Thursday, September 12, 2019

New IRS Relief Program for Expatriates Renouncing U.S. Citizenship (9/12/19)

The IRS recently announced a relief program for persons renouncing U.S. citizenship with respect to their tax compliance, including Section 877A, here, titled "Tax responsibilities of expatriation."  See IRS web page titled "Relief Procedures for Certain Former Citizens," here.

I have not practiced in the area of taxation involving U.S. citizenship renunciations.  I know the general rules and enough when presented with a need to either do some serious additional study or refer the client to someone who is an expert.  So, I have nothing personally to offer on the subject addressed in this new relief program.  The key point of this posting is to alert readers of the potential opportunity to take advantage of the relief program.

I do point readers to two articles written by attorneys who do practice in the area:
  • Alan Winston Granwell, Andrea Darling de Cortes, William M. Sharp, New IRS Procedure Provides Favorable Path for Non-Compliant Expatriates to Become Tax Compliant (Holland & Knight Alert 9/11/19), here.
  • Kevin Packman, Is the New IRS Expatriation Initiative Really Better than an Existing Program and Law? (Mondaq 9/10/19), here.
  • Virginia La Torre Jeker, J.D., Ground-Breaking Development: IRS “Amnesty” Relief for Certain Expatriates! (US Tax Talk 9/6/19), here.
Interestingly, both articles are by attorneys in the same firm, Holland & Knight.

Here are the Highlights from the first article:

  • New Procedure. On Sept. 6, 2019, the Internal Revenue Service (IRS) announced an important new procedure to enable certain non-compliant U.S. citizens who relinquish their U.S. citizenship to become U.S. tax compliant.
  • Primary Targets. "Accidental Americans" who were unaware of their U.S. tax obligations.
  • Eligibility and Filings. In general, 1) past compliance failures were non-willful, 2) past tax liability not in excess of $25,000 for the five years prior to, and the year of, expatriation and 3) less than $2 million in net assets as of expatriation date. Eligible taxpayers must file U.S. tax returns, including all required schedules, international information returns and Foreign Bank Account Reports (FBARs), for the five years preceding and the year of expatriation.
  • Benefits and Takeaway. Qualifying taxpayers become compliant without having to pay any past due U.S. taxes, penalties or interest and avoid classification as a "covered expatriate," a designation that could result in extremely detrimental tax consequences. For qualifying expatriates, the new procedure provides a taxpayer-friendly pathway to U.S. tax compliance, thereby avoiding potentially detrimental U.S. tax consequences and adverse reputational risk.

The same article has the following Background (footnotes omitted):
U.S. citizens are subject to taxation on their worldwide income based on citizenship and not residency, which is the common standard globally. The U.S. worldwide taxation regime and associated tax compliance is complicated and burdensome for U.S. taxpayers, particularly those living abroad. Thus, for many "Accidental Americans," the enactment in 2010 of the Foreign Account Tax Compliance Act (FATCA), may have been the tipping point in their decision to expatriate. After FATCA was enacted, expatriations increased significantly.

Sunday, September 8, 2019

Confusion Regarding the Cheek Willfully Element of Specific Intent to Violate a Known Legal Duty (9/8/19)

In United States v. Severino, 2019 U.S. App. LEXIS 26560 (11th Cir. 2019) (unpublished), here, the Eleventh Circuit affirmed Severino's "convictions and 65-month sentence for aiding and assisting in the preparation of false tax returns, wire fraud, and aggravated identity theft."  Severino was a return preparer, and, based on the convictions, an abusive preparer.  On appeal, Severino argued that the Court failed to give a proper willfulness instruction that he had requested for the aiding and assisting counts, § 7206(2).  Severino made other arguments on appeal, but I focus on the willfulness instruction issue which is framed by the Eleventh Circuit's pattern criminal jury instructions.

The Eleventh Circuit's pattern jury instructions for criminal cases are available, here.  Those pattern instructions (with annotations and comments) cover 747 pages.  In order to focus on the pattern jury instructions in issue here, I used the Eleventh Circuit's Pattern Jury Instruction Builder, here, which I have discussed previously.  I "built" the pattern jury instructions in question with Annotations and Comments here.

The relevant pattern jury instructions are:

  • B9.1A On or About; Knowingly; Willfully – Generally
  • B9.1B On or About; Knowingly; Willfully – Intentional Violation of a Known Legal Duty
  • O109.2 Aiding or Assisting in Preparation of False Documents Under Internal Revenue Laws 26 U.S.C. § 7206(2)

The aiding and assisting, § 7206(2) counts, have the same willfully element as in most of the other commonly employed Title 26 tax crimes defined to mean specific intent to violate a known legal duty.  Thus, DOJ CTM 13.07 Willfulness, here, says:
Willfulness has the same meaning in Section 7206(2) cases as it has for other criminal tax violations: “the word ‘willfully’ in these statutes generally connotes a voluntary, intentional violation of a known legal duty.” United States v. Bishop, 412 U.S. 346, 360 (1973); see also Cheek v. United States, 498 U.S. 192, 200 (1991); United States v. Ervasti, 201 F.3d 1029, 1041 (8th Cir. 2000).
As readers of this blog know, many crimes have a willfully element but the element is not always interpreted the same.  As the Court said in Bryan v. United States, 524 U.S. 184, 191-192 (1998), here:

Friday, September 6, 2019

Houston Attorney Convicted of Klein Conspiracy and Tax Evasion (9/6/19)

DOJ Tax announced here that Jack Stephen Pursley, also known as Steve Pursley, was convicted of one count of defraud conspiracy, 18 USC § 371 (also called a Klein conspiracy) and three counts of tax evasion, § 7201.  I posted on the original indictment.  See Houston Attorney Charged With Tax Crimes Related to Offshore Accounts (9/21/18), here.

Key excerpts from the Press Release on the conviction are:
According to the evidence presented at trial, Jack Stephen Pursley, also known as Steve Pursley, conspired with a former client to repatriate more than $18 million in untaxed income that the client had earned through his company, Southeastern Shipping. Knowing that his client had never paid taxes on these funds, Pursley designed and implemented a scheme whereby the untaxed funds were transferred from Southeastern Shipping’s business bank account, located in the Isle of Man, to the United States. Pursley helped to conceal the movement of funds from the Internal Revenue Service (IRS) by disguising the transfers as stock purchases in United States corporations owned and controlled by Pursley and his client. 
At trial, the government proved that Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme. For tax years 2009 and 2010, Pursley evaded the assessment of and failed to pay the income taxes he owed on these payments by, among other means, withdrawing the funds as purported non-taxable loans and returns of capital. The government showed at trial that Pursley used the money he garnered from the fraudulent scheme for personal investments, and to purchase assets for himself, including a vacation home in Vail, Colorado and property in Houston, Texas.
The docket with links to many of the key documents is on Court Listener, here.

Wednesday, August 28, 2019

Court Rejects Government Summary Judgment Motion in FBAR Willful Penalty Collection Suit (8/28/19)

In United States v. Schwarzbaum (S.D. Fla. No. 18-cv-81147), Order on Motion for Summary Judgment dated 8/23/19, here, the Court denied summary judgment for the Government in an FBAR willful penalty collection suit.  The Court Listener docket entries with available links to some of the underlying docket entries is here.  (Readers wanting to follow the case might check in on the docket entries link for updates.)

Basically, the court rather cryptically concludes that willfulness is an intent issue that requires a fact trial, whichever standard is used.  Whether or not denial of the summary judgment motion was proper, I don't think there is enough meat for me to chew on there.  So I leave that part of the decision to readers.

The issue that did catch my attention was the fact that this taxpayer entered OVDI in 2011 and opted out of the civil penalty regime in OVDI, thus taking his chance the resulting audit.  He apparently lost that bet.  But, one of the consequences of joining OVDI was that he gave one or more consents to extend the statute of limitations for the FBAR penalty assessment (as was required by the program).  The Court, also somewhat cryptically, held the consent(s) to be valid (Slip Op., at 8-9):
To the extent that Schwarzbaum argues that the penalties are time-barred, the argument lacks merit. Although Title 31 does not expressly authorize the extension of the applicable statute of limitations by agreement, it does not expressly prohibit such extensions. Schwarzbaum has failed to point to any legal authority indicating that such extensions would be improper. See  [*9] Melford v. Kahane & Assocs., 371 F. Supp. 3d 1116, 1126 n.4 (S.D. Fla. 2019) (“Generally, a litigant who fails to press a point by supporting it with pertinent authority, or by showing why it is sound despite a lack of supporting authority or in the face of contrary authority, forfeits the point. The court will not do his research for him.”) (internal quotations and citation omitted). Notably, Schwarzbaum does not dispute that he signed consents agreeing to extend the time during which FBAR penalties could be assessed and collected. See ECF Nos. [44-5], [44-6], [44-7]. Rather, in his Reply he acknowledges the lack of authority, argues that the USA relies upon three irrelevant cases in its Response, and then endeavors to distinguish them. However, Schwarzbaum ignores that it is he who bears the burden of establishing the defense of statute of limitations in the first instance. See, e.g. Feldman v. Comm’r of Internal Revenue, 20 F.3d 1128, 1132 (11th Cir. 1994) (“When a taxpayer raises the affirmative defense of the statute of limitations, the taxpayer bears the burden to prove that defense.”) (citation omitted). Here, Schwarzbaum has failed to provide any authority to support his argument that an agreement to extend the time to assess FBAR penalties under Title 31 is invalid.
I have previously discussed the statute of limitations issue:
  • Report on Webinar on Opting Out and Litigating FBAR Penalties (Federal Tax Crimes Blog 1/17/13; with Caveat Update on 2/1/13), here.  Item 10 on that blog is:
 10. On consents to extend the statute of limitations (sometimes called waivers), Mr. Breen confirmed that the Form 872 extends the statute only if the statute was open when the consent was signed by the IRS but the consent (waiver) for the FBAR penalty is a traditional statutory waiver of an affirmative defense and thus applies to even years otherwise closed at the time it is signed by the IRS. (At least, that is the IRS's position and, I suspect, it is correct because there is no statute such as Section 6501(c)(4) that is interpreted to require an open statute when the consent is signed.

Magistrate Recommends Sustaining Imposition of FBAR Willful Penalty (8/28/19)

In United States v. Rum (M.D. Fla. No. 8:17-cv-826-T-35AEP), Magistrate Report and Recommendation dated 8/2/19, here, the Court granted the Government's Motion for Summary Judgment sustaining the FBAR willful penalty at 50% for a single year.  The Court Listener docket entries with available links to some of the underlying docket entries is here.  (Readers wanting to follow the case might check in on the docket entries link for updates.)

The Report is 36 pages long.  I will not provide a detailed analysis here but just point out some of the key points that caught my attention.  Overall, it just did not look good for Rum, which is why the Magistrate recommended that the FBAR willful penalty in the 50% amount be sustained.

1.  Rum unquestionably had a foreign account and it was reportable.  So the issue was willfulness.

2.  Rum claimed that he created the account to hide assets from potential judgment creditors rather than the IRS, but the facts were not consistent with that claim.

3.  UBS sent Rum an annual notice that information was provided for him to meet his U.S. tax reporting obligations.

4.  Rum answered the Form 1040 Schedule B foreign account question no, and did not report any income from the account over the years.

5.  In 2004, Rum signed a document for the foreign account (UBS) that said:  "“In accordance with the regulations applicable under US law relating to withholding tax, I declare, as the holder of the above-mentioned account, that I am liable to tax in the USA as a US person.”

6.  In 2008, Rum moved the account from UBS to another Swiss bank, Arab Bank.  (On the timeline, of course, the U.S. was moving aggressively against UBS in 2008.)

7.  Rum claimed that a tax preparer prepared the tax returns, but the returns indicated that they were self prepared.

8.  If a preparer did prepare the returns, Rum admitted that he did not disclose to the prepare the foreign account; Rum claimed the preparer never asked about foreign accounts.

9.  Rather than join OVDI, Rum attempted a quiet disclosure.  (Easy to hindsight on that, given the ugly facts, and the fact that UBS turned on U.S. clients to protect their own skin, a characteristic of Swiss banks generally.)

Tuesday, August 27, 2019

FBAR Collection Suit Settled Before Jury Verdict Announced (8/27/19)

I previously reported on pretrial skirmishing in the Government's FBAR collection suit in United States v. Dadurian (S.D. Fla. 9:18-cv-81276).  See Court Denies Motion for Partial Summary Judgment on FBAR Willful Penalties (Federal Tax Crimes Blog 8/16/19), here, and Two New FBAR Opinions -- Nothing New Here (Federal Tax Crimes Blog 6/27/19), here.  I report here on the conclusion of the case.

The case went to trial and was submitted to the jury.  Before the verdict was announced, however, the parties settled the case, where the Government originally sought judgment for $2.7 million, for $1 million.  (However, see below as to how the settlement will be effected.) Apparently, there was some drama involved because the jury reached a verdict before the settlement was finally reached, so the parties had to choose to complete the settlement or accept the jury verdict (then unknown, although reached).  See FBAR Trial Settles With Recklessness Standard, TNT (8/29/19) (with the estimable Lee A. Sheppard contributing to the article).  I do not have a link to the article because it is behind a paywall, and getting Tax Analysts' permission to post is a nuisance, as well as (in my experience) requiring some wait period before posting.  Those with a TNT subscription should just go look at it there, although the important details are no different than I offer here drawn solely from the court documents I retrieved from Court Listener (which everyone can access free here).

The jury verdict held Dadurian liable for the accounts she had caused to be set up, but as noted the jury verdict does not control.  I have not attempted to determine the amount of the liability based on the jury verdict, but it was substantially less than the $2.7 million the Government claimed.

Here are the relevant documents from Court Listener:
  • The Stipulation Regarding Settlement, here.
  • The Jury Verdict (Mooted by the Settlement), here.
JAT Comments:

1.  Nothing particularly unusual here except, of course, the drama in having to choose between the settlement and the unknown jury verdict.

2.  The Stipulation Regarding Settlement is, I think, somewhat noteworthy as to how the settlement gets effected.  Here is the relevant part:  “The material terms of the settlement are as follows: Dadurian will stipulate to a judgment in the full amount of the penalties, plus interest accruing under 31 U.S.C. § 3717. The United States will agree to mark the judgment satisfied if Dadurian pays the United States $1,000,000.00 within 90 days of today.” So, there will be a judgment indicating Dadurian's liability for the full amount and then the judgment liability will be settled for $1 million.  (I guess this sentence is redundant, but that seems a strange way to effect a settlement; it seems to me the more straightforward way to settle would be to enter judgment in the amount of the settlement; if anyone knows why the settlement was structured in this way, please make a comment or email me at jack@tjtaxlaw.com.

Addendum 8/27/19 2:45pm:

3.  With regard to Comment #2, Bob Steinberg, an attorney-CPA, in Palmetto Bay Fl., asks whether this settlement format will give rise to cancellation of indebtedness income.  I think I can argue that both ways (if I had to).  Still, I would presume that somebody addressed that issue in reaching the settlement.  However, I would appreciate any analysis of that issue that readers may make either by comment or by email jack@tjtaxlaw.com.

Monday, August 26, 2019

Taxpayer Charged with False SFCP NonWillful Certification (8/26/19)

DOJ Tax issued a press release titled "Former CPA Indicted for Failing to Report Foreign Bank Accounts and Filing False Documents with the IRS," here.

This is the first time (at least that I can recall) that DOJ Tax has included a charge for false non-willful declaration in a SFCP submission.  Here are the pertinent parts of the press release:
According to the superseding indictment, Booker, a former Certified Public Accountant, owned a cocoa trading company that was organized under the laws of the Republic of Panama.  Booker allegedly operated that company from Venezuela, Panama, and his former residence in Fort Lauderdale, Florida.  The superseding indictment further alleges that, for calendar years 2011 through 2013, Booker failed to disclose his interest in financial accounts located in Switzerland, Singapore, and Panama on annual Reports of Foreign Bank and Financial Accounts (FBARs) as required by law.  Booker also allegedly filed false individual income tax returns for tax years 2010 through 2012 that failed to report to the IRS all of Booker’s foreign bank accounts. 
Booker is also charged with filing a false “Streamlined Submission” in conjunction with the Streamlined Domestic Offshore Procedures. The IRS Streamlined 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.  The superseding indictment alleges that Booker’s Streamlined submission falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was due to non-willful conduct.
The press release has a link to the superseding indictment here.  The key allegations on Streamlined are in paragraphs 39-41 on p. 11 of the Superseding Indictment.  These allegations are:
39. The Streamlined Domestic Offshore Procedures (the "Streamlined 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 aceounts, to voluntarily disclose their conduct to the IRS.  Taxpayers who were eligible under the Streamlined procedures were subject to substantially lower penalties than those provided by other 1RS programs. 
40.  In order to be eligible for treatment under the Streamlined procedures, taxpayers were required to file amended tax returns for the most recent three years for which the U.S. tax return due date had passed. Taxpayers who wished to take advantage of the Streamlined procedures were required to certify under the penalties of perjury that their failure to report all income, pay all tax or submit all required returns was due to non-willful conduct. Under the terms of the Streamlined procedures, the IRS defined non-willful conduct as conduct that was due to negligence, inadvertence, or mistake, or conduct that was the result of a good faith misunderstanding of the law. 
41. On or about October 14, 2015, BRIAN NELSON BOOKER submitted to the IRS a Certification by U .S. Person Residing in the United States for Streamlined Domestic Offshore Procedures (IRS Form 14654, "Streamlined submission"). In his Streamlined submission, the defendant certified under the penalties of perjury that he "learned about the FBAR filing requirements in 2008" and that he "mistakenly believed that only personal financial accounts had to be reported on the FBAR." The defendant also certified under the penalties of perjury that he was eligible for treatment under the Streamlined procedures and that his failure to report all income, pay all tax, and submit all required information returns, including FBARS, was due to non-willful conduct.
Court Listener has the docket entries, here,

JAT Comments:

Wednesday, August 21, 2019

Houston Attorney and Others Charged with Tax Crimes (8/21/19)

The USAO for SD Texas announced issued a press release titled "Houston Personal Injury Attorneys and Case Runners Indicted," here.  I don't know that there is anything exceptional about the case, but being from Houston this caught my attention.  I don't know any of the players mentioned in the press release.

Here are the key excerpts:
The charges against Stern and his alleged co-conspirators stem from a long-running criminal scheme to evade taxes. Stern also allegedly obtained his personal injury cases through barratry - the illegal practice of soliciting law firm clients by paying kickbacks to middlemen known as “case runners.”  
Stern and his co-conspirators sought to enrich themselves by illegally recruiting clients through the payment and receipt of illegal kickbacks in order to generate personal injury cases and legal fees, according to the charges. They allegedly worked to conceal and disguise the payments and hide their resulting income from the IRS by filing false documents with them. These allegedly included tax returns, 1099 forms and an offer in compromise that falsely reported material information including amounts of income, expenses and taxes due and owing. 
Once Stern became aware of the investigation, he allegedly worked to obstruct justice by ordering others to destroy subpoenaed documents and instructing co-conspirators not to cooperate. 
According to the indictment, Stern employed multiple devices to disguise his illegal kickback payments to case runners as legitimate referral fees paid to attorneys or as other types of legitimate payments that would be deductible under the tax laws. Stern allegedly funneled kickback payments to case runners Ratcliff and Marcus Esquivel (charged in a separate case) through the accounts of Bradley and Plezia. The charges allege Stern claimed the payments were legitimate referral fees to Bradley and Plezia rather than illegal kickbacks to Ratcliff and Esquivel. 
The indictment also alleges Stern wrote referral fee checks in the names of attorneys who never received the checks. Instead, Morris would allegedly cash the checks with forged endorsements at check-cashing locations and use the funds to pay illegal kickbacks owed to himself and other case runners for Stern’s referrals.    
Stern allegedly also filed 1099 forms that falsely reported to the IRS the nature of the payments and to whom they were made. On his tax returns, Stern falsely reported the illegal, non-deductible kickback payments as legitimate, deductible business expenses, which greatly reduced his tax burden, according to the charges. 
Bradley and Plezia allegedly filed false tax returns to facilitate the scheme.  Ratcliff failed to report many of the kickback payments he received as income on his company’s tax returns, according to the charges. Stern and Morris also allegedly caused another attorney to file false tax returns and a false offer in compromise with the IRS to help cover-up the scheme. 
All defendants are charged with conspiracy to defraud the United States. If convicted, they each face up to five years in prison. For willfully filing a false tax return, Stern, Ratcliff and Bradley face another three years of imprisonment. Aiding and assisting in the preparation and presentation of false tax returns carries another potential three-year-term, for which Stern and Morris are charged. If convicted of witness tampering or obstruction of justice, Stern could be sentenced up to 20 and 10 years, respectively.
The press release has the standard disclaimer: 
* * * * 
An indictment is a formal accusation of criminal conduct, not evidence.
A defendant is presumed innocent unless convicted through due process of law.

Tuesday, August 20, 2019

FBAR Collection Suit for over $105 Million (8/20/19)

A fellow practitioner alerted me to the FBAR collection suit in United States v. Burga (N.D. Cal. No. 19-cv-03246.)  The Court Listener docket entries are here.  As of this writing, the docket entries (through 8/2/19) show routine entries other than the complaint.  The complaint (from Court Listener) is here.

Note on access to court listener documents, see the last paragraph of this blog.

The complaint is against Francis Burga and her deceased husband (with Francis serving as administrator).  The willful FBAR penalties are $52,581,605 against each, husband and wife, and thus aggregate $105,163,210.  There are also late payment penalty, fees and interest on the base FBAR penalties.

The complaint is pretty damning.  Here are some items in the complaint:

1.  The defendants had "financial interest in at least 294 foreign bank accounts, in various countries, during at least years 2004 through 2009." (Compl. par. 12, which lists the accounts from p. 3 to p. 11.)

2.  The defendants created a Liechtenstein foundation that established complex structures of entities, numbering at least 25, based in Liechtenstein, Switzerland, Singapore and other European and Asian countries.  (Compl. par. 33-35.)

3.  The defendants signed documents with UBS indicating that they were U.S. citizens subject to U.S. tax and directing that statements not be sent to them and that the account not invest in U.S. securities (which would have triggered a U.S. information reporting by UBS).  (Compl. pars. 39-41,)

4.  During an audit in 2007 (apparently August 7, 2007), Mr. Burga told the IRS Revenue Agent conducting the interview that he and Ms. Burga did not have any foreign bank accounts, foreign corporations or foreign trusts.  (Compl. par. 44.)

5.  Immediately after the IRS interview, Mr. Burga moved all of the funds (over $6 million) from the UBS account and into a Liectenstein stiftung, for which Mr. Burga was founder and owner.  (Compl. pars. 45 & 46.)

6.  "Mrs. Burga has admitted that Mr.Burga is liable for the civil FBAR penalties assessed."  (Compl. par. 55.)

7.  The complaint does not have a spreadsheet with the amounts of the willful FBAR penalty for each account per year.

There is a related summons enforcement suit filed in 2018, styled United States v. Burga (N.D. Cal. 18-cv-01633), here on Court Listener.

Friday, August 16, 2019

Court Denies Motion for Partial Summary Judgment on FBAR Willful Penalties (8/16/19)

A colleague alerted me to a Tax Notes article, titled Practitioners Balk at Potential DOJ Willful FBAR Argument (Tax Notes 8/16/19).  The Tax Notes link is here, but requires a subscription.  Here is the opening from the article:
Practitioners are disturbed by a possible legal stance of the Justice Department in the latest dust-up over foreign bank account reporting, which would negate reliance on a professional as a defense to willful penalties. 
Tax Notes talked with two practitioners following filings of a joint pretrial statement and proposed jury instructions in Dadurian that seemingly advanced that stance on the part of  the government. Later filings on August 15 that came in after those conversations  appear to be taking a slightly softer stance. How exactly the case will be argued at trial remains to be seen, however.  
“The government is pushing the envelope,” Steven Toscher of Hochman Salkin Toscher Perez PC said. “While most of the courts have untethered willfulness in FBAR cases from its traditional meaning, a taxpayer’s good faith — including reliance on a professional — has always been considered a defense to willful penalties.” 
In June the U.S. District Court for the Southern District of Florida denied summary judgment for Daniela Dadurian, who is facing a $2.7 million liability for failing to file FBARs for accounts owned by herself, her mother, and several foreign entities after she failed to convince the court that there’s no evidence of willfulness regarding five of the accounts at issue.  
The Justice Department has alleged that Dadurian had financial interest in or signatory authority over several foreign accounts — some with maximum balances of over $2 million in some years — but indicated on her 2007 to 2010 tax returns that she did not have such interest or authority. According to the complaint, while Dadurian had filed FBARs for Swiss and German accounts before 2007, she failed to tell Anthony Caruso, her tax return preparer for the years at issue, about her foreign assets. 
The defense, however, asserts that she did not willfully fail to report her accounts because she relied on her tax attorneys’ advice that she did not need to disclose them.  
As explained by the district court in its summary judgement order, under 31 U.S.C. section 5321(a)(5), reasonable cause is not a defense to willful FBAR violations. The court further noted that reliance on a professional may constitute reasonable cause for underpayments of tax.
Those interested and with access to Tax Notes should track down the full article with more detail.

I pulled up some documents from the case from the pacer.gov web site docket entries.  The case is United States v. Dadurian (S.D. Fla. 9:18-cv-81276).  The documents are:

11th Circuit Pattern Jury Instruction Builder (8/16/19; 8/18/19)

While reviewing some docket entries in an FBAR case in Florida, I found a docket entry referring to the Eleventh Circuit Pattern Jury Instruction Builder, here.  I had not seen such a tool for pattern jury instructions that are so important for fashioning jury instructions for the more commonly encountered jury instructions needed in criminal cases.  (There is also a tool for pattern jury instructions in civil cases.)  In the past, practitioners would have to work from a pdf file with pattern jury instructions and then assemble and revise as appropriate.  Practitioners will still have modify the pattern jury instructions as appropriate to their particular cases.

I used the tool to generate some of the pattern jury instructions and link, here, the Word document the tool generated.  Remember that this is not a complete set that a practitioner would generate in a real case but only some of the instructions of interest to me to get an idea of how the tool worked.  Here is the table of contents generated by the tool.
TABLE OF CONTENTS
PRELIMINARY INSTRUCTIONS
P1 Criminal Cases
BASIC INSTRUCTIONS
B9.1A On or About; Knowingly; Willfully - Generally
B9.1B On or About; Knowingly; Willfully - Intentional Violation of a Known Legal Duty
SPECIAL INSTRUCTIONS
S8 Deliberate Ignorance as Proof of Knowledge
S9 Good-Faith Defense to Willfulness (as under the Internal Revenue Code)
OFFENSE INSTRUCTIONS
O13.6 Conspiracy to Defraud the United States 18 U.S.C. § 371 (Second Clause)
O108 Failure to File a Tax Return 26 U.S.C. § 7203
O109.1 Filing a False Tax-Related Document 26 U.S.C. § 7206(1)
O109.2 Aiding or Assisting in Preparation of False Documents Under Internal Revenue Laws 26 U.S.C. § 7206(2)
O110 False Tax Return, List, Account, or Statement 26 U.S.C. § 7207
O111 Impeding Internal Revenue Service 26 U.S.C. § 7212(a)
O112 Evading Currency-Transaction Reporting Requirement (While Violating Another Law) by Structuring Transaction 31 U.S.C. §§ 5322(b) & 5324(a)(3) 
I have not checked to see whether other Circuits have such a tool for their pattern jury instructions.  If anyone knows, please post a comment with a link or send me an email with the link at jack@tjtaxlaw.com.

Addendum 8/18/19 9:00pm:

Wednesday, August 14, 2019

Court Grants Government Partial Summary Judgment on FBAR NonWillful Penalty (8/14/19)

In United States v. Ott, 2019 U.S. Dist. LEXIS 132013 (E.D. Mich. 2019), here, the court granted the Government's motion for partial summary judgment on the $10,000 nonwillful penalties on 2 separate accounts for each of 3 years.  The penalties aggregated $60,000 plus interest and further nonpayment penalties.  Since the defendant failed to report the accounts, she was subject to penalties unless she could establish reasonable cause.

Reasonable cause is an affirmative defense, meaning that the person claiming reasonable cause must plead and the prove the defense.  On a motion for summary judgment by the party not bearing the burden on the defense (the United States in Ott), the party bearing the burden (Ott in Ott) must submit sufficient evidence to show that there is a fact reasonably in dispute. The Court framed it this way:
The Government moves for summary judgment against Ms. Ott, asserting there is no dispute that she violated 31 U.S.C. § 5314 when she failed to report her financial interest in, or authority over, her foreign financial accounts. Ms. Ott opposes the Motion, arguing there is a genuine dispute of material fact as to whether the affirmative defense of reasonable cause excuses her failure. The Court will disagree.
The steps in the Court's disagreement and thus entry of summary judgment for the U.S. are:

1.  "Ott does not dispute that she violated § 5314's reporting requirements, but maintains that assessing penalties under § 5321 would be inappropriate because she had reasonable cause for her omission."

2.  31 U.S.C. § 5321(a)(5)(B)(ii), here and quoted below in this blog, allowing the reasonable cause defense, does not define reasonable cause.  The Court, as have other courts, looked to the reasonable cause defense to tax penalties, citing Moore v. United States, 2015 U.S. Dist. LEXIS 43979, 2015 WL 1510007, at *4 (W.D. Wash. Apr. 1, 2015); and Jarnagin v. United States, 134 Fed. Cl. 368, 376 (2017).  The Court also cites the regulation under § 6664, 26 CFR § 1.6664-4(b)(1).

3.  The Court then held (Slip Op. at 6-7):
Here, Ms. Ott has not met her burden of establishing a material question of fact as to whether she had reasonable cause for the failure to disclose her foreign financial accounts. See ATL & Sons Holdings, Inc. v. Comm'r of Internal Revenue, 2019 U.S. Tax Ct. LEXIS 8, 2019 WL 1220942, at *10 (U.S. Tax Court Mar. 13, 2019) ("In litigation a taxpayer's contention of 'reasonable cause' is in the nature of an affirmative defense, which the taxpayer is obliged to raise."). Critically, she has not shown that she took any steps to learn whether she was required to report her foreign financial accounts. To the contrary, she notes that she hired an advisor to complete her tax returns, but fails to even suggest that she informed the advisor of these accounts. See Jarnagin, 134 Fed. Cl. at 378-79 ("[T]he Jarnagins neither requested nor received any advice one way or the other from their accountants regarding whether they were required to file FBARs . . . [t]he Jarnagins . . . cannot use as a shield reliance upon advice that they neither solicited nor received."). This certainly does not constitute ordinary business care and prudence. Ms. Ott's limited education and experience does not excuse this misstep. 
Ms. Ott's primary argument is that she "has yet to present evidence on this critical issue for trial." See Dkt. No. 20, p. 16 (Pg. ID 123). But the time for her to present facts and evidence demonstrating a genuine issue for trial was now, and unfortunately, that opportunity has passed. See Highland Capital, Inc. v. Franklin Nat. Bank, 350 F.3d 558, 564 (6th Cir. 2003) ("[T]he non-moving party cannot rest on its pleadings, but must identify specific facts that can be established by admissible evidence that demonstrate a genuine issue for trial."). Because there is no dispute that Ms. Ott violated § 5314's reporting requirements, and because she has not met her burden of establishing reasonable cause for that violation, the Court will Grant the Government's Motion for Partial Summary Judgment.

Monday, August 12, 2019

2019 Federal Tax Procedure Book Editions Available (8/12/19)

The 2019 editions of the Tax Procedure Book (Student Edition and Practitioner Edition) are available for download on SSRN as of 8/12/18.  The SSRN postings are linked on the page on the right of my Federal Tax Procedure Blog titled "2010 Federal Tax Procedure Book & Supplements (8/12/19)," here.

As always in posting the annual editions (and, indeed in posting entries on the FTP Blog), I encourage readers to make comments.  Comments can range from the substantive to any other that can make the next editions of the FTP Book better.  Corrections of grammar and syntax would be appreciated because I do not have a proof reader for the book, and I am a poor proof reader of my own work.

Comments on the blog entries can be made below the entries.  Comments on the FTP Book Editions may be made on the Page titled "2010 Federal Tax Procedure Book & Supplements (8/12/19)," here.

Thank you.

Tuesday, August 6, 2019

Swiss Category 1 Bank Enters NPA (8/6/19)

On August 5, 2019, DOJ Tax announced here another nonprosecution agreement (NPA) with a Category 1 Swiss Bank, LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland).  The announcement has links to the NPA, here, and the Statement of Facts, here.

Key features of this NPA are:

1.  LLB Verwaltung must pay the Tax Division a penalty of $10,680,554.64.  According to the NPA, the penalty is in lieu of restitution, forfeiture or criminal fine.

2.  LLB Verwaltung must "cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland."

3.  A related Liechtenstein bank, Liechtensteinische Landesbank AG (LLB-Vaduz), earlier in 2013 reached a separate NPA.  See DOJ Tax Press Release, here.  LLB-Vaduz paid restitution of $7,525,542.  See also Liechtensteinische Landesbank Enters NPA (Federal Tax Crimes Blog 7/30/13), here.

4.  The bad behavior, variations on a theme for many Swiss banks, is described in the press release:
According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. At its peak, LLB-Switzerland had approximately one hundred U.S. clients holding nearly $200 million in assets. The majority of those accounts were in the names of nominee entities. 
In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLB-Switzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLB-Switzerland from the resolution). At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by third-party external investment advisers. 
In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents.  
The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files. 
In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled. At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them.  
Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy. Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLB-Switzerland waited two years – until a grand jury had indicted the Swiss asset manager - to close the accounts he managed.

Saturday, August 3, 2019

Restitution Based Assessment--Some Issues of Interest (8/3/19; 8/7/19)

Readers of this blog will likely be interested in a recent post on Procedurally Taxing Blog:  Keith Fogg, Interest and Penalties on Restitution-Based Assessments (Procedurally Taxing Blog 7/31/19).  Highly recommended.  The context is the relationship between restitution as ordered by the court in a criminal case and the restitution based assessment that the IRS is mandated to make, particularly as related to interest on the restitution.

After some emailing with Keith, I thought I would add some related material and comments that readers of this blog might find interesting or useful.

1.  The amount of the restitution can include an interest factor from the date of the loss through the date of the restitution order by judgment in the criminal case.  The DOJ Criminal Tax Manual thus says:  "Prosecutors should seek prejudgment Title 26 interest in restitution in order to fully compensate the IRS."  DOJ CTM 44.00 RESTITUTION IN CRIMINAL TAX CASES (last edited January 2019), here.

The U.S. Attorneys Manual (now called Justice Manual after renaming in 2018) had a template in the Tax Resource Manual that would include interest under 6601 and/or 6621 in the restitution order as of the date of sentencing.

https://www.justice.gov/archives/usam/tax-resource-manual-20-optional-restitution-paragraphs
https://www.justice.gov/archives/usam/tax-resource-manual-21-proposed-restitution-order

The Tax Resource Manual seems to have dropped off the current Manual (called the Justice Manual), although the prior Tax Resource Manual is still available per the links above.  (Perhaps it will be added back later.)  So, diligent US Attorneys should be aware of it.  And, of course, DOJ Tax CES attorneys should be aware of the CTM provision.  And, since the IRS makes the calculations, the IRS agents should be aware of as well.  (By contrast, interest is not included on tax loss for Sentencing Guidelines purposes except in the case of evasion of payment, when interest was included in the amount the defendant sought to evade.)

My understanding, though, is that courts sometimes (perhaps even often) do not include interest in restitution.  (See discussion of recent case in paragraph 3 below.)

2.  I have just updated the text and a footnote in the working draft of my Federal Tax Procedure Book (will be published on SSRN by mid-August 2019) dealing with some of the nuance.  Here is a cut and paste of the text and the key text amd footnote:

Tuesday, July 30, 2019

CDP Proceeding Moot Because Restitution Based Assessment and NFTL Withdrawn (7/30/19)

In Catlett v. Commissioner, T.C. Memo. 2019-86, here, Catlett, a return preparer, was convicted of a defraud/Klein conspiracy (27 USC § 371), multiple counts of aiding and assisting (§ 7206(2)) and one count of tax obstruction (§ 7212(a)).  He was sentenced to 210 months and order to pay restitution of $3,810,244, with restitution to "be paid [in] monthly installments of $500.00 over a period of 3 year(s) to commence when the defendant is placed on supervised release."  Catlett remains in prison and likely won't be release for some number of years.  The IRS made a restitution based assessment ("RBA") based on the sentencing court's order of restitution (and separately assessed underpayment penalty and interest).  Catlett filed a CDP proceeding when the IRS attempted to collect.

The IRS conceded that the RBA was premature because the district court order payment to commence after Catlett was placed on supervised release which had not yet occurred.  See United States v. Hassebrock, 663 F.3d 906, 924 (7th Cir. 2011) (Where "a district court can only impose restitution as a condition of supervised release, a defendant cannot be required to pay restitution until his period of supervised release begins."); United States v. Howard, 220 F.3d 645, 647 (5th Cir. 2000) ("Were restitution simply a term of supervised release or probation, it could not be due prior to the commencement of such a term." (quoting United States v. Webb, 30 F.3d 687, 690 (6th Cir. 1994))).

The IRS moved to dismiss the CDP case as moot. The Tax Court agreed and rejected Catlett's claim that, because the IRS indicated that, once he is released, the IRS will refile the RBA.

JAT comments:

1.  Because the restitution apparently related to other taxpayer's taxes, the IRS could not proceed with a regular assessment (requiring deficiency procedures) against Catlett.  If the IRS had been able to pursue a normal assessment (with deficiency procedures), it could assess the tax, penalties and interest and could even collect prior to the period specified in the court's restitution order.

2.  This aspect of the RBA seems to me to be a glitch.  Even where a defendant is permitted to defer payment of the restitution, there should be some lien to protect the creditor (here the IRS) in the interim just in case assets from which restitution can ultimately be collected appear.  Presumably, the general criminal lien will offer some protection, but even if the IRS could perfect an RBA assessment and resulting lien before supervisory release, it certainly should not be able to attempt collection on the RBA where the sentencing court deferred collection.

New IRS LB&I Compliance Campaigns of Interest (7/30/19)

IRS LB&I has announced six new compliance campaigns, here.

1.  The new campaign particularly relevant for readers of this blog is:
• Post OVDP Compliance
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.
JAT Comment:  Readers will recall that the OVDP had several iterations and, with the expansion of the Streamlined alternatives for nonwillful actors, OVDP itself was targeted to willful actors or persons at risk of the IRS treating them as willful actors.  So, those persons who took advantage of OVDP and took care of past issues presumably were back in the system with respect to their foreign income and asset reporting.  But, presumably, the IRS has some reason to believe that those OVDP participants may not  have stayed in compliance after closing out their OVDP participations.

2.  Another campaign of possible interest to readers is:
• ExpatriationPractice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance 
U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

Friday, July 26, 2019

IRS Sending Letters to Taxpayers with Potential Taxable Virtual Currency Transactions (7/26/19)

In IR-2019-132, here, the IRS announced that it is "sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly."  By the end of August, the notice says, more than 10,000 taxpayers will receive the letters.

The Notice further says:
"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."
The Notice concludes with this:
Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.