Whistleblower Case Hinges on IRS Time Frame for Setting Awards | BNA Software
August 13, 2012
Willfulness in trust fund penalty must be determined at trial
August 13, 2012
In a summary judgement, a district court has concluded that a taxpayer who was vice-president, board member, and shareholder of his family-run company was a responsible person for purposes of the Code Sec. 6672 trust fund recovery penalty. However, the district court found that whether the taxpayer, who played a perfunctory role in his company, willfully failed to pay over withholding taxes was an issue of fact to be decided at trial.
Sheila and Robert Nipper, husband and wife, were the founders of Ruah Enterprises, Inc. (Ruah Enterprises), a hospice and home health services company. Sheila was Ruah Enterprises' president, and Robert was its vice-president. Ruah Enterprises was a family affair. Sheila's children and Robert's step-children were Ruah Enterprises' chief financial officer (CFO) and treasurer. Their child was its secretary.
Robert was also on Ruah Enterprises' board of directors, and regularly attended board meetings. He owned 29% of the company (Sheila owned 51%). He advised his wife on employee matters, was a signatory on all Ruah Enterprises checking accounts, and signed at least a few loans, leases, and financing statements on Ruah Enterprises' behalf. He also had a lien placed on his personal property by a Ruah Enterprises' creditor. From 2000 to 2002, he received an average salary of $42,000 from Ruah Enterprises. In '99, he had been self-employed as a landscaper, but after '99, his role at Ruah Enterprises was his only employment.
From its inception in '99 to 2003, Ruah Enterprises withheld its employees' income taxes and the employees' portion of FICA and Medicare taxes from its employees' paychecks. However, none of these withheld funds were ever remitted to the government.
Robert argued that he was vice-president in name only, and had no actual role in the running of the business. He argued that he was a signatory on checking accounts simply as a matter of form, but that in reality he did not sign checks or any other documents without Sheila's authorization. The few documents Robert did sign were only at Sheila's request when she was unavailable. He maintained that he wasn't informed of Ruah Enterprises' failure to pay taxes until the end of 2002 or beginning of 2003.
IRS argued that Robert was a responsible person because he: (1) was a board member and was authorized to manage Ruah Enterprises' business and affairs by its articles of incorporation, and to hire individuals to manage the day to day affairs; (2) regularly attended board meetings; (3) owned 29% of Ruah Enterprises; (4) received approximately $40,000 per year in salary; (5) had authority as a signatory on the company banking accounts to write checks; (6) had authority to sign financing contracts and loans on the company's behalf; (7) took out a personal loan for the use of the company; and (8) provided advice to Sheila on employee matters.
In addition, IRS argued that Robert acted willfully because he proceeded with reckless disregard of an obvious risk that Ruah Enterprises' payroll taxes weren't being paid to the government. As an officer of the company, he disregarded the imprudence of entrusting all financial affairs of a company with many employees to the CFO, a young relative with no college education or other qualifications, without providing any supervision. Further, Robert disregarded the unaccounted-for additional $230,000 per year that was available to the company because of its failure to remit that amount to the government.
The district court concluded that Robert was a responsible person under Code Sec. 6672. The court reasoned that the existence of authority in the general management and fiscal decision making of the corporation, irrespective of whether that authority was actually exercised, was determinative. While Robert argued that he did not exercise his authority, except occasionally and at Sheila's request, he could and should have paid the company's taxes. Robert was in a position where he could have ensured that the taxes were paid. He did not do so.
The district court, denying IRS's request for summary judgment on this issue, found that it had not been shown that Robert willfully failed to pay over the withholding taxes. The court concluded that while Robert's neglect of any responsibility or duties in managing the company was likely negligent, there was a dispute of material fact as to whether it rose to the level of reckless disregard in order to satisfy the second requirement for Code Sec. 6672 liability.
While Robert's lack of involvement didn't prevent him from being a responsible person, it was relevant to whether he acted willfully. IRS didn't provide uncontested facts on how sophisticated a business manager Robert was. The district court knew only that Robert knew nothing about his wife's field of home healthcare, and that he was self-employed as a landscaper in '99. These facts did not provide convincing proof that he was a sophisticated business manager who should have had a clear view of the concerns of a large business and his responsibilities.
While IRS provided evidence that Robert was informed of the failure to pay taxes, he provided contrary evidence that he wasn't so informed until the end of 2002 or beginning of 2003.
In a summary judgment motion, the district court said it had to make all permissible inferences of fact in Robert's favor.
Read more at: Tax Times blog
Tax Fraud Against Preparers Affirmed by the Fifth Circuit
August 8, 2012
The convictions of a couple that committed tax fraud were affirmed by the Fifth Circuit Court of Appeals. The husband and wife were the owners and operators of a firm that prepared personal income tax returns in Texas.
A husband and wife were indicted for offenses arising out of their business
of preparing federal income tax returns. The indictment alleged one count of
conspiring to defraud the United States by obstructing the collection of income
taxes and by assisting in the preparation of false income tax returns, see 18
U.S.C. § 371, and 25 counts of aiding and assisting in the preparation of false
income tax returns. See 26 U.S.C. § 7206(2). Thirteen of the counts charged the A husband and wife were indicted for offenses arising out of their business of preparing federal income tax returns. The indictment alleged one count of conspiring to defraud the United States by obstructing the collection of income taxes and by assisting in the preparation of false income tax returns, see 18 U.S.C. § 371, and 25 counts of aiding and assisting in the preparation of false income tax returns. See 26 U.S.C. § 7206(2). Thirteen of the counts charged the husband, while the remaining twelve charged the wife. A jury convicted themon every count.
The IRS first noticed the Womacks based on the unusual deductions that were claimed on their clients' returns. Several of the Womack's clients testified against the couple, including one man who testified that Mr. Womack offered to provide false mileage logs to substantiate vehicle mileage deductions. Other former clients stated that they had never given the Womacks any information that would support the deductions that the couple claimed, such as charitable or mortgage-interest deductions. These clients are probably lucky they didn't get charged with tax evasion themselves!
The government also used an undercover IRS special agent, who brought in his tax information to the couple. Although he had calculated that he owed $300, the Womacks gave him a choice of three tax refund amounts, ranging from $3,200 to $4,200. Mrs. Womack claimed that, although she had taken a tax preparation course, all of her errors were accidental. Mr. Womack did not offer any theory as to the cause of his inaccuracies.
A jury indicted the couple on 26 counts of conspiracy and aiding and assisting in the preparation of false tax returns. Mr. Womack was ordered to serve five years in prison, plus three years of supervised release. Mrs. Womack got off with three years of prison time, plus three years of supervised release. The court also ordered them to pay over $160,000 in restitution. This is over and above any civil tax preparer penalties that may be assessed against them under Internal Revenue Code (IRC) Section 6694.The Fifth Circuit affirmed their convictions in an unpublished opinion.
Contact our experienced criminal tax attorneys at 800-Tax-Litigator for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud.
Contact our Experienced Criminal Tax Attorneys at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).
Read more at: Tax Times blog
Ecuador Declares “US LLCs” as a Preferential Tax Regime – Tax Haven!
August 8, 2012
Preferential tax regimes are jurisdictions where income is subject to tax at a rate 60% lower than in Ecuador (Ecuador current corporate income tax is 23%).
US LLCs have been declared to be a preferential tax regime if owned by US non resident aliens and if income is not subject to federal income tax either at the entity level or that of its members.
Preferential tax regimes are treated in the same manner as tax haven jurisdictions. As a consequence, dividends distributed to this type of entities will bear a 13% withholding at source and expenses from certain transactions between Ecuador and this regime may be disqualified as deductibles.
Furthermore, thin capitalization rules will apply to loans granted from US LLCs and transfer pricing regulations and compliance may be triggered.
Read more at: Tax Times blog