Yearly Archives: 2020

According to Law360, in Margaret J. Jones v. U.S., case number 2:19-cv-04950, in the U.S. District Court for the Central District of California, the Court determined that the IRS arbitrarily calculated a penalty of over $1.5 million for a woman who failed to file foreign bank account reports, a California federal court has ruled, but she still must prove her failure to file the FBARs wasn't willful.

The IRS has accused Jones of flouting foreign bank account reporting requirements when she failed to report accounts in Canada and New Zealand in 2011 and 2012. The agency based its argument in part on the fact she had constructive knowledge of her duty because she signed her 2011 and 2012 tax returns even though they were prepared by her tax adviser.

The IRS penalized her $1.5 million based on amounts in her accounts in 2013, which was prorated so that half was assessed for 2011 and the other for 2012. The agency moved for summary judgment on the issue that Jones knowingly failed to file FBARs.

Jones countered that she did not properly file her FBARs because of a good-faith misunderstanding. The family's tax preparer had not told her about the requirement, she said, and she voluntarily filed FBARs once she learned of her error. The 2012 FBAR had been timely filed, she said.

The $1.5 million was an arbitrary figure because it was based on her 2013 account balances instead of 2011,when she had less money in her accounts, Jones added. Had it been based on the latter, she would have owed about $37,000 less, she said. Jones moved for summary judgment to dismiss the penalty and on the charge she willfully failed to file.

The court agreed with Jones that the $1.5 million penalty was arbitrary because it was based on her 2013 account balances instead of her balances in 2011, when she failed to file an FBAR. Jones had subsequently filed a 2012 FBAR, the court pointed out.

The court dismissed both parties' motions on Jones' willfulness. The fact she signed her tax returns created a case that, on the surface, she understood her duty to file an FBAR, which could be refuted, creating a genuine dispute that was appropriate for trial. The court said it would remand the amount of Jones' penalty to the IRS should it prove her willfulness.

On September 4, 2019 we posted FBAR Consent to Extend Statute Held Valid!, we discussed that In United States v. Schwarzbaum (S.D. Fla. No. 18-cv-81147) a federal district court rejected an individual's claims that FBAR penalties assessed against him should be set aside because they were assessed after the limitations period expired.

Now in U.S. v. Isac Schwarzbaum, case number 9:18-cv-81147, in the US District Court for the Southern District of Florida, the Court has determined that Schwarzbaum, will pay the IRS a $12.9 million penalty for failing to file reports on his foreign bank accounts, a federal court ordered after having determined that the agency erred when it calculated the penalty at $800,000 more.

The court concluded that the penalty assessed by the government did not conform to statutory requirements because rather than utilizing 50% of the balance in each account at the time of the violation, which was the deadline to file the FBAR or June 30 of each year, the government used the highest aggregate balance in each of the accounts for each year as reported by Taxpayer on a penalty calculation worksheet provided in connection with his OVDI disclosures.

As a result, the court concluded:

1. That the IRS used the incorrect base amounts to calculate the FBAR penalties,
2. It rejected that the IRS’s methodology in calculating the penalty was harmless error and
3. The court also concluded that an FBAR penalty does not fall within the purview of the Eighth Amendment’s excessive fines provision.

The Internal Revenue Service cannot use estimates of what was in Isac Schwarzbaum's foreign accounts to calculate his penalty, set by federal tax law at the greater of $100,000 or half the account, U.S. District Court Judge Beth Bloom said in a decision issued on May 18, 2020. It must have the actual amounts or use the $100,000 figure, she said. 

Each willful violation has a penalty of $100,000 or half the amount in a foreign account on the date of the violation, Judge Bloom said in her March opinion, citing Section 5321, Title 31 of the U.S. Code. 31 U.S.C. 5321 The IRS used the highest aggregate balance in the accounts, not the amount on June 30, she said.  
The statute at issue in this case states as follows:

[. . .]

(D) Amount.—The amount determined under this subparagraph is—

[. . .]

• (ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.

The IRS was unable to independently determine the June 30 balance in several of Schwarzbaum's accounts, according to court documents. In a supplemental brief filed in April, the agency asked Judge Bloom to use its estimates, arguing they were the best information available. Otherwise, taxpayers might be encouraged to withhold balance information, the IRS said.

Judge Bloom rejected the agency's arguments in the May 18, 2020 ruling, saying it should have obtained the balance information before it assessed penalties. Using the $100,000 figure where the balances were estimated, she added half of the June 30 account balances, calculating the penalty amount at $12.9 million.

Schwarzbaum didn't dispute that he had a number of foreign bank accounts, or that he failed to timely file the reports from 2006 through 2009, according to court documents. He argued he should not be penalized for willingly failing to file because he received poor advice from a number of financial advisers and filed after discovering the error.

The IRS had argued Schwarzbaum, by signing his tax returns, implicitly reviewed them and knew he failed to file. The judge disagreed in the March opinion, pointing out that by that logic, every failure to file would be willful because every return must be signed.

Turning to each year in question in the March opinion, Judge Bloom found:

 

• Schwarzbaum did not willfully fail to file his 2006 report. He relied on an accountant to prepare it and followed the accountant's advice that no tax was due, she said.
• However, Schwarzbaum personally filed the 2007 through 2009 returns, she said, and should have known by 2007 how to properly disclose the accounts.
   

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 Sources:

Law360

 

In two Tax Tips, the IRS has provided an updates on its suspended compliance and examination activities through the July 15, 2020 filing and payment deadline.

• Existing installment agreements. Payments due under an existing installment agreement between April 1 and July 15, 2020 are delayed until July 15, 2020. Those taxpayers currently unable to meet the terms of an existing Installment Payment Agreement may skip payments during this period with no default. By law, interest will continue to accumulate on any unpaid balances.
• New installment agreements. Taxpayers who can't pay all their federal taxes can establish an installment agreement using the IRS's online application.
• Pending Offer in Compromise (OIC) applications. Taxpayers have until July 15, 2020, to provide additional information for a pending OIC. The IRS generally won't close any pending OIC request before July 15 without the taxpayer's consent.
• OIC payments. Taxpayers can delay all payments on accepted OICs until July 15, 2020. Interest may accrue, and missed payments are due when the suspension period ends. Taxpayers can call the number on their OIC acceptance letter if they have any questions about their OIC payments.
• No OIC default for delinquent return filings. The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for 2018. However, they should file any delinquent 2018 return and their 2019 return by July 15, 2020.
• 2016 refund deadline. The deadline to get refunds on 2016 tax returns is July 15, 2020. 
• Field collection activities. The IRS has stopped field revenue officer enforcement actions, such as liens and levies. Revenue officers will continue to pursue high-income non-filers and perform "other similar activities" where necessary.
• Automated liens and levies. The IRS has delayed issuing new automated and systemic liens and levies. Taxpayers experiencing a hardship due to a levy should reach out to their assigned IRS contact.
• Certifications to the State Department. IRS has delayed new certifications of taxpayers who are considered seriously delinquent. This affects a person's ability to receive a new or renewed passport. Existing certifications will remain in place unless their tax situation changes.
• Private debt collection. The IRS will not forward new delinquent accounts to private collection agencies until after July 15, 2020.

• Field, office and correspondence audits. Generally, the IRS won't start new field, office or correspondence audits before July 15, 2020. However, the IRS may start new audits if needed to preserve the limitations period. 
• In-person meetings for current field and office audits are still on hold but, when possible, examiners continue to work their cases remotely. 
• The IRS may move forward with an audit when (1) its in the best interest of both parties, and (2) appropriate representatives of both parties are available. 
• Earned income tax credit (EITC) and wage verification reviews.  Taxpayers have until July 15, 2020, to respond to any IRS correspondence asking them to verify (1) that they qualify for the earned income tax credit, or (2) their income. These taxpayers should submit all the requested information as soon as possible. The IRS won't deny the EITC for a failure to provide information until July 15, 2020.
• Limitations periods.  If a limitations period is about to expire, the IRS encourages taxpayers to cooperate in extending that limitations period. If a taxpayer fails to cooperate in extending the limitations period, the IRS will take any actions necessary to protect the interests of the government. 

 
Now according to Law360, the IRS plans to order employees in Kentucky, Texas and Utah who can't telework to return to their worksites starting June 1, Commissioner Chuck Rettig told workers May 19, 2020, saying the agency would keep pursuing employee safety amid the COVID-19 pandemic.
 

Rettig delivered the news in an email to agency workers. Tony Reardon, national president of the National Treasury Employees Union, which represents IRS workers, said in a statement that according to the agency, there are about 20,000 IRS employees in the three states. About 9,000 will continue to telework, subjecting 11,000 to the recall, Reardon said.
 
Reardon said the IRS has informed the union that agency "posts of duty" in those states have been thoroughly disinfected, a comprehensive cleaning schedule is in place and there are sufficient supplies of personal protective equipment for workers to help prevent the spread of COVID-19, the respiratory disease caused by the novel coronavirus.
 
The union leader said the health and safety of returning workers is a priority for the union, which is why it will continue urging the IRS to provide the returning employees with tests and basic medical screenings.
 

"Such advance notice, however, does not alleviate the anxiety of the IRS frontline employees, who, just like most Americans, recognize that the health crisis has not fully subsided and are worried about protecting themselves and their families."

The directive for some employees to return follows agency workers voluntarily coming back. Earlier this month, Reardon said the union supported an IRS call for additional employees to volunteer to return, but said they needed to feel safe doing so, particularly after a Kansas City, Missouri, worker contracted COVID-19.

Rettig said in his email that over the next several weeks, the agency will continue asking employees whose work isn't portable to return to their posts of duty.

Employees who are sick shouldn't come in and may have to provide documentation if sick leave exceeds three consecutive workdays, Rettig said in the email.

Workers who are in high-risk populations as defined by the U.S. Centers for Disease Control and Prevention may ask for weather and safety leave if they can't telework, he said.

Have an IRS Tax Problem?

 

 

Contact the Tax Lawyers at
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