The United States Tax Court announced earlier this week that Chief Judge Maurice B. Foley has been re-elected and will serve another two-year term beginning June 1, 2020.  His current term as Chief Judge expires May 31, 2020.  The biennial election took place on February 21, 2020, in accordance with statutory requirements.

Chief Judge Foley’s biography follows:

Chief Judge Foley was appointed to the United States Tax Court by President William J. Clinton. He was reappointed by President Barack Obama and sworn in on November 25, 2011, for a second term ending November 24, 2026. He received a Bachelor of Arts degree from Swarthmore College, a Juris Doctor from the University of California, Berkeley, and a Master of Laws in Taxation from Georgetown University Law Center. Before his appointment to the Tax Court, he was an attorney for the Legislation and Regulations Division of the Internal Revenue Service, Tax Counsel for the United States Senate Committee on Finance, and Deputy Tax Legislative Counsel in the United States Treasury’s Office of Tax Policy.

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Today the Treasury Department and Internal Revenue Service announced that Erin M. Collins has been appointed National Taxpayer Advocate.   Collins succeeds Nina E. Olson, who served as the as National Taxpayer Advocate from 2001 until her retirement last summer.   The full text of the press release follows:

Washington – Today, the U.S. Treasury Department and Internal Revenue Service (IRS) announced the appointment of Erin M. Collins to serve as the National Taxpayer Advocate (NTA).

“Erin Collins will be an outstanding voice for American taxpayers,” said Secretary Steven T. Mnuchin.  “She has a wealth of experience representing a broad range of taxpayers before the IRS.  She also developed valuable expertise during her years with the Office of Chief Counsel. Erin is the ideal candidate to help the IRS modernize and improve service for American families and businesses.”

“I am deeply honored to join the talented team at the IRS as the National Taxpayer Advocate and thank Secretary Mnuchin and Commissioner Rettig for the trust they have placed in me,” said Ms. Collins.  “I will work every day to be a strong and effective representative of American taxpayers.”

“I look forward to working with Erin to improve the IRS for the benefit of all Americans and know that she will serve our nation with distinction,” said IRS Commissioner Charles Rettig.  “I appreciate and respect the efforts of former NTA, Nina Olson and everyone within the Taxpayer Advocate Service (TAS).  Our TAS employees are exemplary, and it’s clear they care deeply and passionately about serving taxpayers and our country.  We are extremely thankful to Bridget Roberts for continuing the important work of the TAS organization during this period, which is a great testament to Bridget, the entire TAS team and the rest of the IRS who supported them.”

Ms. Collins’ extensive background in the tax community includes twenty years as a Managing Director of KPMG’s Tax Controversy Services practice for the Western Area.  Prior to that, she was an attorney in the Office of Chief Counsel for the IRS for 15 years.  Throughout her career, she represented individuals, partnerships and corporate taxpayers on technical and procedural tax matters, and has also provided pro bono services to taxpayers to resolve disputes with the IRS.

For the past decade, Ms. Collins has dedicated significant time and energy to inspire professional women to work with teen girls from under resourced communities through after-school and weekend mentorship programs.  The programs focus on helping the girls fulfill their potential by empowering them to build confidence to pursue higher education and professional careers.  She also donated her time to non-profit boards focusing on underserved communities where English is typically the second language spoken at home.

The NTA is the “voice” of the taxpayer and serves as a senior advisor to the Commissioner on issues affecting the United States’ 153 million individual and 11 million business taxpayers.  The office of the NTA is charged with helping to improve the focus of the IRS to emphasize helping taxpayers comply with their legal responsibilities.  The office also assists taxpayers, individually and collectively, in resolving issues with the IRS and in proposing changes to the administrative practices of the IRS.  The NTA reports directly to the Commissioner and also reports to Congress on areas of the tax law that impose significant burdens on taxpayers or the IRS, including recommending potential legislative changes.  Importantly, the NTA is a member of the team charged with helping to modernize the IRS and contributing to its strategic management.

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The Internal Revenue Service is urging taxpayers involved in syndicated conservation easement transactions to consult with their tax advisors following a recent U.S. Tax Court decision. The IRS also plans to continue aggressive enforcement efforts in this area. In late 2016, the Internal Revenue Service designated certain syndicated conservation easement arrangements as “listed transactions” in Notice 2017-10 (PDF).

On December 13, 2019, the U.S. Tax Court entered its first decision on a syndicated conservation easement transaction. In TOT Property Holdings, LLC v. Commissioner, Docket No. 005600-17, the Tax Court sustained in its entirety the IRS’s determination that all tax benefits from a syndicated conservation easement transaction should be denied and that the 40% gross valuation misstatement and negligence penalties applied. The Tax Court found that the transaction failed the legal requirements applicable to donations of land easements and, in imposing the gross valuation misstatement penalty, found that the actual value of the easement donation was less than 10 percent of what was originally reported on the tax return.

“In denying the deductions and upholding the 40% gross valuation misstatement penalty, the Tax Court confirmed that aggressive syndicated easement transactions simply will not survive scrutiny,” said IRS Commissioner Chuck Rettig. “We will not stop in our coordinated pursuit of these abusive transactions while seeking the imposition of all available civil penalties and, when appropriate, various criminal options for those involved.” “If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options,” Rettig added.

Tax Court trials in four other syndicated easement cases were conducted in 2019 and more than 50 cases are pending. In other recent cases, the Tax Court has rejected arguments that various regulations taxpayers failed to comply with are invalid, essentially negating one of these taxpayers’ main defenses.

“We are prepared to take each of these and all other cases being developed by the IRS to trial, although the substance of most cases can be resolved without trial because the transactions do not meet the basic requirements to claim the charitable contribution deduction,” said IRS Chief Counsel Mike Desmond. “We encourage taxpayers and their advisors to see the writing on the wall and take immediate steps to resolve these matters.”

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The Internal Revenue Service has announced an overwhelming acceptance rate for a time-limited settlement offer made to certain taxpayers under audit who participated in abusive micro-captive insurance transactions. Nearly 80% of taxpayers who received offer letters elected to accept the settlement terms. In addition, the IRS is establishing 12 new examination teams that are expected to open audits related to thousands of taxpayers in coming months.

Abusive micro-captives have been a concern to the IRS for several years. The transactions have appeared on the IRS “Dirty Dozen” list of tax scams since 2014. In 2016, the Department of Treasury and IRS issued Notice 2016-66, which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. Following wins in three recent U.S. Tax Court cases, in September 2019, the IRS decided to offer settlements to taxpayers currently under exam and thereafter sent notices to up to 200 taxpayers. The terms of the settlement required substantial concession of the income tax benefits claimed by the taxpayer together with appropriate penalties.

“The overwhelming acceptance rate of the private settlement offer is a reflection of the success of the government’s work to stop this abuse,” said IRS Commissioner Chuck Rettig. “Taxpayers who elected to accept the IRS’ terms have done the right thing by coming into compliance with their federal tax obligations and putting this behind them. Putting an end to abusive schemes is a high priority for the IRS.”

The IRS also announced that it will continue to vigorously pursue those involved in these and other similar abusive transactions going forward.  Enforcement activity in this area is being significantly increased, including the establishment of 12 new examination teams comprised of employees from the IRS Large Business and International and Small Business/Self-Employed divisions. These teams will use all available enforcement tools, including summonses, to obtain necessary information.

Examinations impacting micro-captive insurance transactions of several thousand taxpayers will be opened by these teams in the coming months. Potential civil outcomes can include full disallowance of claimed captive insurance deductions, inclusion of income by the captive entity, and imposition of applicable penalties.

Finally, the IRS reminded taxpayers and advisors that disclosure of participation in micro-captive insurance transactions to the IRS Office of Tax Shelter Analysis is required under Notice 2016-66. Taxpayers involved in these types of transactions should immediately consult with independent, competent tax advisors on the proper treatment for past and future tax years to consider best available options.

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Fox Rothschild attorneys Ryan T. Becker and Matthew D. Lee will be speaking next week at the annual White Collar Practice conference sponsored by the Pennsylvania Association of Criminal Defense Lawyers.  The conference will take place on November 21-22, 2019, in Philadelphia.

Ryan will be moderating a panel entitled “Internal Investigations:  Protecting Your Client While Placating the Government.”

Matt will be speaking on a panel entitled “What You Really Need to Know if You Are Taking on a Criminal Tax Case.”

Details about the conference are available here.

The Internal Revenue Service announced today a significant increase in enforcement actions for syndicated conservation easement transactions, a priority compliance area.  According to the announcement, coordinated audits are being conducted throughout various examination divisions of the IRS.  At the same time, the IRS Criminal Investigation division has criminal investigations underway in this area. These audits and investigations cover billions of dollars of potentially inflated deductions as well as hundreds of partnerships and thousands of investors. Syndicated conservation easements are included on the IRS’s “Dirty Dozen” list of tax scams to avoid in 2019.

Generally, a charitable contribution deduction is not allowed for a charitable gift of property consisting of less than the donor’s entire interest in that property. However, the law provides an exception for a “qualified conservation contribution” that meets certain criteria, including exclusive use for conservation purposes. If taxpayers meet the criteria in the tax code and regulations, they may claim charitable contribution deductions for the fair market value of conservation easements they donate to certain organizations. Some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions and corresponding tax savings that significantly exceed the amount an investor invested.

Typically, promoters of these schemes identify a pass-through entity that owns real property or form a pass-through entity to acquire real property. The promoters syndicate ownership interests in the pass-through entity or tiered entities that own the real property, suggesting to prospective investors that they may be entitled to a share of a charitable contribution deduction that greatly exceeds the amount of an investor’s investment. The promoters obtain an inflated appraisal of the conservation easement based on unreasonable factual assumptions and conclusions about the development potential of the real property.

In December 2016, the IRS issued Notice 2017-10, which designated certain syndicated conservation easements as listed transactions. Specifically, the Notice listed transactions where investors in pass-through entities receive promotional material offering the possibility of a charitable contribution deduction worth at least two and half times their investment. In many transactions, the deduction taken is significantly higher than 250 percent of the investment. In September 2018, the IRS Large Business & International announced that one of its new compliance campaigns was focused entirely on syndicated conservations easements.

“We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions. Every available enforcement option will be considered, including civil penalties and, where appropriate, criminal investigations that could lead to a criminal prosecution,” said IRS Commissioner Chuck Rettig. “Our innovation labs are continually developing new, more extensive enforcement tools that employ advanced techniques. If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options. It is always worthwhile to take advantage of various methods of getting back into compliance by correcting your tax returns before you hear from the IRS. Our continued use of ever-changing technologies would suggest that waiting is not a viable option for most taxpayers.”

The IRS announced that taxpayers may avoid the imposition of penalties relating to improper contribution deductions if they fully remove the improper contribution and related tax benefits from their returns by timely filing a qualified amended return or timely administrative adjustment request. The IRS’s comprehensive compliance efforts are focused on the abusive syndicated conservation easement transactions described in Notice 2017-10, recognizing that there are many legitimate conservation easement transactions.

The IRS is fully committed to putting an end to abusive syndicated conservation easement transactions, and holding accountable the individuals and entities who promoted, assisted with or participated in these schemes. The IRS is committing significant examination and investigative resources to vigorously audit the entities and individuals involved in this scheme, including those who failed to properly disclose their participation as required. Additionally, the IRS is also litigating cases where necessary, with more than 80 currently docketed cases in the Tax Court.

In addition to grossly overstating the value of the easement that is purportedly donated to charity, these transactions often fail to comply with the basic requirements for claiming a charitable deduction for a donated easement. The IRS has prevailed in many cases involving these basic requirements and has now established a body of law that the IRS believes supports disallowance of the deduction in a significant number of pending conservation easement cases. Where it has not done so already, the IRS announced that it will soon be moving the Tax Court to invalidate the claimed deductions in all cases where the transactions fail to comply with the basic requirements, leaving only the final penalty amount to be determined.

In addition to auditing participants, the IRS is pursuing investigations of promoters, appraisers, tax return preparers and others. Further, the IRS is evaluating numerous referrals of practitioners to the IRS Office of Professional Responsibility. The IRS stated that it will develop and assert all appropriate penalties, including penalties for participants (40 percent accuracy-related penalty), appraisers (penalty for substantial and gross valuation misstatements attributable to incorrect appraisals), promoters, material advisors, and accommodating entities (penalty for promoting abusive tax shelters and penalty for aiding and abetting understatement of tax liability), as well as return preparers (penalty for understatement of taxpayer’s liability by a tax return preparer).

In December 2018, the Department of Justice filed a complaint seeking to stop several individuals and an entity from organizing, promoting or selling allegedly abusive syndicated conservation easement transactions. The IRS continues to work with the Department of Justice in this area and in its announcement reminds taxpayers that continued disclosure of syndicated conservation easement transactions is required under Notice 2017-10.

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The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced today that it has launched a new Global Investigations Division (GID), which will be responsible for implementing targeted investigation strategies to combat illicit finance threats and related crimes, both domestically and internationally. Matthew Stiglitz, a former Principal Deputy Chief in the Department of Justice’s Criminal Division, will lead GID.

GID will build upon FinCEN’s existing authorities under the Bank Secrecy Act, including Section 311 of the USA PATRIOT Act, to investigate and target terrorist finance and money laundering threats. GID will work closely with foreign counterparts to coordinate actions against such threats when appropriate.

According to FinCEN, the foundation of GID is the agency’s former Office of Special Measures (OSM), which was previously a part of FinCEN’s Enforcement Division. FinCEN’s strategic use of its Section 311 authority as well as its other information collection authorities, such as the geographic targeting order and foreign financial agency regulation authorities, have greatly expanded in recent years. FinCEN will now have one dedicated division focused on utilizing these authorities to maximum effect, building upon OSM’s prior work.

GID will employ FinCEN’s authorities to detect and deter a wide range of potential threats to our national security and financial system, including those that have a nexus to the proliferation of weapons of mass destruction, rogue state actors, transnational organized crime, international narcotics trafficking, and terrorism.

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The Internal Revenue Service announced today that it has begun mailing what it calls “educational letters” to taxpayers with cryptocurrency transactions who potentially failed to report income and pay the resulting tax from such transactions, or did not report their transactions properly. The IRS started sending these letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The IRS said it obtained the names of these taxpayers through “various ongoing IRS compliance efforts,” but did not specifically identify such efforts.

The unnamed “compliance efforts” referred to in today’s IRS announcement no doubt include the well-publicized “John Doe” summons served on Coinbase by the IRS. In late 2016, a federal judge authorized the IRS to serve a “John Doe” summons on Coinbase, the largest U.S.-based cryptocurrency exchange, based upon the IRS’s belief that numerous taxpayers were evading taxes by investing in Bitcoin and other cryptocurrencies. After the parties engaged in a year of contentious litigation challenging the summons, a federal judge ultimately ruled in the IRS’s favor, and ordered Coinbase to turn over the names of approximately 13,000 of its customers to the IRS.

Today’s IRS announcement included a stern warning from Commissioner Chuck Rettig. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174, or Letter 6174-A. According to the IRS, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors, and advise such taxpayers to file amended returns and pay back taxes.

The IRS also reminded taxpayers that last year it announced the creation of a Virtual Currency Compliance campaign to focus on tax noncompliance related to the use of cryptocurrency. At the time, the IRS stated that it would address noncompliance in this area through outreach and audits, and further stated that “[t]axpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical.”

According to today’s announcement, the IRS will be issuing additional legal guidance on the tax treatment of cryptocurrency transactions in the near future. To date, the IRS has issued only a single guidance document on cryptocurrency. IRS Notice 2014-21 states that cryptocurrency is property for federal tax purposes and provides guidance on how general federal tax principles apply to cryptocurrency transactions.

The IRS concluded today’s announcement by stating that it will remain actively engaged in addressing noncompliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations. In addition, the IRS warned that cryptocurrency is an ongoing focus area for IRS Criminal Investigation, and that taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest, and in some cases could be subject to criminal prosecution.

Individuals who receive one of these “educational letters” from the IRS should proceed cautiously, as such letter may be a precursor to enforcement activity, such as an audit or even a criminal investigation. Fox Rothschild’s tax controversy and white collar criminal defense attorneys have significant experience dealing with IRS audits and criminal investigations. Please contact Matthew D. Lee if you receive correspondence from the IRS or have questions regarding the tax treatment of cryptocurrency.

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