Monthly Archives: November 2024

The United States Tax Court issued its opinion in Raju J. Mukhi v. Commissioner, 162 T.C. No. 8, where the court affirmed its ruling that the Internal Revenue Service lacked authority to assess $120,000 in penalties against Raju J. Mukhi under Internal Revenue Code Section 6038(b) for failing to file information returns disclosing his ownership of a foreign corporation from 2002 through 2013.

Raju J. Mukhi created three foreign entities between 2001 and 2005, through which he opened several foreign brokerage accounts. From 2005 to 2008, Mukhi transferred and withdrew millions of dollars through these entities.

Raju Mukhi pled guilty in 2014 to subscribing to false U.S. individual income tax returns and failing to file a foreign bank and financial accounts report (FBAR). Mukhi had created three foreign entities between 2001 and 2005, two trusts and a corporation. He failed, however, to timely file: 

• Forms 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, for tax years 2005-2008; 

• Forms 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, for tax years 2005-2010; and 

• Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, for tax years 2002-2013.

The IRS assessed a total of over $11 million in foreign reporting penalties, including over $10.9 million under Code Sec. 6677 for failure to file Forms 3520 and 3520-A, and $120,000 under Code Sec. 6038(b) for failure to timely file Forms 5471. 

The Tax Court upheld the agency's authority to assess nearly $11 million in penalties against Mukhi for failing to report foreign trusts (Form 3520), it wouldn't allow the IRS to penalize him for failing to submit an information form revealing his ownership of Sukhmani Partners II Ltd., one of three foreign corporations Mukhi had created (Form 5471).

IRS Lacks Authority to Assess Section 6038(b) Penalties: The court reaffirmed its previous decision in Farhy v. Commissioner, holding that the IRS does not have the authority to assess penalties under Section 6038(b) of the Internal Revenue Code. The Tax Court made this decision in light of the fact that the U.S. Circuit Court of Appeals for the District of Columbia reversed the Tax Court's decision in Farhy. 

The circuit court held that the IRS does, in fact, have statutory authority to assess penalties for failure to report control of foreign businesses under Code Sec. 6038(b). According to the D.C. Circuit, the "text, structure, and function" of Code Sec. 6038 show that Congress intended for the penalty to be assessable. After the D.C. Circuit's decision in Farhy, the IRS filed a motion for reconsideration in Mukhi.

In its second look at the IRS' authority to assess Code Sec. 6038(b) penalties in Mukhi, the Tax Court noted that the parties had stipulated the case is appealable to the 8th U.S. Circuit Court of Appeals. Therefore, said the Tax Court, the D.C. Circuit's decision in Farhy is not bi

Despite the ruling on Section 6038(b) penalties, the court upheld the majority of the challenged penalties, which totaled approximately $11 million.

The court addressed various aspects of the collection due process, including the IRS's consideration of Mukhi's offers in compromise and the determination of his reasonable collection potential.

IRS Motion for Reconsideration: On June 7, 2024, the IRS filed a motion for reconsideration, asking the Tax Court to reconsider its holding regarding the Section 6038(b) penalties. The IRS cited the D.C. Circuit's May 3, 2024 decision in Farhy v. Commissioner, which reversed the Tax Court's earlier ruling on this issue.

The Mukhi case is appealable to the Eighth Circuit, while the Farhy case was decided by the D.C. Circuit. This creates potential for a circuit split on the issue of IRS authority to assess Section 6038(b) penalties.

Potential Supreme Court Review: If different circuit courts reach conflicting decisions on this issue, it may eventually lead to a review by the U.S. Supreme Court.

This case has significant implications for taxpayers with foreign reporting requirements and the IRS's ability to assess certain penalties. It highlights the ongoing legal debate surrounding the IRS's authority to assess penalties under Section 6038(b) and the potential for further litigation and appeals in this area.

     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

According to DoJ, The U.S. District Court for the Northern District of Texas entered permanent injunctions on November 1, 2024 against Charles Dombek and The Optimal Financial Group LLC barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies. 

The injunctions also prohibit Dombek from preparing any federal tax returns for anyone other than himself and Optimal from preparing certain federal tax returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.

According to the government’s complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a tax scheme throughout the United States to illegally reduce customers’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or claim personal expenses as bogus business deductions. 

As alleged by the government, Dombek promoted himself as the “premier dental CPA” in America. The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed tax returns for their customers reflecting the sham transactions, expenses and deductions. The government contended that the total harm to the treasury from the scheme could have been $10 million or more.

Each year the IRS highlights some of the tax scams that put taxpayers at risk of losing money, personal information, data and more. In the IRS’s most recent list it specifically warned taxpayers “to beware of promoters peddling bogus tax schemes aimed at reducing taxes or avoiding them altogether.”

Working with the IRS, the Justice Department’s Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers and tax scheme promoters over the past decade. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.

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

Those who thought their cryptocurrency transactions would remain anonymous or a secret from the Internal Revenue Service should think again according to Law360.

Nearly 50 years ago, the U.S. Supreme Court held that information customers voluntarily provide to banks is not subject to Fourth Amendment privacy protections, and therefore can be disclosed to law enforcement. In September of 2024 him, in James Harper v. Daniel Werfel, the U.S. Court of Appeals for the First Circuit expanded this principle to cryptocurrency exchanges.

This ruling, as well as those of various district courts, confirms the ability of the IRS to identify taxpayers engaged in financial transactions involving cryptocurrency exchanges. Much as for taxpayers decades ago who believed their use of Swiss bank accounts would allow them to conceal their income, this ruling is another wake-up call for any who may still have similar thoughts about using digital asset currency exchanges.

The issuance of John Doe summonses remains one of the strongest tools in the IRS' enforcement arsenal. These summonses allow the IRS to obtain information on large numbers of taxpayers in one fell swoop. 

The First Circuit's decision in Harper upheld the IRS' right to issue John Doe summonses to cryptocurrency exchanges, finding that cryptocurrency users do not have a Fourth Amendment reasonable expectation of privacy in their records held by exchanges.

While the use of John Doe summonses isn't new, this is the first time a court of appeals has expressly approved their use. For years, federal prosecutors have been champing at the bit by ramping up investigations of and enforcement against taxpayers who use digital assets to evade tax liabilities.

Harper should serve as a signal to taxpayers and cryptocurrency exchanges alike that the IRS-CI will not be letting up anytime soon.

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