Source: http://federaltaxcrimes.blogspot.com/2019/08/
Timestamp: 2019-09-16 00:51:27
Document Index: 770635334

Matched Legal Cases: ['§ 371', '§ 7203', '§ 7206', '§ 7207', '§ 7212', '§ 5322', '§ 5314', '§ 5314', '§ 5321', '§ 5321', '§ 6664', '§ 1', '§ 5314']

Federal Tax Crimes: August 2019
In United States v. Schwarzbaum (S.D. Fla. No. 18-cv-81147), Order on Motion for Summary Judgment dated 8/23/19, here, the Court denied summary judgment for the Government in an FBAR willful penalty collection suit. The Court Listener docket entries with available links to some of the underlying docket entries is here. (Readers wanting to follow the case might check in on the docket entries link for updates.)
Basically, the court rather cryptically concludes that willfulness is an intent issue that requires a fact trial, whichever standard is used. Whether or not denial of the summary judgment motion was proper, I don't think there is enough meat for me to chew on there. So I leave that part of the decision to readers.
The issue that did catch my attention was the fact that this taxpayer entered OVDI in 2011 and opted out of the civil penalty regime in OVDI, thus taking his chance the resulting audit. He apparently lost that bet. But, one of the consequences of joining OVDI was that he gave one or more consents to extend the statute of limitations for the FBAR penalty assessment (as was required by the program). The Court, also somewhat cryptically, held the consent(s) to be valid (Slip Op., at 8-9):
To the extent that Schwarzbaum argues that the penalties are time-barred, the argument lacks merit. Although Title 31 does not expressly authorize the extension of the applicable statute of limitations by agreement, it does not expressly prohibit such extensions. Schwarzbaum has failed to point to any legal authority indicating that such extensions would be improper. See [*9] Melford v. Kahane & Assocs., 371 F. Supp. 3d 1116, 1126 n.4 (S.D. Fla. 2019) (“Generally, a litigant who fails to press a point by supporting it with pertinent authority, or by showing why it is sound despite a lack of supporting authority or in the face of contrary authority, forfeits the point. The court will not do his research for him.”) (internal quotations and citation omitted). Notably, Schwarzbaum does not dispute that he signed consents agreeing to extend the time during which FBAR penalties could be assessed and collected. See ECF Nos. [44-5], [44-6], [44-7]. Rather, in his Reply he acknowledges the lack of authority, argues that the USA relies upon three irrelevant cases in its Response, and then endeavors to distinguish them. However, Schwarzbaum ignores that it is he who bears the burden of establishing the defense of statute of limitations in the first instance. See, e.g. Feldman v. Comm’r of Internal Revenue, 20 F.3d 1128, 1132 (11th Cir. 1994) (“When a taxpayer raises the affirmative defense of the statute of limitations, the taxpayer bears the burden to prove that defense.”) (citation omitted). Here, Schwarzbaum has failed to provide any authority to support his argument that an agreement to extend the time to assess FBAR penalties under Title 31 is invalid.
I have previously discussed the statute of limitations issue:
Report on Webinar on Opting Out and Litigating FBAR Penalties (Federal Tax Crimes Blog 1/17/13; with Caveat Update on 2/1/13), here. Item 10 on that blog is:
Magistrate Recommends Sustaining Imposition of FBAR Willful Penalty (8/28/19)
In United States v. Rum (M.D. Fla. No. 8:17-cv-826-T-35AEP), Magistrate Report and Recommendation dated 8/2/19, here, the Court granted the Government's Motion for Summary Judgment sustaining the FBAR willful penalty at 50% for a single year. The Court Listener docket entries with available links to some of the underlying docket entries is here. (Readers wanting to follow the case might check in on the docket entries link for updates.)
The Report is 36 pages long. I will not provide a detailed analysis here but just point out some of the key points that caught my attention. Overall, it just did not look good for Rum, which is why the Magistrate recommended that the FBAR willful penalty in the 50% amount be sustained.
1. Rum unquestionably had a foreign account and it was reportable. So the issue was willfulness.
2. Rum claimed that he created the account to hide assets from potential judgment creditors rather than the IRS, but the facts were not consistent with that claim.
3. UBS sent Rum an annual notice that information was provided for him to meet his U.S. tax reporting obligations.
4. Rum answered the Form 1040 Schedule B foreign account question no, and did not report any income from the account over the years.
5. In 2004, Rum signed a document for the foreign account (UBS) that said: "“In accordance with the regulations applicable under US law relating to withholding tax, I declare, as the holder of the above-mentioned account, that I am liable to tax in the USA as a US person.”
6. In 2008, Rum moved the account from UBS to another Swiss bank, Arab Bank. (On the timeline, of course, the U.S. was moving aggressively against UBS in 2008.)
7. Rum claimed that a tax preparer prepared the tax returns, but the returns indicated that they were self prepared.
8. If a preparer did prepare the returns, Rum admitted that he did not disclose to the prepare the foreign account; Rum claimed the preparer never asked about foreign accounts.
9. Rather than join OVDI, Rum attempted a quiet disclosure. (Easy to hindsight on that, given the ugly facts, and the fact that UBS turned on U.S. clients to protect their own skin, a characteristic of Swiss banks generally.)
Labels: 6663, Burden of Proof - Civil - Preponderance, Civil Fraud, FBAR Willful Penalty
Taxpayer Charged with False SFCP NonWillful Certification (8/26/19)
DOJ Tax issued a press release titled "Former CPA Indicted for Failing to Report Foreign Bank Accounts and Filing False Documents with the IRS," here.
This is the first time (at least that I can recall) that DOJ Tax has included a charge for false non-willful declaration in a SFCP submission. Here are the pertinent parts of the press release:
The press release has a link to the superseding indictment here. The key allegations on Streamlined are in paragraphs 39-41 on p. 11 of the Superseding Indictment. These allegations are:
39. The Streamlined Domestic Offshore Procedures (the "Streamlined procedures") allowed eligible taxpayers residing within the United States who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial aceounts, to voluntarily disclose their conduct to the IRS. Taxpayers who were eligible under the Streamlined procedures were subject to substantially lower penalties than those provided by other 1RS programs.
40. In order to be eligible for treatment under the Streamlined procedures, taxpayers were required to file amended tax returns for the most recent three years for which the U.S. tax return due date had passed. Taxpayers who wished to take advantage of the Streamlined procedures were required to certify under the penalties of perjury that their failure to report all income, pay all tax or submit all required returns was due to non-willful conduct. Under the terms of the Streamlined procedures, the IRS defined non-willful conduct as conduct that was due to negligence, inadvertence, or mistake, or conduct that was the result of a good faith misunderstanding of the law.
41. On or about October 14, 2015, BRIAN NELSON BOOKER submitted to the IRS a Certification by U .S. Person Residing in the United States for Streamlined Domestic Offshore Procedures (IRS Form 14654, "Streamlined submission"). In his Streamlined submission, the defendant certified under the penalties of perjury that he "learned about the FBAR filing requirements in 2008" and that he "mistakenly believed that only personal financial accounts had to be reported on the FBAR." The defendant also certified under the penalties of perjury that he was eligible for treatment under the Streamlined procedures and that his failure to report all income, pay all tax, and submit all required information returns, including FBARS, was due to non-willful conduct.
Court Listener has the docket entries, here,
Labels: Indictment - Superseding, Offshore Account Prosecutions, Offshore Streamlined Filing Procedure
The USAO for SD Texas announced issued a press release titled "Houston Personal Injury Attorneys and Case Runners Indicted," here. I don't know that there is anything exceptional about the case, but being from Houston this caught my attention. I don't know any of the players mentioned in the press release.
The press release has the standard disclaimer:
Posted by Jack Townsend at 8:28 AM 0 comments Links to this post
Labels: 18 USC 0371, 7206(1), 7206(2), Aiding and Assisting, Conspiracy - Defraud, Indictments, Obstruction, Tax Perjury, Witness Tampering
A fellow practitioner alerted me to the FBAR collection suit in United States v. Burga (N.D. Cal. No. 19-cv-03246.) The Court Listener docket entries are here. As of this writing, the docket entries (through 8/2/19) show routine entries other than the complaint. The complaint (from Court Listener) is here.
Note on access to court listener documents, see the last paragraph of this blog.
The complaint is against Francis Burga and her deceased husband (with Francis serving as administrator). The willful FBAR penalties are $52,581,605 against each, husband and wife, and thus aggregate $105,163,210. There are also late payment penalty, fees and interest on the base FBAR penalties.
The complaint is pretty damning. Here are some items in the complaint:
1. The defendants had "financial interest in at least 294 foreign bank accounts, in various countries, during at least years 2004 through 2009." (Compl. par. 12, which lists the accounts from p. 3 to p. 11.)
2. The defendants created a Liechtenstein foundation that established complex structures of entities, numbering at least 25, based in Liechtenstein, Switzerland, Singapore and other European and Asian countries. (Compl. par. 33-35.)
3. The defendants signed documents with UBS indicating that they were U.S. citizens subject to U.S. tax and directing that statements not be sent to them and that the account not invest in U.S. securities (which would have triggered a U.S. information reporting by UBS). (Compl. pars. 39-41,)
4. During an audit in 2007 (apparently August 7, 2007), Mr. Burga told the IRS Revenue Agent conducting the interview that he and Ms. Burga did not have any foreign bank accounts, foreign corporations or foreign trusts. (Compl. par. 44.)
5. Immediately after the IRS interview, Mr. Burga moved all of the funds (over $6 million) from the UBS account and into a Liectenstein stiftung, for which Mr. Burga was founder and owner. (Compl. pars. 45 & 46.)
6. "Mrs. Burga has admitted that Mr.Burga is liable for the civil FBAR penalties assessed." (Compl. par. 55.)
7. The complaint does not have a spreadsheet with the amounts of the willful FBAR penalty for each account per year.
There is a related summons enforcement suit filed in 2018, styled United States v. Burga (N.D. Cal. 18-cv-01633), here on Court Listener.
Labels: FBAR Collections, FBAR Willful Penalty
Posted by Jack Townsend at 2:30 PM 0 comments Links to this post
11th Circuit Pattern Jury Instruction Builder (8/16/19; 8/18/19)
While reviewing some docket entries in an FBAR case in Florida, I found a docket entry referring to the Eleventh Circuit Pattern Jury Instruction Builder, here. I had not seen such a tool for pattern jury instructions that are so important for fashioning jury instructions for the more commonly encountered jury instructions needed in criminal cases. (There is also a tool for pattern jury instructions in civil cases.) In the past, practitioners would have to work from a pdf file with pattern jury instructions and then assemble and revise as appropriate. Practitioners will still have modify the pattern jury instructions as appropriate to their particular cases.
I used the tool to generate some of the pattern jury instructions and link, here, the Word document the tool generated. Remember that this is not a complete set that a practitioner would generate in a real case but only some of the instructions of interest to me to get an idea of how the tool worked. Here is the table of contents generated by the tool.
P1 Criminal Cases
B9.1A On or About; Knowingly; Willfully - Generally
B9.1B On or About; Knowingly; Willfully - Intentional Violation of a Known Legal Duty
S8 Deliberate Ignorance as Proof of Knowledge
S9 Good-Faith Defense to Willfulness (as under the Internal Revenue Code)
O13.6 Conspiracy to Defraud the United States 18 U.S.C. § 371 (Second Clause)
O108 Failure to File a Tax Return 26 U.S.C. § 7203
O109.1 Filing a False Tax-Related Document 26 U.S.C. § 7206(1)
O110 False Tax Return, List, Account, or Statement 26 U.S.C. § 7207
O111 Impeding Internal Revenue Service 26 U.S.C. § 7212(a)
O112 Evading Currency-Transaction Reporting Requirement (While Violating Another Law) by Structuring Transaction 31 U.S.C. §§ 5322(b) & 5324(a)(3)
I have not checked to see whether other Circuits have such a tool for their pattern jury instructions. If anyone knows, please post a comment with a link or send me an email with the link at jack@tjtaxlaw.com.
Addendum 8/18/19 9:00pm:
Labels: Pattern Jury Instructions
In United States v. Ott, 2019 U.S. Dist. LEXIS 132013 (E.D. Mich. 2019), here, the court granted the Government's motion for partial summary judgment on the $10,000 nonwillful penalties on 2 separate accounts for each of 3 years. The penalties aggregated $60,000 plus interest and further nonpayment penalties. Since the defendant failed to report the accounts, she was subject to penalties unless she could establish reasonable cause.
Reasonable cause is an affirmative defense, meaning that the person claiming reasonable cause must plead and the prove the defense. On a motion for summary judgment by the party not bearing the burden on the defense (the United States in Ott), the party bearing the burden (Ott in Ott) must submit sufficient evidence to show that there is a fact reasonably in dispute. The Court framed it this way:
The Government moves for summary judgment against Ms. Ott, asserting there is no dispute that she violated 31 U.S.C. § 5314 when she failed to report her financial interest in, or authority over, her foreign financial accounts. Ms. Ott opposes the Motion, arguing there is a genuine dispute of material fact as to whether the affirmative defense of reasonable cause excuses her failure. The Court will disagree.
The steps in the Court's disagreement and thus entry of summary judgment for the U.S. are:
1. "Ott does not dispute that she violated § 5314's reporting requirements, but maintains that assessing penalties under § 5321 would be inappropriate because she had reasonable cause for her omission."
2. 31 U.S.C. § 5321(a)(5)(B)(ii), here and quoted below in this blog, allowing the reasonable cause defense, does not define reasonable cause. The Court, as have other courts, looked to the reasonable cause defense to tax penalties, citing Moore v. United States, 2015 U.S. Dist. LEXIS 43979, 2015 WL 1510007, at *4 (W.D. Wash. Apr. 1, 2015); and Jarnagin v. United States, 134 Fed. Cl. 368, 376 (2017). The Court also cites the regulation under § 6664, 26 CFR § 1.6664-4(b)(1).
3. The Court then held (Slip Op. at 6-7):
Here, Ms. Ott has not met her burden of establishing a material question of fact as to whether she had reasonable cause for the failure to disclose her foreign financial accounts. See ATL & Sons Holdings, Inc. v. Comm'r of Internal Revenue, 2019 U.S. Tax Ct. LEXIS 8, 2019 WL 1220942, at *10 (U.S. Tax Court Mar. 13, 2019) ("In litigation a taxpayer's contention of 'reasonable cause' is in the nature of an affirmative defense, which the taxpayer is obliged to raise."). Critically, she has not shown that she took any steps to learn whether she was required to report her foreign financial accounts. To the contrary, she notes that she hired an advisor to complete her tax returns, but fails to even suggest that she informed the advisor of these accounts. See Jarnagin, 134 Fed. Cl. at 378-79 ("[T]he Jarnagins neither requested nor received any advice one way or the other from their accountants regarding whether they were required to file FBARs . . . [t]he Jarnagins . . . cannot use as a shield reliance upon advice that they neither solicited nor received."). This certainly does not constitute ordinary business care and prudence. Ms. Ott's limited education and experience does not excuse this misstep.
Ms. Ott's primary argument is that she "has yet to present evidence on this critical issue for trial." See Dkt. No. 20, p. 16 (Pg. ID 123). But the time for her to present facts and evidence demonstrating a genuine issue for trial was now, and unfortunately, that opportunity has passed. See Highland Capital, Inc. v. Franklin Nat. Bank, 350 F.3d 558, 564 (6th Cir. 2003) ("[T]he non-moving party cannot rest on its pleadings, but must identify specific facts that can be established by admissible evidence that demonstrate a genuine issue for trial."). Because there is no dispute that Ms. Ott violated § 5314's reporting requirements, and because she has not met her burden of establishing reasonable cause for that violation, the Court will Grant the Government's Motion for Partial Summary Judgment.
On August 5, 2019, DOJ Tax announced here another nonprosecution agreement (NPA) with a Category 1 Swiss Bank, LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland). The announcement has links to the NPA, here, and the Statement of Facts, here.
Key features of this NPA are:
1. LLB Verwaltung must pay the Tax Division a penalty of $10,680,554.64. According to the NPA, the penalty is in lieu of restitution, forfeiture or criminal fine.
2. LLB Verwaltung must "cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland."
3. A related Liechtenstein bank, Liechtensteinische Landesbank AG (LLB-Vaduz), earlier in 2013 reached a separate NPA. See DOJ Tax Press Release, here. LLB-Vaduz paid restitution of $7,525,542. See also Liechtensteinische Landesbank Enters NPA (Federal Tax Crimes Blog 7/30/13), here.
4. The bad behavior, variations on a theme for many Swiss banks, is described in the press release:
Posted by Jack Townsend at 5:34 AM 0 comments Links to this post