Category Archives: criminal tax law

According to Law360, in the case of In the Matter of Tax Liabilities of John Does, case number 1:21-mc-00424-GHW, a federal judge said that he will allow the IRS to obtain from couriers and financial institutions, including FedEx and Bank of America, records of individuals who may have used Panamanian offshore service providers to hide assets, the U.S. Justice Department said on July 29, 2021.

U.S. District Judge Gregory H. Wood, of the Southern District of New York, approved Internal Revenue Service summonses Wednesday to seek the information from financial institutions including Citibank, Wells Fargo Bank and couriers including FedEx Corp. and UPS Inc. 

The Summonses Request Information on Deliveries and Electronic Fund Transfers Between 

Panama Offshore Legal Services and Clients Who 
May Have Used Its Services To Create or Control

Foreign Assets To Avoid Tax Obligations, The DOJ Said.

"The Department of Justice, working alongside the IRS, is dedicated to unearthing the use of foreign bank accounts to evade U.S. taxes," acting assistant Attorney General David A. Hubbert said in a statement. "We will use the many tools available to us, including John Doe summonses like the ones authorized today, to ensure that taxpayers are fully meeting their responsibilities."

The IRS is investigating taxpayers who may have used Panama Offshore Legal Services, which is part of a collective of related entities known as the POLS Group, to facilitate concealing income and assets from U.S. tax authorities between 2013 and 2020. The government has been seeking information from other entities, including MoneyGram Payment Systems, through a separate summonses request in Minnesota to investigate those who may have violated U.S. laws by hiding taxable income and assets.

POLS is a Panamanian law firm that advertises services including the creation of foundations and corporations as well as offshore financial accounts while promising clients "100% anonymity, privacy and confidentiality," according to the DOJ.

Through the IRS' offshore voluntary disclosure program, which allows for voluntary disclosure in exchange for fixed penalties, the government has learned of at least one U.S. person who used POLS' services to create an unreported offshore account and entity in Panama, the DOJ said.

Currently, there are no allegations against the couriers or financial institutions that they have engaged in any wrongdoing, the government said. Instead, the IRS uses the John Doe summonses to get relevant information when there may be possible violations of tax laws and the violators are unknown, the DOJ said.

According to a May declaration by IRS revenue agent Katy Fuentes, POLS also accepts payment for its services by wire transfer, and the IRS is aware of at least four U.S. banks, HSBC Bank, Bank of America, Wells Fargo and Citibank, that maintain accounts with banks in Panama known to be used by the POLS Group, according to the filing.

In his order approving the summonses request, Judge Wood said there was a reasonable basis to believe that certain people may have failed to comply with tax laws and the information sought by the government is not readily available from other sources.

The summonses will direct 10 companies to produce records that will help the government identify U.S. individuals who may have used POLS Group's services, the DOJ said Thursday.

"These court-ordered summonses should put on notice every individual and business seeking to avoid paying their fair share of taxes by hiding assets in offshore accounts and companies," IRS Commissioner Chuck Rettig said in a statement. "These records will empower the IRS and the Department of Justice to find those attempting to skirt their tax obligations and ensure their compliance with the U.S. tax laws."

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Voluntary Disclosure Program
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A Florida resident should have known about the requirement to report his offshore bank accounts to the Internal Revenue Service, U.S. government attorneys told a Miami federal court, contending he should hand over unpaid penalties for late filings. (U.S. v. Slochowski, case number 1:21-cv-22596, in the U.S. District Court for the Southern District of Florida).

Avishai Slochowski either knew or should have known about his obligation to file a foreign bank and financial account form, or FBAR, for Swiss and Peruvian accounts he held from 2005 through 2012, the government told the court in a complaint Wednesday. Government attorneys asked the judge to order Slochowski to pay slightly more than $888,000 in civil penalties for willfully failing to timely file FBARs, including interest and late payment penalties.

Slochowski applied in 2014 for the IRS' Offshore Voluntary Disclosure Program, designed for willful nonfilers to come forward in exchange for protection from potential criminal liability and terms for resolving civil tax and penalty obligations, according to the government. As part of the program, Slochowski filed untimely FBARs and was later removed from the OVDP due to his failure to provide truthful answers regarding his dual U.S.-Peru citizenship, among other matters, the government said.

Read more at: Tax Times blog

The U.S. government urged the Ninth Circuit to not revive a couple's challenge against the 2017 federal tax overhaul's repatriation provision, arguing the pair has mischaracterized the levy on foreign income as an unconstitutional direct tax on property. (Charles G. Moore et al. v. U.S., case number 20-36122, in the U.S. Court of Appeals for the Ninth Circuit).

Government attorneys asked the appellate court to uphold a Washington federal judge's November order that dismissed a tax refund suit brought by Charles and Kathleen Moore, who had contended that the Tax Cuts and Jobs Act 's repatriation provision violated the U.S. Constitution. The Moores argued that the measure was a direct tax on personal property, specifically, their shares in a foreign corporation,  that violated the U.S. Constitution's Sixteenth Amendment, which requires direct taxes to be apportioned based on state population.

In asking the Ninth Circuit to uphold the Washington court's order, the government said the measure is not a tax on property but a tax on U.S. shareholders' income from their controlled foreign corporations, or CFCs. The apportionment requirement under the 16th Amendment does not apply to income taxes, the government said.

As part of the TCJA's shift to a quasi-territorial system, which exempts some worldwide profits of U.S. corporations, Congress enacted a repatriation provision under Internal Revenue Code Section 965. Under this measure, companies would pay a one-time mandatory transition tax on deferred earnings held abroad.

According to the Moores' complaint, filed in September 2019, the Seattle-area couple paid about $15,000 in taxes under Section 965 based on their small stake in a CFC, KisanKraft Ltd., that provides affordable equipment to India's small-scale farmers. In seeking a refund, the Moores said the tax bill was based on earnings retained and invested by KisanKraft, earnings they never received.

The couple cited a U.S. Supreme Court case from 1920 called Eisner v. Macomber, that said a stock dividend was not taxable income because it didn't involve an actual gain realized by the shareholder. According to the Moores, the repatriation tax is "no different from an unapportioned tax on capital itself and equally beyond Congress' power to enact."

In dismissing the couple's case, U.S. District Judge John Coughenour in November found that "subsequent decisions dealing with foreign income have routinely departed from Macomber's realization standard."

The government told the Ninth Circuit the notion that the Constitution requires income to be "clearly realized" before it can be taxed conflicts with court decisions upholding related measures "against similar constitutional attack."

The government added, "the Constitution does not bar Congress from attributing U.S. taxpayers' foreign corporate earnings to them and taxing them on those earnings."  

The government also asked the Ninth Circuit to not revive the Moores' claim that the repatriation provision was the retroactive application of a new tax in violation of the due process clause in the Constitution's Fifth Amendment.

It was reasonable for Congress to apply Section 965 to offshore profits that accumulated after 1986, according to the government's attorneys. They noted that Judge Coughenour also found it was reasonable due to "the shift in international tax law and of the result, which would occur without a transition tax, of allowing previously undistributed CFC earnings to 'escape the imposition of U.S. taxation.'"

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Read more at: Tax Times blog

The Internal Revenue Service closed the most recent filing season with more than 35 million in unprocessed tax returns, as the agency’s backlog grew markedly amid a crush of challenges related to the pandemic and economic relief efforts, a government watchdog said Wednesday.

Read more at: Tax Times blog