Thursday, October 21, 2021

Former IRS Tax Advocate Employee Indicted for Tax Evasion and Tax Obstruction (10/21/21)

DOJ Tax announced here the indictment of Wayne M. Garvin, previously Supervisory Associate Advocate with IRS’s Taxpayer Advocate Service in Philadelphia.  The indictment on CL is here.  The indictment charges three counts of tax evasion (§ 7201) and two counts of tax obstruction (§ 7212(a)).  The counts relate to false deductions on income tax returns and submission of false documents during the civil and criminal investigations. 

Key excerpts from the press release.

According to the indictment, Wayne M. Garvin, currently of Columbia, South Carolina, and previously of Philadelphia, allegedly filed individual income tax returns for the years 2012 through 2016 on which he claimed fraudulent deductions and expenses, including charitable contribution deductions and expenses associated with rental properties that he owned for some years. For the year 2013, Garvin also allegedly claimed he had expenses associated with service in the U.S. Army Reserves even though he did not perform any reservist duty that year. At the time Garvin filed his false tax returns, he was employed as a Supervisory Associate Advocate with the IRS’s Taxpayer Advocate Service in Philadelphia.

The indictment also alleges that after the IRS began an audit of Garvin’s 2013 and 2014 tax returns, Garvin submitted fraudulent documents to the IRS revenue agent conducting the audit. Among other fraudulent documents, Garvin allegedly created receipts from a church, invoices from a contractor and a letter from the Department of the Army in an attempt to convince the IRS he was entitled to claim the deductions and expenses on his returns. Garvin allegedly submitted the fraudulent documents to the IRS to prevent the IRS from assessing additional taxes against him for 2013 and 2014. Finally, the indictment alleges that after the IRS notified Garvin that he was under criminal investigation for filing false tax returns, Garvin provided the same fraudulent documents to IRS Criminal Investigation that Garvin previously provided to the IRS revenue agent.

 JAT Comments:

1. I am reminded of the old adage that, when you have dug yourself into a hole, stop digging.  See the Wikipedia Entry on the Law of Holes, here (the entry notes: "The second law of holes is commonly known as: 'when you stop digging, you are still in a hole.'"

2. Done.

Reader Request for Pro Bono Local Counsel in ED VA (Alexandria) (10/21/21)

Anthony Verni of Verni Tax Law, here, has asked that I post the following information and request about his need for local counsel in an FBAR collection case (nonwillful penalty) in the Eastern District of Virginia.  Anthony is serving pro bono and seeks a local counsel willing to serve pro bono as well.

I am a New Jersey Attorney who is interested in representing a husband and wife, who are Virginia Residents pro bono. The suit, which was initially filed in California, but transferred to the Eastern District of Virginia, seeks to reduce FBAR assessments to a judgement. Treasury asserted the Non-Willful FBAR Penalty against both the husband and wife for multiple years, since the taxpayers exceeded the maximum amounts in the mitigation guidelines.

The Taxpayer and his spouse entered the OVDI in 2014 and submitted all the necessary reports, amended returns and penalty worksheet. Unfortunately, the law firm (Hogan Lovells) and accounting firm committed serious errors. From what I can glean, no one ever reviewed the FBARS and other filings, prior to filing. It also appears that very little was done in terms of follow up. Sometime in the latter part of 2016, the Law Firm withdrew from representing the Taxpayers. The Taxpayers subsequently hired the Anaford Law Firm out of Zurich, who in turn assigned the matter to one of its U.S. Attorneys, Milan K. Patel.

From my review it appears that the Anaford Law Firm did little, if anything, to either advance or protects the taxpayers’ rights. In March of 2017 the IRS removed the taxpayers from the OVDI and thereafter conducted an examination of the Taxpayers.  In addition, Mr. Patel was subsequently indicted and convicted on securities fraud and is currently serving a 15 month sentence.

In July of 2018 the IRS assessed Non Willful FBAR Penalties against each of the Taxpayers in the amount of $421,000.

There are a number of issues that both the service and the taxpayers never addressed including the number of accounts and the propriety of assessing penalties against the Spouse, who neither had an interest in nor was a signatory to any of the Foreign Financial Accounts. I need to retain local counsel on a pro bono basis to permit me to file a motion pro hac vice and represent these two taxpayers.  The case is captioned as United States of America v. Waheeb G. Antakly and Maria T. Antakly: Case Number: 1:21-cv-00801 (LO/JFA). The case is venued in the United States District Court for the Eastern District of Virginia (Alexandria Division). The answer is due by the 25th of October, and as such, is time sensitive. I had asked the taxpayers to contact the DOJ Attorney handling this matter to see if the government will grant a short extension.

My reason for wanting to represent these taxpayers is based upon their current financial condition and based upon the poor representation they received thus far. I typically will handle one to two tax cases per year on a pro bono basis. This case caught my attention since it has novel issues pertaining to the mitigation guidelines and whether the taxpayer’s spouse, in fact, had an interest in or was signatory to any of the foreign financial accounts.

I can be reached at (561)531-8809 or by email at Anthony@vernitaxlaw.com.  I sure would appreciate it if someone could assist in this worthwhile effort. If I am unable to secure local counsel I will be unable to assist the taxpayers.

Monday, October 18, 2021

U.S. Sentencing Commission Judiciary Sentencing Information (“JSIN”) for Judges (10/17/21)

The U.S. Sentencing Commission has a tool on its website, titled Judiciary Sentencing Information, here.  The web page explains:

What is the Judiciary Sentencing Information (JSIN) platform?

The Judiciary Sentencing Information (JSIN) platform is an online sentencing data resource specifically developed with the needs of judges in mind. The platform provides quick and easy online access to sentencing data for similarly-situated defendants. JSIN expands upon the Commission’s longstanding practice of providing sentencing data at the request of federal judges by making some of the data provided through these special requests more broadly and easily available. If the court does consider the sentencing information provided by JSIN as part of its consideration of the factors in 18 U.S.C. § 3553(a) when imposing sentence, it should do so only after considering the properly calculated guideline range and any applicable departures provided for in the Guidelines Manual.

The page offers a link to the tool, here, and “Frequently Asked Questions” about the tool.

Since the tool is for judges, with a presumption that some judges will use it and may have sentencing decisions influenced by it, prosecution and defense counsel should be familiar with how it works.

The Sentencing Law and Policy Blog has here a good post (with further links) titled "Sentencing Commission Data Tool Is Deeply Flawed" (quotation marks in the title, to indicate that it is reporting on a Law360 article (paywall).  The SLP Blog quotes the Law 360 article by Michael Yaeger extensively, so access to the Law360 article may not be required for some useful information.  It is interesting that the illustrative example Yaeger offers for his concerns about the limitations of the tool is a tax example as follows:

When JSIN is queried for stats on the position of the sentencing table for U.S. Sentencing Commission Section 2T1.1 — tax evasion, offense level 17 and criminal history I — JSIN reports the median sentence as 18 months.  But when one uses the commission's full dataset to calculate the median on that same cohort (Section 2T1.1, level 17, history I, no 5K1.1) and includes sentences of probation, the median is significantly lower.  Instead of JSIN's 18 months, the median is just 12 months. That's a whole six months lower — and a 33% decrease....

Yeager then is quoted as concluding:

Friday, October 15, 2021

Court Sustains Willful FBAR Penalty for Two of Four Years (10/15/21)

In United States v. Hughes, (N.D. Cal. 3:18-cv-05931-JCS Entry 162 10/13/21), CL here and TN here, the Court (Magistrate Judge by consent) held in Findings of Fact and Conclusions of Law Regarding Willfulness (“FF&CL”) in an FBAR collection suit that the defendant, Timberly E. Hughes, was liable for the FBAR willful penalty for 2 of the 4 years for which the Government sought judgment.  For the two years that the Court did not sustain the willful FBAR penalty, the Court did not find Hughes nonwillful but held that the Government had not met its burden of proof.  (As the Court worded it, if the Court could have found her nonwillful, it would have done so, but instead found that the Government had not met its burden of proof, which  I infer means that the Court was in equipoise, the only circumstances that permits burden of proof to control the result.)

I am not sure that the conclusion that the Government had not met its burden of proof is supported by the Court’s findings.  I think that the inferences the Court drew on the objective findings are suspect.  The Court does state that it applied the reckless standard for the finding of willfulness.  But I am surprised that, on the objective facts recounted, the Court found the Government failed to meet burden of proof (preponderance).

There is a lot that could be discussed about the FF&CL  I offer below just some points that I focused on and think worth mentioning, but there are surely more interesting points.  Those wishing to go further will find a lot of the documents in the case available free at CourtListener docket entries here.

1. One factor that I think the Court gave short shrift to was Hughes’ income tax issues for those years.  The Government’s Post Trial Brief, Dkt. 158, here, at pp. 3-6, states the following under captions of “Income Shifting” and “False Business Addresses”):  Hughes had a bookkeeping service business, a Schedule C business, generating substantial U.S. source service income.  Hughes owned two foreign corporations which she improperly reported as Schedule C U.S/ operations.  One of those businesses generated major net losses (raising the hobby loss issue permitting deductions only against income which was minimal).  Hughes reported her bookkeeping service income as income of the businesses which she improperly reported on Schedule C, thus claiming deductions to which she was not entitled.  The erroneous deductions were from $331,145 to $1,306,505 for the years.  Apparently, she also gave a false U.S.  business address for the foreign entity, the inference being that she was trying to hide the foreign nature of the entity.  As a result of this reporting, Hughes underreported her income tax liability by over $600,000 in the years involved.  In  dismissing this as a relevant factor, the Court said (p. 22):

Monday, October 11, 2021

On the Pandora Papers (10/11/21)

Readers of this blog are aware of the major investigation and related articles about the “Pandora Papers.”  The Pandora Papers leaks arise from an investigation by the International Consortium of Investigative Journalists ("ICIJ"), here, which previously disclosed the Panama Papers.  The ICIJ page on the Pandora Papers is here.

I have not written on the Pandora Papers because the principal focus of the revelations has been disclosing hidden wealth, often from corrupt endeavors, in secrecy jurisdictions (often referred to as tax havens, tax being one of the principal reasons such secrecy jurisdictions attract wealth).  One previously identified secrecy-friendly jurisdiction is, unfortunately, the U.S. through certain states which have enacted corruption-friendly laws.

The Wikipedia entry for the Pandora Papers is here.  Wikipedia usually does a good job of updating with key information.

I offer some links to and excerpts from some articles I found helpful.  Some of the links may require subscriptions.  This is necessarily an anecdotal sample, but includes some that I thought particularly interesting and potentially informative to readers.

• Erin Adele Scharff & Kathleen DeLaney Thomas, Five myths about tax evasion (WAPO 10/8/21), here.  Excerpts:

Myth No. 4

Tax havens are all abroad.

            Portrayals of tax evasion tend to describe the problem as U.S. taxpayers transferring money overseas. The Tax Justice Network’s list of top tax havens, for example, focuses on countries (the British Virgin Islands, the Netherlands and Singapore, among others) where laws allow corporations to book profits in low-tax jurisdictions. Another list focuses on countries (including Taiwan, Bermuda and Liechtenstein) where foreign investment exceeds expected economic activity.

            As the Pandora Papers make clear, however, for foreign nationals the United States can serve as a tax haven. The rich can hide their wealth from local taxing authorities and the origins of that wealth from anti-corruption advocates. U.S. banking and trust laws make it hard to identify the owners of assets. For example, South Dakota allows virtually anyone to create a trust and name themselves as the trust’s beneficiary. The state also provides significant protection of trust assets from creditors and ensures the privacy of trusts.

            In fact, the Tax Justice Network ranks the United States just ahead of Switzerland in its Financial Secrecy Index. Of course, this is not the first time a trove of tax documents has shined a light on the United States’ role in hiding foreign assets. At the beginning of this year, Congress enacted new measures requiring more reporting of asset ownership, but states still have exceptional leeway to craft laws that help people avoid paying their share. 

Saturday, October 2, 2021

Plea Deal with Russian Bank Founder for Tax Perjury Requiring Payment of More than $500 Million (10/2/21)

I previously reported on the Indictment of Oleg Tinkov and move to extradite him.  U.S. Taxpayer Renouncing U.S. Citizenship Indicted And Extradition Started (Federal Tax Crimes Blog 5/11/20), here, where I discussed the DOJ press release.  I noted in the blog that the indictment charged two counts of tax perjury, § 7206(1), although, as his overall conduct was described, it seems that there could be other counts as well for which the grand jury could approve a superseding indictment.

Tinkov has now pled to a single count of tax perjury.  DOJ Press release “Founder of Russian Bank Pleads Guilty to Tax Fraud: Admits to Concealing More Than $1 Billion in Assets when Renouncing U.S. Citizenship and Agrees to Pay More Than $500 Million Penalty” (10/1/21), here.  I tried to access the plea agreement on PACER (Dkt Entry 25), but the link said, “You do not have permission to view this document.”  I suppose it is under seal.  When it is unsealed, it will be available on PACER (fee required) and, likely soon thereafter, free on CourtListener, here.

In the meantime, I offer excerpts from the press release.  I focus first on the damning facts of his conduct:

According to the plea agreement, Oleg Tinkov, also known as Oleg Tinkoff, was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares.

In October 2013, TCS held an initial public offering (IPO) on the London Stock Exchange and became a multi-billion dollar, publicly traded company. As part of going public, Tinkov sold a small portion of his majority shareholder stake for more than $192 million, and his assets following the IPO had a fair market value of more than $1.1 billion. Three days after the successful IPO, Tinkov went to the U.S. Embassy in Moscow, Russia, to relinquish his U.S. citizenship.

As part of his expatriation, Tinkov was required to file a U.S. Initial and Annual Expatriation Statement. This form requires expatriates with a net worth of $2 million or more to report the constructive sale of their assets worldwide to the IRS as if those assets were sold on the day before expatriation. The taxpayer is then required to report and pay tax on the gain from any such constructive sale.

Tinkov was told of his filing and tax obligations by both the U.S. Embassy in Moscow and his U.S.-based accountant. When asked by his accountant if his net worth was more than $2 million for purposes of filling out the expatriation form, Tinkov lied and told him he did not have assets above $2 million. When his accountant later inquired whether his net worth was under $2 million, rather than answer the question, Tinkov filled out the expatriation form himself falsely, reporting that his net worth was only $300,000. On Feb. 26, 2014, Tinkov filed a false 2013 individual tax return that falsely reported his income as only $205,317. In addition, Tinkov did not report any of the gain from the constructive sale of his property worth more than $1.1 billion, nor did he pay the applicable taxes as required by law. In total, Tinkov caused a tax loss of $248,525,339.

JAT Comments:

Thursday, September 30, 2021

TRAC Report on “Equal Justice and Sentencing Practices Among Federal District Court Judges” (9/30/21)

Transactional Records Access Clearinghouse (“TRAC”) has a new report titled Equal Justice and Sentencing Practices Among Federal District Court Judgeshere.  The email I received with a summary of the report was titled:  “The Impact of the Identity of the Judge on Sentencing.”

TRAC gathers and maintains a lot of data and ways to access and analyze data at its web site, here.  For example, TRAC provides reports and bulletins on the IRS .  Scholars, practitioners, and students should familiarize themselves generally with the TRAC offerings and studies.

The particular TRAC offering discussed here on sentencing practices should be interesting for scholars, practitioners and students of federal tax crimes.  Sentencing, after all, is where the rubber hits the road so to speak.  So, I offer some excerpts first from the email summary and then the report (with some redundancy):

Excerpts from the Email Summary

            While judges need sufficient discretion to consider the totality of circumstances in assigning a sentence in a specific case to ensure it is "just," a fair court system always seeks to provide equal justice under the law, working to ensure that sentencing patterns of judges are not widely different for similar kinds of cases.

            While special circumstances might account for some of these differences, half of the courthouses in the country had median differences in prison sentences of 16 months or more, and average differences of 21 months or more. Five courthouses showed more than 60 months difference in the median prison sentence handed out across judges serving on the same bench.

Tuesday, September 28, 2021

Indictments of Swiss Enablers for U.S. Tax Evasion through a "Singapore Solution;" One U.S. Taxpayer Guilty Plea (9/28/21)

DOJ Tax issued this press release today: Indictment Unsealed Against Six Individuals and Foreign Financial Service Firm for Tax Evasion Conspiracy: Defendants Allegedly Used ‘Singapore Solution’ to Enable U.S. Clients to Evade Taxes on Over $60 Million Hidden Offshore, here.  In a related action, the press release states that another person pled guilty to one count of tax evasion.  I copy and paste the relevant information:

An indictment was unsealed today in New York, New York, that charges  offshore financial service executives and a Swiss financial services company with conspiracy to defraud the IRS by helping three large-value U.S. taxpayer-clients conceal more than $60 million in income and assets held in undeclared, offshore bank accounts and to evade U.S. income taxes.

 According to the indictment, from 2009 to 2014, Ivo Bechtiger, Bernhard Lampert, Peter Rüegg, Roderic Sage, Rolf Schnellmann, Daniel Wälchli and Zurich, Switzerland-based Allied Finance Trust AG allegedly defrauded the IRS by concealing income and assets of certain U.S. taxpayer clients with undeclared bank accounts located at Privatbank IHAG (IHAG), a Swiss private bank in Zurich, Switzerland, and elsewhere. In order to assist those clients, the defendants and others allegedly devised and used a scheme called the “Singapore Solution” to conceal the bank accounts of the U.S.-based clients, their assets, and their income from U.S. authorities. In furtherance of the scheme, the defendants and others allegedly conspired to transfer more than $60 million from undeclared IHAG bank accounts of the three U.S. clients through a series of nominee bank accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG, ostensibly held in the name of a Singapore-based asset manager. The U.S. clients allegedly paid large fees to IHAG and others to help them conceal their funds and assets. 

        * * *

“As alleged, the individual defendants and the Swiss firm Allied Finance conspired to defraud the IRS by assisting U.S. taxpayers in avoiding their tax obligations,” said U.S. Attorney Audrey Strauss for the Southern District of New York. “They allegedly did this through an elaborate scheme that involved concealing customer assets at a Swiss private bank through nominee bank accounts in Hong Kong and elsewhere, with funds returning to the private bank in the name of a Singapore firm. One such U.S. customer, Wayne Chinn, pleaded guilty to his participation in the so-called ‘Singapore Solution,’ forfeited more than $2 million to the United States, and awaits sentencing for his admitted crime.”

        * * *

Also unsealed today was the guilty plea of Wayne Franklyn Chinn, of Vietnam and San Francisco, California, one of the U.S. taxpayer-clients, who participated in the Singapore Solution scheme.

 According to court documents filed in relation to his guilty plea, from 2001 through 2018, Chinn concealed approximately $5 million in undisclosed and untaxed income. During this period, Chinn held accounts in nominee names at Privatbank IHAG. Beginning in 2010, Chinn wired funds from these offshore accounts through nominee accounts in Hong Kong before returning them to newly opened accounts at IHAG held in the name of a Singapore based trust company acting on behalf of two foundations created to conceal Chinn’s ownership of the accounts. Chinn subsequently transferred the funds out of Switzerland to undeclared accounts in Singapore. Chinn did not file any tax returns or disclose his foreign bank accounts during the years at issue.

 Chinn pleaded guilty to one count of tax evasion which carries a maximum penalty of five years in prison. Chinn also consented to the civil forfeiture of 83% of the funds held in five accounts at two Singapore banks, which resulted in the successful forfeiture and repatriation to the United States of approximately $2.2 million. The civil forfeiture proceeding is United States of America v. Certain Funds on Deposit in Various Accounts, 20 Civ. 3397 (LJL).

 Chinn is scheduled to be sentenced on Nov. 19, and faces a maximum penalty of five years in prison. He also faces a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

ABA Tax Section Comments on Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures (9/28/21)

The ABA Section of Taxation has submitted, here, comments on the Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures.  I have not had time to review them.  I post them now to get them out there for those who may not have received or may have overlooked the email notice.

I may comment later.

JAT Comments (added 10/29/21 at 4:00 pm):

On reading through the ABA Tax Section Comments, two items caught my attention:

1.  The problem of requiring disclosure for preclearance in Form 14457, Part I, of the foreign accounts gives the IRS (and DOJ) potentially incriminating information and thus creates the risk that that information may be used against the taxpayer if the IRS denies preclearance.  The recommended solution to the problem is (p. 6 footnote omitted):

• We recommend that the Service remove item #10 from Part I (requiring the disclosure of noncompliant accounts) and move it to Part II of Form 14457, so that the disclosure of the noncompliant accounts is made after (1) the taxpayer is precleared to make a voluntary disclosure and (2) the practitioner has time to conduct due diligence with respect to items that may constitute noncompliant accounts. The goal of preclearance is for the Service to determine that a taxpayer is “eligible for making a voluntary disclosure, including establishing unreported income is from legal sources and that the timeliness requirements are met.” We do not believe the bank account information is required to make such a preclearance determination. Requesting identification of, and information on, noncompliant accounts in advance of the preclearance determination requires the taxpayer to disclose incriminating information before he or she is cleared to proceed with disclosure. This deters taxpayers from using, and practitioners from recommending, the VDP.

Sunday, September 26, 2021

Article on German Wealthy Renewed Interest in Swiss Financial Institutions Because of Potential Tax Increase (9/26/21)

This is an interesting phenomenon about German wealthy fearing higher taxes to try to move and hide assets (and related taxable income).  See Oliver Hurt, German millionaires rush assets to Switzerland ahead of election (Reuters 9/24/21), here

Some excerpts:

ZURICH, Sept 24 (Reuters) - A potential lurch to the left in Germany's election on Sunday is scaring millionaires into moving assets into Switzerland, bankers and tax lawyers say.

If the centre-left Social Democrats (SPD), hard-left Linke and environmentalist Greens come to power, the reintroduction of a wealth tax and a tightening of inheritance tax could be on the political agenda.

"For the super-rich, this is red hot," said a German-based tax lawyer with extensive Swiss operations. "Entrepreneurial families are highly alarmed."

The move shows how many rich people still see Switzerland as an attractive place to park ealth, despite its efforts to abolish its image as a billionaires' safe haven.

    * * *

Friday, September 24, 2021

Grand Jury Indicts Alleged Offshore Willful Actor Who Should Have Entered OVDP But Attempted SFCP (9/24/21; 9/27/21)

DOJ Tax announced here the indictment of Mark Anthony Gyetvay.  Basically, as  I  understand  it on  quick review, Gytevay made  mega million in Russian related adventures and failed to (i)  pay tax and (ii) file appropriate FBARs.  A fair inference on the facts claimed in the  Press Release (and presumably the indictment) is that those failures were willful.  Then, Gyetvay tried to enter “Streamlined Filing Compliance Procedures in which he attested that his prior failure to file FBARs and tax returns was non-willful.”  Bad moves.

The opening  paragraph says:

A federal grand jury in Fort Myers, Florida, returned an indictment on Sept. 22 charging a Florida businessman with defrauding the United States by not disclosing his substantial offshore assets, failing to report substantial income on his tax returns, failing to pay millions of dollars of taxes and submitting a false offshore compliance filing with the IRS in an attempt to avoid substantial penalties and criminal prosecution.’ 

There is no mention in the opening paragraph of wire fraud.  But  later, the press release  says (emphasis supplied):

If convicted, he faces a maximum penalty of 20 years in prison for each wire fraud count, five years in prison for each failure to file FBAR count, five years in prison for tax evasion, five years in prison for making a false statement, three years in prison for each count of assisting in the preparation of a false tax return and one year in prison for each willful failure to file a tax return count.

I am in travel status now and so only post this for information purposes now.  I  probably will add some detail later after reviewing the indictment and thinking more about it.  In short, though,  for now, this guy has to be incredibly stupid and greedy (or some combination thereof) to forego the regular OVDP  and attempt the  SFCP.

JAT Comments (added 9/27/21):

Sunday, September 19, 2021

Appeals Arguments Over Whether Government Brought Evasion and Tax Conspiracy Charges Within Statute of Limitations With No Mention of WSLA (9/19/21)

In United States v. Pursley (on appeal to CA 5, Dkt. No. 20-20454), Pursley was convicted of 1 count of conspiracy related to tax and three counts of tax evasion, two for Pursley’s taxes and one for the taxes of another.  See the judgment here.  Pursley was a lawyer in Houston who enabled tax evasion by a client by moving untaxed monies from foreign accounts into the U.S. without accounting to the IRS for the unpaid tax.  Pursley’s client ultimately joined the OVDP, thus avoiding his own criminal exposure.  As required under the OVDP, the client had to disclose the enabler of the tax evasion scheme.

At the conclusion of trial after the guilty verdicts were returned, the judge sentenced Pursley to 24 months incarceration, ordered restitution of $2.5 million and imposed standard conditions.  I think the restitution was for Pursley’s taxes rather than the client’s taxes, because the client’s taxes had been paid in the OVDP.  So just from the restitution of Pursley’s taxes for two years, one can infer that he made a lot of money for his conduct.  But that need not detain us here.

On the appeal, Pursley raises only statute of limitations issues.  The parties’ briefs on appeal are:  Pursley’s opening brief, here; United States’ answering brief, here; and Pursley’s reply brief here. Pursley’s arguments are:

1.     As to all counts, the indictment was brought outside the statute  of limitations.

2.     As to the conspiracy count, the trial court erred by failing to give a requested instruction that it must find one overt act within the statute of limitations.

3.     As to the tax evasion counts, the trial court erred by failing to give a requested instruction that it must find one affirmative act within the statute of limitations.

The first argument, if successful, would require complete reversal and expungement of the conviction.  The second two would require retrial where, if there is enough evidence to get to the jury, the jury will almost certainly find at least one affirmative act within the statute of limitations.

Pursley makes no argument that the jury verdict of guilt should be overturned, except as required by the statute of limitations arguments.

The key statute of limitations argument (in # 1 above) is that the indictment was not brought within the applicable statute of limitations.  The judgment here provides in relevant part:  

Title & Section

Nature of the Offense

Offense Ended

Count

18 U.S.C. § 371

Conspiracy to defraud the U.S.

05/31/2013

1

26 U.S.C. § 7201

Tax evasion

09/20/2018

2

26 U.S.C. § 7201

Tax evasion

12/31/2012

3

26 U.S.C. § 7201

Tax evasion

10/31/2011

4

The indictment, here, was filed on September 20, 2018.  Just on the face of the judgment, it would appear that, without more, the six-year criminal statute of limitations would have expired on Count 4 on 10/31/2017, but the other counts would have been timely under the six-year statute.

Tuesday, September 14, 2021

Ninth Circuit Adopts Primary Purpose Test for Attorney-Client Privilege (9/14/21)

In In re Grand Jury, Nos. 21-55085 & 21-55145 (9th Cir. 9/13/21), CA 9 here, the Court held that the “because of” test imported from the work-product context did not apply to the attorney-client privilege and instead applied a predominant purpose test for dual-purpose communications.  The opinion is short (14 pages) and the summary offered by the Court is good, so I just copy and paste the summary here.

Grand Jury Subpoenas

            The panel affirmed the district court’s orders holding appellants, a company and a law firm, in contempt for failure to comply with grand jury subpoenas related to a criminal investigation, in a case in which the district court ruled that certain dual-purpose communications were not privileged because the “primary purpose” of the documents was to obtain tax advice, not legal advice.

            Appellants argued that the district court erred in relying on the “primary purpose” test and should have instead relied on a broader “because of” test. Under the “primary purpose” test, courts look at whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice. The “because of” test—which typically applies in the work-product context—considers the totality of the circumstances and affords protection when it  can fairly be said that the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation. The panel rejected appellants’ invitation to extend the “because of” test to the attorney-client privilege context, and held that the “primary purpose” test applies to dual-purpose communications.

            The panel left open whether this court should adopt “a primary purpose” instead of “the primary purpose” as the [*3] test, as the D.C. Circuit did in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). The panel wrote that Kellogg’s reasoning in the very specific context of corporate internal investigations does not apply with equal force in the tax context, and that the disputed communications in this case do not fall within the narrow universe where the Kellogg test would change the outcome of the privilege analysis.

            The panel addressed remaining issues in a concurrently filed, sealed memorandum disposition.

 JAT Comments:

Wednesday, September 8, 2021

Prosecution IRS Agent’s Contact with Defense Expert Without Defense Counsel (9/8/21)

In United States v. Shun, 2021 U.S. Dist. LEXIS 161023 (W.D.N.Y. Aug. 25, 2021), Cl here, in a tax crimes prosecution (conspiracy and tax perjury), one of the questions discussed in the opinion is whether an attempt by IRS CI agents assisting the prosecutor in the case to interview an expert designated by the defense was a violation of the defendant’s Sixth Amendment right to counsel.  The discussion is short but instructive, so I just cut and paste (Slip Op. pp. 4-7): 

Shun's Motion for Relief Based on Violations of her Sixth Amendment Rights

            On July 22, 2021, IRS Criminal Investigation Division Special Agent Scott Simmons, together with another IRS special agent, visited the offices of Freed Maxick CPAs, P.C. and attempted to interview Certified Public Accountant Richard Wright, who had previously been identified by Shun as a potential expert witness for the defense in this case. (Dkt. No. 186) Wright was not present at the Freed Maxick office when Simmons and the other agent arrived. (Id.) The agents spoke with another employee of the accounting firm and requested that the employee instruct Wright to call the agents when he returned. (Id.) Wright called later that same day and spoke with Simmons and the other agent briefly on speaker phone. (Id.) Agent Simmons asked Wright some questions and inquired about documents pertaining to the case. (Id.) Wright informed Simmons that he believed defense counsel should be present for their communications and terminated the call. (Id.)

            Defendant Shun contends that Agent Simmons' contact with Wright was a "willful and deliberate attempt to interfere with the effectiveness of her defense" in violation of her Sixth Amendment right to counsel. (Dkt. No. 186) Defendant requests various remedies because of this alleged violation, including that the Court: (1) order the Government to produce information about the nature and purpose of Agent Simmons' visit to Freed Maxick and telephone conversation with Wright; (2) deem the income tax principles to which Wright is anticipated to testify about at trial as "accepted" for purposes of the trial and prohibit the Government from offering contradictory testimony; and (3) grant additional sanctions in the form of fees and reimbursements to defendant. (Id.)

Tuesday, August 31, 2021

Ninth Circuit Panel Requires Cheek-Type Specific Intent for Civil Willfully Preparer Penalty (8/31/21)

In Rodgers v. United States,   (9th Cir. 7/6/21), CA9 here (unpublished and nonprecedential), the Court held (based on a prior appeal) that the return preparer penalty under § 6694(b)(2)(A) for a “willful attempt in any manner to understate the liability for tax on the return or claim” requires “specific intent to understate tax liability on tax returns or claims.”  Basically, the panel held, the civil penalty requires the same level of intent as § 7206, which is the Cheek-type of intent – specific intent to violate a known legal duty.  (The panel opinion does not cite Cheek, but that is the way I read the opinion.)

The opinion is nonprecedential because, as interpreted by the panel, the Ninth Circuit’s precedent compelled the conclusion.  Accordingly, the panel reversed because the district court held that willful blindness satisfied the test of willfulness.

JAT Comments:

1. A civil penalty statutory willfully “element” often is not interpreted and applied the same as the tax crime willfully "element." The obvious example for those who follow this blog is the FBAR civil willful penalty under 31 U.S.C. § 5321(a)(5)(C).  The FBAR criminal penalty requires Cheek-type specific intent willfulness.  Ratzlaf v. United States, 510 U.S. 135 (1994).  But the FBAR civil penalty with the same word (willfully), as interpreted and applied by the courts, requires a less specific intent, including willful blindness and reckless conduct.

Monday, August 30, 2021

Willful Blindness As Permitting Only an Inference of Knowledge (8/30/21)

I have written on the question of whether the willful blindness concept permits conviction of a knowledge element crime upon the finding of willful blindness or, instead, permits only an inference of the knowledge element upon showing willful blindness.  See blog entries here.  In other words, if the criminal statute requires a knowledge element, will a showing of willful blindness require conviction or only permit conviction. 

The key in jury cases is the instruction.  In United States v. Henson, ___ F.4th ___, 2021 U.S. App. LEXIS 24818, at *37-38 (10th Cir. Aug. 19, 2021), CA10 here and GS here, the Court affirmed a challenge to the following instruction for an offense requiring knowingly as an element (a less rigid intent element than willfully for tax crimes):

The term "knowingly" means that defendant [*38]  realized what he was doing and was aware of the nature of his conduct and did not act through ignorance, mistake, or accident.

When the word "knowingly" is used in these instructions, it means that the act was done voluntarily and intentionally, and not because of mistake or accident. Although knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself or herself to the existence of a fact. Knowledge can be inferred if the defendant was aware of a high probability of the existence of the fact in question, unless the defendant did not actually believe the fact in question.

I have bold-faced the key language.  To which I say, exactly!

Wednesday, August 25, 2021

Newsletter Focusing on DOJ Tax Criminal Enforcement Section (8/25/21)

I received the email below from Jeff Beinholt, an alumnus of DOJ Tax CES (the Criminal Section initialism).  The content speaks for itself.  Some readers of this blog may be within the target audience for his newsletter focusing on CES.

"Greetings. Jeff Breinholt here, an alumnus of the Tax (Crim) Division (1990-1997). About six months ago, I launched a newsletter devoted to Tax Division history, culture, and lore, called The Malone Report. It's a private online newsletter/blog that is only available to registered members (though it's free). Would any of you Tax Division alums like to be added? If so, you can send an email to GMAD2021@yahoo.com." 

Thursday, August 12, 2021

Daugerdas Re-Appears on the Tax Scene - This Time in a CDP Proceeding for Restitution Based Assessment (8/12/21)

In Daugerdas v. Commissioner (T.C. Dkt.7350-20L Order Dated 8/11/21), here, the Tax Court (Judge Goeke) in addressed some issues arising in a CDP proceeding arising from a lien filing related to a restitution-based assessment (“RBA”) under § 6201(a)(4) for tax loss arising from Title 18 crimes of conviction.  Long-term readers of this blog may recognize the petition, Paul M. Daugerdas.  A link to posts mentioning Daugerdas is here (sorted by relevance but can be sorted in reverse chronological order).

I find the order confusing so I will try to work through the order adding some of my own nuance (at the risk of further confusion).  I caution readers that I am confused about some of the Order and may be missing the point in some of my comments.  Nevertheless here is my best shot at working through the order.  I find it very difficult to summarize in fewer words in a meaningful way.

Judge Goeke summarizes Daugerdas’ relevant trajectory as follows (Order 1-2):

            For more than a decade beginning in the early 1990s, petitioner, a former tax attorney, designed, sold, and implemented fraudulent tax shelters to his clients to enabled them  to evade tax. In October 2013 he was convicted in the U.S. District Court for the Southern District of New York on mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States. United States v. Daugerdas, 837 F.2d 212, 218 (2nd Cir. 2016). He was acquitted of tax evasion for his personal income tax. At a sentencing hearing on June 25, 2014, the District Court sentenced petitioner to 180 months incarceration, 3 years of supervised release, restitution of $371,006,397, and preliminary forfeiture of $164,737,500 of petitioner’s assets.

Petitioner agreed to the restitution calculations submitted by the Government, and the District Court adopted those calculations. At the sentencing hearing, the District Court stated that the restitution pursuant to the Mandatory Victims Restitution Act (MVRA) and named the IRS as petitioner’s victim. It did not address a payment schedule or expressly state whether payment was due immediately. Addressing how to portion the restitution among petitioner and his co-defendants, it stated that petitioner is “responsible for the full amount of restitution” and made him jointly and severally liable with his co-defendants for $258.6 million of the restitution. The Court noted that petitioner had criminal proceeds of $97 million, i.e., tax shelter fees.

The IRS then made a § 6201(a)(4) assessment.  That provision is:

(4) Certain orders of criminal restitution
(A)In general. The Secretary shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.
(B)Time of assessment. An assessment of an amount of restitution under an order described in subparagraph (A) shall not be made before all appeals of such order are concluded and the right to make all such appeals has expired.
(C)Restriction on challenge of assessment. The amount of such restitution may not be challenged by the person against whom assessed on the basis of the existence or amount of the underlying tax liability in any proceeding authorized under this title (including in any suit or proceeding in court permitted under section 7422).

To repeat, the crimes of conviction were:  “mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States.”  Restitution law divides the tax loss universe into tax loss related to Title 26 crimes (which includes tax evasion and obstruction of the administration of the internal revenue laws) and tax loss related to crimes under other Code provisions, principally Title 18 (which includes mail fraud and conspiracy).  Restitution for tax loss for Title 26 crimes is not generally available; restitution for tax loss for Title 18 crimes is generally available.  I say generally not available for Title 26 crimes, but a court can impose restitution for Title 26 tax crimes: (i) as a condition of supervised release after the defendant serves his incarceration period (see Order p. 8); or (ii) by consent of the defendant (which is a common condition in cases resolved by plea agreement, but there is no indication that Daugerdas consented here).  Judge Goeke discusses the supervised release that the sentencing court ordered (Order p. 8) but fails to tie it to the restitution ordered by the sentencing court.  In other words, from the factual recounting in the Order, the restitution did not include restitution for the tax crimes of conviction but only for the Title 18 crimes of conviction, so even if the court had imposed (which it does not seem to have done) restitution as a condition of supervised release, the need to tie restitution to tax crimes of conviction would seem unnecessary and nonsensical.  (The Order is not clear on this point, so I am taking a bit of a leap to conclude that the restitution related only to Title 18 crimes of conviction.)

Daugerdas was acquitted of his own tax evasion, so restitution could not include his own tax liability.  For Daugerdas’ own tax liability (plus penalties and interest), the IRS would have to the normal assessment mechanisms (including notice of deficiency).  Tax crimes fans will recall that the IRS can assess tax and assert civil fraud (for civil fraud penalty and open statute of limitations) even after an acquittal for the crime of tax evasion.   After a regular tax assessment, the IRS could then use its own collection mechanisms (particularly filing a lien) without concern about the restitution order and authority under § 6201(a)(4).  However,  the CDP proceeding in this case seems related only to the RBA under § 6201(a)(4).

As recounted by the Court, the sentencing court ordered Daugerdas to pay restitution of $371 million (rounded) of which $258.6 was jointly and severally imposed on his convicted co-defendants.  It is not clear to me from Judge Goeke’s order what the difference in amount is for which Daugerdas was solely liable (about $103 million). I infer (but the order is not clear) that the difference related to some Title 18 crime of conviction for which the other convicted defendants were not liable and thus their restitution could not include the related tax loss.

Now, back to the Order, Judge Goeke feels (Order pp. 8-9) that he does not have enough facts and law to decide whether the sentencing court ordered restitution to be due immediately (which would be the default rule).  I am not sure what that commotion is about, but Judge Goeke wants the parties to address it in subsequent briefing.

Probably the more interesting part of the Order is set up under the caption “3. Collection Procedures under Title 18” (Order pp. 9-10).  The Court recounts some basic restitution and restitution lien law.  Restitution lien law is the lien related solely to restitution and is not separate tax Code lien that arises  under § 6201(a)(4) which is designed to allow the IRS to use its collection mechanisms of lien and levy independent of mechanisms available under restitution law.  The Court notes that the restitution lien and enforcement of that lien may be enforced by the victim even if there is a payment schedule for the restitution.  I suppose the implication might be that immediate enforcement might also be available for the tax lien for an RBA and the broader issue for the RBA is whether a tax lien filing is inconsistent court-ordered schedule (depending upon how that issue is resolved).  

Judge Goeke wants more briefing to clarify and resolve his confusion.