Five Tax Shelter Promoters and Two Appraisers Indicted in Syndicated Conservation Easement Tax Scheme

Five Tax Shelter Promoters and Two Appraisers Indicted in Syndicated Conservation Easement Tax Scheme

Conspiracy Allegedly Involved Sale of Over $1.3 Billion in Fraudulent Tax Deductions

The U.S. Justice Department (“DOJ”) announced on March 1, 2022 that a federal grand jury sitting in Atlanta, Georgia, returned a superseding indictment on February 24, 2022 charging seven individuals with conspiracy to defraud the United States and other crimes arising out of their promotion of fraudulent tax shelters involving syndicated conservation easements dating back nearly two decades. One of the defendants, Herbert Lewis, was previously charged in an indictment returned on June 9, 2021.

Alleged Syndicated Conservation Easement Tax Scheme

According to the superseding indictment, Jack Fisher, an Atlanta certified public accountant (CPA); James Sinnott; Yekaterina Lopuhina, aka “Kate Joy;” Lewis, an Atlanta-area CPA; Victor Smith, an Atlanta-area CPA; Clayton Weibel, a licensed appraiser; and Walter D. Roberts II, aka “Terry Roberts,” a licensed appraiser, engaged in a conspiracy to design, market and sell false and fraudulent charitable contribution tax deductions to high-income clients.

Fisher and Sinnott allegedly caused partnerships to donate conservation easements over land owned by the partnerships. In conjunction with those donations, Fisher and Sinnott allegedly used two hand-picked appraisers, Weibel and Roberts, to generate fraudulent and inflated appraisals of the conservation easements that frequently valued the easements at amounts at least 10 times higher than the price that was actually paid for the partnership — often within months of the appraisals. According to the superseding indictment, the partnerships then claimed a charitable contribution tax deduction in the inflated amount of the conservation easement, resulting in a fraudulent tax deduction flowing to the clients who purchased units in the partnership.

Fisher, Sinnott, Joy, Lewis, Smith and other co-conspirators allegedly promoted, marketed and sold partnership units for $25,000 and guaranteed at least a 4-to-1 tax deduction ratio to their clients, which meant that four units with a total cost of $100,000 would yield a $400,000 tax deduction. The marketing materials allegedly stated, for example, that depending on their personal tax rate, such a $400,000 deduction could result in the client receiving $170,000 back within months of purchasing their units for $100,000. Fisher, Sinnott and Joy allegedly provided Roberts and Weibel with spreadsheets containing information purportedly used to value the conservation easements necessary to deliver the tax deduction ratio promised to their clients.

Indictment Details

The superseding indictment charges that the syndicated conservation easement transactions were abusive tax shelters lacking in economic substance or a business purpose. Despite Fisher, Sinnott and Joy allegedly attempting to disguise the transactions as real estate deals, the indictment alleges that the transactions were simply the illegal sale of inflated tax deductions.

Additionally, Fisher, Sinnott, Joy, Lewis and Smith allegedly helped clients claim charitable contribution tax deductions after the close of the tax year by accepting late sales, generating backdated documents and preparing, and causing the preparation of, false and fraudulent tax returns and false documents, among other items. In total, the defendants allegedly sold over $1.3 billion in false and fraudulent tax deductions through this scheme.

All defendants are charged with conspiring to defraud the United States, for which they face a maximum sentence of 5 years in prison.

In addition, Fisher, Sinnott, Joy, Roberts and Weibel are charged with one count of conspiracy to commit wire fraud, for which each faces a maximum sentence of 20 years in prison if convicted. Lewis and Smith are both charged with wire fraud, for which they each face a maximum sentence of 20 years in prison for each count.

Fisher, Sinnott, Lewis, Smith, Roberts and Weibel are charged with aiding and assisting in the preparation of false returns related to the syndicated conservation easement tax shelters, for which they face a maximum sentence of 3 years in prison for each count.

Fisher, Sinnott, Joy and Lewis are also charged with filing false personal tax returns, for which they each face a maximum sentence of 3 years in prison for each count.

Finally, Fisher is charged with money laundering arising from his purchases of multiple luxury vehicles and domestic and foreign properties with the proceeds of unlawful activity. He faces a maximum sentence of 10 years in prison for each count.

In addition to the statutory maximum periods of incarceration, each of the defendants also faces a period of supervised release, monetary penalties, restitution and forfeiture. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

** Keep in mind that an indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. **

Actions by DOJ help support IRS’ campaigns to fight fraudulent tax shelters.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division stated: “The Tax Division is continuing to prioritize prosecution of fraudulent tax shelters, which are designed to enable taxpayers to pay far less than their fair share.  Those who contemplate promoting fraudulent tax shelters involving syndicated conservation easements – and the accountants, appraisers and tax preparers who create and execute strategies to assist them – should know that the Tax Division and IRS will unravel even the most elaborate schemes.”

Chief Jim Lee of IRS Criminal Investigation (IRS-CI) stated: “This superseding indictment demonstrates IRS Criminal Investigation’s commitment to investigate and prosecute illegal tax shelters.  IRS-CI special agents are focused on ending abusive syndicated conservation easements that allow perpetrators of these schemes to enrich themselves while their wealthy clients skirt their tax obligations.”

What Should You Do?

Whether you are a involved in a potentially fraudulent tax shelter or the promoter of one, it is important that you seek legal counsel as soon as possible to preserve your rights and/or mitigate your losses.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.Top of Form

Justice Department Shuts Down Brooklyn Tax Return Preparation Business

Justice Department Shuts Down Brooklyn Tax Return Preparation Business

Recently, the U.S. Justice Department (“DOJ”) successfully secured injunctions from U.S Federal District Court for the Eastern District of New York barring Keith Sang, Kashana Sang, Tareek Lewis, Kimberly Brown and their business K&L Accounting Inc. from preparing tax returns.

K&L Accounting Inc. of Brooklyn, New York

The Tax Division of the DOJ announced that on February 26, 2022, a federal court in the Eastern District of New York issued a preliminary injunction against four Brooklyn tax return preparers and their business.

The civil complaint filed in the case seeks to permanently bar Keith Sang, Kashana Sang, Tareek Lewis, Kimberly Brown and their business K&L Accounting Inc. from preparing tax returns. The preliminary injunction bars the defendants from any involvement in the preparation of federal tax returns during the pendency of this case. Keith Sang, Kashana Sang, Lewis and the business made no objection to the injunction. Brown opposed it.

The complaint alleges that the defendants’ tax return preparation schemes include preparation of individual income tax returns that (1) contain false or exaggerated itemized deductions (for example, unreimbursed employee expenses and charitable donations), (2) false filing statuses, such as improper “head of household” elections, (3) fraudulent and/or fictitious business income and/or expenses, (4) returns that falsify customer’s self-employment income to bring the customer into the “sweet spot” for the maximum available earned income tax credit, and (5) false losses on forms that report supplemental income or loss. The complaint alleges that, each year, K&L is responsible for preparing over 2,000 tax returns for customers, and that Keith Sang, whose electronic tax filing privileges were revoked years ago, has taken numerous steps to disguise his involvement with the tax return preparation, while he continues to prepare returns and supervise others working at K&L.

In granting the preliminary injunction, the court found that defendants engaged in concerted and conscious steps to evade IRS enforcement; that they, acting as a unit, repeatedly filed tax returns understating taxpayer liabilities since at least 2016; and that their past efforts demonstrated that they would continue hampering IRS enforcement unless prohibited from acting as federal tax return preparers during the litigation.

Actions by DOJ help support IRS’ campaigns to fight refund fraud and identity theft. 

“Identity theft is a pervasive crime and stopping it remains a top priority of the IRS,” said IRS Commissioner Chuck Rettig. “The IRS, with the help of our Security Summit partners, continues to make progress in this area, but we need to continue our significant efforts to protect taxpayers and assist those who have been a victim of identity theft. We are fighting this problem with enhanced systems, smarter technology and the efforts of our dedicated workforce, including Criminal Investigation. We will retain our relentless, vigorous pursuit of those who prey upon others in this arena”.

The Office of the Chief of IRS Criminal Investigation (“CI”) has previously stated that “Millions of taxpayers put their trust in tax professionals to prepare accurate and lawful returns. Unfortunately, a few bad apples take advantage of that trust for their own greed and profit. CI’s special agents are highly skilled at unraveling fraudulent schemes. With our partners in other agencies and the private sector, we are dismantling these crooked enterprises and enforcing our tax laws.”

What Should You Do?

Whether you are a victim of identity theft or the perpetrator of identity theft, it is important that you seek legal counsel as soon as possible to preserve your rights and/or mitigate your losses.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.Top of Form

Justice Department Shuts Down Three Tax Return Preparation Businesses

Justice Department Shuts Down Three Tax Return Preparation Businesses

Recently in three separate cases, the U.S. Justice Department (“DOJ”) successfully secured injunctions from U.S Federal District Courts barring certain tax return preparation businesses from preparing tax returns and in some cases ordering the tax return preparers to disgorge the fees they obtained by preparing false and fraudulent tax returns.

Terance Price – Mississippi

On January 28, 2022, DOJ announced that a federal court in the Southern District of Mississippi has permanently barred Terance Price, a Mississippi tax return preparer, from owning or operating a tax return preparation business and preparing tax returns for others.

The permanent injunction is against Terance Price, both individually and doing business as Superior Taxes. The court entered the injunction after Price failed to respond to the complaint the government served on him.

The complaint alleged that Price, who began operating his tax preparation business in 2015, knowingly took unreasonable positions on returns he prepared that understated the tax his customers owed, overstated the refunds owed to his clients, or both. In particular, the complaint alleged that Price prepared returns that falsely claimed residential energy credits, fuel tax credits and unreimbursed employee business expenses.

The government further alleged in the complaint that Price has filed hundreds of tax returns since 2015, and that he has filed tax returns using other tax preparers’ personal identifying information. According to the complaint, the IRS assessed penalties against Price for failing to make reasonable inquiries to ensure that his customers were legitimately entitled to various tax credits, and Price has not paid those penalties.

Karla Welch – Florida

On February 2, 2022, DOJ announced that it filed a civil injunction suit to bar Karla Welch and her businesses from owning or operating a tax preparation business and preparing tax returns. The complaint also requests that the court require the defendants to disgorge the fees they obtained by preparing false and fraudulent tax returns.

The complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that Welch, through Karla R. Welch LLC and Kwik Services LLC, owns and operates a tax preparation business with as many as 12 stores in Florida, Georgia and North Carolina. According to the complaint, Welch and her businesses prepare and file tax returns to falsely increase their customers’ refunds, and profit through high and often undisclosed preparation fees at the expense of their customers and the Treasury. The complaint alleges that the defendants prepared returns for customers that:

  • Falsely claim the Earned Income Tax Credit
  • Report fabricated businesses and related business income and expenses
  • Report fabricated deductions, including for purported job-related expenses
  • Claim false education credits.

Wendell Devallon and Berald Dominique – Florida

On February 4, 2022, DOJ announced that a federal court in the Southern District of Florida permanently as of February 3, 2022 barred Wendell Devallon and Berald Dominique, co-owners of Tax Time Group Inc., from preparing federal income tax returns or operating any tax return preparation business in the future. The court also ordered the tax preparers to pay $353,000 in disgorgement to the United States.

The civil complaint filed in the case alleged that Wendell Devallon and Berald Dominique, co-owners of Tax Time Group Inc., prepared tax returns for customers that claimed fraudulent self-employment expenses, fictitious education credits, false fuel tax credits and fake charitable contributions, among other schemes. The complaint also alleged that Devallon and Dominique acted as “ghost” preparers, meaning that they acted as paid tax return preparers but did not sign the returns they prepared, as required by law.

In a June 2021 order, the court found the defendants in contempt for violating a preliminary injunction that restricted their tax preparation activities while this case was pending. Devallon, Dominique and Tax Time Group consented to entry of the court’s contempt order and admitted that sufficient evidence existed to show that they had violated the preliminary injunction. In August 2021, the court entered an order requiring the defendants to pay $211,000 in sanctions for their violations of the preliminary injunction.

The February 3rd permanent injunction, to which Devallon, Dominique and Tax Time Group consented, forever bars them from any involvement in the preparation of federal tax returns. They must immediately close and cease all operations at any Tax Time Group office location, including the company’s North Lauderdale offices located at 995 Rock Island Road and 1675 S State Rd 7. They must also pay an additional $142,000 to the United States for their fraudulent return preparation activities that pre-dated the complaint. The permanent injunction requires Devallon and Dominique to give up their ownership of the “Tax Time Group” brand. If they sell the business, all proceeds will be applied to the $353,000 they must pay the United States. If Devallon, Dominique or Tax Time Group is found to have prepared another return, they must pay the United States $2,000 plus any fees they received for preparing the return.

Actions by DOJ help support IRS’ campaigns to fight refund fraud and identity theft. 

“Identity theft is a pervasive crime and stopping it remains a top priority of the IRS,” said IRS Commissioner Chuck Rettig. “The IRS, with the help of our Security Summit partners, continues to make progress in this area, but we need to continue our significant efforts to protect taxpayers and assist those who have been a victim of identity theft. We are fighting this problem with enhanced systems, smarter technology and the efforts of our dedicated workforce, including Criminal Investigation. We will retain our relentless, vigorous pursuit of those who prey upon others in this arena”.

The Office of the Chief of IRS Criminal Investigation (“CI”) has previously stated that “Millions of taxpayers put their trust in tax professionals to prepare accurate and lawful returns. Unfortunately, a few bad apples take advantage of that trust for their own greed and profit. CI’s special agents are highly skilled at unraveling fraudulent schemes. With our partners in other agencies and the private sector, we are dismantling these crooked enterprises and enforcing our tax laws.”

What Should You Do?

Whether you are a victim of identity theft or the perpetrator of identity theft, it is important that you seek legal counsel as soon as possible to preserve your rights and/or mitigate your losses.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.Top of Form

IRS Criminal Investigation Division Releases Its Top Cases Of 2021

IRS Criminal Investigation Division Releases Its Top Cases Of 2021

On January 3, 2022 the Internal Revenue Service Criminal Investigation (IRS-CI) began listing he top 10 cases for calendar year 2021 on its Twitter account which are considered to me the agency’s most prominent and high-profile investigations of 2021.

IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, boasting a nearly 90% federal conviction rate. The agency has 20 field offices located across the U.S. and 11 attaché posts abroad.

In issuing this list IRS-CI Chief Jim Lee stated: “The investigative work of 2021 has all the makings of a made for TV movie – embezzlement of funds from a nonprofit, a family fraud ring that stole millions in COVID-relief funds and a $1 billion Ponzi scheme used to buy sports teams and luxury vehicles. But this is real life and I’m grateful to our IRS-CI agents for pursuing these leads and ensuring that the perpetrators were prosecuted for their crimes.”

Here are the cases of 2021 that made the top 10 of IRS-CI cases in countdown order:

  1. Albuquerque couple sentenced to federal prison in Ayudando Guardians case
    Susan Harris and William Harris were sentenced to 47 and 15 years in federal prison, respectively. They stole funds from Ayudando Guardians Inc., a nonprofit organization that provided guardianship, conservatorship and financial management to hundreds of people with special needs.
  2. Rochester man going to prison and ordered to pay millions in restitution for his role in Ponzi scheme that bilked investors out of millions of dollars
    John Piccarreto Jr. was sentenced to 84 months in federal prison and ordered to pay restitution totaling $19,842,613.66 after he was convicted of conspiracy to commit mail fraud and filing a false tax return. He conspired with others to obtain money through an investment fraud Ponzi scheme.
  3. Orlando sisters sentenced in $25 million tax fraud scheme
    Petra Gomez and her co-conspirator, her sister, Jakeline Lumucso, were sentenced to eight and four years in federal prison, respectively. They operated a tax preparation business with five locations in central Florida that filed more than 16,000 false tax returns for clients from 2012 to 2016 with a total estimated loss to the IRS of $25 million.
  4. Russian bank founder sentenced for evading exit tax upon renouncing U.S. citizenship
    Oleg Tinkov, aka Oleg Tinkoff, was ordered to pay more than $248 million in taxes and sentenced to time-served and one year of supervised release after he renounced his U.S. citizenship in an effort to conceal large stock gains that were reportable to the IRS after the company he founded became a multibillion dollar, publicly traded company.
  5. Ontario man who ran multimillion-dollar unlicensed bitcoin exchange business sentenced to 3 years in federal prison
    Hugo Sergio Mejia was sentenced to three years in federal prison and required to forfeit all assets derived from running an unlicensed business that exchanged at least $13 million in Bitcoin and cash, and vice versa, often for drug traffickers. He charged commissions for the transactions and established separate companies to mask his true activity.
  6. Owner of bitcoin exchange sentenced to prison for money laundering
    Rossen G. Iossifov, a Bulgarian national, was sentenced to 121 months in federal prison for participating in a scheme where popular online auction and sales websites — such as Craigslist and eBay — falsely advertised high-cost goods (typically vehicles) that did not actually exist. Once victims sent payment for the goods, the conspiracy engaged in a complicated money laundering scheme where U.S.-based associates would accept victim funds, convert these funds to cryptocurrency, and transfer the cryptocurrency to foreign-based money launderers.
  7. Ex-pastor of Orange County church sentenced to 14 years in federal prison for orchestrating $33 million con that defrauded investors
    Kent R.E. Whitney, the ex-pastor of the Church of the Health Self, was sentenced to 14 years in federal prison and ordered to pay $22.66 million in restitution to victims after defrauding investors of $33 million by orchestrating a church-based investment scam. At his direction, church representatives appeared on television and at live seminars to make false and misleading claims to lure investors to invest in church entities. Victims sent more than $33 million to the church and received fabricated monthly statements reassuring them that their funds had been invested, when in reality, little to no money ever was.
  8. Prairie Village Man Sentenced to 12 Years for $7.3 Million Dollar Payday Loan Fraud, $8 Million Tax Evasion
    Joel Tucker was sentenced to 12 years and six months in federal prison and ordered to pay over $8 million in restitution to the IRS after selling false information or fictitious debts to payday loan businesses and not filing federal tax returns – for himself or his businesses – with the IRS for multiple years.
  9. DC Solar owner sentenced to 30 years in prison for billion dollar Ponzi scheme
    Jeff Carpoff, the owner of California-based DC Solar, was sentenced to 30 years in federal prison and forfeited $120 million in assets to the U.S. government for victim restitution after creating a Ponzi-scheme that involved the sale of thousands of manufactured mobile solar generator units (MSGs) that didn’t exist. He committed account and lease revenue fraud and purchased a sports team, luxury vehicles, real estate and a NASCAR team with the proceeds.
  10. San Fernando Valley family members sentenced to years in prison for fraudulently obtaining tens of millions of dollars in COVID relief
    The Ayvazyan family received sentences ranging from 17.5 years in prison to 10 months of probation for crimes ranging from bank and wire fraud to aggravated identity theft. The family used stolen and fictitious identities to submit 150 fraudulent applications for COVID-relief funds based on phony payroll records and tax documents to the Small Business Administration, and then used the funds they received to purchase luxury homes, gold coins, jewelry designer handbags and more. Richard Ayvazyan and his wife Terabelian cut their ankle monitoring devices and absconded prior to their sentencing hearing; they are currently fugitives.

IRS-CI reported that the agency initiated over 2,500 cases in fiscal year 2021 (up from 1,598 in the previous fiscal year), applying approximately 72% of its time to tax related investigations.

The Special Agent’s Role In The IRS Criminal Investigation Division

An IRS Special Agent works for IRS-CI. Special Agents are duly sworn law enforcement officers who are trained to “follow the money”. They investigate potential criminal violations of the Internal Revenue Code, and related financial crimes. Unless they are working undercover they will identify themselves with credentials which include a gold badge. The same gold badge appears on their business cards. Generally, IRS Special Agents travel in pairs if they are going to interview someone. One to conduct the interview, and the other to take notes, and act as a witness if necessary.

If you are contacted by an IRS Special Agent it is because he or she is conducting a CRIMINAL investigation. It is possible that the Special Agent is only interested in you as a witness against the target of the IRS investigation. However, it is a bad idea to speak to Special Agent without a criminal tax attorney present. IRS Special Agents are highly trained financial investigators. If you are the target or subject of an IRS criminal investigation you are not going to talk your way out of it, by “cooperating”; instead you may be giving the IRS more evidence to use against you.

Even if the IRS Special Agent tells you that you are only a witness you should still consult with an experienced criminal tax attorney BEFORE speaking with an IRS agent. If you make misstatements that you think put you in a better light you could change your role from a witness into a target. The best tactic is to simply tell the Special Agent that you are uncomfortable talking to him until you have had a chance to speak with your attorney. Then ask him for his business card. In this way your tax attorney can contact the Special Agent directly, and determine the best course of action.

There are a number of statutes in the Internal Revenue Code that authorize the federal government to prosecute individuals, including those dealing with tax evasion, fraud and false statements, failure to file returns, failure to pay tax, etc. Some, like the tax evasion statute, are worded in particularly broad terms and may ensnare the unwary or careless taxpayers.

If IRS-CI recommends prosecution, it will give its evidence to the Justice Department to decide the special charges. Individuals are typically charged with one or more of three crimes: tax evasion, filing a false return, or not filing a tax return. All of which are tax fraud.

Two Special Programs Run By IRS-CI

With the avalanche of billions of data flowing to IRS, IRS-CI has been running two special programs: the International Tax Enforcement Group (ITEG), and the Nationally Coordinated Investigations Unit (NCIU). Both focus on increasing the rate of taxpayer compliance with income reporting requirements contained in the Internal Revenue Code – particularly those pertaining to the disclosure of foreign financial accounts, reporting of virtual currency transactions, and reporting transactions involving cannabis.

What Should You Do?

Very quickly a criminal investigation can turn to the worst for a targeted taxpayer so you should promptly seek tax counsel who can act proactively before the IRS does. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and other locations within California protect you from excessive fines and possible jail time. Also, if you are involved in cannabis, check out how a cannabis tax attorney can help you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

IRS Criminal Investigation Division Releases Its 2021 Annual Report

IRS Criminal Investigation Division Releases Its 2021 Annual Report

On November 18, 2021 the IRS released the Criminal Investigation Division’s (CI) annual report, highlighting significant successes and criminal enforcement actions taken in fiscal year ending September 30, 2021.  The IRS noted that a key achievement was the identification of over $10 billion in tax fraud and other financial crimes.

In issuing this report IRS Commissioner Chuck Rettig stated:  IRS-CI agents are the only federal law enforcement officers with the authority to investigate criminal violations of the U.S. tax code. Their work reinforces the backbone of our voluntary compliance tax system — a system that funds services and benefits for our nation, including defense, infrastructure and education.”

According to the report, CI initiated over 2,500 cases in fiscal year 2021 (up from 1,598 in the previous fiscal year), applying approximately 72% of its time to tax related investigations. CI is the only federal law enforcement agency with jurisdiction over federal tax crimes achieving a conviction rate of over 90% in fiscal year 2021.

IRS Criminal Investigation Division Expands Its International Network

The report states that in the last fiscal year IRS-CI built upon its existing network of U.S. field offices and international attachés to combat financial crimes across the globe through the agency’s alliance with the Joint Chiefs of Global Tax Enforcement (J5) and public-private partnerships with financial institutions and the Fin-Tech industry to deter and identify criminal activity. Additionally, IRS-CI established its first cyber attaché in The Hague, Netherlands, to proactively support cyber investigative needs in coordination with Europol.

IRS-CI Chief Jim Lee stated “IRS-CI continues to lead tax and financial investigations here in the U.S. and across the globe. In fiscal year 2021, as we faced the second year of a global pandemic, our team of agents continued to overcome personal and professional challenges to target criminals who exploited the U.S. tax and financial systems for personal gain.”

The Special Agent’s Role In The IRS Criminal Investigation Division

An IRS Special Agent works for CI. Special Agents are duly sworn law enforcement officers who are trained to “follow the money”. They investigate potential criminal violations of the Internal Revenue Code, and related financial crimes. Unless they are working undercover they will identify themselves with credentials which include a gold badge. The same gold badge appears on their business cards. Generally, IRS Special Agents travel in pairs if they are going to interview someone. One to conduct the interview, and the other to take notes, and act as a witness if necessary.

If you are contacted by an IRS Special Agent it is because he or she is conducting a CRIMINAL investigation. It is possible that the Special Agent is only interested in you as a witness against the target of the IRS investigation. However, it is a bad idea to speak to Special Agent without a criminal tax attorney present. IRS Special Agents are highly trained financial investigators. If you are the target or subject of an IRS criminal investigation you are not going to talk your way out of it, by “cooperating”; instead you may be giving the IRS more evidence to use against you.

Even if the IRS Special Agent tells you that you are only a witness you should still consult with an experienced criminal tax attorney BEFORE speaking with an IRS agent. If you make misstatements that you think put you in a better light you could change your role from a witness into a target. The best tactic is to simply tell the Special Agent that you are uncomfortable talking to him until you have had a chance to speak with your attorney. Then ask him for his business card. In this way your tax attorney can contact the Special Agent directly, and determine the best course of action.

There are a number of statutes in the Internal Revenue Code that authorize the federal government to prosecute individuals, including those dealing with tax evasion, fraud and false statements, failure to file returns, failure to pay tax, etc. Some, like the tax evasion statute, are worded in particularly broad terms and may ensnare the unwary or careless taxpayers.

If CI recommends prosecution, it will give its evidence to the Justice Department to decide the special charges. Individuals are typically charged with one or more of three crimes: tax evasion, filing a false return, or not filing a tax return. All of which are tax fraud.

Two Special Programs Run By CI

With the avalanche of billions of data flowing to IRS, CI has been running two special programs: the International Tax Enforcement Group (ITEG), and the Nationally Coordinated Investigations Unit (NCIU). Both focus on increasing the rate of taxpayer compliance with income reporting requirements contained in the Internal Revenue Code – particularly those pertaining to the disclosure of foreign financial accounts, reporting of virtual currency transactions, and reporting transactions involving cannabis. 

What Should You Do?

Very quickly a criminal investigation can turn to the worst for a targeted taxpayer so you should promptly seek tax counsel who can act proactively before the IRS does. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and other locations within California protect you from excessive fines and possible jail time. Also, if you are involved in cannabis, check out how a cannabis tax attorney can help you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Can You Go To Jail For Not Filing Tax Returns? Beware this can happen to you.

Can You Go To Jail For Not Filing Tax Returns? Beware this can happen to you.

A man who did not file tax returns for 8 year in a row pleaded guilty before a Federal District Court Judge to evading his income taxes and now must serve 57 months in jail.

As reported by the Department Of Justice in a press release, from 2009 through 2016 Daryl Brown received taxable income, but did not file tax returns reporting his income or pay the taxes he owed.  To evade his taxes, Mr. Brown opened bank accounts and lines of credit in nominee names and used credit and debit cards from those accounts to pay for personal expenses.  He also bought money orders with cash, directed others to buy money orders for him, and structured his purchase of money orders–sometimes from several locations on the same day–to avoid triggering reporting requirements that would have flagged his activity to the IRS.  Court documents showed Mr. Brown’s conduct caused a tax loss of more than $250,000 to the IRS.

The Department Of Justice in a follow-up press release reported that on June 7, 2021 U.S. District Judge Timothy S. Black in the Southern District of Ohio sentenced Mr. Brown to 57 months in prison for tax evasion and ordered him to serve 3 years of supervised release and pay restitution to the IRS in the amount of $377,240.

An Opportunity To “Get Back Into The System” And Be Compliant.

The U.S. tax system relies on initial voluntary compliance where taxpayers each year file a tax return; however, there are millions of Americans who fail to file a tax return and what’s worse is that these failures are usually not limited to just one year. Taxpayers who either have never filed a tax return or those who were once compliant but stopped filing a tax return for a period of time, face the same penalties that stack up quickly.  Additionally, if the IRS chooses to pursue criminal prosecution and proves that the failure was willful, a taxpayer can be sentenced to prison.  So it is important to engage a tax attorney to come up with a plan to mitigate criminal exposure and establish an arrangement or settlement on the resulting tax liabilities.

An Opportunity For Taxpayers Who Owe The IRS.

As a prerequisite to any proposal (including but not limited to, an Offer In Compromise, payment plan or being put into “uncollectible status”) to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now towards the end of 2021, taxpayers who expect to owe for 2021 should have their 2021 income tax returns as soon as possible in 2022 so that the 2021 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2022.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. You can also check out the KahnTaxLaw Coronavirus Resource Center.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Another Leak Of Taxpayers Allegedly Involved In Hiding Assets Offshore – What You Need To Know About The “Pandora Papers”

Another Leak Of Taxpayers Allegedly Involved In Hiding Assets Offshore – What You Need To Know About The “Pandora Papers”

A compilation based on 11.9 million financial records uncovers more than 100 billionaires, 30 world leaders and 300 public officials and their use of offshore accounts to avoid taxes or otherwise hide ownership of assets.

On October 3, 2021 the International Consortium Of Investigative Journalists released what is now dubbed the “Pandora Papers”.  The reporting is similar to the Panama Papers (2016) and the Paradise Papers (2017) which exposed cases involving celebrities and business executives who reportedly moved large chunks of their wealth into offshore tax havens.  The source of documents in the Pandora Papers came from 11.9 million financial records comprising nearly 3 terabytes of data from 14 different firms doing business in 38 jurisdictions. The information is even more extensive than that of the Panama Papers which centered on documents secured from the Panamanian law firm of Mossack Fonseca or the Paradise Papers which centered on documents connected with institutions in Bermuda including the Appleby Law Firm and the Asiaciti Trust Company.  The Pandora Papers detail more than 29,000 offshore accounts held by more than 130 Forbes-designated billionaires and 330 current and former public officials in more than 90 countries, including 14 current heads of state.

Now while it’s not necessarily illegal to distribute wealth across secret companies, which can be used by the super wealthy as legitimate forms of holding their wealth, shell companies can be used to evade taxes and disguise illegal behavior. Also just because someone is mentioned in the Pandora Papers, it doesn’t necessarily mean their business holdings are illegal or they did anything illegal. Unfortunately, when one is mixed in with a basket of bad apples, you know how people will tend to judge the whole harvest.

Nevertheless, this leak is another huge hit the offshore world has taken. The Pandora Papers included connections to Jordan’s King Abdullah II, Czech Prime Minister Andrej Babis, Ecuadorean President Guillermo Lasso, Kenyan President Uhuru Kenyatta, Chile’s President Sebastián Piñera, Dominican President Luis Abinader, and President Milo Djukanovic of Montenegro, as well as former British Prime Minister Tony Blair.

So as government tax officials start reading the Pandora Papers, you can expect in the coming months that many new names will come out that the IRS will be interested in targeting.

Filing Requirements If You Have Foreign Accounts

By law, many U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the “FBAR.” It is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during a calendar year must file FBARs. It is due by the due date of your Form 1040 and must be filed electronically through the BSA E-Filing System website.

Generally, U.S. citizens, resident aliens and certain non-resident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Reporting thresholds vary based on whether a taxpayer files a joint income tax return or lives abroad. The lowest reporting threshold for Form 8938 is $50,000 but varies by taxpayer.

By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return. In addition, key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.

The law requires U.S. citizens and resident aliens to report worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Penalties for non-compliance.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations it is $10,000.00 per account per year going back as far as six years. For willful violations the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

The Solution.

The IRS has special programs for taxpayers to come forward to disclose unreported foreign accounts and unreported foreign income. The main program is called the Offshore Voluntary Disclosure Program (OVDP). OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

What Should You Do?

Don’t delay because if the government finds out about you first, you can be subject to criminal prosecution.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, San Francisco and other California locations resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Maryland Tax Preparer Pleads Guilty To Conspiring To Defraud the IRS

Maryland Tax Preparer Pleads Guilty To Conspiring To Defraud the IRS

The U.S. Department Of Justice announced on March 5, 2021 in a press release that Anita Fortune, age 56, of Upper Marlboro, Maryland, who provided return preparation services under multiple business names, including Tax Terminatorz Inc., pleaded guilty to conspiracy to defraud the United States and aiding in the preparation of a false tax return.

Guilty Plea.

According to court documents and statements made in court, Ms. Fortune prepared and filed returns using co-conspirators’ electronic filing identification numbers and identifiers, which they provided in exchange for fees and office space.  For the tax years 2011 to 2018, Ms. Fortune and her associates fraudulently reduced their clients’ tax liabilities and increased their refunds by adding fictitious or inflated itemized deductions and business losses to the clients’ returns.  In total, Ms. Fortune caused a tax loss to the IRS of $189,748.

Ms. Fortune is scheduled to be sentenced on June 4, 2021, and faces a maximum sentence of five years in prison for the conspiracy count and three years for the preparing a false return count.  Ms. Fortune also faces a period of supervised release, restitution and monetary penalties.  A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

IRS announces arrests and indictments after two-week campaign to fight refund fraud and identity theft. 

The Federal District Courts should expect to see more of these cases as the IRS announced on March 20, 2019 the results of a national two-week enforcement and education campaign to combat refund crimes and identity theft that resulted in numerous legal actions against suspected criminals and businesses committing these crimes.

“Identity theft is a pervasive crime and stopping it remains a top priority of the IRS,” said IRS Commissioner Chuck Rettig. “The IRS, with the help of our Security Summit partners, continues to make progress in this area, but we need to continue our significant efforts to protect taxpayers and assist those who have been a victim of identity theft. We are fighting this problem with enhanced systems, smarter technology and the efforts of our dedicated workforce, including Criminal Investigation. We will retain our relentless, vigorous pursuit of those who prey upon others in this arena”.

Working with the Department of Justice Tax Division and U.S. Attorneys around the nation, IRS Criminal Investigation (CI) made 11 arrests, indicted 15 individuals and saw five other individuals or businesses sentenced who perpetrated some type of refund fraud or identity theft scheme.

What Should You Do?

Whether you are a victim of identity theft or the perpetrator of identity theft, it is important that you seek legal counsel as soon as possible to preserve your rights and/or mitigate your losses.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

First It Was Coinbase, Now It Is Poloniex – Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency

First It Was Coinbase, Now It Is Poloniex – Court Authorizes Service of John Doe Summons Seeking Identities of U.S. Taxpayers Who Have Used Cryptocurrency

Cryptocurrency / Bitcoin – Is this the 21st century answer to hiding assets in Swiss bank accounts? 

The IRS thinks this is the case which is why in 2018 the IRS announced a Virtual Currency Compliance Campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

IRS Access To Cryptocurrency Transactions.

Following the success of the results of a John Doe Summons issued to Coinbase, Inc. as I previously reported, on April 1, 2021 the U.S. Department Of Justice announced that a federal court in the District of Massachusetts entered an order today authorizing the IRS to serve a John Doe summons on Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC (collectively “Circle”), seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Circle, a digital currency exchanger headquartered in Boston.

Under the order, Circle will be required to turn over the names, addresses and tax identification numbers on its account holders. The Court has ordered Circle to produce the following customer information: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent).

“Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes.”

“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that the IRS is working to ensure that they are fully compliant in their use of virtual currency,” said IRS Commissioner Chuck Rettig. “The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.”

Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. In the court’s order, U.S. Judge Richard G. Stearns found that there is a reasonable basis for believing that cryptocurrency users may have failed to comply with federal tax laws.

Starting with 2019, Form 1040 Makes It Harder For U.S. Taxpayers To Avoid Non-compliance Or Claim Ignorance.

Since 2019, Form 1040, Schedule1, Additional Income and Adjustments to Income, now includes the following checkbox question:

At any time during [the calendar year], did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?   ◊ Yes            ◊ No

Taxpayers who file Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040 will now be required to check the appropriate box to answer the virtual currency question. Taxpayers do not need to file Schedule 1 if their answer to this question is NO and they do not have to file Schedule 1 for any other purpose. This requirement is similar to how the IRS includes questions on Schedule B inquiring whether a taxpayer has foreign bank accounts.

Taxpayers who answer “no” and for who the IRS later determines should have answered “yes” could face civil or criminal penalties and it could affect their success in having penalties abated for reasonable cause.

Penalties For Filing A False Income Tax Return Or Under-reporting Income

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!

Voluntary Disclosure – The Way To Avoid Criminal Fines & Punishment

The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.

What Should You Do?

With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.  And now that like-exchange treatment is prohibited on transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties.  Don’t delay because once the IRS has targeted you for investigation – even it’s is a routine random audit – it will be too late voluntarily come forward.

Take control of this risk and engage a bitcoin tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including Walnut Creek and San Jose) and other California locations.  We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability.  Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.

Businessman Indicted For Not Reporting Foreign Bank Accounts And Filing False Documents With The IRS

Businessman Indicted For Not Reporting Foreign Bank Accounts And Filing False Documents With The IRS

In recent years the IRS has made the Report of Foreign Bank and Financial Accounts (FBAR) penalty enforcement a top priority and this is alarming the taxpayers worldwide. Even in the course of every routine domestic IRS audit, IRS agents are looking for undisclosed foreign bank accounts.

On March 3, 2021 the Department Of Justice (DOJ) issued a press release of a federal grand jury in Alexandria, Virginia, returning an indictment, charging a Virginia man with failing to file Reports of Foreign Bank and Financial Accounts (FBAR’s) and filing false documents with the IRS.

Indictment Details

According to the indictment, Azizur Rahman of Herndon, Virginia, had a financial interest in and signature authority over more than 20 foreign financial accounts, including accounts held in Switzerland, the United Kingdom, the Republic of Singapore, and Bangladesh. From 2010 through 2016, he allegedly did not disclose his interest in all of his financial accounts on annual FBARs, as required by law. Mr. Rahman also allegedly filed false individual tax returns for the tax years 2010 through 2016 that did not report to the IRS all of his foreign bank accounts and income.

Mr. Rahman is also charged with filing a false “Streamlined Submission” in conjunction with the IRS Streamlined Domestic Offshore Procedures. Those 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 accounts, to voluntarily disclose their conduct to the IRS and to pay a reduced penalty if their conduct was non-willful. The indictment alleges that Mr. Rahman’s Streamlined Submission did not truthfully disclose all the foreign bank accounts in which he had an interest, and falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was non-willful.

If convicted, Mr. Rahman faces a maximum sentence of three years in prison for each of the counts related to filing false tax documents. He also faces a maximum sentence of five years in prison for each count relating to his failure to file an FBAR or filing a false FBAR.

The legal proceedings are expected to be conducted by the U.S. District Court for the Eastern District of Virginia.

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

What You Must Know About IRS FBAR Penalty Negotiations

  1. The penalties for noncompliance in FBAR enforcement are staggering.

FBAR penalties can be unfair as the penalties are based on the account size and not on how much tax you avoided. This is a stark contrast to other IRS penalties which are based on how much additional tax is owed.  Given this difference you will always have a bigger risk and more to lose when dealing with FBAR penalties.

  1. The two types of FBAR penalties.

The “get off gently FBAR penalty” – If the IRS feels that you made an innocent mistake and “not willfully” ignored to file your FBAR, your “get off gently penalty” will be $10,000 per overseas account per year not reported. To illustrate, if you have five foreign accounts that you failed to report on your FBAR in each of five years, the IRS can penalize you $250,000 regardless of whether you even have that amount sitting in your foreign accounts.

The “disastrous FBAR penalty” – If the IRS can show that you “intentionally” avoided filing your FBAR’s, your minimum “disastrous FBAR penalty” will be 50% of your account value.   Additionally, the IRS may also press for criminal charges and if convicted of a willful violation, this can also lead to jail time. The “disastrous FBAR penalty” can also be assessed multiple times thus wiping out your entire savings.

  1. The taxpayer’s burden of proving “reasonable cause”

You are obligated to pay the penalty the IRS deems necessary. The IRS can assume the “disastrous FBAR penalty” and they are not required to prove willfulness. It will be the taxpayer that bears the heavy burden of proving that the taxpayer’s failure to comply was due to reasonable cause and not from “willful neglect”.

  1. Your appeal option.

Having exhausted all administrative remedies within the IRS first, you can then appeal the proposed FBAR penalties to a Federal District Court but for that court to have jurisdiction you must pay the assessments in full and then sue the IRS in a district court for refund. Since coming up with the money may be impossible for most taxpayers, consider hiring an experienced tax attorney to make the most of the IRS appeals process and perhaps avoid the need for litigation.  Keep in mind that in the appeals process, you do not have to pay any FBAR penalty until the end. Second, you can be successful if IRS remedies itself thus making court filings unnecessary. And third, even if the administrative remedies do not yield you success, your tax attorney can attempt to negotiate with the IRS to lower your FBAR penalties without going for a trial.

  1. The Voluntary Disclosure Route.

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations.

Taxpayers will be required to certify that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures”) may still use the streamlined procedures.

What Should You Do?

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider making a voluntary disclosure to the IRS. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.