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International Enforcement: Whats Old, Whats New and What We Can Expect 35 th Annual UCLA Extension Tax Controversy Institute October 22, 2019 Beverly Hills Hotel 1 Speakers Moderator: Frank Agostino, Agostino & Associates,

  1. Nationally Coordinated Investigations Unit What is the NCIU?  Cutting edge, future of IRS-CI: Nationwide impact by using Data Forensics to identify core mission cases and identify new areas of non-compliance.  Increased management and use of all available data. Building algorithms to identify potential cases.  Primary goals – ensure nationwide coverage of all program areas. Focus on cases that support core mission.  Current Focus– Employment Tax, Virtual Currency, International Tax (FATCA & USCs Living Abroad), Money Laundering. Must-work referrals generated by the Unit. 16 Criminal Investigation | IRS

  2. Nationally Coordinated Investigations Unit (2) FY 2019 Results:  106 cases referred in FY 2019. All field offices received cases  Initiative Areas: Employment Tax, FATCA, USCLA, Biofuels, Whistleblower and TEGE FY 2020 Goals:  Expand referrals in Employment Tax (Successor Entities & Substantial Underpayment), International (USCLA, FATCA), Significant ML Cases from National Targeting Center.  Refer 100+ cases. Referrals to all field offices – continue maximize geographic coverage.  Implement formal stand up of Unit in CI field operations structure. 17 Criminal Investigation | IRS

  3. Cases in the Media 18 Criminal Investigation | IRS

  4. Cases in the Media 19 Criminal Investigation | IRS

  5. Cases in the Media 20 Criminal Investigation | IRS

  6. Civil Enforcement 21

  7. OVDP Has Ended But Offshore Enforcement Continues • Offshore Voluntary Disclosure Program closed on September 28, 2018 • IRS is committed to offshore enforcement • John Doe Summonses • Swiss Bank Program • Internal data mining • Whistleblowers • FATCA and other inter-governmental cooperation • LB&I Campaigns • Recurring international compliance issues – international information returns • Relief Procedures for Certain Former Citizens • Offshore compliance options available to U.S. taxpayers 22

  8. Expatriation 23

  9. Expatriation Tax • A Covered Expatriate is subject to tax under IRC §§ 877 and 877A (“Expatriation Tax”). • The Expatriation Tax applies to all net unrealized gains on the expatriate’s worldwide assets on a mark-to-market basis − that is, all property (subject to a few exceptions) of a Covered Expatriate is deemed sold for its fair market value on the day before the expatriation date, and any gains from such deemed sales are subject to income tax. • Losses from deemed sales are taken into account for the taxable year of the deemed sale, except that the wash sale rules under IRC § 1091 do not apply. IRC § 877A(a); see also Notice 2009-85. • Any net gains can be reduced by the exclusion amount under IRC § 877A(a)(3), which is to be adjusted for inflation. 24

  10. Covered Expatriate Covered Expatriate: An expatriate who meets one of the following criteria under IRC § 877(a)(2) is considered a “Covered Expatriate” and is subject to the Expatriation Tax: (1) the average annual net income tax of an individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000 (adjusted for inflation under 877A(a)(3)(B) currently $168,000) ; (2) the net worth of the individual as of such date is $2,000,000 or more ; OR (3) such individual fails to certify under penalty of perjury that he has met the requirements of U.S. tax law for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require. 25

  11. Expatriation Procedure • Renounce your U.S. citizenship by appearing before the U.S. Embassy or U.S. Consulate Office and signing an oath of renunciation. • Once the renunciation is approved, a Certificate of Loss of Nationality is issued. • Additionally, taxpayers must file a Form 8854, Expatriation Information Statement , and attach it to the income tax return for the tax year in which they expatriate. 26

  12. IRS Relief Procedure for Certain Former Citizens • On September 6, 2019, the IRS announced a procedure for persons who have relinquished or intend to relinquish their U.S. citizenship and wish to come into compliance with their U.S. tax and reporting obligations. See IR-2019-151. • This relief procedure enables eligible citizens or former citizens to be exempt from the Expatriation Tax and any back taxes owed for prior years. • The procedure applies to those who: • have relinquished their U.S. citizenship after March 18, 2010; • have no filing history as a U.S. citizen or resident; • have a net worth less than $2,000,000 at the time of expatriation and at the time of making their submission under the relief procedures; • have an aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation; AND • failed to file required tax returns (including income tax returns, applicable gift tax returns, information returns) and to pay taxes and penalties for the years at issue due to non-willful conduct . • https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens 27

  13. The IRS’s Updated Voluntary Disclosure Practice 28

  14. Previous Offshore Voluntary Disclosure Programs • 2009 Program: taxpayers required to file amended income tax returns and FBARs for preceding 6 years. • Taxpayers were liable for tax, interest, penalties and/or additions to tax (traditionally an accuracy-related penalty). • Taxpayers were liable for a miscellaneous penalty of 20% of the values of the income producing foreign assets. 29

  15. Prior OVDP Programs (cont’d) • 2011 Offshore Voluntary Disclosure Initiative (“OVDI”): taxpayers required to file amended income tax returns and FBARs for preceding 8 years. • Taxpayers were liable for tax, interest, penalties and/or additions to tax (traditionally an accuracy-related penalty). • Taxpayers were liable for a miscellaneous penalty of 25% of the values of the income producing foreign assets. 30

  16. Prior OVDP Programs (cont’d) • 2012 Program: taxpayers required to file amended income tax returns and FBARs for preceding 8 years. • Taxpayers were liable for tax, interest, penalties and/or additions to tax (traditionally an accuracy-related penalty). • Taxpayers were liable for a miscellaneous penalty of 27.5% of the highest aggregate balance in the foreign bank account. 31

  17. Prior OVDP Programs (cont’d) • 2014 Program: made modifications to the 2012 program, including: • Required disclosure of additional information on foreign accounts and entities in preclearance request; • Taxpayers had to make full payment of all amounts due when filing amended returns; and • Miscellaneous penalty rose to 50% if the taxpayer’s foreign account was from a foreign financial institution under investigation or cooperating with the U.S. government. 32

  18. Updated Voluntary Disclosure Program • 2014 OVDP program ended on September 28, 2018. • On November 20, 2018, IRS issued a memorandum outlining the updated voluntary disclosure program. • “The objective of the voluntary disclosure practice is to provide taxpayers concerned that their conduct is willful or fraudulent, and that may rise to the level of tax and tax-related criminal acts, with a means to come into compliance with the law and potentially avoid criminal prosecution.” • Offshore items will still benefit from 2014 OVDP program if submitted prior to September 28, 2018. • For domestic items, the Service has the discretion to apply the procedures outlined in the new program regardless of when submitted. 33

  19. Eligibility to Enter Program • Voluntary Disclosure must be submitted prior to: • IRS initiates or advises the taxpayer that it plans to conduct a civil or criminal investigation; • The date when the IRS receives information from a third party; • The date the IRS initiates a civil examination or criminal investigation directly related to the liability connected with the disclosure; or • The date the IRS receives information regarding a criminal enforcement action related to the specific liability for the disclosure. 34

  20. Undisclosed Foreign Accounts – Voluntary Disclosure • Offshore Voluntary Disclosure Program (2014 OVDP) closed on September 28, 2018 • Provided for 27.5% penalty applied to the highest balance of the account and payment of taxes, plus 20% penalty, for up to 8 past years. • Post-9/28/2018 Voluntary Disclosure Practice (IRM 9.5.11.9) • Voluntary Disclosure is still available. • Legal source income only. • Pre-Clearance Letter must be submitted to IRS-CI to determine eligibility. • Note eligible if: • IRS initiated civil audit or criminal investigation of taxpayer; • IRS received information from third party (e.g. informant, other government agency, media) alerting IRS to taxpayer’s noncompliance. • Main benefit: no guaranteed immunity, but IRS will NOT make a referral to DOJ for criminal prosecution. 35

  21. Voluntary Disclosure Resolution Framework • Six Year Disclosure Period. Taxpayers must submit all required returns and reports for the disclosure period. • Examiners will determine applicable taxes, interest and penalties. • Civil fraud penalty under IRC 6663 or 6651(f) will apply to ONE tax year with the highest tax liability (75% of tax due). • Willful FBAR penalty will be asserted in accordance with existing IRS penalty guidelines (up to 50% of account value). • Taxpayer can request imposition of accuracy-related penalty under IRC 6662 (20% of tax) instead of civil fraud penalty; and non-willful FBAR penalty instead of willful penalty. • Taxpayer must present convincing evidence on why fraud and willful penalties do not apply. • Other penalties for failure to file information returns (e.g. Form 5471, Form 3520) will not be imposed. • Taxpayer retains administrative appeal rights. 36

  22. Specifications of the Program • Period: six-year disclosure period; • Preclearance Request: taxpayer must submit a revised Form 14457, Voluntary Disclosure Practice Preclearance Request and Application ; • Submission: taxpayer must submit all required returns and reports for the disclosure period. • New penalty structure. 37

  23. Penalties for New Program • Income tax returns: civil penalty under IRC § 6663 for fraud or under IRC § 6651(f) for fraudulent failure to file income tax return will apply to the one tax year with the highest tax liability; • Examiners may, in limited circumstances, apply civil fraud penalty to more than one year, if there is no agreement as to the tax liability. • Examiners may apply civil fraud penalty beyond six year if taxpayer fails to cooperate and resolve the examination by agreement. • Taxpayer can request accuracy-related penalty; only granted in exceptional circumstances. • Failure to file information returns will not result in automatic penalty; 38

  24. New Penalties (cont’d) • Excise tax, employment tax, estate and gift tax: penalties will be based upon a facts and circumstances analysis conducted by examiner with appropriate subject matter experts; • FBAR: “Willful FBAR penalties will be asserted in accordance with existing IRS penalty guidelines under IRM 4.26.16 and 4.26.17.” 39

  25. Voluntary Disclosure Procedure • Submit Form 14457, Part I, to request preclearance; • After preclearance, submit Form 14457, Part II, which provides more details regarding the unreported income and/or entities; • Do not submit returns with Part II; • If preliminarily accepted into the voluntary disclosure program, then Criminal Investigation will send to an examiner. • https://www.irs.gov/compliance/criminal-investigation/irs- criminal-investigation-voluntary-disclosure-practice 40

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  30. Streamlined Filing Compliance Procedures • Introduced in July 2014; Still Available • Designed for Non-Willful US Taxpayers • Non-willfulness is defined as negligence, inadvertence, or good faith mistake of law. • Taxpayers must file amended income tax returns (taxpayers residing in US) or either amended or delinquent income tax returns (taxpayers residing abroad) for past 3 years; plus, file FBARs for past 6 years. • Must file Certification of Non-Willfulness. • Must pay tax for 3 past years; • In lieu of FBAR or other international reporting penalties, taxpayers residing in US must pay penalty of 5% of the highest account balance. • 0% Penalty for taxpayers residing abroad. 45

  31. Delinquent FBAR Submission Procedures • Designed for Taxpayers who reported all income and paid all tax on income tax returns but failed to file FBARs. • No penalty will be imposed for the failure to file delinquent FBARs. • Must be done before Taxpayer is contacted by IRS civil examination or criminal investigation. • File using e-filing under regular rules. • On the cover page of the electronic forms, select a reason for late filing. 46

  32. Delinquent International Information Return Submission Procedures • Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who: • have not filed one or more required international information returns, • have reasonable cause for not timely filing the information returns, • are not under a civil examination or a criminal investigation by the IRS, and • have not already been contacted by the IRS about the delinquent information returns • Should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file. • As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion. • If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures. 47

  33. International Penalties and Litigation 48

  34. International Forms • Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (IRC §§ 6039F, 6048(a)); • Form 3520-A, Annual Report of Foreign Trust with a U.S. Owner (IRC § 6048); • Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations (IRC §§ 6038, 6046); • Form 5472, Information Return of 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (IRC §§ 6048A, 6048C); • Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation (IRC § 6038B); • Form 8938, Statement of Specified Foreign Financial Assets (IRC § 6038D). 49

  35. Form 3520 • Must report large foreign gifts (over $100,000 if from individual and $16,388 if foreign corp. or partnership); • Must report transactions between a U.S. person and foreign trust; • Penalties: • Sec. 6039F: • 5% to 25% of the fair market value of the gift; • Income Recharacterization: IRC § 6039F(c)(1)(A): “Tax consequences of the receipt of such gift shall be determined by the Secretary.” • Gifts from foreign partnerships or corporations are considered gross income unless otherwise shown. • Deficiency procedures apply. • Sec. 6048 (Sec. 6677(a)): • $10,000 or 35% of gross reportable amount of the transaction. 50

  36. Form 3520-A • Must report if foreign trust has U.S. owners; • Penalties: • Sec. 6677(b): 5% of the gross value of the portion of the trust’s assets that are treated as owned by the U.S. person for that taxable year (or $10,000, whichever is greater); • Litigation issues and practice: • Reasonable cause; • Grantor trust rules. 51 1

  37. Form 5471 • U.S. persons must report ownership interest of foreign corporations; • Penalties: • $10,000 per violation with up to $50,000 in continuation penalties; • Foreign tax credit reduction (up to 10%); • Notice of deficiency required. • Credit reduction is reduced by penalty imposed. • Litigation issues: • Attribution under I.R.C. § 6038(e)(2): I.R.C. § 318(a) applies (except for attribution from non-U.S. persons and 50% threshold is reduced to 10%); • Attribution to: spouse, children, grandchildren, and parents. • Summarily Assessable penalty? 52

  38. Form 5472 • Foreign persons controlling 25% or more of a U.S. corporation or foreign corporations engaged in U.S. trade or business must file; • Penalties: • $25,000 per month for failure to file (no limit); • $25,000 per month for failure to keep adequate books and records (no limit). • Litigation issues and practice: • Reasonable cause and indefinite continuation penalties; • Income Recharacterization: I.R.C. § 6038A(e)(3) allows Secretary to determine (subject to deficiency procedures): • The allowable deduction for any amounts paid or incurred by the reporting corporation to the related party in connection with any applicable transaction; and • The cost to the reporting corporation of any property acquired in such transaction from a related arty shall be determined by Secretary. • Systemic assessment of penalty. 53

  39. Form 926 • U.S. persons who transfer property to a foreign corporation or a foreign partnership, or who make a liquidating distribution to a non- U.S. person must file Form 926; • Penalties: • 10% of the fair market value of the property at the time of the transfer; • Contributions to foreign partnership will lead to recognition of gain of the fair market value of the transferred property. • Litigation issues and practice: • What is appropriate statute of limitations?; • Is penalty summarily assessable? 54

  40. Form 8938 • Reporting specified foreign financial assets if they total more than $50,000; • Penalties: • $10,000 for each failure plus up to $50,000 in continuation penalties. • Litigation issues and practice: • Nominee: TPs being penalized for foreign property owned by another but with his name; • What is appropriate statute of limitations?; • Is penalty summarily assessable? 55

  41. FBAR Penalties and Litigation 56

  42. FBAR • Filing & Recordkeeping requirement: 31 USC § 5314 authorizes the Secretary to require U.S. residents, citizens, and persons doing business in the U.S. to keep records and/or file reports if they transact or maintain a relation with a foreign financial agency. – Records must be kept for at least 5 years. 31 CFR § 1010.410. • Penalties: willful civil penalties; non-willful civil penalties; and criminal fines and/or imprisonment. 57

  43. FBAR Penalty • 31 USC § 5322(a): willful failure to file is punishable by $250,000 fine or five years imprisonment, or both. • 31 USC § 5321(a)(5): imposes a penalty on anyone who violates or causes a violation of 31 USC § 5314; – Penalty shall not exceed $10,000 unless willful; – Willful penalty is the greater of: • $100,000 or • 50% of the amount of transaction or the balance in the account at the time of the violation. 58

  44. Penalty Limitation Based on Regulation • 31 CFR § 1010.820(g)(2): for any willful violation . . . the Secretary may assess upon any person, a civil penalty: – In the case of a violation of § 1010.350 or § 1010.420 involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account, a civil penalty not to exceed the greater of the amount (not to exceed $100,000) equal to the balance in the account at the time of the violation, or $25,000. 59

  45. Regulation Caps Penalty Amount • Regulation Provides a Penalty Cap: – United States v. Colliot, 2018 WL 2271381 (W.D. Tex. 2018) – United States v. Wahdan, 325 F. Supp. 1136 (D. Colo. 2018) 60

  46. Regulation Does Not Control • Regulation Does Not Control: – United States v. Garrity, 2019 WL 1004584 (D. Conn. 2019) (appeal pending) – United States v. Horowitz, 2019 WL 265107 (D. Md. 2019) (appeal pending) – Kimble v. United States, 141 Fed.Cl. 373 (Ct. Cl. 2018) – United States v. Shinday, 2018 WL 6330424 (C.D. Ca. 2018) – United States v. Kahn, No. 1:17-cv-07258-KAM-VMS (E.D.N.Y. Sep. 23, 2019) – United States v. Rum, No. 17-cv-826, slip. op. at 14 (M.D. Fla. Aug. 2, 2019) – United States v. Cohen, case no. 2:17-cv-1652-MWF-JC (CD CAL, August 6, 2019) – United States v. Schoenfeld, No. 16-cv-1248, 2019 WL 2603341 (M.D. Fla. June 25, 2019) – United States v. Park, No. 16-CV-10787, 2019 WL 2248544 (N.D. Ill. May 24, 2019) – Norman v. United States, 138 Fed. Cl. 189 (2018) (appeal pending) 61

  47. Excessive Fines • “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” U.S. Const. amend. VIII. • “Forfeitures–payments in kind–are thus ‘fines’ if they constitute punishment for an offense.” United States v. Bajakajian, 524 U.S. 321, 322 (1998). – Grossly disproportionate standard. • “As relevant here then, under Austin, a monetary sanction is a ‘fine’ if it is ‘payment to a sovereign as punishment for some offense,’ and a payment is made ‘as punishment for some offense’ when its purpose is—even in part—retribution or deterrence. It is clear that the International Penalties have at least some deterrent purpose.” In re Wyly, 552 B.R. 338, 611 (Bankr. N.D. Tex. 2016). • United States v. Bussell, 699 Fed. Appx. 695, 696 (9th Cir. 2017): in response to defendant’s argument of excessive fines under Bajakajian: “However, the assessment against her is not grossly disproportional to the harm she caused because Bussell defrauded the government and reduced public revenues.” • United States v. Garrity, 2019 WL 1004584 (D. Conn. 2019): FBAR and Form 3520 and 3520-A penalties were considered separately for excessive fines analysis. 62

  48. Multiple Assessments • Chief Counsel Memo SBSE-04-0515-0025: “In no event will the total penalty amount exceed 100 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination.” • United States v. Zwerner, S.D. Fla., No. 1:13-cv-22082, 5/28/14: jury verdict that penalized taxpayer 50% of the highest aggregate account value for three of four years, leading to 150% penalty. 63

  49. Multiple Accounts • U.S. v. Boyd, 2019 WL 1976472 (C.D. Cal. April 23, 2019) (appeal pending): whether the non-willful maximum penalty of $10,000 relates to each foreign financial account or to all foreign financial accounts: –Applies to each individual account. 64

  50. Where we go from here… 65

  51. International Enforcement–What’s Old, What’s New and What We Can Expect 35th Annual Tax Controversy Institute 1 UCLA Extension October 22, 2019 2:15-3:05pm Moderator: Frank Agostino, Esq., Agostino & Associates, P.C., Hackensack, NJ Panelists: Caroline Ciraolo, Kostelanetz & Fink, LLP, Washington, D.C. Carolyn Schenck, IRS Office of Chief Counsel, St. Paul, MN Igor Drabkin, Holtz, Slavett & Drabkin, APLC, Beverly Hills, CA Table of Contents Expatriation Tax & Relief ........................................................................... 1 CDP Hearings, Litigation, and Hot Topics .................................................. 8 International Information Return…………………………………………..22 Appendix: Relief Procedures…..…………………………………………..59 1 Materials were prepared by the private practitioners. All information provided, opinions, recommendations, and remarks are those of the private practitioners and do not reflect or represent the opinions or positions of the other panelists. Any information provided, opinions, recommendations, or remarks should not be taken as legal opinion, counseling, or guidance.

  52. EXPATRIATION TAX & RELIEF Renunciation of U.S. Citizenship or Green card I. A. Trend in renunciation: The number of American citizens and long-term residents who gave up their U.S. citizenship or green card increased rapidly since 2010: 742 in 2009, 1,534 in 2010, 1,781 in 2011, 933 in 2012, 2,999 in 2013, 3,415 in 2014, 4,279 in 2015, 5,411 in 2016, 5,133 in 2017, 3,983 in 2018. 2 B. Renunciation of citizenship: 8 U.S.C. § 1481(a) governs the renunciation of citizenship, and provides: A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily … (5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; or (6) making in the United States a formal written renunciation of nationality in such form as may be prescribed by, and before such officer as may be designated by, the Attorney General, whenever the United States shall be in a state of war and the Attorney General shall approve such renunciation as not contrary to the interests of national defense… C. Future eligibility for tax avoiders: 8 U.S.C. § 1182(a)(10)(E) provides that former citizens who are determined by the U.S. Attorney General to have renounced their citizenship for the purpose of tax avoidance are ineligible for visas or admission into the U.S. Thus, the issue of Expatriation Tax must be handled with caution. 2 Helen Burggraf, U.S. Finally Publishes Final 2018 Renunciation Data, American Expat Financial News Journal (Mar. 14, 2019), https://www.americanexpatfinance.com/news/item/131- u-s-finally-publishes-final-2018-renunciation-data; See also , Quarterly Publication of Individuals, Who Have Chosen To Expatriate, as Required by Section 6039G. 1

  53. Expatriation Tax II. A. Expatriation tax: In general, U.S. citizens or long-term residents who renounced their status and meet certain criteria are subject to taxation under IRC §§ 877 and 877A (“Expatriation Tax”). B. Covered Expatriate: Every expatriate who meets the criteria prescribed in IRC § 877(a)(2) (“Covered Expatriate”) is subject to the Expatriation Tax. Such criteria are: 1. the average annual net income tax of an individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000 (currently $168,000 due to inflation adjustment under IRC § 877A(a)(3)(B)); 2. the net worth of the individual as of such date is $2,000,000 or more; OR 3. such individual fails to certify under penalty of perjury that he has met the requirements of U.S. tax law for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require. C. Taxing Covered Expatriates: Upon being classified as a Covered Expatriate, the Expatriation Tax applies to all net unrealized gains on the expatriate’s worldwide assets on a mark-to-market basis—that is, all property (subject to a few exceptions) of a Covered Expatriate is deemed sold for its fair market value on the day before the expatriation date, and any gains from such deemed sales are subject to income tax. IRC § 877A(a); see also IRS Notice 2009-85. Losses from deemed sales are taken into account for the taxable year of the deemed sale, except that the “wash sale” rules under IRC § 1091 do not apply. Any net gains can be reduced by the exclusion amount under IRC § 877A(a)(3), which is to be adjusted for inflation (currently $725,000 for 2019, see Rev. Proc. 2018-57). D. Expatriation Date: 1. U.S. Citizens: IRC § 877A(g)(4) provides that a citizen will be treated as relinquishing his or her U.S. citizenship on the earliest of four possible dates: 2

  54. i. (1) the date the individual renounces his or her U.S. nationality before a diplomatic or consular officer of the U.S. . . ii. (2) the date the individual furnishes to the U.S. Department of State a signed statement of voluntary relinquishment of U.S. nationality. . . iii. (3) the date the U.S. Department of State issues to the individual a certificate of loss of nationality; or iv. (4) the date a U.S. court cancels a naturalized citizen’s certificate of naturalization. 2. Long-term Residents: IRC § 7701(b)(6)(B) provides that a long- term resident ceases to be a lawful permanent resident “if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of the treaty applicable to residents of the foreign country, and notifies the Secretary of such treatment.” E. Deferring the Tax Payment: A Covered Expatriate may elect to defer payment of tax attributable to property deemed sold. IRC § 877A(b) provides: a covered expatriate may make an irrevocable election (“deferral election”) with respect to any property deemed sold by reason of section 877A(a) to defer the payment of the additional tax attributable to any such property (“deferral assets”). The deferral election is made on an asset-by-asset basis. In order to make the election with respect to any asset, the covered expatriate must provide adequate security (defined below) and must irrevocably waive any right under any U.S. treaty that would preclude assessment or collection of any tax imposed by reason of section 877A. 3

  55. 1. The mark-to-market tax does not apply to deferred compensation items, certain tax-deferred accounts, and interest in non-grantor trusts of which the covered expatriate was a beneficiary on the day before the expatriation date. IRC § 877A(c). F. Steps for renouncing citizenship and paying expatriation tax: 1. Appear before the U.S. Embassy or U.S. Consulate Office in a foreign country to renounce U.S. citizenship or residency by signing an oath of renunciation. 3 2. Once the renunciation request has been reviewed and approved, a Certificate of Loss of Nationality (“COLN”) is issued. 4 3. File Form 8854, Expatriation Information Statement , attaching it to the income tax return for the tax year of expatriation. 5 3 Renunciation of U.S. Nationality Abroad, U.S. Department of State, available at https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us- citizenship/Renunciation-US-Nationality-Abroad.html; see e.g. , Renunciation of U.S. Citizenship, available at https://nl.usembassy.gov/u-s-citizen-services/citizenship- services/renunciation-u-s-citizenship/. 4 Id . 5 2019 Instruction for Form 8854, available at https://www.irs.gov/pub/irs-dft/i8854--dft.pdf. 4

  56. III. IRS’s New Relief Procedure for Certain Former Citizens A. New Procedure: On September 6, 2019, the IRS announced a procedure for certain persons who have relinquished or intend to relinquish their U.S. citizenship and wish to come into compliance with their U.S. tax and reporting obligations and avoid being taxed as a Covered Expatriate under IRC § 877A. See IR-2019-151. 6 1. In general, Covered Expatriates are subject to the Expatriation Tax if they renunciate. They are also responsible for any unpaid taxes, including penalties and interest, accrued while they were U.S. citizens. 2. This relief procedure enables certain citizens or former citizens to be exempt from the Expatriation Tax and any back taxes owed for prior years. B. Eligibility for Relief: The Relief Procedure applies to those: 1. who have relinquished their U.S. citizenship after March 18, 2010; 2. who have no filing history as a U.S. citizen or resident (if an expatriate filed Form 1040NR nonresident alien income tax return under good faith belief that he/she was not a U.S. citizen, the procedure may still be allowed); 3. who have a net worth less than $2,000,000 at the time of expatriation and at the time of making their submission under the relief procedures; 4. who have an aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation (after application of all applicable deductions, exclusions, exemptions and credits, including foreign tax credits, but excluding the application of IRC § 877A and excluding any penalties and interest); AND 5. whose failure to file required tax returns (including income tax returns, applicable gift tax returns, information returns (including Form 8938, Statement of Foreign Financial Assets), and Report 6 Available at https://www.irs.gov/newsroom/irs-announces-new-procedures-to-enable-certain-expatriated- individuals-a-way-to-come-into-compliance-with-their-us-tax-and-filing-obligations. 5

  57. of Foreign Bank and Financial Accounts (FinCEN Form 114, formerly Form TD F 90-22.1)) and to pay taxes and penalties for the years at issue due to non-willful conduct . C. Relief Provided: If an expatriate is determined eligible to use this procedure, he/she becomes exempt from any back taxes, interest, and penalties that he/she failed to pay and the Expatriation Tax. D. Participation in Relief Procedure: 1. Renounce U.S. citizenship following the Department of State procedure. 2. File with the IRS the following documents, writing in red “Relief for Certain Former Citizens” across the top of each return: i. Certificate of Loss of Nationality (CLN) of the U.S., Form DS-4083, or copy of court order canceling a naturalized citizen’s certificate of naturalization (described in IRC § 877A(g)(4)(D)); ii. Copy of (a) valid passport OR (b) birth certificate and government issued identification; iii. Copies of “Dual-status” return including Form 1040NR with all required information returns: Form 8854; Form 1040 attached as an information return reporting worldwide income up to date of expatriation; and all other required information returns, including but not limited to Form 8938; and iv. Forms 1040 with all required information returns for five tax years preceding the expatriation date. 3. This relief procedure does not apply to long-term residents (green card holders). 4. Unlike other streamlined procedures, this procedure does not require an applicant to have a Social Security Number. An applicant simply can leave the boxes blank where an SSN is requested. 5. Unlike other procedures, the IRS will acknowledge the receipt of the submission after reviewing the submission package. 6

  58. 6. Returns submitted under this procedure will not be automatically subject to IRS audit, although they may be selected for audit under the regular audit selection process. 7. If an applicant who is not eligible for this procedure make a submission, the IRS will process such submission using normal processing procedure, and the applicant will be liable for all taxes, penalties, and interest. 7

  59. CDP HEARINGS, LITIGATION, & HOT TOPICS I. COLLECTION DUE PROCESS HEARINGS AND LITIGATION A. Collection Due Process Hearing: 1. Notices to taxpayer: after assessment is made, the Service will send one or both of the following notices in order to collect. i. Letter 3172 Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 : this is the letter that is sent to you in accordance with I.R.C. § 6320 informing you of your right to an appeal. Will accompany the actual Form 668(Y), Notice of Federal Tax Lien . a. Form 668(Y) Notice of Federal Tax Lien : provides the taxpayer’s information, the lien amount, the tax periods involved, the tax type involved the filing date, and the place of filing. b. I.R.C. § 6320: requires the Secretary to notify the taxpayer in writing of the filing of a notice of under I.R.C. § 6123. (1) Time for notice: the notice is to be given in person; left at the dwelling or usual place of business; or sent by certified or registered mail to such person’s last known address, not more than 5 business days after the day of the lien filing. (2) Information required: Service must provide taxpayer, in simple and nontechnical terms: the amount of unpaid tax; the right of the person to request a hearing; the administrative appeals available to taxpayer with respect to the lien and the procedures relating to such an appeal; provisions and procedures relating to lien release; and provisions relating to seriously delinquent tax debt and passport revocation under I.R.C. § 7345. (3) Right to fair hearing: hearing shall be held by office of appeals; the taxpayer is entitled to only one hearing per period; the hearing shall be conducted by an employee with no prior 8

  60. involvement; and the hearing should be held in conjunction with a hearing under I.R.C. § 6330, if practicable. ii. Letter 1058 Final Notice of Intent to Levy and Notice of Your Rights to a Hearing : this letter informs the taxpayer that their property is subject to levy and informs them of their right to a hearing. Also, instructs taxpayer to file Form 12153, Request for a Collection Due Process or Equivalent Hearing . a. I.R.C. § 6330: requires notice to taxpayer prior to levy. (1) Time for notice: the notice is to be given in person; left at the dwelling or usual place of business; or sent by certified or registered mail to such person’s last known address, not less than 30 days before the levy. (2) Timing exceptions: the following items are not subject to the 30-day notice and the taxpayer must be notified within a reasonable time: if the Secretary has made a finding that collection may be in jeopardy; Secretary has levied State tax refund; Secretary has served a disqualified employment tax levy; or the Secretary has served a Federal contractor levy. (3) Information required: Service must provide taxpayer, in simple and nontechnical terms: the amount of unpaid tax; the right of the person to request a hearing; the taxpayer’s rights, including: provisions relating to levy and sale of property, applicable procedures, administrative appeals available and procedures for appeal, alternative available to the taxpayer which can prevent levy, and provisions relating to redemption of property and release of liens on property. (4) Right to fair hearing: hearing shall be held by office of appeals; the taxpayer is entitled to only one hearing per period; and the hearing 9

  61. shall be conducted by an employee with no prior involvement. (5) Verification: Appeal’s officer shall obtain verification that the requirements of any applicable law or administrative procedure have been met. (6) Issues at hearing: any relevant issue relating to the unpaid tax or proposed levy may be raised, including: spousal defenses, challenge to the appropriateness of the collection action, and collection alternatives; the underlying tax liability may be challenged if there was no notice of deficiency sent and no prior opportunity to dispute such tax liability. 2. Challenges: A taxpayer can challenge the assessed penalty during a collection due process (“CDP”) hearing provided that he did not receive a statutory notice of deficiency for the liability or did not have a prior opportunity to dispute the assessment. I.R.C. § 6330(c)(2)(B). i. A continuation penalty is assessed with Form 8278 rather than with a statutory notice of deficiency. Therefore, the relevant inquiry is whether the taxpayer had a prior opportunity to dispute the assessment. ii. The following constitute a prior opportunity for a hearing: a. The taxpayer participated in another Appeals hearing for the same tax and periods in CDP; b. The taxpayer received a prior CDP lien or levy notice for the same tax and periods; c. Audit reconsideration conducted by Exam if the taxpayer was offered the opportunity for a conference with Appeals to dispute the results of the reconsideration request; d. The IRS filed a proof of claim in a bankruptcy proceeding involving the liability on the CDP notice; e. Suits to reduce judgment or foreclose a tax lien involving the tax liability on the CDP notice; and f. The taxpayer received a notice offering a hearing with Appeals. 10

  62. iii. The following do not constitute a prior opportunity for a hearing: a. Receipt of a 30-day letter in a deficiency case; b. Audit reconsideration conducted by Exam if the taxpayer was not offered the opportunity for a conference with Appeals to dispute the results of the reconsideration request; c. A separate Appeals conference held concurrently with the CDP hearing; d. Accrued interest and penalties that were not at issue in a notice of deficiency or in a prior hearing; e. The opportunity to file an amended return; f. Receipt of a math error or clerical error notice under I.R.C. § 6213(b)(1); and g. The taxpayer had the opportunity to pay the tax and file a claim for refund but did not do so. iv. One hearing per period: taxpayer is entitled to only one hearing per period pursuant to I.R.C. §§ 6320(b)(2) and 6330(b)(2). The Treasury regulations, however, allow for more than one hearing per period for hearings conducted under I.R.C. §§ 6320 or 6330. Treas. Reg. 301.6320- 1(d)(2) Q&A D-1 provides: Q-D1. Under what circumstances can a taxpayer receive more than one CDP hearing under section 6320 with respect to a tax period? A-D1. The taxpayer may receive more than one CDP hearing under section 6320 with respect to a tax period where the tax involved is a different type of tax (for example, an employment tax liability, where the original CDP hearing for the tax period involved an income tax liability ), or where the same type of tax for the same period is involved, but where the amount of the unpaid tax has changed as a result of an additional assessment of tax (not including interest or penalties) for that period 11

  63. or an additional accuracy-related or filing- delinquency penalty has been assessed. The taxpayer is not entitled to another CDP hearing under section 6320 if the additional assessment represents accruals of interest, accruals of penalties, or both. v. Hearings: held by office of Appeals and are traditionally informal. Taxpayer can request that the hearing be recorded. Keene v. Commissioner, 121 T.C. 8 (2003). Taxpayer cannot subpoena documents or witnesses at the Appeals hearing. vi. Verification: Appeals office is to verify that all requirements of any applicable law or administrative procedure have been met. This includes compliance with I.R.C. § 6751(b), requiring managerial approval. vii. Procedure for requesting CDP: a. In order to request a CDP hearing, the taxpayer must file IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing , in response to either a Final Notice of Intent to Levy or a Notice of Federal Tax Lien filing. The request must be filed within 30 days from the date of the IRS notice that is in dispute. b. To ensure proper consideration is given to the taxpayer’s dispute, the taxpayer should identify all issues related to the assessment of the continuation penalty and/or the collection of that penalty. If the taxpayer has not previously challenged the underlying tax liability, then this is their opportunity to do so. c. After the CDP hearing, the IRS will issue a Notice of Determination. The taxpayer has 30 days from the date of that notice to file a petition with the U.S. Tax Court to dispute the Appeals Officer’s findings. viii. Timeliness of CDP request: determined under I.R.C. §§ 7502 (timely mailing treated as timely filing) and 7503 (extending deadline to first day that is not a Saturday, Sunday, or legal holiday where deadline otherwise falls on such a day). B. Collection Appeals Conference v. CDP: 12

  64. 1. Perkins v. Commissioner: “An opportunity to dispute the underlying liability that precludes a taxpayer from challenging it in a section 6330 hearing includes a prior opportunity for a conference with the Commissioner's Office of Appeals when the taxpayer availed himself of that opportunity. Lewis v. Commissioner, 128 T.C. 48, 61, 2007 WL 927211 (2007); see also sec. 301.6330–1(e)(3), Q & A–E2, Proced. & Admin. Regs.” Perkins v. Commissioner, 129 T.C. 58, 62–63. 2. Romano-Murphy v. Commissioner: “in order for a challenge to the existence or amount of the underlying tax liability to be considered by the Office of Appeals in a collection-review hearing, section 6330(c)(2)(B) requires the person not to have had a prior opportunity to challenge the liability for the penalty. By regulation, an opportunity to challenge the underlying tax liability includes ‘a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.’ Sec. 301. 6330 -1(e)(3), Q&A-E2, Proced. & Admin. Regs.” Romano-Murphy v. Commissioner, 152 T.C. No. 16 (slip. op. at *12) (May 21, 2019). C. Post-CDP Litigation: 1. United States Tax Court: USTC has exclusive jurisdiction to review determinations made pursuant to a CDP hearing. Taxpayer must petition USTC within 30 days of the determination date. I.R.C. § 6330(d) i. Standard of review: the standard of review is de novo when the taxpayer is challenging (able to challenge) the underlying tax liability. See Goza v. Commissioner, 114 T.C. 176 (2000). When the underlying tax liability is not at issue, the standard is abuse of discretion. This standard focuses on whether the Appeals officer properly verified the Secretary’s compliance that all applicable law and administrative procedures have been met. a. Verification includes whether the Service complied with I.R.C. § 6751(b). Section 6751(b) requires managerial approval prior to the initial determination of the penalty. With regard to deficiency cases, the initial determination has been deemed to be the Revenue Agent Report (RAR) and the 30-day letter. Clay v. Commissioner, 152 T.C. No. 12 (2019). 13

  65. ii. If taxpayer seeks review of spousal defense only, then taxpayer has 90 days to petition the court. See I.R.C. § 6015(e)(1)(A)(ii). iii. Issues deemed frivolous during Appeals hearing will be included in a “disregard letter,” which treats this issue(s) as if it were never submitted. The USTC has the ability to review whether an issue is frivolous but cannot review frivolous issues. I.R.C. § 6330(g); Buczek v. Commissioner, 143 T.C. 301 (2014). 2. United States District Court and Court of Federal Claims: taxpayers can also pay the outstanding tax liability and seek a refund in either the United States district court, pursuant to 28 U.S.C. § 1346(a), or the Court of Federal Claims, pursuant to 28 U.S.C. § 1491. Taxpayer must first file a Form 843, Claim for Refund and Request for Abatement , with the IRS. 3. Appellate Jurisdiction: appeals from the USTC for CDP are entertained in the circuit that has the legal residence of the taxpayer, if an individual, or the principal place of business or principal office or agency if the petitioner is not an individual. I.R.C. § 7482(b)(1)(g). D. Reasonable Cause: 1. Application: reasonable cause is a defense for the failure to file information return penalties. Reasonable cause is often found in the applicable statute but is rarely defined. Typically, reasonable cause focuses on the exercise of ordinary business care and prudence and whether the failure was willful. See Flume v. Commissioner, T.C. Memo 2017-21, at *5; see also In re Wyly, 552. B.R. 338, 557 (Bankr. Ct. N.D. Tex. 2016). i. I.R.C. § 6038 (which triggers a Form 5471 filing requirement) requires that reasonable cause be submitted in a written statement under the penalties of perjury to support their reasonable cause claim. See Treas. Reg. § 1.6038-2(k)(e)(ii). 2. Availability: the Service will not entertain penalty abatement requests until it confirms that the taxpayer is in compliance with their filing requirements. Further, reasonable cause can only be argued in a CDP hearing if the taxpayer has not had a prior opportunity to raise the issue. Finally, reasonable cause is not available after a taxpayer receives notice that they have 90 days 14

  66. to file the missing information. See Treas. Reg. § 1.6038- 2(k)(3)(i). 3. Reasonable cause should not be granted when: i. A foreign country’s imposition of penalties on the taxpayer for disclosing the information; ii. A foreign trustee refuses to provide the information for any reason, including difficulty in producing the required information; or iii. The taxpayer relied on another person to file the returns. I.R.M., pt. 20.1.9.1.1 (Oct. 24, 2013). 4. Substantial compliance: I.R.C. §§ 6038 and 6038A allow penalty alleviation for filing substantially complete returns. See Treas. Reg. § 1.6038-2(k)(3)(ii); Treas. Reg. § 1.6038A-4(b)(2)(i). E. Res Judicata: 1. Administrative res judicata and CDP hearings: administrative res judicata originates from the Supreme Court’s decision in United States v. Utah Construction & Mining Co., 384 U.S. 394 (1966). See Delamater v. Schwieker, 721 F.2d 50, 53–54 (2d Cir. 1983). “When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose.” Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 107 (1991). CDP hearings are administrative hearings. See Thompson v. Commissioner, T.C. Memo. 2013-260, at *2; see also Estate of Sanfilippo v. Commissioner, T.C. Memo. 2015-15, at *8. Does or should administrative res judicata apply to CDP hearings? 2. Common law res judicata: Commissioner v. Sunnen provides that “Each year is the origin of a new liability and of a separate cause of action.” Commissioner v. Sunnen, 333 U.S. 591, 598 (1948). Sections 6320(b)(2) and 6330(b)(2) provide: “[a] person shall be entitled to only one hearing under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates.” Do these two provisions preclude CDP and deficiency proceedings for the same tax year if brought separately? F. Statute of Limitations: 1. Statute suspended when CDP requested: when a CDP hearing is requested the statute of limitations for the following will be suspended: collection after assessment date pursuant to I.R.C. § 15

  67. 6502 (CSED); criminal prosecutions pursuant to I.R.C. § 6503; taxpayer refund, wrongful levy, and government suits to recover erroneous refunds pursuant to I.R.C. § 6532. 2. What is the applicable statute of limitations for international penalties: a debate has arisen regarding what the appropriate statute of limitations is for assessing international penalties: i. Section 6501(c)(8) provides: In the case of any information which is required to be reported to the Secretary pursuant to an election under section 1295(b) or under section 1298(f), 6038, 6038A, 6038B, 6038D, 6046, 6046A, or 6048, the time for assessment of any tax imposed by this title with respect to any tax return, event, or period to which such information relates shall not expire before the date which is 3 years after the date on which the Secretary is furnished the information required to be reported under such section. I.R.C. § 6501(c)(8) does not, however, specifically mention the ability to assess penalties for the failure to provide the information required under the international information reporting sections. This provision does allow for the extension of time for assessment of any tax. International information reporting penalties may, and probably are, not considered a tax. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012). ii. Section 6501 and return-based penalty: if the SOL for assessing penalties for the failure to provide international information is not controlled by I.R.C. § 6501(c)(8) then it may be governed by the SOL for filing the income tax return. I.R.C. § 6501 generally allows for a three-year period of limitations upon filing of the income tax return. If international information must be reported with the income tax return (such as I.R.C. §§ 6038, 6038B, and 6038D) then the failure to provide such information may be triggered by the filing of the return. Thus, the failure to 16

  68. file the information with the return may only allow for a three-year assessment period from the filing of the return. iii. Section 2462 and conduct-based penalty: if the filing of the income tax return does not trigger the statute of limitations for the failure to provide international information and I.R.C. § 6501(c)(8) does not apply, then the catchall statute of limitations found in 28 U.S.C. § 2462, providing for a five year SOL from “the date when the claim first accrued” to bring an “action, suit or proceeding for the enforcement of any . . . penalty[.]” In this situation, the conduct of not filing the return on the due date may trigger the SOL because that is the date when the claim first accrued. For instance, if a taxpayer has an I.R.C. § 6038 filing requirement for 2010 (to be filed in April 2011) then the applicable SOL would be April 2016 (five years after the information was due) despite whether the income tax return was filed or not. 3. Indefinite SOL: I.R.C. § 6501(c)(8) will keep the statute of limitations open for the entire tax year until three years after the information required was provided. In other words, if a Form 1040 is filed in 2015 but the Form 5471 was filed in 2019, the statute of limitations for assessment on the income tax return is open until 2022. Thus, if international information is required but not provided then the statute of limitations for that tax year may be open indefinitely. 4. Reasonable cause limitations: one exception to the indefinite SOL mentioned above occurs when the failure to provide the international information is due to reasonable cause. I.R.C. § 6501(c)(8)(B) limits the statute of limitations extension to items related to the international information provided if the failure to file was due to reasonable cause and not willful neglect. In other words, if the taxpayer filed Form 1040 in 2015 and did not file a Form 5471 until 2019 but the failure to file was due to reasonable cause then the time for assessment will be extended to 2022 but only with regard to the information provided on the Form 5471. 17

  69. II. Hot Topics in International Penalty Litigation A. CDP vs. Deficiency: although most international penalties will be subject to the collection due process proceedings, there are several consequences stemming from the failure to file that can be brought as part of the deficiency proceedings: 1. Form 5471: deficiency proceedings will be brought for reduction of foreign tax credit under I.R.C. § 6038(c). 2. Form 5472: deductions disallowed for any amount paid or incurred by reporting corporation and cost to reporting corporation of any property acquired, pursuant to I.R.C. § 6038A(e)(3). 3. Form 926: recognized gain from contributions under I.R.C. § 6038B(c)(1). 4. Form 3520: redetermination of foreign gifts as income under I.R.C. § 6039F(c)(1)(A). 5. See I.R.M., Exhibit 20.1.9-4. B. Income Recharacterization: 1. Form 3520: aside from penalties being assessed, another issue that can arise is the recharacterization of foreign gifts as income. If foreign gifts are not reported or substantiated, then the IRS during examination can deem the alleged foreign gift to be unreported foreign income. By doing so they put the burden on the taxpayer to prove that the amount received constitutes a non- taxable gift as opposed to income. If the taxpayer cannot prove that property received was a gift rather than income then not only will he be liable for additional income tax liability but he will also be subject to an accuracy-related penalty under I.R.C. § 6662(a); this is besides the penalty for failing to file Form 3520. I.R.C. § 6039F(c)(1)(A) allows the IRS to determine the tax consequence of receiving such gift (or bequest) if the information is not filed timely. Unlike the late filing penalty, IRM 20.1.9.10.3 (04-22-2011) provides that the I.R.C. § 6039F(c)(1)(A) penalty is subject to deficiency procedures. 2. Form 3520-A: another issue that arises is the IRS’s ability to deem any distribution from a foreign trust to be treated as an accumulated distribution, which is includable in gross income, if the taxpayer does not provide adequate records (which, once again, may not be in the possession of or accessible to the taxpayer). 18

  70. 3. Form 926: recognize gain from contributed property as if it had been sold for such value at the time on contribution. 4. Form 5472: aside from the penalties, I.R.C. § 6038A(e)(3) disallows the taxpayer’s deductions for a failure to provide adequate books and records. Taxpayers who do not properly or timely file their Form 5472 can be subjected to not only concurrent $25,000 per-month-penalties but will also have their deductions disallowed. 5. These “penalties” will be subject to deficiency proceedings. C. Summarily Assessable Penalties: there are a few international penalties which are being summarily assessed, similar to assessable penalties, even though they may not be summarily assessable penalties. Penalties under I.R.C. §§ 6038, 6038B, and 603D (Forms 5471, 926, and 8938) are being summarily assessed against taxpayers even though they are not summarily assessable. 1. Section 6038, 6038B, and 6038D are in Chapter 61 of Internal Revenue Code. Chapter 68 of the Code provides for assessable penalties. i. Section 6671(a) provides: “The penalties and liabilities provided by this subchapter shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes. Except as otherwise provided, any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter .” (Emphasis added). ii. Section 6671 only applies to penalties located within Chapter 68. There is no comparable provision found in Chapter 61 of the Code. 2. Cross-reference or specific language: penalties without Chapter 68 can also be assessed in the same manner as taxes but those penalties have either: a) cross-reference into Chapter 68; or b) have specific language authorizing assessment and collection in the same manner as tax. 19

  71. Code Section & Code Authority for Assessment. Chapter of Code Section 6707A(a): “Any person who fails to include on any return or statement any information with respect to a 6011 (Chapter 61) reportable transaction which is required under section 6011 to be included with such return or statement shall pay a penalty in the amount determined under subsection (b).” Section 527(j)(1)(B): “For purposes of subtitle F, the amount imposed 527 (Chapter 1) by this paragraph shall be assessed and collected in the same manner as penalties imposed by section 6652(c).” Section 9707(f): 9707 (Chapter 99) “For purposes of this title, the penalty imposed by this section shall be treated in the same manner as the tax imposed by section 4980B.” Section 7519(f)(1): “Except as otherwise provided in this subsection 7519 (Chapter 77) or in regulations prescribed by the Secretary, any payment required by this section shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C.” Section 6039F(c)(1)(B): “such United States person shall pay (upon 6039F (Chapter 61) notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not 20

  72. Code Section & Code Authority for Assessment. Chapter of Code to exceed 25 percent of such amount in the aggregate).” Section 6043(d) “For provisions relating to penalties for failure 6043 (Chapter 61) to file– (1) a return under subsection (b), see section 6652(c), or (2) a return under subsection (c), see section 6652(1).” Section 6046(f): 6046 (Chapter 61) “For provisions relating to penalties for violations of this section, sections 6679 and 7203.” Section 6046A(e): 6046A (Chapter 61) “For provisions relating to penalties for violations of this section, see sections 6679 and 7203.” Section 5000A(g)(1): “The penalty provided by this section shall be 5000A (Chapter 48) paid upon notice and demand by the Secretary, and except as provided in paragraph (2), shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.” D. Form 5471 Attribution: I.R.C. § 6038(e)(2) applies the I.R.C. § 318(a) (except for attribution from non-U.S. persons and 50% threshold is reduced to 10%) attribution rules and attributes filing obligations to: spouses, children, grandchildren, and parents. 21

  73. INTERNATIONAL INFORMATION RETURNS I. Form 3520, 7 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts A. Preparation of Return: 1. Who Must File: grantors of an inter vivos trust, transferors involved in reportable events (as defined), beneficiaries of a foreign trust (who have received distributions during a taxable year), and U.S. persons who have received a foreign gift amount of $100,000 or more. i. Form 3520 is unique because traditional U.S. Gift Tax Returns (Form 709) require the donor to file a return. Form 3520, however, requires the recipient of the gift to file a return, despite the reality of whether they are in possession of the required information (which the donor is presumed to be in possession). 2. Reportable Event: for purposes of I.R.C. § 6048, a reportable event includes: i. Formation of a foreign trust; ii. transfer of cash or other assets into a foreign trust; iii. receipt of any distributions by U.S. beneficiaries; iv. the death of a U.S. citizen or resident if: a. decedent was treated as an owner of any portion of a foreign trust; or b. any portion of a foreign trust was included in the gross estate of decedent. 3. Substantial Owner (Grantor Trust Rules): a filing requirement arises where the grantor of the foreign trust is considered a substantial owner of the trust. If a grantor retains any of the following rights or interests then he may be deemed a substantial owner of the foreign trust and must file a Form 3520: 7 Tax professionals representing clients with international information return filing requirements should make sure to put the specific form (i.e. 3520, 5472) on the Form 2848, Power of Attorney and Declaration of Representative , even if the form attaches to the income tax return. A representative will not be notified regarding forms that accompany an income tax return unless such form is specifically included on their Form 2848, including penalties associated with such return. I.R.S. Chief Couns. Memo. 36021 (Sep. 8, 2017). 22

  74. i. Reversionary Interest (I.R.C. § 673): grantor retains a reversionary interest (of 5% or more) in the corpus or income of trust; ii. Power to Control Beneficial Enjoyment (I.R.C. § 674): grantor retains power to dispose of beneficial enjoyment of the income or corpus without the consent or approval of an adverse party; iii. Administrative Powers (I.R.C. § 675): grantor retains sufficient administrative control where he can manipulate the benefits so they are used for grantor and not beneficiaries; iv. Power to Revoke (I.R.C. § 676): grantor can revoke property from the trust and revest himself of the property; v. Income for Benefit of Grantor (I.R.C. § 677): grantor receives distributions; vi. Person Other Than Grantor Treated as Substantial Owner (I.R.C. § 678): non-grantors can also be deemed substantial owners if he retains sole power to distribute the corpus or income to himself or if he retains control that would consider a grantor as a substantial owner; and vii. Foreign Trusts Having One or More United States Beneficiaries (I.R.C. § 679): grantors of foreign trusts with U.S. beneficiaries will automatically be deemed a substantial owner. 4. Foreign Gifts: U.S. persons receiving foreign gifts may also have a reporting requirement: i. Foreign Person: if a foreign person gives a gift to a U.S. person then it will generally be a non-taxable event but if it is over $100,000 (which is considered in the aggregate) then it will require filing a Form 3520. ii. Foreign Corporation or Partnership: if a U.S. person receives a gift from a foreign corporation or partnership that is above $16,388 (adjusted for inflation, per Rev. Proc. 2018-57) then they not only must report this gift but are also required to pay tax on this gift (See Treas. Reg. § 1.672(f)-4). iii. Non-cash foreign gifts must be valuated consistent with I.R.C. § 2512. 5. When to File: The form is due when the income tax return of the U.S. entity (individual, partnership, corporation, etc.) is due, 23

  75. including any extensions of time to file. The form is not filed with the tax return. 6. Exceptions to Filing: Most exceptions to filing involve foreign trusts that deal with employee compensation and/or payment plans (under I.R.C. §§ 402, 402(a), and 404A). 7. Corrective Measures: if the taxpayer has not properly filed his Form 3520, he may do so without penalty. Under the Delinquent International Information Return Submission Procedures (“DIIRSP”) the taxpayer can avoid a penalty for their failure to file if these requirements are satisfied: i. the taxpayer did not file one or more required information returns; ii. the taxpayer has a reasonable cause for not timely filing the information return; iii. the taxpayer is not under a civil examination or criminal investigation by the IRS; and iv. the IRS has not already contacted the taxpayer regarding the delinquent return. B. Examination: the IRS may send Information Document Requests (“IDR”) or a Formal Document Request (“FDR”). Taxpayers that are unable or unwilling to provide information in response to a FDR will be precluded from introducing such information in a future judicial proceeding, under I.R.C. § 982. Documents can be precluded even if they are not in the taxpayer’s possession, taxpayer cannot obtain such documents, and the foreign country that houses the foreign donor or trust makes the dissemination of such information illegal. 1. Statute of Limitations: the statute of limitations to audit a Form 3520 is three years from filing. The statute does not begin until the Form 3520 is filed. This includes incomplete filings. Form 3520, unlike Forms 5471 and 5472, does not recognize substantial compliance. i. Substantial Compliance may begin the running of the statute of limitations if there is a proper Beard filing. Beard v. Commissioner, 82 T.C. 766 (1984) (which the IRS does not agree with) held that a return was valid for statute of limitations purposes if the following is provided: a. possess sufficient information for the IRS to calculate the tax liability; b. be filed as a purported return; 24

  76. c. be an honest and reasonable attempt to comply with the tax laws; and d. be signed under the penalties of perjury. C. Penalties: failure to file or provide complete and correct information can subject the taxpayer to these penalties: 1. I.R.C. § 6677: failure to file will lead to a penalty of $10,000 or 35% (whichever is greater) of the gross value of the property involved in the event. i. A continuation penalty also applies if the failure to file is not corrected within 90 days of being notified by the IRS. This penalty shall be $10,000 for each 30-day period in which the failure remains uncorrected. 2. I.R.C. § 6039F: failure to furnish gift information can lead to a penalty of 5% per month up to 25% of the total gift. 3. I.R.C. § 6662(j): this applies to foreign financial assets in which information must be provided under I.R.C. § 6048 that is not provided. I.R.C. § 6662(j) doubles the traditional accuracy- related penalty from 20% to 40%. I.R.C. § 6039F is not specifically referenced in I.R.C. § 6662(j). 4. Defenses: reasonable cause is the primary defense to a failure to file. Reasonable cause will not be considered until the taxpayer has filed the Form 3520. Reasonable cause is a facts and circumstances test and focuses upon the taxpayer’s reason for failing to file, efforts made to comply with the filing requirement, and his or her ignorance of the law. Disclosure of the information being a crime in another country is not considered reasonable cause. 5. Recharacterization: aside from penalties being assessed, another issue that can arise is the recharacterization of foreign gifts as income. If foreign gifts are not reported or substantiated then the IRS during examination can deem the alleged foreign gift is actually unreported foreign income. By doing so they put the burden on the taxpayer to prove that the amount received constitutes a non-taxable gift as opposed to income. If the taxpayer cannot prove that property received was a gift rather than income then not only will he be liable for additional income tax liability but he will also be subject to an accuracy-related penalty under I.R.C. § 6662(a); this is besides the penalty for failing to file Form 3520. I.R.C. § 6039F(c)(1)(A) allows the IRS 25

  77. to determine the tax consequence of receiving such gift (or bequest) if the information is not filed timely. Unlike the late filing penalty, IRM 20.1.9.10.3 (04-22-2011) provides that the I.R.C. § 6039F(c)(1)(A) penalty is subject to deficiency procedures. D. Appeals: Appeals hearings are the primary mediums for challenging determinations made regarding Form 3520. 1. IRM 8.11.5.6 (12-18-2015) - IRC § 6039F Notice of Large Gifts from Foreign Persons (Form 3520) – provides this penalty is an “International penalty and has post-assessed, pre-payment, penalty appeal rights.” 2. IRM 20.1.9.10.3 (04-22-2011) explains that I.R.C. § 6039F penalties are asserted on a Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties . 3. Once the penalty is assessed, a CP notice will be generated and sent to the taxpayer. The IRS will send either CP 15 or CP 215 to the taxpayer. The CP 15 notice notifies the taxpayer that a penalty has been assessed and explains that, if the taxpayer wishes to appeal the assessment, he or she should submit a written request within 30 days from the date of the notice. The CP 215 notice notifies the taxpayer that, if the taxpayer wishes to appeal the penalty, he or she should send the IRS a written request to appeal within 30 days from the date of the notice. 4. If the taxpayer does not take action on the CP 15 or CP 215 notice, the IRS will send the taxpayer Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing , or LT11 Final Notice of Intent to Levy and Notice of Your Right to a Hearing , or Letter 3172, Notice of Federal Tax Lien and Your Rights to a Hearing under IRC 6320 . 5. If none of the prior notices offered the taxpayer an administrative appeal then, upon the taxpayer’s timely request, the Appeals Office will conduct a de novo review of the taxpayer’s liability, including his or her reasonable cause defense. A taxpayer cannot challenge the underlying liability if he or she has had a prior opportunity for a conference with Appeals. 6. I.R.C. § 6751(b) Challenge: upon asking Appeals to verify the steps taken by Collection, one challenge that can be raised (but which should only be raised post-assessment) is the 6751(b) challenge. I.R.C. § 6751(b) provides: “No penalty under [the I.R.C.] shall be assessed unless the initial determination of such 26

  78. assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.” 7. Qualified Offer: tax professionals may want to submit a qualified offer contemporaneous with their request for an Appeals conference. A qualified offer is an offer made under IRC § 7430(g). Qualified offers allow taxpayers to recoup legal and administrative fees for reasonable settlement offers refused by the Service; the Service must receive judgment in excess of the settlement offer to not be liable for costs and fees. Qualified offers can be submitted during CDP hearings if the CDP request is timely and the taxpayer is not precluded from contesting the liability under I.R.C. §§ 6330(c)(2), 6330(c)(4), or 6320(c). The Service must accept the offer within 90 days or it is deemed rejected. A qualified offer will also ensure that the IRS national office reviews the issues, which can give tax practitioners some guidance on how the Service sees certain issues. E. Litigation: 1. Pre-payment Forum: To initiate a Tax Court case, the taxpayer (now known as petitioner) will file a petition, designation for place of trial, and a statement with the taxpayer’s identification number, which will accompany a filing fee of $60 (made payable to Clerk, United States Tax Court). i. Petitions must include, among other items, facts and legal theories on why the petitioner should prevail. Any issue not contested in the petition is deemed conceded by petitioner. Also, the notice being appealed must be attached and any taxpayer identification numbers (such as social security number) must be redacted. 2. Refund Forum: Refund claims can be brought in the United States Court of Federal Claims and the United States District Court. Before commencing refund-based litigation, the taxpayer must first pay the tax and file a claim for refund from the IRS. Claims for refund must include the grounds on which a refund is claimed and facts to support those grounds, all of which must be sworn to under penalties of perjury. Refund claims are filed using Form 843, Claim for Refund and Request for Abatement. In most Form 3520 cases, the claim must be filed within 2 years from when the tax was paid. 27

  79. II. Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner A. Preparation of Return: 1. Who Must File: foreign trusts with U.S. owners must file a Form 3520-A (I.R.C. § 6048). Owners of the foreign trust can be established according to the Grantor Trust rules (I.R.C. §§ 671– 679). These U.S. owners must be U.S. persons for the trust to have a filing requirement under I.R.C. § 7701(a)(30)). Questions that must be answered: i. Is the foreign entity a trust for U.S. tax purposes? ii. If it is a trust, is it a foreign trust? iii. If it is a foreign trust, is it owned by a U.S. person? 2. When to File: the Form 3520-A must be filed by the 15th day of the third month after the end of the trust’s tax year. Extensions do not run with a specific tax return and a Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns , must be filed. 3. Grantor Trust Rules: a filing requirement arises where the grantor of the foreign trust is considered a substantial owner of the trust. If a grantor retains any of the following rights or interests then he may be deemed a substantial owner of the foreign trust and must file a Form 3520: i. Reversionary Interest (I.R.C. § 673): grantor retains a reversionary interest (of 5% or more) in the corpus or income of trust; ii. Power to Control Beneficial Enjoyment (I.R.C. § 674): grantor retains power to dispose of beneficial enjoyment of the income or corpus without the consent or approval of an adverse party; iii. Administrative Powers (I.R.C. § 675): grantor retains sufficient administrative control where he can manipulate the benefits so they are used for grantor and not beneficiaries; iv. Power to Revoke (I.R.C. § 676): grantor can revoke property from the trust and revest himself the property; v. Income for Benefit of Grantor (I.R.C. § 677): grantor receives distributions from the trust; 28

  80. vi. Person Other Than Grantor Treated as Substantial Owner (I.R.C. § 678): non-grantors can also be deemed substantial owners if he retains sole power to distribute the corpus or income to himself or if he retains control that would consider a grantor as a substantial owner; and vii. Foreign Trusts Having One or More United States Beneficiaries (I.R.C. § 679): grantors of foreign trusts with U.S. beneficiaries will automatically be deemed a substantial owner. viii. Attribution rules also apply that imputes ownership by a spouse to the settler/grantor. 4. Failure to File: what makes Form 3520-A unique is that it penalizes the U.S. owners of the foreign trust for the trust’s failure to file (I.R.C. § 6677(b)). i. U.S. owners can insulate themselves from liability if they appoint a U.S. agent to discharge their obligations regarding the Form 3520-A. The agreement appointing the agent must be in a form substantially similar to the one approved by the IRS in Notice 97-34. Once a U.S. agent is properly appointed and authorized to act, the IRS can deal with that person to ensure that the trust complies with all of its reporting obligations. 5. Recharacterization: another issue that arises is the IRS’s ability to deem any distribution from a foreign trust to be treated as an accumulated distribution, which is includable in gross income, if the taxpayer does not provide adequate records (which, once again, may not be in the possession of or accessible to the taxpayer). B. Examination: 1. Foreign Document Requests (“FDR”): a foreign document request is similar to an information document request (“IDR”) because it requests documents from the recipient. The major difference between the two is that failing to provide documents in response to an FDR can preclude you from offering these documents in future litigation. I.R.C. § 982(a) prohibits any court with jurisdiction over a civil matter from allowing the taxpayer to introduce any foreign document previously requested and not provided. This is often an issue because the taxpayer may not have the required documents and may not be able to obtain such documents. 29

  81. 2. Penalty Letters, Notice Letters, and Notices (IRM 20.1.9.14.2 (04-22-2011)): the delinquent filer (or owner of the foreign company that is delinquent) can expect the following letters/notices from the IRS regarding their failure to file Form 3520-A: i. Letter 3804 —This is an opening notice letter required to be mailed to a taxpayer under I.R.C. § 6677(a). ii. Letter 3943 —This is the closing acceptance letter to be utilized after a taxpayer responds and the examiner determines that no penalties will be asserted. iii. Letter 3944 —This is the closing no response letter to be utilized when a taxpayer either fails to respond to Letter 3804 or when a taxpayer does not provide a statement of reasonable cause for failing to file such returns. iv. Letter 3946 —This is the closing reasonable cause rejected letter to be utilized after a taxpayer responds and the examiner determines that penalties will be asserted. v. CP Notices —Once a penalty is identified by the campus or a penalty case is closed by the field and the Form 8278 is processed, a CP notice is generated and sent to the taxpayer: a. IMF —A CP 15, Notice of Penalty Charge , for penalties assessed on MFT 55 with PRN 660 is generated and sent to the taxpayer. b. BMF —A CP 215, Notice of Penalty Charge , for penalties assessed on MFT 13 with PRN 660 is generated and sent to the taxpayer. 3. Penalty Assertion: penalties are initially determined on a Form 8278. 4. Statute of Limitations: the statute of limitations to audit a Form 3520-A is three years from the date of filing. The statute does not begin until the Form 3520-A is filed. This includes incomplete filings. Form 3520-A, unlike Forms 5471 and 5472, does not recognize substantial compliance. i. Substantial Compliance may begin the running of the statute of limitations if there is a proper Beard filing. Beard v. Commissioner, 82 T.C. 766 (1984) (which the IRS rejects) held that a return was valid for statute of limitations purposes if the following is provided: 30

  82. a. possess sufficient information for the IRS to calculate the tax liability; b. be filed as a purported return; c. be an honest and reasonable attempt to comply with the tax laws; and d. be signed under the penalties of perjury. C. Penalties: the U.S. owner is subject to a penalty equal to 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that year (or $10,000 if higher). 1. Continuation penalty will also apply if the failure to file is not corrected within 90 days of the IRS sending the U.S. owner notice. Continuation penalty will be $10,000 per 30-day-period after the IRS notifies the taxpayer and taxpayer has not corrected failing to file within the 90-day period. 2. Criminal penalties can also apply (See I.R.C. §§ 7203, 7206, and 7207). 3. I.R.C § 6662(j) penalties can also apply if there was an understatement of tax arising from an undisclosed foreign financial asset. Such penalty shall be 40% instead of 20%. 4. Defenses: If failing to file Form 3520-A was due to reasonable cause and not willful neglect, no penalty may be imposed. That a foreign jurisdiction would impose a civil or criminal penalty either on the taxpayer or any other person for disclosing the required information is specifically defined by the statute as not constituting reasonable cause. Refusal of a foreign trustee to provide information for any other reason, including (1) the difficulty in producing the required information or (2) provisions in the trust instrument that prevent disclosure of required information, are not considered reasonable causes by the IRS. D. Appeals: 1. Like Form 3520, Form 3520-A penalties have post-assessment pre-payment penalty appeal rights (IRM 8.11.5.9(3) (12-18- 2015)). 2. Once the penalty is assessed, a CP notice will be generated and sent to the taxpayer. The IRS will send either CP 15 or CP 215 to the taxpayer. The CP 15 notice notifies the taxpayer that a penalty has been assessed and explains that, if the taxpayer wishes to appeal the assessment, he or she should submit a written request within 30 days from the date of the notice. The CP 215 notice notifies the taxpayer that, if the taxpayer wishes 31

  83. to appeal the penalty, he or she should send the IRS a written request to appeal within 30 days from the date of the notice. 3. If the taxpayer does not take action on the CP15 or CP 215 notice, the IRS will send the taxpayer Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing , or LT11, Final Notice of Intent to Levy and Notice of Your Right to a Hearing , or Letter 3172, Notice of Federal Tax Lien and Your Rights to a Hearing under IRC 6320 . 4. Qualified Offer: tax professionals may want to consider submitting a qualified offer contemporaneous with their request for an Appeals conference. A qualified offer is an offer made under IRC § 7430(g). Qualified offers allow taxpayers to recoup legal and administrative fees for reasonable settlement offers refused by the Service; the Service must receive judgment in excess of the settlement offer to not be liable for costs and fees. Qualified offers can be submitted during CDP hearings if the CDP request is timely and the taxpayer is not precluded from contesting the liability under IRC §§ 6330(c)(2), 6330(c)(4), or 6320(c). The Service must accept the offer within 90 days or it is deemed rejected. A qualified offer will also ensure that the IRS national office reviews the issues, which can give tax practitioners some guidance on how the Service sees certain issues. E. Litigation: 1. Pre-payment Forum: To initiate a Tax Court case, the taxpayer (now known as petitioner) will file a petition, designation for place of trial, and a statement with the taxpayer’s identification number, which will accompany a filing fee of $60 (made payable to Clerk, United States Tax Court). i. Petitions must include, among other items, facts and legal theories on why the petitioner should prevail. Any issue not contested in the petition is deemed conceded by petitioner. Also, the notice being appealed must be attached and any taxpayer identification numbers (such as social security number) must be redacted. 2. Refund Forum: Refund claims can be brought in the United States Court of Federal Claims and the United States District Court. Before commencing refund-based litigation, the taxpayer must first pay the tax and file a claim for refund from the IRS. Claims for refund must include the grounds on which a refund is 32

  84. claimed and facts to support those grounds, all of which must be sworn to under penalties of perjury. Refund claims are filed using Form 843, Claim for Refund and Request for Abatement . 33

  85. III. Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations A. Preparation of Return: 1. Who Must File (I.R.C. § 6046): there are five categories of filers but only four are still required to file (Categories 2–5). i. Category 1 Filer: inapplicable because repealed by American Jobs Creation Act of 2004. ii. Category 2 Filer: a. U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person has acquired stock that represents 10% or more of the total value or voting power of the foreign corporation; or b. U.S. Citizen or resident who is an officer or director of a foreign corporation in which a U.S. person has acquired an additional 10% or more of the outstanding stock of the foreign corporation. (1) A U.S. person has acquired stock in a foreign corporation when that person has an unqualified right to receive the stock, even though the stock is not actually issued. See Treas. Reg. § 1.6046-1(f)(1). (2) The Category 2 Filer need not own any shares herself for a filing obligation to arise. iii. Category 3 Filer: a. U.S. person who acquires stock in a foreign corporation during the tax year and after the acquisition owns 10% or more of the total value or voting power of the foreign corporation; b. A U.S. person who acquires stock which, without regard to stock already owned on the date of the acquisition, meets the 10% stock ownership requirement regarding the foreign corporation; c. A person treated as a U.S. shareholder under I.R.C. § 953(c) with regard to the foreign corporation; d. A person who becomes a U.S. person while meeting the 10% stock ownership requirement with respect to the foreign corporation; or 34

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