Saturday, July 23, 2022

3rd Circuit Affirms Bedrosian FBAR Will Penalty Liability Based on His Counsel's Judicial Admissions as to Amount (7/23/22)

In Bedrosian v. United States, ___ F.4th ___,2022 U.S. App. LEXIS 20260 (3rd Cir. 7/22/22), CA3 here, and GS [to come], the Court sustained the district court’s application of the FBAR willful penalty. Given the history which I cover in earlier blogs, the holding on the issue of Bedrosian’s willfulness is not surprising. See Bedrosian on Remand -- Held Bedrosian Acted Recklessly and thus Subject to FBAR Civil Willful Penalty (Federal Tax Crimes Blog 12/6/20), here; and Bedrosian on Appeal; Interesting and Potentially Important Opinion on Jurisdiction in FBAR Penalty Cases (Federal Tax Crimes Blog 12/21/18; 1/10/19), here. The earlier Third Circuit opinion is Bedrosian v. United States, Dep't of Treasury, IRS, 912 F.3d 144 (3d Cir. 2018), 3rd Cir. here and GS here.

The one interesting aspect of the appeal is that the Court, although finding the Government’s proof was deficient as to the amount in the accounts subject to the penalty (thus precluding calculation of the penalty), Bedrosian through counsel made “judicial admissions” as to the amount that the Court of Appeals could invoke to supply the missing proof. The Court said (Slip Op. pp. 18-19, cleaned up): 

Still, even though the District Court did not address this argument, we may affirm on any basis supported by the record, even if it departs from the District Court’s rationale. And while arguably some of the statements Bedrosian made in the District Court proceedings are not judicial admissions, the statement made in opening argument acknowledged the true state of the facts. The concession that “there was about 2 million U.S. dollars” in the undisclosed account makes the IRS’s $975,789.17 penalty below the statutory maximum (50% of the account balance). We therefore affirm the District Court’s judgment on this alternative ground.

 JAT Comments:

Friday, July 15, 2022

Update Information from Kepke Prosecution (7/15/22)

I have posted before on the indictment of Carlos Kepke, a Houston tax attorney who, according to the allegations, assisted clients (including Brockman and Smith) set up offshore structures for tax evasion. See here. There is an excellent recent article on Kepke and various points in the trajectory (including sting operations) of his investigation Neil Weinberg & David Voreacos, The Sting That Snagged the Tax Lawyer to a Pair of Billionaires (BloombergLaw 7/12/22), here (subscription required). 

Much of the information in the article appears to be from the affidavit in support of the search warrant obtained for Kepke’s office/residence. That search warrant affidavit has been filed in Kepke’s criminal case. United States v. Kepke (N.D. Cal. No. 3:21-cr-00155). The docket entries and documents in the case are available on PACER (requires subscription and fee to download), but the docket entries and many documents are free on CourtListener. The CL docket entries are hereThe docket entry for the search warrant affidavit is 44, Attachment 3. The affidavit is here.

I found the affidavit to be great reading. I am particularly interested in the Kepke prosecution because I was formerly (1977-198) an associate in a law firm in Houston where Kepke was a partner. Kepke was doing the same type of stuff described in the affidavit then. I did not do anything with Kepke while with the firm except, on two occasions, to bring foreign tax questions to him because he was the firm’s foreign tax “expert.”  I found that on those occasions, his foreign tax advice was incorrect when I checked it further on my own. (On the most egregious occasion, Kepke who had a high billing rate (higher than his level of competence in my opinion based on two anecdotal instances) grossly inflated his claimed time spent by a multiple of 8 (Kepke always had huge monthly "billable" hours although not spending that much time at the firm); I convinced the billing partner to write off Kepke’s overstated claim of time (at exorbitant rate) spent giving me the incorrect advice.)  In any event, through some serendippity, I did review some documents from Kepke's practice regarding offshore strategies. He was doing then the same genre of structuring as described in the affidavits.

I won’t try to summarize all in the affidavit, but will just offer some items that I found particularly interesting that may be of interest to others:

Smith was identified through a bank disclosure in the DOJ Swiss Bank Program. Aff. 6-7, 13.)  DOJ Tax forwarded the Smith information to IRS CI, whereupon IRS CI recommended that the DOJ Tax authorize a grand jury investigation of Smith. (Aff. 7, ¶ 14). (Apparently there were Forms 211 filed for a whistleblower award with respect to Smith, but I don’t know the relationship of the Forms 211 information to the ultimate major recoveries from Smith.)  Kepke was implicated through the Smith investigation. 

Wednesday, July 13, 2022

11th Circuit Reverses Conviction for Ineffective Assistance of Counsel for Not Filing a Rule 29 Motion re Affirmative Act of Evasion (7/13/22; 7/14/22)

As I promised yesterday, I have added substantially below for the paragraphs after paragraph 1. I made these additions on 7/14/22 3:30 pm.

The Eleventh Circuit issued the opinion in Hesser v. United States, ___ F.4th ___, ____ (4th Cir. 7/13/22), CA11 here and GS here [to come]. I have not fully digested the opinion and am not prepared to offer meaningful, nuanced comments that will be useful to readers of the Federal Tax Crimes Blog. I will stew on the opinion a bit before commenting. My detailed comments will come later as addenda to this blog.

Let me try to summarize at a high level what happened. A jury long ago convicted Hesser of “tax fraud under 18 U.S.C. § 287 and 18 U.S.C. § 2 and one count of attempted tax evasion under 26 U.S.C. § 7201.”  (A quibble, I would not describe § 287, labeled in the Code “False, fictitious or fraudulent claims,” as tax fraud since that term is often applied to other tax crimes, such as even § 7201.)  On Rule 29 motion after the jury verdict, the district court sustained the convictions. On direct appeal, the 11th Cir. affirmed the convictions but remanded for further consideration of restitution. United States v. Hesser, 800 F.3d 1310 (11th Cir. 2015), GS here. Hessell then sought post-conviction relief under 28 USC § 2255 from the counts of conviction for "tax fraud" and tax evasion, alleging ineffective assistance of counsel. (Ineffective assistance of counsel is a common claim in § 2255 cases, although usually without merit.)  The district court granted the relief for the tax fraud counts but denied the relief for the tax evasion count.  Hesser appealed after obtaining a Certificate of Appealability from the 11th Circuit. On the § 2255 appeal, the 11th Circuit held that, on its view of the record, Hesser had been denied effective assistance of counsel because counsel failed to argue for Rule 29 judgment of acquittal at the close of the prosecution's case-in-chief on the basis that the prosecution had not adequately presented an element of the tax evasion crime – affirmative act of evasion. The 11th Circuit reasoned that, had counsel timely requested Rule 29 relief, the district court would have erred as a matter of law in not granting that relief on the affirmative act of evasion element. So counsel’s failure to request that relief establishes that counsel’s representation was not effective, thus requiring vacation of the conviction. Whew (just trying to pack the gravamen of the case into those words wears me out; there is a lot of nuance underlying that summary).

Monday, July 11, 2022

Teaching Tax Through Movies -- Loverly (7/11/22)

 I was in my former life an Adjunct Professor at University of Houston Law School where I taught courses in Tax Procedure and in Tax Crimes.  Often in the courses, I would mention My Cousin Vinny to illustrate (often by stretch) some point relevant to the classes.  

This offering caught my attention.  Alice G. Abreu (Temple), Teaching Tax Through Film Is Not As Crazy As It Sounds, 19 Pittsburgh Tax Rev. 183 (2022), here.  I was intrigued to see what Professor Abreu offered her students in the way of teaching tax law through the movies. I offer the relevant portions (pages 205-207 of the article (pages 24-26 of the pdf), footnotes omitted).

The films for this course were chosen for a breadth of genres and eras from the 1960s to last year. Some were animated; some were about superheroes; some were musicals. I aspired for every student to enjoy at least one film, and I hope they enjoyed many more. At the same time, an underlying need was to choose films that highlight specific tax topics. Although all films raise important tax issues, some are more clearly on point for the topics we covered.

Thursday, July 7, 2022

Article on Coinbase Tool for Identifying Owners of Cryptocurrency (7/7/22)

I am not steeped in the cryptocurrency craze.  Basically, I thought the attraction was the ability to do financial transactions in guaranteed secrecy, a feature particularly attractive to many such as money launderers and tax evaders.  I have had some posts on it.  See the Cryptocurrences tag here.  Still, I do not deal with cryptocurrencies in my practice or research.  So that is my caveat.

The following article caught my eye:  Sam Biddle, Cryptocurrency Titan Coinbase Providing "GEO Tracking Data" to ICE (The Intercept 6/29/22), here.  I thought some readers might be interested, so I pass it on.

Some excerpts:

            Coinbase Tracer allows clients, in both government and the private sector, to trace transactions through the blockchain, a distributed ledger of transactions integral to cryptocurrency use. While blockchain ledgers are typically public, the enormous volume of data stored therein can make following the money from spender to recipient beyond difficult, if not impossible, without the aid of software tools. Coinbase markets Tracer for use in both corporate compliance and law enforcement investigations, touting its ability to “investigate illicit activities including money laundering and terrorist financing” and “connect [cryptocurrency] addresses to real world entities.”

             According to the document, released via a Freedom of Information Act request, ICE is now able to track transactions made through nearly a dozen different digital currencies, including Bitcoin, Ether, and Tether. Analytic features include “Multi-hop link Analysis for incoming and outgoing funds,” granting ICE insight into transfers of these currencies, as well as “Transaction demixing and shielded transaction analysis” aimed at thwarting methods some crypto users take to launder their funds or camouflage their transactions. The contract also provides, provocatively, “Historical geo tracking data,” though it’s unclear what exactly this data consists of or from where it’s sourced. An email released through the FOIA request shows that Coinbase didn’t require ICE to agree to an End User License Agreement, standard legalese that imposes limits on what a customer can do with software.

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