The State of Minnesota has joined the growing list of states that are criminally prosecuting business owners for using “zapper” programs to commit tax evasion.  Yesterday the Minnesota Department of Revenue and the St. Louis County Attorney’s Office announced the convictions of a Duluth restaurant and its owners for tax crimes based upon their use of sales suppression software.  This represents the first time that Minnesota has criminally prosecuted anyone for using a zapper.

Commonly called “zappers,” sales suppression software programs run on a point-of-sale computer or cash register and are used to secretly delete some or all of a restaurant’s cash transactions and then reconcile the books of the business. The result is that the company’s books appear to be complete and accurate, but are in fact false because they reflect fewer sales than were actually made. Business owners using zapper programs often maintain two sets of books, in order track the business’ real revenue. A recent article published by BNA estimates that tax-zapping software costs states $21 billion in taxes annually and that 30 percent of the electronic cash registers, or point-of-sale systems, in the United States have a zapper installed.

The restaurant in question, Osaka Sushi Hibachi & Steak House, is owned by Dan Xu and Zhong Wei Lin.  Dan Xu pleaded guilty to one felony count of aiding in the filing of false tax returns.  Zhong Wei Lin pleaded guilty to one felony count of failing to pay sales tax.  The court stayed prison sentences for both individuals in lieu of the immediate payment of restitution in full and a year of probation.  The restaurant itself pleaded guilty to two felony counts of aiding in the filing of false tax returns and fifteen felony counts of failing to pay sales tax.  The court ordered the corporation to pay restitution as well.  All three defendants paid restitution in the total amount of $292,760.

During their plea hearing, Xu and Lin admitted to intentionally using “zapper” computer software in the point of sale system at their restaurant.  The software, which was called “Happy World,” was contained on a thumb drive that was discovered by investigators during a search of the restaurant.  The Happy World software automatically created a second set of books that removed line items from cash transactions after the fact, allowing the business to underreport its monthly sales and avoid paying sales tax collected from customers.

“These are first-of-their-kind convictions in Minnesota and highlight our investigators’ efforts to combat the growing use of sales suppression software,” said Revenue Commissioner Cynthia Bauerly.  “These convictions demonstrate our determination to level the playing field so that businesses who report and pay their fair share of tax don’t have to compete with those who break the law.”

“Deliberately failing to turn over sales taxes collected increases the tax burden on all residents.   We hope this case sends a message to others engaging in this kind of behavior that it will not be tolerated, and you will be prosecuted when caught,” said St. Louis County Attorney Mark Rubin.

As we have previously reported, state revenue departments and attorneys general (and not the Internal Revenue Service) are leading the effort to combat the use of zappers.  More than half of the states have now enacted laws criminalizing the use of sales suppression devices, and in the last two years, authorities in Washington, Michigan, Illinois, and Connecticut have successfully prosecuted criminal cases against businesses and their owners – primarily in the restaurant industry.  The Minnesota case is yet another example of aggressive action undertaken recently by state authorities against zappers, and should serve as a stern warning to business owners using (or considering using) such technology.

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The Internal Revenue Service has announced that the nation’s tax season will begin on Monday, January 29, 2018. As is typically the case, the annual opening of tax season is accompanied by well-publicized enforcement actions intended to warn potential tax cheats of the perils of filing a false tax return. This year is no different, with the announcement that reality television personality Michael “The Situation” Sorrentino and his brother, Marc Sorrentino, pleaded guilty today to violating federal tax laws.

Michael Sorrentino was a reality television personality who gained fame on “The Jersey Shore,” which first appeared on the MTV network.  According to documents and information provided to the court, he and his brother created businesses, such as MPS Entertainment LLC and Situation Nation Inc., to take advantage of Michael’s celebrity status. Michael Sorrentino admitted that in tax year 2011, he earned taxable income, including some that was paid in cash, and that he concealed a portion of his income to evade paying the full amount of taxes he owed.  He also made cash deposits into bank accounts in amounts less than $10,000, in an effort to ensure that these deposits would not come to the attention of the IRS.  Marc Sorrentino admitted that for tax year 2010, he earned taxable income and that he assisted his accountants in preparing his personal tax return by willfully providing them with false information and fraudulently underreporting his income.  Gregg Mark, the accountant for the Sorrentino brothers, previously pleaded guilty in 2015 to conspiring to defraud the United States with respect to their tax liabilities.

Sentencing is scheduled for April 25, 2018.

Today’s announcement was replete with the usual warnings to would-be tax evaders from Justice Department and IRS officials:

“Today’s pleas are a reminder to all individuals to comply with the tax laws, file honest and accurate returns and pay their fair share,” said Principal Deputy Assistant Attorney General Zuckerman. “The Tax Division is committed to continuing to work with the IRS to prosecute those who seek to cheat the system, while honest hardworking taxpayers play by the rules.”

“What the defendants admitted to today, quite simply, is tantamount to stealing money from their fellow taxpayers,” said U.S. Attorney Carpenito. “All of us are required by law to pay our fair share of taxes. Celebrity status does not provide a free pass from this obligation.”

 “As we approach this year’s filing season, today’s guilty pleas should serve as a stark reminder to those who would attempt to defraud our nation’s tax system,” stated Jonathan D. Larsen, Special Agent in Charge, IRS-Criminal Investigation, Newark Field Office.  “No matter what your stature is in our society, everyone is expected to play by the rules, and those who do not will be held accountable and brought to justice.”

It is well-known that the IRS and Justice Department typically increase the frequency of their press releases announcing enforcement activity in the weeks leading up to the tax filing deadline. In fact, academic research confirms that these agencies issue a disproportionately large number of tax enforcement press releases as “Tax Day” approaches:

Every spring, the federal government appears to deliver an abundance of announcements that describe criminal convictions and civil injunctions involving taxpayers who have been accused of committing tax fraud. Commentators have occasionally suggested that the government announces a large number of tax enforcement actions in close proximity to a critical date in the tax compliance landscape: April 15, “Tax Day.” These claims previously were merely speculative, as they lacked any empirical support. This article fills the empirical void by seeking to answer a straightforward question: When does the government publicize tax enforcement? To conduct our study, we analyzed all 782 press releases issued by the U.S. Department of Justice Tax Division during the seven-year period of 2003 through 2009 in which the agency announced a civil or criminal tax enforcement action against a specific taxpayer identified by name. Our principal finding is that, during those years, the government issued a disproportionately large number of tax enforcement press releases during the weeks immediately prior to Tax Day compared to the rest of the year and that this difference is highly statistically significant. A convincing explanation for this finding is that government officials deliberately use tax enforcement publicity to influence individual taxpayers’ perceptions and knowledge of audit probability, tax penalties, and the government’s tax enforcement efficacy while taxpayers are preparing their annual individual tax returns.

Joshua D. Blank and Daniel Z. Levin, When Is Tax Enforcement Publicized?, 30 Virginia Tax Review 1 (2010).

As “Tax Day 2018” approaches, we can expect similar — and more frequent — announcements intended to deter would-be tax cheats from filing false tax returns.

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BNA’s Michael J. Bologna and Paul Shukovsky have written a comprehensive article about a pervasive problem facing state tax auditors:  the use by restaurants and other cash-intensive businesses of electronic revenue suppression software, commonly referred to as “Zappers.”  We have previously blogged about efforts by state and federal tax authorities to crack down on the use of “Zapper” software here (reporting on the Connecticut Department of Revenue’s arrest of a New Haven restauranteur) and here (predicting a federal crackdown on tax zapper software).  In their article, entitled “Tax-Zapping Software Costing States $21 Billion,” Messrs. Bologna and Shukovsky note that the use of revenue suppression software by businesses costs states a whopping $21 billion in lost tax revenue.  In a related article, entitled “Zapper Fraud Case Results in Mandatory Real-Time Monitoring,” the authors describe the recent prosecution of a Bellevue, Washington restaurant owner which resulted in a “first-in-the-nation settlement requiring continuous monitoring by the state for five years,” the first time any state has ever required monitoring to resolve charges involving the use of “Zapper” software.

The Justice Department revealed its latest offshore bank resolution by announcing that it had entered into a non-prosecution agreement with a Swiss asset management firm called Prime Partners. This means that Prime Partners will not be criminally prosecuted for participating in what the DOJ characterized as a conspiracy to defraud the Internal Revenue Service and evade federal income taxes in connection with services that it provided to U.S. accountholders between 2001 and 2010. According to a press release announcing the resolution, the non-prosecution agreement was based upon Prime Partners’ “extraordinary cooperation,” including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayer-clients. The non-prosecution agreement further requires Prime Partners to forfeit $4.32 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $680,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by Prime Partners’ U.S. taxpayer-clients.

As part of the non-prosecution agreement, Prime Partners admitted that it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of Prime Partners in order to evade their U.S. tax obligations, in violation of U.S. law. Prime Partners acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by using well-known mechanisms employed by offshore banks to hide funds, such as:

  • creating sham entities, which had no business purpose, that served as the nominal account holders for the accounts;
  • advising U.S. taxpayer-clients not to retain their account statements, to call Prime Partners collect from pay phones, and to destroy any faxes they received from Prime Partners;
  • providing U.S. taxpayer-clients with prepaid debit cards, which were funded with money from the clients’ undeclared accounts; and
  • facilitating cash transfers in the United States between U.S. taxpayer-clients with undeclared accounts.

An unusual feature of this latest bank resolution is what the Justice Department characterizes as Prime Partners’ “voluntary and extraordinary cooperation” with the U.S. government. In early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes, before the initiation of any investigation by the U.S. government. The timing of these corrective actions is particularly notable, as the Justice Department announced its landmark deferred prosecution agreement with the largest bank in Switzerland, UBS AG, in February 2009, and the Internal Revenue Service unveiled its Offshore Voluntary Disclosure Program approximately 30 days later. In the midst of the announcement of the UBS resolution, many other Swiss banks were advising their U.S. clients to transfer their account holdings to other, smaller Swiss banks in order to avoid detection by U.S. authorities, thereby creating a class of U.S. taxpayers now characterized by authorities as “leavers.” In stark contrast, it appears that Prime Partners embarked on a different course of conduct, implementing corrective action to avoid further violations of U.S. law.

The Justice Department appears to have taken great care to describe publically the extent of Prime Partners’ extensive cooperation, which included the following:

  • Prime Partners’ voluntary production of approximately 175 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers;
  • Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
  • Prime Partners’ representation – based on an investigation by outside counsel, the results of which have been reviewed by the Justice Department – that the misconduct under investigation did not, and does not, extend beyond that described in a statement of facts accompanying the non-prosecution agreement.

Another notable aspect of this case is that while Prime Partners is a Swiss institution, it did not take advantage of the popular yet now-closed “Swiss Bank Program,” which essentially offered amnesty to any Swiss financial institution willing to come forward and make full disclosure of its cross-border activities involving U.S. citizens. Nearly 80 Swiss institutions enrolled in the Swiss Bank Program and successfully resolved their potential exposure under U.S. tax laws by paying steep financial penalties and agreeing to fully cooperate with the U.S. government’s ongoing investigations of offshore tax evasion. Instead of enrolling in the Swiss Bank Program, Prime Partners appears to have conducted an internal investigation, voluntarily disclosed its misconduct to the Justice Department, cooperated with the subsequent government investigation, and attempted to negotiate the best possible deal it could. Prime Partners may have been prompted to undertake such action based upon what the Justice Department has publicly stated is its “willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.”

The Justice Department’s announcement that it agreed to a non-prosecution agreement with Prime Partners is no doubt a signal to other financial institutions that the voluntary disclosure “window” remains open (notwithstanding the termination of the Swiss Bank Program), and that institutions demonstrating substantial cooperation – like that of Prime Partners – will be treated leniently. Indeed, in a press release announcing the resolution Acting Manhattan U.S. Attorney Joon H. Kim stated that “[t]he resolution of this matter through a non-prosecution agreement, along with forfeiture and restitution, reflects the extraordinary cooperation provided by Prime Partners to our investigation. It should serve as proof that cooperation has tangible benefits.” In the same vein, Acting Deputy Assistant Attorney General Stuart M. Goldberg said that “[i]n our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” At the same time, the Justice Department will undoubtedly seek to punish – to the fullest extent possible under U.S. laws – financial institutions that have aided and abetted tax evasion by their U.S. customers and that fail to come forward voluntarily and cooperatively.

Finally, the Justice Department’s resolution with Prime Partners stands as yet another stern warning to taxpayers with undisclosed foreign accounts that they must take corrective action immediately or face harsh consequences.  In the press release, Acting Deputy Assistant Attorney General Stuart M. Goldberg said “[t]he message is clear to those using foreign bank accounts to engage in schemes to evade U.S. taxes – you can no longer assume your ‘secret’ accounts will remain concealed, no matter where they are located. In our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” The Internal Revenue Service’s Offshore Voluntary Disclosure Program remains available to taxpayers with undisclosed foreign assets, although the penalty for accountholders at Prime Partners will now increase from 27.5 percent to 50 percent.

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Connecticut’s Department of Revenue Services (DRS) has arrested and charged a New Haven restauranteur with various offenses for using sales tax suppression software. According to a press release announcing the charges, this is the first time the State of Connecticut has charged an individual for using “zapper” software, which it describes as “a type of commercial ‘phantom-ware’ used to create fraudulent point-of-sale records that deliberately understate taxes actually collected.” Zapper programs are used to delete some or all of a restaurant’s cash transactions and then reconcile the books of the business. The result is that the company’s books appear to be complete and accurate, but are in fact false because they reflect fewer sales than were actually made.

We previously wrote about the Justice Department’s efforts to crack down on the use of tax suppression software by charging a software salesman in Seattle who worked for a Canadian company that sold “point of sale” program that enabled restaurants to underreport their sales. Historically, state law enforcement agencies, not the Justice Department or Internal Revenue Service, have taken the lead in cracking down on the use of revenue suppression software. In early 2016, the Attorney General of Washington filed what he called the “first-of-its-kind” criminal case against a restauranteur, Yu-Ling Wong, for allegedly using sales suppression software to avoid paying nearly $400,000 in state sales tax. That case began as a routine audit by the Washington State Department of Revenue, which trains its auditors to detect the use of revenue suppression software. Auditors noted an unusual change in cash receipts, as compared to the restaurant’s historical cash receipts, determined that the restaurant’s point-of-sale system could not be trusted, and eventually uncovered the use of Zapper software.

Many states have passed laws outlawing the use of revenue suppression software, including Washington, Michigan, Florida, Georgia, Utah, and West Virginia, and others are considering proposals to enact such laws. And the problem is not just confined to the United States. In a 2013 report entitled “Electronic Sales Suppression: A Threat to Tax Revenues,” the Organisation for Economic Co-operation and Development concluded that revenue suppression software “facilitate[s] tax evasion and result[s] in massive tax loss globally.”

In the Connecticut case, the defendant, Xiaoning Fan of New Haven, was arrested by DRS Special Agents from the Criminal Investigations Unit at her Lao Sze Chaun restaurant in Milford. Ms. Fan was charged with possession of tax suppression software, larceny in the 1st degree and willful delivery of a false return. She is charged with two Class D felonies subject to a fine of up to $100,000 and a sentence of one to five years or both, a Class B felony subject to a fine of up to $15,000 and a sentence of one to twenty years or both. She is also liable for all taxes, penalties, and interest due to the state as a result of the crime, forfeiture of all profits associated with the sale, and confiscation of the zapper device as contraband.

Said DRS Commissioner Kevin B. Sullivan, “[t]his arrest is a big breakthrough for DRS. We have been working with other states to develop our ability to detect and prosecute ‘zapper’ fraud. What began as a routine tax audit became a DRS arrest when our specially trained auditors successfully detected illegal use of sales suppression software from 2008 to 2016 that resulted in over $80,000 of state tax evasion plus an additional $60,000 in penalty and interest charges. At DRS, we continue to step up our game in the fight to stop tax fraud.”

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irsThree influential members of Congress have questioned the Internal Revenue Service’s strategy for addressing the tax treatment of digital or virtual currencies, such as Bitcoin, and its efforts to uncover the identities of taxpayers who used such currencies through a “John Doe” summons to Coinbase, a virtual currency exchanger in San Francisco. In a letter dated May 17, 2017, Orrin G. Hatch, Chairman of the Senate Finance Committee; Kevin Brady, Chairman of the House Ways and Means Committee; and Vern Buchanan, Chairman of the Oversight Subcommittee of the House Ways and Means Committee, wrote to IRS Commissioner John Koskinen to express concern about the manner in which the IRS is undertaking to treat digital currencies for tax purposes.

In the letter, the three members noted that in March 2014, the IRS released guidance on the tax treatment of digital currencies for the first time. In IRS Notice 2014-21, which consisted of a series of “frequently asked questions” (and answers), the IRS announced that virtual currency would be treated, and taxed, as property. Among other things, this announcement meant that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

In Notice 2014-21, the IRS acknowledged that “there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration,” and invited public comment.  Soon thereafter, the IRS stated informally that virtual currency was not reportable for purposes of the Report of Foreign Bank and Financial Accounts (FBAR), but cautioned that this position could change in the future.

In June 2016, the American Institute of CPAs (AICPA) urged the IRS to issue additional guidance on virtual currency transactions, noting ten areas left unaddressed by Notice 2014-21 and for which guidance was needed:

  • Acceptable valuation and documentation;
  • Expenses of obtaining virtual currency;
  • Challenges with specific identification for computing gains and losses;
  • General guidance regarding property transaction rules;
  • Nature of virtual currency held by a merchant;
  • Charitable contributions;
  • Virtual currency as a “commodity;”
  • Need for a de minimis election;
  • Retirement accounts, and
  • Foreign reporting requirements for virtual currency.

In September 2016, the Treasury Inspector General for Tax Administration (TIGTA) issued a report criticizing the IRS for failing to develop a “coordinated virtual currency strategy” during the two years following issuance of Notice 2014-21:

Although the IRS issued Notice 2014-21, Virtual Currency Guidance, and established the Virtual Currency Issue Team, there has been little evidence of coordination between the responsible functions to identify and address, on a program level, potential taxpayer noncompliance issues for transactions involving virtual currencies. None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies. In addition, it does not appear that any of the actions already taken by the IRS to address virtual currency tax noncompliance were coordinated to ensure that the IRS maintains a strategic approach to the tax implications of virtual currencies.

TIGTA further pointed out that although the IRS solicited public comments to Notice 2014-21, the agency has taken no actions to address comments received.

In response, the IRS agreed with TIGTA’s recommendations and stated that it “plans to develop a virtual currency strategy including an assessment of whether changes to information reporting documents are warranted.” According to TIGTA, the IRS also agreed that “additional guidance would be helpful and plans to share the recommendation with the IRS’s Office of Chief Counsel for coordination with the Department of the Treasury’s Office of Tax Policy.” To date, however, no such additional guidance from the IRS regarding virtual currency has been issued.

Approximately two months later, however, the IRS issued a “John Doe” summons to Coinbase, a U.S. company that serves as a digital currency wallet where merchants and consumers can conduct transactions using virtual currencies such as Bitcoin and others. A “John Doe” summons is a relatively unknown information-gathering tool that is being used with increasing frequency by the IRS to obtain information and records about a class of unidentified taxpayers if the IRS has a reasonable belief that such taxpayers are engaged in conduct violating U.S. tax laws. Because the identities of the targeted taxpayers are unknown, the summons is denoted with a “John Doe” moniker. Expressly authorized by the Internal Revenue Code, a John Doe summons must first be approved by a federal judge before it can be served. The IRS sought to serve a summons on Coinbase because of its concern that the anonymous nature of virtual currencies like Bitcoin may allow users to engage in tax evasion and other illegal conduct:

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws.

In an affidavit submitted to the Court in support of its application for a John Doe summons, the IRS claimed that in 2015, only 802 taxpayers reported a Bitcoin transaction on Form 8949.

The “John Doe” summons directed to Coinbase requires that company to produce records identifying U.S. taxpayers who have used its services during the years 2013 and 2015. In response, both Coinbase and one of its customers have sought to quash the summons. In March 2017, the IRS filed a petition in federal court to enforce the summons against Coinbase. Subsequently several Coinbase customers have sought to intervene in the summons enforcement proceeding anonymously. To date, the Court has not ruled on these applications, and Coinbase has not produced any records in response to the summons.

In the Congressional letter to the IRS, the authors express concern with the Coinbase summons, pointing out that the summons is estimated to affect 500,000 active Coinbase customers and would result in the production of millions of pages of transaction records. The letter further points out that “90 percent of these customers engaged in less than $10,000 in cumulative, gross transactions during the entire period requested.” Under these circumstances, the three members question whether the IRS genuinely has a reasonable belief that Coinbase customers are engaging in tax evasion:

However, we strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS. Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals. The IRS’s actions in this case also set a dangerous precedent for companies facilitating virtual currency transactions that could be subject to a similar summons.

The letter concludes by demanding that the IRS respond, by June 7, 2017, to a broad set of questions about the agency’s strategy for addressing the tax treatment of digital currencies:

1.  Please describe the IRS’s current digital currency strategy and provide any existing policies and procedures.

a.  What efforts has the IRS made to conduct industry outreach or coordination on its digital currency strategy?

b.  What, if any, industry concerns have been raised and what actions is the IRS taking to address these?

c.  How does the John Doe summons issued to Coinbase fit into the larger IRS digital currency strategy?

2.  As mentioned earlier, to issue a John Doe summons, the IRS must first establish that it has a reasonable basis to believe that the individuals may fail or may have failed to comply with internal revenue law. What is the justification for the IRS’s position that all Coinbase customer records are needed for this timeframe?

a.  When seeking this summons, what provision(s) of the IRC did the IRS believe Coinbase customers not to be in compliance with?

b.  Did the IRS consider issuing a more narrowly tailored summons? If so, what impediments existed to the IRS issuing a more narrowly tailored summons?

3.  TIGTA made three recommendations in its 2016 report referenced above. What is the current status of the IRS’s implementation of each of these recommendations and what actions have been taken to address each one?

4.  How has or will the IRS assess and take into account the compliance burdens on start-up financial technology companies as well as digital currency users (especially those engaging in light to moderate transactional use) when developing and refining its digital currency strategy?

5.  Will the IRS consider a de minimis exemption or other action to remove practical obstacles to such moderate, transactional use of digital currencies?

This letter from Congress is the latest example of criticism of the IRS’s digital currency strategy (or lack thereof). As noted above, the issuance of Notice 2014-21 was helpful in providing initial guidance in this area, but it left unanswered many more questions than it answered, as evidenced by follow-up comments from the AICPA and TIGTA. And the IRS is encountering resistance in its efforts to enforce its John Doe summons to Coinbase. The Congressional letter only adds to the growing chorus calling for the IRS to clarify this area once and for all.