Government Suit to Enforce JDS to Offshore Promoter (5/29/22)

In United States v. Wessell (S.D. Fla. Case 22-cv-60988), Cl dkt entries here, the Government filed under seal a request for authorization of a John Doe Summons (“JDS”) to Kevin W. Wessell and related entities.  The Government had filed similar JDS’s in other jurisdictions for related summonsees.  The Government now files a petition to enforce the summons (JDS) issued to Wessell.  (See dkt entry 1, dated 5/24/22, here.)  The Government also filed a Brief in Support (dkt entry 3, dated 5/24/22, here (15 pages) with supporting documents including an IRS declaration here (124 pages) and certain other exhibits, including a privilege log of 482 pages).

The Brief summarizes the IRS’s concerns about Mr. Wessell as follows (pp. 1-2, footnotes omitted):

            On September 26, 2018, the IRS served a summons on Mr. Wessell. Exhibit 1 (Cincotta Decl.) ¶ 10. The purpose of the summons is to identify the clients of the Wessell Group, a sprawling enterprise operated by Mr. Wessell whose activities bear “the hallmarks of offshore tax evasion.” Id., Attachment C ¶ 27.1

            In particular, the Wessell Group creates foreign entities and bank accounts in tax havens such as the Cook Islands and Nevis in order to help United States taxpayers hide their money. Id. ¶¶ 19–49. The Wessell Group equips its customers with nominee directors and officers, and it even provides them with suggested avenues for circumventing court orders to repatriate funds. Id. ¶¶ 32–38. Based on extensive evidence outlined by the United States in a 2018 filing, this Court has already concluded that “there is a reasonable basis for believing” that the Wessell Group’s customers “may fail or may have failed to comply with the internal revenue laws,” which require taxpayers to report their worldwide income and pay associated taxes. See In re Tax Liabilities of John Does, No. 0:18-cv-62135- WPD, ECF No. 6 at 1 (S.D. Fla. Sept. 13, 2018).

            The IRS summons required Mr. Wessell to produce all documents related to United States taxpayers who, between January 1, 2012 and December 31, 2017, used the Wessell Group to “establish, maintain, operate, or control: any foreign financial account or other asset; any foreign corporation, company, trust, foundation, or other legal entity; or any foreign or domestic financial account or other asset in the name of a foreign entity.” Exhibit 1 (Cincotta Decl.) ¶ 11 & Attachment D. The deadline for compliance was October 26, 2018. Id. ¶ 9.

 Once the JDS was issued, the concern addressed in the petition to enforce is whether Wessell properly complied with the summons.  The Government has concerned about whether Wessell produced the summonsed records or properly accounted for the summonsed records in a privilege log.  Suffice it to say that the number of potential documents within the scope of the summons is quite large.

Things that caught my attention include the following:

Brockman Found Competent to Stand Trial (5/24/22)

In the gorilla of tax crimes cases, United States v. Brockman (S.D. Tex. Crim  4:21-CR-9), CL Docket Entries here, the Court yesterday denied Brockman’s attempt to avoid trial by feigning, so the Court found, incompetence.  The Memorandum Opinion and Order (“Order”) so holding is here (Dkt # 263).  The conclusion (pp. 41-42) is:

IV. CONCLUSION

The Court finds that the Government has met its burden of establishing that Defendant Robert T. Brockman is competent to stand trial. In so finding, the Court is very mindful that Brockman is an elderly person who has Parkinson’s Disease, which is a neurodegenerative disorder, and has suffered from some degree of cognitive impairment. However, the evidence before the Court shows that Brockman is also an extremely intelligent person with both a high cognitive reserve and history of malingering for secondary gain. The Government has introduced compelling evidence showing that Brockman exaggerated his cognitive symptoms when he was being examined by medical professionals in the past; and Brockman’s performance on validity tests—some of them administered by his own neuropsychological expert—indicates that he continues to exaggerate impairment. Accordingly, the Court finds Defendant Robert T. Brockman competent to stand trial.

With this diversion behind for now, the case can proceed through other pretrial steps (including, certainly, further diversions for a defendant with the deepest of pockets to afford such diversions to delay or avoid justice) and go to trial.

I do not further discuss the Order because there are no exceptional criminal tax issues in the Order.  Just a guy trying to avoid trial as if he were a fugitive from justice.

Unposting of Blog Entry (5/21/22)

Earlier, I posted a blog entry on the Federal Tax Crimes Blog that should have been posted on the Federal Tax Procedure Blog.  I have now moved that blog entry to the Federal Tax Procedure Blog.  The blog entry is now Adjudications of Agency Actions and the Right to Jury Trial (Federal Tax Procedure Blog 5/21/22), here.  Sorry to readers for that mistake.

Solicitor General Acquiesces in Bittner Petition for Cert on Issue of FBAR Nonwillful Penalty Per Form or Per Account (5/19/22)

I previously discussed United States v. Bittner, 19 F.4th 734 (5th Cir. 11/30/21), CA5 here, and GS here, in which the Court held that the FBAR civil nonwillful penalty is applied per account rather than per form. See Fifth Circuit Applies FBAR NonWillful Penalty Per Account and Not Per Form (Federal Tax Crimes Blog 11/30/21), here. That holding conflicted with a prior holding of the Ninth Circuit in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), CA9 here and GS here. On February 28, Bittner filed a Supreme Court petition for writ of certiorari. The docket entries for documents related to that petition are here. On May 17, the Solicitor General filed the U.S. response, here, advising that the U.S. acquiesces in the petition (acquiesce was the term of art I recall from working at DOJ Tax Appellate in the 1970s) as follows (p. 12, bold supplied by JAT):

DISCUSSION

The court of appeals correctly determined that the Bank Secrecy Act authorizes the Secretary of the Treasury to impose a civil penalty of up to $10,000 on a U.S. person for each foreign financial account that the person fails to report as required by the Act and its implementing regulations, because each failure to report a qualifying account is a separate “violation,” 31 U.S.C. 5321(a)(5)(A), for which the Secretary may impose a separate penalty. Yet, as petitioner explains (Pet. 13-25), the decision below conflicts with a recent decision by a divided panel of the Ninth Circuit in United States v. Boyd, 991 F.3d 1077 (2021). The question presented is important and will often recur, and this case would be an appropriate vehicle in which to address it. Accordingly, the petition for a writ of certiorari should be granted.

Further, the Solicitor General said (pp. 18-19):

3. The division of authority between the Fifth and Ninth Circuits on the question presented is recent, and no other court of appeals has yet addressed whether the Secretary may assess a civil penalty of up to $10,000 for each foreign account that  a U.S. person fails to report on a single FBAR. Nonetheless, the question presented is important and likely to recur, and the government agrees with petitioner that the issue—a fairly straightforward and discrete question of statutory construction—warrants this Court’s review at this time.

In early March, I discussed Bittner’s petition with a friend, offering the following on the possibility of the Court granting cert.

District Court Retains Jurisdiction While Arbitrary and Capricious FBAR Willful Penalty Amount is Remanded to IRS for Recalculation (5/18/22)

In United States v. Schwarzbaum (S.D. Fla. Case # 18-cv-81147-BLOOM/Reinhart Dkt #146 5/16/22), CL here, the Court granted the Government's motion to retain jurisdiction while the FBAR penalty is remanded to the IRS for recalculation. The pleadings on the motion and much other commotion at the district court level can be reviewed on the CourtListener docket entries site for the case here. I have previously covered the issues on retention of jurisdiction:  More Thrashing in Schwarzbaum on Effect of Eleventh Circuit's Remand to Remand to IRS on Statute of Limitations (4/1/22; 4/7/22), here; see also 11th Cir. Remands For IRS To Re-Determine FBAR Penalties After Affirming Original Calculation Was Arbitrary And Capricious (1/26/22), here.

The net effect of retaining jurisdiction is that the fight over the statute of limitations with respect to the recalculated FBAR penalty will be thrashed out later, probably on appeal after the district court enters judgment on the recalculated penalty amount. I am not an administrative law or Administrative Procedure Act (APA) expert, so I don't know and cannot credibly predict what the ultimate resolution of the issue will be. Can the IRS correct an "arbitrary and capricious" assessment outside the six-year limitations period? My best guess is that the law is not clear on the issue. I can say that correcting the assessment amount with the old timely assessment remaining in effect seems like the "right" answer. I just cannot speculate credibly on whether the law permits that right answer.

First Circuit Sustains Willful Penalty Where Willfulness Found as Discovery Sanction (5/2/22)

In United States v. Toth, 33 F.4th 1 (1st Cir. 4/29./22), CA1 here and GS here, the Court affirmed the district court’s grant of summary judgment which had imposed a willful determination as a discovery sanction.   See In Willful FBAR Collection Suit, District Court Rejects Reconsideration of Finding of FBAR Willfulness As Discovery Sanction (Federal Tax Crimes Blog 12/28/19), here; and District Court Grants Government Summary Judgment on FBAR Civil Willful Penalty (9/19/20), here.  The opinion, written by Judge Barron (Wikipedia here) is a bit of a slog (42 pages in pdf of Slip Op.), so I just focus on the parts of the opinion that I found interesting.

1. The opinion says (Slip Op. 3) that Toth had filed her first FBAR in 2010.  I infer that the Court means 2010 FBAR which would have been filed in 2011.  The Court then says (Slip Op. 3) “the IRS filed the delinquent FBAR forms on her behalf for the relevant period (2005-2009).”  I may have missed something over the years, but I don’t recall hearing that the IRS files delinquent FBARs for taxpayers.  (Compare by analogy, substitutes for returns filed under § 6020.)   I  am aware of no such authority for the IRS or FinCEN to file substitutes for FBARs. (But then I am often unaware.)

2. The Court has considerable discussion (Slip Op. 21-31) of the issue of whether the FBAR penalty was limited under the regulation originally promulgated in1987 under the statute then capping the FBAR penalty at $100,000 which was not changed after the 2004 amendment increasing the willful penalty to the greater $100,000 or 50% of the unreported accounts precluded.  The consensus in the Courts of Appeals is that the old regulation (now updated effective 12/23/21) did not apply to limit the maximum penalty under the 2004 revision.