In Ott, (DC MI 2/26/2020, 125 AFTR 2d ¶2020-492, a district court has held that a taxpayer who failed to file an FBAR did so willfully. It came to this conclusion because, among other reasons, the taxpayer signed his tax return under penalty of perjury, told the foreign bank not to send correspondence to his address, and failed to consult with a tax expert regarding whether to report the foreign account.

Mr. Ott, a US person, had a Canadian bank account with more than $10,000 in it during 2007. And he failed to file an FBAR that year.

Many years prior, a friend had told him that he did not need to report foreign bank accounts or income. Besides that, Ott claimed to have no tax or financial expertise.

Ott opened an account in Canada because his sister lived there and he had all the bank's correspondence sent to his sister's address. He deposited over $1 million. His sister rarely forwarded bank statements or other correspondence to Ott.

For 2007, Ott hired a CPA, Mr. Weide, to prepare his tax return. It is not clear from the record whether Weide asked Ott if he had a foreign account. When Weide was using tax preparation software to prepare the return, he did not answer the question "Does the taxpayer have a foreign account?", and the software defaulted to "No." Ott's stated income on the return for the year was $20,000. Ott signed the return under penalty of perjury.

Ott never asked Weide about whether he needed to report the Canadian account.

The IRS imposed a penalty on Ott for willfully failing to file the FBAR. The IRS contended that Ott had constructive knowledge of his reporting requirements by signing his tax returns, which included a reference to the FBAR within the Schedule B form. The IRS also argued that Ott putting his sister's Canadian address on the accounts was an act of concealment. Finally, the IRS contended that the foreign account balances were so much more than Ott's annual income, all demonstrating that he recklessly and, therefore, willfully failed to file FBARs for the years in question.

Ott asserted that his signature on his tax returns, along with the absence of any deliberate acts of concealment, did not amount to a willful failure to file the FBARs, and that he was at most negligent.

The district court agreed with the IRS that Ott willfully failed to file his FBARs.

The court said the following facts indicated that Ott acted willfully and/or recklessly:

• Ott signed a return each year, under penalty of perjury—regardless of whether he actually read the return, certifying that he did not have an interest in foreign accounts. Accordingly, constructive knowledge of the requirement to file the FBAR was imputed to Ott.
• Ott consistently stated that he was not a tax expert with any financial or legal training in tax accounting. Nevertheless, he chose to rely solely on advice he received decades ago concerning foreign investments. Ott argued that his mistaken reliance on incorrect advice proved that he was at most negligent, not willful. The evidence presented in this case, however, supported an inference of reckless conduct. Ott's failure to discuss his foreign investments with his long-time accountant Weide, for example, indicated a conscious effort to avoid learning about reporting requirements.
• Using an address that matched the country of the foreign bank accounts suggested that Ott sought to avoid the detection of his account ownership. Further, sending everything to his sister allowed Ott to avoid seeing any statements concerning reporting responsibilities, including the language: "These transactions are to be reported on your annual return of income." The court found that this failure to review any of the mail sent to his sister from the brokerages constituted an act of concealment and was reckless.
• Ott acted recklessly and, therefore, willfully because he kept continuous contact with his broker regarding the foreign accounts, regularly checked the account balance online, and the account balance was significantly disproportionate to Ott's claimed income.

Have an FBAR Penalty Problem?  

 

 

 Contact the Tax Lawyers at 

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Case in point is U.S. v. George Gaynor Jr., case number 2:21-cv-00382, in the U.S. District Court for the Middle District of Florida, where Lavern Gaynor, whose grandfather was a founder of Texaco Inc., now a subsidiary of Chevron Corp., filed amended tax returns and foreign bank account forms in 2012 and 2013 to disclose her overseas assets, she did so in a so-called quiet disclosure, according to the government's complaint. 

Lavern Gaynor died April 12, 2021, according to the complaint and the FBAR penalties were initially assessed for 2009, 2010 and 2011 by the IRS in May 2019. 

The Amount At Issue As Of The Beginning Of June
Had Increased To $20.9 Million As Result Of
Accrued Interest, According To The Current Filing.

The government sued the estate in May 2021, contending that Gaynor moved her assets from one Swiss bank to another in order to avoid her tax reporting obligations. She also didn't tell her accountant about the bank accounts and attempted to quietly disclose the accounts later without alerting the IRS to her noncompliance, the government said.

The estate filed a counterclaim in July 2021, arguing that the FBAR penalties assessed against Gaynor for 2009, 2010 and 2011 should have been abated upon her death in April 2021 under federal common law. Furthermore, the initial $18.4 million penalty and interest constitutes an excessive fine under the Eighth Amendment, according to the estate's filing.

Moreover, the estate is entitled to a $3,000 refund for amounts it paid against the FBAR liabilities because Gaynor never owed the penalties, the estate argued.

Now U.S. government counsel got the green light from a Florida federal court Monday to negotiate and recommend a settlement in a case seeking more than $20.9 million in foreign bank account penalties and interest from a Texaco heiress' estate.

Bottom line is fix your pre-undeclared foreign income matters while you're still alive, so your heirs won't be stuck with this problem!

The IRS provides many alternative avenues to address your previously undisclosed foreign income. Don't wait until it's too late!

 Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for a FREE Tax Consultation 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 DoJ, a Michigan real estate consultant and accountant was sentenced On July 21, 2022 to 18 months in prison for filing false tax returns with the IRS that omitted more than $800,000 in income, most of which he earned from a kickback scheme.

According to court documents and statements made in court, Steven A. Mills, currently of Harbor Springs and formerly of East Lansing, operated Mills Real Estate Consulting LLC. Through his consulting business, Mills was retained by a corporation to supervise several outside real estate agents hired by the corporation and paid substantial commissions. 

From 2012 to 2015, Mills demanded and received approximately $577,000 in kickbacks from one of these agents, which he did not report as income on his tax returns. 

Mills also did not report all of the income he received from the corporation, nor did he report $100,000 in compensation he received from a real estate developer for the years 2013 to 2015.

In addition to the term of imprisonment, U.S. District Judge Paul L. Maloney ordered Mills to serve one year of supervised release and to pay $297,858 in restitution to the United States.

Read more at: Tax Times blog

According to Law360, an infectious diseases doctor must pay penalties for tax fraud based on clear evidence that she and her husband lied about their income and expenses, among other things, the Ninth Circuit ruled Thursday, July 21, 2022 in Mojdeh Najle-Rahim v. Commissioner of Internal Revenue, case number 20-72031, in the U.S. Court of Appeals for the Ninth Circuit. 

Mojdeh Najle-Rahim and her husband understated their income, overstated their expenses, hid information from their tax preparer and failed to keep records and cooperate with the Internal Revenue Service, a three-judge panel ruled, upholding a 2019 U.S. Tax Court decision.

Najle-Rahim had argued that testimony from her tax preparer before the Tax Court had been misleading, but the panel found the tax preparer's testimony was credible. It was Najle-Rahim and her husband who lacked credibility when they tried to blame their tax preparer for the fraud, the panel said.

The couple were "educated and sophisticated professionals who had demonstrated their ability to pay careful attention to detail," the panel said.

Have an IRS Tax Problem?

     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