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A Texas federal court has ruled that the U.S. government may foreclose on the home of a physician and his wife in El Paso to help satisfy over $2 million in unpaid federal income taxes. The case, United States of America v. Aranda et al., case number 3:24-cv-00394 in the U.S. District Court for the Western District of Texas, highlights aggressive enforcement where taxpayers fail to file or pay for extended periods.

Dr. Manuel Aranda Jr., a physician, and his wife, Melissa Marie Aranda, a realtor, accrued tax debts totaling approximately $2.1 million, including interest and penalties. The IRS asserted that the couple failed to file federal income tax returns or pay any federal income tax from at least 2013 through 2022. A federal tax lien was placed on their principal residence in El Paso in 2019, setting the stage for further collection action.

U.S. District Judge Kathleen Cardone granted a default judgment after the Arandas failed to respond to the government’s lawsuit. This judgment allows the government to proceed with foreclosure and sale of the property, with the proceeds to be applied to the outstanding tax liability. The court also awarded the government prejudgment interest at 7% from January and post-judgment interest until the tax debt is paid in full.

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Read more at: Tax Times blog

According to Law360, A Florida magistrate judge recommended an order for the arrest of a dual U.S.-German citizen who has failed to pay about $19.6 million in penalties for undisclosed Swiss bank accounts, holding that imposing additional fines would be "an empty gesture."

U.S. Magistrate Judge Bruce E. Reinhart recommended on September 4, 2025 that the district court issue a bench warrant against Isac Schwarzbaum, who failed to appear in court for an Aug. 28 hearing to determine civil contempt sanctions. The court in December 2023 found Schwarzbaum in contempt for failing to repatriate his assets to pay penalties for unreported offshore accounts.

In recommending a bench warrant for the arrest of Schwarzbaum if he attempts to enter the U.S., Judge Reinhart noted that the U.S. government has conceded that additional fines would be "futile" in securing compliance.

"Mr. Schwarzbaum has failed to repatriate his assets and failed to satisfy an already large money judgment," Judge Reinhart said. "So, imposing escalating fines would be an empty gesture."

In a separate filing, Judge Reinhart said Schwarzbaum's failure to appear in court could also be the basis for criminal contempt. Accordingly, he recommended that the district court refer the case to Florida prosecutors.

U.S. District Judge Beth Bloom in March 2020 concluded that Schwarzbaum showed reckless conduct that amounted to a willful failure to file foreign bank and financial account forms for 2007 through 2009. She issued a final judgment in November 2022 that calculated penalties, interest and late fees, which stood at about $12.5 million in total at the time.

In pushing for a repatriation order, the government said in January 2023 that Schwarzbaum sold his Florida home less than three months after Judge Bloom issued her March 2020 findings. 

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At the center of the issue is Puerto Rico’s Act 60 program, which exempts bona fide residents from paying federal taxes on Puerto Rico-sourced income, including passive gains such as capital gains. The program, originally passed in 2012, has been widely embraced by high-net-worth individuals seeking to shield crypto and investment profits from the IRS.

Wyden’s letter to Morehead focuses on a billion-dollar Pantera Capital sale that reportedly generated hundreds of millions of dollars in taxable gain. The senator questioned whether the entire transaction was wrongfully classified as Puerto Rico-source income exempt from U.S. tax, even though Morehead may have continued living in San Francisco.

“These are serious allegations of potential abuse of Puerto Rico tax incentives to avoid the payment of U.S. taxes that you must immediately address,” Wyden wrote.

Complicating matters further, Morehead allegedly sought advice from Miami-based tax lawyer Jeffrey Rubinger, whose name surfaced earlier this year in the case of Suresh Gajwani. Gajwani attempted to sidestep $30 million in U.S. capital gains tax through a last-minute Puerto Rico residency claim, only to plead guilty to filing a false return in June.

Wyden is demanding that Morehead disclose details on:

·         All assets sold while claiming Puerto Rico residency

·         The amount of income he reported as Puerto Rico-sourced and exempt

·         The advisers who assisted with his Puerto Rico tax exemption application

·         Whether Rubinger provided a legal opinion regarding the billion-dollar Pantera transaction

So far, Morehead has not cooperated fully with the committee’s requests, heightening suspicions that Puerto Rico’s lucrative tax breaks are being used as a vehicle for large-scale U.S. tax avoidance.

This latest probe highlights both the political and enforcement risks tied to Puerto Rico’s Act 60 program. While enticing for investors, high-profile cases like these suggest heightened IRS and congressional scrutiny and raise new questions about whether the program will survive in its current form.

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or Toll Free at 888 8TAXAID (888-882-9243)

Read more at: Tax Times blog

In a major win for multinational businesses, the Eighth Circuit Court of Appeals has overturned the IRS’s $24 million transfer pricing adjustment against 3M, ruling that the IRS cannot force U.S. companies to recognize and pay tax on royalty income they were legally prevented from receiving under foreign law.

What Happened in the 3M Case?

The dispute centered on income from 3M’s Brazilian subsidiary, which was subject to strict local limits on royalty payments to foreign parent companies. The IRS tried to use Section 482 to increase 3M’s U.S. taxable income by the amount it felt 3M should have received, despite the fact that Brazilian law prevented the subsidiary from making those payments.

8th Circuit’s Take: Reality Over Theory

The Appeals Court rejected both the IRS’s regulatory approach and the earlier U.S. Tax Court’s decision, emphasizing that U.S. tax law is grounded in economic reality. The court found that attributing income to 3M that it could not legally receive runs counter to Section 482’s requirement that income allocations “clearly reflect income.” The fact that Brazilian restrictions, not 3M’s own actions, stopped those payments was a decisive factor.

Key Legal Reasoning

·         The Court referenced the Supreme Court’s First Security Bank precedent, confirming that income blocked by law, whether foreign or domestic, cannot be forced into a taxpayer’s gross income if the taxpayer never had actual or practical control over it.

·         The “commensurate with income” standard for intangibles (the second sentence of § 482) did not convert uncollectible or legally blocked royalty payments into taxable U.S. income.

·         Attempts by the IRS to claim that dividends or other creative workarounds could substitute for true royalties were also dismissed by the Eighth Circuit, which refused to reward hypothetical transactions over actual, legal ones.

Why This Matters for Multinationals and Practitioners

This ruling dramatically curtails IRS authority to make transfer pricing adjustments based on so-called “blocked income.” Multinational companies with foreign subsidiaries in countries that restrict payment of royalties or service fees are directly affected. U.S. tax professionals should view this as strong new precedent limiting the government’s reach over cross-border income shifting when payments are genuinely prevented by foreign law.

The Bottom Line

The Eighth Circuit’s decision is poised to change the landscape for transfer pricing litigation and royalty payment disputes. With the IRS’s “blocked income” rule now struck down, for now, multinationals can breathe easier where foreign law truly stands in the way of payments, while the IRS may be forced to rethink its approach to enforcing transfer pricing in the global economy.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://kpmg.com/us/en/taxnewsflash/news/2025/10/eighth-circuit-reallocation-blocked-royalty-income-not-allowed.html    

2.      https://www.currentfederaltaxdevelopments.com/blog/2025/10/1/eighth-circuit-reverses-tax-court-in-3m-restricting-482-allocations-of-blocked-foreign-income      

3.      https://news.bloombergtax.com/daily-tax-report/faulting-irs-appeals-court-remands-3m-transfer-pricing-dispute  

4.      https://www.uschamber.com/cases/tax/3mco.v.irs

5.       https://www.grantthornton.com/insights/alerts/tax/2023/flash/tax-court-transfer-pricing-case-has-big-implications

6.      https://ecf.ca8.uscourts.gov/opndir/25/10/233772P.pdf

7.       https://www.taxriskmanagement.com/3m-transfer-pricing-case-us-tax-court/

8.      https://mcguiresponsel.com/blog/3m-transfer-pricing-court-case/

9.      https://www.law360.com/articles/2394830/8th-circ-reverses-irs-win-in-3m-transfer-pricing-case

10.   https://www.caplindrysdale.com/news-bloomberg-quotes-leila-carney-on-3ms-appeal-to-the-eighth-circuit

11.    https://www.ntu.org/foundation/detail/eighth-circuit-hears-oral-arguments-for-high-stakes-3m-case

12.   https://www.law360.com/tax-authority/cases/658eed5bcf607a0068f31dd2

13.   https://www.law360.com/articles/2394830/breaking-8th-circ-reverses-irs-win-in-3m-transfer-pricing-case

14.   https://law.justia.com/cases/federal/appellate-courts/ca8/23-3772/23-3772-2025-10-01.html

15. https://kaufmanrossin.com/news/three-international-tax-cases-practitioners-must-watch-in-2025/

    16. https://law.justia.com/cases/federal/appellate-courts/ca8/2025/

Read more at: Tax Times blog