Sunday, September 24, 2017

Sixth Circuit Approves NonDetailed Allegations of Ownership in Making Claim for Seized Property Sought to be Forfeited (9/24/17)

In United States v. $31,000 in U.S. Currency, ___ F.3d ___, 2017 U.S. App. LEXIS 18159 (6th Cir. 2017), here, the Sixth Circuit rendered an important decision for claimants in in rem forfeiture proceedings in the Sixth Circuit.  The Court summarizes its holding in the opening two paragraphs of the opinion:
The federal law governing civil in rem forfeiture actions gives the government authority to seize items it suspects were used in furtherance of criminal activity and to commence civil in rem proceedings against the property without charging the property's owner with a crime. See United States v. Seventeen Thousand Nine Hundred Dollars ($17,900.00) in U.S. Currency, 859 F.3d 1085, 1087 (D.C. Cir. 2017) explaining the practice of civil forfeiture); see also Leonard v. Texas, 137 S. Ct. 847, 848-49, 197 L. Ed. 2d 474 (2017) (Thomas, J.) (statement respecting the denial of certiorari) (describing some abuses in the administration of civil forfeiture laws in the United States and questioning the constitutionality of such laws). Federal agents and entities have significant latitude to pursue these claims, from special discovery provisions written into the governing rules to a burden of proof that is lower than required in standard criminal cases. But this latitude has its limits, and this case requires us to define some of these limits. The district court granted the government's motion to strike Taiwan Wiggins's and Dalante Allison's claims to currency seized from each man at the Cleveland Hopkins International Airport. Each man's claim asserted that he owned the currency that had been taken from his suitcase. The district court recited the facts as alleged by the government, found that each claim presented "nothing more than a naked assertion of ownership," and held that, under Sixth Circuit precedent, Wiggins and Allison lacked the standing necessary to pursue their claims. 
In many ways, this civil forfeiture action looks routine, for federal courts have developed well-settled principles concerning a forfeiture claimant's need to demonstrate both Article III and statutory standing. But this case comes to us in a procedural posture unlike most civil forfeiture actions—the government apparently moved to dismiss the claim before it engaged in any discovery. Its basic argument before the district court and on appeal is that the claimant's pleadings must do more than assert a bare ownership in the res that is subject to forfeiture, and that the claimant's pleadings must provide the government sufficient detail to draft interrogatories allowing it to test the claimant's claim of ownership. As we will explain, the procedural rules governing civil forfeiture actions do not demand such a heightened standard. Accordingly, we REVERSE the district court's order granting the government's motion to strike the claim and REMAND for further proceedings.
The factual background is that DEA agents questioned two persons seeking to depart from an airport and gained access -- allegedly consensual access -- to their baggage.  The DEA agents discovered cash in their baggage of $31,000 and $10,000 respectively.  A DEA canine alerted the agents to odor of narcotics.  Upon questioning, each of the individuals claimed employment with a cleaning service company and one individual could name only one customer of the company.  The DEA agents could not locate any of these companies or the customer.  The Government then moved to forfeit the cash under "21 U.S.C. § 881(a)(6), as proceeds traceable to drug trafficking activities or that were used or intended to be used to facilitate drug-trafficking in violation of 21 U.S.C. §§ 841(a), 846."  Each of the individuals filed claims for their respective cash the Government sought to forfeit.  The claims appeared to be slim on details but did make critical assertions that the claimants owned the respective funds and that the funds had been illegally seized.

The Court said that, "]b]ecause this case presents an issue of first impression in this circuit, we discuss the applicable procedural rules and case law in some detail."  The Court discusses the rules governing in rem forfeiture actions -- 18 U.S.C. § 983, here, and Rule G of the Federal Rules of Civil Procedure's Supplemental Rules for Admiralty or Maritime Claims and Civil Forfeiture Actions (the "Supplemental Rules"), here.  The Court then discussed those rules as follows:

Second Circuit Orders Abatement of Criminal Conviction on Appeal but (i) Denies Abatement of Tax Conviction Not Appealed and (ii) Affirms $48 Million Bail Bond Revocation (9/24/17)

In United States v. Brooks, ___ F.3d ___, 2017 U.S. App. LEXIS 18170 (2d Cir. 2017), here, the defendant was convicted (i) by jury verdict for offenses related to fraud and securities laws violations and (ii) by guilty plea for tax evasion.  The defendant appealed the jury verdict convictions but did not appeal his guilty plea conviction.  He died while his case was on appeal.  The principal issue resolved was whether the death while pending appeal abated the convictions and collateral consequences.  The Court summarizes its holdings as:
Appeal from the United States District Court for the Eastern District of New York. No. 6-cr-550 — Joanna Seybert, Judge. Appeal from a judgment of the United States District Court for the Eastern District of New York (Seybert, J.) entered following a jury verdict finding defendant David Brooks guilty of offenses related to fraud and securities laws violations, and Brooks's guilty plea to tax evasion. After Brooks filed his appeal, he died while incarcerated and his estate and members of his family moved to abate his convictions. We conclude that Brooks's counts of conviction resulting from the verdict abated with his death, but not the counts resulting from his guilty plea; the bail bond subscribed by Brooks and his family remains forfeited; and the order of restitution related to the fraud and securities laws counts is abated but not the order of restitution related to the tax counts. Accordingly, the estate-appellant's motion for abatement is GRANTED in part and DENIED in part, Brooks's judgment of conviction for the non-tax counts is VACATED, the motion by Brooks's family members for abatement of the bail bond forfeiture is DENIED, the order denying the motion to set aside bond forfeiture is AFFIRMED, the Government's cross-appeal is DISMISSED, and the case is REMANDED for the dismissal of the non-tax counts of the indictment.
The Court's resolution of the abatement issue is important although relatively straight-forward.  It is black-letter that death while on appeal does abate the conviction.  The nuance addressed -- or at least implied -- is that the appeal has to question the conviction.  There was no appeal of the tax conviction pursuant to the guilty plea (likely because many pleas require waiver of the right to appeal and even when an appeal is permitted under the plea usually is not permitted for guilt of the crime or counts for the plea).

The takeaway is that a defendant convicted by jury verdict or judge decision should always appeal the conviction if the defendant appeals anything.  For example, an appeal of only the sentence likely would not require abatement of the guilty conviction (verdict or judge decision).  Of course, in almost all cases, the appeal does attack the conviction in some way, so that this precaution would usually be covered anyway.

Another interesting aspect of the holding is the forfeiture of the bond.  The district court had set a $400 million recognizance bond, with $28 million in cash as security.  The Court of Appeals noted:
The amount of the entire bond was $400 million, apparently the largest ever imposed on an individual defendant, and the cash security posted was originally $48 million, also an extraordinary cash security.  These amounts were required by the district court because of the nature of the crime, the amounts allegedly involved in the crimes, and Brooks's wealth. They arose out of a concern that Brooks would be able to flee and access those accounts to aid his flight. 
In setting the bond, the district court addressed the Government's concern that the defendant might be hiding assets while free on bond.  In the bond conditions, the district court specifically provided that "[a]ny knowing violation of this agreement, including . . . an attempt . . . to conceal assets . . . will be grounds for revocation of his bail release and for forfeiture of the $[48] million in bond security."  Finding that the defendant had attempted to secrete assets, the district court revoked bail and forfeited the $48 million cash.  That finding was made only upon consideration of the Government's submissions.

Thursday, September 21, 2017

Big Win for Taxpayer/Filer in FBAR Willful Penalty Case (9/21/17; 9/23/17)

In Bedrosian v. United States, 2017 U.S. Dist. LEXIS 154625 (E.D. Pa. 2017) (E.D. Penn. 2017), here, the District Court held that the Government had not established willfulness for the FBAR penalty and ordered refund / return of the illegal exaction the Government had collected.  I have previously written on some of the pre-trial developments in the case and provide links to those blog entries at the end of this blog.  So, I will just focus on this latest decision on the merits.  I will be rather brief since I am posting this from Dublin while on vacation (which also explains why I have been relatively silent on the blog recently).

The key points are:

1.  The trial was a one-day trial as indicated in my most recent blog (linked below).

2.  The Court found Bedrosian, presumably the principal witness for himself, credible, thus accepting some key claims he made as to his now deceased accountant's knowledge of and advice regarding the omitted foreign account. The accountant was named Handleman.  From the opinion:
Bedrosian did not tell Handelman about his Swiss account until some point in the mid-1990s, at which time Handelman advised him that he had been breaking the law every year that he did not report the account on his tax return. (Id. at 49-50.) Bedrosian asked Handleman what he recommended doing about it, and Handelman stated that he could not “unbreak the law,” and should therefore take no action. (Id. at 50-51.) Handelman assured Bedrosian that his estate could deal with it upon his death, when his money was repatriated. Heeding Handleman’s advice, Bedrosian continued to not report either Swiss account on his tax returns.
So, this is a variation of the reliance on tax professional defense to a crime or civil penalty requiring willfulness.  But, the reliance is inherently inconsistent with the ultimate holding.  Handleman, by Bedrosian's admission, told Bedrosian that he was violating the law by not reporting the account.  Hence, by his own admission, he thus knew the law and must have intended to violate it, albeit with the goal of leaving it to his estate to work out the solution.

3. Of course, Bedrosian's defense is more subtle. Bedrosian must have told his new accountant, Bransky, who started in 2007 because that accountant did check the Box yes on the Schedule B foreign account question.  The resulting FBAR, though, only included one of Bedrosian's accounts, omitting the much larger one.

4.  Then in 2008, Bedrosian began discussing this matter with his attorney.  It is not stated precisely why he began that discussion, but UBS -- the bank involved -- was then feeling the heat from the Government.  (All that is history which, although not recounted in the opinion, was very much known to the practitioner community and a number of more sophisticated lay people with an interest in knowing.)  The opinion says:  "Notably, at the time Bedrosian took these steps to rectify the issue, the government had not begun its investigation of him and he did not know that UBS had turned his information over to the IRS."  The timing here is not as detailed as I would have liked to have seen it, but it suggests that UBS had turned over information in 2008.  I thought that did not occur until 2009.  (And, my prior blog indicated that his seeking legal advice occurred in 2009.)

5.  On advice of the attorneys then consulted and without knowledge of an IRS investigation, Bedrosian amended his returns for 2004 forward and paid the resulting taxes.  As written, that appears to have been a quiet voluntary disclosure rather than OVDP.  That probably was a dicey move at the time because, on his fact pattern, I suspect that most attorneys would likely have advised the then iteration of OVDP rather than quiet disclosure.  (Remember that, at that time, the Government was asserting its right and willingness to assert multiple year FBAR willful penalties.)

6.  The Court held that the standard of review of de novo.  (Consistent with prior holding discussed in the most recent blog on the case.)

7. The Court held that the Government must prove willfulness by a preponderance of the evidence, thus falling in line with the critical mass of cases deciding that issue (either as a direct holding or as dicta).  (I have said much on that issue in prior blog entries, so won't dig into it here.)

Saturday, September 16, 2017

DOJ Tax Targeting Swiss Life Insurance Companies Offering Insurance Wrappers to Help U.S. Taxpayers Evade Tax (9/16/17)

DOJ Tax is reportedly looking at Swiss life insurance companies who participated in providing so-called insurance wrappers to hide U.S. taxpayer's investments.  I offer a recent article and then two other older items for more information.

John Revill, Oliver Hirt, UPDATE 1-Swiss Life speaks to DOJ about possible tax evasion by U.S. clients (Reuters 9/14/17), here.
Swiss Life could face a fine in the United States after it was contacted by the U.S. Department of Justice (DOJ) about whether it helped U.S. clients avoid tax, Switzerland’s biggest life insurer said on Thursday. 
The disclosure comes as U.S prosecutors have been widening their probe of Swiss banks who have been helping wealthy American clients dodge taxes to include insurance companies. 
* * * * 
The Zurich-based company started selling the products in 2006, but stopped selling them in the United States in 2012. Swiss Life returned funds to hundreds of American clients who had invested in insurance wrappers linked to bank accounts at Bank Frey in 2013, The Wall Street Journal has reported.

Reuters Staff, U.S. looks at Swiss insurers in offshore probe: WSJ (Reuters 2/24/2014), here.
Insurers in Switzerland have been preparing for months for U.S. officials to investigate products known as insurance wrappers - life insurance policies into which the very wealthy place stocks, private equity holdings and other bankable assets, allowing them to lower their tax rate.
Justice Department Announces Resolution under Swiss Bank Program with Union Bancaire Privée, UBP SA (DOJ Tax 1/6/16), here.
UBP maintained undeclared accounts at UBP for U.S. clients in the nominee names of non-U.S. insurance companies.  Such accounts, known commonly as insurance wrappers, were titled in the names of insurance companies but were funded with assets that were transferred to the accounts for the beneficial owners of the insurance products.  Insurance wrappers were marketed to Swiss Banks by third-party providers in the wake of the UBS investigation as a means of disguising the beneficial ownership of U.S. clients.  For example, in November 2009, UBP worked with a third-party service provider to assist a U.S. beneficial owner in restructuring three existing ac=counts he held at UBP in the names of nominee Panamanian entities into three accounts owned by the insurance company. 
* * * * 
Effective January 2001, UBP entered into a Qualified Intermediary (QI) Agreement with the IRS.  The QI Agreement was designed to help ensure that, with respect to U.S. securities held in an account with UBP, non-U.S. persons were subject to the proper U.S. withholding tax rates and U.S. persons were properly paying U.S. tax.  As a consequence of UBP entering into a QI Agreement with the IRS, UBP allowed U.S. clients to create and open accounts in the name of sham offshore entities and insurance wrappers.  Certain UBP employees caused UBP to certify compliance with the QI Agreement event though the true beneficial owners were not reflected in the IRS Forms W-8BEN in the account files.  UBP also divested U.S. securities from its undeclared U.S. accounts for the purpose of subverting its QI Agreement.

Monday, September 11, 2017

Order on Motion In Limine and Trial Briefs in Case Involving FBAR Willful Penalty (9/11/17)

In Bedrosian v United States, 2017 U.S. Dist. LEXIS 142793 (E.D. Pa. 2017), here, the Court granted the U.S. motion in limine "to preclude evidence concerning the 'procedures, actions, analyses, or viewpoints of the Internal Revenue Service and its personnel at the administrative level regarding willfulness.'"  Basically, the holding is that the FBAR willful liability at issue is determined by the Court de novo.  That means that Bedrosian's willfulness is determined based upon his own mental state -- willfulness -- and his actions in failing to report his UBS account at issue.  The IRS's administrative actions are irrelevant to that issue.

While downloading the order, I also downloaded the following:
  • Bedrosian Docket Entries as of 9/11/17, here.
  • Bedrosian Trial Brief 8/28/17, here.
  • United States Trial Brief 8/28/17, here.
The docket entries (#59) indicate a Minute entry for proceedings on 9/8/17.  I could not get to that minute entry because, the message said, "You do not have permission to view this document."  I don't know if that was the minute entries of the trial.  But, in view of the court's order the previously indicated trial time of two days was likely much shorter and could have been completed in one day.

Key points from the trial briefs are (keep in mind that, when I state a fact from the briefs, it is what the party asserts the record will establish):

Bedrosian Brief:

1.  Bedrosian told his accountant in the 1990s about UBS account.  His accountant told him that he should have been reporting the account but to "leave the account as it was and that he (or his estate) would pay taxes on the money in the account when repatriated." Plaintiff dutifully followed his accountant's "instructions."

2. The accountant passed away in 2007.  There is no indication that there is any written or otherwise objective evidence of the accountant's advice to Bedrosian other than Bedrosian's testimony.

3.  Bedrosian's new accountant (i) answered the Schedule B foreign account question in the affirmative and indicated the account was in Switzerland and (ii) prepared an FBAR with only one of two accounts listed because he "inadevertently" omitted it and "plaintiff always viewed it as one account with a subaccount."

4.  In 2009, Bedrosian began to question his reporting position, engaged an attorney who, in turn, engaged a "forensic accountant" to prepare amended returns and FBARs and engaged Swiss counsel to obtain the bank records.  Swiss counsel then advised that UBS had turned over the account information to the IRS.  "Significantly, Plaintiff had already decided to file amended returns and FBAR forms when he learned this fact.  He then filed his FBAR reports.  [JAT note:  Significantly, this flurry of activity in 2009 probably occurred after UBS was in the news for its assistance to U.S. taxpayers in evading or avoiding their income tax obligations.]

5.  In 2011, the IRS advised Bedrosian that his 2007 and 2008 returns had been selected for examination.  The following then occurred in the audit activity:

a.  Bedrosian was "very cooperative," according to the agent.

b.  The IRS agent "requested and received plaintiff's FBAR reports for 2006-2009."  It is not clear whether this was the original filing of those reports or was copies of the earlier filing after the activity in 2009.

c.  The IRS agent "ultimately determined, based on the totality of his investigation, that plaintiff's violation of the FBAR requirements was non-willful."

d.  In 2012, the IRS agent and his supervisor "met with the treaty case panel which "recommended that platintiff's case be closed with non-willful violations, thereby sustaining [the IRS agent's] conclusions."

e.  That revenue agent went out on medical leave.  Another agent was assigned to the matter and "decided that the penalty proposed by [the first revenue agent] was not correct."  Bedrosian makes certain claims as to deficiencies in the new agent's investigation.

f.  On July 18, 2013, the IRS imposed a 50% willful penalty "the highest penalty that could be imposed."  [I question this since the statute allows 50% per year, although the IRS will generally not assert more than 50% of the high amount in the open years.]

[JAT Note:  the assertions regarding the IRS investigation appear not relevant based on the Court's order on the motion in limine.]

Friday, September 8, 2017

KPMG Report Indicates 60 or 70 Swiss Private Banks are in Serious Difficulty (9/8/17)

Reuters Staff, Up to 70 Swiss private banks fighting for survival: KPMG (Reuters 9/7/17), here.  Key exerpt:
Some 60 to 70 Swiss private banks are facing serious problems that could force them to close down or sell up, according to a study published on Thursday by consultancy KPMG.
Fighting diminishing profits caused by fierce competition and a global clampdown on tax evasion, these banks must work to cut costs and buy up competitors to reach adequate size. 
But many of the affected banks will ultimately have to exit the market, the study concluded. 
“I‘m convinced that at least half will disappear,” KPMG manager Christian Hintermann said, adding many of these banks were now making losses. “It’s ultimately a question of how long their owners want to carry these losses.”
* * * * 
The number of Swiss private banks has already fallen by over a third from 180 in 2005, according to the data. 

Eighth Circuit Rejects Argument of Prosecutor Abuse in Closing Argument (9/8/17)

In United States v. Melton, ___ F.3d ___, 2017 U.S. App. LEXIS 16753 (8th Cir. 2017), here, the Court affirmed the conviction and sentence for for twelve counts of mail fraud (18 USC § 1341) and five counts of failure to pay employment taxes (§ 7202).  The defendant raised a number of arguments on appeal, mostly related to the mail fraud and its background.  I excerpt here only the discussion of the defendant's argument that the prosecutor improperly argued in closing argument that the prosecutor believed the defendant was guilty or that a witness was credible or not credible, rather than leaving those determination to the jury.  E.g., United States v. Warshak, 631 F.3d 266, 301-308 (6th Cir. 2010), reh'g and reh'g en banc denied, 2011 U.S. App. LEXIS 5007 (6th Cir. 2010) (involving a litany of improper prosecutor assertions); United States v. Bess, 593 F.2d 749, 755 (6th Cir. 1979) ("Implicit in an assertion of personal belief that a defendant is guilty, is an implied statement that the prosecutor, by virtue of his experience, knowledge and intellect, has concluded that the jury must convict. The devastating impact of such 'testimony' should be apparent."); United States v. Wolfe, 701 F.3d 1206 (7th Cir. 2012) (noting as a tyope of impermissible vouching: "a prosecutor may not express her personal belief in the truthfulness of a witness, and a prosecutor may not imply that facts not before the jury lend a witness credibility."); and United States v. Woods, 710 F.3d 195, 202 (4th Cir. 2013) ("highly improper for the government to refer to a defense witness as a liar.).

Here is the excerpt from Melton:
B. Government's Closing Argument 
Melton asserts a new trial should be granted because the government's remarks during closing affected his right to a fair trial. Because Melton did not object on those grounds during trial, we review for plain error. See United States v. White, 241 F.3d 1015, 1023 (8th Cir. 2001). The burden is on Melton to demonstrate the district court plainly erred by allowing the government's comments. See id. "We will reverse an improper remark during closing argument without an objection only under 'exceptional circumstances.'" United States v. Branch, 591 F.3d 602, 609 (8th Cir. 2009) (quoting United States v. Eldridge, 984 F.2d 943, 947 (8th Cir. 1993)). Reversal for prosecutorial misconduct requires proof that "'the prosecutor's remarks were improper,'" and "'such remarks prejudiced the defendant's rights in obtaining a fair trial.'" Id. (quoting United States v. Bentley, 561 F.3d 803, 809 (8th Cir. 2009)). 
Melton calls our attention to several statements made during closing. Referring to Melton's testimony, counsel for the government remarked, "His lips are moving, things are going through his brain coming out his mouth and it's just flat out lies. That pretty much typifies Mr. Melton." Counsel repeated he believed Melton was lying, and Melton was selling "magic" on the stand. Counsel also called Melton's testimony "silly" and "made up," and remarked, "there is just arrogance flowing from that man [Melton] right there." Near the end of his closing, counsel concluded: "The evidence is Andrew Melton is lying. . . . It's amazing what that man got up there and testified about and lied to you. . . . That man right there is guilty. Convict him." 
While these comments taken together and out of context arguably may be inappropriate for a federal government prosecutor, we liken their effect to those discussed in United States v. White, where we determined the prosecutor's comments were "questionable," but did "not rise to the level of plain error affecting [the defendant's] substantial rights." White, 241 F.3d at 1023. In White, under plain error review, the defendant challenged the prosecutor's statements that the defendant was "'lying bold face to you,'" and "'tried to lie to you,'" by suggesting he had not used drugs for several decades. Id. at 1022-23. The prosecutor also stated, "'If he can suggest to the government that witnesses are willing to lie, what kind of lies do you think he would tell in order to evade responsibility entirely?'" Id. at 1023. We determined the comments did not warrant reversal because the prosecutor "outlined the evidence and highlighted the reasons he believed [the defendant's] testimony was not credible," and "we [chose] not to employ the discretion conferred by Rule 52(b)" because it was not "a miscarriage of justice." Id. (citation omitted); see also Fed. R. Crim. P. 52(b). We reasoned it was "permissible for a prosecutor to interpret the evidence as indicating that the defendant [was] not telling the truth." Id. "So long as prosecutors do not stray from the evidence and the reasonable inferences that may be drawn from it, they, no less than defense counsel, are free to use colorful and forceful language in their arguments to the jury." United States v. Robinson, 110 F.3d 1320, 1327 (8th Cir.1997); cf. United States v. Holmes, 413 F.3d 770, 775 (8th Cir. 2005) (holding the prosecutor's closing comments implying defense counsel was "conspiring with the defendant to fabricate testimony" were "highly improper because they improperly encourage the jury to focus on the conduct and role of [the defendant's] attorney rather than on the evidence of [the defendant's] guilt"); United States v. Johnson, 968 F.2d 768, 772 (8th Cir. 1992) (granting a new trial where closing remarks improperly ignited "fear and concern engendered by the national drug epidemic"). 

Sunday, September 3, 2017

Consideration of Sentencing Disparities in Sentencing (9/3/17; 9/8/17)

In United States v. Pierre, ___ F.3d ___, 2017 U.S. App. LEXIS 16851 (8th Cir. 2017), here, the Eighth Circuit affirmed the conviction and sentence of the defendant for defraud conspiracy with respect to Government claims (18 USC § 286) and for money laundering (18 USC § 1957).  The defraud conspiracy related to multiple false refund claims.  Only one part of the opinion caught my particular attention.  In the opinion, the Court held:
Pierre also complains that the district court created unwarranted sentencing disparities when it sentenced him based on intended loss ($5.2 million) rather than actual loss ($1.2 million), because his co-conspirators received sentences based on the actual loss amount attributable to them. The guidelines direct the court to consider the greater of actual loss or intended loss, USSG § 2B1.1, comment. (n.3(A)), so there was no error in using the larger amount. The statutory direction to avoid unwarranted disparities among defendants, 18 U.S.C. § 3553(a)(6), refers to national disparities, not differences among co-conspirators, so Pierre's argument founders on a mistaken premise. See United States v. Fry, 792 F.3d 884, 892-93 (8th Cir. 2015). In any event, any disparity among co-conspirators here was warranted by Pierre's greater culpability in the conspiracy. Pierre was aware of the full scope of the conspiracy: he recruited co-conspirators to open several phony tax-preparation companies and bank accounts, and he directed them to deposit and withdraw money from the bank accounts. Most of the co-conspirators were associated with only a single fictitious company and bank account. The district court reasonably sentenced Pierre based on a greater amount of loss.
For review, 18 USC § 3553(a), here, states the "Factors To Be Considered in Imposing a Sentence," including in subparagraph (6) "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct."  § 3553(b) requires the sentencing court to "impose a sentence of the kind, and within the range, referred to in subsection (a)(4) unless the court finds that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described."  As interpreted by Booker, the Court has ultimate discretion in applying the § 355a(a) factors to vary from the Guidelines.

The concurring judge, Kelly, disagreed that the majority should have reached the proper scope of the "unwarranted sentence disparities" command of 18 USC § 3553(a)(6).  His concurring opinion is short, so I quote it in full:
Our court has not previously decided whether "[t]he statutory direction to avoid unwarranted disparities among defendants [in accordance with] 18 U.S.C. § 3553(a)(6) refers to national disparities [rather than] differences among co-conspirators." Supra at 8. See Fry, 792 F.3d at 892-93 (noting in dicta that "[m]ost courts say that the statutory direction to avoid unwarranted sentence disparities, see 18 U.S.C. § 3553(a)(6), refers to national disparities, not differences among co-conspirators" but affirming defendant's longer sentence as substantively reasonable when compared to sentences of other participants in fraud scheme because "disparate sentences among dissimilar defendants are not unwarranted") (emphasis omitted); United States v. Nshanian, 821 F.3d 1013, 1019 (8th Cir. 2016) (citing Fry, 792 F.3d at 892, but nonetheless "[a]ssuming for the sake of analysis that the statutory direction to avoid unwarranted sentence disparities might refer to differences among co-conspirators rather than national disparities"); United States v. Avalos, 817 F.3d 597, 602 (8th Cir. 2016) (citing Fry, 792 F.3d at 892-93, but "assuming for the sake of analysis that sentence disparities among co-conspirators could demonstrate unreasonableness"). In my view, there is no need to do so here, because any disparity between Pierre's sentence and those of his co-conspirators was warranted for the reasons stated by the court. For this reason, I concur in the result, but not in the conclusion regarding the proper scope of § 3553(a)(6). I otherwise concur in the court's opinion.
For some more context, I thought I would first offer a quote from a Supreme Court case on § 3556(a)(6), then offer a discussion Judge Jack Weinstein by linking to a prior blog discussion, and then some quotes from some representative tax cases.  I caution that these examples are more anecdotal to give readers some flavor for the analysis and are not intended to be exhaustive or even a fair representation of the § 3556(a)(6) authority:

Saturday, September 2, 2017

Taxpayer Held Liable for Civil Fraud Penalty after Plea to Tax Evasion for One of the Years (9/2/17; 9/10/17)

In Cantrell v. Commissioner, T.C. Memo. 2017-170, here, the Court sustained the civil fraud penalty based on the taxpayer's plea agreement to tax evasion for one of the years (2002) and the pattern of conduct related to other years.  In the criminal case, the taxpayer had also pled to a scheme of bribery related to his official position as a Government employee.

The Tax Court's determination that facts supported the civil fraud penalty (including collateral estoppel for 2002) is not particularly exceptional. It might be a good read for students and young lawyers.

The Court also held that the taxpayer had filed valid tax returns sufficient to permit the civil fraud penalty.  The civil fraud penalty in § 6663 and the accuracy related penalty in § 6662 apply only to underpayments with respect to filed tax returns.  § 6664(b).  The taxpayer here claimed that, because he filed electronically through TurboTax for most of the years, there was no valid return because he did the electronically filed returns did not have his actual signature.  The Court held that he had filed sufficient returns for the civil fraud penalty.  This portion of the opinion is worth quoting:
Section 6011(a) provides that "any person made liable for any tax * * * shall make a return * * * according to the forms and regulations prescribed by the Secretary." A return required to be filed by "the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury." Sec. 6065. 
Section 6061(a) provides the general rule that "any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with the forms or regulations prescribed by the Secretary." Section 301.6061-1(b), Proced. & Admin. Regs., provides further that the method for signing may be prescribed in "forms, instructions, or other appropriate guidance". 
In 1998 Congress enacted the IRS Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. No. 105-206, sec. 2001, 112 Stat. at 723, which provides, inter alia, that it is Congress' policy that the IRS implement guidelines for electronic filings with the hope that the IRS would achieve 80% electronic filing by 2007. See H. Conf. Rept. No. 105-599, at 234-235 (1998), 1998-3 C.B. 747, 988-989; S. Rept. No. 105-174, at 39-42 (1998), 1998-3 C.B. 537, 575-578. RRA 1998 sec. 2003(a)(2), 112 Stat. at 724, amended section 6061 by adding subsection (b). The Secretary thereby is required to develop procedures for the acceptance of signatures in digital or other electronic form; and until such time as such procedures are in place, the Secretary may waive the requirement of a signature or provide for alternative methods of signing or subscribing a return. Sec. 6061(b). Thus, the strict requirements for the filing of a paper return by an agent do not apply with full force to electronically filed returns. 
IRS Publication 1345, Handbook for Authorized IRS e-file Providers, provides guidance for the electronic filing of Federal income tax returns by Electronic Return Originators (EROs), such as TurboTax, including the signature requirement. IRS Publication 1345 has been in effect since before the years at issue. Accordingly, where it is clear that a preparer had actual authority to electronically file a return for a taxpayer, the Secretary acts within his discretion in  waiving the signature requirements. Ballantyne v. Commissioner, T.C. Memo. 2010-125, slip op. at 7. 
We here find as fact that the joint returns filed by petitioner and his then wife for the years at issue met the signature requirements adopted by the IRS.

Friday, September 1, 2017

Sixth Circuit Holds Government did not Prove Fugitive Disentitlement for Civil Forfeiture (9/1/17)

In United States v. $525,695.23 Seized from JPMorgan Chase Bank, ___ F.3d ___, 2017 U.S. App. LEXIS 16077 (6th Cir. 2017), here, the Court vacated the district court's application of the fugitive disentitlement statute, 28 U.S.C. § 2466.  The case involves civil forfeiture of certain U.S. assets based on drug trafficking and money laundering.  Tax crimes were not involved.  Still the fugitive disentitlement can be implicated in tax crimes cases.  See Ninth Circuit Speaks on FOIA, but Ducks Fugitive Disentitlement (Federal Tax Crimes Blog 3/13/12), here.

I provide the statute and then the Court's general discussion of the requirements for application of the statute.

The statute, § 2466, here, is:
28 U.S. Code § 2466 - Fugitive disentitlement(a) A judicial officer may disallow a person from using the resources of the courts of the United States in furtherance of a claim in any related civil forfeiture action or a claim in third party proceedings in any related criminal forfeiture action upon a finding that such person—
   (1) after notice or knowledge of the fact that a warrant or process has been issued for his apprehension, in order to avoid criminal prosecution—
      (A) purposely leaves the jurisdiction of the United States;
      (B) declines to enter or reenter the United States to submit to its jurisdiction; or
      (C) otherwise evades the jurisdiction of the court in which a criminal case is pending against the person; and
   (2) is not confined or held in custody in any other jurisdiction for commission of criminal conduct in that jurisdiction.
(b) Subsection (a) may be applied to a claim filed by a corporation if any majority shareholder, or individual filing the claim on behalf of the corporation is a person to whom subsection (a) applies.
The Court's summary of the requirements of the statute is:
Based on the text of this statute, this Court has adopted the following five part test to determine whether disentitlement is appropriate: 
(1) a warrant or similar process must have been issued in a criminal case for the claimant's apprehension; (2) the claimant must have had notice or knowledge of the warrant; (3) the criminal case must be related to the forfeiture action; (4) the claimant must not be confined or otherwise held in custody in another jurisdiction; and (5) the claimant must have deliberately avoided prosecution by (A) purposefully leaving the United States, (B) declining to enter or reenter the United States, or (C) otherwise evading the jurisdiction of a court in the United States in which a criminal case is pending against the claimant. 
Salti, 579 F.3d at 663 (quoting Collazos, 368 F.3d at 198). 
The issues the Court addressed are:

Thursday, August 31, 2017

Deliberate Ignorance Instruction Previously Rejected Allowed Based on Defense Closing Argument (8/31/17)

In United States v. Walter-Eze, ___ F.3d ___, 2017 U.S. App. LEXIS 16269 (9th Cir. 2017), here, the defendant appealed her convictions for conspiracy to commit health care fraud in violation of 18 U.S.C. § 1349, health care fraud in violation of 18 U.S.C. § 1347; and conspiracy to pay and receive health care kickbacks in violation of 18 U.S.C. § 371. There were no tax counts; tax is not mentioned in the opinion.  However, I have previously discussed the deliberate ignorance jury instruction device which feature prominently in the case.  (The deliberate ignorance concept goes by other terms such as willful ignorance and conscious avoidance; I use deliberate ignorance here because that is the term used by the court in the opinion.)  An issue with such jury instructions that I have previously discussed on this blog is whether the instruction allows the jury to convict without actually finding the knowledge required by the criminal statute or simple permits the jury to infer, in light of all the evidence, that the defendant had the knowledge.  This case does not speak to that issue, but it is interesting because of the way the deliberate ignorance instructions was presented to the jury.

The criminal charges were based on the following facts state by the Court:
III. Evidence at Trial 
At trial, witnesses called by the government testified to a five-year scheme run by Walter-Eze through her company Ezcor-9000 ("Ezcor") to fraudulently bill Medicare and Medi-Cal for durable medical equipment ("DME") provided to patients who had no need for the devices.n2 Recruiters would be paid kickbacks to find patients and doctors would be paid for prescriptions. Among the witnesses called were Wilmer Guzman and Elder Aguilar, workers for Walter-Eze, who explained the illegal kickback scheme and the provision of the DME; Dr. Edna Calaustro, who was paid by Ezcor to write prescriptions for unnecessary devices; and several beneficiaries (or their relatives) whose receipt of unnecessary devices served as the predicates for each of the substantive claims in Counts 2 through 6 of the indictment. The federal and state investigators who worked on the Ezcor case also testified.
   n2 Medi-Cal is California's Medicaid program serving low-income individuals, which will reimburse the DME supplier up to 20 percent of the maximum allowable amount after Medicare pays.
  Walter-Eze testified in her own defense. No other witnesses were called by the defense. 
The majority of the government's evidence at trial pertained to one type of DME in particular—power wheelchairs—for which Medicare paid a particularly high rate of reimbursement and which, in order to be prescribed, required doctors to determine that their patients had such limited mobility that they lacked the ability to perform activities of daily living in the home. Over 50% of the $3,432,776 of claims that Walter-Eze submitted to Medicare and Medi-Cal through Ezcor were for these high-value power wheelchairs and wheelchair accessories. The fraudulent claims were not limited to these items, but included additional DME, such as hospital beds and knee and back braces, which accounted for an additional 33% of Ezcor's business. Walter-Eze would pay recruiters such as Guzman kickbacks for each prescription that they brought in to Ezcor; the kickback amount would vary based on the reimbursement value of the piece of DME. Accordingly, the highest kickbacks were paid for power wheelchair prescriptions, followed by hospital beds, and knee and back braces. From January 2007 through early March 2012, Ezcor submitted $3,432,776 in reimbursement claims to Medicare and was paid $1,866,261. During this same period, Ezcor submitted claims to Medi-Cal totaling $89,011 and was paid $73,269. 
Walter-Eze denied that she paid kickbacks to recruiters, instead characterizing them as commissions paid to independent contractors. She also denied paying any money to Dr. Calaustro for prescriptions.
The facts relevant to the jury instruction are:

Wednesday, August 23, 2017

HMRC Enlists Financial and Other Professionals to Warn UK Citizen Clients About Offshore Accounts (8/23/17)

Camilla Hodgson, 'Life-changing consequences:' HMRC warns on risks of hiding wealth offshore in new crackdown (Business Insider Date not indicates but I believe today or yesterday), here.

The UK tax collector is sending letters warning of the "potentially life-changing consequences" of failing to disclose offshore-held wealth, as part of a drive to prevent people skirting tax rules. 
Millions of UK taxpayers are being sent the warning via their financial institutions and advisers. 
These institutions have been given until the end of August to explain to all clients the risks of failing to declare offshore-held money and assets. 
* * * * 
Under new transparency rules, however, information sharing between more than 100 countries will allow HMRC to crack down on individuals who are trying to evade tax they should be paying, the warning said: "The world is becoming more transparent." 
Overseas institutions such as banks and insurers, it goes on, have already begun supplying such data to help HMRC "identify the minority who are not paying what they owe." 
It urges people to "come to us before we come to you," and encourages reporting any undeclared taxable assets via a "worldwide disclosure facility." Although this will result in penalty charges of up to 200% of what is unpaid, penalties are due to rise further from September 2018. 
Since it would entail a huge amount of work for financial institutions to check which of their customers may have offshore-held assets, the warning is being sent out to most customers. However, it includes an assurance that those whose tax affairs are up to date and complete need not take any action.

Monday, August 21, 2017

Agostino & Associates Article on Executor Risks for Decedent's Foreign Accounts (8/21/17)

Frank Agostino and Nicholas Karp, Protecting the Executor Who Becomes Aware of Undisclosed Foreign Accounts, Agostino & Associates Monthly Journal of Tax Controversy (August 2017), here

The introduction:
An executor administering an estate with undisclosed foreign accounts is exposed to substantial risks that may not be apparent. The following discussion is intended for executors and administrators who wish to understand and avoid those risks.
The authors identify the following as "Superficially attractive but risky advice sometimes given by accounting firms:"
The accounting firm advises the executor to:
• Report current year foreign income and file the current year FBAR, reasoning that the executor has signature authority over the foreign account for the current year, but no responsibility for prior years.
• Not file any prior year amended returns or FBARs, reasoning that the executor should not speculate as to the willfulness of the decedent.
• Distribute the proceeds of the foreign accounts to the beneficiaries without taking any position as to whether they are required to file IRS Forms 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. An executor has no obligation to give tax advice to beneficiaries: it is the beneficiaries’ responsibility to determine their obligation to file IRS Forms 3520.
Lastly, the accounting firm advises against hiring a lawyer. The taxpayer is dead: who can the Government prosecute? 
From there, the authors identify the problems and risks.  For example, the authors quickly identify a criminal risk for the executor:
The most dangerous (and perhaps surprising) hazard is the potential for the executor to unwittingly commit a federal crime. 18 U.S.C. § 4 makes it a crime (“misprision”) if a person, “having knowledge of the actual commission of a felony ... conceals and does not as soon as possible make known the same...” Tax evasion is a felony (26 U.S.C. § 7201). Courts have consistently held that misprision requires, “an affirmative act of concealment.” Failing to disclose tax evasion can be considered concealing the theft of money from the United States. Concealing stolen money has been held to be an affirmative act upon which a charge of misprison (sic) may be based. The executor will, under the facts, have all the information needed to conclude that the decedent’s returns understated tax liability and money is due the United States. If it is eventually determined that the decedent’s non-filing was willful, a prosecutor could well reason that the executor’s choice not to amend the returns was tantamount to concealing money stolen from the United States. Moreover, should any returns associated with the estate subsequently be examined, any lapse in providing information about the foreign accounts could implicate the executor in concealment. In either of these situations, if the Government can show the executor had reason to know the decedent’s delinquencies were willful, the Government will have the elements needed to charge the executor with misprision.
And it goes on from there to include civil risks.

Sunday, August 20, 2017

Sixth Circuit Rejects Frontal Assault on FATCA, IGAs and FBAR Requirements (8/20/17)

The Sixth Circuit on Friday rejected a frontal assault on FATCA, Intergovernmental Agreements and FBAR requirements.  Crawford v. United States Dept. of Treasury, ___ F.3d ___, 2017 U.S. App. LEXIS 15648 (6th Cir. 2017), here.  All but one of the plaintiffs were various U.S. taxpayers who claimed, in effect, the real potential for injury by having their foreign account information shared with the U.S. Government or being forced to share it by FBARs.  One of the plaintiffs was Senator Rand Paul, in his official capacity as member of the United States Senate, who likes to strut to gum up governmental works.  The issue was a legal concept called standing.  They failed the standing requirement.

The Court summarized the standing concept as (case citations omitted):
Federal courts have constitutional authority to decide only "cases" and "controversies." U.S. Const. art. III § 2. The requirement of standing is "rooted in the traditional understanding of a case or controversy."  To bring suit, Plaintiffs must have "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues" before the court.  
The "irreducible constitutional minimum" of standing is that for each claim, each plaintiff must allege an actual or imminent injury that is traceable to the defendant and redressable by the court. 
That at least is the starting point for the court's more nuanced analysis.

Bottom line, the Court concludes as follows:
FATCA imposes far-reaching reporting obligations on individuals and financial institutions, which, like many government regulations, undoubtedly exact monetary and other costs of compliance. The IGAs, to be sure, are part of an unprecedented scheme of international tax enforcement. And the FBAR Willfulness Penalty, if it were to be imposed, is admittedly steep: it could theoretically bring a $100,000 fine for failure to report a foreign account with a balance of $10,000.01. 
None of these considerations, however, help these Plaintiffs at this time to clear the initial jurisdictional hurdle of standing. 
Accordingly, we AFFIRM the judgment of the district court, and we DENY as moot Defendants' motion to strike.

Tuesday, August 15, 2017

Swiss Asset Manager and DOJ Enter Nonprosecution Agreement (8/15/17 8/18/17)

DOJ Tax and USAO SDNY announced here  and here that it has reached a nonprosecution agreement ("NPA") with Prime Partners SA (“Prime Partners”), a Swiss asset management firm,  The plea agreement and attached Statement of Facts ("SOF") are here.

The cost to Prime Partners is $5 million, consisting of $4.32 million in forfeiture (representing a portion of the gross revenue it earned with respect to the undeclared accounts for 2001-2010) and $0.068 million in restitution to the IRS (representing the approximate unpaid taxes from Prime Partners' clients).  Key excerpts from the press release are:
As part of the NPA, Prime Partners admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, Prime Partners admitted that it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of Prime Partners in order to evade their U.S. tax obligations, in violation of U.S. law. Prime Partners acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by, among other things: (i) creating sham entities, which had no business purpose, that served as the nominal account holders for the accounts; (ii) advising U.S. taxpayer-clients not to retain their account statements, to call Prime Partners collect from pay phones, and to destroy any faxes they received from Prime Partners; (iii) providing U.S. taxpayer-clients with prepaid debit cards, which were funded with money from the clients’ undeclared accounts; and (iv) facilitating cash transfers in the United States between U.S. taxpayer-clients with undeclared accounts. 
The NPA recognizes that, in early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes. The NPA further recognizes the extraordinary cooperation of Prime Partners, including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers.
This NPA is not part of the Swiss Bank Program.  So the question one must ask is why did DOJ even do this?  Well, the press release sets forth DOJ Tax's public explanation in the press release:

The U.S. Attorney’s Office entered into the NPA based on factors including:
  • Prime Partners’ voluntary and extraordinary cooperation, including its voluntary production of account files containing the identities of U.S. taxpayer-clients;
  • Prime Partners’ voluntary implementation of various remedial measures beginning in or around early 2009, before the investigation of its conduct began;
  • Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
  • Prime Partners’ representation – based on an investigation by outside counsel, the results of which have been reviewed by the U.S. Attorney’s Office and the Tax Division – that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts.
The NPA requires Prime Partners to continue to cooperate with the United States for at least three years from the date of the agreement. In the event that Prime Partners violates the NPA, the U.S. Attorney’s Office may prosecute Prime Partners.
Addendum 8/18/17 10:30 am:

Monday, August 14, 2017

Indictment of Taxpayers for Evasion of Payment and Structuring Cash Withdrawals (8/14/17)

DOJ Tax announced here the indictment of two Virginia taxpayers -- husband and wife -- for evasion of payment, § 7201, and conspiracy to structure bank deposits to avoid the reporting requirements.

This is a pretty straight-forward, unexceptional indictment for Count One, evasion of payment.  They owed the tax, they reported the tax liabilities on their returns, the IRS assessed the tax as reported, and they took various actions affirmative acts to evade payment (transfer or assets to kin, signing and filing false Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and withdrawing cash from bank accounts (the actions asserted in the structuring conspiracy charge as the overt acts of the conspiracy)).

The structuring conspiracy charge is also unexceptional except for how sparse it is.  The overt acts of the conspiracy are the many cash withdrawals of less than $10,000.  These overt acts are presented in a spreadsheet table.  Often the overt acts of a conspiracy go on ad nauseum to conjure up the defendants as evil actors.  Here, by contrast, these overt acts are simply the list of cash withdrawals during a six month period in 2015.  That is all that is required to have the indictment pass muster as presenting fair notice to the defendants.  If the case goes to trial, however, I would expect the Government to enter into evidence additional acts that could reasonably be described as overt acts of the conspiracy and am surprised that the Government did not lard up the indictment to paint a more sinister picture than presented by the list of withdrawals.

One technical quibble. The indictment refers to the tax liability as "self-assessed."  There is no such concept as a self-assessed tax.  The taxpayer reports -- self-reports, if you will -- tax liability on a return; the IRS assesses the tax liability accordingly.  Section 6201(a)(1) ("The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title").  The act of assessment is  the recording by the IRS of the liability (whether self-reported or not) on the books of the IRS as an assessment.  As I note in my tax procedure book:
Our tax system is described as a “self-assessment” system.  This means that the taxpayer reports the amount of the tax obligation via a tax return.  The IRS must assess the tax reported on the return.  § 6201(a)(1). The taxes thus reported are often referred to colloquially as “self-assessed” which is probably a fair characterization since the statutory requirement that the IRS assess the amount reported is mandatory, making the IRS’s formal assessment a ministerial act.  
And then, elsewhere in the book later, I use the short-hand self-assessed or some variation.

Wednesday, August 9, 2017

Court Sustains $10,000 Per Year § 6038(b) Penalty for Form 5471 Noncompliance for Taxpayer Who Withdrew from 2009 OVDP (8/9/17)

In Dewees v. United States, 2017 U.S. Dist. LEXIS 124989 (D.C. D.C. 2017), here, Dewees, a U.S. citizen residing in Canada, was fined $120,000 -- $10,000 per years for From 5471 noncompliance.  After assessment of that penalty, Dewees declined to pay.  He lived in Canada and apparently felt he was outside the IRS's ability to compel  payment.  Pursuant to the U.S. Canada tax treaty, however, the U.S. enlisted the Canadian tax authority to withhold a Canadian tax refund due Dewees.  At that point, Dewees paid the penalty and brought this suit to have his payments refunded on various constitutional grounds -- Eighth Amendment, Due Process and Equal Protection.  On motion of the U.S., the court dismissed the complaint.

I link the following documents:
  • Complaint, here.
  • U.S. Motion, here.
  • Dewees' Opposition, here.
  • U.S. reply, here.
  • Docket Entries as of 8/9/17, here.
The key timeline that I derive from the opinion and the foregoing documents are:

1. Dewees successfully joined OVDP in 2009.  The 2009 iteration of OVDP had the following requirements:  (i) filing income tax returns for 6 years; (ii) paying income tax, 20% accuracy related penalty, and interest on both; (iii) filing FBARs for 6 years; (iii) paying an IRS penalty now called a miscellaneous offshore penalty in lieu of all other penalties, including the FBAR penalty and Form 5471 penalties.

2. It is not clear from what I saw (I did not study the documents carefully for nuance) whether Dewees completed the package including the Forms 1040 or 1040X, the 5471s, and the FBARs.  It appears that there was some commotion between the IRS and Dewees as to whether he had submitted all information.

3.  On May 26, 2010, the IRS notified Dewees that he would be "terminated from the OVDP for failure to furnish the requested 1040s and FBAR forms (for the years 2003-2008).

4.  "In June 2010, the filings requested in the correspondence dated May 19, 2010 were resent."

5.  On October 28, 2010, a $252,480 penalty assessment was made against Dewees.  Dewees alleges that the penalty assessment was "relating to FBAR non-compliance."  The Government states that it was assessed "under the terms of the OVDP."  If the Government's statement is correct, the penalty assessment was the MOP assessment in lieu of all penalties other than the income tax penalty; in Dewees case, the MOP penalty would have been in lieu of the FBAR penalty and the Form 5471 penalty.  [JAT comment:  a question I have is how the MOP could have moved to assessment without the taxpayer having signed a closing agreement inside the OVDP penalty structure, but I could not find the answer to that question.]

6.  "On November 19, 2010 the penalty assessed is reduced to $185,862, as some accounts had been double counted by the IRS."

7.  "On January 13, 2011 Mr. Dewees receives notification that he is at risk of being terminated from the OVDP program because of his failure to pay the assessed penalty."

8.  "On June 9, 2011, Mr. Dewees received a letter from Mr. Harrington [IRS Agent] requesting confirmation of his intent to no longer participate in the OVDP."

9.  "On June 16, 2011 Mr. Dewees confirms his withdrawal from the OVDP based on the excessive amount of penalties owing. The penalties were removed from his account."  [JAT comment:  this would be consistent with the penalties being MOP rather than FBAR because the MOP could not be assessed unless he completed OVDP without opting out or being removed.]

10.  "On September 20, 2011 Mr. Dewees receives a letter from Mr. Harrington dated September 9, 2011, imposing a new $120,000 of penalties for the late filing of Form 5471. The letter indicates that reasonable cause for failure to file will be considered."  [JAT Comment:  This is consistent with Dewees being removed from OVDP because he would have lost his Form 5471 penalty protection.]

11.  Now, if the taxpayer truly were removed from OVDP, he should have been subject to risk of assessment of FBAR penalties.  From what I have seen, it is not clear that FBAR penalties were imposed.  I infer from the IRS's imposition of maximum Form 5471 penalties that the IRS did not think he was a nonwillful actor, but still there is no indication what, if anything, happened on the FBAR penalties.

Tuesday, August 8, 2017

USSC Practitioners Advisory Group Recommendations on Sentencing Commission Priorities (8/8/17)

The Practitioners Advisory Group ("PAG"), here, A Standing Advisory Group of the United States Sentencing Commission ("USSC"), here, has written a letter, here, to the Chair of the USSC commenting on the USSC's proposed 2017-2018 priorities.  There is no priority relating to tax and thus no comments related to tax.  However, the PAG does recommend one priority that is in a general category that tax defense attorneys should pay close attention to -- Examination of Collateral Consequences.  I have written on collateral consequences in Chapter 12: Criminal Penalties and the Investigation Function, of Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, ¶ 12.06 Collateral Consequences.

The PAG addresses a subset of the general subject, particularly related to the duties and priorities of the USSC.  The discussion is very good, so I cut and paste relevant excerpts:
I. PAG Proposed Priority- Examination of Collateral Consequences 
As in prior years, the PAG urges the Commission to consider as a proposed priority the examination of the impact of the collateral consequences of convictions. Collateral consequences - the legal penalties and restrictions that take effect automatically without regard to whether they are included in the court's judgment - are frequently the most important aspect of punishment from a defendant's perspective. Convicted individuals face reduced employment and housing opportunities, legal barriers to occupational and business licensure, driver's license suspensions, voting restrictions, and many other collateral consequences that make successful reentry more difficult. Some states still have full or partial bans on welfare and food stamps for people who have felony drug convictions. Such limitations can have a crippling effect on the individual, who may have to support a family, yet is unable to rely on any of these important programs.
In a number of recent cases, federal courts have imposed more lenient sentences in consideration of the severe collateral consequences a defendant would experience. In other cases, courts have sought creative ways to relieve defendants from the effect of collateral consequences long after the court's sentence has been fully served.
We briefly describe below the ways in which collateral consequences affect the work of sentencing courts. The PAG urges the Commission to take this matter under advisement and to consider scheduling hearings on this issue. 
1. Understanding Collateral Consequences and Ensuring that a Defendant has been Notified about Them 
In general, the constitutional obligation of advisement is defense counsel's under the Sixth Amendment, not the court's. The one situation in which judicial advisement is required under the Federal Rules of Criminal Procedure is where a defendant considering a guilty plea is not a citizen. n82 That said, a federal court is permitted to inform itself about the collateral consequences that may apply in a particular case in order to decide whether to take such consequences into account when fashioning a sentence. The court may ask the probation office, which is part of the judicial branch, for information about collateral consequences, and probation ought to be informed about collateral consequences in any event so that it can assist defendants with reentry and reintegration. Similarly, the court may ask defense counsel for reassurance that counsel has advised the defendant about applicable collateral consequences before accepting a guilty plea or imposing a sentence, if only as a prophylactic measure to guard against subsequent claims of ineffective assistance. n83
   n82 See Fed. R. Crim. P. 11(b)(l)(O).
   n83 Just last month, the Supreme Court reaffirmed a defense lawyer's obligation to warn defendants about immigration consequences of conviction. See US. v. Jae Lee, 137 S. Ct. 1958 (20 17). In state courts, the judicial advisement obligation may be more robust, both under the state constitution and applicable court rule, such as where sex offender registration or firearms dispossession may result from conviction. However, such notice has generally not been required in the federal system. Case law developments, notably in the past few years since the Supreme Court's decision in Padilla v. Kentucky, 559 U.S. 356 (2010), are described in Chapters 4 and 8 of Love, Roberts and Klingele, COLLATERAL CONSEQUENCES OF CRJMlNAL CONVICTION: LAW POLICY AND PRACTICE (West/NACDL, 2016 ed.). 
While judicial notice about collateral consequences may not be mandated in the federal system outside the immigration context, either by counsel or court, such notice has been recognized as sound practice by the major national law reform and professional organizations of lawyers. n84 The Model Penal Code gives the sentencing commission responsibility for collecting collateral consequences and providing guidance to sentencing courts relating to their consideration of collateral consequences at and after sentencing. 85 The PAG believes that the Commission could usefully consider what if any role it might play in this regard.
   n84 The Uniform Law Commission and the American Law Institute have both proposed that sentencing courts should ensure that a defendant has been informed about collateral consequences that might affect willingness to plead, and at sentencing. See Model Penal Code: Sentencing,§ 6x.04(1); Uniform Collateral Consequences of Conviction Act§§ 5, 6 (2010). The ABA Standards for Criminal Justice also impose this requirement. See Collateral Sanctions and Discretionary Disqualification of Convicted Persons, Standards 19-2.3, 19-2.4(b) (2003).
   n85 See Model Penal Code: Sentencing § 6x.02.