Thursday, April 15, 2021

Houston Tax Attorney Indicted for Conspiracy and for Aiding and Assisting (4/15/21)

I have previously written about the unnamed enabler named in the Smith nonprosecution agreement as Individual B.  See One Big Fish Indicted and Lesser Big Fish Achieves NPA for Cooperation (Federal Tax Crimes Blog 10/16/20), here.  Individual B was subsequently identified as Carlos Kepke in the Brockman discovery as an enabler for Brockman.  Individual B, the Houston Attorney in the Smith NPA, Is Unmasked (Federal Tax Crimes Blog 12/1/20; 12/2/20), here.  Today, DOJ announced that Kepke has been indicted for conspiracy (18 USC 371) and for three years of aiding and assisting (§ 7206(2)) relating to his assistance of Smith.  See press release titled Tax Attorney Indicted for Facilitating Tax Fraud: Helped Private Equity CEO Defraud IRS of Taxes on $225 Million in Capital Gains (4/15/21), here.

Kepke is from Houston.  I have known him since I practiced in a short stint in the 1970s with a law firm in which he was partner and I a senior associate.  He was the person I suspected as Individual B which I inferred from what I learned about his practice when I was with that law firm.

I have not been able to obtain the indictment.  As of this evening, it was not yet posted on Pacer.  I will be checking Pacer tomorrow, but if anyone has obtained the indictment, I would appreciate sending to me by email at  After receiving the indictment, if I have further comments, I will post them below.

Wednesday, April 14, 2021

CA6 Rejects Taxpayers Argument for Bankruptcy Discharge Based on Exception to Discharge for Intent to Evade Tax (4/14/21; 4/15/21)

In United States v. Helton (6th Cir. 4/14/21) (unpublished), CA6 here; TN here, the taxpayer, a lawyer, sought to avoid the exception for bankruptcy discharge in 11 USC 523(a)(1)(C) for a debt “with respect to which the debtor . . . willfully attempted in any manner to evade or defeat such tax.”  The relevant part of the opinion is:

Helton's principal argument, rather, is that § 523(a)(1)(C) requires proof that the debtor acted with “specific intent to evade the tax.” Hawkins v. Franchise Tax Bd., 769 F.3d 662, 670 (9th Cir. 2014). Thus, in Helton's view, the government was required to prove not only that Helton chose to allocate his funds toward Mercedes-Benz sedans and dinners out each night and luxury gifts, rather than towards his taxes; instead, the government was required also to prove that he purchased or paid for those things specifically to avoid paying his taxes. Regardless of whether that is the law in the Ninth Circuit, it is not the law in this one, as shown above. See, e.g., Gardner, 360 F.3d at 561; accord In re Feshbach, 974 F.3d 1320, 1331 (11th Cir. 2020); United States v. Coney, 689 F.3d 365, 374 (5th Cir. 2012); In re Fegeley, 118 F.3d 979, 984 (3d Cir. 1997). We therefore reject his argument.

I have not tried to track down whether there was Ninth Circuit authority for the distinction as articulated by the Court for Helton’s argument.  In the context of the way the Court explained the distinction, it does not appear to me to be a material distinction.

Added 4/15/21 3:15pm:  Les Book of the Procedurally Taxing Blog reminded me that Lavar Taylor, here, had posted two blog entries on the Ninth Circuit's view of § 523(a)(1)(C):

  • What Constitutes An Attempt To Evade Or Defeat Taxes For Purposes Of Section 523(a)(1)(C) Of The Bankruptcy Code: The Ninth Circuit Parts Company With Other Circuits (Part 1) (Procedurally Taxing Blog 9/18/14), here.
  • What Constitutes An Attempt To Evade Or Defeat Taxes For Purposes Of Section 523(a)(1)(C) Of The Bankruptcy Code: The Ninth Circuit Parts Company With Other Circuits (Part 2) (Procedurally Taxing Blog 9/19/14), here.

Saturday, April 10, 2021

Court of Federal Claims Rejects Taxpayer Games in Partial Payment FBAR Civil Penalty Refund Suit (4/10/21)

In Mendu v. United States, 2021 U.S. Claims LEXIS 537 (4/7/21), Mendu filed a partial payment FBAR penalty refund suit for $1,000 and the Government counterclaimed for the unpaid balance on the FBAR assessment of about $752,000 (plus additions).  The Court made these key holdings:

  • The Court has jurisdiction over a  partial payment FBAR penalty refund suit.  The Flora rule does not apply because the FBAR penalty is not a tax.
  • The Court made that jurisdictional holding in rejecting Mendu’s own motion to dismiss for want of jurisdiction.
  • The Court rejected also Mendu’s motion to voluntarily dismiss the refund suit under Rule 41(a)(2) and transfer to the counterclaim to the district court for SD Cal..

So, the case will proceed on the refund claim and the counterclaim.

What was all the commotion about?  Basically, Mendu was pulling out the stops to avoid the counterclaim even at the cost of giving up his refund suit and, in any event to avoid adverse precedent in the CFC and Federal Circuit.  The reason:  the big dollars were in the counterclaim.

In the course of the commotion, the United States requested for a transfer of the counterclaim (effectively a collection suit) to the district court if the Court found it did not have jurisdiction of the refund suit under Flora.  The Government was apparently concerned that, if the Court dismissed the refund suit filed by plaintiff, the Court would have no jurisdiction over the collection suit filed by counterclaim and that would mean that a new collection suit filed in the district court might be outside the key 2-year statute of limitations for filing an FBAR collection suit.  The notion was that, if there is a transfer of the counterclaim to the district court under 28 U.S.C. § 1631 (permitting transfer “in the interests of justice”), the Government’s timely filing of the counterclaim will suffice for the statute of limitations on the resulting collection suit in the district court.

Mendu made an alternative motion to voluntarily dismiss if the Court found it had jurisdiction.  For purposes of that motion, apparently, Mendu joined in the Government’s request for transfer of the counterclaim to the district court.  As explained by the Court:

Plaintiff’s peculiar insistence to dismiss his own complaint appears to be for no reason other than to manufacture a "want of jurisdiction" in order to avoid the Federal Circuit’s binding precedent in Norman v. United States, 942 F.3d 1111, 1114 (Fed. Cir. 2019). This Court will not permit such gamesmanship. Under Plaintiff’s suggestion, section 1631 could be used, not to cure a want of jurisdiction, but to create one that would undoubtedly be used to attempt to dismiss Defendant’s counterclaim. Indeed, if courts were to permit the type of transfer Plaintiff suggests, any plaintiff who becomes dissatisfied with the Federal Circuit’s jurisprudence could voluntarily dismiss his complaint notwithstanding a defendant’s counterclaim. Such a transfer is contrary to the text of the statute and is not "in the interest of justice."

Bottom-line, Mendu was playing cute with the Court which rejected the ploy.

Wednesday, April 7, 2021

FinCEN Seeks Comments on Issues in Corporate Transparency Act that May Require Regulations (4/7/21)

 FinCEN has announced an Advance Notice of Proposed Rulemaking (ANPRM) seeking “public comment on a wide range of questions related to the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).”  The announcement is here; the ANPRM is here in the Federal Register; the pdf of the ANPRM is here.  

Key excerpts from the announcement:

This ANPRM is the first in a series of regulatory actions that FinCEN will undertake to implement the CTA, which is included within the Anti-Money Laundering Act of 2020 (AML Act).  The AML Act is part of the FY 2021 National Defense Authorization Act, which became law on January 1, 2021.  

The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies).  This new reporting requirement will enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people.

The CTA requires FinCEN to maintain the reported beneficial ownership information in a confidential, secure, and non-public database.  Furthermore, the CTA authorizes FinCEN to disclose beneficial ownership information subject to appropriate protocols and for specific purposes to several categories of recipients, such as federal law enforcement.  Finally, the CTA requires FinCEN to revise existing financial institution customer due diligence regulations concerning beneficial ownership to take into account the new direct reporting of beneficial ownership information.

I have just scanned the ANPRM.  I think there is some good discussion of the background leading to the CTA and of the CTA itself.  Most of this is probably not particularly revelatory for those who paid attention to the CTA on enactment and the buzz afterwards.  Those diving into the CTA probably had many of the questions that FinCEN is asking for comment as it moves to provide some regulatory detail to flesh out some of the uncertainties and ambiguities.

Sunday, April 4, 2021

ICIJ Interview with Former AUSA Involved in Panama Papers Investigations and Prosecutions (4/4/21)

ICIJ posted an interview of Sarah Paul, currently of Everhsheds Sutherland, here, who was formerly AUSA in SDNY and significantly involved in investigations and prosecutions related to offshore accounts, prosecutions particularly of enablers such as banks.  Will Fitzgibbon, From front pages to prison time: Behind the scenes of a Panama Papers criminal case (ICIJ 4/3/21), here.  The interview focuses particularly on the Panama Papers and Mossack Fonseca law firm.

Some key excerpts:

What do you think has changed since you first investigated the Panama Papers case?

I see the new Anti-Money Laundering Act is a game changer in terms of how these investigations are covered. As part of that, the Corporate Transparency Act is going to require certain companies to provide beneficial ownership information to FinCEN [the U.S. Treasury’s Financial Crimes Enforcement Network]. That part is obviously important.

I think from an investigation standpoint, the new mechanism about how to obtain foreign bank records is significant. Under the new AML Act, if a foreign bank maintains a U.S. correspondent bank account, a U.S. prosecutor can issue a subpoena requesting any records related to any account at the foreign bank, including records maintained outside the US. That subpoena power is not limited to records related to the U.S. correspondent account, which is the limitation that existed previously. While a foreign bank could move to modify or quash the subpoena, there’s language in the new Act that prohibits the court from doing so on the sole ground of compliance with foreign bank secrecy or confidentiality laws.

Had this been in place when I was investigating the Panama Papers, I think it would have made a significant difference. We were able to get foreign bank records through the treaty process. But getting those records would have been much easier and quicker under the new AML Act.

If you had a magic wand, what would you have changed to make the investigation easier?

Saturday, April 3, 2021

NYT Article on Bristol Meyers Aggressive Tax Position With Discussion of Role of Professionals Peddling Audit Risk Insurance through Fees for Faulty Opinions (4/3/21)

 Readers of this blog will likely be interested in this article.  Jesse Drucker, An Accidental Disclosure Exposes a $1 Billion Tax Fight With Bristol Myers (NYT 4/1/21), here.  The article recounts Bristol Myers's use of a highly complex offshore arrangement to avoid (perhaps evade) over $1 billion in U.S. tax.

The thing that I think is particularly interesting for those who have watched bullshit tax shelters over the years is the use of professionals (accounting firm and law firm) to attempt to insulate wealthy taxpayers from penalty consequences of their abusive behavior.  As recounted in the article, Bristol Meyers obtained lengthy opinion letters from PWC, the accounting firm, and from White & Case, the law firm.  The article says that the opinion letters omitted a key discussion that might have cast a pall on the opinion and reliance on the opinion.  The article says:
In addition to detailing the offshore structure, the I.R.S. report revealed the role of PwC and White & Case in reviewing the deal. While both firms assessed the arrangement’s compliance with various provisions of the tax law, neither firm offered an opinion on whether the deal violated the one portion of the tax law — an anti-abuse provision — that the I.R.S. later argued made the transaction invalid.

Tax experts said they doubted the omission was inadvertent. The I.R.S. can impose penalties on companies that knowingly skirt the law. By not addressing the most problematic portion of the law, Bristol Myers’s advisers might have given the company plausible deniability.

Both firms “appear to have carefully framed the issues so that they could write a clean opinion that potentially provided a penalty shield,” Professor Burke said.

David Weisbach, a former Treasury Department official who helped write the regulations governing the tax-code provision that Bristol Myers is accused of violating, agreed. PwC and White & Case “are giving you 138 pages of legalese that doesn’t address the core issue in the transaction,” he said. “But you can show the I.R.S. you got this big fat opinion letter, so it must be fancy and good.”
Over the years, many have observed that such opinion letters serve the sole function of insulating the taxpayer (or, in the case of entities, its officers or managers) from potential penalty liability, including criminal liability.  Those taxpayer knows it is misbehaving but, armed with an opinion from "experts," the taxpayer can say that he reasonably believed he was not misbehaving and thus avoid penalty exposure, at least the serious penalty exposure of criminal liability or the more significant civil penalty liability (civil fraud penalty).  Then with only perhaps imagined exposure only to perhaps a 20% or 40% civil penalty, it may be worth rolling the dice in the hopes that the IRS would never discover the matter.  This is likely a cost/benefit analysis.  What are the costs and potential benefits?  Say for a $1 billion in tax, a  downside (if able to mitigate the more serious penalties) so that only a 20% accuracy related penalty could apply, the downside cost is $1.2 billion with interest (fairly low for a $1 billion "borrowing" from the Government).  The upside is $1 billion in avoided (perhaps evaded) taxes.  And, with powerful and expensive in house and out house professionals helping to lower the risk of audit of the transaction, that may seem to some like a pretty good deal.

Thursday, April 1, 2021

Actions by District Courts to (i) Approve a John Doe Summons for Cryptocurrency Client Data and (ii) Order the Government to Show Cause as to Requirements (4/1/21)

 DOJ Tax has announced here that a Massachusetts district court authorized a John Doe Summons (“JDC” be issued to Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC (collectively “Circle”).  The key excerpts are:

           The court’s order grants the IRS permission to serve what is known as a “John Doe” summons on Circle. The United States’ petition does not allege that Circle has engaged in any wrongdoing in connection with its digital currency exchange business. Rather, according to the court’s order, the summons seeks information related to the IRS’s “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with any provision of any internal revenue laws[.]” According to the copy of the summons filed with the petition, the IRS is requesting that Circle produce records identifying the U.S. taxpayers described above, along with other documents relating to their cryptocurrency transactions.

            The IRS issued guidance regarding the tax treatment of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes. The guidance explains that receipt of virtual currency as payment for goods or services is treated as income and that a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

Readers should also note that a California magistrate judge deferred the Government’s petition to issue a JDS to Payward Ventures Inc. d/b/a/ Kraken (“Kraken”) and its subsidiaries, issuing an order that the Government “SHOW CAUSE why its petition to issue a JDS should not be denied for failure to meet the ‘narrowly tailored’ requirement of 26 U.S.C. § 7609(f), by filing a response to this order (which may include an amended petition or summons) no later than April 14, 2021.”  See In re TAX LIABILITY OF JOHN DOES (Order dated 3/31/21 in Dkt. 21-cv-02201-JCS N.D. Cal.), TN here (with link to pdf).

Saturday, March 27, 2021

CA6 Affirms Tax Obstruction Conviction (3/27/21)

In United States v. Avery (6th Cir. 3/26/21)(Unpublished), CA6 here and TN here, the Court affirmed Avery’s conviction for one count of tax obstruction, § 7212(a).  This is an unpublished opinion and, in the context, a fairly routine holding.  There are, however, two items I think worth mentioning

1.  A picky point.  The Court said (Slip Op. 6):  “The Department of Justice Tax  Division indicted DeSanto, Cespedes, and Avery in February 2018.”  The judges on the panel and their clerks and the other judges on the panel should know better than that.  Grand juries indict.  (I did LEXIS-NEXIS searches on “Department of Justice Tax  Division indicted” and “Tax  Division indicted” and got no hits.  (The Avery case is apparently not yet loaded on L-N.)

2. The Court makes a footnote comment (Slip Op. 6 n. 3):

n3 We find it puzzling that Avery did not challenge the substantive reasonableness of the restitution portion of her sentence. At oral argument, Avery's attorney pointed out that Avery's actions alone were not responsible for any of the IRS's losses, and neither caused the IRS a pecuniary loss nor met any other provision of 18 U.S.C. § 3663A(c) that would mandate restitution. Nor did the government argue that Avery was responsible for Integrated's falling behind on its taxes; rather, it made clear that its only claim against Avery was that she obstructed or impeded the IRS investigation. And the record does not suggest that Avery's obstructions prevented the IRS from pursuing the delinquent taxes; indeed, the IRS issued assessments for them and has begun collecting on those assessments.

Wednesday, March 24, 2021

CA9 Holds in Boyd that Nonwillful FBAR Civil Penalty Is Per Form Rather Than Per Account When Correct Delinquent FBAR Is Filed (3/24/21; 3/31/21))

Added 3/31/21 3:30pm:  Lavar Taylor, here, Boyd's lawyer and a force in the national tax community, emailed me some comments on my offering on the Boyd case.  Lavar authorized me to include his comments at the end of this blog.  I highly recommend his comments to readers interest in the general subject matter.

In United States v. Boyd, ___ F.3d ___ (9th Cir. 2021), CA9 here and TN here, the Court held that the FBAR nonwillful penalty is per annual form rather than per account that should have been reported on the form.  With this opinion, there seems to be a consensus on this holding that is likely to continue.

I have not tried to delve deeply into the majority and dissenting opinions to determine which of the two presents the best case (or whether neither of them does).  So, this blog is not about the merits of the bottom-line holding, but about some of the distractions I found in the opinions.

1. I was particularly surprised to see the dissenter (Judge Ikuta, Wikipedia here) say this as a concluding shot at the majority (Slip op. 31) :  “By holding otherwise, the majority misinterprets the relevant statutes and regulations in a manner that unfairly favors the tax evader.”  The dissenter is just wrong.  There was no tax evader in the case and the opinion does not favor tax evaders.  The case involved the nonwillful penalty, not the willful penalty.  The willful penalty is the one that would apply if tax evasion (a term of art) were involved.  Tax evasion is penalized under criminal and civil penalty regimes--§ 7201 (tax evasion) and 6663 (civil fraud), respectively.  The standard for both penalties is Cheek’s intentional violation of a known legal duty.  I explain that claim in Federal Tax Procedure 320-321 (Practitioner Ed. 2020), here. There is no suggestion in the case that Boyd was a tax evader or that any other taxpayer subject to the nonwillful penalty is a tax evader or subject to any of the income tax penalties (criminal or civil) applying to tax evaders.  Indeed, if the IRS thought Boyd (or any other taxpayer) were tax evaders, surely the IRS would assert the willful FBAR penalty for the failure to file the FBAR on its original due date.  Keep in mind in  this regard that the willful FBAR penalty, as interpreted  is subject to a looser standard than the Cheek standard, permitting the willful penalty for recklessness which could not support a criminal or civil tax penalty for criminal evasion or its civil counterpart, tax fraud.  So, in my opinion, Judge Ikuta is way out of bounds to make the closing sound bite, as cute as it is, of helping the tax evader.  And Judge Ikuta is particularly out of bounds to make the claim implicit in the quote that Boyd is a tax evader being helped by the majority's interpretation. 

2.  On the merits, the majority seems to limit its per account holding to cases where the following elements are both present:  (i) the FBAR was not timely filed and (conjunctive) (ii) a delinquent but correct FBAR was filed.  Is the Court saying that the result would be different (nonwillful penalty per account) if the taxpayer had not filed a delinquent correct FBAR (either not filed a delinquent FBAR or filed an incorrect delinquent FBAR)?  I thought the penalty applied on the date the FBAR was due (then 6/30) and not filed timely rather than anything that happened later. If that is correct, it should not matter whether a delinquent FBAR (whether correct or incorrect) was filed.  Of course, the delinquent filing of an incorrect FBAR, if  willful,  would subject the taxpayer to the willful penalty (but even there the date for measuring that penalty, I thought, was the filing date and the IRS should have to show willfulness in failing to file on that date).  As to the willful penalty, the correctly reported accounts on a delinquent return does not affect the penalty base for all accounnts willfully not reported on the filing due date.    The majority seems to adopt this view on p. 16 n. 10:  “Under both scenarios [willful and nonwillflul], the violation flows from the failure to file a timely and accurate FBAR.”  If the Court is correct on the conjunctive requirements, taxpayers missing the filing dates should always file correct delinquent FBARs if audited just to protect against the possibility that failure to do so might permit the penalty to apply per account (even as unlikely that a court would sustain that interpretation).

Tuesday, March 23, 2021

Another Failed Judicial Contest of the FBAR Willful Penalty (3/23/21)

In Kimble v. United States, ___ F.3d ___ (Fed. Cir. 3/22/21), TN here, in an appeal from an adverse holding in a refund suit, the Court sustained the willful FBAR civil penalty.  Unfortunately for Kimble, neither the facts nor the law was helpful.

The Court almost summarily dispatched Kindle’s main arguments about the CFC’s holding sustaining the penalty.

Here, the parties do not dispute that Ms. Kimble failed to disclose a foreign bank account that she was required to disclose. Rather, Ms. Kimble argues that her violation was not “willful.” We hold that, based on the undisputed facts, it was not clear error for the Court of Federal Claims to find Ms. Kimble's violation willful.

Contrary to Ms. Kimble's argument that a taxpayer cannot commit a willful violation without “actual knowledge of the obligation to file an FBAR,” Appellant's Br. 32, we have held that “willfulness in the context of § 5321(a)(5)(C) includes recklessness,” Norman, 942 F.3d at 1115. Accordingly, a taxpayer signing their returns cannot escape the requirements of the law by failing to review their tax returns. Id. at 1116 (“[W]hether [the taxpayer] ever read her . . . tax return is of no import because '[a] taxpayer who signs a tax return will not be heard to claim innocence for not having actually read the return, as . . . she is charged with constructive knowledge of its contents.'”) (quoting Greer v. Comm'r, 595 F.3d 338, 347 n.4 (6th Cir. 2010)).

The undisputed facts show that Ms. Kimble knew about the numbered account and took efforts to keep it secret by, among other things, not disclosing the account to her accountant. She did not review her tax returns for 2003-2008, but she represented under penalty of perjury that she had reviewed her tax returns and had no foreign accounts. J.A. 17. In other words, Ms. Kimble had a secret foreign account, she had constructive knowledge of the requirement to disclose that account, and she falsely represented that she had no such accounts. Under these facts, it was not clear error for the Court of Federal Claims to hold that she committed a willful violation. n2 

   n2 Ms. Kimble's reasons for the violation (her subjective belief about the need for secrecy, advice from her ex-husband, etc.) do not alter our inquiry. A taxpayer can be “willful” even if her violation has good reason. See Bedrosian v. United States, 912 F.3d 144, 153 (3d Cir. 2018) (inquiring into “subjective motivations and the overall 'egregiousness' of [the taxpayer's] conduct . . . [is] not required to establish willfulness in this context”); Norman, 942 F.3d at 1116 (“Actions can be willful even if taken on the advice of another.”). And there is no “reasonable cause” exception for willful violations. 31 U.S.C. § 5321(a)(5)(C)(ii).

The Court then moved to Kindle’s hail Mary arguments and also handily dispatched them.

Friday, March 19, 2021

Another Court Adopts Nonwillful Penalty Per Form Rather than Per Account (3/19/2)

In United States v. Giraldi (D. N.J. 3/16/21), TN here and TN pdf here, the Court held (Slip op. 8): “[T]his Court aligns with the more persuasive reasoning in Bittner and Kaufman. Accordingly, pursuant to Section 5321(a)(5)(B)(i) of the BSA, penalties for non-willful reporting violations attach to each FBAR form rather than any undisclosed foreign financial account.”

The Court distinguishes the only contrary precedent, Boyd, as follows (Slip op. 15): “Significantly, the court merely reiterated the Government's arguments and conducted no analysis in coming to its conclusion.”

I see a trend developing for per form rather than per account.  For what it is worth, I think that is the right answer.  I do note, however, that the judge indicated that the opinion was not to be published.  I don’t know what that is about because it is a well written opinion in an area of law still not settled.

Tuesday, March 16, 2021

Court Denies APA Attack on SDP Transition Denial Allegedly Forcing Taxpayers to Accept OVDP Penalty Structure (3/16/21)

In Harrison v. IRS, 2021 U.S. Dist. LEXIS 45582 (D. D.C. 3/11/21),* here, the taxpayers entered the OVDP program prior to the IRS offering the Streamlined Domestic Procedures (“SDP” program in 2014.  The SDP penalty requirements were less than the OVDP’s penalty requirements and required taxpayers to certify nonwillfulness and provide support for that certification.  Incident to the SDP, the IRS permitted taxpayers then in OVDP to “transition” to SDP.  The transition required (just as the SDP required) that taxpayers certify nonwillfulness and support the certification.  The IRS (through its Central Review Committee, determined that the taxpayers had not established their nonwillfulness and therefore left them in OVDP where the options were (i) accept the OVDP penalty structure which was more than SDP but less than the law could impose outside OVDP or (ii) opt out of OVDP and take their chances on audit.  Rather than take the risk of higher penalties on audit, the taxpayers chose to accept the OVDP penalty structure.  Accepting OVDP required that the taxpayers enter a closing agreement which provided, in part, that the taxpayers would not file a claim for refund of any amounts paid pursuant to the closing agreement.  They did and paid the resulting tax, penalties and interest, including the miscellaneous offshore penalty in lieu of an FBAR penalty in the amount of $519,943.44.

Two years after entering the closing agreement, the taxpayers brought what was in effect a refund suit but, apparently realizing that the closing agreement might be a bar, couched the suit under a mélange of legal theories:  (i) APA claims that the transition rules were adopted without notice and comment and, in any event, were arbitrary and capricious under APA section 706(2)(A); (ii) Due Process claim based on the alleged purported absence of procedural protections; and (iii) duress claim that the Closing Agreement was invalid.

The Court rejected their claims.  The Procedurally Taxing Blog has a good discussion of the APA aspect of the case.  Leslie Book, APA Offers No Avenue For Relief For Challenge to Offshore Transition Rules Penalty Regime (Procedurally Taxing Blog 3/15/21), here.  Basically, the Court held that a refund suit would be an adequate remedy thus precluding subject matter jurisdiction of the APA claims.  I encourage readers to read that blog and will only address here some nuances on the APA claims.  

 In the blog, Professor Book states:  “The needle can still be thread: if someone else  has fully paid and is not subject to a closing agreement they could bring a refund suit in federal court and get a court to consider the merits of the APA challenge.”  That is the part I want to thrash upon further.

Let’s posit that a taxpayer in the situation in the case did not accept the OVDP settlement but instead took their chances on audit and the general maximum 50% penalty was imposed.  No closing agreement is required.  So, in that case, I suppose Professor Book’s statement is that the taxpayers could then pursue their APA claims in the refund suit; alternatively, and more likely, the government would have pursued a collection suit and the taxpayer’s APA arguments could be pursued there (recall that the government must bring that suit within two years of the assessment of the FBAR penalty).  (In considering a refund suit possibility, recall also that full pre-litigation payment may not be required (James R. Malone, Half a Loaf Might Suffice: FBARS, Flora and Federal Jurisdiction (Post & Schell Tax Controversy Posts 2/13/17), here.) and in the collection suit, no pre-litigation payment is required.)  I suppose both of those potential options to present the APA claims might be deemed sufficiently adequate to preclude stand alone jurisdiction to present the APA claims.

 What exactly are those APA claims?

 Failure to adopt with notice and comment rulemaking

Monday, March 15, 2021

Good Article on the State of the Vance Investigation of Trump and Trump Organization (3/15/21)

A good article on the Vance, Manhattan District Attorney, investigation of Trump and the Trump organization.  Jane Mayer, Can Cyrus Vance, Jr., Nail Trump? (New Yorker 3/12/21), here (may require a paid subscription to read).  A good excerpt for tax crimes enthusiasts:

Many legal experts believe that, without an inside witness such as Allen Weisselberg on the stand, it could be hard to persuade a jury beyond a reasonable doubt that Trump knowingly engaged in fraud. Tax cases are notoriously difficult to prosecute, because the details are dull and complicated; ignorance can be an effective defense. The hurdle is proving criminal intent. And, as Bharara pointed out, “Trump is actually very clever.” He learned from his early mentor Roy Cohn, the infamous fixer and Mob lawyer, to leave no fingerprints. He writes very little down, has no computer on his desk, has never had a personal e-mail address, and relies on close aides to send text messages for him. Also, as Barbara Res, an engineer who worked for Trump, recalled, he is skilled at issuing orders obliquely. Res told me, “He would direct work in a way that you knew what he wanted you to do without him actually telling you.”

The targets of complex financial prosecutions often defend themselves by noting that their accountants and lawyers had approved their allegedly criminal actions. Trump has already started making this argument. In a statement denouncing the Supreme Court’s upholding of Vance’s subpoena, Trump protested that his tax returns “were done by among the biggest and most prestigious law and accounting firms in the U.S.”

Readers may recognize Jane Mayer, the author of the article, as an outstanding investigative journalist.  See her Wikipedia page, here.

Sunday, March 14, 2021

Allegations of Continuing Misconduct Against A Supposedly Chastened Credit Suisse (3/14/21)

The New York Time has this article:  Katie Benner and Michael Forsythe, Whistle-Blower Says Credit Suisse Helped Clients Skip Taxes After Promising to Stop (NYT 3/13/21), here, reporting allegations for continuing misconduct after the 2014 plea agreement.  See Credit Suisse Pleads to One Count of Conspiracy to Aiding and Assisting (Federal Tax Crimes Blog 5/19/14; 5/20/14), here, and Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)? (Federal Tax Crimes Blog 11/21/14), here.

The whistleblower started making the allegations even before the Credit Suisse plea agreement and has continued making allegations of misconduct after.  The whistleblower’s attorney, Jeffrey Neiman (web page here), alleges that his clients has names of U.S. persons whom Credit Suisse continued to assist in cheating on U.S. tax and is submitting information to the IRS’s Whistleblower Office.  According to the article, earlier submissions by this whistleblower led to the conviction of Dan Horsky, whose conviction and sentencing I reported earlier.  See Horsky is Sentenced for Major Offshore Accounts (2/11/17; 2/12/17), here.

As readers know, there are substantial potential rewards for whistleblowers (15-30% of collected proceeds which includes FBAR penalties).  See § 7623(b), here. For Horsky alone his tax exceeded $18 and FBAR penalty was $100 million.  See Former Business Professor Pleads Guilty to Tax Related Crimes; In Addition, Will Pay $100 Million FBAR Penalty (Federal Tax Crimes Blog 11/4/16; 11/9/16), here.  So, if the whistleblower received an award for that, he would have gotten at least 15% of that amount and perhaps more up to 30%.  And, apparently, the whistleblower is not claiming more whistleblower awards.

Friday, March 12, 2021

Rahn+Bodmer, Swiss Bank Category 1, Enters Deferred Prosecution Agreement (3/12/21)

UAO SDNY issued this press release titled:  Zurich’s Oldest Private Bank Admits To Helping U.S. Taxpayers Hide Offshore Accounts From IRS: Rahn+Bodmer Enters into Deferred Prosecution Agreement for Criminal Misconduct; Agrees to Pay $22 Million (3/12/21).  The deferred prosecution agreement (“DPA”) is here.  The DPA waives indictment and consents to the filing of a criminal information charging a single conspiracy count encompassing both a defraud conspiracy and offense conspiracies (evasion, § 7201 and tax perjury, § 7206(1)).

The announcement and underlying documents assert a standard litany of misconduct that was typical of Swiss banks' actions to help U.S. taxpayers cheat on their taxes.  R+B is just the latest of the small group of Category 1 Swiss Banks that were under investigation when DOJ Tax offered its Swiss Bank Program.  According to my spreadsheet, 19 Banks are listed as Category 1 but I think there is some duplication in that number.  At any rate, it is a small number relative to all of the Swiss banks engaging in this type of misconduct.

My spreadsheet indicates the following for Category 1 Swiss Banks (with duplication in the number of banks (but not in total costs)

US DOJ Swiss Bank Program



Total Costs

   U.S. / Swiss Bank Initiative Category 1




These Category 1 DPAs should be distinguished from the nonprosecution agreements reached with Swiss Banks in other categories under the DOJ Swiss Bank Program where the Swiss banks resolving their U.S. tax criminal issues are listed here.

Sunday, March 7, 2021

Panama Papers Produces Another Plea and Conviction, Previously Sealed (3/7/21)

The International Consortium of Investigative Journalists (“ICIJ”) has this release announcing the plea, conviction and sentencing of a person, Joachim Alexander von der Goltz, implicated in the Panama Papers disclosures.  As reported, this is the third person brought to justice pursuant to the Panama Papers disclosures.  One of the others convicted was Joachim Alexander’s father, Harald Joachim Von Der Goltz.

From the Pacer docket entries, it appears that a superseding indictment, apparently the seventh, had been sealed from 12/6/19 until 3/4/21.  (Dkt. Entries 288 and 289.)  The sealed superseding indictment now released is here.  The superseding indictment charged: (i) an offense conspiracy to commit tax evasion, Count One; (2) tax perjury (§ 7206(1) (Count Two); and (3) willful failure to file FBARs, Count Three.  The guilty plea was entered on 12/17/19 and filed under seal (Dkt. Entry 291.)  On 3/4/21, von der Golttz was sentenced to time served (whatever that was), with 3 years of supervised release.  See judgment here.  $230,365 of tax restitution was ordered.

The CourtListener docket entries are here but, of the time of posting this blog had  not been updated, even though some of the later Pacer entry documents had worked their way to CourtListener.  Not sure about that, but I assume that CourtListener's algorithms will update the docket entries soon.  In the meantime, they can be viewed on Pacer but that will require a Pacer account and fees for access.

JAT Comment:

1. It is not clear why the tax offense charged was tax perjury, § 7206(1), rather than tax evasion.  I would think that the conduct to support an offense conspiracy to commit tax evasion could suffice for the substantive tax evasion charge.  Section 7201 criminalizes willful "attempts in any manner to evade or defeat any tax imposed by this title."  A conspiracy to do so seems to fit that broad description.  

Thursday, March 4, 2021

Indictment for FBAR Charges, False Income Tax Returns and False Streamlined Submission (3/4/21)

Yesterday, DOJ Tax issued this press release:  Businessman Indicted for Not Reporting Foreign Bank Accounts and Filing False Documents with the IRS, here.  The press release announces charges for failure to report accounts on the FBARs for 2010 through 2016 and for false income tax returns for the same years “that did not report to the IRS all of his foreign bank accounts and income.”  The latter seems oddly worded since it does not state that the charge relates to failure to report the income from the accounts.  (I suppose it is possible that the income may have been properly reported and the Forms 8938 may have been false, but that seems odd.)

I think the most important item in the press release is the following:

Rahman is also charged with filing a false “Streamlined Submission” in conjunction with the IRS Streamlined Domestic Offshore Procedures. Those procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS and to pay a reduced penalty if their conduct was non-willful. The indictment alleges that Rahman’s Streamlined Submission did not truthfully disclose all the foreign bank accounts in which he had an interest, and falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was non-willful.

In other words, Rahman omitted from the Streamlined Submission accounts he should have disclose and falsely certified his alleged nonwillfulness.  I just wonder whether, had he disclosed all accounts in the Streamlined Submission and certified nonwillfulness, the Government would have prosecuted for that certification alone.  I don't know the answer to that, but the Government has asserted that it is prepared to charge false nonwillful certifications.

I previously reported on charges for false Streamlined Submissions in the following (reverse chronological order):

  • Recent Article on Prosecution for False Certification of Nonwillfulness (Federal Tax Crimes Blog 4/1/20), here.
  • Taxpayer Charged with False SFCP NonWillful Certification (Federal Tax Crimes Blog 8/26/19), here.
I did a Pacer search to find the indictment but the search returned the following information: Proceedings for case 1:21-cr-00022-LMB are not available.  The CourtListener docket entries for the case are here.  I created an alert in CourtListener, so when I should get an alert when the CL docket entries are refreshed.  I may then add something to this blog entry.

Wednesday, March 3, 2021

Issue Preclusion (Collateral Estoppel) in FBAR Civil Willful Penalty Suit After Criminal Conviction (3/3/21)

In United States v. Kerr (D. Ariz. 2:19-cv-05432-DJH dkt. 26 Order dated 3/1/21), TN here, the court granted the U.S. partial summary judgment in the FBAR civil willful penalty collection suit based on collateral estoppel (issue preclusion) from Kerr’s prior conviction for willfully failing to file FBARs.  The court held that the issue of Kerr’s willfulness had been determined in the criminal proceeding at a higher standard that included the lesser civil standard.  However, the court denied summary judgment with respect to one account, called a placeholder account, that was not among the accounts mentioned in the indictment for the counts of conviction.  The opinion is short, so I will not discuss further.

JAT Notes:

1.  Issue preclusion is term now generally used rather than collateral estoppel.  See Revised Terminology: Issue Preclusion Rather than Collateral Estoppel and Claim Preclusion Rather than Res Judicata (Federal Tax Procedure Blog 11/29/16), here.

2.  I have written before on issue preclusion on the FBAR willful penalty from the criminal conviction.  FBAR Collection Suit Against Person Convicted of Willfully Failing to File FBAR (Federal Tax Crimes Blog 12/11/18), here.

3. I have discussed tax crimes settings for issue preclusion (collateral estoppel) as to the civil fraud penalty from the criminal conviction.  Some of the posts are (reverse chronological order):

  • Tax Court Again Rejects Collateral Estoppel For Some Deficiency and Civil Fraud Penalty Where No Tax is Due (Federal Tax Crimes Blog 7/24/16), here.
  • Tax Evasion Conviction Does Not Compel a Finding of Deficiency Where There is No Deficiency (Federal Tax Crimes Blog 4/2/16), here.
  • Civil Collateral Estoppel Following Tax Evasion Conviction (Federal Tax Crimes Blog 12/3/13), here.
  • Hapless Mr. Williams Loses Again (Federal Tax Crimes Blog 12/5/12), here.