Yearly Archives: 2022

The Justice Department announced on February 17, 2022 the selection and appointment of Eun Young Choi to serve as the first Director of the National Cryptocurrency Enforcement Team (NCET).

Ms. Choi is a seasoned prosecutor with nearly a decade of experience within the department, and most recently served as Senior Counsel to the Deputy Attorney General. She will assume her duties full-time effective today.

“With the rapid innovation of digital assets and distributed ledger technologies, we have seen a rise in their illicit use by criminals who exploit them to fuel cyberattacks and ransomware and extortion schemes; traffic in narcotics, hacking tools and illicit contraband online; commit thefts and scams; and launder the proceeds of their crimes,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division. 

Eun Young is an accomplished leader on cyber and cryptocurrency issues, and I am pleased that she will continue her service as the NCET’s inaugural Director, spearheading the department’s efforts in this area.” 

The NCET was established to ensure the department meets the challenge posed by the criminal misuse of cryptocurrencies and digital assets, and comprises attorneys from across the department, including prosecutors with backgrounds in cryptocurrency, cybercrime, money laundering and forfeiture. 

The NCET will identify, investigate, support and pursue the department’s cases involving the criminal use of digital assets, with a particular focus on virtual currency exchanges, mixing and tumbling services, infrastructure providers, and other entities that are enabling the misuse of cryptocurrency and related technologies to commit or facilitate criminal activity. 

The NCET will set strategic priorities regarding digital asset technologies, identify areas for increased investigative and prosecutorial focus, and lead the department’s efforts to coordinate with domestic and international law enforcement partners, regulatory agencies and private industry to combat the criminal use of digital assets. 

Finally, the NCET will enhance the Criminal Division’s existing efforts to provide support and training to federal, state, local, and international law enforcement to build capacity to aggressively investigate and prosecute serious crimes involving cryptocurrency and digital assets in the United States and around the world.

The NCET’s work will be furthered through close collaboration with components across the department, including the Criminal Division’s Computer Crime and Intellectual Property Section and Money Laundering and Asset Recovery Section; the U.S. Attorneys’ offices; the National Security Division; and the FBI, including the FBI’s new Virtual Asset Exploitation Unit, a specialized team of cryptocurrency experts dedicated to providing analysis, support, and training across the FBI, as well as innovating its cryptocurrency tools to stay ahead of future threats. 

“The department has been at the forefront of investigating and prosecuting crimes involving digital currencies since their inception,” said Director Choi. “The NCET will play a pivotal role in ensuring that as the technology surrounding digital assets grows and evolves, the department in turn accelerates and expands its efforts to combat their illicit abuse by criminals of all kinds. I am excited to lead the NCET’s incredible and talented team of attorneys, and to get to work on this important priority for the department. I would like to thank Assistant Attorney General Polite and the Criminal Division’s leadership for this opportunity.”   

Prior to her service as Senior Counsel to Deputy Attorney General Lisa O. Monaco, Director Choi began her career at the department as an Assistant U.S. Attorney for the Southern District of New York, where she served as the office’s Cybercrime Coordinator and investigated and prosecuted cyber, complex fraud and money laundering crimes, with a particular focus on network intrusions, digital currency, the dark web and national security investigations. 

She served as lead prosecutor in a variety of cases, including the investigation of a transnational organization responsible for the hacking of J.P. Morgan Chase and a dozen other financial companies; the operation of Coin.mx, an unlicensed virtual currency exchange; and the only U.S. prosecution brought in connection with the “Panama Papers.” 

In addition, she successfully argued the appeal before the Second Circuit in the case against Ross Ulbricht, the founder and chief administrator of the Silk Road, the first darknet marketplace. 

Earlier in her career, she served as a law clerk to the Honorable Naomi Reice Buchwald of the U.S. District Court for the Southern District of New York, and the Honorable Reena Raggi of the U.S. Court of Appeals for the Second Circuit. She is a graduate of Harvard College and Harvard Law School. 

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On November 9, 2022 we originally posted West Palm Beach Man Must Repatriate $18.2M To Satisfy FBAR Penalty Assessment, where we discuss that a federal magistrate judge correctly decided that Isac Schwarzbaum must repatriate funds in his overseas accounts to satisfy the judgment for his failure to timely file his reports of foreign bank and financial accounts with the IRS, U.S. District Judge Beth Bloom said in an order Monday. Now on appeal, the Eleventh Circuit has conclude that the district court should have remanded the matter back to the IRS to determine the appropriate penalty amount.

Taxpayers who fail to disclose overseas accounts with more than $10,000 face penalties under the Bank Secrecy Act. For willful violations the IRS can impose a penalty of up to the greater of $100,000 or 50% of the balance in each undisclosed account at the time of the violation.

The case of United States v Schwarzbaum, involves a wealthy German-born naturalized U.S. citizen who starting in the early 2000’s had multiple bank accounts in Costa Rica and Switzerland. Schwarzbaum self-filed an FBAR in 2007 and listed only one account. He did not file any FBAR in 2008, and in 2009 he filed an FBAR that only listed three accounts. IRS assessed over $12 million in penalties, and brought suit to collect.

On appeal, Schwarzbaum argued, among other things, that the IRS’s actions in calculating the penalties were “not in accordance with the law” under 5 U.S.C. § 706(2)(A). In typical tax penalty cases, courts can take a fresh look at both the propriety of imposing the penalty and the amount of the penalty, assuming that they conclude that the penalty is warranted in the first instance. Title 31 FBAR penalties differ. The APA shines a light on agency conduct, and reviewing courts are generally empowered to examine whether the agency acted rationally and provided a reasoned contemporaneous explanation based on the record at the time of the original agency action.

Here the IRS assessed over $12 million in willful FBAR penalties on Schwarzbaum based upon the Internal Revenue Manual “formula that determines the maximum willful penalty that it will assess at 50% of the highest amount in the accounts in all willful years. The IRM then allocates that penalty in equal portions over the willful years.”

The problem with that IRM is that the statute itself sets the maximum penalty to each account’s balance as of the date that the taxpayer failed to file the FBAR, (formally June 30 and now April 15) a date that IRM formula neglects and one that the IRS did not use in calculating Schwarzbaum’s penalty.

The Eleventh Circuit held that the IRS errored in its calculations of Schwarzbaum’s FBAR penalties as it started with the wrong numbers. The statutory maximum penalty for a willful FBAR violation is the greater of $100,000 or 50% of the account’s June 30 balance. See 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii); 31 C.F.R. § 1010.306(c).

The IRS’s Errored In It Calculations Of Schwarzbaum’s FBAR Penalty By Using 50% Of The Highest Amount In The Accounts During The Year. 

This led the Eleventh Circuit to conclude that the district court should have remanded the matter back to the IRS to determine the appropriate penalty amount. In vacating the district court’s judgment, the Eleventh Circuit instructed the district court to remand the matter back to the IRS to recalculate the penalties.

This is consistent with our post on May 20, 2020, IRS Loses 2 FBAR Penalty Calculation Cases, where we discussed that n Margaret J. Jones v. U.S and in U.S. v. Isac Schwarzbaum the courts both held that the penalty assessed by the government did not conform to statutory requirements because they did not use 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.

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Read more at: Tax Times blog

WASHINGTON -  The IRS today provided further details on additional transition relief for certain domestic partnerships and S corporations preparing the new schedules K-2 and K-3 to further ease the change to these new schedules. Those eligible for the relief will not have to file the new schedules for tax year 2021.

The new schedules K-2 and K-3 improve reporting by standardizing international tax information to partners and flow-through investors, making it easier for them to report these items on their tax returns. In addition, the changes ease flow-through return preparation compliance by clarifying obligations and standardizing the format for reporting. 

Notice 2021-39 provides penalty relief for good-faith efforts to adopt the new schedules. Today’s transition relief, appearing in new frequently asked questions (FAQs) on Schedules K-2 and K-3, allows an additional exception for tax year 2021 filing requirements by certain domestic partnerships and S corporations.

The IRS is providing an additional exception for tax year 2021 to filing the Schedules K-2 and K-3 for certain domestic partnerships and S corporations. To qualify for this exception, the following must be met:

• In tax year 2021, the direct partners in the domestic partnership are not foreign partnerships, foreign corporations, foreign individuals, foreign estates or foreign trusts. 
• In tax year 2021, the domestic partnership or S corporation has no foreign activity, including foreign taxes paid or accrued or ownership of assets that generate, have generated or may reasonably expected to generate foreign source income (see section 1.861-9(g)(3)).
• In tax year 2020, the domestic partnership or S corporation did not provide to its partners or shareholders nor did the partners or shareholders request the information regarding (on the form or attachments thereto):
• Line 16, Form 1065, Schedules K and K-1 (line 14 for Form 1120-S), and
• Line 20c, Form 1065, Schedules K and K-1 (Controlled Foreign Corporations, Passive Foreign Investment Companies, 1120-F, section 250, section 864(c)(8), section 721(c) partnerships, and section 7874) (line 17d for Form 1120-S).
• The domestic partnership or S corporation has no knowledge that the partners or shareholders are requesting such information for tax year 2021.

However, if the partnership or S corporation is subsequently notified by a partner or shareholder that all or part of the information contained on Schedule K-3 is needed to complete their tax return, then the partnership or S corporation must provide the information to the partner or shareholder. 

If a partner or shareholder notifies the partnership or S corporation before the partnership or S corporation files its return, the conditions for the exception are not met and the partnership or S corporation must provide the Schedule K-3 to the partner or shareholder and file the Schedules K-2 and K-3 with the IRS.

The IRS welcomes additional comments on Schedules K-2 and K-3. This feedback and inquiries can be sent to [email protected]

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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. On Feburary 4, 2022 we posted And Yet Another Criminal Prosecution for Failure to Pay Payroll Taxes, where we that 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.

Now According To The DoJ, A California Man Was Sentenced

 Today To 18 Months In Prison For Employment Tax Crimes.

According to court documents and statements made in court, Michael Todd Lucas controlled TradeMotion Inc. (TradeMotion), a company that sold software to automotive dealerships. 

Lucas controlled TradeMotion’s business and financial affairs, and therefore had a legal duty to withhold employment taxes on behalf of the company’s employees and pay those funds to the IRS. 

From the fourth quarter of 2011 through the third quarter of 2015, Lucas collected more than $2.1 million in withholdings from TradeMotion employees and issued them W-2 forms. 

However, he paid only $760,017 of these funds to the IRS. Lucas also did not pay to the IRS employment taxes withheld on behalf of the employees of other companies he controlled, causing an additional tax loss of more than $3.5 million.

In addition to the term of imprisonment, U.S. District Judge Anthony J. Battalia ordered Lucas to serve three years of supervised release and to pay approximately $4.9 million in restitution.

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

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for a FREE Tax HELP Contact Us at:

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