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Tax Court Petition Was A “Proceeding” That Extended Limitations Period On Assessment

July 24, 2012

In SHOCKLEY v. COMM., the Court of Appeals for the Eleventh Circuit, reversed the Tax Court, and held that a Tax Court petition filed by former shareholder-officers of a corporation qualified as a “proceeding in respect of” the corporation's multimillion dollar deficiency that suspended the statute of limitations under Code Sec. 6503(a)(1). Accordingly, the notices of transferee liability issued to the shareholder-officers within one year after the limitations period expired with regard to the corporation were timely.

Code Sec. 6501(a) generally provides that a valid assessment of income tax liability may not be made more than three years after the later of the date the tax return was filed or the due date of the tax return. The three-year period is suspended during the period in which IRS is prohibited from making an assessment, and during the pendency of a Tax Court case “in respect of” the deficiency plus an additional 60 days. (Code Sec. 6503(a)(1)

In situations involving transferee liability, IRS has an additional year to assess the deficiency against a transferee of assets of the taxpayer-transferor. (Code Sec. 6901(c)(1))

The Tax Court concluded that the limitations period for assessment of transferee liability had expired. The Tax Court also found that the Wisconsin notice was invalid as to SCC because it wasn't sent to its last known address, and that the first petition wasn't “in respect of” SCC's deficiency under Code Sec. 6503(a)(1). Accordingly, the Tax Court held that the invalid notice didn't suspend the limitations period as to SCC, the first petition filed in response to the invalid notice didn't suspend the limitations period, IRS's assessment against SCC was untimely, and the notices of transferee liability were untimely.

The sole issue on appeal was whether the first petition was a “proceeding in respect of the deficiency” that suspended the limitations period under Code Sec. 6503(a)(1). The parties agreed that, if it was, the transferee liability notices were timely.

Looking at the plain language of Code Sec. 6503(a)(1), and bearing in mind that statutes of limitation barring tax collections or assessments by IRS are “strictly construed in the government's favor” (Atl. Land & Improvement Co. v. U.S., (CA 11 1986)), the Eleventh Circuit found that the first petition qualified as a proceeding sufficient to suspend the limitations period. Thus, the limitations period was suspended, and the transferee liability notices were timely issued.

Shockley V. Comm,(CA 11 7/11/2012)

Read more at: Tax Times blog

4th DCA Reverses DC – Intent to Evade Taxes Does Not Makes sequent Violations of FBAR Rules Willful – Willful Blindness Does.

July 24, 2012

United States v. J.Bryan Williams; No. 10-2230
Decided: July 20, 2012 Reversed by unpublished opinion. Judge Shedd wrote the majority opinion, in which Judge Motzconcurred. Judge Agee wrote a dissenting opinion. Unpublished opinions are not binding precedent in this circuit.  

The parties agree that Williams violated § 5314 by failing to timely file an FBAR for tax year 2000. The only question is whether the violation was willful.
The district court found that:
(1) Williams "lacked any motivation to willfully conceal the accounts from authorities" because they were already aware of the accounts and
(2) his failure to disclose the accounts "was not an act undertaken intentionally or in deliberate disregard for the law, but instead constituted an understandable omission given the context in which it occurred."5 J.A. 378-79.Therefore, the district court found that Williams's violation of § 5314 was not willful.
"Willfulness may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information," and it "can be inferred from a conscious effort to avoid learning about reporting requirements." United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991) (internal citations omitted) (noting willfulness standard in criminal conviction for failure to file an FBAR).
Similarly, "willful blindness" may be inferred where "a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts point to such liability." United States v. Poole, 640 F.3d 114, 122 (4th Cir. 2011) (affirming criminal conviction for willful tax fraud where tax preparer "closed his eyes to" large accounting discrepancies).
Importantly, in cases "where willfulness is a statutory condition of civil liability, [courts] have generally taken it to cover not only knowing violations of a standard, but reckless ones as well." Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 (2007) (emphasis added).Whether a person has willfully failed to comply with a tax reporting requirement is a question of fact. Rykoff v. United States, 40 F.3d 305, 307 (9th Cir. 1994); accord United States v. Gormley, 201 F.3d 290, 294 (4th Cir. 2000) ("[T]he question of willfulness is essentially a finding of fact.").

The opinion points out that there is evidence supporting the conclusion that Williams' failure to file the FBAR was willful, particularly where a "willful violation" can include "willful blindness to the FBAR requirement" or "intentional ignorance." Maj. Op. at 12.

  • "Thus, we are convinced that, at a minimum, Williams's undisputed actions establish reckless conduct, which satisfies the proof requirement under § 5314. Safeco Ins., 551 U.S. at 57. 
  • Accordingly, we conclude that the district court clearly erred in finding that willfulness had not been established. For the foregoing reasons, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion."

If you have Unreported Bank Accounts, call the lawyers 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

    Use of Barbodos for Mexican Tax Planning

    July 23, 2012

    The removal of Barbados from Mexico’s blacklist of tax havens is a pivotal landmark.
    Now Mexican residents have secure and reliable alternatives for outbound investments through the use of Barbados entities.

    Using Barbados as a platform, this new development provides excellent tax planning opportunities for Mexican clients.

    For more information on how Barbados may be useful for Mexican Tax Planning, contact the Tax Lawyers 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

    Super-rich 'hiding' at least $21tn in Tax havens

    July 23, 2012

    A new study for the lobbying group Tax Justice Network (TJN) claims that wealthy individuals worldwide are holding between USD21 trillion and USD32 trillion in bank accounts in low-tax international financial centres.

    The research was compiled by James Henry, formerly chief economist at the management consultancy McKinsey. He used data published by the Bank of International Settlements, International Monetary Fund, World Bank, and various national governments, including their tax authorities, to estimate the world’s stock of undeclared wealth.

    Henry alleges that the ‘missing’ trillions have been invested ‘virtually tax-free through the world's still expanding black hole of more than 80 offshore secrecy jurisdictions’. This ‘offshore economy’ as Henry calls it, is large enough to have ‘very significant negative impacts on the domestic tax bases of source countries’.

    Some USD9.8 trillion of the total is owned by 92,000 individuals, Henry estimates. This total only includes deposit and investment accounts, not material assets such as property and the inevitable yachts and private jets.

    According to TJN, the report, called The Price of Offshore Revisited, demonstrates that the problem of economic inequality is far worse than previously understood.

    ‘All studies exploring economic inequality have systematically underestimated the wealth and income enjoyed by the world’s wealthiest individuals,’ said TJN’s John Christensen. According to TJN, the use of discretionary trusts is an important method of preventing assets being counted in national statistics. So is the alleged practice of some offshore finance centres of deeming certain income or assets to be located in other jurisdictions.

    Mr Whiting, though, urged caution. "I cannot disprove the figures at all, but they do seem staggering. If the suggestion is that such amounts are actively hidden and never accessed, that seems odd - not least in terms of what the tax authorities are doing. In fact, the US, UK and German authorities are doing a lot."

    He also pointed out that if tax havens were stuffed with such sizeable amounts, "you would expect the havens to be more conspicuously wealthy than they are".

    Other findings in Mr Henry's report include:

    · At the end of 2010, the 50 leading private banks alone collectively managed more than $12.1tn in cross-border invested assets for private clients

    · The three private banks handling the most assets offshore are UBS, Credit Suisse and Goldman Sachs

    · Less than 100,000 people worldwide own about $9.8tn of the wealth held offshore.

    Mr Henry told the BBC that it was difficult to detail hidden assets in some individual countries, including the UK, because of restrictions on getting access to data.

    A spokesman for the Treasury said great strides were being made in cracking down on people hiding assets.

    Sources
    Step Journal

    Tax Justice Network (Henry report, PDF file)

    Tax Justice Network (gloss on report, PDF)

    Observer (1)

    Observer (2)

    BBC

    CBS News

    Read more at: Tax Times blog

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