Category Archives: criminal tax law

On April 23, 2024 we posted 1st Tax Crypto Indictment is Proof That IRS is Coming After Undisclosed Crypto Income! where we discussed that Federal prosecutors' first public indictment of an individual who underreported the capital gains from a nearly $4 million legal sale of bitcoin indicates that authorities have opened the floodgates for more criminal cases that deal purely with undisclosed gains on legitimate cryptocurrency transactions and the criminal allegations against Frank Ahlgren III that federal prosecutors brought in a Texas federal court are novel in that unlike in previous cryptocurrency cases, the tax evasion allegations in Ahlgren's case did not stem from criminal activities such as money laundering, theft, human trafficking, illicit drugs, online black marketplaces, terrorism or defrauding investors.

Now According To DoJ, Frank Ahlgren III Has Pleaded
Guilty On  September 12, 2024 To Filing A Tax Return
That Falsely Underreported The Capital Gains He
Earned From Selling $3.7 Million In Bitcoin.

According to court documents and statements made in court, between 2017 and 2019, Frank Richard Ahlgren III filed false tax returns that underreported or did not report the sale of $4 million worth of bitcoin in which he had substantial gains. All taxpayers are required to report any sale proceeds and gains or losses from the sale of cryptocurrency, such as bitcoin, on their IRS tax return. 

Ahlgren was an early investor in bitcoins. 

• In 2015, Ahlgren purchased approximately 1,366 bitcoins. That year, bitcoins were valued at no more than $500 each. 
• In October 2017, Ahlgren sold approximately 640 bitcoins for approximately $5,807.53 per bitcoin for a total of $3.7 million. 
• Ahlgren had purchased most of the bitcoins he sold in 2017 in 2015. 

He used the entirety of the proceeds from the sale of bitcoins to purchase a house in Park City, Utah. Ahlgren then filed a false tax return with the IRS for 2017 that substantially inflated the cost basis of the bitcoins, and therefore underreported his capital gain from his bitcoin sale.

• In addition, in 2018 and 2019, Ahlgren sold more than $650,000 worth of bitcoins and did not report those sales on either years’ tax returns. 

In total, Ahlgren caused a tax loss to the IRS of more than $550,000.

He Faces A Maximum Penalty Of Three (3) Years
In Prison As Well As A Period Of Supervised Release,
Restitution And Monetary Penalties.

Ahlgren will be sentenced at a later date. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

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On September 6, 2024 the U.S. Secretary of the Treasury Janet L. Yellen and Commissioner of the Internal Revenue Service Danny Werfel delivered remarks at the Austin, Texas, IRS campus to announce new milestones under Inflation Reduction Act initiatives to ensure wealthy individuals pay taxes owed, improve service for taxpayers through the Digital First Initiative and modernize foundational technology.

The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. 

These Are Cases Where IRS Has Received Third Party Information—Such As Through Forms W-2 And 1099s—Indicating These People Received Income Between $400,000
And $1 Million Or More Than $1 Million,
But Failed To File A Tax Return.

Prior to the Inflation Reduction Act, the IRS non-filer program ran sporadically since 2016 due to severe budget and staff limitations that did not allow these cases to be pursued. With new Inflation Reduction Act funding, the IRS now has the capacity to do this core tax administration work. In the first six months of this initiative, nearly 21,000 of these wealthy taxpayers have filed, leading to $172 million in taxes being paid.

The IRS in the fall of 2023 launched a new initiative using Inflation Reduction Act funding to pursue high-income, high-wealth individuals who have failed to pay recognized tax debt, with dozens of senior employees assigned to these cases. 

This work is concentrated on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. 

The IRS Was Previously Unable To Collect From
These Individuals Due To A Lack Of Resources.

After successfully collecting $38 million from more than 175 high-income, high-wealth individuals last year, the IRS expanded this effort last fall to around 1,600 additional high-income, high-wealth individuals. 

• Nearly 80% of these 1,600 millionaires with delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. 
• This is an additional $100 million just since July, when Treasury and IRS announced reaching the $1 billion milestone.

Have An IRS Tax Problem?

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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

The IRS has collected over half a billion dollars from millionaires in its attempts to capture amounts owed by complex partnerships, large corporations, and wealthy individuals using enforcement funds authorized by the Inflation Reduction Act (PL 117-169).

"If you are wealthy, there will be increased scrutiny if there are tax issues, and we remain committed to following the Treasury Department's directive not to increase audit rates relative to historical levels for small businesses and households earning $400,000 per year or less," IRS Commissioner Danny Werfel told reporters January 11.

The IRS is continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October. The IRS has now collected $482 million in ongoing effort to recoup taxes owed by 1,600 millionaires with work continuing in this area. 

The IRS is working to ensure large corporate, large partnership and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying taxes owed. The IRS is now taking swift and aggressive action to close this gap.

• Prioritization of high-income cases: The IRS has ramped up efforts to pursue high income, high wealth individuals who have either not filed their taxes or failed to pay recognized tax debt, with dozens of Revenue Officers focused on these high-end collection cases. These efforts are concentrated among taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. In an initial success, the IRS collected $38 million from more than 175 high-income earners. The IRS last fall began contacting about 1,600 new taxpayers in this category that owe hundreds of millions of dollars in taxes. The IRS has assigned over 900 of these 1,600 cases to revenue officers, with over $482 million collected so far. This brings the total recovered from millionaires through these new initiatives to $520 million.
• Pursuing multimillion dollar partnership balance sheet discrepancies: The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance. Taxpayers filing partnership returns are showing millions of dollars in discrepancies between end-of-year balances compared to the beginning balances the following year. The number of these discrepancies has been increasing, with many taxpayers not attaching required statements explaining the difference. The IRS announced an initiative to address the balance sheet discrepancy in September and as of the end of October had sent 480 compliance alerts.
• Ramp up of audits of 76 largest partnerships leveraging Artificial Intelligence (AI): The complex structures and tax issues present in large partnerships require a focused approach to best identify the highest risk issues and apply resources accordingly. In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS announced in September that it would expand this program to additional large partnerships. With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. As of December, the IRS had open examinations of 76 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. On average, these partnerships each have more than $10 billion in assets.
• Large Foreign-Owned Corporations Transfer Pricing Initiative: The IRS is increasing compliance efforts on the U.S. subsidiaries of foreign companies that distribute goods in the U.S. and do not pay their fair share of tax on the profit they earn of their U.S. activity. These foreign companies use transfer pricing rules year after year to report losses that are engineered through the improper use of these rules to avoid reporting an appropriate amount of U.S. profits. To crack down on this strategy, as of mid-November the IRS has sent compliance alerts to more than 180 subsidiaries of large foreign corporations to reiterate their U.S. tax obligations and incentivize self-correction. 
• Expansion of the Large Corporate Compliance program: The Large Business & International Division’s (LB&I) Large Corporate Compliance (LCC) program focuses on noncompliance by using data analytics to identify large corporate taxpayers for audit. LCC includes the largest and most complex corporate taxpayers with average assets of more than $24 billion and average taxable income of approximately $526 million per year. As new accountants come on board in early 2024, LB&I is expanding the program by starting an additional 60 audits of the largest corporate taxpayers selected using a combination of artificial intelligence and subject matter expertise in areas such as cross-border issues and corporate planning and transactions.
• Partnership Self-Employment Tax Initiative:  As part of the agency’s increased focus on the tax issues applicable to partnerships and partners, the IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax. In contrast to wage earners whose employment taxes (Federal Insurance Contributions Act/FICA) are deducted from their paychecks, self-employed individuals are required to report and pay their SECA taxes on their federal income returns. The IRS efforts to date include more than 80 audits of wealthy individuals. Additionally, in November 2023, the Tax Court issued an opinion in Soroban Capital Partners LP v. Commissioner that agreed with the IRS’s position that the limited partner exception to SECA tax does not apply to a partner who is “limited” in name only. As a result, partners who actively participated in the state law limited partnership must report their partnership share as net earnings from self-employment subject to SECA tax.

New examples of cases closed since the Inflation Reduction Act passed follow:

• In January 2024, two individuals were sentenced to 25 years and 23 years respectively in prison for conspiracy to commit wire fraud, aiding and assisting the filing of false tax returns and money laundering for their role in promoting a fraudulent tax shelter scheme involving syndicated conservation easements.
• In December 2023, a Swiss Bank entered into a Deferred Prosecution Agreement (DPA) and agreed to pay approximately $122.9 million to the U.S. Treasury for their role in assisting U.S. taxpayer-clients with evading their U.S. taxes by opening and maintaining undeclared accounts. The bank also maintained accounts of certain U.S. taxpayer-clients in a manner that allowed them to further conceal their undeclared accounts from the IRS. In total, from 2008 through 2014, the bank held 1,637 U.S. Penalty Accounts, with aggregate maximum assets under management of approximately $5.6 billion in January 2008, on behalf of clients who collectively evaded approximately $50.6 million in U.S. taxes.
• In December 2023, an individual was sentenced to 10 years and 10 months and ordered to pay more than $130,000 in restitution, another was sentenced to 102 months in prison and ordered to pay more than $2.5 million in restitution and a third individual was sentenced to four years in prison and ordered to pay more than $2.5 million in restitution for their involvement in a RICO Conspiracy for cyber intrusion and tax fraud. These individuals used the dark web to purchase server credentials for the computer servers of Certified Public Accounting and tax preparation firms across the country.
• In December 2023, an individual was sentenced to 28 months in federal prison and ordered to pay over $470,000 in restitution to the IRS for filing a false tax return while working as a money mule for romance scams. The individual opened and maintained bank accounts to collect proceeds from the schemes and to send the money to himself and others overseas.
• An individual was sentenced to 57 months in prison for their failure to pay more than $1.35 million of taxes arising from their operation of several restaurants in the Washington, D.C. area. The individual evaded taxes by concealing assets and obscuring the large sums of money they took from the businesses by purchasing property in the name of a nominee entity and causing false entries in the businesses’ books and records to hide personal purchases using business bank accounts.

Further, the Large Business & International Division's Large Corporate Compliance program is expanding to start an extra 60 audits of the "largest corporate taxpayers" with average assets worth over $24 billion and average taxable incomes of about $526 million per year.

As Congress mulls a government shutdown aversion agreement that could potentially accelerate clawbacks of the Inflation Reduction Act funds, Werfel closed his comments during Thursday's press call by saying that "for this progress to continue, we must maintain a reliable, consistent annual appropriation for our agency as well as keeping inflation Reduction Act funding intact with adequate resources."

The Treasury Department issued a press release breaking down these initiatives, as well as plans to onboard more staff and to improve the taxpayer experience going into tax season.

Have An IRS Tax Problem?

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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