Monthly Archives: January 2021

Kronowitz prepared his own tax returns for tax years 2005, 2006, 2007, 2008, 2009, and 2010. On the Schedule B forms filed with the 2007 and 2008 tax returns, in response to question 7a, Kronowitz marked "no." There were no Schedule B forms attached to the 2006, 2009, or 2010 individual tax returns. 

Question 7a on Schedule B states, "At any time during [applicable year], did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? See page B-2 for exceptions and filing requirements for Form TD F 90-22.1." Kronowitz also prepared the tax returns for the Trust for tax years 2008, 2009, and 2010. He marked "no" in response to question 3 under the "Other Information" section on Form 1041, which states, "[a]t any time during calendar year [ ], did the estate or trust have an interest in or a signature or other authority over a bank, securities, or other financial account in a foreign country?" 

Kronowitz insists that he did not look up Form TD F 90.22.1 (the FBAR) due to a mistaken lack of knowledge, not a "desire to cheat the government." 

Kronowitz was provided notice of the FBAR penalty assessments, which remain unpaid. In addition to the amount of the assessments, interest and failure to pay penalties have accrued; and as of August 12, 2020, the balance owed on the FBAR penalties, including accruals, is $791,742.63.

in the Motion for summary judgment, the Governmen's t argues the Kronowitz's FBAR violations were willful because he recklessly failed to report his interest in foreign accounts or was willfully blind to the FBAR requirement. In support of its argument, the Government contends that the facts establish that Kronowitz recklessly opened the Cayman Island accounts to hide assets, that he recklessly managed the UBS and BKB bank accounts in Switzerland, and that his repatriation of funds into the United States and reporting of gains on the Trust tax returns formed part of a scheme to protect his foreign investment gains, which required planning, direction, and knowledge of international taxes and management of wired funds across international borders. Thus, the Government argues, "[i]t is implausible that Kronowitz could have known how to operate this process . . . without ever seeing the FBAR requirement." 

Upon review, the Government's argument itself demonstrates why summary judgment is inappropriate in this case. First, contrary the Government's suggestion, upon summary judgment, the Court views the facts in the light most favorable to Kronowitz and draws inferences from those facts in favor of Kronowitz as the non-moving party. Crocker, 886 F.3d at 1134. 

Unsurprisingly, Kronowitz disputes that his actions comprised any scheme to "cheat the government," and insists that he was simply mistaken. Significantly, in order to make the determination, the Court would be required to weigh the evidence and consider Kronowitz's credibility, which it may not do at summary judgment. Strickland, 692 F.3d at 1154. 

In arguing that summary judgment is appropriate in this case, the Government relies primarily upon the Fourth Circuit's opinion in Horowitz, in which the court stated that "willfulness based on recklessness is established if the defendant '(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.'" United States v. Horowitz, 978 F.3d 80, 89 (4th Cir. 2020) (quoting Bedrosian, 912 F.3d at 153). 

In Horowitz, the court determined that, despite their contentions regarding their subjective intent, the defendant taxpayers' failure to file FBARs was objectively reckless. 978 F.3d at 89. However, the Government's reliance is misplaced for the simple reason that the district court in Horowitz was considering cross motions for summary judgment.

Similarly, the other cases relied upon by the Government do not support the conclusion that it urges here—that the Court may determine the issue of willfulness as a matter of law upon summary judgment. See United States v. Williams, No. 1:09-cv-437, 2010 WL 3473311, at *1 (E.D. Va. Sept. 1, 2010) (finding no willfulness following bench trial), rev'd 489 F. App'x at 660; Bedrosian, 912 F.3d at 148 (same); Bohanec, 263 F. Supp. 3d at 888-89 (finding willfulness following bench trial). 

Moreover, whether Kronowitz was willfully blind based upon the facts in this case requires a determination of his subjective awareness and whether he purposely avoided learning the facts pointing to liability. Williams, 489 F. App'x at 658 (citation omitted). "As a general rule, a party's state of mind (such as knowledge or intent) is a question of fact for the factfinder, to be determined after trial." Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1476 (11th Cir. 1991). 

Second, in this case, genuine issues of material fact bearing upon the issue of willfulness remain. In pertinent part, although it is undisputed that Kronowitz has been a licensed CPA for fifty-nine years, has prepared returns on behalf of both companies and individuals during the course of his career, and was required to attend CPE courses, Kronowitz testified that he did not deal with foreign tax issues for his clients, he did not remember any of the CPE courses mentioning the FBAR, and he was unaware of the FBAR until 2011. Accordingly, the Government's Motion for summary judgment was DENIED.

 Have IRS Tax Problems?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

1. Uncle Sam taxes income worldwide.
2. Expatriating means really leaving.
3. The old 10-year window is closed.
4. Big changes came in 1996.
5. Tax avoidance is now irrelevant.
6. There are special rules for long-term residents.
7. There's an exit tax for expatriations on or after June 17, 2008.

In general the exit tax is unforgiving and has broad application. Yet if you have less than $600,000 of income from the deemed sale of your assets on expatriation, you pay no tax. This exemption amount is adjusted for inflation and is $627,000 for 2010. If your gain exceeds this amount, you must allocate the gain pro rata among all appreciated property. 

However, this exclusion amount must be allocated to each item of property with built-in gain on a proportional basis. This involves a complicated process of multiplying the exclusion amount by the ratio of the built-in gain for each gain asset over the total built-in gain of all gain assets. The exclusion amount allocated to each gain asset may not exceed the amount of that asset's built-in gain. Moreover, if the total allowable gain of all gain assets is less than the exclusion amount, the exclusion amount that can be allocated to the gain assets will be limited to that amount of gain. For example, in 2010, if the total allowable gain in an expatriate's assets was $500,000, then that $500,000 would be the limit instead of $627,000.

Fortunately not all expatriates face the exit tax; only "covered expatriates" do. Under prior law, you generally had to give notice you were expatriating to trigger the rules. Now if you relinquish your passport or green card, it's generally automatic. But some expatriates, even under the new law, can escape the exit tax. The financial thresholds (see point five above) can still exempt you. Some people born with dual citizenship who haven't had a substantial presence in the U.S. and certain minors who expatriated before the age of 18-and-a-half are also exempt. However, those people must still file an IRS Form 8854 Expatriation Information Statement. 

9. You can elect to defer the exit tax. 
If you do face the exit tax, you can make an irrevocable election (on a property-by-property basis) to defer it until you actually sell the property. This election allows people to leave the U.S. and expatriate without triggering immediate tax as long as the IRS is assured it will collect the tax in the future. To qualify, a covered expatriate must provide a bond or other adequate security for the tax liability. There are specific requirements for these security bonds. Plus, there is an updating and monitoring of the bond in case it becomes inadequate to cover the tax. The IRS scrutinizes these elections on a case-by-case basis, so hire an expert. There are detailed requirements for filing the deferral election, including documentation, and copies of various documents. 

One of these requirements is appointing a U.S. agent for the limited purpose of accepting communications with the IRS. Plus, the taxpayer must waive any tax treaty benefits that might otherwise impact the IRS getting its money. It doesn't appear that many of these deferral elections have been made so far. 

There's another reason, other than the bond, not to defer. When you do sell, you'll pay taxes at the rate then in effect, which will likely be higher. If the Obama Administration has its way, when the Bush tax cuts expire at the end of this year, the top rate on long-term capital gains will rise from 15% to 20%. Plus, the just-passed House reconciliation package to the Senate's health care bill (if also approved by the Senate) is supposed to impose an additional 3.8% tax on net investment income for taxpayers with threshold income amounts of $200,000 for individuals and $250,000 for joint filers. This could raise the top capital gains rate to 23.8% for those taxpayers.

10. You'll need professional help. 
As you might expect, there are forms to file and procedures to follow if you expatriate. In fact, if you are wavering, the paperwork alone may keep you stateside! You must file IRS Form 8854 (in some cases for 10 years). Additional special forms (Form W-8CE if you have any deferred compensation items, a specified tax deferred account, certain non-grantor trusts, etc.) are also required. A good source is IRS Notice 2009-85.

Still, get some professional help. As this mere scratching of the surface suggests, the tax rules regarding expatriation for citizens and long-term residents are complex, even dizzying. Gone are the days when one could renounce U.S. citizenship and stand a good chance of avoiding U.S. tax. If you're facing these issues, or even if you are a beneficiary of someone else who is facing them, get some professional help. Bon voyage!

Need Advise on Expatriation? 

 

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