Monthly Archives: February 2022

Procedurally Taxing had a good analysis of a recent district court opinion which addresses the inability to establish reasonable cause for a late filing penalty even if a longtime preparer promised but failed to e-file an extension of time to file a 1040.  

The case, Oosterwijk v United States, brings in interesting reasonable cause issues and highlights the limits of the IRS First Time Penalty Abatement policy.

In 2017, taxpayers Erik and Aspasia Oosterwijk sold for many millions of dollars a Baltimore based wholesale meat business that they had run for decades. When it came time to file their 2017 tax return on Tuesday April 17, 2018 (Monday April 16, 2018 was Emancipation Day in DC), the taxpayers expected their longtime preparer to e-file an extension and instruct IRS to apply a payment of about $1.8 million in taxes.  The taxpayers made sure they transferred money to their checking account, and kept looking to see when the tax payment would hit the account.

By April 25, when the money was still not debited from their account, the taxpayers emailed their longtime CPA tax return preparer, who told them to wait until April 30, and if the money were still in their checking account at that date he would follow up with the IRS.

On April 29 the now concerned taxpayers emailed their CPA again saying that the money was still in their account. The preparer checked his records and ealized that that he failed to e-file the extension and had not given instructions to IRS to debit the payment.

As a threshold matter, why didn’t the taxpayers avoid having to file a suit just request administrative relief under the IRS’s First Time Abatement policy? To add insult to injury the Oosterwijks were not eligible, because their decades long history of tax compliance was tainted by a $7 late payment penalty from the 2014 tax year and the first time abatement for delinquency penalties requires a clean past three years of tax compliance.

With that out of the way the opinion first addressed a variance issue because the formal refund claim addressed reasonable cause relating to the mistaken belief that the extension was filed and did not mention the advice the CPA gave about limiting penalty accrual by filing a 4868 after the due date of the return. The opinion concluded that the claim and communications with IRS were sufficient to put IRS on notice about the full extent of the reasonable cause argument. (as an aside the opinion also seems to mix up the SOL issues in 6511 and 6532).

That gets to the merits of the reasonable cause defense. The taxpayers argued that the FTF penalties should be completely excused because they had reasonable cause for filing late, specifically that their accountant failed to e-file their extension request and their personal e-filing access was limited.

The Oosterwijk opinion cites to the opinion in Boyle, and also to Justice Brennan’s concurring opinion, where he “stressed that the ‘ordinary business care and prudence’ standard applies only to the “ordinary person.” That is, the standard exempts individuals with disabilities or infirmities that render them physically or mentally incapable of knowing, remembering, and complying with a filing deadline.”

The Oosterwijks argued that “Boyle does not apply to electronic filing, because a taxpayer cannot personally confirm that an accountant has e-filed as promised.”

The Oosterwijks essentially argued that the placement of a third party (the preparer) “between the taxpayer and the IRS, and the Oosterwijks’ inability either to e-file on their own or to confirm the e-filing’s transmission put the filing beyond their control according to Justice Brennan’s concurrence.”

The opinion disagreed, noting that the taxpayers were free to paper file an extension (and in fact did so).

Have an IRS Tax Problem?

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Read more at: Tax Times blog

On September 1, 2021 we posted IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised! where we discussed that we posted The IRS is Now Criminally Prosecuting Employers For Failure To Pay Withheld Payroll Taxes! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes and unlisted several other criminal prosecutions for failing to pay to the IRS withheld payroll taxes. On November 5, 2021 we posted Another Criminal Prosecution for Failure to Pay Payroll Taxes, where we discussed that a West Virginia woman pleaded guilty on November 4, 2021 to willfully failing to pay over to the IRS employment taxes withheld from employees’ wages.

Now according to the DoJ, a federal grand jury in Oakland, California, returned an indictment on February 3, 2022 charging a California businessman with failing to pay over employment taxes to the IRS.

According to the indictment, Larry Kudsk, of Berkeley, operated two construction businesses, M. Gutierrez Inc. and Larry Kudsk Construction Inc. For both companies, Kudsk allegedly was responsible for filing quarterly employment tax returns and collecting and paying to the IRS payroll taxes withheld from employees’ wages. Kudsk allegedly did not timely file employment tax returns, and did not pay withholdings to the IRS, for the last three quarters of 2015 for M. Gutierrez Inc., and for all four quarters of 2016 for Kudsk Construction Inc. In total, Kudsk allegedly caused a tax loss to the IRS of more than $250,000.

Kudsk is scheduled to make his initial court appearance on Feb. 11 before the U.S. District Court for the Northern District of California. 

If convicted, Kudsk faces a maximum of 5 (five) years in prison for each of the seven counts of failing to pay over employment taxes. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

  Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

for a FREE Tax HELP 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

According to Law360, a Florida woman can't get relief from joint liabilities with her ex-husband for income taxes from 2011 through 2014, the U.S. Tax Court said on February 3,2022 in Ana Margarita Fiengo and Pascual E. Fiengo Sr. v. Commissioner, docket number 1250-20, in the U.S. Tax Court.

Ana Margarita Fiengo can't be considered for two forms of innocent spouse relief from her joint liabilities because the liabilities are related to underpayments, not understatements or deficiencies, and she doesn't qualify for the remaining form because of her knowledge of the underpayments, the U.S. Tax Court said.

The Tax Court said Fiengo handled the finances for herself and her ex-husband, paid bills, and held check writing authority over accounts both personal and for a business they owned together. It thus concluded that she knew about the underpayment.

Have IRS Tax Problems?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP 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

So what somewhere him

According to Law360, Federal courts have upheld the U.S. government's ability to deny or revoke a citizen's passport over a certified tax debt in what some tax advisers have considered a draconian enforcement mechanism: prohibiting international travel to collect unpaid taxes.

Courts over the past year have uniformly rejected challenges to Internal Revenue Code Section 7345, passed in the Fixing America's Surface Transportation Act of 2015, which effectively allows the Internal Revenue Service to deny citizens with delinquent taxes of more than $50,000 the right to travel outside the country. The IRS can certify a taxpayer's debt over that amount, indexed for inflation to $52,000, as "seriously delinquent" and transmit that determination to the State Department, which can choose then to revoke or deny a passport.

The statute gives taxpayers several avenues to negotiate with the IRS on a compromise or installment plan to pay the debt before it is certified and sent to the State Department. The IRS' website details the options taxpayers have to resolve certified tax debts, and it includes information on situations where a debt will not be certified, such as when a taxpayer is negotiating in good faith with the agency or is in bankruptcy.

Jerry August of Fox Rothschild LLP said that though there are ways to avoid the prohibition on travel, the law has left little room to raise a successful challenge in federal district courts or the U.S. Tax Court.

The Tax Court recently rejected a constitutional challenge to the program, saying in March that the law doesn't violate the Fifth Amendment. Robert Rowen's tax debt was properly certified by the IRS as seriously delinquent under Section 7345, Tax Court Judge Emin Toro said in the opinion. Rowen failed to pay federal income taxes for more than 20 years, accumulating a debt of nearly $500,000, the opinion said.

Although the State Department didn't take action to revoke Rowen's passport, he filed a petition in the Tax Court and asked the court to find the IRS' certification of his tax debt was erroneous, according to court documents.

Judge Toro said Section 7345 doesn't include any language that would prevent international travel in violation of the Fifth Amendment, as Rowen contested, and merely provides a process for the IRS to follow and transmit the certified tax debt to the State Department, which can determine whether to revoke or deny a passport.

A Georgia federal court also has found that Section 7345 doesn't violate the due process clause or other language in the Constitution. The U.S. government correctly denied Craig Thomas Jones' application to renew his passport over his tax debts, the court said in March.

When Jones tried to renew his passport in November 2019, the State Department said he was ineligible to do so because of the IRS' certification of his seriously delinquent tax debt, which stood at about $405,000, according to Jones' complaint.

Jones sued the government the next month. He argued in June 2020 that Section 7345 is unconstitutional because it violates an implied right.

U.S. District Judge J. Randal Hall disagreed. Section 7345 provides taxpayers with due process that satisfies requirements under the Fifth Amendment in the form of adequate notice by the IRS of their delinquency and the right to timely request a hearing, he said.

Jones' case is now pending before the Eleventh Circuit, where he has submitted his opening brief.

Taxpayers have so far had no more success in federal appeals courts, where they have argued the right to travel abroad as a U.S. citizen is a fundamental right protected by the Fifth Amendment.

Recently, a Tenth Circuit panel denied the appeal of a man who raised a constitutional challenge to the tax debt certification passport revocation process. However, a concurring opinion in the case offered some hope to challengers in suggesting a higher level of scrutiny should apply when a citizen's passport could be revoked.

U.S. Circuit Judge Carlos Lucero said a stricter standard of review may apply in cases that deal with the right to international travel, although the taxpayer in the case, Jeffrey T. Maehr, failed to raise that argument on appeal.

For U.S. taxpayers who have dual citizenship, the U.S.'s ability to revoke or deny passports can prove to be a nuisance even if they're living abroad.

Matthew Ledvina of Helm Advisors told Law360 that sometimes, traveling with a U.S. certified tax debt requires coordination between tax and immigration lawyers to make sure clients can prove their U.S. identity without a requisite passport and travel internationally. U.S. dual citizens can't hold themselves as foreign nationals, which can cause additional administrative burdens for clients with certified tax debts traveling back to the U.S., Ledvina said.

"I think when Congress passed this law, they never envisaged all these problems of people that are dual nationals," Ledvina said.

If You Have Serious Delinquent IRS Debt, You Should Consult with Experienced Tax Attorneys, As There Are Several Ways Taxpayers Can Avoid Having the IRS Request That the State Department Revoke Your Passport. 

  Want To Keep Your US Passport?
 

 

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.

Read more at: Tax Times blog