Category Archives: criminal tax law

According to DoJ, on March 21, 2025 a federal grand jury in Miami returned an indictment charging Dan Rotta, of Aventura, Florida, and Sergio Cernea, of Sao Paolo, Brazil, with conspiring to defraud the United States by concealing income and assets in Swiss bank accounts. The indictment also charged Rotta with tax evasion, filing a false tax return, making a false statement and failing to file Reports of Foreign Bank and Financial Accounts. Rotta was arrested on a related criminal complaint on March 8, 2024.

According to the indictment, between 1985 and 2020, Rotta hid more than $20 million in assets in at least two dozen secret Swiss accounts at five different Swiss banks, including UBS, Credit Suisse, Bank Bonhôte and Bank Julius Baer. The accounts were allegedly held in his own name, in the names of sham structures and, in one instance, a pseudonym. Over the years, Rotta allegedly earned substantial income from these assets that he did not report on his tax returns.

From 2001 through 2017, Rotta allegedly falsely represented to the banks that he was a Brazilian citizen residing in Brazil, even though he had been a naturalized citizen and resident of the U.S. since the 1970s. During those years, Rotta and a company he controlled allegedly received millions of dollars in transfers from his secret Swiss accounts. 

According to the indictment, in 2011, after the IRS obtained records related to one of Rotta’s Swiss accounts, Rotta nominally changed the documentation of his accounts at Credit Suisse and Bank Bonhôte to make it appear that Sergio Cernea, a Brazilian national, owned the assets in the accounts. Despite the change, Rotta allegedly continued to control the assets and transferred millions of dollars out of those accounts for his use. Shortly after Rotta changed the account documentation, the IRS allegedly began auditing Rotta. 

During the audit, Rotta allegedly falsely denied that he owned the assets in the foreign financial accounts and, instead, claimed that the millions of dollars he withdrew from the accounts were non-taxable loans from Cernea and others. 

The IRS allegedly did not believe Rotta and assessed millions of dollars of additional taxes as well as penalties and interest against him. According to the indictment, Rotta sought to reverse the assessments by causing the filing of a U.S. Tax Court petition that sought a redetermination of the IRS’s assessments.

 In that petition, Rotta, through his attorney, allegedly falsely denied having any foreign accounts and attached the fictitious loan documents. Furthermore, Cernea and another co-conspirator allegedly traveled to the United States to retell the false loan story to IRS attorneys. In 2017, after Rotta allegedly presented evidence that the purported loans had been repaid, the IRS reversed the deficiencies and agreed that Rotta owed no additional tax. 

Unbeknownst to the IRS, however, the funds that Rotta purportedly repaid to Cernea and others allegedly went into accounts that Rotta controlled. 

According to the indictment, as part of the conspiracy, in 2016, Rotta had attorneys create trusts in the United States that Cernea funded with the assets transferred from the Swiss accounts and held for the benefit of Rotta. In fact, the funds in the trusts allegedly belonged to Rotta, and Rotta controlled the trusts. 

In 2019, Rotta allegedly became aware that the IRS would receive additional account records from Switzerland that contradicted the false claims that he had previously made. To avoid criminal liability, Rotta allegedly applied to participate in the IRS’s voluntary disclosure practice. Under that practice, taxpayers who willfully do not comply with their tax and reporting obligations can make timely, accurate and complete disclosures of their conduct, which may be a way to resolve their non-compliance and limit their criminal exposure. 

According To The Indictment, Rotta Made A Number Of
False Statements In His Submission, Including Falsely
Claiming The Assets In The Swiss Accounts Mostly
Belonged To Cernea And That Cernea Was Providing
Rotta With Millions Of Dollars Because Cernea Had
No Children When, In Fact, Cernea Had Two.

In a hearing before U.S. District Judge Rodney Smith of the Southern District of Florida, Dan Rotta, 78, a retired jewelry and watch importer, pled guilty to one count of conspiracy to defraud the United States.

He faces up to five (5) years in prison and a fine of up to $250,000. Judge Smith set Rotta's sentencing for June 4.

 Do You Have Undeclared Offshore Income?

Read more at: Tax Times blog

In the recent case of United States v. Leeds (D. Idaho 2025), the court addressed whether Foreign Bank Account Report (FBAR) penalties can be enforced against estates of deceased taxpayers when surviving spouses are not personally culpable. This ruling clarifies that FBAR penalties survive a taxpayer's death and can be enforced against the estate, even when survivors had no knowledge of the unreported accounts. This development has significant implications for estate planning and tax compliance in cases involving foreign assets.

The Bank Secrecy Act requires U.S. persons with foreign financial accounts exceeding $10,000 in aggregate value to file annual FBARs (FinCEN Form 114). Penalties for non-compliance vary based on culpability: non-willful violations may result in penalties up to $10,000 per violation, while willful violations can trigger penalties of the greater of $100,000 or 50% of the unreported account balance. These penalties are assessed under Title 31, distinguishing them from traditional tax penalties under the Internal Revenue Code.

The Leeds case reinforced the principle that FBAR penalties survive death and are enforceable against estates because they are primarily classified as remedial rather than purely punitive. Richard Leeds' estate faced over $2 million in willful FBAR penalties for unreported Swiss accounts from 2006 to 2012. The court determined that these penalties accrued on the due date of the unfiled FBARs and did not extinguish upon Leeds' death in 2021, leaving his estate liable for the substantial assessment.

A Critical Distinction In The Leeds Ruling Was
The Court’s Treatment Of The Widow’s
Personal Liability Versus The Estate’s Obligations. 

Patricia Leeds argued that the penalties should not apply to her personally as she had no knowledge of the accounts. The court agreed that she was not personally liable due to her lack of culpability but clarified that the estate remained responsible for the FBAR penalties assessed against her deceased husband. This important differentiation protects innocent survivors from personal liability while still holding the estate accountable.

Courts increasingly scrutinize FBAR penalties under the Eighth Amendment's Excessive Fines Clause, which prohibits fines that are "grossly disproportional" to the offense. In Leeds, the court acknowledged that while FBAR penalties are remedial enough to survive death, they may still trigger Eighth Amendment review if excessive. However, the court declined to rule definitively on the proportionality of the $2 million penalty in this specific case, leaving this question open for future litigation.

A significant circuit split has emerged regarding FBAR penalties and constitutional protections: the First Circuit in Toth has ruled that FBAR penalties are not "fines" under the Eighth Amendment, while the Eleventh Circuit in Schwarzbaum held that they are subject to excessive fines review. This division creates uncertainty for executors and beneficiaries, as the applicable standard depends on jurisdiction. In the Schwarzbaum case, a $300,000 penalty for a $16,000 unreported account was deemed grossly disproportionate, suggesting potential defenses for estates facing similarly disproportionate assessments.

For executors managing estates with FBAR issues, the Leeds ruling underscores several critical considerations. First, they must recognize that FBAR penalties attach to the estate regardless of survivors' knowledge. Second, in appropriate jurisdictions, they may challenge penalties as excessive fines, particularly if penalties greatly exceed account balances. Third, they should identify FBAR compliance issues early to potentially mitigate penalties through voluntary disclosure programs like the Streamlined Procedures.

The court's reasoning in Leeds emphasized the dual nature of FBAR penalties as both remedial and potentially punitive. The court applied the Hudson factors, concluding that FBAR penalties primarily compensate the government for investigative costs, which justified their survival after death. However, it also recognized that these penalties could be punitive enough to warrant constitutional scrutiny, creating a nuanced framework that balances governmental interests against potential excessiveness.

The Leeds case reinforces that FBAR penalties survive death while offering potential Eighth Amendment protections against grossly disproportionate assessments. This evolving legal landscape highlights the tension between the government's legitimate interest in foreign account compliance and constitutional protections against excessive penalties. As courts continue to navigate this complex intersection of tax enforcement and constitutional rights, the need for Supreme Court clarification grows to resolve the circuit split and provide consistent guidance for taxpayers, executors, and innocent survivors across jurisdictions. 

 Do You Have Undeclared Offshore Income?

Read more at: Tax Times blog

According to THE HILL the IRS fired 6,700 employees on February 20, 2025, a government official told NewsNation, the sister television network of The Hill.

The employees were designated as probationary, meaning they were working for the agency on a trial basis prior to becoming full staff members.

More than 5,000 of the fired staff members were auditors and collection staff dealing with tax compliance issues, the official told NewsNation.

Now two judges ordered federal agencies on February 14, 2025 to reinstate tens of thousands of workers with probationary status who had been fired across 19 agencies as part of President Trump’s government-gutting initiative.

Together, the rulings formed a wide temporary reprieve for employees across much of the government, including major agencies like the Defense, Treasury, Veterans Affairs and Interior Departments. 

Judge Bredar’s order late Thursday followed a similar one earlier in the day from Judge William H. Alsup of the U.S. District Court for the Northern District of California. Judge Alsup found that the Trump administration’s firing of probationary workers had essentially been done unlawfully by fiat from the Office of Personnel Management, the government’s human resources arm. 

Both judges ordered that the agencies offer to reinstate any probationary employees who had improperly been terminated. Neither order was a final decision in the case.  

Agencies planning to conduct large-scale layoffs can still proceed in accordance with the laws that govern such processes, he said, meaning that the reprieve for workers may only be temporary. The Office of Personnel Management had set a deadline of Thursday for agencies to submit reduction in force plans.

However, the Trump administration wants to cut the IRS workforce by 20% by May 15, including those who have already left or were fired.

Officials at the Elon Musk-led group advising the administration want Acting IRS Commissioner Melanie Krause to eliminate 18,141 jobs across the agency. This includes the roughly 12,000 employees terminated as part of new-hire layoffs.

Followed by taxpayer services with 3,247, and a small portion in information technology, the source said. Earlier this year the IRS had about 100,000 employees.

 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)

Sources

THE HILL 

Bloomberg Tax

Read more at: Tax Times blog

The IRS has issued new legal advice regarding transfer pricing adjustments for high-profit-potential intangible property. This guidance, outlined in Legal Advice Issued by Associate Chief Counsel 2025-001, emphasizes the IRS's authority to adjust transfer pricing based on actual profits to align reported income with economic reality.

Authority Under Code Sec. 482: The IRS can reallocate income between commonly controlled entities to ensure reported income reflects economic reality. This is done by applying the arm's length standard (ALS) and the "commensurate with income principle" for high-profit-potential intangible assets.

Arm's Length Standard (ALS): This standard ensures that transactions between related parties resemble those between independent entities. However, taxpayers may not use ALS alone to overcome adjustments if actual profits significantly exceed projections.

Commensurate with Income Principle: This principle ensures that compensation for intangible assets remains aligned with actual income over time. If actual profits exceed projections, the IRS may adjust transfer pricing to reflect this increased value. For example:

1. Licensing of Intangible Property: If a U.S. company licenses intellectual property to a foreign affiliate and actual profits exceed initial estimates, the IRS may adjust the royalty rate to ensure it aligns with the income generated by the asset.
2. Cost-Sharing Arrangements (CSA): If actual profits from shared development efforts far exceed projections, the IRS may adjust platform contribution transaction (PCT) payments to reflect the increased value of the intangible assets.

To avoid adjustments, taxpayers must satisfy specific exceptions by demonstrating that their transfer pricing methods align with IRS requirements. 

Simply Invoking ALS Or Claiming Compliance
With The Best Method Rule Is Insufficient.

This guidance underscores the IRS's focus on ensuring that intercompany transactions involving intangible property accurately reflect economic reality, preventing undervaluation and income distortions.

Being Audited by the IRS ?

 

 

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