Court Denies Motion to Dismiss FBAR Collection Suit (4/30/20)

In United States v. Green (S.D. Fla. Dkt. 1:19-cv-24026-KMM, Order dated 4/27/20), CourtListener here, the Court denied a motion to dismiss, holding (i) that the FBAR willful penalty survived the death of the person penalized and (ii) that the Government’s complaint adequately alleged willfulness.  These are, by now, standard holdings, so I do not discuss them.

I do note the following interesting fact (Slip Op. p. 6-7.):

On October 31, 2013, Marie applied to enroll in the IRS’s 2012 Offshore Voluntary Disclosure Program (“OVDP”), which offered a coordinated, standardized settlement to U.S. taxpayers who had failed to report foreign bank accounts by filing FBARs and failed to pay income tax on income received in those foreign bank accounts. Id. ¶ 49. After Marie enrolling into the 2012 OVDP, she attempted to “directly enter” another offshore disclosure program offered by the IRS. Id. ¶ 51. After Marie was informed that she was not allowed to directly enter the other program, she informed the IRS that she intended to withdraw from the 2012 OVDP and the IRS removed her from the program. Id. ¶¶ 51, 52. On June 1, 2017, a duly authorized delegate of the Secretary assessed civil penalties against Marie for willfully failing to file FBARs for 2010 as to the BoJ and Templaide Accounts, and 2011 [*7] as to the BOJ account. Id. ¶ 60. 

Are Discussions with Lawyer Colleagues Waivers of the Work Product Privilege? (4/30/20)

Today, I discuss a facet of the work-product doctrine, often called the work product privilege.  I address waiver for opinion work product in the setting for discussions among lawyers (or others for whom the privilege might apply) who have not been retained in the engagement to develop and refine legal issues and theories.

The specific context that this came up was for a legal email discussion group maintain by an attorney organization to discuss particular tax contexts and issues.  The discussion group contains a large number of lawyers (I think it is limited to lawyers), and so far as I am aware, the list of lawyers (as it may change from time to time) is not made available to the members of the group.  So participants invariably do not know some or even many in the group.  There is a prohibition on Government attorneys being members.  Of course, members may from time to time become Government attorneys and have the prior discussions available to them, but that’s a rabbit trail I won’t go down right now.  Suffice it to say that there is the expectation that the discussions in the group are not available to the IRS or DOJ.

The clients' identities are not disclosed in the discussions. I have no way of knowing, but assume that the attorneys anonymize any facts that are disclosed in order to set up and move the discussion forward.  For purposes of this discussion, let’s assume that the facts are so anonymized.

The issue I present is whether the discussions that, from each participating attorney’s perspective disclose anonymized facts and seek only legal discussion, thereby constitute a waiver of the work product privilege.  Yesterday, there was a discussion on an attorney mail group regarding whether the discussions in emails to the group constituted a waiver of the work-product privilege.

The issue is whether the IRS or DOJ could in a tax investigation (including grand jury investigation) or tax litigation discover the group email discussions on the basis of waiver of the work product privilege and thereby prejudice the client (taxpayer).  For example, the first interrogatory and/or request for production in tax litigation from the Government would be to identify all discussions by the attorney relating to the client’s facts and produce all documents relating to those discussions.  Similarly, the Government could use its investigative compulsory process to demand access to the discussions and documents related to the discussions.

I had never thought about the issue before (that I can recall).  In a more general sense, I had never thought that discussing anonymized facts with fellow practitioners was a waiver of the work product privilege as to the anonymized facts and the legal and practice discussions that the anonymized facts generate.  The settings presenting the issues can be myriad, including a lunch with a fellow practitioner, a small discussion group of practitioners (many larger cities have such groups), or larger groups (such as at CLE events or, in the present case, an email discussion group).  (I should note that perhaps, if the “waiver” were viable in this context, it might also apply to Government attorney discussions with fellow Government attorneys who are not involved in the particular litigation.)

Having now thought about the issue and done some poking around on the issue, I am just going to offer some non-definitive thoughts on the issue.

I first offer the generic discussion from the current working draft of my Federal Tax Procedure Book (for publication in August 2020) (footnotes omitted, but those wanting footnotes can get the pdf with footnotes here):

f. Work Product Doctrine.

Bank Hapoalim Enters Guilty Plea to Conspiracy for Assisting U.S. Taxpayer Hide Accounts and Taxable Income (4/30/20)

DOJ Tax has this announcement: Israel’s Largest Bank, Bank Hapoalim, Admits to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts: Bank Hapoalim (Switzerland) Pleads Guilty and Bank Hapoalim B.M. Enters into Deferred Prosecution Agreement for Criminal Misconduct; Agree to Pay Nearly $875 Million, here.  The charges thus pled are: “conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret.Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service (the IRS).”

Key excerpts are:

As part of today’s resolutions, along with resolutions entered into with state and federal partners, Bank Hapoalim B.M. (BHBM), Israel’s largest bank, and Bank Hapoalim (Switzerland) Ltd. (BHS), its Swiss subsidiary, agreed to pay approximately $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services. Today’s resolution is the second-largest recovery by the Department of Justice in connection with its investigations since 2008 into facilitation of offshore U.S. tax evasion by foreign banks. 

* * * * 

Today’s resolutions include agreements with BHBM and BHS (collectively, the “Bank”) under which the Bank agreed to accept responsibility for its conduct by stipulating to the accuracy of extensive Statements of Facts. BHBM further agreed to refrain from all future criminal conduct, implement remedial measures, and cooperate fully with further investigations into hidden bank accounts. Assuming BHBM’s continued compliance with its agreement, the Government has agreed to defer prosecution of BHBM for a period of three years, after which time the Government will seek to dismiss the charge against BHBM.  

According to documents filed today in Manhattan federal court:

Fifth Circuit Rejects Attorney-Client Identity Privilege for Law Firm Documents (4/26/20)

In Taylor Lohmeyer Law Firm P.L.L.C. v. United States, 957 F.3d 505 (5th Cir. 4/24/20), here, the Court of Appeals affirmed the district court’s enforcement of a John Doe Summons (JDS) to a law firm to obtain documents, and thus identities, of the Firm’s clients who “at any time during the years ended December 31, 1995[,] through December 31, 2017, used the services of [the Firm] . . . to acquire, establish, maintain, operate, or control (1) any foreign financial account or other asset; (2) any foreign corporation, company, trust, foundation or other legal entity; or (3) any foreign or domestic financial account or other asset in the name of such foreign entity.”  The Court affirmed the district court's enforcement of the summons, rejecting the firm's argument that the client's identities were confidential client communications. 

I have revised the relevant portion of the working draft of my Federal Tax Procedure Book (for publication in August 2020) and offer below a cut and paste of the revised portion (footnotes omitted).  I also point readers to a good law review article on the general subject:  Richard Lavoie, Making a List and Checking it Twice: Must Tax Attorneys Divulge Who's Naughty and Nice, 38 U.C. Davis L. Rev. 141 (2004), here.  The following discussion from my Federal Tax Procedure Book is under the attorney-client privilege discussion.

(4) Client Identity Privilege. 

Is the identity of the client privileged under the attorney-client privilege?   A frequent context in which this question is presented is the reporting requirements for cash payments via the Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.  (Recall that the Form 8300 is a double agency form–for the IRS and for FinCEN.)  This reporting requirement applies to cash received by attorneys.  Often clients engaged in criminal activity pay their attorneys in cash.  Can the attorney receiving cash omit the client’s name from the report?  The mere receipt of the cash might disclose, at least implicitly, something confidential that is important to the purposes behind the attorney-client privilege; thus a requirement that the attorney disclose the receipt of the cash from the identified client might be inconsistent with the attorney-client privilege.  Another context in which the issue comes up is when the IRS issues a John Doe Summons (“JDS”) to a law firm related to abusive tax shelter transactions to discover the names of clients engaging the firm with respect to the shelter. That those clients engaged the firm with respect to the shelter does imply something about the clients’ communications with the firm, at a minimum the clients’ desire and tax need for some form of tax mitigation.  The conventional holding in this context is that the identity of the client and fee arrangements are not attorney-client communications invoking the the attorney-client confidential communications privilege.  

Some courts of appeals recognize that there may be a “narrow exception * * * when revealing the identity of the client and fee arrangements would itself reveal a confidential communication.” For purposes of convenience I refer to this narrow exception as the “identity privilege” which is a common term for it, but you should remember that it is not a separate privilege but rather a particular subset of one or more other privileges or policies that might be involved (here the attorney-client privilege).  The district court in Gertner relied upon the identity privilege but the Court of Appeals did not address the issue because it denied enforcement of the summons in any event because the Government had not used the proper John Doe summons procedure. 

I attempt here just a summary of the law in the area in tax cases: 

Compassionate Release from Incarceration Based on COVID-19 Pandemic (4/20/20; 5/7/20)

This blog entry was updated on 5/4/20 to add a short notice discussion of Paul Daugerdas' denial of compassionate release in paragraph 5 below; and on 5/7/20 to add a reference and link to Peter Reilly's blog on the Daugerdas matter.

The Procedurally Taxing Blog has an excellent posting today on the compassionate release of a notorious tax criminal, Morris Zukerman.  Leslie Book, Court Grants Compassionate Release to High Profile Tax Felon Morris Zukerman (Procedurally Taxing Blog 4/20/20), here.  The blog entry discusses the Court’s granting Zukerman release because of his physical characteristics (75 years old, diabetes, hypertension and obesity) and close physical incarceration with other inmates that might make him particularly susceptible to COVID-19 infection and serious consequences.

Since I have never before considered the compassionate release provision, 18 USC § 3582, and have not done any independent research, I refer readers to the PT Blog entry linked above, which also has a link to the decision granting Zukerman the release.

JAT Comments:

1.  I wonder whether this and related decisions granting compassionate release in the age of COVID-19 will open the floodgates of such requests for those who, sometimes with the aid of their attorneys, conjure up some special characteristics.  (See paragraph 4 below discussing the Valentino habeas corpus proceeding.)

2.  I wonder whether the Court’s reacted too hastily to the exhaustion requirement.  As often with seeking relief from Government agencies, the statute requires that the incarcerated person first seek relief from the agency.  Zukerman did seek that relief but, rather than waiting for an answer to his request or the passage of 30 days, he filed the court proceeding three days after the request.  Had that process been allowed, perhaps the Bureau of Prisons could have found some accommodation to meet at least some of the concerns claimed by Zukerman.  But, the court just blew past the exhaustion requirement based on his physical characteristics, the conditions of his incarceration and the COVID-19 pandemic.  In my posting earlier today, I said:  "(Presumably, the Bureau of Prisons had time in the court proceedings to offer the court its views as to why it believed Zukerman were not at disproportionate risk.)"  I have just reviewed Zukerman's letter response to the Government's opposition, CourtListener here, and quote from it on this issue (pp. 2-3):

Second Circuit Affirms Conviction; Includes Tax Interest and Penalties as Relevant Conduct (4/14/20; 4/21/20)

In United States v. Adams, ___ F.3d ___ (2d Cir. 2020), here, the Second affirmed the conviction and sentencing of Adams after he pled guilty to a six-count superseding indictment charging:

Counts One, Three, and Five charged Adams with making and subscribing to false tax returns for the years 2009, 2011, and 2012, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7206(1). Counts Two and Four charged Adams with tax evasion in 2011 and 2012, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7201. Count Six charged Adams with attempting to interfere with the administration of the internal revenue laws, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7212(a).

The key holdings are (as described in the Court captions are):

1.  Adams Is Not Entitled to Withdraw His Guilty Plea.
2.  The district court properly calculated the Tax Loss
3. The District Court Properly Concluded That Adams Obstructed Justice
4. Although the District Court Erred in Ordering the Payment of Immediate Restitution, the Court Had the Authority to Order Restitution as a Condition of Supervised Release
5. Adams's Double Jeopardy Claim Has Been Waived
6.  Adams Was Not Deprived of His Right to a Fair and Impartial Tribunal

The opinion is routine and, for purposes of this blog does not warrant discussion except I do address the Tax Loss Calculation because of its reminder of relevant conduct:

The tax loss calculation included penalties and interest.  Normally, the tax loss calculation would only include penalties and interest if the taxpayer were convicted of evasion of payment of the assessed amounts.  (The tax loss for evasion of assessment does not include interest and penalties.)  That taxpayer was not convicted of evasion of payment; hence he urged that the tax loss should not include those amounts.  The Court held, however, that evasion of payment was relevant conduct (cleaned up):

Since the statutory reference in § 2T1.1 n.1 does not require a charge or conviction to be applicable to a defendant's case, we hold that, under U.S.S.G. § 2T1.1 application note 1, the exception permitting interest and penalties to be included in the tax loss calculation for "willful evasion of payment cases" under 26 U.S.C. § 7201 and "willful failure to pay cases" under 26 U.S.C. § 7203 can be applied based on uncharged relevant conduct constituting violations of those statutes. Thus, even where a defendant has not been convicted of willful evasion of payment under § 7201 or willful failure to pay under § 7203, penalties and interest may still be included in the tax loss calculation if the object of the offense is to avoid the tax, penalties, and interest.

JAT Comment (added 4/16/20 11:00am):

1.  From what I recall over the years, the tax loss calculation for counts of conviction for tax crimes related to assessment (rather than collection), such as evasion of assessment and tax perjury, have not included penalties and interest in the tax loss calculation.   Perhaps my memory fails me, but I just don't recall that  the tax loss calculation included interest and penalties.  SG § 2T1.1 n. 1, here, says:  " The tax loss does not include interest or penalties, except in willful evasion of payment cases under 26 U.S.C. § 7201 and willful failure to pay cases under 26 U.S.C. § 7203."  Conceptually, if a person intended to evade assessment, it is not much of a leap, if a leap at all, to say that the person intended to avoid the interest and penalties on the tax that he or she avoided assessment.  So, I wonder if this is an opening that the Government might exploit in some cases to sweep into the loss calculation penalties and interest.  Of course, given the ranges in the Tax Table in § 2T4.1, here, including the interest and penalties may not change the offense level so it may not be that big a deal.  But one should remember that the civil fraud penalty is 75% which draws interest from the due date of the return, so the tax loss would be substantially increased so as to, depending up the loss, move up one offense level.  (The same would be true of a fraudulent failure to file penalty that goes up to 75%.)

2.  Added 5/21/20 4:00 pm: Jeremy Temkin, a frequent writer on tax crimes subjects for the New York Law Journal, has this post on Adams:  Jeremy Temkin, Financial Considerations for Sentencing in Federal Tax Prosecutions, New York Law Journal 5/21/20), here.  Highly recommended.

Offshore Account Related Plea After Quiet Disclosure (4/4/2020)

On April 3, 2020, DOJ Tax issued this press release:  Lake Worth Businessman Pleads Guilty to Evading Taxes on Millions in Income, Stashing Funds in Secret Accounts Around the World, here.

The key excerpts are (with bold face supplied by JAT to highlight the taxpayer’s attempt to hide the ball through a false quiet disclosure):

A Lake Worth, Florida, businessman pleaded guilty today to tax evasion and willful failure to file a Report of Foreign Bank or Financial Account * * * *. 

According to court documents and statements made in court, Dusko Bruer owned and operated a company that bought U.S.-made agricultural machinery and parts and sold them throughout the world. Beginning in 2003, the company did not pay Bruer a salary. Instead, Bruer used millions of dollars from the company’s bank accounts to pay his personal expenses, make investments abroad, and make transfers to an employee and his family. From 2007 through 2011, Bruer transferred over $5.8 million of the company’s profits to foreign financial accounts. Bruer used the company’s profits to buy a yacht, purchase a waterfront home for his girlfriend and himself, purchase a home for an employee, and buy real property in Serbia. Between 2007 and 2014, Bruer failed to report more than $7.7 million in income and did not pay taxes of more than $2.7 million that were due to the United States. 

Although Bruer’s company had a number of employees and reaped millions of dollars in profits, Bruer never filed a corporate tax return for the company nor did the company ever pay taxes on its income. Bruer also never filed employment tax returns during those years reporting wages that the company paid to its employees nor did the company withhold and pay over payroll taxes. 

From 2007 through 2015, Bruer maintained financial accounts in Croatia, Germany, Serbia, and Switzerland. He did not report his ownership of the accounts to the Financial Crime Enforcement Network (FinCEN) by filing a Report of Foreign Bank or Financial Account (FBAR), despite knowing he had an obligation to do so. In 2010, an account he held at a subsidiary of Credit Suisse AG in Zurich, Switzerland reached a year-end high value of $6,177,586. Bruer used the assets in his foreign accounts for personal use, including the purchase of a yacht for $1,350,000 and a 3,200 square foot home in Lake Worth, Florida, with 100 feet of waterfront frontage for approximately $1,650,000. 

From 1999 to 2014, Bruer never filed a personal tax return nor did he pay tax on his income. In 2015, Credit Suisse closed his account in Switzerland and advised him to enter the IRS’s Offshore Voluntary Disclosure Program (OVDP), by which taxpayers could avoid criminal prosecution by making a voluntary disclosure directly to IRS-Criminal Investigation, filing six years of delinquent or amended income tax returns, as well as delinquent or amended FBARs, paying back taxes, interest, and certain penalties on the six tax years in the disclosure period, and paying a penalty on the highest aggregate account balance of their noncompliant offshore assets. Bruer did not enter into the OVDP because he determined that the cost would be too high. Instead, Bruer made a “quiet” disclosure that involved filing several delinquent tax returns with the IRS, not flagging the returns in anyway or paying the taxes, penalties and interest that would be paid in OVDP. 

The returns Bruer filed as part of his “quiet” disclosure were false because they disclosed only the funds he held in the Credit Suisse account and not the funds he held in the accounts in Croatia, Germany, Serbia, nor did they report the income he earned from his company.

I offer the following:

• The information, here.
• The Plea Agreement, here.
• The Factual Agreement, here.
• The CourtListener Docket Entries, here.

JAT Comments:

Recent Article on Prosecution for False Certification of Nonwillfulness (4/1/20)

I previously reported on the indictment of Brian Nelson Booker for false certification of nonwillfulness on the form for the IRS' Streamlined Offshore Domestic Program (SDOP).  Taxpayer Charged with False SFCP NonWillful Certification (Federal Tax Crimes Blog 8/26/19), here.

An outstanding tax crimes practitioner has just published an article that fleshes the discussion out.  Sharon L. McCarthy, Streamlined Disclosure in U.S. v. Brian Nelson Booker (CPA Journal 3/31/20), here.  Sharon is with Kostelanetz & Fink, here, and her bio is here.

Sharon's article is a short read, so I won't try to summarize it other than the concluding caveat:

Violators Will Be Prosecuted The criminal charges against former CPA Brian Nelson Booker, the first ever arising from the IRS’s Streamlined Domestic Disclosure Program, serve as an important reminder to all return preparers of their duties not only to report their own income honestly and correctly, but to provide sound advice to clients whose interest in a lower penalty may blind them to facts that indicate willful nonreporting. Tax advisors now have concrete proof, through the Booker indictment, that submission of fraudulent certifications in the SDOP could result in criminal prosecution.