Friday, July 23, 2021

ABA Tax Section Recommendation to IRS for Priority Guidance to Disavow Application of WSLA and Further Comments Re Same (7/23/21)

I have written several times on the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, here.  In part relevant to tax crimes, the WSLA suspends “the running of any statute of limitations applicable to any offense involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not.”  (Cleaned up.) The statute of limitations is suspended from the date of the “specific authorization for the use of the Armed Forces until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.”  (Cleaned up.)

Where the WSLA is applicable, there are several authorizations that might establish the starting point for the suspensions.  Authorizations that have never been revoked were passed in 2001 and 2002 related to the activity after the 9/11 event.  So, for purposes of this discussion, I assume that the WSLA authorizes tax crimes prosecutions with the general 6-year statute of limitations for conduct back to 1995 or 1996 and the statute continues until 5 years after the authorizations are terminated.

Caveat:  There could be even earlier starting dates under the WSLA for earlier authorizations not yet revoked:  (1) a 1991 authorization incident to the Gulf “War”; and (2) a 1957 authorization (although it might not meet the “specific authorization” required by the WSLA.  Matthew Waxman, Remembering Eisenhower’s Middle East Force Resolution (LawFare 3/9/19), here.  The House has recently passed resolutions to revoke these authorizations.  See Karoun Demirjian, House votes to repeal military authorizations dating to Gulf War, Cold War (WAPO 6/29/21), here.

I have stated my belief that tax evasion under § 7201 is within the literal language of the WSLA.  That would mean also that the offense conspiracy to commit tax evasion would likely be within the literal language of the WSLA.  (The defraud conspiracy, in my view, would not be within the WSLA because the defraud conspiracy for some strange reason does not require fraud per Hammerschmidt v. United States, 265 U.S. 182, 188 (1924); see John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here; I think (perhaps speculation) that if the crime’s elements do not include fraud in the traditional sense of the term (defraud conspiracy does not), the WSLA would not apply.)

However, for some reason as yet unnanounced, at least in recent memory, DOJ Tax has asserted only the traditional six-year tax crime statute of limitations.  The CTM’s discussion of statutes of limitations does not even mention the WSLA.  DOJ CTM 7.00 STATUTE OF LIMITATIONS, here.  So how long DOJ Tax will forebear asserting the WSLA is open.  Further, in cases where the defendant challenges the normal statute of limitations, a court might sua sponte invoke the WSLA to deny the challenges.

Wednesday, July 21, 2021

Court Reverses TOP Offset Against Social Security Payments That Exceed Court's Restitution Schedule for Payments (7/21/210

In United States v. Taylor, No. CrimAction 06-658-03, 2021 U.S. Dist. LEXIS 134638 (E.D. Pa. July 20, 2021), CL here, the Court found that the Treasury Offset Program (“TOP”) collection, via offset, of criminal restitution from Social Security Benefits was not permitted under the Court’s schedule for restitution ($100 per year) and ordered return of the collections in excess of the Court’s restitution schedule.

Key points of the holding:

1. In January 2008, Taylor was convicted of the defraud / Klein conspiracy In ordering restitution in the earlier criminal case, the Court determined restitution was $3,300,000 but that Taylor could pay not more than $100 per year and scheduled that she pay that amount per year.  

2. Taylor thereafter began receiving Social Security monthly payments.

3. The Federal Government has a Treasury Offset Program (“TOP”) permitting the Government to collect against debts a person owes to the Government by offsetting payments the Government owes to the debtor.  The Court’s discussion of the TOP program is good, so I quote it (Slip Op. pp. 5-6; cleaned up):

TOP is a federal program authorized by the Debt Collection Act of 1982, as amended by the Debt Collection Improvement Act of 1996, which permits the Treasury Department to collect delinquent debts owed to federal agencies. See 31 U.S.C. § 3716. Under TOP Congress has subjected to offset all funds payable by the United States,’ § 3701(a)(1), to an individual who owes certain delinquent federal debts. The contours of TOP program have been described in the following terms: 

The practice of withholding federal payment in satisfaction of a debt is known as an administrative offset.” The Debt Collection Improvement Act of 1982, 31 U.S.C. §§ 3701 et seq., authorizes the Treasury Department “to collect non-tax debts by withholding funds paid out by other federal agencies.” Pursuant to the TOP, any federal agency with a claim against the debtor, after notifying the debtor that the debt is subject to administrative offset and providing an opportunity to dispute the debt or make arrangements to pay it, may collect the debt by administrative offset. In order to do so, the creditor agency must certify to Treasury that the debt is eligible for collection by offset and that all due process protections have been met. If properly certified, the Treasury Department must administratively offset the debt. 

Under TOP, Social Security benefits are eligible for offset pursuant to the Debt [*6] Collection Improvement Act. n6  
   n6 An offset to a person’s Social Security benefits, however, cannot exceed 15% of the monthly covered benefit payment. 31 C.F.R. § 285.4(e).

Wednesday, July 14, 2021

Judge Holmes Weighs (At Length) Against Taxpayers Involved in Complex Bullshit Tax Shelters; Fraud Penalties Approved (7/14/21; 7/15/21)

Back in my younger years in the practice of tax law, I heard something like an aphorism or at least a pithy statement meant to suggest some truth that the difference between a doctor and a lawyer cheating on their taxes is that the doctor will file a false return underreporting tax liability (a felony) whereas the lawyer will file no return (generally a misdemeanor).  While there may be some truth in the statement, there is probably not as much truth as those acting on it by failing to file would like to hope.

I was reminded of that statement in today’s opinion in Ernest S. Ryder & Associates, Inc., APLC. v. Commissioner, T.C. Memo. 2021-88, here.  The opinion. 191 pages long and with a table of contents to help one navigate the opinion, is written by Judge Holmes who weighs in with his usual gusto in writing.

Here is the opening (Slip Op. pp.  4-5,  footnotes omitted):

Ryder & Associates, Inc., APLC (R&A), marketed six tax-reduction strategies that produced over $31 million in revenue between 2003 and 2011. The firm’s fixed costs were low, and its out-of-pocket expenses not very large. Yet year after year it paid no income tax. Its revenue flowed instead into 560 accounts and into Ryder Law Corporation, a related S corporation.  It flowed into more than 1,100 ESOPs,  other S corporations, LLCs, and other passthroughs. It flowed into ranches in Arizona, and it flowed into other ranches in New Mexico. And then it mostly seemed to pool in places where it would benefit Ernest S. Ryder and his wife Patricia, who received more than $15 million in distributions between 2002 and 2011 but paid only $31,000 in income tax during the years at issue.

The lead petitioner is a corporation, but the case is consolidated with other cases.  The principal actor in the drama, Ryder, was an accomplished tax lawyer, with an LLM from NYU Law School.  His entry into the law practice in the 1970s was particularly auspicious as noted by Judge Holmes (Slip Op. pp. 6-7): 

His timing was fortunate--he was at the stem-cell stage of his career the year that Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA). When there’s an avulsive change in the law like ERISA, young lawyers can develop valuable expertise in an environment uncluttered with more senior competitors.

Knowledgeable associates in a fast-growing field are a hot commodity, and in 1975 Ryder was hired away by Harrigan, Ruff & Osborne to help that firm’s clients get their retirement plans qualified under the new law. “[T]hat’s when my career really took a turn,” Ryder explained, and he was well on his way to becoming an expert in qualified retirement plans.

Judge Holmes recounts Ryder's trajectory thereafter to include (Split Op. 8 & 9, footnotes omitted):

The aggressiveness of Ryder’s tax-reduction strategies seems to have caused some tension with his partners at Ruff Ryder, and he was asked to leave the firm sometime in 1995. Ruff Ryder’s entire pension department and its profit-sharing clients left with him. With ample experience and a fully staffed pension practice, Ryder decided to open up his own firm in early 1996. And here begins the Ryders’ tax problems. R&A is a professional law corporation and has always been taxed as a C corporation. Ryder has owned 100%, and has acted as president, of R&A since its creation. We find that Ryder also provided 100% of his legal services to clients through R&A during the years at issue. 

Despite its success and longevity, R&A reported zero taxable income from 2002 through 2011. The Ryders also reported minimal taxable income on their individual returns for those years.

I can't help but point out the catchy firm name "Ruff Ryder."

Second Circuit Continues the Strong Consensus Rejecting the Argument that FINCen Regulations Under Pre-2004 Law Limit the Maximum Willful Penalty Prescribed under the 2004 Statutory Amendment (7/14/21)

In United States v. Kahn, ___ F.3d ___, 2021 U.S. App. LEXIS 20622 (2d Cir. 7/13/21), here, the Court held, consistent with the trend of cases after two district court burps, that the FBAR willful penalty in 31 USC § 5321(a)(5), here, as amended in 2004 to increase the maximum amount of the penalty, is not limited by the FINCen’s failure to update the underlying regulations which, consistent with pre-2004 law, capped the willful penalty at $100,000.  Readers of this blog should already be aware of the issue and the trend in the cases.  The majority opinion, while lengthy, does not break new ground in analysis of the issue, so I won’t address the majority opinion further, other than to say that, as of today, it is the definitive opinion, collecting and discussing the key issues and key cases, so it should be a starting point for those wanting to get into the issue as of now.

Monday, July 5, 2021

District Court Holds that Delinquent Payment and Filing After CI Agent Contact Is Admissible in Criminal Case (7/5/21)

In United States v. Thrush, 2021 U.S. Dist. LEXIS 118742 (E.D. Mich. 6/25/21), CL here, “Thrush was indicted on multiple counts of willfully failing to pay over payroll taxes and to file tax returns.”  After being contacted by the CI agent, Thrush “began making payments on his tax liability” and filed tax returns.  In the ensuing criminal case, the Government moved in limine “to exclude evidence of Defendant's delinquent tax payments and returns.”  

The Court held that, under Sixth Circuit precedent, Thrush could introduce the evidence.  After reviewing the case authority, the Court concluded (pp. 9-10):

Defendant's version of events, if believed, would allow a reasonable jury to infer that his failure to pay taxes and file tax returns was the result of ignorance, rather than willfulness. Accordingly, Defendant's [*10]  delinquent filings, if offered in conjunction with the assertions discussed above, would be probative of his mental state during the period in question.

In comparison, evidence of the delinquent filings poses only a modest risk of misleading the jury. The evidence will not, and cannot, be offered to show that Defendant's prior crimes, if any, were somehow vitiated, see Sansone 380 U.S. at 354, and the jury will be clearly instructed as to the elements of the charged offenses and the meaning of willfulness.

Based on the foregoing, the Government has not demonstrated that the probative value of Defendant's delinquent filings is substantially outweighed by the risk of misleading the jury.

JAT Comments:

District Court Holds that FBAR Nonwillful Penalty Survives Death (7/5/21)

In United States v. Gill, 2021 U.S. Dist. LEXIS 12203 (S.D. Tex. 6/30/21), CL here, the court held that an FBAR nonwillful penalty survives the death of the person subject to the penalty.  The decision turned on whether the FBAR nonwillful penalty was remedial or penal in nature.  The general rule is that remedial liabilities survive death, but penal liabilities do not.  The difference between these two categories is based on tests formulated in Hudson v. United States, 522 U.S. 100-101 (1997) (invoking the multi-factor test under Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168–69, 83 S. Ct. 554 (1963)).  Where the cause of action does not fall “neatly” in these categories, the decision is made by “primary purpose of the statute.” (Slip Op. p. 8.)  Applying these tests, the Court finds the FBAR civil nonwillful penalty remedial.

A number of cases (cited by the court in the opinion) have held that the FBAR willful penalty (which in its typical application by the IRS produces larger penalties than would have applied under the nonwillful penalty) was remedial, thus permitting the penalty to survive death. Accordingly, it is not surprising that the nonwillful penalty survives death.

Thursday, July 1, 2021

Preliminary Comments on the Trump Organization and CFO Indictment (7/2/21; 7/4/21)

The much-anticipated indictment of the Trump Corporation and components and its Chief Financial Officer (“CFO”), Allen Weisselberg, has been released.  The caption is The People of New York v. The Trump Corporation, et. al. (N.Y. Supreme Court - no number available).  The indictment is here.  (The pdf copies on the web were not adequately OCR’d; I had this copy OCR’d using Adobe Acrobat text recognition; the OCRing came out much better than the copies I found in my quick searches.)

Here are my first general comments (which I may supplement or revise later):

1. The general thrust of the indictment had been reported before the indictment came out.  Basically, through various schemes, certain individuals (including, for purposes of this indictment, the CFO) caused the corporation to underreport and underpay tax liabilities.  Essentially, these individuals caused the corporation to pay compensation that did not appear on the books and filings as corporation subject to various tax obligations – including reporting income of the individuals benefiting from the payments, avoiding payroll tax to the payors and payees, etc.  

2.  This is a fairly common pattern in a closely held corporation except that the payments often go to the owner and the owner’s family rather than to an employee (here the CFO).  In this case, the owner is Trump and the owner’s family are the Trump children and spouses.  Nothing is said about Trump’s off-the-books use of corporate assets, but with the egregious conduct for Weisselberg, one has to wonder whether charges against Trump are waiting in the wings, with the prosecutor hoping Weisselberg will flip.  Given Trump's alleged use of oral instructions (or signals) to avoid putting his conduct in writing to the extent possible, somebody like the CFO would be an important (perhaps not a necessary) witness against Trump if he were indicted.

Wednesday, June 30, 2021

U.S. Group Requests to FTA for U.S. Individual NonConsenteng Account Information (6/30/21)

It’s been quite some time since I paid any attention to the application of FATCA with Swiss Banks and how information of U.S. taxpayers' accounts are reported to the IRS under FATCA.  To provide a high-level summary, for U.S holders of accounts not consenting to automotive disclosure to the IRS of account information, those banks are required to make aggregate disclosures to the Federal Tax Administration ("FTA") which provides the aggregate information to the IRS.  For Swiss Banks that report in the aggregate, the IRS may make “group requests” through the Administrative Assistance procedure that requires the Swiss Banks to disclose the individual account information.  The Swiss Federal Tax Administration discussion of the process is here; the IRS discussion and links describing the general process is here; the IRS description is here  Individual account owners are notified of the request either by notice to the notice information with respect to the account or by publication in Switzerland and may appeal (good luck with that).

Group requests are requests requiring the FTA and the Swiss Banks to get information through account characteristics where the name of the account holder is not known to the requesting authority (here the U.S. competent authority).  I don't know what characteristics a provided in some format like database fields, but imagine that the fields may include (i) amount in each account on the FBAR reporting date; (ii) high amount during the report year; (iii) whether the client had some type of no mail instruction or mail instructions for a non-US address; and other similar characteristics.  The IRS through the competent authority could then ask, for example, for (i) all accounts which in the aggregate for the Bank equaled or exceeded $500,000 on the reporting date or during the year; or (ii) all accounts with aggregate amounts of $250,000 for accounts any of which had a no mail instruction or mail to a non-US address.  There are a number of other characteristics the IRS might specify that would "mine" the "have value" targets requiring that the Banks disclose.

 The IRS has made several group requests starting in December 2020.  The latest request (the 5th request) was June 28, 2021, with the aggregate banks for whom requests were made as follows (a copy and paste from the FTA page, here; note that some Financial Institution names may be slightly different on my spreadsheet): 

Monday, June 28, 2021

Article and Study on Tax Evasion by the Wealthy (6/28/21; 6/29/21)

This recent article is likely of interest to tax crimes fans.  Asher Schechter, How Insufficient Enforcement Led to Prevalent Tax Evasion and Contributed to American Inequality (U. Chicago Booth School Stigler Center Promarket 6/24/21), here.  The article expands on the recent publication of IRS data on the very wealthy by ProPublica.  See ProPublica Publishes Series Based on IRS Data Trove Produced by Anonymous Source (Federal Tax Crimes Blog 6/8/21), here; and Tax Crimes Core Concept Questions from ProPublica's Publication of Tax Return Information (Federal Tax Crimes Blog 6/10/21), here.

About the ProPublica disclosed data, the author of this article discusses the tax evasion – yes, the crime – aspects of the phenomenon, citing a recent NBER publication, John Guyton, Patrick Langetieg, Daniel Reck, Max Risch & Gabriel Zucman, Tax Evasion at the Top of the Income Distribution (NBER Working Paper Series No. 28542 March 2021), here.

Excerpts from the article:

             The other side of the coin is tax evasion, which unlike tax avoidance is illegal. How prevalent is tax evasion by the rich, and how significant is it to the overall picture of inequality? A working paper published in March by researchers John Guyton and Patrick Langetieg from the IRS, along with economists Daniel Reck (London School of Economics), Max Risch (Carnegie Mellon), and Gabriel Zucman (University of California, Berkeley) showed tax evasion at the top of the US income distribution is much worse than previously thought: while unreported or under-reported income is at 7 percent among the bottom 50 percent of the income distribution, the top 1 percent hide 21 percent of their true income.

            Tax evasion by high-income people is notoriously difficult to measure due to the myriad ways in which wealthy individuals can evade taxes, from unreported offshore accounts to pass-through entities like partnerships and S-corporations. To study the extent of tax evasion, Guyton et al. used a trove of IRS tax return data, mainly from the IRS’ random audit program, the National Research Program (NRP). What they find is that of the 21 percent of true income that top earners don’t report to the IRS, 6 percent is due to these sophisticated tax evasion strategies.

            In addition to the increasingly regressive US tax system (a trend that was also covered in Zucman’s 2019 book with Emmanuel Saez), the study also underscores how inadequate enforcement contributed to America’s current tax inequality, highlighting the asymmetry between high-income, high-wealth individuals, who have the funds to attempt ever more sophisticated methods of tax evasion, and the IRS auditors, who don’t have the resources to keep up.

Evasion Largely Goes Undetected

Thursday, June 24, 2021

Tax Court Opinion with Cryptic Comment on Excessive Restitution Based Assessments (6/24/21; 6/28/21)

In Ervin v. Commissioner, T.C. Memo. 2021-75, TC here see fn * at end of blog, the Court (Judge Lauber) nicely sets up the issues and holdings in the opening paragraphs (footnote omitted):

Petitioner failed to file Federal income tax returns for 2000-2009 and was convicted of tax crimes for 2004-2006. In June 2012 he was sentenced to imprisonment and ordered to pay restitution of $1,436,508, the amount of the Government's estimated tax loss. After petitioner was remanded to custody, the Internal Revenue Service (IRS or respondent) completed a civil examination [*2] of his 2002-2007 tax years. In 2014 it sent him notices of deficiency determining deficiencies for those years based on the tax loss figures used in the sentencing. The IRS also determined additions to tax under sections 6651(a)(1), 6651(a)(2), 6651(f), and 6654.1 Petitioner timely petitioned this Court in January 2015 and (about a year later) fully satisfied his restitution obligation.

Respondent has moved for summary judgment. Petitioner does not dispute the deficiencies. But because he has fully paid the deficiencies by virtue of his restitution payments, which were credited against his tax liabilities, he insists that he should not be liable for any additions to tax. Because the additions to tax accrued before the restitution was ordered or paid, we find that petitioner is liable for these amounts, subject to certain concessions by respondent. We will therefore grant respondent's motion for summary judgment to the extent set forth in this opinion.

Something in the opinion caught my eye, so I thought I would post without definitive discussion but as an alert for persons interested in the arcania of restitution based assessments ("RBA") under § 6201(a)(4)(A).  The Court says (p. 12 n. 3) cryptically):

   n2 If petitioner's restitution payments exceed the deficiencies we have determined for 2002-2007, those payments may be available for credit against other unpaid tax liabilities he may have, including the additions to tax discussed in the text.

Thursday, June 17, 2021

TIGTA Report on Criminal Restitution Assessment Procedures (6/17/21)

TIGTA has issued a report titled Criminal Restitution Assessment Procedures Need Improvement (TIGTA Report No. 2021-30-033 6/7/21), here.  For those interested in criminal restitution for taxes, this is excellent reading, discussing both the law related to the restitution procedures for taxes and the IRS’s procedural implementation.

The Report Highlights are:

Why TIGTA Did This Audit 

The Firearms Excise Tax Improvement Act of 2010 authorized the IRS to assess criminal restitution ordered after August 16, 2010, so that the IRS could collect the amount as if it were a tax. Prior to this change in the law, the IRS accepted payments of restitution but could not assess the amount of restitution ordered or use its administrative collection tools to collect the restitution. Only the Department of Justice could collect the amount of restitution.

This audit was initiated to determine if defendants convicted of tax-related crimes are held responsible for the payments of the associated taxes. 

Impact on Taxpayers 

The ultimate goal of every criminal prosecution is not merely to obtain a conviction but also to obtain a sentence sufficient to discourage similar criminal violations by other taxpayers. It is important that the IRS have effective procedures to ensure that the defendants are held responsible for their crimes and the maximum amount of criminal restitution is collected. 

What TIGTA Found

IRM PDT and CAU Designations for Problem Taxpayers (6/17/21)

In Hogan  v. Commissioner (T.C. Dkt Docket No. 11229-15 Bench Opinion dated 6/9/21), here, the Tax Court (Judge Buch) rejected the taxpayer’s request for interest abatement on tax liabilities.  Hogan had previously pled guilty to tax evasion.  All of the commotion about tax liability and interest arose from that event.  There was nothing particularly interesting or of precedential value (hence the bench opinion).  But I noted that Hogan complained about being designated a “Potentially Dangerous Taxpayer.”  The relevant portions of the transcript (pp. 13 & 15-16):

Mr. Hogan was displeased with having been labeled as a potentially dangerous taxpayer or PDT. The Commissioner uses the designation of PTD to "identify taxpayers who represent a potential danger to employees." Internal Revenue Manual, (Oct. 31, 2018). Mr. Hogan learned of this designation through a request under the Freedom of Information Act. He argues that this designation resulted in unfavorable treatment during the appeal process. He did not direct us to any error or delay resulting from his designation as a potentially dangerous taxpayer.

* * * *

Regarding his designation as a potentially dangerous taxpayer, Mr. Hogan failed to meet his burden at every level. He did not establish that there was an error in designating him as a PDT. Even if that were erroneous, he did not establish that the designation caused any error, delay, or additional interest. And given his repeated efforts to avoid payment, he clearly did not establish that he would have paid his tax earlier.

Having not recalled paying any attention to the PDT designation, I did a Google scholar search and found nothing of interest.  I recommend that readers of this blog interested in the PDT designation, read the IRM here discussing the PDT Program and the related Caution Upon Contact ("CAU") designation.  Key excerpts are: (10-31-2018)

In 1984, the IRS Commissioner assigned IRS Inspection the responsibility of developing a program to improve the Service's ability to identify taxpayers who represent a potential danger to employees. Inspection developed the Potentially Dangerous Taxpayer (PDT) program, which included the PDT System database. Inspection was then given responsibility for administering the program.

Inspection became the Treasury Inspector General for Tax Administration (TIGTA) in 1999. Most of Inspection’s previous duties, including the administration of the PDT program, were transferred to TIGTA. Due to TIGTA’s statutory role and responsibilities, however, it was agreed that the administration and maintenance of the PDT program be transferred back to the IRS. IRS established the Office of Employee Protection (OEP) in February 2000 to administer and maintain the PDT program and fulfill other employee safety recommendations. TIGTA, however, retains its investigatory role in the PDT program.

* * * *

Thursday, June 10, 2021

Tax Crimes Core Concept Questions from ProPublica's Publication of Tax Return Information (6/10/21)

Two days ago, I posted on perhaps the top tax story at least on this news cycle:  ProPublica Publishes Series Based on IRS Data Trove Produced by Anonymous Source (Federal Tax Crimes Blog 6/8/21), here.  In the posting, I focused on the legality of the disclosure of the IRS information, known as return information, about the identified taxpayers.  Section 7213, here, makes it a felony crime for IRS personnel to disclosethe return information and for nongovernment persons receiving and disclosing (publishing) the information.  ProPublica seems within the scope of § 7213(a)(3).

As I noted in the blog, ProPublica stated that it was aware of the law and justified its disclosure as follows:

There is also a legal question here, and we want you to know we have taken it seriously. A federal law ostensibly makes it a criminal offense to disclose tax return information. But we do not believe that law would be constitutional if applied to bar or sanction publication of a story in the public interest when the news organization did not itself remove the information from the control of the IRS or solicit anyone else to do so — as we did not. And this is not our first experience with this law.

In 2012, someone at the IRS (we don’t know who or why; they used a plain brown IRS envelope) sent ProPublica copies of tax filings seeking exemption for a number of political committees, including Republican political guru Karl Rove’s Crossroads GPS. The filings were not yet supposed to be public, and the IRS indicated that it would consider our publication of them to be criminal. We explained our view of the constitutionality of that statute as applied in such circumstances and published our story, which raised concerns about whether Rove’s group had been forthcoming with the agency. We never heard about the matter from the IRS again.

I offer today questions for Tax Crimes professionals and students to test a basic federal tax crimes concept.  Section 7213(a)(3), like the earlier provisions in § 7213(a) requires that the person “willfully” disclose the return information.  Indeed, most of the tax crimes in the IRC (Title 26) require the person act willfully.  Willfully requires "'a voluntary, intentional violation of a known legal duty.'" Cheek v. United States, 498 U.S. 192, 200 (1991), here.

Tuesday, June 8, 2021

ProPublica Publishes Series Based on IRS Data Trove Produced by Anonymous Source (6/8/21)

The investigative news organization, ProPublica, started a series based on IRS data about the very rich that somehow showed up on ProPublica’s whistleblower platform.  The first in the series is The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax by Jesse Eisinger (6/8/21(, Jeff Ernsthausen and Paul Kiel.  The article is here.  The first offering provides an overview and focuses on specific well-known super-wealthy American “taxpayers.”  It shows that their true tax paid relative to their economic income is miniscule, sometimes well under 1%.  

It is not a revelation to persons interested in the tax system that the super-wealthy (and even less wealthy) “taxpayers” whose economic income is reflected in assets can do amazing things to make sure the income is not taxed, including shifting values to family and friends and even dying to achieve a step up in basis (true, there may be an estate tax but even that can be mitigated in ways to insure that they never bear their fair share of the cost of government).

The first installment is interesting, although I am not sure it adds much to what tax professionals would have intuited anyway.  Perhaps it will make those intuitions more accessible to the general public and therefore contribute to the discussion of how to allocate the costs of a civilized society among those who benefit from that civilized society.

More interesting for readers of this blog is how ProPublica got the IRS data trove and the legal consequences.  First, as to how ProPublica got the information, ProPublica explains at this web page:  Why We Are Publishing the Tax Secrets of the .001%, here.  Basically, investigative journalists sometimes have a whistleblower or informer site where information can be disclosed with anonymity.  ProPublica further explains:

We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.

Friday, June 4, 2021

FBAR Civil Willful Penalty Sustained Against Long Time Accountant and Tax Preparer Who Claimed He Did Not Have Time to Read the Schedule B Instructions (6/4/21)

In United States v. Kronowitz (S.D. Fla. No. 19-cv-62648 Findings of Fact and Conclusions of Law dated 6/3/21), CL here, the Court sustained the Government’s assertion of the FBAR civil willful penalty.  The facts were bad for Kronowitz in trying to avoid the penalty.  He was an accountant and regular tax return preparer over many years.  He claimed inter alia (slip op. 11):

He admitted to seeing hundreds of Schedule Bs, and being familiar with the purpose of Schedule B and its requirements, but testified that he probably did not read the instructions because he was more concerned with providing for his family and taking care of his clients. Indeed, he testified that “my purpose in life at the time was to get clients, bill them, and collect the money, not spending the whole year reading[.]”

Well, he lost.

JAT Comments:

1. Another example of a taxpayer who certainly knew about the OVDP and for  some reason chose not to timely join the program.  (Of course, he did have some relationship to a UBS which could have meant that UBS turned his name over  to the IRS early and thus was disqualified.

2. The Court found the taxpayer was sufficiently reckless that he met the standard for willful for  the civil penalty.  The Court said that Kronowitz's defense was that he was not "willful or reckless."  As stated, Kronovitz's argument was that willful and reckless are alternative bases for the penalty.  That is not true.  The statute imposes the penalty only on willful conduct which, for FBAR civil penalty purposes, is interpreted to include reckless conduct.

Friday, May 28, 2021

More on Willful Blindness (5/28/21)

Today, I revisit one of my “rant” topics – willful blindness (aka deliberate ignorance, conscious avoidance, etc.).  My past rants have been about using the concept of willful blindness as a substitute for a specific knowledge requirement in criminal statutes, particularly the willfully element of most Title 26 tax crimes.  To remind, that willfully element, often referred to as the Cheek interpretation of the willfully element in tax crimes, is specific intent to violate a known legal duty.  Cheek v. United States, 498 U.S. 192, 201 (1991).  Such a specific intent requires that a defendant know the facts that create a legal duty and must know the law (sufficiently) to know that he is violating a legal duty.  I have urged that, if Congress legislated a knowledge element for a crime, courts and juries should not be treating something that is not knowledge as knowledge.  That is effectively creating a common law crime, supposedly a no, no in our legal system.

I periodically review willful blindness cases to see if there is more ranting I can do without duplicating my ranting too much.  I read a case today that offered something that I should have noticed and ranted on before.

The willful blindness concept requires that the defendant:  "(1) The defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact."  Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 766 (2011).  Global-Tech was a civil case, but the Supreme Court looked to criminal analogies where the concept was deployed, so courts often cite Global-Tech in criminal cases.  The Supreme Court in Global Tech also said that willful blindness applies when the defendant “can almost be said to have actually known the critical facts.”  (pp. 769-770, emphasis supplied by JAT.)  I suppose that if one took that sentence literally, a defendant in a criminal case can be convicted of a crime requiring specific knowledge even without that specific knowledge.  But, we all know from the trajectory of the willfully requirement for the civil and criminal FBAR penalties that willfully is not the same for criminal purposes as for civil FBAR purposes, with willfully for civil FBAR purposes permitting something like willful blindness / reckless behavior to meet the willfully element in a way that could not suffice for the crime.  The statement in Global-Tech thus may be technically dicta.

I have urged in my rants that, instead of a substitute for the statutory element of specific knowledge, the role of facts indicating willful blindness should instead be circumstantial evidence of actual knowledge that would permit the factfinder (jury in most criminal cases) to infer the required knowledge (the actual statutory element for the crime) beyond a reasonable doubt.  It is not and should not be a substitute for the statutory element requiring specific knowledge.

Thursday, May 27, 2021

Foreign Account Holder Claiming Ignorance of FBAR Obligation Loses on Willful Penalty Because of Reckless Disregard (5/17/21)

In United States v. Goldsmith,  (S.D. Cal. 3:20-cv-00087-BEN-KSC Order dated 5/25/21), CL here and TN here, the Court granted summary judgment to the Government in a FBAR civil willful penalty FBAR collection suit.  The Court held that on the facts presented on the motion for summary judgment, the Government was entitled to summary judgment on Goldsmith’s liability.  

It is a long opinion (73 pages).  The facts are ugly for Mr. Goldsmith and are recounted in detail on pp. 2-12 of the opinion.  On the facts presented and found for purposes of the motion, the Court held that 

1. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Concealed the Swiss Account from his Tax Preparer

2. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Informed Mr. Zipser [Tax Preparer] About the Italian Account

3. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Concealed Information from the Government

4. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Controlled the Account

5. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Chose to Divest U.S. Securities

The Court then found that, although there was a triable issue as to whether Goldsmith knew of the obligation to file the FBAR, there was no triable issue as to whether Goldsmith recklessly disregarded his FBAR obligations and that reckless disregard was enough for FBAR civil willful penalty liability.

Friday, May 21, 2021

New Book on Decision in Human Judgment, Including Sentencing (5/21/21)

Steven Brill offers this New York Times book review of Noise: A Flaw in Human Judgment by Daniel Kahneman, Olivier Sibony and Cass R. Sunstein (NYT 5/18/21), here.  The book discusses noises in human judgment defined as “unwanted variability in judgments.”  Essentially, it discusses how noise prevents consistency in judgments where consistency should have a high value.

Criminal sentencing draws the authors' attention.  Readers of this blog will recall that prior to the federal Sentencing Guidelines in the 1980’s, federal sentencing was much a crap shoot, with sentencing for similar crimes varying all over the lot.  Some described sentencing as the wild, wild west.  Then the Guidelines came along to bring more consistency by providing somewhat objective matrices could calibrate a sentencing range.  Then, United States v. Booker, 543 U.S. 220 (2005) was decided that returned sentencing to more discretion for the judge.  As some have said Booker brought the the wild, wild west back to sentencing, so long as the sentencing judge can come up with some minimum rationale for the usually downward variance than can pass a laugh test if the Government or the defendant appeals the out of Guidelines sentence.

Brill, here, a lawyer and author of books and commentary on the law and related subjects, starts the book review with the following:

A study of 1.5 million cases found that when judges are passing down sentences on days following a loss by the local city’s football team, they tend to be tougher than on days following a win. The study was consistent with a steady stream of anecdotal reports beginning in the 1970s that showed sentencing decisions for the same crime varied dramatically — indeed scandalously — for individual judges and also depending on which judge drew a particular case.

Brill notes that the authors claim that apparently unreconcilable inconsistences are about noise which they define as "unwanted variability in judgments."

Consistency equals fairness. If bias can be eliminated and sensible processes put in place, we should be able to arrive at the “right” result. Lack of consistency too often produces the wrong results because it’s often no better, the authors write, than the random judgments of “a dart-throwing chimpanzee.” And, of course, unexplained inconsistency undermines credibility and the systems in which those judgements are made.

As the authors explain in their introduction, a team of target shooters whose shots always fall to the right of the bull’s-eye is exhibiting a bias, as is a judge who always sentences Black people more harshly. That’s bad, but at least they are consistent, which means the biases can be identified and corrected. But another team whose shots are scattered in different directions away from the target is shooting noisily, and that’s harder to correct. A third team whose shots all go to the left of the bull’s-eye but are scattered high and low is both biased and noisy.

Wednesday, May 19, 2021

S.G. Files Brief in Opp to Petition for Certiorari in Flynn (5/19/21; 6/17/21)

I noted previously that a petition for certiorari was filed in United States v. Flynn, 969 F.3d 873 (8th Cir. 2020), cert. docketed, 20-1129 (Feb. 17, 2021) and that the Government was to file an answer on May 19, 2021.  See Fifth Circuit Holds that the Defraud/Klein Conspiracy Does Not Have Pending Proceeding Element; Update on Cert Petition in Related Case (Federal Tax Crimes 5/8/21), here.  The Solicitor General filed the answer today, a Brief in Opposition, here.

Just to review the bidding as of today, the following key documents are on file per the docket entries, here (where the various documents can be reviewed and downloaded).

  • The petition was filed 2/11/12.
  • An amicus brief in support of the petition was filed by the New York Council of Defense Lawyers on 5/2/21. 
  • The S.G. Brief in Opp was filed on 5/19/21.
  • Flynn's Reply Brief filed on 6/7/21.  (Added to Blog 6/17/21)

The Brief in Opp is 26 pages long (substantially longer than the Briefs in Opp I drafted while with DOJ Tax Appellate, but word inflation has crept into my writings since then).  The key issue that I think readers of this blog would be most interest is (p. (I), p. 2 of the pdf):

2. Whether a charge of conspiring to defraud the United States in violation of 18 U.S.C. 371 is void for vagueness absent a requirement that the government prove a nexus between a defendant’s conduct and a particular administrative proceeding.

This issue is basically the Marinello issue I mentioned in my earlier blog.

Flynn, in the petition for certiorari, stated the issue as follows (p. i, p. 2 of the pdf):

II. Whether the requirement for a nexus between a particular administrative proceeding and a taxpayer’s conduct is necessary to save the constitutionality of a conviction under an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) after this Court’s decision in Marinello v. United States, 138 S. Ct. 1101 (2018).

The Government states it arguments on pp. 15-23 (pp. 22-30 of the pdf).  Basically, the arguments are:

Monday, May 17, 2021

FBAR Civil Willful Penalty Collection Suit for $17+ Million with Damning Allegations (5/17/21)

Some FBAR willful penalty collection suits are relatively bare bones, asserting only the essentials.  In United States v. Gaynor, (M.D. Fla. Dkt.  2:21-cv-00382 Dkt # 1 Complaint 5/14/21), CL here, the Government goes beyond the essentials with a detailed recounting of damning facts (see pars. 13-92).

The Complaint breaks down the damning facts in the following categories:

A. Decedent inherited her late husband's Swiss bank account

B. Decedent repeatedly met with Swiss bankers

C. Decedent moved her assets to other Swiss banks to avoid tax compliance

D. Decedent hid the offshore accounts from her CPA

E. Decedent failed to file timely FBARs

F. Decedent belatedly made a “quiet disclosure”

G. Decedent attempted to deceive the IRS during its audit

JAT Comments:

1. One allegation that I found interesting is:

90. In a June 2018 filing with the IRS, Decedent asserted through her attorney that she “knew nothing about Gery or its foreign bank accounts” until 2012. She contended, with emphasis in the original, that her “lack of knowledge” was both “obvious and easily provable.”

Since she made the allegation through her attorney, perhaps it was necessary to say it was through the attorney.  On the other hand, on the facts pled in the earlier paragraphs she certainly knew the allegation was false and, if she knew, why didn't the attorney know.  Of course, sometimes clients do not tell their attorneys the truth, with the result that the attorney can make false representations.  It is interesting in this regard that the complaint does allege that the decedent kept the truth about the foreign accounts from her CPA (see par. D, above).  No such allegation is made about the decedent keeping the truth from the attorney.  Perhaps that is because the IRS or DOJ Tax did not try to go beyond the attorney client privilege.

Supreme Court Opinion in CIC Services LLC On Risk of Criminal Penalty Aspects (5/17/21)

The Supreme Court this morning decided CIC Services, LLC v. IRS, 583 U.S. ___ (2021), here, holding that § 7421(a), the Anti-Injunction Act, did not preclude pre-enforcement review of an IRS Notice requiring “material advisors” in  micro-captive transactions to report information.  I have posted a blog on my Federal Tax Procedure Blog, Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (5/17/21), here.  The Supreme Court holding implicates tax procedure issues, but one excerpt may be interesting to tax crimes enthusiasts (slip Op. 11-12).

Third, violation of the Notice is punishable not only by a tax, but by separate  criminal penalties. As noted above, any “[w]illful failure” to comply with the Notice’s reporting rules can lead to as much as a year in prison. §7203; see supra, at 3–4. That fact clinches the case for treating a suit brought to set aside the Notice as different from one brought to restrain its back-up tax. For the existence of criminal penalties explains why an entity like CIC must bring an action in just  this form, framing its requested relief in just this way. Recall what the Government would [*12] have such a party do: disobey the Notice, pay a resulting tax penalty, and then bring a refund suit. See Brief for Respondents 16–17; supra, at 5. That approach—not the Anti-Injunction Act’s familiar pay-now-sue-later  procedure, but one with lawbreaking at the start—subjects the party to criminal punishment. n3 And that is not the kind of thing an ordinary person risks, even to contest the most burdensome regulation. So the criminal penalties here  practically necessitate a pre-enforcement, rather than a refund, suit—if there is to be a suit at all. And so too, those penalties necessitate a suit aimed at eliminating the Notice, rather than the statutory tax penalty. Only an injunction against the Notice gives the taxpayer or advisor what it wants: relief from the obligation to report transactions. An injunction against the tax penalty would not do so. Because such an injunction would leave both the reporting duty and the criminal penalty untouched, the taxpayer or advisor would still have to accede to the Notice’s demands on pain of prison time. Small wonder that CIC’s complaint asks  for an injunction against the Notice, not one against the tax penalty helping to enforce it. Contrary to the Government’s assertion, those injunctions are not two sides of one coin.

   n3 The Government suggests that criminal liability would not attach to a taxpayer or advisor who refuses to comply with the Notice out of a “good faith” objection to its validity. Brief for Respondents 46. It is easy to see why the Government  wishes that were true: In none of our Anti-Injunction Act cases has postponing a taxpayer’s suit until after payment exposed him to criminal penalties—because in no other case has that approach required a taxpayer to break a law in the first instance. But this Court’s precedent precludes the Government’s effort to erase the criminal penalties from this case. We have held in no uncertain terms that “a defendant’s views about the validity” of a tax provision—even if held “in good faith”—do not “negate[ ] willfulness or provide[ ] a defense to criminal  prosecution.” Cheek v. United States, 498 U. S. 192, 204, 206 (1991). So in failing to report transactions as the Notice requires, an advisor like CIC would risk criminal punishment.

JAT Comments:

Saturday, May 15, 2021

Defendant Sentenced to 2 Years for FBAR and Tax Evasion Conviction After Guilty Plea (5/15/21)

DOJ Tax issued this press release:  Florida Man Sentenced for Evading Taxes on Millions in Secret Offshore Bank Accounts (2/14/21), here.  Key excerpts are:

A resident of Palm Beach County, Florida, was sentenced to 24 months in prison for not reporting his foreign financial accounts from 2006 through 2015 and for willfully evading the assessment of millions in taxes from 2007 through 2014.

 According to court documents, from 2003 through 2009, Dusko Bruer owned and operated a company that bought U.S.-made agricultural machinery and parts and sold them throughout the world. Bruer’s company had numerous employees and reaped millions of dollars in annual gross receipts. Despite its success, Bruer’s company did not file employment or corporate tax returns, nor did the company pay employment or income taxes. Furthermore, from 2003 forward, the company never paid Bruer a salary. Instead, Bruer directed that millions of dollars from the company’s bank accounts be used to pay his personal expenses, to make foreign investments, and to transfer funds to his family members.

 To conceal his income from the IRS, from 2006 through at least 2015, Bruer owned and controlled bank accounts held at financial institutions in Croatia, Germany, Serbia, and Switzerland, which he did not report, in violation of the law. Between 2007 to 2011 alone, Bruer transferred $5.8 million from domestic accounts to these foreign financial accounts. In total, between 2007 and 2014, Bruer did not report receiving $7,726,213 in income, nor did he pay $2,789,538 in taxes. Bruer used his unreported offshore accounts to fund his lifestyle, including the purchase of foreign property, a $1,350,000 yacht, and a 3,200 square foot home in Lake Worth, Florida, with 100 feet of frontage on the Intracoastal Waterway for $1,650,000. 

In addition to the term of imprisonment, Senior U.S. District Court Judge Kenneth A. Marra ordered Bruer to serve two years of supervised release and to pay approximately $2,789,538 in restitution to the United States.

Friday, May 14, 2021

Swiss Insurance Company and DOJ Enter DPA Requiring $77 Million+ Payment and Cooperation (5/14/21)

DOJ Tax issued this press release:  Switzerland’s Largest Insurance Company and Three Subsidiaries Admit to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts (5/13/21), here.  Relevant excerpts are:

Swiss Life Holding AG, Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. Ltd., and Swiss Life (Luxembourg) S.A. Enter into Deferred Prosecution Agreement for Criminal Misconduct; Agree to Collectively Pay More than $77 Million

The Department of Justice today filed a criminal information charging Swiss Life Holding AG (Swiss Life Holding), Swiss Life (Liechtenstein) AG (Swiss Life Liechtenstein), Swiss Life (Singapore) Pte. Ltd. (Swiss Life Singapore), and Swiss Life (Luxembourg) S.A. (Swiss Life Luxembourg), collectively, the “Swiss Life Entities,” with conspiring with U.S. taxpayers and others to conceal from the IRS more than $1.452 billion in offshore insurance policies, including more than 1,600 insurance wrapper policies, and related policy investment accounts in banks around the world and the income generated in these accounts.

The Justice Department also announced a deferred prosecution agreement with the Swiss Life Entities (“the Agreement”) under which they agreed to accept responsibility for their criminal conduct by stipulating to the accuracy of the Statement of Facts attached to the Agreement. The Agreement requires the Swiss Life Entities to refrain from all future criminal conduct, enhance remedial measures, and continue to cooperate fully with further investigations into hidden insurance policies and related policy investment accounts. Further, as part of today’s resolution, the Swiss Life Entities agreed to pay approximately $77.3 million to the U.S. Treasury, which includes restitution, forfeiture of all gross fees, and a penalty component. If the Swiss Life Entities abide by all of the terms of the Agreement, the government will defer prosecution on the information for three years and then seek to dismiss the charge.

* * * *

According to documents filed today in Manhattan federal court:

Swiss Life Holding is the ultimate parent company of the Swiss Life group of companies (Swiss Life), a Switzerland-based provider of comprehensive life insurance and pension products for individuals and corporations, as well as asset management and financial planning services. From 2005 to 2014, Swiss Life through affiliated insurance carriers in Liechtenstein (Swiss Life Liechtenstein), Luxembourg (Swiss Life Luxembourg), and Singapore (Swiss Life Singapore), (collectively, the PPLI Carriers) maintained approximately 1,608 Private Placement Life Insurance (PPLI) policies. The PPLI Carriers’ issuance and administration of those policies (colloquially known as “insurance wrappers”) and the related investment accounts were often done in a manner to assist U.S. taxpayers in evading U.S. taxes and reporting requirements and concealing the ownership of offshore assets.

Moreover, beginning as early as the summer of 2008, the PPLI Carriers were aware that UBS and other Swiss banks were terminating or reevaluating their business relationships with U.S. clients in response to increasing offshore tax enforcement efforts by U.S. authorities. Certain management and sales personnel within the Swiss Life PPLI Business Unit viewed these developments as a business opportunity to expand the PPLI Business by onboarding U.S. clients who were fleeing UBS and other Swiss banks. Such clients with undeclared assets were typically referred within Swiss Life as “non-comprehensive advice seeking,” which was frequently abbreviated to “NCAS.” Because Swiss Life would be identified as the owner of the policy investment accounts, rather than the U.S. policyholder and/or ultimate beneficial owner of the assets, the insurance wrapper policies could be and were used by unscrupulous U.S. taxpayers to hide undeclared assets and income and to evade taxes. In turn, Swiss Life grew its PPLI business and earned fees on those policies. Members of management of the PPLI Business Unit knew about and authorized the onboarding of U.S. clients without regard to whether they were declared or undeclared.

Swiss Life engaged in other misconduct with respect to U.S.-related policies:

Interesting Complaint in FBAR Collection Suit (5/14/21)

In an original willful FBAR collection complaint filed in United States v.Beyder (D. N.J. Dkt. 3:21-cv-10864 5/6/21 ), here, the following interesting allegations are made:

17. Larisa Beyder has refused to provide bank statements for the BSI ‘999 account. 

18. Larisa Beyder’s father was indicted in 2010 and later pled guilty for a criminal offense related to a failure to file FBARs. Larisa Beyder was the Third-Party Custodian for her father while he awaited sentencing. Larisa Beyder had her BSI ‘999 account at this time. 

* * * *

30. Eduard Beyder has refused to provide bank statements for the BSI ‘453 account.

31. Eduard Beyder’s father-in-law was indicted in 2010 and later pled guilty for a criminal offense related to a failure to file FBARs. Eduard Beyder had the BSI ‘453 account at this time. 

* * * *

33. On May 9, 2019, a delegate of the Secretary of the Treasury assessed civil penalties against Larisa Beyder under 31 U.S.C. § 5321(a)(5) in the amounts of: $258,851 for 2006; $258,851 for 2007; $248,070 for 2008; $248,070 for 2009; $200,566 for 2010; and $152,344 for 2011, for a total assessed amount of $1,366,752. 

* * * *

37. As of April 12, 2021, Larisa Beyder is indebted to the United States with respect to the penalties described in Paragraph 33, above, in the amount of $1,549,185.31, plus statutory additions that continue to accrue thereafter as provided by law. 

38. On May 14, 2019, a delegate of the Secretary of the Treasury assessed civil penalties against Eduard Beyder under 31 U.S.C. § 5321(a)(5) in the amount of $100,000 per year for each of the 2007 through 2011 calendar years, for a total assessed amount of $500,000. 

* * * * 

42. As of April 12, 2021, Eduard Beyder is indebted to the United States with respect to the penalties described in Paragraph 38, above, in the amount of $566,835.62, plus statutory additions that continue to accrue thereafter as provided by law.

JAT Comments:

Thursday, May 13, 2021

Musings on Routine Petition to Quash Summons Denial (5/13/21)

In Sturman v. United States (N.D. Cal. Case No. 20-cv-07787-JSC Dkt. Entry 26 Order dated 5/12/21), CL here and TN pdf here, the Court sustained the summons.  This is fairly routine, so I will not pursue the details in this blog entry.

What caught my eye is that the Petitioner on the Petition to Quash Summons, CL here, is David A. Sturman.  That name rung a bell.  A prominent tax crimes case is United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991), here, which I have discussed in several blogs (see here).  I could not quickly figure out whether it is the same David A. Sturman.  If anybody knows, please comment or email me at

Side note:  Tax Analysts / Tax Notes, under sponsorship of Deloitte, provides original tax documents including court opinions.  Deloitte and Tax Analysts Open Tax Analysts Library to Public Without Subscription ( Federal Tax Crimes Blog 1/11/21), here.  The court opinions are provided in OCR text format and in pdf format (Tax Court pdf with Tax Notes stamp).  For example, in this Sturman case, the OCR is here and the pdf is here.  The OCR seems to have everything except the case number which is on the first page of the pdf copy.  That's a bit weird.  Similarly, I have noted that, when TN offers a Tax Court case, the OCR does not have the citation (TC or TCM but the pdf does).  See, for example, the OCR here and the pdf here for a recent case, BRC Operating Co. LLC v. Commissioner, T.C. Memo. 2021-59.  For the actual citation, you have to link to the TN pdf which has the TCM citation as the first item on the Court's TCM Slip Op. (with TN stamp)  That too is weird.  I am not sure what Tax Notes' and Deloitte's respective strategies are for excluding that key information from the OCR copy, for it seems to be a deliberate omission that a robot OCR routine would not leave out.

Other note:  I check the links when I post and they work OK, but I have noticed that some of the TN links for the pdf will not work after a time.  I am not sure why that is the case.  For future posts, I will stick to Court or CourtListener links.  

Racehorse Haynes and Criminal Trial Stories (5/13/21)

I was sharing a Racehorse Haynes anecdote with a friend and thought it might be worth posting as a light note on the Federal Tax Crimes Blog.  Racehorse Haynes was a legendary Texas criminal defense lawyer.  He has his own Wikipedia page, here. The anecdote I shared with a friend is from an ABA article on him in 2009.  Mark Curriden, Richard 'Racehorse' Haynes (ABAJournal 3/2/09), here.  The article has some good stories about Racehorse.

The anecdote I shared with my friend is this pungent advice to new criminal lawyers (wrapping up the article of anecdotes):

Haynes loves discussing his cases to teach young lawyers about trial practice. In 1978, he told attendees at an ABA meeting in New York City that attorneys too often limit their strategic defense options in court. When evidence inevitably surfaces that contradicts the defense’s position, lawyers need to have a backup plan.

“Say you sue me because you say my dog bit you,” he told the audience. “Well, now this is my defense: My dog doesn’t bite. And second, in the alternative, my dog was tied up that night. And third, I don’t believe you really got bit.”

His final defense, he said, would be: “I don’t have a dog.”

Another one that my friend like was:

Haynes has lived by the advice of his mentor, legendary Texas trial lawyer Percy Foreman: “If you can prove the victim abused a dog or a horse, you can convince the jury that the guy deserved to be killed.”

“For some reason,” Haynes continues, “cats don’t apply.”

I am not sure how you fit those anecdotes into a criminal tax practice.  Perhaps it might go something like this in a tax evasion case centering on a filed tax return with intentional omissions of taxable income:

Wednesday, May 12, 2021

CA9 Holds that Suspension of Limitations Act (“WSLA”) Applies to Fraud and Property Offense Crimes Without Nexus to War or Authorized Use of Armed Forces (5/13/21)

In United States v. Nishiie, 996 F.3d 1013 (9th Cir. 5/12/21), here, in a nontax criminal case, the Court held that the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, here, applies to suspend the criminal statute of limitations for fraud and property offense crimes “whether or not a nexus exists between these offenses and either war or ‘authorized use of the Armed Forces.’“ (Quote is from the Ninth Circuit’s Summary.)

 After reaching that conclusion, the Court said (Slip Op. 29-32, emphasis supplied):

            We recognize the WSLA “creates an exception to a longstanding congressional ‘policy of repose’ that is fundamental to our society and our criminal law.” Bridges, 346 U.S. at 215–16. The WSLA suspends already-running statutes of limitation when its conditions are met. As we detail, the WSLA unambiguously tolls the statute of limitations during any period of war or authorization of the use of the Armed Forces. We are acutely aware—and somewhat concerned—that this interpretation, while legally correct, may effectively toll the statute of limitations for offenses under the WSLA for 20, 30, even 40 plus years. In large part that results from the expansion of war powers far beyond what they were when the WSLA was codified in 1948. Any policy concern for subjecting defendants to [*30] decades-long liability is subordinated to the WSLA’s unambiguous language.

            “We sit as judges, not as legislators . . .” California v. Ramos, 463 U.S. 992, 1014 (1983). “It is hardly this Court’s place to pick and choose among competing policy arguments . . . selecting whatever outcome seems to us most congenial, efficient, or fair. Our license to interpret statutes does not include the power to engage in . . . judicial policymaking.” Pereida v. Wilkinson, 141 S. Ct. 754, 766–67 (2021). Inducing perpetual limbo for potential criminal defendants under the WSLA is presumably not what Congress had contemplated. Nor did the 1940s era Congress likely anticipate the transformation of warfare. Our interpretation may seem like a gratuitous reading in light of modern criminal justice reform. “But our public policy is fixed by Congress, not the courts.” Bridges, 346 U.S. at 231 (Reed, J., dissenting). Readily apparent from the WSLA’s amendment history is that Congress is fully capable of changing course and cabining the reach of any statute of limitations if it decides public policy warrants such a change. See Ramos v. Wolf, 975 F.3d 872, 900 (9th Cir. 2020) (R. Nelson, J., concurring) (“Our sole responsibility as Article III judges is narrow—‘to say what the law is.’”) (quoting Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803)); id. (“By constitutional design, the branch that is qualified to establish . . . policy and check any excesses in the implementation of that policy is Congress.”) (citing City & Cnty. of San Francisco v. U.S. Citizenship & Immigr. Servs., 944 F.3d 773, 809 (9th Cir. 2019) (Bybee, J., concurring)).

Tuesday, May 11, 2021

Mens Rea in Tax Crimes and Acceptance of Responsibility (5/11/21)

In United States v. Roskovski, 2021 U.S. Dist. LEXIS 84379 (W.D. Pa. May 3, 2021), here, the Court denied (again) Roskovski’s attempt to withdraw his guilty plea for violations of 18 U.S.C. § 1014 (False Statements in a Loan Application) and 26 U.S.C. § 7206(1) (Filing a False Tax Return).  The Counts involved in the plea were Courts 36 and 42; apparently, a lot of counts were dropped in return for the guilty plea to the two counts.  Roskovski claimed that he did not understand the plea as it relates the required mens rea that the Government must prove at trial for the two counts.  Roskovski claimed innocence because “he lacked the necessary intent.”  Among his claims were:

As to the charge of filing a false income tax return, Mr. Roskovski was under the mistaken impression that the mere underreporting of income was sufficient to establish his guilt at trial. [ ] Mr. Roskovski misunderstood from his discussions with prior counsel that preponderance of evidence was not the standard on the intent element to be applied if he were to go to trial. [ ]

As to the charge of making a false statement in connection with a loan application, Mr. Roskovski mistakenly believed that falsity, without the required element of intent proved beyond a reasonable doubt, was also sufficient to establish his guilt at trial. [ ] Mr. Roskovski misunderstood from his discussions with prior counsel the correct burden to be applied at trial, and, as a result, he believed that the mere inclination that he should have known of the falsity was sufficient to prove his guilt at trial. [ ] Mr. Roskovski had a genuine misunderstanding as to the standard for intent for both charges for which he pleaded guilty.

With regard to each, Roskovski alleged "the complex interplay between the burdens of proof required at the conviction versus the sentencing phases in federal fraud cases is a difficult field even for experienced federal legal practitioners, much less laymen."

The Court did not accept the claims and denied the Motion to Withdraw.  The Court thought that Roskovski could just not accept the potential sentencing in the case, particularly after  the Presentence Investigation Report was filed where the potential sentence was forced on his consciousness.

I don’t think there is anything particularly noteworthy about the case except that it raises the mens rea required, particularly for tax crimes with the Cheek definition of willfulness – intentional violation of a known legal duty.  The prosecution must prove that level of mens rea beyond a reasonable doubt.  Roskovski claimed, in effect, that he had not been adequately counseled about the proof required for the mens rea element of the crimes to which he pled and therefore that his plea should not stand because he could not admit the crime with the mens rea element properly understood.

Senate Finance Subcommittee Hearing Today on Tax Gap from Noncompliance and Offshore Tax Evasion (5/11/21)

Today, the Senate Finance Committee’s Subcommittee on Subcommittee on Taxation and IRS Oversight holds a hearing billed as: Closing the Tax Gap: Lost Revenue from Noncompliance and the Role of Offshore Tax Evasion, here.  The link is to the video when the hearing starts.  The hearing is scheduled to start at 2:30 pm EDT.  

The witness list is:

Barry Johnson
Acting Chief, Research And Analytics Officer, Internal Revenue Service
United States Department of the Treasury
Washington , DC

Doug O’Donnell
Deputy Commissioner, Services & Enforcement, Internal Revenue Service
United States Department of the Treasury
Washington, , DC

The Honorable J. Russell George
Treasury Inspector General For Tax Administration
United States Department of the Treasury
Washington , DC

Nina E. Olson
Executive Director
Center for Taxpayer Rights
Washington , DC

Charles O. Rossotti
Former Commissioner (1997-2002)
Internal Revenue Service
Washington, DC

I assume that there will be written submissions by the witnesses and, if so, I will identify and link them.

  • George's submission here.

Monday, May 10, 2021

Follow by Email Feedburner Email Notice Service Being Discontinued (5/10/21)

Some readers of the Federal Tax Crimes Blog have signed up for and have been receiving email notifications of new blog entries via a service called Feedburner through the “Follow by Email” widget that formerly was in the right hand column on this blog.  The Feedburner service is being discontinued in July 2021.  I am therefore eliminating that widget so that Follow by Email will not longer be available for new subscribers to that service and,  I gather, the Follow by Email service will stop working in July 2021 for persons who were already registered.

There are other services that, I understand, can provide that functionality, but I just have not spent the time to try to figure out how they work and how to implement them on the blog site.  If and when I figure that out, I will try to get a replacement Follow by Email.

I have downloaded the email addresses of those who were registered as of today.  So, if I get a substitute service for this functionality, I will email those persons with notice so that they can register.  I will also post a blog entry notifying of the replacement service (if I set up one).

Saturday, May 8, 2021

Fifth Circuit Holds that the Defraud/Klein Conspiracy Does Not Have Pending Proceeding Element; Update on Cert Petition in Related Case (5/8/21)

In United States v. Herman, 2021 U.S. App. LEXIS 13557 (5th Cir. May 6, 2021), CA5 here & TN here, the Court affirmed the convictions of husband and wife, restaurant owners and operators for the defraud/Klein conspiracy and willfully filing false tax returns. 

The noteworthy holding in the opinion is that the Klein conspiracy in § 371 does not import the holding in Marinello v. United States, 584 U.S. ___, 138 S. Ct. 1101 (2018), that the tax obstruction crime (§ 7212(a)) requires a nexus to an administrative proceeding.  (See Slip Op. 25-29.) 

As the Fifth Circuit panel notes, its holding is consistent with the two other circuits’ holdings, the only circuit court cases addressing the issue.

One of the other circuit court cases was United States v. Flynn, 969 F.3d 873 (8th Cir. 2020), cert. docketed, 20-1129 (Feb. 17, 2021).  I previously wrote on the petition for cert in Flynn.  See Defendant Petitions for Cert on Relationship of Defraud Conspiracy and Marinello Interpretation of Tax Obstruction (2/22/21), here.  I thought readers might want an update on the status of the pending petition for cert in Flynn.

The Supreme Court docket entries in Flynn, here, indicate that the following key entries:

  • The petition was filed 2/11/12, 
  • The Government’s response is due 5/19/21 (after some extensions) 
  • An amicus brief in support of the petition was filed by the New York Council of Defense Lawyers on 5/2/21.  

Friday, May 7, 2021

11th Circuit En Banc Holds that a Juror's Listening to God Does Not Alone Warranted Removal of the Juror (5/7/21)

I previously blogged on the 11th Circuit’s panel opinion  United States v. Brown, 947 F.3d 655 (11th Cir.), vacated, reh’g en banc granted, 976 F.3d 1233 (11th Cir. 2020), here.  See Eleventh Circuit Affirms Conviction of Another Congressman (Federal Tax Crimes Blog 1/14/20; 1/16/20), here.  In relevant part, in the case with some tax counts, the panel opinion upheld the trial judge’s removal of a juror after the jury started deliberations because the juror expressed that

 "A Higher Being told me Corrine Brown was Not Guilty on all charges". He later went on to say he "trusted the Holy Ghost".

 In an en banc opinion yesterday, United States v. Brown (11th Cir. 5/6/21), here, the 11th Circuit has reversed and remanded for a new trial.  The en banc majority opinion by Judge William Pryor opens with a good summary:

This appeal requires us to decide whether a district judge abused his discretion by removing a juror who expressed, after the start of deliberations, that the Holy Spirit told him that the defendant, Corrine Brown, was not guilty on all charges. The juror also repeatedly assured the district judge that he was following the jury  instructions and basing his decision on the evidence admitted at trial, and the district judge found him to be sincere and credible. But the district judge concluded that the juror’s statements about receiving divine guidance were categorically disqualifying. Because the record establishes a substantial possibility that the juror was rendering proper jury service, the district judge abused his discretion by dismissing the juror. The removal violated Brown’s right under the Sixth Amendment to a unanimous jury verdict. We vacate Brown’s convictions and sentence and remand for a new trial.

There are concurring and dissenting opinions, with all opinions aggregating 98 pages.

 I offer key (but lengthy) excerpts from the majority opinion (beginning on p. 22) are (substantially "cleaned up" for readability:

Because our jury system works only when both the judge and the jury respect the limits of their authority, a district judge may excuse a juror after deliberations have begun only on a finding of “good cause.” See Fed. R. Crim. P. 23(b)(3). It is well settled that good cause exists to dismiss a juror when that juror refuses to apply the law or to follow the court’s instructions. Such a juror abdicates his constitutional responsibility, and violates his solemn oath. But to remove a juror because he is unpersuaded by the Government’s case is to deny the defendant his right to a unanimous verdict. Distinguishing between these two jurors is often difficult, as the line between them can be vanishingly thin,

To guard against the danger that a dissenting juror might be excused under the mistaken view that the juror is engaging in impermissible nullification, we apply a tough legal standard for the dismissal of jurors during deliberations. Along with four of our sister circuits, we have held that, in these kinds of circumstances, a juror should be excused only when no substantial possibility exists that she is basing her decision on the sufficiency of the evidence. We have explained that this standard is basically a beyond reasonable doubt standard.

 So, for a district judge to find that this standard of proof is satisfied, he must determine with utmost certainty that a juror has refused to base his verdict on the law as instructed and the evidence admitted at trial. Although a district judge applies the same high standard of proof to dismiss a deliberating juror that a jury applies to convict a defendant, our review of their decisions is starkly different—and with good reason. When we evaluate a challenge to the sufficiency of the evidence supporting a conviction, we must view the evidence in the light most favorable to the government, drawing all reasonable inferences in favor of the jury’s verdict. And we consider only a legal question: whether any rational trier of fact could have found that the evidence established guilt beyond a reasonable doubt. We leave a jury free to choose between or among the reasonable conclusions to be drawn from the evidence. This limited review does not [*25] intrude on the jury’s role to resolve conflicts in the testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts. After all, jurors are the sole judges of the facts. 

Wednesday, May 5, 2021

Court Authorizes Service of John Do Summons to Payward Ventures d/b/a Kraken, a Cryptocurrencies Service Provider (5/4/21)

DOJ Tax has issued this press release:  Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency (5/5/21), here.  The key parts of the press release are:

            A federal court in the Northern District of California entered an order today authorizing the IRS to serve a John Doe summons on Payward Ventures Inc., and Subsidiaries d/b/a Kraken (Kraken) seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Kraken, a digital currency exchanger headquartered in San Francisco, California.

  * * * *

            Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudoanonymous aspect, taxpayers may be using them to hide taxable income from the IRS. On April 1, 2021, a federal court in the District of Massachusetts granted an order authorizing the IRS to serve a similar John Doe summons on Circle, a digital currency exchange headquartered in Boston.

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

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

The press release linked above has links to pdfs of most the documents in the case as of this date.  I find that a better free source for most of the documents is on the CourtListener web site, here for the case, In the Matter of the Tax Liabilities of John Does (N.D. Cal. Dkt No. 3:21-cv-02201).  (The pdfs linked on the press release seem not to allow copying and pasting, but the ones on CourtListener do; in addition, future documents will likely be available on the CourtListener site.)

8th Circuit Holds that Marinello Nexus to Administrative Proceeding Need Not Separately Pled in Indictment (5/5/21)

In United States v. Prelogar, ___ F.3d ___, 2021 U.S. App. LEXIS 12899 (8th Cir. 4/30/21), here, the Eighth Circuit addressed whether indictment must contain the Marinello nuance of the tax obstruction crime (§ 7212(a)) to require a nexus between a particular administrative proceeding and the defendant’s conduct must be included in the indictment.  See Marinello v. United States, 584 U.S. ___,138 S.Ct. 1101 (2018).  The Eighth Circuit held that the nexus need not be pleaded in the indictment, so that proof at trial will suffice for conviction.

The Court’s reasoning (Slip Op. 6-7):

            While Marinello identified what the government must “show” to “secure a conviction” under section 7212(a), see 138 S.Ct. at 1109, neither Marinello nor Beckham addressed whether the nexus and knowledge requirements must be charged in the indictment, nor did those decisions invite scrutiny of the elements charged. Marinello greatly relied on Aguilar, which proclaimed a “nexus” requirement for a similar omnibus clause under 18 U.S.C. § 1503(a) that prohibits endeavoring to obstruct the due administration of justice. 515 U.S. at 600. Like Marinello, the Aguilar opinion is silent on whether the nexus requirement must be included in the charging document. While our court has not decided this question subsequent to Aguilar, federal courts that have addressed the issue have found the nexus requirement is not required to be alleged in the indictment because it is “implicit.” See, e.g., United States v. Collis, 128 F.3d 313, 317–18 (6th Cir. 1997); see also United States v. Sussman, 709 F.3d 155, 177 (3d Cir. 2013) (citing to Collis, 128 F.3d at 318 for principle that the nexus requirement is not a fourth element and instead can be addressed in jury instructions).

            This interpretation is consistent with other Supreme Court decisions that have clarified statutory elements in conjunction the government’s proof obligations. For example, in Rehaif v. United States, 588 U.S. ___, 139 S.Ct. 2191, 2200 (2019), the Supreme Court concluded that the government must prove, among other things, that a defendant had knowledge of his status as a prohibited person in felon-in-possession cases. After Rehaif, we found no error where the indictment charged a violation of 18 U.S.C. § 922(g)(5)(A) but failed to allege the defendant had knowledge of his status because the indictment tracked the statutory language. United States v. Jawher, 950 F.3d 576, 579 n.2 (8th Cir. 2020). Similarly, in Flores-Figueroa v. United States, 556 U.S. 646, 657 (2009), the Supreme Court held that in aggravated identity theft cases the government must prove the defendant had knowledge that the means of identification he unlawfully transferred, possessed, or used belonged to another person. We later upheld as sufficient an indictment that charged aggravated identity theft because, although the indictment did not plead knowledge as explained in Flores-Figueroa, it tracked the language of 18 U.S.C. § 1028A(a)(1). United States v. Dvorak, 617 F.3d 1017, 1026–27 (8th Cir. 2010).

            Count Two charged Prelogar with “corruptly endeavor[ing] to obstruct and impede the due administration” of the tax laws, by committing certain specified acts, in violation of § 7212(a). The indictment “tracks the language of the statute” and “fairly informs the defendant of the charges against him.” See Sewell, 513 F.3d at 821–22. We conclude that Marinello clarifies what must be proven to sustain a conviction under § 7212(a) but does not require that nexus and knowledge be charged in the indictment. The district court did not err in denying Prelogar’s motion to dismiss Count Two.

Wednesday, April 28, 2021

Commissioner Rettig Tax Gap Comments Relevant to Federal Tax Crimes (4/28/21)

The IRS has a new web page titled “Impacting the Tax Gap” here.  The page is a summary of Commissioner Rettig’s comments which are set forth in a linked pdf here.  Commissioner Rettig’s comments are excellent.  Highly recommended.

I will cut and paste the comments I think most relevant to readers of this Federal Tax Crimes Blog (footnotes omitted; I stated the categories of the report but only include the text under the category relevant to criminal matters so some comments will not be included; I do not state the page numbers but searching the pdf can get the pages):

Research on high wealth noncompliance

            Several RAAS researchers recently participated in a study published by the National Bureau of Economic Research (NBER) entitled “Tax Evasion at the Top of the Income Distribution: Theory and Evidence.” This study examined tax evasion at the highest income levels and estimated that the top 1 percent of Americans hide more than 20 percent of their income from the IRS. With more, specialized, and targeted enforcement resources, the IRS could significantly reduce the income tax gap for the top 1% and collect another $175 billion of taxes annually. 

            As to why sophisticated tax evasion seems so concentrated at the top, the study suggests that (i) concealment of tax evasion from auditors is costly, requiring substantial financial sophistication, (ii) high-income people can save huge amounts of tax with little risk by adopting sophisticated strategies, which makes it worth the cost, and (iii) audit rates are relatively high at the very top of the income distribution, so if the audits are not thorough enough to correct sophisticated evasion, then high audit coverage rates themselves incentivize the concealment of tax evasion.

            A key difficulty in identifying tax evasion by the wealthy is the complexity of the forms of tax evasion at the top, which can involve legal and financial intermediaries, sometimes in countries with a great deal of secrecy. Income flows from assets outside of 3rd party reporting requirements or obscured through multiple layers of ownership make it difficult to associate the income with specific individuals. The study estimated that accounting for offshore and undercounted pass-through evasion alone could identify an additional $110 billion in undetected income which would have resulted in an additional $33 billion of taxes annually.