complex tax cases Archives - Mendes Weed, LLP

The Taxman Cometh for Cryptocurrency

The currency might be virtual, but the tax bills due the IRS for Bitcoin and other cryptocurrencies are very tangible. Recently, the Internal Revenue Service (IRS) sent letters to taxpayers engaged in virtual currency transactions. The notifications advise that traders potentially failed to report income and/or pay tax from their virtual currency transactions. Copies of the IRS notice can be found here: IRS Cryptocurrency Notice. This notice includes FAQs that taxpayers can read to hopefully answer some of their questions. The notice is sent with variations of an IRS letter: letter 6173, letter 6174, letter 6174-A.

The letter itself notes that “if you sold, exchanged, or disposed of virtual currency (e.g. Bitcoin, Ether), or used it to pay for goods or services, you have engaged in a reportable transaction.” Translation: You got this letter because the IRS is aware of your transactions and you might owe them.

NOTE: But, be careful. Scam letters are already being sent to taxpayers purporting to be from the IRS. See the CoinTelegraph article.

End of the Bitcoin Wild West?

In a virtual landscape on the frontiers of the internet, crypto traders often felt they were above or beyond the reach of the IRS. In this case, the call was coming from inside the house, as trading and storage platforms complied with IRS requests for user data. For example, Coinbase which facilitates transactions of virtual currencies like Bitcoin and Ethereum notified customers it will comply with the Court’s order regarding the release of certain data. For more information on the Coinbase case here.

Taxpayer information can be submitted to IRS through various continual IRS compliance efforts. Taxpayers who do not properly report their income and pay tax can be liable for tax, penalties, and interest. Also, said taxpayers may be subject to criminal prosecution. A tax lawyer can help you through this process.

As the IRS fences in the crypto Wild West, you are not alone to sort through their threats and red tape. If you failed to report virtual currencies/pay tax related to virtual currency transactions, a tax attorney can help. To get in compliance, and to help avoid trouble from the IRS, call the attorneys at Mendes Weed. We excel at tax law and especially at litigating tax cases before the IRS.

Call Mendes\Weed for Tax Law Advice

Businesses, families, and high net worth individuals trust Mendes Weed partner Christina Weed with their complex legal tax matters. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego. Ms. Weed also holds a Bachelors Degree in Accountancy. Christina has been designated a Board Certified Specialist in Taxation by the State Bar of California. This involves a rigorous testing and review process by the Bar, and only a small fraction of California attorneys receive this Board certification.

CONTACT: Mendes Weed, LLP, SF and Walnut Creek Tax Lawyers, mwlawca.com

Christina Weed - Taxation Law Specialist

Here’s “The Situation”: GTL means Gonna Tax Litigate

Federal Tax Law, Tax litigation

What Mike “The Situation” Sorrentino Can Teach Us About Tax Fraud

His mantra was GTL for “Gym, Tan, Laundry.”, but it just as well could summarize his tax fraud indictment and mean “Gonna Tax Litigate“. Mike Sorrentino starred on MTV’s Jersey Shore, and his situation-causing ab muscles gave him the name “The Situation”. Today, he is in Federal Prison for tax fraud and known as Federal Correctional Institution, Otisville, NY Prisoner No. 66910-050. The Jersey Shore a long way from our San Francisco and Walnut Creek Tax Litigation offices, but the laws and lessons are relevant for us all.

In September 2014, the U.S. Government charged Sorrentino with tax fraud, for allegedly avoiding paying taxes on $8.9 million. According to the US Attorney, Sorrentino and his brother, Marc, established S corporations that paid for personal expenses and failed to report income. You can read their indictment docs here.

The MTV show Jersey Shore was a big hit around 2010, and a guilty pleasure for many of us here in the Bay Area. Snookie, Paulie D, Sitch, and the gang were household names. Even if you didn’t admit to watching, the ratings don’t lie. Let’s check out the situation with The Situation.

Tax fraud is the willful attempt to evade tax law or defraud the IRS. Tax fraud can occur when a person or business intentionally fails to file a true and correct income tax return, willfully fails to pay taxes when due, intentionally fails to report, or hides, income, makes fraudulent or false claims or tax returns, and/or prepares fraudulent tax returns. Trying to avoid paying your taxes is never a good idea, but The Situation gives us lots to learn from.

Prepare True and Correct Returns

Michael Sorrentino and his brother Marc filed false tax returns that incorrectly reported millions of dollars made from promotions and appearances. The brothers understated their gross receipts, even though Mike earned $1,995,757 in one year. Both brothers earned $8.9 million from 2010 to 2012 but did not report all of this correctly and pay the corresponding taxes.

Do Not Deduct Personal Expenses as Business Expenses

The brothers claimed personal expenses, such as high-end vehicles, clothing, personal grooming expenses, and personal distributions, as business expenses. They reportedly used two companies they controlled- MPS Entertainment, LLC and Situation Nation, Inc.

Don’t Forget to File All Tax Returns Required

Mike did not file a personal return in 2011, only a business return. As a result, the IRS suspected tax evasion.

Don’t Think You Can Outsmart the System

Cash Deposits are Traceable. Mike made multiple cash deposits of less than $10,000, sometimes on the same day. Banks are required to report cash deposits exceeding $10,000, including the identity of the person making the deposit. Attempts to circumvent this rule catch the notice of authorities. This type of tax fraud is called “structuring” deposits, also called “smurfing” in bank jargon.

Don’t Leave Everything Up to Your Accountant

It is normal to hire someone to help you with your returns, but be careful not to rely on your tax preparer too much. Eventually, the brothers’ accountant admitted to filing fraudulent returns.

So What is The Situation Now?

On January 19, 2018, Sorrentino pleaded guilty to one count of tax evasion, as part of a plea bargain with prosecutors. Ultimately, Sorrentino received a sentence of 8 months in prison. On January 15, 2019, The Situation surrendered to the Otisville Federal Correctional Institution to begin his eight-month sentence for tax evasion. He is scheduled to be released on September 12, 2019. However, people make mistakes. If you fear such a mistake, the tax lawyers at Mendes Weed, LLP are qualified to assist you.

California Tax Law Specialist

Partner Christina Weed has years of experience helping businesses and individuals with their complex California tax litigation issues. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego and a Bachelor’s Degree in Accountancy. She serves as Chair of the Tax Section of the Contra Costa County Bar Association and is also a member of the Estate Planning Council Diablo Valley and the Tri-Valley Estate Planning Council.

In 2018, Christina became one of the first lawyers to argue a case in front of California’s Office of Tax Appeals.

Christina has been designated a Certified Specialist in Taxation by the State Bar of California.

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Representing Clients with Complex Tax Cases that Need to be Litigated in Court

Tax litigation

As tax attorneys, we serve clients in California whose complicated tax cases require zealous advocacy against the IRS.

Receiving a Notice of Deficiency

When you receive a notice of deficiency indicating you have proposed tax liabilities or notice of determination, you should meet with a tax lawyer to discuss important deadlines and what your rights are as a taxpayer.

If you have received a notice of deficiency, you will want to go over next steps, whether you should file a petition in tax court, and what your other options are with an attorney.

Possible Matters that Require Litigation

Mendes Weed, LLP litigates complex tax cases including:

Partnership and real estate tax issues
Penalties
Offshore accounts and foreign asset issues
Estate tax and valuation issues
Corporate tax law issues
Carry forward or carryback gain or loss issues
Innocent spouse relief
Other tax law matters

Protect Your Future, Assets, and Livelihood. Hire a Professional Tax Attorney

Mendes Weed, LLP represents taxpayers in IRS and State audits, appeals, and in Tax Court. If you have any questions about your tax matter or want to consult with a tax lawyer to provide you with some options, we encourage you to contact the firm.