Source: http://federaltaxprocedure.blogspot.com/2012/11/
Timestamp: 2019-04-25 11:03:56+00:00

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I have just posted this blog entry on my Federal Tax Crimes Blog, Restitution And Tax Collection from Retirement Accounts - Anti-Alienation (11/28/12), here. The bulk of the blog is about the general rule preventing the collection of restitution from retirement accounts covered by ERISA's Anti-Alienation provision.
However, keep in mind that, in criminal tax cases, the restitution that is awarded to the IRS either by contract (i.e., the plea agreement) or by the court for tax-related Title 18 counts (such as conspiracy under Title 18 USC Section 371) is restitution for a tax liability that will be assessed as a tax. And, even where restitution for the tax is not awarded, the IRS will likely move to assess the tax at issue in a criminal tax case. As a tax, the IRS can collect from the retirement account even if otherwise protected by the Anti-Alienation provision. See 26 USC § 6334 - Property exempt from levy, here. Subsection (a) lists items exempt from a tax levy, but only exempts "certain" retirement plans as follows (emphasis supplied).
Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.
The voice of the majority may be that of force triumphant, content with the plaudits of the hour, and recking little of the morrow. The dissenter speaks to the future, and his voice is pitched to a key that will carry through the years. Read some of the great dissents, the opinion, for example of Judge Curtis in Dred Scott vs. Sandford, and feel after the cooling time of the better part of [a] century the glow and fire of a faith that was content to bide its hour. The prophet and the martyr do not see the hooting throng. Their eyes are fixed on the eternities.
Reuters reports that the United States is having apparent success in using "baseball arbitration" to settle disputes under the mutual agreement procedure of the U.S. Canada Double Tax Treaty. See Patrick Temple-West, International arbitration for tax disputes, "baseball" style (Reuters 11/15/12), here. The treaty is here, with the Mutual Agreement Procedure Article XXVI. Similar provisions are in other treaties and in the U.S. Model Treaty and the OECD Model Treaty.
The United States remains undefeated in the nearly two years since it began settling corporate tax disputes with Canada through a winner-takes-all process popularly known as "baseball arbitration."
Tax lawyers and accountants in both countries said the U.S. Internal Revenue Service had won three of the binding decisions and Canada none. They said the IRS had collected a significant sum of money, possibly in excess of $100 million.
Launched in December 2010, the arbitrations follow the rules for settling salary disputes between Major League Baseball teams and their players. As in baseball, the two parties - revenue agents from the two countries - put forward a figure.
As in baseball, third-party mediators settle disputes by picking the number they judge to be closest to the right answer. In the tax game, that's the amount a company pays. The winning country gets the tax revenue. The losing country goes home empty-handed.
"It's baseball arbitration: One position wins and the other one loses," said Brian Trauman, a principal at Big Four accounting firm KPMG LLP. The cases that have been resolved have "really big dollars at stake," he said.
Now the United States is adding an arbitration clause into tax treaties with other countries, hoping to broaden its winning streak to a global stage.
The Treasury Department regulates IRS practice before the IRS. Under Circular 230, here, practitioners may be sanctioned for inappropriate conduct and disbarred from practice before the IRS. I cover that process (I cover that process in my Federal Tax Procedure Book at pp. 31-38 of the footnoted version and pp. 26 of the nonfootnoted version). The ultimate sanction is, of course, disbarment. That can severely impact a practitioner's ability to earn a living. Hence, it would behoove practitioners to avoid the conduct that would draw any sanction, particularly the disbarment sanction.
Banister admitted to advising clients that they were not liable for income taxes based on his belief that the Sixteenth Amendment was not properly ratified and his understanding that Section 861 of the Internal Revenue Code, 26 U.S.C. § 861, and the regulations thereunder ("Section 861") exempted the clients from having to pay income taxes. He also admitted to signing a client's tax returns as the returns' preparer when the returns stated that the client was not liable for income taxes under Section 861. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.
The ho-hum, routine, nonprecedential affirmance is not surprising given the claims that Banister made. But, I think the Court's discussion if Banister's Cheek good faith defense is noteworthy, as a reminder. The Cheek defensen is that the defendant did not know the law and therefore could not have violated a known legal duty. Cheek was a criminal case interpreted the statutory element for tax crimes that the defendant have acted "willfully." Cheek interpreted that term as the intentional violation of a known legal duty. Cheek embellished that this defense was not available to a person who knows the law but claims the law is invalid. That was Mr. Banister's problem in asserting the belief that the Sixteenth Amendment had not been properly ratified.
Although there is no general duty under American law to report crimes, certain financial institutions (including money services businesses and high cash businesses such as casinos) are required to file with FinCen a report, called a Suspicious Activity Report (“SAR,” but not to be confused with the Special Agent’s Report with the same acronym which we encountered earlier). This SAR combines features of earlier reports and is in addition to the CTR if required. The SAR is required if the financial institution “knows, suspects, or has reason to suspect the money was derived from illegal activities” or the transaction was “part of a plan to violate federal laws and financial reporting requirements (structuring).” The financial institution is not required to investigate or confirm that a crime has been committed. The financial institution is prohibited from telling its customer of the filing of the report, even in response to a subpoena. The financial institution is protected from liability to the customer. The IRS may share this SAR with the IRS examination function having civil tax responsibility, but components of the IRS receiving the information are required to keep the information secure to the same extent as if received from a confidential informant.
Recently, some divisions of the IRS have released memoranda advising personnel about the control and confidentiality requirements with respect to accessing SAR information. See e.g., a recent SB/SE Division Memorandum (SBSE-04-1012-063, dated 10/16/12), here, and an estate and gift tax memorandum dated July 13, 2012, here. See also an earlier Memorandum of Understanding -- in Government acronym-speak, "MOU," referenced and available at IRM 4.26.14, here, Exhibit 4.16.14-2, here. For some reason, the MOU is reviewable only on line and then on a page by page basis.
In Aloe Vera of America, Inc. v. United States, 699 F.3d 1153 (9th Cir. 2012), here, the Ninth Circuit addressed the application of the two year time limit for filing a suit for wrongful disclosure of return information. Section 6103, here, titled Confidentiality and disclosure of returns and return information, generally requires that return information -- virtually everything the IRS knows about a taxpayer -- be confidential, with certain specified exceptions. Section 7431, here, titled Civil damages for unauthorized inspection or disclosure of returns or return information, provides a taxpayer a civil remedy the IRS's disclosures of return information not authorized by Section 6103. Section 7431(d) provides that the suit must be brought "within 2 years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure." The question addressed by the Ninth Circuit was when the limitations period begins.
This appeal presents the question, among others, of what event triggers the running of the statute of limitations for a claim for wrongful disclosure of a tax return pursuant to 26 U.S.C. § 7431(d). We conclude that the statute of limitations begins to run when the plaintiff knows or reasonably should know of the government's allegedly unauthorized disclosures. We also conclude, in the circumstances presented by this case, that the statute of limitations did not begin to run when the plaintiffs became aware of a pending general investigation that would involve disclosures, but only later when they knew or should have known of the specific disclosures at issue. Applying these principles to the facts of this case, we affirm in part and reverse in part.
Judge Halpern has an interesting opinion in JAG Brokerage, Inc. v. Commissioner, T.C. Memo. 2012-315, here. The case apparently involves John Gotti, reported to be an American mobster (Wikipedia, here), who appears in the case along with Kim Gotti for the petitioner corporation. Mr. Gotti was an officer of the petitioner and appears to have been incarcerated in solitary confinement when the notice of deficiency was issued to the corporate taxpayer, an artificial entity. The notice of deficiency was copied to Mr. and Ms. Gotti (in her case under a different last name). No Tax Court case was filed in response to the notice of deficiency. The tax was assessed. The IRS instituted collection procedures. The corporate taxpayer sought to contest liability in a Collection Due Process process (CDP), in which the corporation was represented by Mr. and Ms. Gotti. In a CDP hearing, the Appeals Office Employee (Appeals Officer or Settlement Officer) will not consider any issue previously disposed of in a CDP hearing or in a prior administrative or judicial proceeding in which the taxpayer could have contested liability and participated meaningfully. As to the underlying liability, the taxpayer can only contest in the CDP hearing if he “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.” § 6330(c)(2)(B). So the question was a nuanced one over whether the IRS's proof of mailing the notice of deficiency was adequate to establish that this receipt requirement was met, so as to preclude the taxpayer from contesting the liability.
Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any tax (including additions to tax and interest) attributable to any partnership items (see section 6231 (a)(3)), affected items (see section 6231 (a)(5)), computational adjustments (see section 6231(a)(6)), and partnership items converted to nonpartnership items (see section 6231 (b)).
Tax Notes Today published prepared remarks of William J. Wilkins, IRS Chief Counsel. The prepared remarks are for the BNA Bloomberg Tax Policy & Practice Summit on 11/14/12. The prepared remarks may be viewed here. I excerpt below the items I think are particularly important or interesting for a tax practice practice.
1. "There is also a Circuit split on the application of the 40% substantial overvaluation penalty in certain settings, so we are watching that." This split is as to whether, if the case is resolved by some predicate issues (such as economic substance before getting to the overvaluation), the overvaluation penalty can apply. The split is with virtually every circuit applying the penalty except the Fifth and Eleventh Circuits, both of which may be ready to join the crowd.
Earlier in the litigation chain, we are working to develop the law of transferee liability as it applies to intermediary or Midco transactions -- in particular transactions where a closely held C corporation sells its assets but winds up not paying the corporate tax, because a "Midco" purchaser of the shares of the cash-rich company essentially disappears without causing the correct tax to be paid. The government has had a difficult time holding the selling shareholders responsible in these cases, and we are urging different outcomes in both trial and appellate settings. There is a clear tax administration interest, both in getting the correct tax paid in old transactions and in eliminating the feasibility of future generations of dishonest Midco promoters from succeeding. We believe that current law, when correctly applied, provides the needed tools, but we will also be open to legislative solutions should the courts take different views.
Starting with FATCA -- with the October 25 Announcement lining up starting dates for various aspects of FATCA compliance, and the November 8 announcement of countries in discussion about intergovernmental agreements, the stage is set for the beginning of FATCA information sharing, and administration of FATCA withholding and exemptions, beginning in 2014. The key structural pieces that are still in progress are the final FATCA regulations; completion of more intergovernmental agreements; and completion of processes by which foreign institutions can be identified in the payment stream as being entitled to the correct withholding exemption.
The regulations are the part getting the attention of our office. Many government speakers have emphasized that the goal of FATCA is not to collect the new Chapter 4 withholding tax. It is instead to obtain information sharing and transparency to combat illegal tax avoidance. Withholding on traditional FDAP flows is not ideal, in part because in most cases it is only withholding and not a final tax, so mechanisms must exist for handling refund claims in those cases where the beneficial owner wants to get money back. Withholding is even less ideal as applied to nontraditional amounts, specifically gross proceeds and foreign passthrough payments. Those are still scheduled to take effect, but not until 2017 -- so there will be time to review how the rest of FATCA is working before regulatory decisions are made on those rules.
So a large part of the exercise is defining the settings in which the withholding exemption is earned, relative to the goal of information sharing. As has been seen with the proposed regulations, exemption can be through compliance with a so-called FFI Agreement, or it can be earned through establishing status as a "deemed compliant," that is a low risk, kind of institution. The prospect of intergovernmental agreements provides another path to exemption, earned through achievement of information sharing goals and identification of low risk institutions.
The Proposed Regulations attracted an unusually large volume of comments, all of which have been reviewed and considered. I expect the Final Regulations to be published around the end of the year. The regulations will continue to be heavily devoted to key definitional issues, importantly including definitions of kinds of accounts and kinds of entities. For example, there are several categories of institutions that will be entitled to Chapter 4 withholding exemption, but for different reasons. An "Exempt Beneficial Owner," for example a central bank, is exempt based on what it is. Many institutions will be one flavor or another of "Deemed Compliant" due to establishing their status as a low risk institution, either directly or through an intergovernmental agreement. There will be both active and passive Non-Financial Foreign Entities that are potentially exempt, with different paths to exemption based on their active or passive status. Finally, there will be "Participating Foreign Financial Institutions" that need to enter into a so-called FFI Agreement or to be deemed to have done so by reason of an intergovernmental agreement.
Another important set of definitions establish categories of cross border payments that are not subject to FATCA withholding no matter who the recipient is -- the most prominent of which are routine commercial payment flows and payments on grandfathered obligations.
Another important set of rules involve new account opening procedures and review of pre-existing accounts by participating institutions.
The prospect of intergovernmental agreements with a large number of jurisdictions has changed the landscape for FATCA compliance and has necessitated changes in the regulations and in the systems for identifying exempt payees. One particularly valuable detail in intergovernmental agreements will be the so-called "Annex II" that identifies deemed-compliant local institutions by name. This is a great leap forward in certainty, particularly for pension programs, which come in an almost infinite variety of structures and are hard to pin down with a single definition.
The kinds of additional material to look for in the Final Regulation are first, integration of the intergovernmental agreement structure within the Regulation; and second, responses to significant comments, in particular commentary seeking greater specificity on the implications of entering into an FFI Agreement.
Mike Scarcella, In D.C. Circuit, Judge Calls Use of Acronyms 'Painful' (BLT Blog 11/19/12), here.
Jeffrey Toobin and Alan Dershowitz on the Supreme Court and the Obama Administration (92nd Street Y 11/16/12), here.
Christopher Schmidt, Justices Behaving Badly (Legal History Blog 11/19/12), here.
Daniel Altman, To Reduce Inequality, Tax Wealth, Not Income (NYT 11/18/12), here\.
Law school students might be interested Jonathan Turley's posting here about a special lecturer in his class at George Washington law school. See Meet GW’s Newest Scholar: Professor Molly Turley, here. This is a sneak preview picture. For law students looking for a break from the tedium of studying, I do recommend Professor Turley's blog.
Section 6702(a) imposes a $5,000 fine for filing a frivolous tax return. This penalty applies in addition to any other penalty that may apply. The penalty applies where the frivolous return is based on a position identified by the IRS as frivolous or reflects a desire to delay or impeded the administration of the tax laws.
Section 6702(b) imposes a parallel $5,000 penalty for a “specified frivolous submission”. Such submissions include various forms of relief in IRS collection activity, including applications for compromise or installment agreements and requests for a collection due process hearing. The submission is subject to the penalty if based on a position the IRS “has identified as frivolous” or “reflects a desire to impede the administration of Federal tax laws.” We cover these collection activities below in Ch. 14. The penalty is $5,000. If the IRS provides notice of the frivolous position and the taxpayer withdraws the submission within 30 days of the notice, the penalty does not apply; however, the statute does not seem to require the IRS to give the notice that is the predicate for the 30 day period.

References: § 6334
 § 861
 § 1291
 v. 
 § 7431
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 § 6330