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Monthly Archives: May 2019

Perfect Example of How Not to Handle an IRS Collection Matter

According to DoJ, an Aliquippa, Pennsylvania, man was sentenced to
18 Months in Prison for Tax Evasion.
According to evidence presented in open court, William Rains failed to timely file his individual income tax returns for tax years 1997, 1999, and 2003-2006. Rains also filed false returns for 2000 and 2001, reporting zero income when he in fact he had earned income in those years. The Internal Revenue Service (IRS) assessed over $200,000 in taxes against Rains for all of these years, as well as for tax year 2008.

Now if that wasn't bad enough, William Rains then decide to handle his IRS collection matter, in a completely improper fashion.

From July 2005 Through December 2016,
Rains Evaded The Payment Of His Taxes and
Sought To Thwart IRS Collection Efforts.

  •  He concealed his income and assets from the IRS by using multiple bank accounts, entities, a nominee, and a false IRS financial form.
  • He also caused his wife to move money into accounts in her name and to purchase bank checks to prevent the IRS from collecting taxes he owed.

He is also ordered to serve 3 years of supervised release and to pay $207,634 in restitution to the IRS.

Have an IRS Tax Problem? 


Contact the Tax Lawyers at 

Marini& Associates, P.A.  


for a FREE Tax HELP Contact Us at:
or Toll Free at 888-8TaxAid (888) 882-9243 


Read more at: Tax Times blog

3rd Circuit in “Bedrosian” Addresses Appellate Standard Of Review In FBAR Penalty Case

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. Then on On May 1, 2018 we posted  1st Taxpayer Victory in a "Willful" FBAR Penalty Case Appealed!

Now the Court of Appeals for the Third Circuit in Bedrosian, 122 AFTR2d 2018-7052 (CA-3, 2018), ruled on
  1. whether a district court has jurisdiction over a Foreign Bank and Financial Accounts (FBAR) matter where the taxpayer only pays part of the assessed FBAR penalty; and
  2. What an appellate court's standard of review should be with respect to a lower court's determination that there was willful violation of FBAR requirements. The Third Circuit also remanded the case because it was not satisfied with the district court's determination that there was no willful violation.
Arthur Bedrosian was a U.S. citizen who, in the early 1970s, opened a savings account with a bank in Switzerland. In 2005, the Swiss bank approached Bedrosian with a loan proposal that he accepted, under which it would lend him 750,000 Swiss Francs and convert his savings account into an investment account. That transaction resulted in a second account being created for Bedrosian, although he claimed that he always considered them one account.

Throughout the decades that Bedrosian maintained the Swiss accounts, he had his longtime accountant prepare his returns. Bedrosian did not inform the accountant of the accounts until the 1990s because, he stated, the accountant never asked about them. When informed, the accountant told Bedrosian that he had been breaking the law for the past 20 years by not reporting the accounts. The accountant 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. However, he only reported 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. In late 2008, Bedrosian sought advice from his attorney. On advice of counsel, Bedrosian engaged an accounting firm to go back and amend his returns from 2004 to the present. He paid taxes on the gains from his Swiss accounts.

Bedrosian paid the IRS $9,757.89 (i.e., 1% of the penalty assessed) and then filed a complaint in the district court seeking to recover that amount as an unlawful exaction. The 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.
The Third Circuit said that allowing a taxpayer to seek recovery of a FBAR penalty under the Little Tucker Act permits that person to seek a ruling on the penalty in district court without first paying the entire penalty, which violates a first principle of tax litigation in district court, pay first and litigate later. The court said, "We are inclined to believe the initial claim of Bedrosian was within the scope of 28 U.S.C. section 1346(a)(1)28 U.S.C. section 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)."
The Third Circuit then ruled on an issue that it believed was one of first impression, the standard of review of 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 willfulness determination is primarily a factual determination that is reviewed for clear error; similarly, it had held that the Tax Court's determination of willfulness in tax matters is reviewed for clear error.

The Court 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 Third Circuit 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 also 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 [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," the Third Circuit thus remanded the case 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

All That You Wanted to Know About Form 706NA – Part II

We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.  
Based on my 32 years of experience as a senior attorney at the International office of the IRS, I am revealing some of the strange and exotic problems that I came upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.

As I pointed out, one of the critical areas for each estate is to focus on is the decedent’s citizenship and domicile. To assist the IRS in reaching a conclusion, it is best to include the death certificate (required) as well as the birth certificate, passport, and any documents revealing the fact that the decedent expatriated from one country. This information may well be beneficial in avoiding an IRS examination. The problem is that once the IRS examines a tax return for one issue (i.e. citizenship or domicile), it opens the door for the IRS to examine a number of other issues that they might not have otherwise addressed. Kind of like opening Pandora's box. 

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information. Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity. 

Question two addresses debt obligations  or other property located in the United States. One of the major problems that I saw as an auditor was that people will value the house or condominium in the United States allocating no value to the contents. In most cases this is not a big deal but in the case of an expensive property, I, as the auditor always requested (summoned if the estate did not cooperate) a copy of the insurance policy plus the floater. Generally I found nothing specific but from time to time, I found an art collection worth several million dollars, an automobile collection worth over million dollars, and an extensive collection of rare China worse close to $1 million. If the client is wealthy or as expensive real estate in the United States, obtain a copy of the insurance floater before you prepare the 706NA to avoid great embarrassment. 

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years. 

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at  the examination.

Have a US Estate Tax Problem?


Estate Tax Problems Require

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


Robert S. Blumenfeld  - 
 Estate Tax Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.




Read more at: Tax Times blog

Taxpayer Appeals Ct of Claims Ruling Upholding FBAR Penalty in excess of $100,000

The Court of Federal Claims, granted summary judgment in IRS' favor earlier this year, determining that a taxpayer's failure to file a Report of Foreign Bank and Foreign Accounts (FBAR or FinCEN Form 114 was willful and upheld IRS's imposition of a $697, 229 penalty, i.e., an amount greater than the $100,000 maximum set out in regs that have not been removed despite a statutory increase in the penalty amount.

The Court Found That The Revisions To The Statute Effectively Nullified The Contrary Regs. 

See Kimble v. U.S., (Ct Fed Cl 12/27/2018) 122 AFTR 2d ¶2018-5544).

Under 31 USC 5314(a) and 31 C.F.R. 1010.350, every U.S. person that has a financial interest in, or signature or other authority over, a financial account in a foreign country must report the account to IRS annually on an FBAR. The penalty for violating the FBAR requirement is set forth in 31 USC 5321(a)(5). 31 USC 5321(a)(5)(A) provides that the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of 31 USC 5314(a).

The maximum amount of the penalty depends on whether the violation was non-willful or willful. The maximum penalty amount for a nonwillful violation of the FBAR requirements is $10,000. (31 USC 5321(a)(5)(B)(i)) The maximum penalty amount for a willful violation is the greater of $100,000 or 50% of the balance in the account at the time of the violation. (31 USC 5321(a)(5)(C), 31 USC 5321(a)(5)(D)).

The penalty amounts described above reflect a 2004 law change that increased the maximum civil penalties that can be assessed for willful failure to file an FBAR. Before that change, the maximum penalty was $100,000. Regs that were promulgated before the statutory increase continue to reflect the former $100,000 maximum (as opposed to the "greater of $100,000 or 50%" maximum). (31 C.F.R. 1010.820(g)). There is currently disagreement amongst courts as to whether the 2004 statutory amendment invalidated the $100,000 cap established by 31 C.F.R 1010.820. 

Alice Green, the taxpayer, is a U.S. citizen. Sometime prior to '80, her parents opened an investment account at the Union Bank of Switzerland (UBS account) and designated Alice as a joint owner.Alice's father was Jewish, and members of his family had been killed in the Holocaust. According to Alice, her father's intent with respect to the UBS account was to provide Alice with funds in case she needed to escape America. The money in the UBS account was only to be used in an emergency, and its existence was to be kept a secret.

In 2008, Alice learned from a newspaper article that the U.S. was “putting pressure on UBS to reveal the names of people who had secret accounts in UBS" and retained counsel to comply with foreign reporting requirements. On June 30, 2008, the balance in the UBS account was $1,365,662, and the balance in the HSBC account was $134,130.

Alice didn't report any investment income from either account on her original income tax returns from 2004 through 2008 despite having income each year. She also answered a question on those tax returns regarding the existence of reportable foreign financial accounts in the negative for three of those returns, and left the question blank on the fourth. The instructions for that question indicated that a "yes" answer would mean that an FBAR should be filed. Alice didn't file FBARs during these years.

In 2009, Alice applied, and was accepted, to the Offshore Voluntary Disclosure Program (OVDP). As part of her participation in the OVDP, in 2011, she filed amended tax returns for 2003 through 2008 reflecting the unreported investment income. On her 2007 amended returns, she also changed her answer to "yes" regarding the existence of a foreign account, but left it unchanged on the others.
She negotiated a closing agreement with IRS in 2012 that required her to pay the tax liability due as well as a $377,309 penalty.

She Decided Later To Withdraw From The OVDP,
On Account Of The Penalty Amount and 

"Take Her Chances." 
IRS began an examination in 2013 and concluded that Alice's failure to file an FBAR for 2007 was willful based on facts including the value of the UBS account, her repeated failure to disclose the accounts and income therefrom, her efforts to conceal their existence, and her active involvement with them. IRS recalculated the total penalty as $697,229, i.e., 50% of the UBS account balance in 2007 and assessed the penalty in 2016, which Alice paid in full then filed a claim for refund. 

The Court of Federal Claims concluded that Alice's 2007 failure to file an FBAR was willful, finding that her actions were voluntary and that she knew of the requirement vis-a-vis her affirmative answer to the question on her amended 2007 return regarding the existence of foreign reportable accounts. In so holding, the Court rejected Alice's construction of the term "willfulness" as meaning criminal behavior and requiring more than a simple failure to check a box and file an FBAR, and found that Supreme Court precedent supported treating reckless conduct as "willful" for various purposes.

Finally, the Claims Court found that the $100,000 maximum in the regs was no longer valid in light of the new statutory maximum. The Court noted that IRS has stated, in the Internal Revenue Manual (IRM), that while its regs hadn't been revised to reflect the change in the penalty ceiling, the statute raising the maximum was "self-executing and the new penalty ceilings apply." (IRM §

The Court found that the reasoning of recent district court cases reaching a contrary conclusion (e.g., U.S. v. Colliot, (DC TX) 121 AFTR 2d 2018-1834) conflicted with the reasoning of the Federal Circuit in Barseback Kraft AB v. U.S., (CA Fed Cir 1997) 121 F.3d 1475, which held that certain pricing regs, while not formally withdrawn, had been rendered invalid by an intervening law change.

Now Alice Kimble has asked the appeals court in a brief filed on April 30, 2019, to reverse the U.S. Court of Federal Claims’ ruling that she had willfully failed to disclose her account at UBS AG. She asked the court to decide that the Internal Revenue Service by law cannot impose a penalty of greater than $100,000 for willful failure to file a Foreign Bank and Financial Accounts report.

Do You Have Undeclared Income
From An Offshore Bank ?
Is Your Name Being Handed Over to the IRS?
Want to Know Which Remaining IRS Program
 is Right for You? 
Contact the Tax Lawyers at 
Marini & Associates, P.A.   
for a FREE Tax Consultation contact us at:
Toll Free at 888-8TaxAid (888) 882-9243


Read more at: Tax Times blog