Below is our summary of important Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 31, 2022 through June 3, 2022.
May 31, 2022: The IRS has issued a press release, reminding taxpayers living and working outside the United States that their 2021 federal tax return is due June 15, 2022. The deadline applies to U.S. citizens and resident aliens. abroad, including those with dual nationality. The press release also contains other information to assist such taxpayers with their filings.
June 1, 2022: The IRS has released the first part of its “Dirty Dozen” tax scams for 2022, focusing on the following:
Use of Charitable Remainder Annuity Trust (CRAT) to eliminate taxable gains. In this transaction, the appreciated property is transferred to a CRAT. Taxpayers erroneously claim the transfer of appreciated assets to the CRAT, which in itself gives those assets an increase in fair market value basis as if they had been sold to the trust. The CRAT then sells the property but does not recognize a gain due to the increase in the claimed base. Then, the CRAT uses the proceeds to purchase a Single Premium Immediate Annuity (SPIA). The beneficiary declares, as income, only a small part of the annuity received from the SPIA. By misapplication of the law relating to CRATs, the beneficiary treats the balance of payment as an excluded part representing a return on investment for which no tax is due. Taxpayers seek to achieve this inaccurate result by misapplying the rules in sections 72 and 664.
Maltese (or foreign) pension schemes abusing the Treaty. In these transactions, US citizens or US residents attempt to avoid US tax by making contributions to certain foreign individual pension plans in Malta (or possibly other foreign countries). In these transactions, the individual generally does not have a local connection and local law allows contributions in a form other than cash or does not limit the amount of contributions based on income from employment or business. independent activities. By falsely asserting that the foreign arrangement is a “pension fund” for US tax treaty purposes, the US taxpayer is misinterpreting the relevant treaty to falsely claim an exemption from US income tax on income and distributions from the foreign assembly.
Puerto Rican and other foreign captive insurance. In these transactions, U.S. owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican or other foreign company with separate cell agreements or asset plans in which the U.S. owner has an interest. financial. The U.S.-based person or entity claims deductions for the cost of “insurance coverage” provided by a front insurer, who reinsures the “coverage” with the foreign company. Features of purported insurance arrangements typically include one or more of the following: implausible risks covered, arm’s length pricing, and lack of a business purpose for entering into the arrangement.
Monetized installment sales. These transactions involve the improper use of the installment sale rules under Section 453 by a seller who, within one year of a property sale, actually receives the sale proceeds through purported loans. In a typical transaction, the seller enters into a contract to sell an appraised good to a buyer for cash, and then purports to sell the same good to an intermediary in exchange for an installment payment. The intermediary then purports to sell the property to the buyer and receives the purchase price in cash. Through a series of related steps, the seller receives an amount equal to the sale price (less various transaction fees) in the form of a so-called non-recourse, unsecured loan.
June 1, 2022: The IRS has announced that it is looking to hire more than 4,000 contact representative positions at IRS offices nationwide this summer. Posts will provide administrative and technical assistance to individuals and businesses primarily by telephone, written correspondence or in person. No prior tax experience is required. Virtual information sharing events will also take place throughout June.
June 1, 2022: The IRS has announced that it has extended the deadline for accepting applications for the Tax Counseling for the Elderly (TCE) and Voluntary Income Tax Assistance (VITA) grant programs to June 17, 2022. The TCE program provides tax counseling and tax preparation to seniors age 60 or older and provides technical assistance to volunteers who provide free federal income tax assistance within communities of people seniors across the country. The VITA program provides free tax filing assistance to underserved communities.
June 2, 2022: The IRS reminded taxpayers who requested an extension to file a complete and accurate return electronically as soon as possible and that there is no need to wait until October.
June 3, 2022: The IRS has released its weekly list of written determinations (for examplePrivate Letter Rules, Technical Advice Memorandums and Chief Counsel Advice).
© 2022 McDermott Will & EmeryNational Law Review, Volume XII, Number 158