Monday, December 27, 2021

Court Enters Stipulated Order to Prevent Alienation of Swiss Account Holdings (12/27/21; 12/30/21)

I recently blogged on an order in United States v. Scharzbaum (S.D. Fla. Dkt # 18-cv-81147-BLOOM/Reinhart) to repatriate Swiss account funds based on the district court’s holding that a U.S. person was subject to the willful penalty. District Court Upholds Repatriation Order for FBAR Willful Penalty While Liability on Appeal (11/4/21; 11/5/21)), here.  The parties continue to fight about whether the repatriation order should be stayed pending the outcome of the appeal. The pleadings on that commotion may be viewed on CourtListener, here, but Schwarzbaum summarizes his position in the Motion to Stay

If, on the other hand, the Court refuses to stay its Order and Mr. Schwarzbaum is forced to liquidate his foreign investment accounts before the appeal is  concluded, he faces the threat of significant and irreparable harm. Mr. Schwarzbaum would be required to pay the transaction costs [*2] and income taxes associated with the liquidation and transfer of his assets into the United States. If this Court's decision is subsequently overturned, Mr. Schwarzbaum would not be able to secure a refund of those taxes, nor could he force the United States to make him whole for the costs and taxes he never should have been required to pay. To avoid this untenable result, the Court should stay its Repatriation Order pending conclusion of the appeal.

Update on 12/30/21 1:30pm:  On 12/20/21, the Court granted Schwarzbaum's Motion to Stay Pending Appeal.  See CL here.

 In United States v. Monica Harrington (D. Colo. 1:21-cv-02601-RBJz), CL Docket Entries here,  the Government sought a preliminary injunction against Monica Harrington to require her to repatriate funds in a Swiss account.  See Docket entry # 1, here.  This request relates to an FBAR collection action against Monica Harrington’s husband, George Harrington, who allegedly transferred ownership of the account to his wife to avoid the U.S. collecting in the event the U.S. prevails in the FBAR collection suit.  The FBAR collection case against the husband is still pending.  United States v. George Harrington (D. Colo 1:19-cv-02965), CL Docket Entries here.

Sunday, December 26, 2021

FinCEN Adopts Immediately Effective Final Rule Omitting the Regulations Statement of the 2004 Willful Penalty Prior to the 2004 Statutory Amendment (12/26/21)

Readers may recall that the FBAR willful penalty, as amended in 2004, provides a maximum penalty of the greater of $100,000 or 50% of the amount in the account on the reporting date.  31 U.S.C. §5321(a)(5)(C).  Prior to 2004, the maximum willful penalty was $100,000.  After the 2004 amendment, FinCEN did not amend the regulation, 31 CFR § 1010.820(g), to reflect the change in the statute.  After the amendment, creative lawyers pursued the argument that, by leaving the regulation in tact, FinCEN exercised its discretion under the amended statute to maximize the FBAR willful penalty at $100,000 and thus could not assert a higher penalty under the amended statute.  That argument finally failed.  E.g., Norman v. United States, 942 F.3d 1111, 1117-1118 (Fed. Cir. 2019).

FinCEN has deleted subsection (g), thus eliminating any confusion (real or feigned) about the effect of the statutory amendment.  The Final Rule states that it is immediately effective on the date issued (12/23/21).  See 86 FR 72844, 72844-72845, here.

I have no idea why FinCEN took so long to make that deletion.

JAT Notes:

What is the effect of stating an effective date of 12/23/21?  Why didn’t FinCEN just state that the effective date was the 2004 amendment effective date?  Certainly, the deleted subsection (g) had been effectively deleted by 2004 amendment, as recognized by the court opinions prior to 12/23/21.

While I can't provide a definitive answer as to FinCEN's reasoning, I will step through my analysis.:

Wednesday, December 22, 2021

District Court for ED VA Dismisses Reverse False Claims Act Proceeding Against Credit Suisse (12/22/21)

In United States Ex Rel. John Doe v. Credit Suisse AG, (E.D. VA. No. 21-CV-00224) Order dated 12/17/21), here, the court dismissed this claim under the False Claims Act’s reverse false claims provision, 31 U.S.C. § 3729(a)(1)(G).  The claim was that the relator, identified anonymously as John Doe, a former employee of Credit Suisse, AG, had information that Credit Suisse had failed to comply with its plea agreement regarding aiding and assisting U.S. taxpayers evade U.S. tax.  See Credit Suisse Pleads to One Count of Conspiracy to Aiding and Assisting (Federal Tax Crimes Blog 5/19/14; 5/20/14), here.  The key basis for the dismissal is that the reverse FCA claim must involve an obligation to the U.S. and here there was no obligation.  At most there was a potential obligation if the Government identified with the information additional claims it could make against Credit Suisse with the information and assess amounts due based on the information.

John Doe, a Birkenfeld-type whistleblower wannabe, claimed to have proof that Credit Suisse had withheld information in violation of the plea agreement that, if disclosed, would have resulted in larger amounts of penalties or other required payments to the U.S. 

 Furthermore, as a basis for dismissal, the court said that

             The Relator's case threatens to interfere with ongoing discussions with Credit Suisse regarding the identification and remediation of remaining Swiss accounts held by U.S. citizens. Civil litigation by the Relator, ostensibly on behalf of the United States and in parallel with the ongoing implementation of the plea agreement, would threaten the Department of Justice's ability to continue working with Credit Suisse in pursuit of uniquely governmental and federal interests. This is sufficient reason to dismiss. See Toomer, 2018 WL 4934070, at *5 (dismissing qui tam where the Government alleged that litigation would consume agency resources and impair its ability to work with the defendant).

            Further, the prosecution of the Relator's qui tam action would place a significant burden on Government resources. Courts have routinely held that preservation of Government resources is a valid purpose for dismissing a qui tam action. See, e.g., Sequoia Orange, 151 F.3d at 1146 (holding that the district court "properly noted that the government can legitimately consider the burden imposed by taxpayers by its litigation, and that, even if the relators were to litigate the FCA claims, the government would continue to incur enormous internal staff costs"); United States ex rel. Stovall v. Webster Univ., No. 3:15-V-03530-DCC, 2018 WL 3756888, at *3 (D.S.C. Aug. 8, 2018) (holding that the Government's "interest in preserving scarce resources by avoiding the time and expense necessary to monitor t[he] action" was a valid Government purpose for dismissal).

Friday, December 10, 2021

Fifth Circuit Affirms Defendant's Waiver of Counsel Conflict of Interest and Punts on Ineffective Assistance of Counsel Claim on Direct Appeal (12/10/21)

In United States v. Fields (5th Cir. 12/10/21) (Unpublished and Nonprecedential), here, Fields was found guilty by the jury “of mail fraud, conspiracy to commit mail fraud and wire fraud, and 13 counts of aiding and assisting in preparation and presentation of false tax returns.”  On appeal, Fields argued that “his attorney labored under several conflicts of interest, that the district court should have rejected his waiver of his right to conflict-free counsel, and that counsel was ineffective in failing to advise him to accept the Government’s plea offer.”

Fields' criminal conduct involved filing about 200 fraudulent returns claiming refunds, some of which were made.  Upon indictment, Fields was represented by three attorneys, one of whom (Dwight Jefferson) during the underlying criminal conduct used his lawyer trust account to cash some of the fraudulent refund checks and deliver the proceeds to Fields net of a fee for his “services.”

The Government raised the issue of possible conflict of interest with Jefferson as Fields’ attorney in the criminal trial.  The district court held two hearings on whether Fields’ validly waived the potential conflict of interest.  In the Fifth Circuit, those conflict of interest waiver hearings are called Garcia hearings.  United States v. Garcia, 517 F.2d 272, 278 (5th Cir. 1975), abrogated on other grounds by Flanagan v. United States, 465 U.S. 259, 263 & n.2 (1984).  Upon the conclusion of those hearings, the district court held that “Fields had validly waived his right to conflict-free representation.”

On appeal, the Fifth Circuit panel held that the district court had properly considered Fields’ waiver and that Fields “has not shown that his waiver was involuntary or unknowing.”  The panel further held:

            Fields has not shown that Jefferson’s belief that the potential conflicts would not affect his representation of Fields was unreasonable. See Rico, 51 F.3d at 511. Jefferson maintained that his testimony was unnecessary to explain the use of his IOLTA or inconsistencies between Fields’s representations to the IRS and his verified pleading in the TRO litigation. Jefferson also explained that Fields would be raising the defense of reliance on the advice of the IRS, rather than advice of counsel and nothing in the record indicates that the defense of reliance on the advice of counsel should have been raised at trial. In addition, the Government explained that it had no reason to believe Jefferson knowingly participated in the fraud, and Fields’s other two attorneys, who were independent of Jefferson, agreed that the conflict was waivable.


            Thus, Fields has not shown that any conflict was sufficient to impugn the judicial system or render Fields’s trial inherently unfair, such that his right to conflict-free counsel was unwaivable.

Tuesday, November 30, 2021

Fifth Circuit Applies FBAR NonWillful Penalty Per Account and Not Per Form (11/30/21)

In United States v. Bittner, 19 F.4th 734 (5th Cir. 11/30/21), CA5 here, and GS here, the Court held that the FBAR nonwillful penalty in 31 USC § 5314 and the underlying regulations  31 CFR §§ 1010.306 and 1010.350 applies on a per account rather than a per form basis, so that, in this case where Bittner had a financial interest in well over 25 accounts per year for each of three years, the per account penalties aggregated $1.77 million.

The Bittner opinion, a unanimous opinion, conflicts with the panel majority opinion in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), but draws heavily on Judge Ikuta’s dissenting opinion in Boyd.  See CA9 Holds in Boyd that Nonwillful FBAR Civil Penalty Is Per Form Rather Than Per Account When Correct Delinquent FBA`R Is Filed (Federal Tax Crimes Blog 3/24/21; 3/31/21)), here

Bittner may petition for certiorari, but the Supreme Court may want the issue to bubble around a bit more in the Circuits to see if a consensus can be reached, with all courts then moving to the consensus view.  Alternatively, the Court might take certiorari to resolve the conflict, treating this as one of the few “tax” (or tax-related) cases it must take every year.  It does not appear to me that either of the two alternatives the Court takes would create that much mischief, an affliction the Court not uncommonly exhibits in tax cases.

Saturday, November 20, 2021

Civil Liability for Conduct that is Acquitted in Criminal Case (11/20/21)

The Kyle Rittenhouse acquittal on all counts is in the news.  Acquittal or conviction (on some or all counts) was sure to become a political charged phenomenon.  I don’t deal with the political issues here. I respond to a question I was asked yesterday as to whether Rittenhouse’s acquittal absolves him of potential civil liability related to the same conduct for which he was acquitted and specifically address the criminal tax analog of the phenomenon.

For a discussion of the nontax answer, I point readers to this discussion:  Euguene Volokh, Could Kyle Rittenhouse Be Sued for Negligence? (The Volokh Conspiracy 11/20/21), here.  Professor Volokh answers the question succinctly at the beginning of the blog post:

A criminal acquittal doesn't preclude a civil lawsuit out of the same claims. First, the acquittal resolves only that guilt couldn't be proved beyond a reasonable doubt (requiring, say, a >90% confidence level); the standard for civil liability is preponderance of the evidence (which requires just >50%, or perhaps ≥50%, if the injury is easily proved and the burden is then shifted to the defendant to prove self-defense).

A similar phenomenon plays out in the criminal tax area.  A criminal tax evasion acquittal does not prevent the imposition of the civil fraud penalty in § 6663.  And, for the same reason:  the burden of proof for the civil fraud penalty is less than for the criminal penalty. so that acquittal is not issue or claim preclusive for the civil fraud penalty.  Civil liability for the civil fraud penalty requires that the Government prove civil fraud liability by clear and convincing evidence, a burden that as articulated is less burdensome (so to speak) for the Government than the beyond a reasonable doubt standard.

 Here is the key paragraph from my Federal Tax Procedure Book (2021 Practitioner Edition), p. 333 here (footnotes omitted from the quote but may be viewed at the link here):

If the taxpayer is acquitted of the tax evasion charge, however, the IRS may still assert the civil fraud penalty (the acquittal is not preclusive that there was no civil fraud).  Why?  A finding of not guilty is not necessarily a finding of innocence; it is only a finding that the government failed to prove guilt beyond a reasonable doubt.  In an ensuing civil tax case, the government must establish fraud only by clear and convincing evidence, a substantially lesser burden than the beyond a reasonable doubt requirement for criminal conviction.  Accordingly, the IRS may and usually does assert the civil fraud penalty when the taxpayer has been acquitted.

Most civil liability exposures relate to liabilities such as negligence discussed above that require proof of liability by a preponderance of the evidence.  Liability for the civil fraud penalty requires proof by clear and convincing evidence, a standard that falls somewhere between beyond a reasonable doubt (the criminal conviction standard) and preponderance of the evidence.  For discussion of the difficulties in articulating these standards, particularly in jury instructions useful to a jury, see discussion in my book pp. 331-332, here, particularly at n. 1414 and pp.601-602.

This blog post is cross-posted on my Federal Tax Procedure Blog here.

Monday, November 8, 2021

District Court holds (1) FBAR Penalty Statute of Limitations is Waivable and (2) FBAR Nonwillful Penalty is Per Account (11/8/21)

In United States v. Solomon, No. 20-82236-CIV-CAN, 2021 U.S. Dist. LEXIS 210602 (S.D. Fla. Oct. 27, 2021), CL here, in a nonwillful FBAR collection suit, the Court held:

1. The FBAR assessment statute of limitations is an affirmative defense that may be waived by the person assessed the penalty (no distinction here between willful and nonwillful).  The FBAR assessment statute of limitations has no provision such as § 6501(c)(4) that requires that extensions by agreement must be made while the otherwise applicable period of limitations for tax assessments is still open; perhaps the implication is that, except for that explicit limitation on waivers by agreement, a taxpayer could waive with an untimely agreement. (In this regard, the Solomon court does conclude that the FBAR statute of limitations is not jurisdictional and thus can be waived.)  Accordingly, the execution of the agreement to extend for the FBAR penalties was a waiver of the statute of limitations that had already expired.  (On the jurisdictional issue, see Keith Fogg, IRS Succeeds in Jurisdictional Argument – With a Twist (Procedurally Taxing Blog 11/4/21), here.)

2.  The nonwillful penalty is per account rather than per form, adopting the Government’s position on this issue.  As the court notes in the following footnote (Slip Op. 10 n. 4):

n4 Of the courts that have addressed this issue to date, all but one have rejected the government's view, ruling or otherwise suggesting that a non-willful “violation” of the reporting requirement in 31 U.S.C. § 5314 is the failure to file an annual FBAR report — not the failure to “report” the citizen's interest in each foreign financial account. See United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021) (rejecting government's view); United States v. Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020) appeal docketed, No. 20-40612 (5th Cir. Sept. 18, 2020) (same); United States v. Kaufman, 3:18-CV-00787 (KAD), 2021 WL 83478, **8–11 (D. Conn. Jan. 11, 2021) (same); United States v. Giraldi, CV202830SDWLDW, 2021 WL 1016215, *5 n.8 (D.N.J. Mar. 16, 2021) (same). But see United States v. Stromme, No. 20-24800-CIV (S.D. Fla. Jan. 25, 2021) (ECF No. 18 p. 3) (granting judgment in favor of United States for the full amount of penalties sought, agreeing that “each unreported relationship with a foreign financial agency constitutes an FBAR violation”). 

The Court’s analysis is comprehensive and well-reasoned, adopting in part Judge Ikuta's dissent in Boyd.  (That is not to say that the court's conclusion is right, for I think the issue is the type of issue that really can go either way; as I view these "go either way" issues, they proceed in search of a consensus (either in the courts or by statutory amendment) so that similarly situated citizens at some point get treated similarly but until consensus is reached, it is messy.)  

Thursday, November 4, 2021

District Court Upholds Repatriation Order for FBAR Willful Penalty While Liability on Appeal (11/4/21; 11/5/21))

I have written before several posts on the trial level saga at the trial level in United States v. Scharzbaum (S.D. Fla. Dkt # 18-cv-81147-BLOOM/Reinhart) an FBAR collection suit.  See particularly District Court Muddles an FBAR Willful Penalty Case (Federal Tax Crimes Blog 3/21/20; 3/24/20), here.  Basically, after trial, the district court entered an FBAR willful penalty judgment of $12,555,813.  That judgment is now on appeal to the Eleventh Circuit and was recently argued.  11th Circ. Mulls If IRS Should Revisit $12.5M FBAR Penalty, 2020 (Law360 315-118) (no link, subscription required); the oral argument on 10/5/21 is on the Court’s web page here.

In United States v. Scharzbaum (S.D. Fla. Dkt # 18-cv-81147-BLOOM/Reinhart 10/26/21), GS here and Cl here, the district court, sustaining the Magistrate Judge’s Report and Recommendation, held that the Government was entitled to an order granting repatriation of funds in offshore accounts in support of collection of the judgment.  The Court supported the repatriation on the basis of the the Federal Debt Collection Procedures Act of 1990, 28 U.S.C. §§ 3001, et seq. (“FDCPA”) and the incorporation of the All Writs Act, 28 U.S.C. § 1651.

The reason the Government wanted an order of repatriation is that, according to the Government, Schwarzaum was placing or had placed assets outside the collection power of the U.S., so that repatriation was necessary to collect the judgment.  Some interesting parts of the opinion are:

Sunday, October 31, 2021

District Court Holds that Custodial FBI Investigation on Arrest for Nontax Crime Producing Tax Crime Information Not in Charges Originally Made Did Not Violate Rights (10/31/21)

In United States v. Lieber, No. 1:20-CR-10111-RWZ, 2021 U.S. Dist. LEXIS 197575 (D. Mass. Oct. 13, 2021), CL opinion here and docket entries here, the Court denied the defendant’s motion to suppress statements made during a custodial interview by FBI agents after his arrest on the initial indictment charging nontax crimes.  I previously wrote on the superseding indictment Superseding Indictment for Former Harvard Chair on Tax and FBAR Crimes (7/29/20), here.

The opinion is very short and very well written.  I recommend readers of this blog read the whole thing.

In summary, the initial indictment charged Lieber with two counts of making false statements related to his federal funding for research at Harvard University.  Two FBI Agents arrested Lieber on July 28, 2020 pursuant to that initial indictment and took him to the Harvard University Police Department Headquarters where they questioned him for three hours.  The agents recorded the interview.  Before the questioning, they read Lieber the full Miranda rights for custodial interviews, which included the right to suspend the interview and consult with counsel.  In response to the Miranda warning about right to counsel, Lieber made equivocal statements about his need for counsel but did not expressly state that he wanted to consult with counsel before proceeding.  The Agents continued the interview and, in the course of the interview developed information that led to a superseding indictment which included two tax counts for tax perjury (§ 7206(1)) and two counts for failure to file an FBAR.

Lieber moved to suppress the fruits of the interview resulting in those additional counts in the superseding indictment.

As interpreted by the court, in the interview, Lieber did not make an unequivocal request for counsel.  Hence, the Court held that there was no Miranda problem with continuing the interview.  The Court also held that the circumstances of the interview were not coercive (enough) so as to prevent Lieber’s voluntariness in the interview.

These cases are fact-specific depending upon unique facts and nuances.  The Court gives an excellent discussion and probably as succinct as reasonable to capture the nuance.  I think therefore that I would disserve readers by attempting to offer more discussion than the summary I provide above.  I highly recommend reading the opinion.

 JAT Comments:

Saturday, October 30, 2021

Russian Bank Founder Sentenced for Crimes Related to Expatriation to Avoid Tax (10/30/21)

I recently wrote on the plea deal for Oleg Tinkov for evading tax on renouncing his citizenship.  See Plea Deal with Russian Bank Founder for Tax Perjury Requiring Payment of More than $500 Million (Federal Tax Crimes Blog 10/2/21), here.  Tinkov has been sentenced consistent with the plea deal.  See DOJ Tax Press Release titled Founder of Russian Bank Sentenced for Felony Tax Conviction Arising from Scheme to Evade Exit Tax while Renouncing his U.S. Citizenship (10/29/21), here.

Key Excerpts from the sentencing press release are:

The founder of a Russian bank was sentenced today for his felony conviction for filing a false tax return. As required under his plea agreement, prior to sentencing, Oleg Tinkov, aka Oleg Tinkoff, paid $508,936,184, more than double what he had sought to escape paying to the U.S. Treasury through a scheme to renounce his U.S. citizenship and conceal from the IRS large stock gains that he knew were reportable. This includes $248,525,339 in taxes, statutory interest on that tax and a nearly $100 million fraud penalty. Tinkov was additionally fined $250,000, which is the maximum allowed by statute, and sentenced to time served and one year of supervised release.

Tinkov was indicted in Sept. 2019 for willfully filing false tax returns, and was arrested on Feb. 26, 2020, in London, United Kingdom (UK). The United States sought extradition, and Tinkov contested on medical grounds. In public records, Tinkov has disclosed that he is undergoing a UK-based intensive treatment plan for acute myeloid leukemia and graft versus host disease, which has rendered him immunocompromised and unable to safely travel in the foreseeable future.

On Oct. 1, 2021, Tinkov entered a plea to one count of filing a false tax return. According to the plea agreement, Tinkov was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares.

Thursday, October 21, 2021

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

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

Key excerpts from the press release.

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

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

 JAT Comments:

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

2. Done.

Monday, October 18, 2021

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

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

What is the Judiciary Sentencing Information (JSIN) platform?

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

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

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

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

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

Yeager then is quoted as concluding:

Friday, October 15, 2021

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

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

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

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

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

Monday, October 11, 2021

On the Pandora Papers (10/11/21)

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

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

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

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

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

Myth No. 4

Tax havens are all abroad.

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

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

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

Saturday, October 2, 2021

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

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

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

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

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

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

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

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

JAT Comments:

Thursday, September 30, 2021

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

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

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

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

Excerpts from the Email Summary

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

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

Tuesday, September 28, 2021

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

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

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

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

        * * *

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

        * * *

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

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

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

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

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

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

I may comment later.

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

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

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

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

Sunday, September 26, 2021

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

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

Some excerpts:

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

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

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

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

    * * *

Friday, September 24, 2021

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

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

The opening  paragraph says:

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

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

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

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

JAT Comments (added 9/27/21):

Sunday, September 19, 2021

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

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

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

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

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

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

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

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

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

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

Title & Section

Nature of the Offense

Offense Ended


18 U.S.C. § 371

Conspiracy to defraud the U.S.



26 U.S.C. § 7201

Tax evasion



26 U.S.C. § 7201

Tax evasion



26 U.S.C. § 7201

Tax evasion



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

Tuesday, September 14, 2021

Ninth Circuit Adopts Primary Purpose Test for Attorney-Client Privilege (9/14/21; 1/28/22)


1. The Supreme Court granted the taxpayer's petition for writ of certiorari in this case.  See Supreme Court Grants Cert to Determine Whether Dual-Purpose Communications Involving Legal and Non-Legal Advice (in Tax Return Preparation Setting) is Protected by Attorney-Client Privilege (10/3/22), here; and On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

2. The original discussed in this blog entry was revised and republished (as revised) by Order and Amended Opinion dated 1/27/22, here.  The Order and Amended Opinion changed the term "tax advice" in footnote 5 to "tax return preparation assistance" (see Slip Op. 14 n. 5 of the Amended Opinion).  As revised the footnote is (with revised text in red):

   n5 We are aware, for example, that normal tax return preparation assistance—even coming from lawyers—is generally not privileged, and courts should be careful to not accidentally create an accountant’s privilege where none is supposed to exist. See Frederick, 182 F.3d at 500 (“There is no common law accountant’s or tax preparer’s privilege, and a taxpayer must not be allowed, by hiring a lawyer to do the work that an accountant, or other tax preparer, or the taxpayer himself or herself, normally would do, to obtain greater protection from government investigators than a taxpayer who did not use a lawyer as his tax preparer would be entitled to.” (cleaned up)). Thus, it is not clear whether a more protective version of the primary-purpose test is appropriate in this context.

The original blog entry is below.  The revision and Amended Opinion do not affect the issues discussed in the original blog entry.

In In re Grand Jury, 13 F.4th 710 (9th Cir. Sep. 13, 2021), CA 9 here, the Court held that the “because of” test imported from the work-product context did not apply to the attorney-client privilege and instead applied a predominant purpose test for dual-purpose communications.  The opinion is short (14 pages) and the summary offered by the Court is good, so I just copy and paste the summary here.

Grand Jury Subpoenas

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

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

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

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

 JAT Comments:

Wednesday, September 8, 2021

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

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

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

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

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

Tuesday, August 31, 2021

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

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

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

JAT Comments:

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

Monday, August 30, 2021

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

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

The key in jury cases is the instruction.  In United States v. Henson, 9 F.4th 1258, 1278 (10th Cir. Aug. 19, 2021), CA10 here and GS here, the Court affirmed a challenge to the following instruction for an offense requiring knowingly as an element (a less rigid intent element than willfully for tax crimes):

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

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

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

Wednesday, August 25, 2021

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

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

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

Thursday, August 12, 2021

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

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

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

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

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

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

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

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

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

Sunday, August 8, 2021

2021 Federal Tax Procedure Editions Now Available for Download on SSRN (8/8/21)

 I have posted to SSRN the 2021 editions of my Federal Tax Procedure Book.  I have not been formally notified by SSRN that they have been accepted (whatever that means; the author paper page shows them as “Submitted;” when accepted the status will change to “Distributed.”).  Nevertheless, it appears that they are available for the community to download.

 The links to download are here:

  • Federal Tax Procedure (2021 Student Ed.), SSRN here.
  • Federal Tax Procedure (2021 Practitioner Ed.), SSRN here.

Looking toward the next editions in August 2022, I am constantly revising the 2021 edition which became the working draft for the 2022 editions.  I make hundreds of changes during the year, some to add new "stuff," others to correct or better state the old "stuff," and still others for reasons that feel right at the time.  For the significant changes, I post the changes on the Federal Tax Procedure Blog page to the right titled "Federal Tax Procedure Book 2021 Editions Updates (8/9/21)", here.  Each time I make post a significant change, I reset the date in parentheses.

I ask that those desiring a copy of either or both editions download from the SSRN web site.  SSRN maintains statistics on downloads that are useful for scholars.  So, please, rather than sharing a copy of the pdf in each case, direct anyone you think may be interested to the SSRN site page for the publication so that the download metric can be useful.

Also, I urge those using the book to advise me when they think the book can be improved.  Most importantly I would like to know where I have misstated or omitted something of importance.  Also, even for more mundane matters such as wording or syntax that can be improved.  Your input will permit me to make updates on the Federal Tax Procedure Blog and then make the 2022 version better.

Thank you.

This blog entry is cross-posted on the Federal Tax Procedure Blog, here.

Tuesday, August 3, 2021

USAO SDNY and Bank of Butterfield Enter NPA (8/3/21)

The USAO SDNY has issued this press release:  Manhattan U.S. Attorney Announces Agreement With Bermudian Bank To Resolve Criminal Tax Investigation: The Bank of N.T. Butterfield & Son Limited Pays $5.6 Million in Forfeiture and Restitution; Receives Non-Prosecution Agreement as a Result of its Cooperation, here.  The combined NPA and Statement of Facts are linked in the press release; direct link is here.

Key excerpts from the press release:

Audrey Strauss, the United States Attorney for the Southern District of New York, Stuart M. Goldberg, Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, and James C. Lee, Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that Bank of N.T. Butterfield & Son Limited (“BUTTERFIELD”) entered into a non-prosecution agreement (“NPA”) with the U.S. Attorney’s Office and agreed to pay $5.6 million to the United States for assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from 2001 through 2013.  The NPA was based on BUTTERFIELD’s extraordinary cooperation, including its efforts in providing 386 client files for non-compliant U.S. taxpayer-clients, and provides that BUTTERFIELD will not be criminally prosecuted.  The NPA requires BUTTERFIELD to forfeit $4.896 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $704,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by BUTTERFIELD’s U.S. taxpayer-clients.

Monday, August 2, 2021

2d Circuit Holds that A U.S. Person Who Is Both Owner and Beneficiary of Foreign Trust Is Liable for Separate Penalties for Failure to Report in Both Categories (8/2/21)

There is a U.S. tax compliance problem with offshore activity often beyond the ability of the IRS to obtain or easily obtain relevant information and ensure that tax is properly reported and collected.  A prominent topic on this blog has been the FBAR reporting obligation that, as relevant to tax, assists in U.S. tax compliance with respect to foreign financial accounts.  A similar problem exists for foreign trusts with U.S. owners and beneficiaries and, not surprisingly, there are obligations for the U.S. owners and beneficiaries to report information to the IRS useful for tax compliance.

In Wilson v. United States, 6 F.4th 432 (2d Cir. July 28, 2021), 2d Cir. here and GS here, the Court held that the following are two separate filing or reporting obligations that can attract separate penalties when both apply:  

  • § 6048(b)(1) requires “any United States person [who] receives . . . during any taxable year . . . any distribution from a foreign trust” to “make a return with respect to such trust for such year” that includes, inter alia, “the aggregate amount of the distributions so received from such trust;” the penalty for violating this obligation is 5% (by substitution for the 35% amount) for the § 6048(c)(1) penalty). § 6677(b)(2).
  • § 6048(c)(1) requires U.S. owners “of any portion of a foreign trust” to “ensure that . . . such trust makes a return for such [taxable] year which sets forth a full and complete accounting of all trust activities and operations for the year” and “other information as the Secretary [of the Treasury] may prescribe;” the penalty is 35% of the gross reportable amount.  § 6677(a)
For those wanting to read the statutes, § 6048 is here and § 6077 is here.

Based on that holding, the Court reversed the district court’s holding that a U.S. person subject who was both owner and distribution beneficiary could be subject to only the owner penalty of 5%.

Basically, the Court’s reasoning is that the plain meaning of the statutes imposes two separate reporting obligations and separate penalties for each without any indication that only one penalty applies for a pattern of conduct that violates both reporting obligations.