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On February 20, 2023, we posted SCOTUS Ruled That Non-willful Failure To File A FBAR Report Warrants a $10,000 Penalty Per Form Not Per Account!, where we discussed that the U.S. Supreme Court ruled on February 28, 2023, in Alexandru Bittner v. U.S., case number 21-1195, that the Bank Secrecy Act's $10,000 maximum penalty for the nonwillful failure to report foreign bank accounts applies on a per-form basis and not per account. 

Now According to Law360, in U.S. v. Katholos, case number 1:17-cv-00531, in the U.S. District Court for the Western District of New York, a woman given a $4.5 million penalty for willfully failing to report a foreign bank account told a New York federal court that a recent ruling by the U.S. Supreme Court should reduce that amount.

In Bittner v. U.S., the court found the $10,000 maximum penalty for nonwillful failure to report foreign bank accounts applies annually and not per account, should apply to Marika Katholos, according to her attorneys. The decision should mean Katholos' penalty is capped at $100,000 instead of 50% of the balance in the account, the lawyers told the U.S. District Court for the Western District of New York.

The U.S. Department of Justice, however, said that Bittner is irrelevant to Katholos' case. Bittner applies to nonwillful violations, whereas the U.S. said Katholos deliberately failed to identify her accounts. The Bittner case also involved multiple bank accounts, whereas there is only a single account at issue in Katholos' case, the government added. 

Katholos' attorneys argued the majority in Bittner noted that many tax professionals were unaware of the reporting requirement until the government began aggressive enforcement around 2008 or 2009. That may have included the tax professionals advising Katholos, who took their misguided advice. The attorneys sought permission for an expert witness to testify in a proceeding to reconsider whether she made an honest mistake.

The court requested letters March 1 from each party explaining how the Bittner decision could affect the case.

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According to Law360, the Financial Crimes Enforcement Network issued its first guidance on reporting beneficial ownership information on Friday, March 24, 2023. This FAQ is a milestone under the Corporate Transparency Act's crackdown on the abuse of shell companies.

The guidance, which applies beginning Jan. 1, 2024 includes a 14-page document with answers to frequently asked questions, a summary of key filing dates, another summary of key questions and two videos aimed at informing more than 30 million businesses about the CTA's requirements. The law, passed in 2021, requires businesses to file reports on beneficial ownership in an effort to crack down on tax evasion, money laundering, sanctions evasion and illicit finance.

"We are committed to making this transparency process as simple as possible, particularly for small businesses who may have never heard of or interacted with FinCEN before," Himamauli Das, acting director of FinCEN, said in a statement Friday.

Erica Hanichak, government affairs director at the Financial Accountability and Corporate Transparency Coalition, or FACT Coalition, told Law360 on Friday that reporting templates that should have been relatively innocuous actually threaten to derail the CTA's entire agenda by giving reporting companies an unanticipated escape hatch. Companies would have the option to say they were "unable to obtain" or "unable to identify" either beneficial owners or company applicants, according to a draft intake form.

Hanichak said the guidance released Friday was a good first step to let businesses know about their reporting obligations, but she said she hopes the agency will offer more in-depth guidance in the future covering topics like how entities with multiple layers that certain U.S. states facilitate will be affected. 

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According to Law360, A Maryland lawyer cannot be granted innocent spouse relief to avoid paying taxes on $227,000 of unreported income, partly because she should have known her husband was embezzling from a church where he was the finance director, the U.S. Tax Court said.

Kelli Hunter Reynolds had a duty to ask questions about additional checks from National City Christian Church that appeared in the couple's joint bank accounts in amounts similar to wages paid to her husband as part of his $95,000 salary, the court said. The couple didn't report those additional amounts for tax years 2004 to 2007, according to the opinion.

That Reynolds did not notice a discrepancy between the balances in their accounts and the amount they reported to the Internal Revenue Service, even though she spent money from the accounts and had legal training, disqualified her from claiming relief for not knowing about the underreporting, the Tax Court said.

Have an IRS Tax Problem?

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We have been advising that the IRS is criminally prosecuting taxpayers for failing to pay withholding taxes since October 29, 2019 when we posted The IRS is Now Criminally Prosecuting Employers For Failure To Pay Withheld Payroll Taxes! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes.

The latest criminal prosecution, according to DoJ, is of a Michigan business owner who was sentenced to 12 months and one day in prison for failing to collect and pay over to the IRS employment taxes withheld from his employees’ wages on March 15, 2023.

According to court documents and statements made in court, Yigal Ziv of West Bloomfield owned and operated Multinational Technologies, Inc. (MTI), a software development firm based in Walled Lake. 

Ziv was responsible for filing MTI’s quarterly employment tax returns and collecting and paying to the IRS payroll taxes withheld from employees’ wages. 

From the first quarter of 2014 through the first quarter of 2018, Ziv collected approximately $691,000 in employment taxes from MTI’s employees, but did not file employment tax returns or pay the withheld taxes to the IRS. Even after learning of the IRS’s ongoing criminal investigation in May 2018, Ziv did not file MTI’s employment tax returns from the fourth quarter of 2019 through the fourth quarter of 2020 and did not pay the IRS approximately $199,000 in payroll taxes withheld from MTI’s employees. 

During that same period, Ziv directed MTI to spend hundreds of thousands of dollars for his personal benefit, including home mortgage payments, luxury auto lease payments and department store purchases. In total, Ziv caused a tax loss to the IRS of $1,169,000.

In addition to the term of imprisonment, U.S. District Judge David M. Lawson for the Eastern District of Michigan ordered Ziv to serve one year of supervised release and to pay a $5,000 fine and $897,271.80 in restitution to the United States.

 Thinking of Borrowing From Your Company's

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