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According to Law360, $300,000 of the $12.6 million in penalties the IRS on imposed a man for willfully failing to report foreign bank accounts were in violation of the Eighth Amendment's bar on excessive fines, the Eleventh Circuit ruled, creating an apparent circuit split.

The Court Upheld The Remaining $12.3 Million In
FBAR Penalties, Plus Late Fees And Interest.

"No matter how you cut it, it's apparent that this statute is designed to inflict punishment at least in part," Circuit Judge Stanley Marcus said in the court's opinion.

A federal court in 2020 found that Schwarzbaum willfully failed to file FBARs for 23 Swiss and Costa Rican accounts from 2007 through 2009, according to court documents. After initially miscalculating his penalty, the Internal Revenue Service assessed the $12.6 million fine against him, which Schwarzbaum appealed to the Eleventh Circuit.

The Eleventh Circuit disagreed with the First Circuit Court of Appeals in U.S. v. Toth, saying the penalties are at least partially punitive and subject to the Eighth Amendment because they greatly outstrip the cost of reimbursing the government for its investigations, the court said. The penalty also has a deterrent effect, according to the court.

Courts must review the constitutionality of the penalties on a case-by-case basis, the Eleventh Circuit ruled. 

It Determined That In The Case Of One Particular Account, Three $100,000 Penalties ... Were Excessive Because They Were Six To Eight Times The Amount Schwarzbaum Had Deposited.

"There is little doubt in our mind that each of these penalties is grossly disproportionate," Judge Marcus said.

Regarding the remainder of the $12.3 million in penalties, the court said that although they were substantial, they were not disproportionate to the amount of funds Schwarzbaum failed to disclose. The court remanded the case in order for late fees and interest on those penalties to be calculated.

In 2022, the First Circuit Court of Appeals in  U.S. v. Toth, held that a civil FBAR penalty was not a “fine” and therefore not subject to the Excessive Fines Clause. The U.S. Supreme Court declined to hear an appeal to the Toth decision. 

The Schwarzbaum opinion creates a split between two different U.S. Circuit Courts of Appeal. Circuit splits make U.S. Supreme Court review of an issue more likely. It remains to be seen if the United States (or the taxpayer who was still subject to other hefty penalties) will appeal Schwarzbaum.

Regardless Of Whether The Excessive Fines Clause
Applies To FBAR Penalties, It Should Be Expected
That FBAR Penalties Will Remain Material.

If a taxpayer has exposure to FBAR penalties, there are numerous procedural avenues available to mitigate the exposure, both civil and criminal exposure. 

Do You Have Undeclared Offshore Income?

 

Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation 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

The Supreme Court declined again to take up a grandmother’s challenge of a $2 million penalty assessed by the IRS for a willful failure to not report a Swiss bank account on the grounds of excessive fines under the Eighth Amendment, despite pushback from one dissenting justice.

On June 5, the Supreme Court denied the petition for rehearing filed by Monica Toth, an 82-year-old taxpayer who had previously asked the Court to overturn the rulings of the First Circuit and the U.S. District Court for the District of Massachusetts. Both courts held that civil penalties applied under 31 U.S.C. § 5321(a)(5)(C)-(D) are not covered by the excessive-fine clause. Toth filed her initial cert petition in August 2022, which the Court rejected in January.

Toth had maintained that she did not purposefully avoid reporting to the IRS a foreign bank account left to her by her father, who took his family from Germany at the onset of World War II to Argentina. Monica eventually settled down in the United States but claimed she was unaware of the reporting rules under the Bank Secrecy Act.

The nondisclosed account had a balance of about $4.2 million. Because the IRS deemed the failure to disclose as willful, Toth was assessed penalties equal to half of the balance, plus interest and late fees. By contrast, the maximum penalty for non-willful failures to disclose is $10,000.

Supreme Court Justice Neil Gorsuch made it known in the Court's denial of Toth's petition for rehearing that he would have granted her request. He wrote in January in dissenting from the first denial that the "government did not calculate Ms. Toth's penalty with reference to any losses or expenses it had incurred."

Instead, the IRS "imposed its penalty to punish her and, in that way, deter others," wrote Gorsuch. "Even supposing, however, that Ms. Toth's penalty bore both punitive and compensatory purposes, it would still merit constitutional review." He closed in saying that the case "would have been well worth" the Court's time and that he hopes the lower courts do not repeat their "mistakes."

Do You Have Undeclared Offshore Income?

 

Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation 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 Law360, The U.S. Supreme Court's groundbreaking decision to curb the U.S. Securities and Exchange Commission's in-house fraud enforcement could hamper the IRS' ability to assert certain penalties, including in contested conservation easement cases, and challenge the U.S. Tax Court's authority to review them.

In a 6-3 decision in a case known as SEC v. Jarkesy et al., a majority of the Supreme Court justices in June struck down the SEC's longtime use of tribunal administrative proceedings to impose securities fraud penalties on a hedge fund manager and his investment firm. They said the antifraud provisions the agency had sought to enforce mirrored common-law fraud, which warrants a federal jury trial to adjudicate them under the Seventh Amendment.

Although the underlying dispute in the Jarkesy case does not pertain to the tax code, the opinion's constraints on SEC enforcement may trickle down to other regulatory agencies, including the Internal Revenue Service. The effect could be a further restriction of tax administration amid other Supreme Court decisions this summer that have reduced agencies' powers, including in Loper Bright Enterprises v. Raimondo, Relentless Inc. v. Department of Commerce and Corner Post Inc. v. Board of Governors.

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

In Report #2024-300-037, TIGTA’s systemic review of 103,460 NFTLs that were filed from July 1, 2022, to June 30, 2023, in which a CDP notice was required to be sent to the taxpayer, and a separate review of a statistical sample of 117 NFTLs from the same population, identified a total of 272 taxpayers that were potentially not timely mailed a CDP notice as required by I.R.C. § 6320(a). 

TIGTA also identified thousands of levies that were issued during the period when taxpayers had the right to request a lien CDP hearing.  TIGTA’s analysis of NFTLs filed from July 1, 2022, to June 30, 2023, identified: 

• 5,801 cases in which levies were issued during the 30-calendar-day period while the taxpayer had the right to elect a CDP hearing.

• 4 cases in which levies were issued while the taxpayer's appeal was pending.

In addition, taxpayer representatives should be provided copies of all taxpayer correspondence if designated by the taxpayer.  

From the statistical sample of 117 NFTLs, there were 41 cases in which the taxpayer designated their authorized representative to receive notices. However, in three of the 41 cases, the IRS did not provide CDP notices to the taxpayers’ authorized representatives.  

TIGTA also reviewed procedures for filing NFTLs in cases where taxpayers were in a disaster zone due to Hurricane Ian.  TIGTA determined that the IRS did not take any of the required preemptive steps that were available to it to suspend collection activity on taxpayers that were impacted by the hurricane on September 28, 2022. 

TIGTA recommended that the IRS:  

1. take corrective action on the cases identified in the statistical sample in which the lien notice was not mailed timely; 
2. ensure that the corrective actions initiated on the cases systemically identified are completed, and safeguards are implemented to protect against the recurrence of the causal issues; 
3. direct the Director, Collection, to establish Field Collection Internal Revenue Manual procedures that prohibit field employees from taking levy action during the 30-calendar-day period that the law provides taxpayers can elect lien CDP hearings; 
4. apply the retention standard when evaluating IRS Collection employees, managers, and executives who intentionally disregard IRS policies designed to protect taxpayers; and 
5. review disaster procedures for NFTL processing and consider updates, as needed, to reduce burden for taxpayers impacted by disasters. The IRS agreed with four of the five recommendations provided in this report.  

For recommendation 3, the IRS did not agree to establish Field Collection IRM procedures to prohibit field employees from taking levy action on taxpayers during the period the law provides taxpayers to elect a lien CDP hearing, which potentially impacted 5,801 taxpayers. 

Have An IRS Tax Problem?

Marini & Associates, P.A. 

Read more at: Tax Times blog