THE GIST OF IT: As we’ve reported before, tax law requires that a revenue agent at the IRS must get the approval of their supervisor before sending out notice of penalties to a taxpayer. And backdating a signature as part of a fraudulent audit document is no laughing matter. It could constitute a felony. According to filings summited to the Tax Court by the partnerships, a revenue agent at the IRS emailed his supervisor on July 12, 2021, asking for approval for penalties against the partnerships — but without detailing exactly what penalties he planned to assess or the rationale the IRS planned on asserting for the penalties. Two days later, the supervisor replied via emails with the note, “I approve penalties,” in the subject line and the names of the respective partnerships in the bodies of the emails. A good while later, on March 11, 2022, the revenue agent followed up with his supervisor with “lead sheets” outlining penalties for each partnership and requested that his supervisor sign not with the date of March 11, 2022, but with the older date of July 14, 2021. The partnerships' documents, filed on Aug. 16, ask the IRS to admit to the accusations within 30 days, and we’ll have to see where all this leads. But the bottom line is improving taxpayers' trust in the agency will be critical if the agency wishes to preserve its increased funding for more enforcement activities, amid relentless Republican attacks, and potentially set up an agency-run filing system that competes with those provided by commercial tax prep companies. A pattern of the IRS cutting corners behind closed doors is going to have the opposite effect, but it’s also possible the controversies have more to do with unfortunate slip-ups than any malicious behavior on the part of the agency. In the first case involving a backdating controversy with a partnership called LakePoint Land Group, the IRS argues that while the revelations “admittedly fall short of the level of excellence” that the commissioner expects of employees, the actions “do not rise to the level of fraud or bad faith, as suggested by petitioner, and do not warrant the imposition of any sanctions.” An email provided by the IRS in the LakePoint case indicated that the supervisor accused of backdating approval had trouble getting her electronic signature on the lead sheet and instead typed out language indicating her signature on the side of the form. The supervisor indicated she was willing to sign an affidavit to that fact. UPDATES FROM PARIS: The international tax project spearheaded by the Organization for Economic Cooperation and Development has encountered a few bumps of late, including criticism from the U.N. that the OECD’s frameworks don’t do enough to address the concerns of developing countries. We got a rare update from the American director for the OECD’s Center for Tax Policy and Administration Manal Corwin on how she views these various challenges, courtesy of a Bloomberg Tax podcast hosted by Lauren Vella. Republican opposition: House Ways and Means Committee Chair Jason Smith (R-Mo.) is expected to lead a Republican delegation to Paris soon to express the GOP's opposition to the OECD’s 15 percent global minimum tax and likely threaten officials with retaliatory measures cooked up by Republican tax writers this Congress. “They’ve not formally provided a list of questions or an agenda for discussion,” Corwin said of Smith's delegation, although she noted that the OECD has received letters from certain lawmakers noting concerns with the global tax deal. “We’ve also had conversations with congressional staff,” Corwin said. The Canadian conundrum: Another threat comes from the U.S.’s northern neighbor, Canada, which has said it would forge ahead with a tax on Big Tech companies in a move that could sink a long-running OECD project to reform the taxation of the digital economy. Acknowledging that Canada did not sign onto an agreement forged between more than 130 of those countries to delay those digital services taxes until 2025, Corwin said she nonetheless believes that the country is still supportive of the OECD's framework, otherwise known as Pillar One. “Conversations are ongoing about how to thread the needle and make sure that the momentum that has been achieved… is not compromised” by the implementation of DSTs, Corwin said. HAWAII WILDFIRES: In response to the Hawaii wildfires that have prompted some lawmakers to urge President Joe Biden to declare a climate emergency, the IRS said Friday that it is delaying the filing deadlines for taxpayers affected by the fires to Feb. 15, 2024. The emergency extension will apply to deadlines for quarterly income payments, quarterly payroll and excise tax returns, as well as certain partnership and corporate tax filings, among other filings, for any individuals and households in areas designated by the Federal Emergency Management Agency.
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