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Monthly Archives: January 2019

IRS Confirms Tax Filing Season to Begin January 28

Despite the government shutdown, the Internal Revenue Service confirmed on January 7, 2019 in IR-2019-01 that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown.

 
 
I appreciate the hard work of the employees and their commitment to the taxpayers during this period,”
said IRS Commissioner Chuck Rettig.


Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

 The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown,

to work.

Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

Have a Tax Problem?  
 




 

 

Contact the Tax Lawyers at
Marini & Associates, P.A.
 
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).
 
 
 

 

Read more at: Tax Times blog

No Relief Expected for US Citizens Living Abroad


According to Moodys Gartner, in the middle of the perfect storm on Capitol Hill created by the change in control of the House of Representatives back to the Democratic party, the government shutdown, and President Trump’s border wall funding demands, a bill was introduced on December 20, 2018 that would “amend the Internal Revenue Code of 1986 to provide an alternative exclusion for nonresident citizens of the United States living abroad.”

Specifically, H.R. 7358 (the “Tax Fairness for Americans Abroad Act of 2018” or “the Bill”) seeks to essentially replace the current citizenship-based taxation system with a more residence-based taxation system for “qualified nonresident” U.S. citizens. While many dual citizens or U.S. citizens residing in Canada may meet the proposed definition of “qualified nonresident citizen” under the Bill – more on this below –  it might be helpful to first put the Bill in historical context to understand the likelihood of such ground-breaking legislation becoming U.S. law.
 
The likelihood of the Bill getting any attention in 2019 by the Democrats is slim given their expected legislative agenda and proposed oversight investigations on President Trump.
 
For US citizens living abroad who are not compliant with their US tax affairs, we would strongly urge such people not to rest easy and assume that this proposed bill will provide them with an easy answer.

Noncompliant Americans living abroad should consult with experienced Tax Attorneys to help them get right with the IRS, while there are still "Programs" to help them file delinquent tax returns, without any tax penalties for non-US Domiciliary's.

 
Are You a US Citizen Who Has Not Filed 
Any Tax Returns in Many Years?
 
 
Want To Get Right With the IRS?
 
  
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243
 
 

 


Read more at: Tax Times blog

Ct of Claims Rules That Failure to Properly Review Tax Return Results in Maximum Willful Fbar Penalty

According to Law360, the U.S. Court of Federal Claims has upheld the full amount of civil penalties tied to a woman’s undisclosed offshore account, rejecting the reasoning in two recent cases where the judges found that a decades-old penalty cap was still intact.

U.S. Claims Court Judge Susan G. Braden ruled against Alice Kimble in her refund suit seeking the nearly $700,000 in civil penalties she paid after the Internal Revenue Service concluded she willfully failed to disclose a Swiss account on a 2007 foreign bank and financial accounts form, or FBAR.

The amount was calculated under 31 U.S.C. Section 5321 , which Congress had amended in 2004 to say that willful violations of FBAR requirements can lead to a penalty that is either $100,000 or 50 percent of the balance in the foreign account, whichever is more. In weighing Kimble’s penalty assessment, Judge Braden acknowledged two recent federal court cases where the judges ruled that the statute change in 2004 didn’t cancel out a 1987 regulation that caps penalties at $100,000.

But in her late December opinion, Judge Braden found that the reasoning in those decisions, issued in Texas in May and Colorado in July, conflicts with a decision issued by the Federal Circuit in 1997.

In that case, Barseback Kraft AB v. United States, nuclear energy companies argued that because the U.S. Department of Energy had authority to price uranium when the parties entered into contracts, the DOE’s pricing system was still intact even though Congress later moved that authority to another agency. However, the Federal Circuit had disagreed, ruling the fact that the DOE’s pricing regulations hadn’t been formally withdrawn “did not save them from invalidity.”

Judge Braden cited the Barseback Kraft AB case in her Dec. 27 opinion, where she granted the U.S. government’s motion for summary judgment. In doing so, she found that the IRS didn’t abuse its discretion in assessing a civil penalty against Kimble that amounted to 50 percent of her UBS account.


“Like the legislation that stripped DOE of authority over uranium pricing, the Jobs Creation Act replaced the prior penalty for willful violations of federal tax law in [31 U.S.C. Section 5321], thereby nullifying any inconsistent regulations governing the pre-2004 statute,” Judge Braden wrote.

 
Kimble’s case is not the first dispute where a claims court judge has rejected the reasoning in the Colorado and Texas cases. In late July, U.S. Claims Court Judge Edward J. Damich sided with the government in a separate penalty refund suit that cited the Texas ruling. His decision is now on appeal before the Federal Circuit.

In addition to the penalty assessment, the question of whether Kimble had willfully skirted her FBAR reporting requirements was also at issue before the Claims Court.

The government in June had contended that Kimble had “recklessly disregarded” her requirement to file a 2007 FBAR for her UBS account, which had been opened by her parents prior to 1980. As the government saw it, Kimble’s “undisputed actions demonstrate her clear intent to conceal the account from U.S. authorities,” including referring to the account by a number instead of her name and failing to tell her accountant about it.

Kimble hit back the following month, contending that the government’s interpretation of 31 U.S.C. Section 5321 would render the term “willful” meaningless, because under that reading, every person who fails to file a FBAR does so willfully.

She also claimed she wasn’t aware she had a legal duty to report her foreign bank accounts to the IRS until 2008 and therefore didn’t make a conscious choice not to comply.

 
But Judge Braden was not swayed, pointing to the case’s stipulated facts, including that Kimble didn’t review her individual income tax returns for accuracy between 2003 and 2008. In addition, Judge Braden noted that Kimble falsely represented on her 2007 income tax return that she had no foreign bank accounts. 
 
According to the opinion, these two stipulations “together evidence conduct by plaintiff, as a co-owner of the UBS account that exhibited a ‘reckless disregard’ of the legal duty under federal tax law to report foreign bank accounts to the IRS by filing a FBAR.”
According to the opinion, Kimble in 2009 was accepted into the IRS’ Offshore Voluntary Disclosure Program but withdrew in 2013, testifying that she decided to “take her chances” with the agency.
 
James O. Druker of Kase & Druker, who is representing Kimble, said in an email to Law360 on Wednesday that “it is unfathomable to me and many of my colleagues that a school teacher who voluntarily reported her previous failure to report the offshore account that was inherited from her parents and which she never touched, could receive the same 50 percent penalty that is imposed on criminals who are convicted of egregious tax fraud.”


 The case is Kimble v. USA, case number 1:17-cv-00421, in the U.S. Court of Federal Claims.
 
Have Undeclared Income from an Offshore Bank Account?

 
 
Been Assessed a 50% Willful FBAR Penalty?

 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

1st Taxpayer Victory in a “Willful” FBAR Penalty Case Overturned at Appeals

On May 1, 2018 we posted  1st Taxpayer Victory in a "Willful" FBAR Penalty Case Appealed! where we discussed that on March 7, 2018 we posted 1st Taxpayer Victory in a "Willful" FBAR Penalty Case! where we discussed that on September 20, 2017, the Eastern District of Pennsylvania issued an important taxpayer friendly opinion regarding the "willfulness" standard in FBAR penalty matters and In Bedrosian v. United States, Case No. 2:15-cv-05853-MMB (E.D. Pa., Sept. 20, 2017), the court held that the government had not met its burden in proving that Bedrosian had willfully violated FBAR reporting requirements. We also discussed that this opinion could have a major effect on future IRS decisions in the offshore compliance arena and may cause some taxpayers, to seek a more aggressive approach in addressing prior non-compliance.


The Court of Appeals for the Third Circuit now has ruled on:

  1. Whether a district court has jurisdiction over a Foreign Bank and Foreign Accounts (FBAR) matter where the taxpayer only pays a part of the assessed FBAR penalty; and 
  2. What an Appeals Court's standard of review should be with respect to a lower court's determination that there was willful violation of FBAR requirements.
  3. The Court also remanded the case because it was not satisfied with the determination by the trial court that there was no willful violation.

 Bedrosian Challenged FBAR Based Upon Illegal Exaction.

An illegal exaction claim involves money that was “improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation.” (Norman v. U. S., (Fed. Cir. 2005) 429 F.3d 1081) Where a taxpayer is able to establish that he paid taxes that were improperly collected by the government, he succeeds on such a claim.

Arthur Bedrosian is a U.S. citizen who has had a successful career in the pharmaceutical industry over the past several decades, including as Chief Executive Officer at Lannett Company, Inc., a manufacturer and distributor of generic medications. In the early '70s, he opened a savings account with a bank in Switzerland; at some point, at least as early as 2005, a second account was added.

Throughout the decades that Bedrosian maintained the Swiss accounts, he did not prepare his own tax returns and instead had his accountant do so. Bedrosian did not inform the accountant of the bank accounts until the 1990s, because, he stated, the accountant never asked about them. When informed, Bedrosian indicated that the accountant told him that he had been breaking the law for the past 20 years by not reporting the accounts. He also said that the damage was already done, that Bedrosian should do nothing, and that the issue would be resolved on Bedrosian's death when the assets in the Swiss accounts would be repatriated as part of his estate and taxes would be paid on them then. Based on this advice, as well as his fear that he would be penalized for his years of noncompliance, Bedrosian did not report either Swiss account on his tax returns until 2007, when the accountant died and he hired a new accountant.

Bedrosian filed a federal income tax return for 2007 that reflected, for the first time, that he had assets in a foreign financial account in Switzerland. He also filed a FBAR for the first time in 2007. But, he only reported the existence of one of his Swiss accounts (which had assets totaling approximately $240,000) and did not report the other account (which had assets totaling approximately $2.3 million). Bedrosian did not report any of the income that he earned on either Swiss account on his 2007 return.

Sometime after 2008, the Swiss bank told Bedrosian that it would be providing his account information to the U.S. government. Around this time, prior to the government's initiation of its investigation, Bedrosian hired an attorney to look into his reporting obligations for the Swiss accounts. In August 2010, he filed an amended 2007 federal return on which he reported the approximately $220,000 of income he had earned from the Swiss accounts; he also filed an amended FBAR for 2007, on which he reported both bank accounts. Although Bedrosian took this corrective action before the government began its audit, he did not do so until after IRS had discovered the existence of the two accounts.

IRS initiated its investigation of Bedrosian in April 2011, with a focus on tax year 2008. Beginning then, Bedrosian engaged with IRS cooperatively, providing them with all documentation requested. The investigation culminated in a case panel of IRS agents recommending that Bedrosian be penalized for nonwillful violations of the FBAR reporting requirement and that the case against him be closed. For reasons unclear in the record, the case wasn't closed but instead was re-assigned to another IRS agent, who conducted her own review and concluded that Bedrosian's violation had been willful.

On July 18, 2013, IRS sent Bedrosian a letter stating that it was imposing a penalty for his willful failure to file the FBAR form for tax year 2007. The proposed penalty was $975,789, 50% of the maximum value of the account ($1,951,578), the largest penalty possible under the regs.

Bedrosian filed suit in the district court alleging illegal exaction, i.e., that an unwarranted penalty was imposed on him; IRS counterclaimed for full payment of the penalty, as well as accrued interest on the penalty, a late payment penalty, and other statutory additions to the penalty. Both parties sought summary judgment.

District court's conclusion. The district court concluded that IRS had not met its burden of establishing that Bedrosian willfully violated the FBAR reporting requirement.

Noting that every federal court to have considered the issue had found the correct standard to be the one used in other civil contexts, that is, a taxpayer has willfully violated FBAR when he either knowingly or recklessly fails to file an FBAR, the district court determined that the requisite willful intent for a FBAR violation is satisfied by a finding that the taxpayer knowingly or recklessly violated the statute.

Circuit Court -- Whether the district court had jurisdiction. The Circuit Court first considered whether the district court had jurisdiction over Bedrosian's claim. The Court did not actually rule on this issue. It said that  even if Bedrosian's initial claim was not within the Court's original jurisdiction for Bedrosian's complaint, it had the authority to act by virtue of IRS's counterclaim, which supplied jurisdiction under 28 USC 1345.

However, It Indicated That It Was
“Inclined to Believe That Bedrosian’s Initial Claim Did Not Qualify for District Court Jurisdiction.”
  

This violates a first principle of tax litigation in district court, pay first and litigate later. "We are inclined to believe the initial claim of Bedrosian was within the scope of 28 USC 1346(a)(1) and thus did not supply the district court with jurisdiction at all because he did not pay the full penalty before filing suit, as would be required to establish jurisdiction under subsection (a)(1)."

Circuit Court -- Standard of review by appellate courts regarding willfulness under FBAR.  The Court then ruled on what it contended was an issue that never been brought to the court before, i.e., the standard of review that applies to a district court's willfulness determination under the FBAR statute.

The Court said that, in the context of other civil penalties, it had held that a district court's determination of willfulness is a primarily factual determination that is reviewed for clear error.  Similarly, it said, it had held that the Tax Court's determination of willfulness in tax matters is reviewed for clear error.

The Court then concluded that it should follow suit and hold that a district court's determination in a bench trial as to willfulness under the FBAR statute is reviewed for clear error.

The Court then agreed with the district court's definition of what constituted willfulness in the FBAR context but remanded the case because it was not convinced that the district court used the correct legal standard in its determination that there was no willfulness.

The Court agreed with the district court's holding that the proper standard for willfulness is "the one used in other civil contexts, that is, a defendant has willfully violated [31 USC 5314] when he either knowingly or recklessly fails to file [an] FBAR." It said that a person commits a reckless violation of the FBAR statute by engaging in conduct that violates an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.  And, it said that this holding is in line with other courts that have addressed civil FBAR penalties, see, e.g., Williams, (CA 4 2012) 110 AFTR 2d 2012-5298, as well as prior Third Circuit cases addressing civil penalties assessed by IRS under the tax laws. See, e.g., Carrigan, (CA 3 1994) 74 AFTR 2d 94-5425.

But the Court said that the ultimate determination of non-willfulness by the district court was based on findings related to Bedrosian's subjective motivations and the overall lack of egregiousness of his conduct. The Court here said that those criteria are not required to establish willfulness in this context.

The Court also said that the remainder of the district court's opinion did not dispel its concern.

Although that opinion discussed whether Bedrosian acted knowingly, it did not consider whether, when his 2007 FBAR filing came due, he (1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed, and if (3) he was in a position to find out for certain very easily.

"The [district] court thus leaves the impression it did not consider whether Bedrosian's conduct satisfies the objective recklessness standard articulated in similar contexts."
 

Noting that it could not "defer to a determination we are not sure the district court made based on our view of the correct legal standard," it thus remanded to the district court to render a new judgment on the issue of willfulness.

Have Undeclared Income from an Offshore Bank Account?
 
 
Been Assessed a 50% Willful FBAR Penalty?

 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243
 

Read more at: Tax Times blog