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  • Sens. Portman, Bennet Introduce Bipartisan Electronic Signature Standards Act

    FinTech

    On May 9, Senators Rob Portman (R-Ohio) and Michael Bennet (D-Colo.) introduced legislation that would make it easier for taxpayers to be represented in disputes with the Internal Revenue Service (IRS). As set forth in a press release issued by Sen. Portman’s office, the Electronic Signature Standards Act (S. 1074) would amend the Internal Revenue Code of 1986 by providing uniform standards for the use of electronic signatures for third-party disclosure authorizations, and thereby would “make it easier, and faster, for professional tax experts to represent taxpayers before the IRS by instituting electronic signature standards for third party disclosure authorization forms.” Notably, the IRS already uses electronic signatures for Form 4506-T (Request for a Transcript of Tax Return), which is commonly used in the mortgage industry. The use of electronic signatures on these forms has allowed the IRS to process over 20 million of these forms a year, and the Electronic Signature Standards Act would extend similar electronic signature requirements to Form 2848 (Power of Attorney and Declaration of Representative) and Form 8821 (Tax Information Authorization). These forms are required before a professional tax expert can begin representing a taxpayer before the IRS. “Taxpayers deserve quick access to the IRS, and this bill makes that access possible,” said Sen. Portman.

    Fintech Electronic Signatures IRS Federal Issues Federal Legislation

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  • IRS Releases Annual Criminal Investigations Report for FY2016

    Financial Crimes

    On February 27, the IRS announced the release of its Annual Criminal Investigation Report (“Report”), discussing the significant accomplishments and criminal enforcement actions taken by the IRS in fiscal year 2016. Highlights in the Report include case examples on a range of matters, including money laundering, public corruption, terrorist financing and narcotics trafficking financial crimes, as well as a discussion of a drop in the number of agents and professional staff at the IRS, and a drop in the total number cases brought for the third consecutive year.

    Financial Crimes IRS Anti-Money Laundering

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  • IG Report Concludes that IRS Lacks Compliance Strategy For Virtual Currencies

    FinTech

    On November 8, the Treasury Inspector General for Tax Administration (TIGTA) released a report evaluating the IRS’s strategy for addressing income produced via virtual currencies. The report which was completed on Sept. 21, but released Tuesday, observed that none of the agency’s divisions have yet developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies. Accordingly, the TIGTA recommended that the IRS develop a comprehensive strategy for virtual currencies such as Bitcoin to help ensure compliance with tax law. The report also recommended that the IRS provide updated guidance to reflect the necessary documentation requirements and tax treatments necessary for the various uses of virtual currency and that the agency revise third-party reporting documents so that they identify how much virtual currency was used in taxable transactions. The IRS agreed with each of these three recommendations.

    Digital Commerce IRS Compliance Department of Treasury Virtual Currency Miscellany

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  • Treasury Announces Beneficial Ownership Legislation; Proposes Foreign-Owned Single-Member LLC Regulations

    Consumer Finance

    Recently, the Treasury Department announced that it is sending Congress legislation that would require companies formed within the United States, or “that [use] the mail, wire, or any facility in interstate or foreign commerce in its formation, transfer of ownership, or business activity,” to file beneficial ownership information with the Department, and would impose a $5,000 penalty for failure to comply. The proposed legislation defers to the Department of the Treasury to define beneficial ownership. The new draft legislation also proposes technical amendments to FinCEN’s Geographic Targeting Order (GTO) authority to provide FinCEN the authority to collect information on funds transfers in general, including regarding bank wire transfers, instead of transactions using “monetary instruments.”

    Treasury simultaneously announced proposed regulations to require foreign-owned “disregarded entities” to obtain an employer identification number with the IRS. The proposed regulations are intended to address “a narrow class of foreign-owned U.S. entities – typically single member LLCs – that have no obligation to report information to the IRS or to get a tax identification number.” These "disregarded entities” (which include foreign-owned-single-member LLCs) can, according to Treasury, be used to shield non-U.S. assets’ or non-U.S. bank accounts’ foreign owners. If finalized, the regulations would assist the IRS in determining whether a tax liability exists, and if so, how much. Finally, the regulations would allow the IRS to share information with other tax authorities.

    FinCEN IRS Department of Treasury GTO

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  • California Federal Court Holds Bank Responsible For Funds Subject To IRS Levy On Customer's Account

    Consumer Finance

    On August 15, the U.S. District Court for the Central District of California held that a bank responded too slowly to a government levy on a customer’s account and was therefore responsible for funds subsequently removed by the customer. The IRS notified the bank of a jeopardy levy on the account of a customer who received an improper tax refund and refused to return those funds to the government. Before the bank acted on the notice, the customer removed the funds from his account and the IRS was unable to recover them. The government then turned to the bank for relief, asserting that under the Internal Revenue Code, any person who fails or refuses to surrender any property subject to a levy is liable to the government. The court held that although the statute does not require the bank to immediately surrender the property, the bank was required, upon receiving notice, “to preserve that property or run the risk of paying the depositor’s tax bill.” The court explained that once the levy was served on the bank, the bank was in the best position to protect the property, and that even if the bank acted reasonably—i.e., without any undue delay—it could still be liable for the levied property.

    IRS Retail Banking

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  • Swiss Bank Pleads Guilty In Alleged Tax Evasion Conspiracy

    Financial Crimes

    On May 19, the DOJ announced that a Swiss bank pleaded guilty and entered into agreements with federal and state regulators to resolve a multi-year investigation into the bank’s alleged conspiracy to assist U.S. taxpayers in filing false income tax returns and other documents with the IRS by helping those individuals conceal undeclared foreign bank accounts. Under the plea agreement, the bank agreed to (i) disclose its cross-border activities; (ii) cooperate in treaty requests for account information; (iii) provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; (iv) close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and (v) enhance compliance, recordkeeping, and reporting programs.  The plea agreement also reflects a prior related settlement with the SEC in which the bank paid $196 million in disgorgement, interest, and penalties. Under the current agreements, the bank will pay $2.6 billion in fines and penalties, including $1.8 billion to the DOJ, $100 million to the Federal Reserve Board, and $715 million to the New York DFS. Federal authorities did not individually charge any officers, directors, or senior managers, and the agreements do not require the bank to dismiss any officers or employees, but eight bank executives have been indicted since 2011 and two of those individuals pleaded guilty. Further, federal and state regulators did not directly restrict the bank’s ability to operate in the U.S.—the New York Federal Reserve Bank allowed the bank to remain a primary dealer and the New York DFS did not revoke the bank’s state banking license.

    Federal Reserve IRS DOJ Financial Crimes NYDFS

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  • IRS Will Treat Convertible Virtual Currency as Property, Not Currency

    FinTech

    On March 25, the IRS issued a notice in which it stated that, for federal tax purposes, bitcoins and other convertible virtual currencies are treated as property rather than currency. The IRS added that a third party that settles payments made in virtual currency on behalf of a substantial number of unrelated merchants that accept virtual currency from their customers may be a third party settlement organization (TPSO) and thus subject to IRS information reporting requirements. The IRS addressed several questions related to the use of virtual currency in the notice but acknowledged that there may be other questions regarding virtual currency not addressed that warrant consideration. The IRS is therefore accepting public comment on other types or aspects of virtual currency transactions that should be addressed by the IRS in future guidance. The notice does not specify a deadline for submitting such comments.

    IRS Virtual Currency

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  • IRS Revises Handbook For Authorized E-File Providers

    FinTech

    On March 11, the IRS updated Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns, with new electronic signature guidance for Forms 8878 and 8879 (IRS e-file Signature Authorization). The update includes guidance on currently acceptable (i) electronic signature methods; (ii) identity verification requirements; and (iii) electronic record requirements.

    IRS Electronic Signatures

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  • IRS Ready to Accept Electronic Signatures on the 4506-T

    FinTech

    Recently, the Internal Revenue Service issued Electronic Signature Requirements that will allow applicants to electronically sign and submit IRS Forms 4506-T and 4506T-EZ (4506-T) beginning January 7, 2013. IRS regulations permit taxpayers to order a tax transcript using a form 4506-T through the IRS Income Verification Express Services (IVES). Under the Requirements, IVES participants may accept and submit an electronically signed 4506-T if the electronic signature process includes: (i) a structure that places creation of the signature under the signer’s sole control; (ii) a signature technology that permits the signature to be verified, either through the use of software algorithms or forensic analysis;  (iii) the ability to establish that the signature was created by a specific individual; (iv) a signature block on the document with a symbol, logically associated with the 4506-T, that allows validation of the signer’s name against the name listed on the 4506-T; (v) a process flow or communication with the signer establishing the intent to sign and the purpose of the signature; and (vi) application of the signature in a tamper-evident manner. In addition, the process used to present and sign the 4506-T must include each of the following: (i) authentication, (ii) consent, (iii) tamper-proofing, and (iv) an audit log. Each IVES participant accepting electronically signed 4506-Ts must determine that the electronic signature process adheres to the Requirements, and must also retain a copy of each signed 4506-T and accompanying audit log for at least two years. Such participants also must implement a third-party audit program and comply with specific monthly and annual third-party audit and reporting requirements. BuckleySandler’s Electronic Signatures and Records Team has substantial experience assisting entities seeking to comply with electronic signature requirements.

    IRS Electronic Signatures

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  • IRS Finalizes New Reporting Requirement for U.S. Banks

    Consumer Finance

    On April 19, the Internal Revenue Service published a final rule that requires U.S. banks to report annually the deposit interest paid to nonresident alien account holders. The reporting requirement will apply to interest payments made on or after January 1, 2013. The IRS is intending to collect this information to help combat offshore tax evasion by (i) ensuring that the IRS can exchange information with other jurisdictions, (ii) supporting implementation of the Foreign Account Tax Compliance Act, and (iii) making it more difficult for U.S. taxpayers to falsely claim to be nonresidents in order to avoid taxes on deposit interest income. To address concerns about the confidential treatment of collected information, the final rule limits the IRS’s exchange of the reported information to those countries with which the U.S. has an exchange-of-information agreement. The IRS believes that those agreements contain legal limitations and administrative safeguards to ensure confidential treatment of the information.

    IRS

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