Taxpayers with Failed Bullshit Tax Shelters Use FOIA to Try to Get Whistleblower, if any, Information (2/24/18).

In Montgomery v. IRS, 2018 U.S. Dist. LEXIS 26313 (D. D.C. 2/20/18), here, taxpayers were caught using partnerships to claim large tax benefits based on bullshit tax shelters.  "In fact, both partnerships were structured in such a way that they were able to report tax losses without the partnerships (and, by extension, the partners) experiencing any real economic loss." After the FPAA proceedings and resulting and related litigation resolved those cases, the taxpayers made FOIA requests and, upon denial, brought this suit for the requested information and documents.  Their goal is "to deduce who, if anyone, tipped off the" IRS as to their raid on the fisc.  In this FOIA suit, the Government moved for summary judgment, alleging that the earlier resolutions of the cases they brought over the bullshit tax shelters foreclosed their FOIA claims.  The Court denied the Government's motion for summary judgment, so the case will proceed to further proceedings.  The Court ordered the parties to submit a new proposed briefing schedule.

Basically, the issue resolved by the Court was whether the prior resolutions in the cases dealing with the merits of their claims for tax benefits foreclosed their right to pursue FOIA requests.  The Court held that the neither the settlement agreements in the merits litigation nor principles of law (collateral estoppel and res judicata) foreclosed their right to pursue FOIA requests.  The settlement agreements merely presented a contract issue, and the Court held that the contracts did not foreclose the suits.  And the merits resolutions did not invoke principles of claim or issue preclusion because the FOIA claims or anything like them were not resolved in the earlier case.

The resolution is not particularly noteworthy.  Rather, what I thought was noteworthy is the taxpayers' pursuit of the whistleblower, if any, role, probably at some significant additional expense.  Maybe they are just curious, maybe they seek revenge, maybe they want to make some type of claim against the whistleblower, if any.  Who knows?  But maybe the further proceedings, if public, will shed light on that.

The docket entries are here.

Ninth Circuit Affirms Conviction for Tax Misconduct Related to Failure to Honor Levy and Potential Bankruptcy Discharge (7/27/16)

In United States v. Wanland, ___ F.3d ___, 2016 U.S. App. LEXIS 13661 (9th Cir. 2016), here, the Ninth Circuit panel rejected two of the taxpayer's argument's to reverse his convictions for "tax related charges, including tax evasion."  In a companion unpublished opinion, here, the panel rejected other of his arguments for reversal.  I deal here with only the published precedential decision.

The Ninth Circuit staff provides a summary that is not part of the opinion but is usually a useful guide the opinion.  Here is that summary:

The panel affirmed the district court in all respects in a case in which the defendant was convicted of tax related charges, including tax evasion. 

The panel held that neither the district court nor the jury erred in concluding that the defendant's monthly income from his law practice qualified as "salary or wages" under 26 U.S.C. § 6331(e), and therefore rejected the defendant's contention that the government could not prove concealment of property subject to a levy, as required for conviction under 26 U.S.C. § 7206(4). 

Rejecting the defendant's contention that the district court erred in dismissing the levy counts because they exceeded the three-year statute of limitations, the panel held that the six-year statute of limitations of 26 U.S.C. § 6531(1), covering tax offenses "involving the defrauding or attempting to defraud" the government, applies to prosecutions under § 7206(4). 

The panel held that the district court properly rejected the defendant's argument that res judicata precludes the government from pursuing a criminal action concerning his debts that were already discharged in bankruptcy. The panel held res judicata cannot apply because the IRS in a bankruptcy action and the United States government in a criminal action are not in privity.

1. The partner draws.

JAT introduction to partnership taxation.  Technically, partner draws from a partnership are not income or even salaries or wages unless they are guaranteed payments.  Rather, for income tax purposes, the draws are treated as advances against the partner's capital account which, if the partnership makes money is increased by partnership income allocated and taxable to the partner.  So, from a tax accounting perspective, the draws are not income. But, given the relationship between draws and capital accounts, the partner's income must ultimately produce income consistent with partner draws in excess of capital contribution.

Wanland's charges did not relate to the taxable income of the partnership or his allocable share but to whether an IRS levy on the partnership that required the partnership to turn over "wages and salary" covered the partnership draws.  If the levy did cover the draws, then Wanland's failure to advise the partnership of the levy was an act that violated § 7206(4), here, for failure to honor a levy.  The partnership made regularly payments allocated to draw, aggregating $1,8 million.

Consistent with other cases, the panel affirmed the district court in adopting a practical approach indicating that the levy did cover the draws which were in every practical sense like salary or wages to be subject as such to levy.

On Res Judicata in Criminal Case from Prior Civil Case and On Criminal Statute of Limitations (5/15/13)

In United States v. Wanland, 2013 U.S. Dist. LEXIS 64598 (ED CA 5/6/13), here, the Court denied three defense motions to dismiss.  I don't think there is anything particularly important about the holdings, but one of the issues permits me to digress on related concepts and another issue offers a good analysis of the law.  So, I offer the case and further discussion here.

1.  Res Judicata.

Prior to indictment, the defendant had received a bankruptcy court "final judgment discharging the Defendant's debts and liabilities to the Internal Revenue Service ('IRS')."  As quoted in footnote one, 11 U.S.C. § 523(a) (1) (C) provides that

[a] discharge . . . of this title does not discharge an individual debtor from any debt . . . with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.

The defendant was not entitled to an order of discharge of his tax liabilities that he attempted to evade.  He did get the discharge.  Presumably the IRS was represented in the proceeding.  The case does not state whether the IRS asserted nondischargeability because of evasion and lost the assertion in the bankruptcy court.

The defendant argued that, based on principles of res judicata or claim preclusion, the bankruptcy discharge precluded the IRS from asserting any crime related to the taxes discharge which required that the defendant have evaded tax, an issue that the defendant urged had already been resolved against the Government in the bankruptcy case.  The Court held that the criminal prosecution could not have occurred in the bankruptcy proceeding and therefore that the Government was not precluded from bringing the counts based on evasion of the taxes discharged.  The Court reasoned: