitely the FBAR.

The FBAR–Report of Foreign Bank and Financial Accounts–must be electronically filed. It’s due on June 30th and there are no extensions. So if I file it by midnight local time on June 30th I’m fine, right?

My software company says no. Here’s the message they sent me:

As a reminder, taxpayers that are required to report foreign bank and financial accounts must file Form 114 electronically by June 30th, and the returns must be either Accepted or Accepted with Errors by midnight, June 30th. We strongly recommend that 114 returns be filed no later than 6PM in your time zone to allow for agency processing. FinCEN does not recognize an e-postmark to timely filing, unlike the IRS. Additionally, there is no extension of time to file 114 FBAR returns.

So I took a look at an FBAR I submitted this past week:

Yes, it took over two days to accept the FBAR…and that’s what I’ve been seeing consistently. Assuming my software company is right, that means the true deadline for FBARs is Saturday…which I find hard to believe. I doubt a court would look at an FBAR filed on June 30th (during normal hours) as untimely but who knows? I’ve seen too many strange things with the FBAR this month.

My advice is simple: File the FBAR asap–it at all possible by Saturday. You’re likely fine if you file it by 6 pm in your time zone on Monday, but the penalties are ridiculous on this. As an aside, I searched the FINCEN website, their FAQs on the FBAR, and the IRS website pages on the FBAR to see if I could find any confirmation of what my software company said. I couldn’t; unfortunately, that doesn’t mean it’s not true.

Posted in FINCEN | Tagged | 3 Comments

IRS Ignores AICPA & NAEA; Court Likely Destination for IRS’s New “Annual Filing Season Program”

Posted on June 26, 2014 by Russ

The National Association of Enrolled Agents sent the IRS a letter stating that they didn’t like the idea of a voluntary tax preparer regulation program. (Full disclosure: I’m a member of the NAEA.) The NAEA pointed out that there’s already a voluntary preparer regulation program–Enrolled Agents.

The AICPA sent an even stronger letter saying much the same thing. The AICPA noted that there’s no statute allowing the program, it will be looked at as an end run around Loving v IRS, that the IRS didn’t comply with the Administrative Procedure Act, and that the proposal is arbitrary and capricious.

The IRS’s response? Instead of calling it “voluntary tax preparer regulation,” let’s throw a new name on it: Annual Filing Season Program. That will win hearts and minds over…

I expect the IRS’s next destination for this program is a District Court in the District of Columbia. The AICPA got it absolutely correct: The IRS has no legal justification for this program.

All of this reminds me of something from my days in high school where I was on the debate team. Every proposal had a “self-perpetuating program” of some sort. And that’s just what the bureaucracy at the IRS has done: They took the RTRP program, slapped a new label on it, made it voluntary, and voila, it must be legal. This looks to me to be a self-perpetuating program.

In Loving, the Court held that the IRS overstepped it bounds. The IRS’s stick is that you won’t be listed in an IRS master-database of tax professionals if you don’t sign up for this new program. If I’m an unenrolled tax preparer doesn’t sign up, isn’t it discrimination? The IRS has no right to discriminate against me, right? And that would be the case.

All-in-all, this appears to be a program that’s going to die in court again. I don’t know if the Institute for Justice will be fighting it, but it sure looks like the AICPA will. This has not been the best of weeks for the IRS.

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Lerner Appears to Have Targeted Iowa Senator Grassley

Posted on June 25, 2014 by Russ

In the IRS scandal news of the day, we learned today that Lois Lerner apparently targeted Senator Chuck Grassley (R-IA) and his wife for an audit. In an email, Lois Lerner wrote,

Is this the one where we got the copy to Grassley? Did he get one to me?
Looked like they were inappropriately offering to pay for his wife. Perhaps we should refer to Exam?

Of course, there’s nothing to see there. Nor is there anything to see here:

The Daily Signal has learned that, under a consent judgment today, the IRS agreed to pay $50,000 in damages to the National Organization for Marriage as a result of the unlawful release of the confidential information to a gay rights group, the Human Rights Campaign, that is NOM’s chief political rival.

“Congress made the disclosure of confidential tax return information a serious matter for a reason,” NOM Chairman John D. Eastman told The Daily Signal. “We’re delighted that the IRS has now been held accountable for the illegal disclosure of our list of major donors from our tax return.”

Yeah, there’s not even a smidgen of corruption (not). Of course, President Obama said earlier this year just that–that there is not even a smidgen of corruption:

Of course, we’re going to find out quickly how that DOJ investigation is going. Uh, the DOJ isn’t investigating the clear violation of the law of the leaking of the donor list of NOM. Well how about the DOJ investigation of the IRS scandal? My reply is simple: What investigation? There hasn’t appeared to be one from day one.

Yes, there’s nothing to see here:

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Koskinen Channels His Inner Nixon

Posted on June 24, 2014 by Russ

Those of us who are old enough remember this:

That is the late President Nixon who stated he was not a crook.

Well, last night we had part two of Koskinen Goes to Capitol Hill. He was in front of Darrell Issa’s committee. There were two very interesting exchanges. First, we have Congressman Jim Jordan’s exchange:

There isn’t much to add to that exchange.

Next, here’s Congressman Trey Gowdy’s exchange:

Another point that came out is that the IRS apparently hasn’t looked at the backup tapes (which may or may not still exist). Commissioner Koskinen couldn’t say why that didn’t happen.

At least he wasn’t as smug as he had been. Of course, it came out yesterday that Commissioner Koskinen has been a big donor to the Democrats….

The IRS continues to look hyper-partisan, and that’s not a good thing for anyone.

Addendum:

This morning we discover that the IRS broke did not follow the law:

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Online Gambling Addresses (Updated for 2014)

Posted on June 22, 2014 by Russ

Note: This list has been superseded by the 2015 list. You can find it here.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

Note: This list is presented for informational purposes only. It is believed accurate as of June 22, 2014. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions to the list feel free to email them to me.

Posted in Gambling | Tagged | 1 Comment

We Don’t Need No Stinkin’ Backups

Posted on June 22, 2014 by Russ

The IRS scandal continues to be the big issue. And lots more news came out over the weekend.

First, it turns out the IRS had a contract with an email backup company, Sonasoft; their motto is “Email Archiving Done Right.” But weeks after Lois Lerner’s alleged computer crash the IRS cancelled the contract.

Meanwhile PowerLine Blog has been noting that the IRS was required to archive their emails, and this was even noted in the IRS’s Manual on Managing Electronic Records (part of the Internal Revenue Manual).

On Monday, Darrell Issa’s committee will hold another hearing on the scandal. I don’t know if Commissioner Koskinen will be as arrogant as he was on Friday (see the post immediately below), but here are some questions I’d like to see asked and some actions I’d like the committee to do:

1. Commissioner Koskinen, does the IRS follow the federal law on recordkeeping? Are you aware that most emails–and certainly all interagency emails–must be archived under this policy?

2. Are all email servers backed up (archived) regularly? Was this policy in place in 2011? In 2009? Has a search been made of these archives?

3. Are there any other hard drives that have failed that relate to this investigation (besides the seven you’ve let the committee know of in the last week)?

I’d also like to see the committee subpoena as many people as they can find in the IRS IT Department and ask them, under oath, about these issues. I’d like the committee to issue a subpoena to the Federal Election Commission to obtain their email archives; to the White House to obtain their email archives; and to the Department of Justice to see theirs. (This would be all emails from 2009-2013 to or from Lois Lerner and related principals.)

Many of my Democratic friends think this scandal is a whole lot of nothing. It is possible it’s close to that but we have no way of knowing thanks to either the IRS’s deliberate obstruction or their incredible idiocy. It has exposed the IRS as an agency whose leadership has its head in the sand, that is arrogant beyond belief, and that expects honest taxpayers to keep everything for years but won’t follow the rules themselves. Congressman Ryan didn’t believe Commissioner Koskinen on Friday. Neither do I.

Posted in IRS | Tagged | 1 Comment

“I Don’t Think an Apology Is Owed”

Posted on June 20, 2014 by Russ

Congressman Paul Ryan is annoyed.

There is not much to add to what Congressman Ryan said today. For those who didn’t watch today’s hearing, FoxNews has an accurate summary:

Koskinen set a defiant tone during his testimony before the House Ways and Means Committee, telling lawmakers he felt no need for the agency to apologize amid accusations of a cover-up in the targeting scandal of conservative groups.

Republican lawmakers had demanded the emails between ex-IRS official Lois Lerner and other government officials – including some at the White House – be turned over to determine whether there was a coordinated effort to stymie conservative groups prior to the 2012 elections.

“I don’t think an apology is owed,” Koskinen said. “We haven’t lost an email since the start of this investigation.”

How nice–no emails were lost since the start of this investigation. It’s a shame so many were lost two years before it began when former IRS Commissioner Doug Shulman was lying misleading Congress about the IRS’s policies toward 501(c)(4) groups.

Of course, if I tried what the IRS is trying–the “my dog ate the receipts” excuse–I’d be laughed out of any audit or Tax Court. Well, possibly not in the future:

WASHINGTON — Taxpayers who do not produce documents for the Internal Revenue Service will be able to offer a variety of dubious excuses under legislation introduced by Rep. Steve Stockman (R-TX 36) a week after the IRS offered an incredibly dubious excuse for its failure to turn documents over to House investigators.

“The United States was founded on the belief government is subservient and accountable to the people. Taxpayers shouldn’t be expected to follow laws the Obama administration refuses to follow themselves,” said Stockman. “Taxpayers should be allowed to offer the same flimsy, obviously made-up excuses the Obama administration uses.”

Under Stockman’s bill, “The Dog Ate My Tax Receipts Act,” taxpayers who do not provide documents requested by the IRS can claim one of the following reasons:

1. The dog ate my tax receipts
2. Convenient, unexplained, miscellaneous computer malfunction
3. Traded documents for five terrorists
4. Burned for warmth while lost in the Yukon
5. Left on table in Hillary’s Book Room
6. Received water damage in the trunk of Ted Kennedy’s car
7. Forgot in gun case sold to Mexican drug lords
8. Forced to recycle by municipal Green Czar
9. Was short on toilet paper while camping
10. At this point, what difference does it make?

Of course, this legislation is meant just to highlight the ridiculousness of the IRS’s position (and the Obama Administration’s position of calling the IRS scandal a conspiracy theory).

Part two of Koskinen refuses to apologize is Monday in front of Congressman Issa’s committee.

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Just File the FBAR

Posted on June 18, 2014 by Russ

Several of our clients have asked, “The decision on poker accounts being ‘banks’ is nonsensical. Do I really have to file an FBAR for those accounts?”

I am in general agreement with the individuals questioning the ruling. Banks and financial institutions generally offer investments, credit cards, loans, checking accounts, securities, and similar products. An online gambling site does take client’s money–but solely so that the client can gamble.

The United States has, for various laws, lumped casinos in with banks. For example, casinos fall under the same currency transaction reporting rules as banks. If you take $20,000 into your local casino and deposit it at the casino cage, a Currency Transaction Report is supposed to be issued. Casinos have to issue Suspicious Activity Reports.

If you go back to 2009, the FBAR was required for online gambling accounts. (That was the advice given to us from the IRS FBAR group.) In 2011, when new regulations came into play, the IRS no longer said that. The new regulations appeared to make an online gambling site not a reportable foreign financial account.

However, a federal judge disagreed.

Section 5312(a)(2) lists 26 different types of entities that may qualify as a “financial institution.” Based on the breadth of the definition, our court of appeals has held that “the term ‘financial institution’ is to be given a broad definition.” United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986). The government claims that FirePay, PokerStars, and PartyPoker are all financial institutions because they function as “commercial bank[s].” Section 5312(a)(2)(B). The Fourth Circuit in Clines found that “[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314].” Clines, 958 F.2d at 582 (emphasis added).

It may be that this decision will be reversed. It’s possible another court would come to a very different conclusion. But the laws on the FBAR are draconian, including willful penalties that are a minimum $100,000 fine. My thinking is simple: I’d rather be safe than sorry. Thus, my strong advice is, “Just file the FBAR.”

We sent out a special newsletter to our clients on this issue. Here’s what we wrote:

The FBAR is due June 30th and there are no extensions. There are significant penalties (including possible imprisonment) for FBAR mistakes.

The general rule on whether you have to file an FBAR is if you have $10,000 or more aggregate in one or more foreign financial accounts at any time during the year you must file an FBAR. If your aggregate balance remained under $10,000, you will not have an FBAR filing requirement.

Even if you don’t have an FBAR filing requirement you must still disclose your foreign financial accounts on your tax return. At the bottom of Schedule B are a few questions which include, “At any time during 2013, did you have a financial interest in or signature authority over a financial account, (such as a bank account, securities account, or brokerage account) located in a foreign country?” This question must be answered yes if you have a non-US based online gambling account.

There are two choices in filing an FBAR. We can file it for you (we would need you to complete and return Form 114a; if you need us to send you this form, let either Aaron or me know) or you can file it yourself at the BSA efile system.

Here are answers to some questions relating to this issue:

1. I had $6,000 maximum in my PokerStars account. I cashed it out and moved that same $6,000 into my foreign bank account. Do I need to file an FBAR? No. You never reached $10,000 aggregate in your foreign financial accounts.

2. I already filed my FBAR for 2013 but I have online gambling accounts that must be reported. What do I do? You will need to file an amended FBAR.

3. My tax return has already been filed; I did not note any foreign financial accounts on Schedule B. Will I need to amend that return? Yes.

4. Do online gambling accounts count for Form 8938 on the tax return? (Form 8938 is similar to the FBAR and reports certain foreign financial accounts.) Yes

5. Do I need to go back for prior years and file amended FBARs and tax returns? This is unclear at the present time, but the answer is probably yes. The statute of limitations on FBARs is six years from the due date, so 2009-2013 are open (2008 will be beyond the statute of limitations on July 1, 2014). However, gambling accounts were considered foreign financial accounts for 2009, so this impacts solely 2010-2012 for FBAR purposes. For tax returns, only 2011 and 2012 are open (assuming timely filing). Note also that the first year for Form 8938 was 2012.

I and other practitioners have asked the IRS and FINCEN for more information regarding this. I do expect to obtain a response regarding this within a couple of weeks. I will be updating this issue on my tax blog (https://taxabletalk.com) when I have more information.

6. My only online gambling accounts are in Nevada and New Jersey with the regulated sites in those states. Do I need to file an FBAR? No. Those accounts are not considered foreign financial accounts.

7. My online gambling accounts are with current US-facing sites; their legality is questionable. Must I report my accounts on an FBAR? Yes, as long as you have $10,000 or more aggregate in one or more such accounts.

8. Can I access my PokerStars and Full Tilt Poker accounts while in the United States? Yes, you can. PokerStars sent us instructions on how to do this:

Your deposit, cashout, transfer and playing transaction history is now available for request directly from the PokerStars software. To request this information from the PokerStars Lobby screen, select:
‘Requests’ -> ‘Playing History Audit’
From the pop-up window that appears, you can select a date range to request the specific information required. You will also need to select a password for the file. You may choose any password you wish; however, we do not recommend using the same password as for your PokerStars account. If you wish to view your FPP/VPP information, please ensure the relevant box is checked.
Finally, you will need to select the output format. The options available are Excel (97-2003), HTML and a text file. Then click on OK to submit the request. You will be prompted to enter your PokerStars password to confirm the request. An email with further instructions will be sent to your registered email address.
If the file provided will not open, it indicates you have an older compression program that does not support the encryption used on the file. To resolve this and open the file, you will need to update your compression program or download a new compression program. We recommend using WinZip 11 (or newer) or 7-zip which will allow you to open the file. You can access these programs from the following links:
WinZip – http://www.winzip.com/prod_down.htm (Choose ‘Download’ > ‘Get WinZip Free’)
7-zip – http://www.7-zip.org/

I will be posting a list of online gambling addresses next week.

Posted in FINCEN, Gambling | Tagged | 5 Comments

As the Emails Churn…

Posted on June 17, 2014 by Russ

The IRS Scandal continues to get uglier. Joe Kristan called it, “The dog ate my email….” All I know is that I’d end up in a new profession if I tried the excuses the IRS has given. But it got worse today.

First, attorney Cleta Mitchell represents “True the Vote.” TTV has sued the IRS and a number of its officials (including Lois Lerner). One rule in a lawsuit is that you can’t knowingly destroy evidence. Ms. Mitchell penned a letter to the IRS which was given to the PowerLine blog. An excerpt:

Therefore, the failure for the IRS to preserve and provide these records to the Committees would evidence either violations of numerous records retention statutes and regulations or obstruction of Congress.

Federal courts have held, in the context of trial, that the bad faith destruction of evidence relevant to proof of an issue gives rise to an inference that production of the evidence would have been unfavorable to the party responsible for its destruction.

Even if the various Congressional committees don’t get an answer, the IRS will be forced to give one in court. The letter from Ms. Mitchell goes further than the excerpt; it should be read in its entirety.

The various laws on record retention also come into play. There’s this report in pjmedia, where a former IRS IT specialist says that,

The IRS IT projects were fully funded and never lacked for resources. To state ‘Backup tapes were reused after some short period’ is a complete joke. The IRS had thousands and thousands of tapes and ‘Virtual Tape Libraries’ (VTL or non-tape backups based on hard drive storage technologies). There was never a reason to reuse tapes.

The other shoe fell today: Eliana Johnson reported that emails from six other IRS employees related to the scandal can’t be produced.

Congressman Darrell Issa (R-CA) subpoenaed IRS Commissioner John Koskinen to appear next Monday (June 23rd) in front of the House Oversight and Government Reform Committee. That’s a very short time frame for a subpoena, and I am certain that a message has been sent: Cut the b.s. and stop the excuses.

“I will not tolerate your continued obstruction and game-playing in response to the Committee’s investigation of the IRS targeting,” Issa, R-Calif., said in a letter accompanying the subpoena. “For too long, the IRS has promised to produce requested – and, later, subpoenaed – documents, only to respond later with excuses and inaction.”

What I wrote over the weekend still holds: Either the IRS has the most incompetent IT department in the world or the IRS is lying.

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Soon: No More Circular 230 Notices

Posted on June 15, 2014 by Russ

When I attended the annual CSEA SuperSeminar, Karen Hawkins, Director of the Office of Professional Responsibility (of the IRS), told a luncheon crowd that a new version of Circular 230 will be released within two weeks. Well, that didn’t happen. However, it’s about to happen. The new version is out there so sometime really soon (now, probably within two weeks) enrolled tax professionals (EAs, CPAs, and attorneys) will have a new Circular 230.

The one thing that all my clients will notice is the elimination of the Circular 230 notice. You know, this:

CIRCULAR 230 NOTICE: This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

Once the new version of Circular 230 is effective, those notices are a thing of the past. Since every email has had one of these notices, they’re ignored by every client (the boy who cried wolf syndrome). This change is welcome, and kudos to the IRS on this.

There are other changes, including changes in written advice, procedures to ensure compliance with “covered opinion” rules, general standard of competence, electronic negotiation of taxpayer refunds, expedited suspension procedures, and the scope of the Office of Professional Responsibility.

For tax professionals who provide written advice to clients, a full reading of the new §10.37 is essential. There are numerous other changes, most of which appear to be minor.

Posted in IRS | Tagged | 1 Comment