9th Circuit Imposes a Sentencing Double Whammy for State Tax Loss Relevant Conduct

In United States v. Yip, ___ F.3d ___ (9th Cir. 2010), decided 1/13/10, the Ninth Circuit held, consistently with most other circuits, that relevant conduct for sentencing purposes includes relevant state tax loss in determining the tax loss for the first step of the tax crimes sentencing calculation. See my prior blog here discussing United States v. McElroy, 587 F.3d 73, 88-89 (1st Cir. 2009). The Ninth Circuit also held that the relevant conduct factored into this tax loss calculation is not concerned with expiration of the statute of limitations for criminal prosecution. Finally, the Ninth Circuit, having just required the state tax relevant conduct to be included in the tax loss, said that the defendant is not entitled to factor in the appropriate federal tax deduction for state taxes. This is the holding I discuss in this blog.

The unclaimed deductions issue may present itself at two stages of a criminal case -- (i) at trial in addressing the tax due and owing element that the Government must prove (see my prior blog here; see also United States v. Helmsley, 941 F.2d 71, 83- 89 (1991), cert denied, 502 U.S. 1091 (1991).); and (ii) at sentencing in determining the offense level under S.G. 2T1.1. The holding in Yip addresses only the second stage. I quote from the opinion so the reader can understand the Ninth Circuit's reasoning (case citations and one footnote omitted):

Relying on the latter clause, the Second Circuit has concluded that, under the amended Guidelines, tax loss should be adjusted for "'legitimate but unclaimed deductions.' " Several other circuits, however, disagree. These sister circuits have offered three reasons to refuse to allow a defendant to reduce tax loss by the amount of unclaimed deductions. First, deductions are not permissible if they are unintentionally created or are unrelated to the tax violation, because such deductions are not part of the "object of the offense" or intended loss. Second, the revisions of Amendment 491 [to the Sentencing Guidlines] were so extensive that the mere fact that the revised § 2T1.1 does not include the former "offsetting adjustments" reference fails to demonstrate that deductions are now permissible. Finally, our sister circuits reject the nebulous and potentially complex exercise of speculating about unclaimed deductions. The Tenth Circuit observed that it does not interpret the Guidelines "as giving taxpayers a second opportunity to claim deductions after having been convicted of tax fraud. . . . Rather, we are merely assessing the tax loss resulting from the manner in which the defendant chose to complete his income tax returns."

We are persuaded by the Fourth, Fifth, Seventh, Tenth, and Eleventh Circuits. The amendment to § 2T1.1's application notes is irrelevant to our analysis. It is true that the notes no longer state that § 2T1.3's alternative minimum standard "may be easier to determine, and should make irrelevant the issue of whether the taxpayer was entitled to offsetting adjustments that he failed to claim." But this sentence was deleted when § 2T1.3 was deleted in its entirety from the Guidelines. As a reference to § 2T1.3 was no longer logical, such a change does not show an intent to allow unclaimed deductions sufficient to undercut our decision in Valentino.

Section 2T1.1 does permit "a more accurate determination" of tax loss than the 28% approximation. A more accurate determination might involve applying a different tax rate or incorporating exemptions and deductions legitimately claimed by the taxpayer on a tax return. But that section does not require a court to speculate about tax deductions that the taxpayer chose not to claim. n3 We hold that § 2T1.1 does not entitle a defendant to reduce the tax loss charged to him by the amount of potentially legitimate, but unclaimed, deductions even if those deductions are related to the offense.

n3 We note, for instance, that a taxpayer is entitled to deduct either state income tax or state sales tax, but not both. 26 U.S.C. § 164(b)(5)(A). Some of the states in our circuit impose both an income tax and a sales tax. Reconstructing a hypothetical federal tax return for a resident of one of these states would require selecting between these potential deductions.

In Defendant's case, he cannot even argue that the state taxes are legitimate, but unclaimed, deductions. The state taxes are not legitimate deductions because he did not pay them. A cash-basis taxpayer may deduct state and local taxes "for the taxable year within which paid." 26 C.F.R. § 1.1641(a). The district court properly refused to reduce the tax loss attributed to Defendant to account for an imputed deduction from his unpaid state taxes.

The court ultimately held that the defendant was not entitled to the deductions because he had not paid the state tax. It is not at all clear that the Ninth Circuit would allow the deductions even for an accrual method taxpayer. In apparent dicta (not necessary because of the "not paid / cash method" final holding), the Court sweeps very broadly on the issue of unclaimed deductions.

I am troubled by the Ninth Circuit's refusal to allow the state tax deduction after it required, properly I think, that the state tax loss be included in the calculation. The purpose of the tax loss calculation is to determine the loss by reference to what the taxpayer would have paid if he had done it right. If the had done it right, the state tax would have been paid (hence failure to pay is properly included in the sentencing tax loss) and the state tax deduction would have been taken in calculating the federal tax loss (hence federal tax would have been less). That should, in my mind, set the appropriate tax loss for sentencing purposes.  But I am not the judge (or judges in this case).

I am also unpersuaded about the perceived difficulty or uncertainty in making the calculation.  We require citizens to make this type of calculation routinely in filing their tax returns.  This is not beyond the capacity of the courts, the Probation Office and counsel for the parties (and their experts) to calculate or make a reasonable estimate of what the effect of these unclaimed deductions should be.

Court Finds Tax Motivated Transactions are Bullshit (1/11/10)

In Wells Fargo & Company v. United States, 91 Fed. Cl. 35 (2010), the Court of Federal Claims shot down another SILO transaction. In the smoke and mirrors scheme, the Court denied depreciation and interest deductions. In lay terms, the court found that the transaction was just bullshit, meaning also, I guess, that the arguments to sustain the transaction were also bullshit. (Sort of like Vincent LaGuardia Gambini's (aka Vinny) pithy argument in My Cousin Vinny - "Uh... everything that guy just said is bullshit... Thank you.") For the audio, click here.

Now, the Court of Federal Claims could not dispense of the case on that articulated basis, but it did the legal equivalent in more legalese (and words). The legalease is that the transaction lacks economic substance (the recognized way to say that transactions are bullshit). So that is what the court did.

I don't think that these transactions are materially different than the transactions involved in the KPMG prosecutions; indeed at some level they may be worse. As I have said, criminal tax cases are all about the lie. And, there appears to have been lies in these transactions. As the Wells Fargo Court said in concluding its analysis of the depreciation deductions denying the depreciation (quoting the Fourth Circuit in BB&T Corp. v. United States, 523 F.3d 461, 477 (4th Cir. 2008).):

The IRS was entitled to view these SILO transactions for what they are, not what they purport to be. As the Fourth Circuit observed in BB&T, citing an Abraham Lincoln riddle from Rogers v. United States, 281 F.3d 1108, 1118 (10th Cir. 2002), "How many legs does a dog have if you call a tail a leg?"

The answer is 'four,' because 'calling a tail a leg does not make it one.' Id. Here, BB&T styled the LILO as a lease financed by a loan, but did not in substance acquire a genuine leasehold interest or incur genuine indebtedness. Accordingly, . . . whether it has 'reached the point where the tax tail began to wag the dog,' Hines, 912 F.2d at 741, we conclude that the Government was entitled to recognize that tail for what it was, not what BB&T professed it to be.

BB&T, 523 F.3d at 477. The Court agrees fully with the Fourth Circuit's analysis in BB&T, and concludes that, looking at the substance of the SILO transactions, Wells Fargo did not become the owner for tax purposes of the SILO equipment, and is not entitled to the depreciation amounts claimed.

The Court also registered its disgust for this attempted stealth raid on the Treasury:

The SILO transactions here are offensive to the Court on many levels. A cadre of company executives, in concert with teams of well known legal and accounting firms and other consultants, regularly constructed and participated in these tax schemes for Wells Fargo, apparently blind to professional standards of care. Representatives from the Federal Transit Administration ("FTA") encouraged transit agencies to participate in SILO transactions as a way to raise additional funds, without seriously considering the probable adverse tax treatment of the transactions. Even when the IRS issued a 1999 Revenue Ruling disallowing tax deductions from LILO transactions, the participants continued on with only slight adjustments to create the SILO transactions. The Court has little sympathy for those who have lost out as a result of this decision.

Update on 1/12/10 at 11:50am:  I have corrected this blog to make bullshit a single word rather than two.  (I should note that I had it right in the quote from Vinny; that guy knows how to spell.)  For more on bullshit, there are two good Wikipedia entries -- one is general on bullshit here and the other is on Harry Frankfurt's "On Bullshit" here.  For the published version of Franfurt's landmark thoughts, see here; for the earlier non-published version of Frankfurt's landmark essay on bullshit, see here.

Update on 8/20/11:  The trial court's decision was affirmed in Wells Fargo & Company v. United States, 641 F.3d 1319 (Fed. Cir. 2011).

Swiss Court Holds Swiss Finma Ruling for UBS to Disclose Names Illegal

Bloomberg reports today that:

The Swiss Financial Market Supervisory Authority, known as Finma, exceeded its authority when it told the bank [UBS] Feb. 18 to deliver the information to the U.S., the Federal Administrative Court in Bern ruled today.

This ruling deals only with the approximately 255 names delivered before the Swiss and the U.S. agreed upon an interpretation and application of the double tax treaty exchange of information provision that permitted the rolling turnover of about 4,450 names.  The validity of the larger treaty exchange has yet to be determined.

For the complete article see here.

Thanks to a commenter, Anonymous, for reporting this breaking news.  For Anonymous' comment and others related to whether the U.S. can or should use for criminal prosecution - and perhaps for civil tax purposes -- information illegally obtained from foreign sources, see here.

I will post updates to this blog as I obtain details.  Any significant developments may be presented in a separate blog.

Tax Court Decides that Restitution Payments Related to a Trade or Business are Deductible

In Cavaretta v. Commissioner, T.C. Memo. 2010-4, the Tax Court held that contractual restitution paid by a Dentist to an insurance company to compensate for overcharges are deductible as ordinary and necessary business expenses rather than losses. This resolution permitted the taxpayer (the Dentist) to carry the current year losses generated by the deduction of the restitution payments back to an earlier tax year to obtain a refund.

The holding is not a broad holding that restitution payments are ordinary and necessary business expenses or are always deductible in some manner under the Code. Let's address the holding in the context of the facts.

The taxpayer was a dentist. His wife worked in his dental office. His wife began charging an insurance company for services that were not rendered to the insured patients. Under the contract between the dentist and the insurance company, the dentist was obligated to repay overpayments for services rendered. The wife was prosecuted and pled to one count of health-care fraud. The husband contractually agreed to restitution with the insurance company, and the wife asserted that restitution in seeking leniency in the sentence. At sentencing, the judge referred to the contractual restitution commitment, but did not impose any fine or restitution.

The taxpayer / dentist, who had included the wrongful charges in income in the years he received it, then paid the restitution and sought to deduct it as an ordinary and necessary business expense. The key points in the Tax Court's holding that the restitution payments to the insurance company were ordinary income were:

1. The parties agreed that the payments were deductible. The taxpayer argued they were deductible as ordinary and necessary business expenses, thus permitting carryback to an earlier year. The IRS argued that they were section 165(c)(1) losses incurred in a trade or business which could not be carried back. (Note that this key nexus between the trade or business and the payment or loss often is not present; most prominently in the context of federal tax crimes, although restitution to the IRS in tax cases is not permitted, plea agreements often contain contractual restitution to the IRS (and, of course, is a count of conviction is outside Title 26, court imposed restitution to the IRS may be permitted); there is usually, however, no nexus between the restitution payments and a trade or business.)

2. The payments were, in fact, restitution although the sentencing court did not award restitution.  The court thus would appear likely to reach the same result with court imposed restitution.  Note that, since the offense was not a tax offense and the victim had been defrauded, the court could have incorporated the agreement into a court ordered restitution.

3. Restitution payments with the required nexus to a trade or business are deductible. Often when a defendant defrauds another, it may not be in connection with a trade or business. For example, an embezzler is usually not considered to be in a trade or business, and thus restitution of embezzlement proceeds would not be a trade or business expense. (Thus, the wife could not have claimed the expenses as ordinary and necessary expenses related to her fraudulent conduct of overcharging; but the taxpayer / dentist could claim them as related to his trade or business of a dental practice.)

4. The court distinguished cases which held that payments that are punitive might be nondeductible as business expenses under § 162(f). The court noted most immediately that these particular restitution payments were not punitive but compensatory. ("[W]we have little trouble concluding that the payments are noncriminal, compensatory restitution.") The court reached this conclusion without necessarily relying on the taxpayer's contractual commitment to repay in the operative agreements with the insurance company over the period of the false charges. They still had the required nexus to the taxpayer's trade or business.

5. Finally, the court held that, given the novelty of the particular issue in the context presented and uncertainty in the law, even if the court were wrong in the ordinary and necessary business expense holding, it would not impose an accuracy related negligence penalty.

So, that is the guts of the opinion.

My comments are:

1. From a technical tax perspective, I would have thought that the concepts of Arrowsmith v. Commissioner, 344 U.S. 6 (1952) and its progeny might have played some role in the court's exegesis. In very broad strokes, the holding of Arrowsmith and its progeny is that expenses related to income take on the character of the income. The Arrowsmith fight is often about whether the character of the expense is ordinary or capital, but I am not aware that those concepts cannot be used in further characterizing the nature of the ordinary expense. That type of inquiry seems to the what the court actually did without citing Arrowsmith and its progeny. The related income here was clearly trade or business ordinary income and, at a gut level, denying a trade or business offsetting loss (albeit in a later year) just does not strike the gut -- at least my gut -- as wrong. Apparently, it did not strike Judge Holmes' gut as wrong either.

2. The court discussed an earlier case, Stephens v. Commissioner, 905 F.2d 667 (2d Cir. 1990), distinguishing between punitive and compensatory restitution. I had generally thought that restitution is compensatory rather than punitive even when imposed at sentencing.  I did a quick LEXIS-NEXIS search and located perhaps some differences, which I think may be semantical, over this the distinction between punitive and compensatory restitution. See United States v. Leahy, 438 F.3d 328, 334 (3d Cir. 2006) (citing the opposing holdings on the issue, which I think may be reconciled by context; it just goes to show that what appear to be sweeping holdings in cases need to be filtered through the context in which they are made); see also Brian Kleinhaus, Serving Two Masters: Evaluating the Criminal or Civil Nature of the VWPA and MVRA Through the Lens of the ex Post Facto Clause, the Abatement Doctrine, and the Sixth Amendment, 73 Fordham L. Rev. 2711 (2005) (arguing for a general rule that restitution is criminal in nature, but again I think that a more refined approach evidenced by Judge Holmes in Cavaretta gets the right tax result rather than glittering generalities about criminal v. civil or compensatory).

Harvard Business Review Article on KPMG Near Death Experience

Robert G. Eccles and Eliot Sherman, KPMG (A): A Near-Death Experience, Harvard Business School (9-408-073 rev. 6/2/09)

Here's the description:

Describes the way in which "Big Four" auditor KPMG dealt with an indictment stemming from the firm's sale of tax shelters. In 2005 Tim Flynn has been KPMG Chairman for a matter of days when he learns that the government is preparing to indict the firm on charges of selling illegal tax shelters. Flynn has to decide whether to fight the charges and risk the dissolution of his firm, or cooperate with investigators, effectively keeping the firm safe but sacrificing the tax partners involved in the shelter sales. Further, the case describes the government's prosecution of former KPMG tax partners and asks students to determine whether prosecutorial tactics during the government's investigation were warranted or represented a case of overreaching.

And, here's the footnote description of the authors and the caveat:

Senior Lecturer Robert G. Eccles and Research Associate Eliot Sherman of the Global Research Group prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

The authors conclude:

The results of the KPMG tax shelter fraud case had significant ramifications for the way the government would be able to prosecute white-collar crime going forward. For industry observers, it also left several questions. In the case of KPMG partners’ trial, had justice been served, or violated? For KPMG, responding to the tax shelter fraud case involved many difficult decisions about how best to move past its former partners’ wrongful conduct.

I think it is important to note that none of the former KPMG partners who were with KPMG when the allegedly fraudulent shelters were conceived and marketed were convicted of any crime.  Two of the defendants ultimately convicted on the much diminished trial had been with KPMG prior to the date the tax shelters conceived and marketed, but KPMG successfully disavowed their connection to KPMG for purposes of imputing wrongful conduct to KPMG.  So, I think it is a bit extravagant for the authors to assert without qualificaiton that the KPMG partners engaged in wrongful conduct.

Birkenfeld's Gambit for Lighter Sentence Fails

As previously reported in this blog and elsewhere, Bradley Birkenfeld has made a full court press both in court and out to get his 40 month sentence reduced.  The reports out today is that he failed; the sentencing judge denied his request for reconsideration.  Here is the Wall Street Journal report, and here is the Tax Prof Blog report.  Oh, well, at least he still has some possibility for a whistleblower claim in the mega-millions.

More on Birkenfeld - 60 Minutes Segment

CBS 60 Minutes had a segment this evening on Bradley Birkenfeld here.

This is basically more of the same, but one interesting aspect is that Birkenfeld's attorney's claim that Birkenfeld's prosecution, conviction and sentencing sends the wrong message to others deep in the bowels of the Swiss banking system.  Instead of prosecuting, convicting and imprisoning Birkenfeld, so the claim goes, he should be rewarded.  But, after all, Birkenfeld did commit crimes, and he did not really come fully clean.

According the the DOJ official interviewed, Birkenfeld probably would not have been prosecuted had he come clean about his own nefarious activity.  The message to others in the bowels of the Swiss banking system (and there are many of them) is that you can come to the U.S., avoid prosecution in the U.S. by coming clean, and perhaps get in line for whistelblower rewards that can make you rich and thus assuage your self-imposed exile from Switzerland.

That is good news for potential whistleblowers and bad news for those persons who, so far, have not done a voluntary disclosure with the IRS.  And, of the course, the other bad news for those not doing a voluntary disclosure with the IRS is that the settlement with UBS, although perhaps only half a loaf (or less) with UBS, can still prove to be half a loaf (or less) for the many other banks in Switzerland (it is an interpretation of the treaty whose language is hardly UBS-specific).  Half a loaf (or less) across the system is certainly better than nothing. 

And the damage to the sophisticated piracy we call the Swiss banking system is probably irreparable, although it still has some life in it because all sorts of rogues, villains, despots, mobsters, desparados, corrupt officials, sheiks and other accidents of birth, and others may have few attractive alternatives.  But, once the tax dam is breached, they too have to know the secrecy they value and for which they pay the Swiss dearly may not be as impenetrable as they imagined it was before.

Birkenfeld is Tax Analysts Person of the Year (1/1/2010)

It is common on New Year's Day to review significant events of the prior year. Today, Tax Analysts joins the crowd and names Bradley Birkenfeld its inaugural annual "Person of the Year."

Hear are some brief excerpts from the award after noting the seismic events he unleashed (notably high diplomatic drama between the U.S. and the Swiss and a big breach in Swiss secrecy dam after both sides found some common ground (or equally painful ground)):

In October 2005 Birkenfeld resigned from UBS. The specific reasons for his departure remain private. On leaving UBS, he provided senior management with written complaints that documented the private banking group's illegal practices. A subsequent internal review by UBS in 2006, predictably, found no wrongdoing.

Frustrated by the results, Birkenfeld traveled to the United States in 2007 and voluntarily registered as an IRS whistle-blower with the intention of exposing UBS's complicity with illegal tax evaders. For over a year Birkenfeld provided a treasure trove of inside information to U.S. authorities. He held frequent meetings with officials from the IRS, the Justice Department, and the SEC. The information he provided was the foundation for the UBS debacle and everything that followed. Significantly, Birkenfeld did not obtain immunity from prosecution in exchange for his disclosures.

On numerous occasions the U.S. government has acknowledged Birkenfeld's role as the source who made the UBS probe possible. A DOJ court pleading described his assistance as "timely, significant, useful, truthful, complete, and reliable." Kevin Downing, the prosecutor in charge of the UBS case, said that "without Mr. Birkenfeld walking through the doors of the Justice Department in the summer of 2007, I doubt this massive fraud scheme would have been discovered by the United States government." In short, there would have been no UBS scandal without him.

Proper Base for the FBAR or "In Lieu of" FBAR penalty

Anonymous (a frequenter commenter on this blog) suggested that I blog the following comment:

If I correctly understand the 50% FBAR penalty in criminal cases, it is based upon 50% of the highest account value. But doesn't this overpenalize those who left money overseas relative to those who transferred it back into the U.S.? Look at this example...

For example, if someone has an overseas account with $1,000,000 and makes 10% every year, but takes out the 100,000 profit every year to sneak it back into the U.S., the account will never grow above $1,000,000 and after 10 years they will have snuck $100,000 each year into the U.S. They will pay an FBAR penalty of $500,000.

But, if someone has an overseas account with $1,000,000 and makes 10% every year (or $100,000), but leaves it over there, at the end of 10 years they will have $2,000,000. They will pay an FBAR penalty of $1,000,000.

The way they are calculating the penalty is penalizing the people who left their money overseas more than those who engaged in more egregious activity by bringing it back into the U.S.

The income tax is the same, but the FBAR penalties are wildly different. You get a 50% discount for worse behavior effectively.

Anonymous raises a good issue, so I encourage readers to weigh in on it.

My comments are:

1. The same phenomenon, although less exacerbated, applies to the settlement initiative that ended 10/15/2009. That penalty was 20% of the highest amount for the years 2003 forward.

2. I don't believe a 10 year time horizon has been included for calculating the penalties. The settlement initiative included only the years 2003 forward. I believe that some of the criminal cases may have included 2001 forward, but the inclusion of earlier years would not make any difference under the fact pattern Anonymous posits because the highest year in any event would have been in the years 2003 forward. (Actually, in the first alternative in the example, the $1,000,000 would have been the same in all years, but including pre-2003 years would not affect the penalty; even if a 10 year horizon was used, that same phenomenon would occur; so that a 10 year horizon would only be damaging to those whose highest year preceded 2003 which neither alternative in the example assumes.)

3. As I recall (and I am fuzzy on this), the IRS implemented the penalty in the settlement initiative in a way that would include in the penalty base cash movements of funds from the offshore account to some other offshore investments (e.g., real estate or diamonds or gold held in some medium other than a financial account). Thus, for example, in Anonymous' example above, if instead of bringing the annual $100,000 income back into the United States, the taxpayer had invested the annual $100,000 in offshore real estatewith no U.S. reporting requirements, I understand that the IRS was prepared to assert that the entire $2,000,000 amount ($1,000,000 base amount plus 10 transfers of $100,000 each) is included in the base. (This does not consider any "earnings" on the funds moved out of the offshore account.) I have not had any clients with this pattern, so I cannot speak definitively to what the IRS did.

4. If the assumption of #3 is correct, then the question posited by Anonymous is what is the difference, if any, between the U.S. person who puts the money to some use offshore and the U.S. person who brings the money to the U.S. and uses it here. In terms of the policies behind the FBAR (which is to spot offshore movements and investments for the various purposes inspiring the FBAR requirement), then I think an argument can be made that they are different circumstances and perhaps should have a different result. After all, under any of the various considerations giving the IRS particular angst about foreign accounts and Congress angst in inspiring the need for the FBAR, money onshore is just different than money offshore. It is true that, each separate act of bringing the money back to the U.S. might be a separate criminal offense of some sort (money laundering, CTR violation, tax obstruction, etc.), but still once it is back onshore it is at least not offshore. (That is hardly a startling observation, but I hope the reader gets my point.)

5. On the other hand, if the assumption in #3 is not correct, then it is only the presence of the funds in an offshore account subject to the FBAR reporting requirement that is the concern and, logically, there is no difference between the use of the offshore and onshore use of the funds outside the offshore account and the same result should obtain -- the proper base for any penalty is only the amount in the offshore account.

Tax Authority's Use of Stolen Tax Haven Bank Data

The risk that came home to roost in the UBS investigation was that a tax haven banker might disclose bank data to a tax authority. (By bank data, I include both documents and information that might be in a banker's brain.) Disclosure might be a crime in Switzerland and expose the banker to prosecution in Switzerland. But the banker may have strong inducements (threat of prosecution or even whistleblower rewards). (I don't know whether the country receiving and using such data would be morally or legally required to extradite such a fellow, but suspect that sufficient "outs" could be found to protect him from extradition.) The newspapers have reported that Birkenfeld, the UBS banker who disclosed such information in order to avoid (unsuccessfully) criminal prosecution or mitigate the consequence of criminal prosecution has also claimed a whistleblower reward for the taxes, penalties and interest the Government has derived from his disclosures.

It now appears that France also had a similar pattern where a bank employee "stole" Swiss bank (HSBC) data and disclosed it to the French. This created a big diplomatic spat between France and Switzerland, not dissimilar in kind to the spat between the U.S. and Switzerland. (For an article chronicling the spat, see here.)

Recent reports are that France and Switzerland have settled the spat, with France agreeing to return the data to Switzerland. I suppose that means that the French will not use the data. For a report of the settlement, see here.

Collateral Consequences of Conviction (or Even Investigation or Acquittal)

Criminal tax lawyers know that, after their job is done, whether successful or not, the IRS usually comes after the defendant / taxpayer to collect taxes. Usually, the IRS waits -- perhaps not patiently -- while the criminal proceeding plays out. But once the criminal case is over, the IRS gets in gear.

That's precisely what happened to the Girls Gone Wild guy, Joe Francis. The IRS filed a lien for $33,8190,087.14 for three years of unpaid taxes. For more on this, see the Tax Prof Blog entry on 'Girls Gone Wild' Founder Joe Francis Sues IRS for Retaliatory Tax Lien.  (By the way, the Tax Prof Blog entry does have a link to the Girls Gone Wild web site.)
 
For tax procedure enthusiasts, the Tax Prof Blog links to a good discussion of the IRS's use of the tax lien at The Tax Lawyer Blog entry for Joe Francis Sues IRS For Wrongful Collection Action – UPDATED.

More on Civil Penalties - the CDP Gambit

I recently blogged on the subject of "Civil Penalties in the Mix - the Qualified Amended Return Gambit." I discussed the use of the qualified amended return to pre-empt the IRS's ability to assert a penalty in a Son-of-Boss case where the taxpayer did not accept the Son-of-Boss settlement initiative. Today I write about another gambit to contest the IRS's penalty assertion in a Son-of-Boss case where the taxpayers did not enter the settlement initiative. Neither of these topics are technically federal tax crimes issues. Federal tax crimes practitioners do, however, often involve themselves with the civil procedure aftermaths or adjuncts of criminal investigations, and the Son-of-Boss transactions had criminal allegations swirling around them.

In Olesen v. Commissioner, T.C. Memo. 2009-307, the Olesens did not join the settlement initiative, so the IRS issued a notice of deficiency asserting the tax and the full bore § 6662(h) penalty. (It could have been worse had the IRS asserted the civil fraud penalty, although there is no reason to believe -- other than perhaps the Government's expansive imagination -- that any taxpayers, Olesen included, were actually guilty of fraud.) The Olesens did not pursue the qualified amended return gambit and did not file a petition in the Tax Court in response to the notice of deficiency. (There is some question as to whether they received the notice, but all the law requires for a valid notice of deficiency is that the notice be sent, not that it be received; hold that thought, though.) So, as happens when a notice of deficiency is not petitioned to the Tax Court, the IRS assessed the tax, penalty and interest, and in due course, after the taxpayers failed to pay, sent them a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, often referred to as a determination notice. This gave the Olesens a right to seek Collection Due Process ("CDP") review first in IRS Appeals and thereafter, if not satisfied, in the Tax Court. The Olesens pursued CDP review. Upon the CDP review, the Appeals Officer determined that the Olesens had received the notice of deficiency and therefore could not contest the underlying the underlying merits of the tax, penalty and interest in the CDP proceeding. § 6330(c)(2)(B) (Note here that, for CDP review of the merits, the taxpayer's receipt of the notice is required to foreclose CDP review of the merits, whereas the notice itself is valid when sent).

The immediate issue in the Tax Court was whether the Olesens could introduce evidence of the settlement initiative, going to the merits of the penalty. This raised the predicate issue of whether the Olesens were entitled to contest the merits of the penalty, an issue they had lost in the IRS Appeals CDP review.

The Tax Court held (i) that it had jurisdiction to "to verify the Appeals officer's determination that petitioners received the deficiency notice and are therefore precluded from challenging the underlying liability" and (ii) that notice of deficiency was (a) sent to the taxpayers and (b) received by them (despite their suggestions to the contrary). The Court's reasoning is crytic, so I quote (case citations omitted):

We agree with the Appeals officer that the record establishes that petitioners received a deficiency notice for 2001. Respondent issued the deficiency notice to petitioners' last known address as provided on their returns for 2004 and 2005. Furthermore, respondent's production of a certified mail list recording the mailing of the deficiency notice creates a strong presumption that the notice was mailed and was delivered or offered for delivery at the address to which it was sent. Receipt of the deficiency notice is presumed in the absence of clear evidence to the contrary. Petitioners failed to produce evidence to rebut the presumption that they received the deficiency notice. In fact, petitioners' counsel's concessions during the CDP hearing further support the Appeals officer's determination that petitioners received the deficiency notice. Accordingly, we find that petitioners received a deficiency notice for 2001 and are therefore precluded from introducing evidence of the Son of BOSS settlement initiative to challenge the underpayment penalty.

The take-away lessons from this and the earlier blog are: (i) don't ignore the notice of deficiency without a plan where the risks / costs are acceptable, (ii) if the Olesens thought the CDP review and Tax Court CDP case would be their "hail-Mary" equivalent of the qualified amended return, they were wrong, (iii) if, however, they knew the risks of the "hail-Mary" CDP gambit and the risks were tolerable, then perhaps it was not a bad try, although it befuddles me how they thought they were going to win the issue with the minimal showing made, and (iv) in all events, the taxpayers have a fall back way to contest the liability in the traditional refund suit, if needed using a variation of the partial payment gambit to avoid the strictures of the Flora prepayment rule, or perhaps even in a collection suit.

Willfulness and Good Faith Defense - an Oxymoron? (12/29/09)

This morning, the Sixth Circuit offers a good elementary refresher course on the relationship between the elements of a tax crime requiring willfulness, on the one hand, and good faith, on the other. Indeed, I have contrasted them as if they were different inquiries, they are not as this case reminds us.

In United States v. Aaron, 590 F.3d 405 (6th Cir. 2009), over a 4 year period, the defendant had casino gambling winnings on at least 965 occasions (no report on his losses) and submitted at least 965 false W-2G's to the casino. From this pattern, the defendant was charged with (i) a single § 7212(a) tax obstruction count, (ii) 17 counts § 7206(1) tax perjury, and (iii) 4 counts of causing a domestic financial institution to file a report containing a material misstatement of fact under 31 U.S.C. § 5324(a)(2). Defendant's defense was that he signed the false W-2Gs at the center of all counts in order to prevent identity theft rather than cheat or mislead the IRS. The Government dropped the last set of counts -- (iii) above. The jury acquitted on the tax obstruction count and convicted on all 17 § 7206(1) tax perjury counts.

Taxpayer appealed.

The Court of Appeals noted that the jury had been properly charged as to the elements of the offense of § 7206(1) tax perjury. That instruction as quoted by the court is simple indeed:

Any person who willfully makes and subscribes any return, statement, or other document which contains or is verified by a written declaration that is made under the penalties of perjury and which he does not believe to be true and correct as to every material matter shall be guilty of an offense.

So far, so good. Defendant really could not complain about the elements of the offense instruction. But, defendant did make two related arguments -- one a straightforward complaint that the jury had not been instructed that an intent to prevent identity theft could excuse tax perjury, and the other a fall back defense that, in any event, the trial court had not given a standard willfulness instruction. The Court of Appeals rejected each. The Court's reasoning is short (so I quote):

The Supreme Court has held that, in criminal tax cases, "the statutory willfulness requirement is the 'voluntary, intentional violation of a known duty.'" Cheek v. United States, 498 U.S. 192, 201 (1991) (quoting United States v. Pomponio, 429 U.S. 10, 12 (1976)). In order to prove willfulness, the Government must prove "that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Id. The showing of willfulness can be negated by "a defendant's claim of ignorance of the law or a claim that because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax laws." Id. at 202 (emphasis added). The defendant's belief or misunderstanding need not be objectively reasonable, and whether it was held in good faith should be determined by the fact-finder. Id. at 202-03.

Civil Penalties in the Mix - the Qualified Amended Return Gambit

I write today on a civil penalty, one of the accuracy related penalties in § 6662. You will recall that the IRS had great angst about the Son-of-Boss tax shelters. For a simplified explanation of how this shelter works, see here. The Government / grand jury have indicted some of the enablers for such shelters, and those indictments have been the topic or background for many of my posts.

Although the Government imagined that the taxpayers themselves acted criminally in taking such shelters and reporting their "too good to be true" positions on their tax returns, the IRS offered a settlement initiative for the taxpayers. That initiative was originally reported in IR-2004-54, on May 5, 2004. For complete links to the IRS positions on this initiative see here. The settlement under the initiative was included (i) taxpayer concession of 100 percent of the tax benefit claimed, (2) deduction of out of pocket costs, and a penalty that, although not set forth in the Notice was 10%. if it was the taxpayer's only abusive shelter or 20% if the taxpayer had other abusive shelters.  The Notice warned that:

Taxpayers not participating in the settlement will receive a statutory notice of deficiency (90 day letter) disallowing all losses and out of pocket costs and will be assessed maximum applicable penalties.

Note the cautionary warning of assessment of maximum applicable penalties.  Of course, the maximum potentially applicable civil penalty is the 75% civil fraud penalty in § 6663.

In Bergmann v. Commissioner, T.C. Memo. 2009-289, taxpayers (husband and wife) not participating in the special IRS settlement initiative instead filed an amended return reversing all the tax benefits that the IRS thought was abusive, and paying the tax and interest accordingly. The IRS swooped in and asserted the 40% gross valuation misstatement penalty under § 6662(h). The taxpayers claimed that the amended return was a qualified amended return under Regs. § 1.6664-2(c)(2) and filed a motion for the Tax Court to render summary judgment on that issue.

The Court framed the issue as follows:

A "qualified amended return" is an amended return filed after the due date of the return for the taxable year and before the earlier of certain events. See sec. 1.6664-2(c)(3), Income Tax Regs. At issue here is whether petitioners filed the amended return before respondent contacted "any person described in section 6700(a)" concerning examination of a section 6700(a) activity from which petitioners directly or indirectly claimed a benefit on the original return. See sec. 1.6664-2(c)(3)(ii), Income Tax Regs. If respondent contacted such a person concerning such an activity before petitioners submitted the amended return, then the return would not be a "qualified amended return," and the accuracy-related penalty may still apply. The parties disagree whether KPMG is a "person described in section 6700(a)." We now turn to that issue.

The facts showed that the IRS, by 2002, began investigating KPMG, a promoter / enabler for many allegedly abusive shelters and, evidently, including the one in issue in this case, for its tax shelter activity and had served regular IRS summonses (as opposed to John Doe summonses) upon KPMG. The IRS nevertheless had not become aware of the taxpayers' use of the Son-of-Boss shelters before the taxpayers filed their amended return. The issue then was whether, as to these taxpayers, KPMG was a person described in § 6700(a). The Tax Court (Judge Kroupa) said it did not have enough facts to render summary judgment:

We have carefully considered the materials the parties submitted in connection with petitioners' motion for summary judgment. We are unable to conclude, on the facts presented to the Court at this juncture, whether KPMG qualifies as a "person" under section 6700(a) and thus, whether petitioners' amended return is a "qualified amended return." We find genuine issues of material fact remain concerning this issue. See Sala v. United States, 552 F. Supp. 2d 1167, 1204 (D. Colo. 2008) (the relevant inquiry is whether the third party was contacted regarding the taxpayers' particular transactions). These material facts include those respondent noted in his response to petitioners' reply memorandum. Specifically, factual disputes exist whether KPMG is a "person described in section 6700(a)," and if it is, whether and when respondent first contacted KPMG concerning promotion of tax shelter transactions with respect to which petitioners directly or indirectly claimed tax benefits on the original return. These material facts need to be further developed before the Court can determine whether the amended return is a "qualified amended return." Accordingly, petitioners are not entitled to summary judgment on this issue.

I present this case in this Federal Tax Crimes Blog to remind practitioners of the qualified amended return opportunity to correct erroneous positions by amended return. A qualified amended return is an amended return filed after the original due date of the return (determined with extensions) but before any of the following events: (i) the date the taxpayer is first contacted for examination of the return; (ii) the date any person is contacted for a tax shelter promoter examination under § 6700; (iii) as to a pass-through entity item, the date the entity is first contacted for examination; (iv) the date a John Doe Summons is issued to identify the name of the taxpayer; and (v) as to certain tax shelter items, the dates of certain IRS initiatives published in the Internal Revenue Bulletin. § 1.6664-2(c)(2). The daily grist of a tax practitioner's mill is the new client who, from conscience or otherwise, wants to get right with the IRS after filing one or more fraudulent or at least incorrect returns. The standard advice (barring some most unusual wrinkles), after determining that the taxpayer is not under investigation, is to have him or her file amended returns for some number of years (that a different blog discussion). Anecdotally from my practice over many years and my discussions with others, the amended returns will almost invariably not draw any penalty because the IRS will have no reason to believe that they are not qualified amended returns. The IRS will have to launch an investigation which, given its allocation of limited resources, it might not do with an amended return in hand that likely corrects all material problems (or at least the ones that the IRS could find on audit). And, even if the IRS were to launch an investigation, in most cases the only way the IRS can avoid the penalty-neutralizing effect of the amended return as a qualified amended return is to allege that the original position on the return is fraudulent. See § 6664(c)(2). The IRS has to prove fraud by clear and convincing evidence and given that burden will often not have any incentive to deploy its investigative resources to build a fraud case in order to assert an accuracy related penalty. In most cases, even in cases where the taxpayer in fact may have committed fraud on the original return, the system will simply pass him by.  And, you will note that the IRS does not assert fraud in the Bergmann case as a basis for disqualifying the amended return as a qualified amended return.

As I tell my students, when a client walks in with this profile (one or more fraudulent or potentially fraudulent or just incorrect prior year returns), your job is very limited. Get him to an accountant and get the amended returns filed ASAP.

Follow Up on Fifth Amendment Limits

Yesterday, two practitioners and myself had a lively discussion about the decision in United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726, dated December 17, 2009) involving summons enforcement. The blog and the comments may be viewed here. That discussion centered around the court's rejection of the witness's Fifth Amendment privilege. The decision that was the focus of the discussion was entered by the court on December 17, 2009. As to some key points of interest, that December 17 opinion we were discussing was a bit cryptic. Today, in Lexis-Nexis, an earlier opinion (dated December 7, 2009 appeared. United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726, dated December 7, 2009). This December 7, opinion may be viewed or downloaded here.

This newly published (but prior) opinion adds a lot of flavor to yesterday's discussion.

Regarding the Fifth Amendment, the Court then has a fair discussion of the general ground rules. Specifically, as it relates to our discussion in the prior blog, the Court says that the witness asserting the Fifth Amendment must show a real fear of potential incrimination. Then the Court says that, in consideration of the ground rules, the Court held an in camera hearing. The Court's discussion of that hearing and its outcome is self explanatory:

The Court asked Respondent, in sum and substance, the following questions:

. In the past ten years, have you resided out of the United States for periods of six months or longer?
. How much cash do you have on hand that is not included in a bank account?
. What personal bank accounts do you have?

Respondent did not invoke her Fifth Amendment privilege in response to the above questions and instead she provided the Court with answers. Therefore, the Respondent is directed to also provide such information to the IRS. In addition, Respondent should provide the IRS with all documents in her possession related to the above questions.

The Court also asked Respondent, in sum and substance, the following questions:

. Do you have an employer?
. Who is your husband's employer?
. What is your employer's address, work telephone number, occupation and number of years with current employer?
. What is your husband's employer's address, work telephone number, occupation [*16] and number of years with current employer?
. Are you a party to any lawsuits?
. Do you anticipate any increase or decrease in your income?
. Are you the beneficiary of any trust, estate or life insurance policy?
. Do you have any bank accounts in foreign countries?
. Do you own any investments, like stocks, bonds, mutual funds, stock options, certificates of deposit, IRA accounts, PO, 401k plans?
. Do you have any credit cards?
. Do you have any credit cards in foreign countries?
. Do you have any life insurance policies?
. In the past ten years have any assets been transferred by you to someone else for less than full value?
. Do you own, rent or lease any real estate?
. Do you own or lease any vehicles?
. What personal assets do you own including furniture, personal effects, artwork, jewelry, collections, antiques or other assets?
. What is your monthly income and what is the source of that income?
. What are your total living expenses?
. In the event you are self-employed, what is the name of your business?
. Does the business engage in E-commerce, internet sales?
. Does your business have credit cards?
. What credit cards does your business accept?
. How much cash on hand does the business have?
. What business accounts do you have?
. What accounts receivable does your company have?
. What business assets do you have?
. What is the business's total monthly income and total monthly expenses?

Respondent invoked her Fifth Amendment privilege and declined to answer the twenty-seven questions listed immediately above. The Court concludes that Respondent does not have a valid Fifth Amendment privilege with respect to these twenty-seven questions for two reasons. First, these questions relate to Respondent's current financial situation. At the August 26, 2008 interview, the Revenue Officer explained that the purpose of the interview was to determine Respondents' "ability to pay what you owe on the income taxes for the years 2000 and 2001." Exhibit 1 to DE 4 at 12:19-21. The Summons relates to Respondent's nonpayment of her 2000 and 2001 taxes. Therefore, information regarding the Respondent's current financial status does not provide a real and substantial hazard of criminal prosecution. See United States v. Redhead, 194 Fed. Appx. 234, 236 (5th Cir. 2006) ("The documents requested by the IRS pertain only to Redhead's asset holdings, and thus, are not inherently incriminating in nature."); United States v. McMillian, 2007 WL 646952, *3 (M.D. Fla. Feb. 27, 2007) ("But asking him about his current assets for collecting on his past due obligations does not implicate the Fifth Amendment's self-incrimination protections.") (emphasis in original).

Second, Respondent invoked the same, blanket reason to justify her invocation of the Fifth Amendment for each question. In essence, Respondent's argument is that there is a real hazard of criminal prosecution because the IRS will "lie" and "twist" any information provided by Ms. Elmes in a future criminal prosecution. The Court finds that this justification is speculative. Respondent may not rely on a general distrust of the IRS to refuse to comply with an otherwise valid summons. Moreover, Respondent invoked a similar justification each time she asserted the Fifth Amendment. Invoking the same, generalized fear twenty-seven separate times is no different than asserting a blanket claim of self-incrimination.

Accordingly, the Respondent is directed to provide answers to the IRS for the twenty-seven questions noted above. In addition, Respondent should provide the IRS with all documents in her possession related to the above questions.

Finally, the Court asked Respondent, in sum and substance, the following questions:

. Why didn't you file tax returns for the years 2002 through 2007?
. Do you plan on filing those returns?

With respect to these two questions, the Court finds that Respondent properly invoked the Fifth Amendment. By responding to these questions, Ms. Elmes may provide information which could lead to a criminal prosecution for failure to file tax returns for the years 2002 through 2007.

Ohio Attorney Charged with FBAR violations Among Other Dastardly Deeds

An attorney in Ohio has been charged "with fifteen counts of aiding and assisting in the preparation of false and fraudulent tax returns that related to five different trusts; one count of willfully failing to file a report of foreign bank and financial accounts; one count of conspiracy to commit obstruction of justice; one count of witness tampering; one count of submitting a false statement; and one count of obstruction of justice." Another attorney in Ohio has been charged with a one count charge, coupled with a guilty plea, for making a false statement to federal agents and to DOJ. The DOJ Tax announcement is here.

This is mundane stuff except, of course, for the current hot topic -- offshore accounts. Projecting from the announcement, it appears that the charge for the failure to report on the FBAR is just icing on the cake in the charges and is unlikely to affect sentencing so long as the tax Guideline applies. See here.

Fifth Amendment Limits

CAVEAT:  This blog and the excellent comments from readers below should be read in conjunction with a follow-up blog here.

In a Q&A session such as a summons interview or grand jury session, witnesses may assert a Fifth Amendnment privilege only as to questions the answers to which might have a tendency to incriminate them. That is to say that there are questions that do not implicate the privilege and must be answered. Practitioners advising witnesses must be careful to properly assert the privilege and not to inadevertently allow answers that should be within the privilege. That is a bit dicey in grand jury proceedings where the attorney is outside the grand jury room, and the witness must stop the grand jury questioning in order to consult with his or her attorney. But the key issue for this blog is what answers would tend to incriminate the witness.

A recent case develops the issue quite nicely. In United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726), the IRS issued a summons for the taxpayer's testimony and documents. The summons was issued in aid of collection of 2000 and 2001 income taxes that were already assessed; the IRS needed to develop facts relevant to the taxpayer's current financial condition and ability to pay. At the ensuing Q&A session, the witness declined to answer the majority of the questions, asserting First, Fourth and Fifth Amendment privileges.

The IRS brought a summons enforcement case. The court held two hearings, and at the second hearing evaluated the witness's claim of privilege on a question by question basis. The court held that, except as to 2 questions, the witness's assertion of privilege was improper and ordered her to answer.

Focusing on the Fifth Amendment (the only real potentially viable claim of privilege), the Court made the following holdings:

1. The Fifth Amendment privilege does not apply to questions relevant to current financial condition because there is no real and substantial hazard of criminal prosecution. (JAT Note, if the issue were whether prior recent statements as to her financial condition constituted criminal conduct, then her present financial condition might invoke the Fifth Amendment privilege, but that was not the casel in Elmes.)

2. The Court rejected a claim of privilege with respect to the production of documents. The taxpayer's generalized claim of privilege failed to state how the documents or the act of producing the documents could tend to incriminate. (JAT note: presumably the documents requested in the summons cleared the Hubble particularity hurdle.)

3. Section 7210, providing a criminal penalty for failure to comply with a summons, is not a basis for a Fifth Amendment claim; all the taxpayer has to do is comply with the summons by producing documents and answering the questions (subject to proper assertions of privilege) to avoid that criminal possibility.

4. The potential for committing perjury in the summons enforcement proceeding is not a valid Fifth Amendment claim.

The court concluded:

Due to the nuances of the applicable law, it is important for the Court to specify exactly what issues are being decided. The Court finds that Respondent cannot rely on a generalized fear of the IRS to invoke her Fifth Amendment privilege to avoid providing information regarding her current financial ability to pay outstanding tax liabilities from 2000 and 2001. That Respondent may face future criminal prosecution if she decides not to comply with the Summons or because she will not pay civil penalties is insufficient to withhold current financial information, which is not incriminating. The Court acknowledges that a different analysis will apply if the United States uses any information provided by Ms. Elmes in response to the Summons for a criminal prosecution unrelated to her 2000 and 2001 liabilities.

This is not a fishing expedition. The IRS is seeking basic financial information that millions of American taxpayers voluntarily provide to the government each year. Most of those with no more prompting than an April 15th deadline. Whether Ms. Elmes pays her taxes is ultimately an issue to be resolved between her and the IRS. While the Court respects Respondent's right to present a good-faith and vigorous defense on her own behalf, the Court also expects that the Respondent will comply with this Court's Orders once a decision has been made. Failure to do so will subject Ms. Elmes to possible sanctions such as the imposition of costs and incarceration separate and apart from her issues with the IRS.

Collateral Consequences of Tax Crimes for Professionals

Practitioners need to anticipate and attempt to mitigate potential professional or licensing issues that may arise as a result of a tax crimes conviction. I present an object lesson of such consequences.

The WSJ Law Blog reports today here about a case of a lawyer who failed to file federal, state and city taxes for over 10 years. In its opinion here, the panel found that the bad facts outweighed the good. The opinion is short and is worth reading in its entirety here, but here is the court's succinct key findings:

In the within matter, while there are some mitigating factors, we find aggravating factors vastly more compelling. Specifically, while at his law firm and receiving a substantial income, respondent purchased a five bedroom house in New Jersey and a four bedroom house in Florida. He also owned a Lincoln Town car, a Nissan Mini Van, a BMW SUV, and paid for his children to attend private school. In addition, respondent lied to his wife by telling her that tax matters had been taken care of and did not notify his partners of the pending criminal investigation before resigning from the firm to take a position as president of two corporate entities engaged in energy operations in the Philippines. According to the Hearing Panel, his failure to inform his law partners was to insure collection of full compensation and early capital account distribution. We agree with the Hearing Panel's finding that the psychiatric claim is not credible.

While respondent's extensive pro bono work on behalf of defendants facing the death penalty and his dedication to his alma mater is commendable, it does not excuse his failure to file returns or pay taxes during this time. Although respondent has paid all the taxes owed to the State, and has worked out a plan with the Internal Revenue Service, the picture that emerges is that respondent, without any justification, and while enjoying a lavish life style, disregarded his tax obligations. Having considered all of the factors set forth above, we find, as we have found in Matter of Goldman decided herewith, that failure to file tax returns and pay taxes for an extended period of time in these circumstances warrants suspension. A law.com article on the matter is here.