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Yearly Archives: 2018

Skin Care Owner May Need “Frownies” Cream After 2nd Conviction for Tax Fraud

October 16, 2018

According to DoJ. a Germantown, Ohio businessman who controlled the operation of an anti-aging skincare business in Dayton, Ohio was sentenced to 33 months in prison following his November 2017 conviction by a federal jury on seven counts of filing false corporate, individual, and private foundation tax returns.
 
According to court documents and evidence presented at trial, James Wright, 63, ran the day-to-day operations of B&P Company, Inc. (B&P), which manufactured and sold an array of skincare products, including Frownies, a wrinkle reduction product endorsed by celebrities.  Wright’s great-grandmother invented Frownies in 1889 and the product has been sold by his family ever since.  Beginning in the late 1990s, Wright formed a series of entities that he used to divert money from B&P to himself and members of his family.

Instead of receiving a salary from B&P, Wright incorporated a company called The Remnant, Inc., to which B&P paid “management fees.” Wright caused the preparation of false corporate tax returns for The Remnant on which he fraudulently deducted personal expenses, including rent, utilities, and pool and lawn care for his residence.  Wright also used funds from The Remnant’s bank accounts to pay rent for one of his daughters in New York and California.  Wright paid personal expenses directly out of B&P’s bank accounts as well.  He directed employees of B&P to use corporate funds to pay for the rent and utilities at an apartment rented by his mother as well as rent for his daughter in New York.

 

In 2004, Wright applied to the IRS for non-profit status for a private foundation called Fore Fathers Foundation.  Wright caused B&P to make donations to the foundation and then used more than $170,000 of the foundation’s funds over a seven-year period to pay for high school and college tuition for all five of his children. 

According to the testimony at trial, these payments constituted acts of self-dealing that Wright was required to disclose on the foundation’s tax returns and pay excise taxes on.  When Wright filed the foundation’s 2003 through 2009 returns however, he falsely reported that he had not engaged in acts of self-dealing and failed to pay the excise taxes due on the distributions.

 
The evidence at trial established that Wright had a long history of interactions with the IRS.  In 1998, Wright pleaded guilty to tax evasion for using trusts to conceal income from the IRS.
 
In addition to the term of imprisonment, U.S. District Judge Walter H. Rice ordered Wright to serve one year of supervised release and pay $146,404 in restitution to the IRS.
 
 
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Read more at: Tax Times blog

IRS' Collection Upheld Even Though Taxpayer Issued Check Directing Application of Payment

October 11, 2018

The majority of the Tax Court has determined that IRS didn't abuse its discretion in declining to apply proceeds of a levy as the taxpayers requested because the payment via levy wasn't voluntary.

 
While the taxpayers had submitted a check to IRS, which would have been considered voluntary and which they would have been free to designate as applying to a certain tax year, the check ultimately bounced when IRS levied on the bank account, so no payment was made.
 
The Court also found no abuse of discretion in IRS's rejection of the taxpayers' proposed installment agreement. (Melasky, (2018) 151 TC No. 9). 

 

The taxpayers argued that their 2011 check should be treated as a voluntary payment toward their 2009 liability because that check was written and accepted before the levy.
 

The Tax Court, however, rejected this argument. The Court, citing case law, reasoned that a payment by check is a conditional payment, subject to the condition subsequent that it be paid upon presentation to the drawee and that there was accordingly no "payment" in this case on Jan. 27, 2011 when the check was written and there was sufficient funds to cover the check , because later when IRS presented the check for payment, it wasn't honored as a result of insufficient funds. Accordingly, the taxpayers weren't entitled to direct the application of payment because no payment occurred.
 
 
The Court also rejected the taxpayers' argument for an equitable exception on account of the fact that the check was dishonored due to an IRS levy, finding no case law or other support for this argument, and further finding that IRS didn't cause the check to bounce but such was rather the result of the taxpayers' chronic failure to pay their taxes.
With respect to IRS's rejection of the installment agreement, the Court found that IRS didn't abuse its discretion. IRS provided two reasons for its rejection, taxpayers' failure to liquidate the equity in their assets as requested, and offering a monthly payment less than they could pay, either of which would be an independently sufficient basis for its rejection. The taxpayers were repeatedly instructed to liquidate the equity in their assets, and despite having received multiple extensions, failed to do so.
The Court also found that IRS reasonably concluded that the taxpayers would be able to rely on distributions from the trust to pay a portion of the living expenses. In so holding, the Court rejected the taxpayers' arguments to the contrary, including that it would constitute a violation of fiduciary duty for Mrs. Melasky to make distributions to herself.
There were two concurring opinions. The first concurrence strenuously disagreed with the dissent, and the second generally emphasized the limited scope of the majority opinion.
A strongly worded dissent opined that the taxpayers' payment should have been considered made on Jan. 27, 2011 and thus voluntary, reasoning that there were sufficient funds in the account at that time and that the check bounced on account of IRS's later actions.

 

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Contact the Tax Lawyers of

Marini & Associates, P.A.    
 
for a FREE Tax Consultation contact us at:
www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243
 

 
 
 
 
 
 
 

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Tax Return Business Owner Not Penalized for Returns He Did Not Sign

October 10, 2018

A district court has determined on summary judgment in LOWERY v. U.S. that a return preparer who owned a tax preparation business was not liable for Code Sec. 6694 penalties with respect to returns that he didn't sign or help prepare.

The court found that IRS failed to show that the preparer had any involvement with those returns or that liability could nonetheless be imposed on the basis that he employed the preparers.

However, the court denied the preparer's motion for summary judgment with respect to the returns signed by him, stating that whether he acted willfully under Code Sec. 6694 was a factual issue to be decided by a jury.


IRC Sec. 6694(b) provides in relevant part that a penalty will be assessed on any tax return preparer who prepares a tax return “with respect to which any part of an understatement of liability is due to...a willful attempt in any manner to understate the liability for tax on the return or claim, or...a reckless or intentional disregard of rules or regulations.”

A “tax return preparer” is “any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed by this title or any claim for refund of tax imposed by this title.” (Code Sec. 6694(f))

A “signing preparer” is “any preparer who signs a return of tax or claim of refund as a preparer.” (Reg. § 1.6694-2) “[T]he signing tax return preparer generally will be considered the person who is primarily responsible for all of the positions on the return.” (Reg. § 1.6694-1(b)(2)) “A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund...” (Reg. § 301.7701-15(b)(2))

Under Reg. § 1.6694-1(b)(3), if there is no signing tax return preparer within a firm or if the signing tax return preparer is determined not to be primarily responsible for the position(s) on the return giving rise to the understatement, the nonsigning tax return preparer within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement generally will be considered the tax return preparer who is primarily responsible for the position for purposes of Code Sec. 6694.

Marshall Lowery was the sole member of an LLC that employed individuals, including Lowery, to provide tax preparation services to clients.

IRS originally sought to impose $170,000 in tax preparer penalties against Lowery ($5,000 penalty × 34 returns). This amount was ultimately reduced to $77,500, reflecting a full $5,000 penalty for each of the six returns that he prepared and a 50% penalty for 19 returns prepared and signed by other employees of Business.

 
The Appeals Officer who recommended the reduced penalty noted that is was unclear in certain instances whether Mr. Lowery would be determined to be the tax return preparer, and that there were "significant evidentiary hazards" with respect to a number of returns.

Notice and demand was sent to Lowery, who made partial payment and filed a claim for refund. IRS took no action on the refund claim, so Lowery filed a refund suit.


In its answer and counterclaim, the government sought to reduce the outstanding tax assessments against Lowery to judgment, contending that he was the "statutory return preparer of returns filed by the Business" because he is its sole owner.

Both parties filed motions for summary judgment. The court found that Lowery was entitled to summary judgment with respect to the 19 returns that he didn't prepare. The court found that there was no evidence that Lowery was involved in the preparation of these returns, and also found that IRS failed to introduce any authority that would support holding him liable given his lack of involvement.
 
Although IRS pointed to two separate cases, the court found that neither of these cases actually stood for the proposition of imposing Code Sec. 6694 liability against an employer. Accordingly, the court found that since he wasn't involved in the preparation of these returns, he could not be held liable for the alleged understatements of tax liability on them.

However, the court denied Lowery's motion with respect to the remaining six returns, finding that the question of whether his conduct was willful or reckless was one of fact that should be decided by a jury.

 


Do You Have a Tax Problem?
 
 
 
 
Contact the Tax Lawyers of

Marini & Associates, P.A.    
 
for a FREE Tax Consultation contact us at:
www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243




 

Read more at: Tax Times blog

Panama has Commenced Automatic Exchange of Information

October 10, 2018

Panama has commenced its automatic exchanges of information in order to meet OECD global standards, the government has announced. The country will be exchanging information with 33 countries.  


Panama’s CFO, David Hidalgo, Said That It Was Important for the Country to ‘Respect These Standards and Our Commitments so As Not to Be on a Black List of Tax Havens.’

 

According to the OECD on 01/15/2018 the Director-General of Revenue and the delegated Competent Authority of Panama, Publio Ricardo Cortés, signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA), in presence of OECD Deputy Secretary-General Masamichi Kono.

 Panama was the 98th jurisdiction to join the CRS MCAA, which is the prime international agreement for implementing the automatic exchange of financial account information under the Multilateral Convention on Mutual Administrative Assistance.

The signing of the CRS MCAA will allow Panama to activate bilateral exchange relationships with the other 97 jurisdictions that have so far joined the CRS MCAA.
 
By signing the CRS MCAA , Panama is re-affirming its commitment to the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS), with exchanges set to commence in September 2018 and it is now October 2018. 

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