Vince Nardone: Tax and Controversy

IRS Frowns Upon Taxpayer’s Filing False Reports or Forms Regarding Other Taxpayers - Tax Fraud (Criminal)

In U.S. v. Allison, 101 AFTR 2d ¶2008-448 (5^th Cir. Feb. 4, 2008), the jury's finding that the taxpayer acted "corruptly" under §7212(a) was supported by evidence showing that taxpayer filed false Form 8300s to harass and intimidate city employees and to secure improper advantage for himself.

The Court went on to articulate that: Section 7212(a) provides that "[w]hoever corruptly... endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title or in any other way corruptly ... obstructs or impedes, or endeavors to obstruct or impede the due administration of this title" shall be guilty of an offense. The Court stated that one acts corruptly in the context of §7212(a) when one acts "with the intention of securing improper benefits or advantages for one's self or others."United States v. Reeves , 752 F.2d 995, 1001–02 [55 AFTR 2d 85-932] (5th Cir. 1985). See United States v. Saldana, 427 F.3d 298, 305 [96 AFTR 2d 2005-5782] (5th Cir. 2005) (holding that the improper benefit sought need not be a benefit under the tax laws to support conviction under §7212); United States v. Bowman, 173 F.3d 595, 600 [83 AFTR 2d 99-2219] (6th Cir. 1999) (holding that §7212(a) proscribes "an individual's deliberate filing of false forms with the IRS specifically for the purpose of causing the IRS to initiate action against another taxpayer").

See U.S. v. Allison, CA 5, 101 AFTR 2d ¶2008-448 below.

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Guidance on Tax Return Preparer Penalty - Tax Penalties

In Revenue Procedure 2008-14, the Internal Revenue Service ("IRS") recently provided guidance regarding circumstances under which a disclosure on a return is adequate for purposes of tax return preparers avoiding the §6694(a) penalty for understatement due to unrealistic positions taken on a return. Generally, to be considered adequate, the disclosure must be made on an income tax return. The taxpayer must furnish all the required information in accord with applicable forms and instructions, and money amounts entered must be verifiable. The amounts are verifiable if, on audit, the taxpayer can show origin of the numbers, even if ultimately rejected by the IRS, and can show good faith in applying the numbers to the return.

As background, §6694(a) imposes a penalty on a tax return preparer for filing a return or claim for refund that results in an understatement of liability due to a position of which the preparer knew or should have known, if the preparer did not have a reasonable belief that the position would more likely than not be sustained on the merits and the position was not disclosed in accordance with §6662(d)(2)(B)(ii). The penalty is equal to the greater of $1,000 or 50% of the income derived (or to be derived) by the preparer with respect to the return or claim.

This revenue procedure applies to any income tax return filed on a 2007 tax form for a taxable year beginning in 2007, and to any income tax return filed on a 2007 tax form in 2008 for a short taxable year beginning in 2008.

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Obtaining Information from the Internal Revenue Service, Tax Fraud (criminal)

In U.S. v. Weisberg, DC, Western District of NY, 101 AFTR 2d ¶2008-417, a magistrate judge quashed a subpoena (in part) that a chiropractor issued on the IRS seeking to compel production of various records or documents allegedly relevant to his defense to Section 7203 criminal charges.  The court held that to extent the defendant was seeking IRS form letters and correspondence it sent to non-parties/other non-filers or tax protest organizations to which the defendant had granted a power of attorney over his tax matters, information was not sufficiently relevant to taxpayer's defense to warrant compelled production. The court also held that the production of that information would violate Section 6103. But, the court held that to extent the taxpayer was seeking IRS guidelines as to how it deals with non-filers generally, the IRS was ordered to comply and produce the same at trial.

This case highlights the importance of obtaining information from the IRS prior to litigation and the difficulty of obtaining certain information through formal process.  In fact, although the IRS aggressively and frequently demands that taxpayers’ turn over their records to the IRS, the IRS is not so willing to share with taxpayers when asked to do the same.  Certainly, in Weisberg’s case, he may not have had an earlier opportunity, but many other taxpayers do have that opportunity.  Thus, prior to entering into litigation with the IRS, a taxpayer should consider his options of how to obtain information from the IRS.  Under most circumstances, taxpayers would be surprised how much you can obtain prior to litigation.  The tools available that should be explored are: (i) Section 6103 involving disclosure to persons with a material interest; (ii) the Freedom of Information Act (FOIA); (iii) the Privacy Act of 1974; and (iv) general information available to all taxpayers without any formal process, such as the Internal Revenue Manual.  There is a plethora of information available in public forums on each of these categories.

See U.S. v. Weisberg, DC, Western District of NY, 101 AFTR 2d ¶2008-417 attached below.

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Discharging Taxes in Bankruptcy Thwarted by Claims/Evidence of Willful Attempt to Evade or Defeat Tax - Tax Liabilities and Collection Alternatives

In a recent Eleventh Circuit decision (Zimmerman v. IRS, CA 11, 101 AFTR 2d ¶2008-390 ), the Court affirmed the bankruptcy court’s decision that a Chapter 7 debtor/CPA's decades-old tax debts were subject to 11 USCS 523(a)(1)(C) 's discharge exception and therefore not dischargeable. The record showed that taxpayer engaged in numerous and willful attempts to evade tax. According to the Court, examples of affirmative act evidence included that the taxpayer repeatedly failed to pay known tax obligations even while supporting lavish lifestyle, which included oceanfront living and luxury cars; and engaged in substantial asset transfers for no consideration to long-time girlfriend and family. In addition, the Court stated that willfulness was shown by facts of his education/profession and that he engaged in foregoing transfers and other acts to defeat collection of taxes that he knew were due and owing.

This case highlights the government’s best tool in combating a taxpayer’s ability to discharge old tax debts in bankruptcy. But, the fact remains that if you meet the bankruptcy provisions for discharging taxes, discharging your taxes remains a good collection alternative. (See my outline below on discharging taxes in bankruptcy) And, the government’s burden is not easily met to establish the "willful attempt to evade tax" exception. Read the entire Zimmerman v. IRS, CA 11, 101 AFTR 2d ¶2008-390 opinion below. 

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Outline on discharging taxes in bankruptcy is attached below.

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Court Applies Abuse of Discretion Standard in Determining Reasonableness of Sentence - Tax Fraud (Criminal)

A Business owner's sentence for section 7202 violation and related offenses was affirmed by the Eight Circuit in U.S. v. Wetzel, CA 8, 101 AFTR 2d ¶2008-375.  The taxpayer's unreasonableness and disparity objections failed in face of the facts brought out in the case that his case was dissimilar to that of predecessor business owner's case and that district court had given due consideration to his mitigating circumstances claims and properly weighed relevant 11 USCS 3553(a) factors.

Specifically, the Court reviewed the defendant’s sentence for reasonableness in light of the 18 U.S.C. § 3553(a) factors, applying an abuse-of-discretion standard. See United States v. Booker, 543 U.S. 220, 261–62, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005);United States v. Boss , 493 F.3d 986, 987 (8th Cir.2007). The Court found that there was no abuse of discretion. The Court found that the disparity argument failed because, as the district court correctly determined, the defendant’s case and criminal history were not at all similar to those of another individual who owned the predecessor to the defendant's business. See 18 U.S.C. § 3553(a)(6) (court is to consider “need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct”). Further, the Court’s review of the record convinced the Court that the district court considered and rejected the defendant's arguments regarding mitigating circumstances, properly took into account only relevant section 3553(a) factors, and did not commit a clear error of judgment in weighing these factors. See United States v. Long Soldier, 431 F.3d 1120, 1123 (8th Cir.2005) (sentencing court abuses its discretion if it fails to consider relevant factor that should have received significant weight, gives significant weight to improper or irrelevant factor, or considers only appropriate factors but commits clear error of judgment in weighing them).

See U.S. v. Wetzel, CA 8, 101 AFTR 2d ¶2008-375 attached below.

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