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Monthly Archives: June 2023

Jury Finds That Oregon Taxpayers Failure To File FBAR Wasn’t Willful!


According to Law360, prosecutors didn't meet their burden to prove that an Oregon couple willfully failed to disclose their Iranian bank accounts for 2011 to the IRS, a jury found, handing the couple a win after a federal court previously concluded that they intentionally neglected to report other accounts.

A Jury Found That Federal Prosecutors Didn't Convincingly Prove That Ali Mahyari And Roza Malekzadeh Intentionally Failed To Disclose Their Iranian Bank Accounts For 2011
 To The Internal Revenue Service.

The Oregon federal court in 
U.S. v. Ali Mahyari et al., case number 3:20-cv-01887, in the U.S. District Court for the District of Oregon, had sent the issue to a jury after concluding that the couple had willfully failed to report accounts they had in Canada, as well as Iranian accounts for years other than 2011.

Mahyari and Malekzadeh became U.S. citizens in 2006 after moving from Iran, the court said in an order in January. They had been trying to transfer to the U.S. money they had made from the sale of a property in Iran when that country was hit with sanctions, which complicated their transfer efforts and meant they were leaving money back in Iran. 

The IRS eventually began investigating whether the couple properly filed Reports of Foreign Bank and Financial Accounts for 2011, 2012 and 2013, the order said. In that order, the Oregon federal court concluded the couple intentionally failed to comply with their FBAR requirements for all three years for their accounts in Canada with the Canadian Imperial Bank of Commerce.

Evidence indicates that the couple used the Canadian accounts to surreptitiously send money from Iran to the U.S., the court said in granting the U.S. summary judgment on the issue. They failed to discuss those accounts with the tax professional who prepared their returns, the order said, and they repeatedly told an IRS agent that they had already reported all their foreign accounts.

Mahyari And Malekzadeh Also Recklessly Failed To Comply With Their Reporting Requirements For Their Accounts In Iran With Eghtesad Novin Bank For 2012 And 2013, The Court Said.


That they didn't ask their attorney or the person filing their returns about their foreign bank account reporting requirements suggests that they "made a conscious effort to avoid learning about their reporting requirements," the court said.

But The Court Declined To Come To The Same Conclusion For Their Iranian Accounts For 2011, Sending The Issue To The Jury.

It's not clear that their failure to file an FBAR for that year was intentional, given that a jury could find that the couple had initially been somewhat honest with their tax professional about their holdings in Iran, the order said.

Have Undeclared Income from an Offshore Bank Account?
 
 
Been Assessed a 50% Willful FBAR Penalty?

 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243
 

Read more at: Tax Times blog

Have You Been Assessed or Paid a Non-Assessable Information Penalty? – You Need to Contest After Farhy!

On April 25, 2023, we posted Is It Time To Request Refunds For Form 5471, 5472, 8938, and 3520 Late Filing Penalties? where we discussed that the U.S. Tax Court issued its opinion in Fahy v. Commissioner, 160 T.C. No. 6 (2023) where he held that the IRS was without the authority to assess the Form 5471 imposed by Internal Revenue Code Section 6038(b). The Farhy case involved the penalties for failure to timely file Forms 5471 (“Information Return of U.S. Persons With Respect to Certain Foreign Corporations”). 

Judge Marvel Disagreed And Prevented The IRS From Proceeding With The Collection Of The Penalties By Levy Because They Were Not “Assessable Penalties” Under The Code.

While this taxpayer victory may appear to be a panacea for anyone who has ever paid a penalty for the late filing (or failure to file) of a Form 5471, it may represent a real opportunity for taxpayers whose claims for a “reasonable cause” exception to the penalty for failing to timely file international information returns were summarily rejected by the IRS. 

Although the opinion doesn’t explicitly address penalties for Forms 5472 or 8938, those penalties are both imposed under the authority of Internal Revenue Code Section 6038(b). Therefore, the IRS will have similar problems with assessing penalties for those forms. 

The implications of the Farhy case are uncertain but could be far-reaching, it is potentially applicable to numerous other penalties for failure to file international information returns that the IRS has systematically assessed following the same procedures it followed in Farhy

If you have a Late Information Filing Penalty, under any of the following Non-Assessable IRC Sections:


You need to consider contesting and/or requesting a refund.

Want To Request Refunds For Form 5471, 5472,
8938, & 3520 Late Filing Penalties?

     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

SC To Review Constitutionality Of IRC 965 Repatriation Tax

On June 9, 2020 to the we posted The 2017 TCJA's Repatriation Tax is Constitutional in the 9th Circ., where we discussed that the Ninth Circuit tossed a constitutional challenge to the 2017 federal tax overhaul's corporate repatriation tax, affirming a lower court's decision that the one-time levy passes muster under a clause limiting the federal government's authority to tax.

Now according to Law360, the U.S. Supreme Court said on June 26, 2023, that it would review a Ninth Circuit ruling rejecting a couple's challenge to the constitutionality of the repatriation tax that was passed in the Republicans' 2017 tax law.

The Justices Granted The Petition By Charles And Kathleen Moore, Who Challenged The Tax Cuts And Jobs Act's Repatriation Tax Under Internal Revenue Code Section 965,
A One-Time Mandatory Transition Tax On
Deferred Earnings Held Abroad.


The couple asked the court to review their case in February, arguing the Ninth Circuit wrongly concluded that reinvested profits from an Indian business in which they were shareholders could be taxed as income under the 16th Amendment without running afoul of a clause limiting the federal government's authority to tax.

The Moores argued the tax was unconstitutional because it was applied to earnings they never received. They said it is a direct tax that violates the U.S. Constitution's apportionment clause, which requires that such taxes be apportioned among the states in proportion to their population. The 16th Amendment, though, carves ot an exception for income taxes.

The couple first filed a complaint in 2019 in a Washington federal court, saying they paid about $15,000 in taxes under Section 965 based on their small stake in a controlled foreign corporation, KisanKraft Ltd., that provides equipment to small-scale farmers in India.
In seeking a refund, the Moores said the tax bill was based on earnings retained and invested by KisanKraft, earnings they never received and the levy is a direct tax that violates the constitution's apportionment clause.

The Washington court tossed the suit, and the Ninth Circuit upheld the decision in June 2022, agreeing with the lower court that the one-time repatriation tax served a legitimate purpose.

The repatriation tax also shares features with other levies that apply taxes without clear realization events, according to the government. For example, the government said, U.S. citizens who relinquish citizenship are taxed on the value of their assets as if they had sold them the day before expatriation, regardless of whether they had sold those assets or not.

Chye-Ching Huang, executive director of the Tax Law Center at New York University School of Law, said the case could encourage suits challenging other areas of settled tax law if the justices were to decide the case in favor of the couple.

"If the Supreme Court rules for the plaintiffs, that would invite litigation unsettling swaths of the tax code that have been enacted by both parties over many decades based on their shared, correct understanding of the constitution," Huang said in a statement.

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

SC Declined Review of Arthur Bedrosian’s $1.4M FBAR Penalty

According to Law360, a former pharmaceutical executive lost his last chance to reduce a $1.4 million penalty for failing to report a foreign bank account when the U.S. Supreme Court declined on Tuesday to hear the case.

The court will not consider Arthur Bedrosian's argument that the U.S. should have used a subjective standard to determine whether he acted recklessly in failing to report an account he held at UBS in Switzerland on his 2007 tax forms. Bedrosian had almost $1.9 million in the account, which he had operated since the 1970s, according to court documents.

Bedrosian, former chief executive officer of pharmaceutical company Lannetthad appealed a 2022 Third Circuit ruling affirming a $1 million penalty that had grown to $1.4 million including interest and late fees. He argued that the appellate court erred by using an objective standard and not a subjective standard to determine whether he willfully avoided reporting his account. An objective standard saying that he should have known he needed to report his account is too broad, he argued, and can be interpreted to include almost every instance of nonreporting.

A district court initially struck down the penalty when it first considered the case, finding that while Bedrosian had negligently failed to report his Swiss bank account, he had not acted willfully.

The Third Circuit remanded the case in 2018, determining that it was unclear whether the court had used the correct legal standard to determine Bedrosian's willfulness. In reviewing the case a second time, the district court decided that Bedrosian's conduct was egregious enough to rise to the level of a deliberate act.

Bedrosian appealed again, and a Third Circuit panel agreed with his earlier argument that the government failed to set a foundation for evidence that it used to determine his account balance and penalty. However, an admission by Bedrosian's attorney during opening statements that his client had about $2 million in his account, the panel said, was sufficient to set the penalty amount, which is equal to 50% of the account balance. In September, the panel declined to rehear the case.

Ian Comisky of Fox Rothschild LLP, who represents Bedrosian, said he was disappointed in the Supreme Court's decision not to review the case. The Supreme Court held in June that the standard for scienter, or knowledge of wrongdoing, in False Claims Act cases is subjective, not objective, Comisky noted. He said he had hoped the court would extend that reasoning in a different context to Bedrosian and "clarify an important area of the law with respect to the imposition of penalties."

Have Undeclared Income from an Offshore Bank Account?
 
 
Been Assessed a 50% Willful FBAR Penalty?

 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243
 


Read more at: Tax Times blog

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