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Monthly Archives: July 2012

Willful Evasion – Widow's Tax Liabilities Excepted From Bankruptcy Discharge

July 25, 2012

The widow of a personal injury lawyer is responsible for $2.7 million in liabilities for the years 1996 through 2001, as the couple filed joint income tax returns but did not pay the balance of their tax liabilities when filing the returns, the U.S. Court of Appeals for the Fifth Circuit held July 24 (United States v.Coney, 5th Cir., No. 11-30387, 7/24/12).
Judge Emilio Garza said the district court did not err when it concluded that the tax liabilities of Barbara Susan Coney and Curtis John Coney Jr. for the years at issue were excepted from the bankruptcy court's discharge order under Bankruptcy Code Section 523(a)(1)(C) - Willful Evasion.

Garza said that although the Fifth Circuit had not previously explicitly addressed the issue of willfully attempting to evade or defeat the payment or collection of taxes, he agreed with other circuits that the exception in Section 523(a)(1)(C) contains both a conduct requirement and a mental state requirement and both Barbara and Curtis “willfully attempted” to evade or defeat the payment or collection of taxes for the relevant tax years.

If you have Tax and/or Tax Audit Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Reporting of PFIC Assets Not Required on Both Forms 8621 and 8938

July 25, 2012

Taxpayers who report their passive foreign investment company assets on the Form 8621 do not have to separately detail them as specified foreign financial assets on the Form 8938, an Internal Revenue Service official said July 24.

The development comes as taxpayers are focusing on the requirement to report those specified assets under new tax code Section 6038D. That code section was put in place by the Foreign Account Tax Compliance Act (FATCA), with reporting requirements going into effect in 2012.

Barbara Rasch, an attorney-adviser in Branch 2 in the IRS Office of Associate Chief Counsel (International), said IRS is actively working to revise the Form 8621, which taxpayers use to report their passive foreign investment company assets under tax code Section 1298. She noted that as taxpayers fill out the Form 8938, taxpayers need only indicate that they have reported their PFIC assets separately on the Form 8621, instead of detailing them on both forms.

Speaking at an international tax conference sponsored by the Practising Law Institute, Rasch also said IRS is actively working on guidance on PFIC reporting requirements under tax code Section 1298(f).

If you have any PFIC or Form 8938 questions, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Tax Court Petition Was A “Proceeding” That Extended Limitations Period On Assessment

July 24, 2012

In SHOCKLEY v. COMM., the Court of Appeals for the Eleventh Circuit, reversed the Tax Court, and held that a Tax Court petition filed by former shareholder-officers of a corporation qualified as a “proceeding in respect of” the corporation's multimillion dollar deficiency that suspended the statute of limitations under Code Sec. 6503(a)(1). Accordingly, the notices of transferee liability issued to the shareholder-officers within one year after the limitations period expired with regard to the corporation were timely.

Code Sec. 6501(a) generally provides that a valid assessment of income tax liability may not be made more than three years after the later of the date the tax return was filed or the due date of the tax return. The three-year period is suspended during the period in which IRS is prohibited from making an assessment, and during the pendency of a Tax Court case “in respect of” the deficiency plus an additional 60 days. (Code Sec. 6503(a)(1)

In situations involving transferee liability, IRS has an additional year to assess the deficiency against a transferee of assets of the taxpayer-transferor. (Code Sec. 6901(c)(1))

The Tax Court concluded that the limitations period for assessment of transferee liability had expired. The Tax Court also found that the Wisconsin notice was invalid as to SCC because it wasn't sent to its last known address, and that the first petition wasn't “in respect of” SCC's deficiency under Code Sec. 6503(a)(1). Accordingly, the Tax Court held that the invalid notice didn't suspend the limitations period as to SCC, the first petition filed in response to the invalid notice didn't suspend the limitations period, IRS's assessment against SCC was untimely, and the notices of transferee liability were untimely.

The sole issue on appeal was whether the first petition was a “proceeding in respect of the deficiency” that suspended the limitations period under Code Sec. 6503(a)(1). The parties agreed that, if it was, the transferee liability notices were timely.

Looking at the plain language of Code Sec. 6503(a)(1), and bearing in mind that statutes of limitation barring tax collections or assessments by IRS are “strictly construed in the government's favor” (Atl. Land & Improvement Co. v. U.S., (CA 11 1986)), the Eleventh Circuit found that the first petition qualified as a proceeding sufficient to suspend the limitations period. Thus, the limitations period was suspended, and the transferee liability notices were timely issued.

Shockley V. Comm,(CA 11 7/11/2012)

Read more at: Tax Times blog

4th DCA Reverses DC – Intent to Evade Taxes Does Not Makes sequent Violations of FBAR Rules Willful – Willful Blindness Does.

July 24, 2012

United States v. J.Bryan Williams; No. 10-2230
Decided: July 20, 2012 Reversed by unpublished opinion. Judge Shedd wrote the majority opinion, in which Judge Motzconcurred. Judge Agee wrote a dissenting opinion. Unpublished opinions are not binding precedent in this circuit.  

The parties agree that Williams violated § 5314 by failing to timely file an FBAR for tax year 2000. The only question is whether the violation was willful.
The district court found that:
(1) Williams "lacked any motivation to willfully conceal the accounts from authorities" because they were already aware of the accounts and
(2) his failure to disclose the accounts "was not an act undertaken intentionally or in deliberate disregard for the law, but instead constituted an understandable omission given the context in which it occurred."5 J.A. 378-79.Therefore, the district court found that Williams's violation of § 5314 was not willful.
"Willfulness may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information," and it "can be inferred from a conscious effort to avoid learning about reporting requirements." United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991) (internal citations omitted) (noting willfulness standard in criminal conviction for failure to file an FBAR).
Similarly, "willful blindness" may be inferred where "a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts point to such liability." United States v. Poole, 640 F.3d 114, 122 (4th Cir. 2011) (affirming criminal conviction for willful tax fraud where tax preparer "closed his eyes to" large accounting discrepancies).
Importantly, in cases "where willfulness is a statutory condition of civil liability, [courts] have generally taken it to cover not only knowing violations of a standard, but reckless ones as well." Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 (2007) (emphasis added).Whether a person has willfully failed to comply with a tax reporting requirement is a question of fact. Rykoff v. United States, 40 F.3d 305, 307 (9th Cir. 1994); accord United States v. Gormley, 201 F.3d 290, 294 (4th Cir. 2000) ("[T]he question of willfulness is essentially a finding of fact.").

The opinion points out that there is evidence supporting the conclusion that Williams' failure to file the FBAR was willful, particularly where a "willful violation" can include "willful blindness to the FBAR requirement" or "intentional ignorance." Maj. Op. at 12.

  • "Thus, we are convinced that, at a minimum, Williams's undisputed actions establish reckless conduct, which satisfies the proof requirement under § 5314. Safeco Ins., 551 U.S. at 57. 
  • Accordingly, we conclude that the district court clearly erred in finding that willfulness had not been established. For the foregoing reasons, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion."

If you have Unreported Bank Accounts, call the lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).


    Read more at: Tax Times blog

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