Current US Resident Ordered To Repatriate $17.9M For FBAR Violations - What Next?

On January 9, 2023 we posted An Expatriating Taxpayer, With FBAR Penalties, May Create New Precedent For Collection Outside the US? - Don't Think So! where we discussed a Floridian who moving his assets offshore and sold himself in the wake of an $18 million penalty for failing to report foreign bank accounts, the U.S. should be allowed to seize the overseas funds, the U.S. told a Florida federal court on January 6, 2023. Isac Schwarzbaum has not paid any amount he owes, forcing the U.S. to repatriate the funds he has deposited in several Swiss banks, the U.S. said in a motion to repatriate foreign assets.

Now according to Law360, he has been ordered to transfer enough money from his overseas accounts to cover the debt, a Florida federal judge ruled, rejecting the man's arguments the court lacked authority to order the repatriation.

Isac Schwarzbaum, A Dual U.S.-German Citizen,
Must Transfer The Money Into A U.S. Bank Account
In His Name By April 28,
U.S. District Judge Beth Bloom Ordered.

While Schwarzbaum had argued the court lacked authority to order the money transfer while his appeal of the judgment in the Eleventh Circuit is pending, Judge Bloom said an appeal alone does not automatically pause the enforcement of a judgment. Further, Schwarzbaum never asked the court for a stay, Judge Bloom said.

"Absent The Entry of a Stay, a District Court Retains Jurisdiction — Via Contempt Or Other Means — To Enforce Its Judgment During The Pendency Of An Appeal,"
Bloom Said In The Order.

The government asked the court for the repatriation order in January, alleging Schwarzbaum "has no intention" of paying the court's judgment. Judge Bloom found that he owed over $17.9 million — including interest and late-payment penalties — for willfully failing to file foreign bank and financial account forms.

According to the government, Schwarzbaum sold his home in Florida in June 2020, less than three months after Judge Bloom concluded that he showed reckless conduct that amounted to a willful failure to file FBARs for 2007 through 2009. After "fleeing the country," Schwarzbaum has kept no assets in the U.S., yet reported to the government in 2021 that he had more than $37 million in three Swiss banks, according to the government.

Schwarzbaum argued it was improper for the court to rule on the merits of the government's motion for repatriation while his appeal was pending. Further, he claimed he couldn't repatriate assets that were never originally in the U.S. He also rejected the government's allegations that he fled the country or aimed to render himself judgment-proof, saying he "lives a highly mobile lifestyle, never living in the United States full time."

Judge Bloom said Tuesday that the court already had struck down Schwarzbaum's argument that the assets needed to have originated in the U.S. to qualify for repatriation. The court also rejected Schwarzbaum's argument that only outstanding tax liabilities are subject to repatriation.

The Question Now Is How Does The IRS
Levy On Assets Outside The US? 

or 

Against a Taxpayer Who Is No Longer AUS Resident,
Where Mr. Schwarzbaum Leaves The US?

Can't Wait To See The Answer To This One!

Do You Have Undeclared Offshore Income?

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Another Willful Taxpayer Wrongfully Submits a Streamline Filing and Gets Jail Time

According to DoJ, a former CFO of a russian natural gas company was convicted of making false statements to the IRS, failing to disclose offshore accounts and failing to file tax returns.

A federal jury found a Florida man guilty of failing to file a Report of Foreign Bank and Financial Accounts (FBAR), making a false statement to the IRS, and willfully failing to file tax returns. 

According to court documents and evidence presented at trial, from 2005 to 2015, Mark Anthony Gyetvay of Naples, Florida, concealed his ownership and control over substantial offshore assets and failed to file and pay taxes on millions of dollars of income. 

After working as a certified public accountant (CPA) in the United States and Russia, Gyetvay became the chief financial officer of Novatek, a large Russian gas company. 

Beginning in 2005, Gyetvay opened two different accounts at a bank in Switzerland to hold substantial assets, which at one point had an aggregate value of over $93,000,000. 

Over a period of several years, Gyetvay took steps to conceal his ownership and control over these funds, including removing himself from the accounts and making his then-wife, a Russian citizen, the beneficial owner of the accounts. Additionally, despite being a CPA, Gyetvay did not file his 2013 and 2014 U.S. tax returns.

Gyetvay did not file FBARs, as required, to disclose his control over the Swiss bank accounts, at times, rejecting his accountant’s recommendation to do so. 

In An Unsuccessful Attempt To Avoid Significant Financial Penalties, Gyetvay Made A False Filing With The IRS Using
The Streamlined Foreign Offshore Procedures, Available
Only To Taxpayers Whose Failure To Report Offshore
Assets And Income Is Due To Non-Willful Conduct.

He is scheduled to be sentenced on September 21, 2023, and faces a maximum penalty of 

• five (5) years in prison for failing to file an FBAR, 
• five years (5) in prison for making a false statement and 
• one  (1) year in prison for each willful failure to file a tax return. 

Do You Have Undeclared Offshore Income?

 

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Technical Advice Concludes That A $1 Nominal Claim Will Not Protect The Statute of Limitations

According to ProcedurallyTaxing, Chief Counsel’s office issued Program Manger Technical Assistance (PMTA) 2023-001 to address the issue of a $1 claim filed in order to try to protect the statute of limitations for filing claims.  The advice concludes that the $1 or any nominal claim will not protect the taxpayer but it also distinguishes nominal claims from protective claims. 

It then goes on to state that "A late-filed claim will not be treated as an amendment or “supplement” to an original claim if it would require the investigation of new matters that would not have been disclosed by the investigation of the original claim."

Essentially, the PMTA takes the position that putting down a nominal amount does not create the type of informal claim a taxpayer can later fix.  

For more regarding exceptions to this rule go to ProcedurallyTaxing.

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IRS Issues Guidance Related To The Treatment Of Certain Nonfungible Tokens (NFT) As Section 408(M) Collectibles

In Notice 2023-27 the Treasury Department and the IRS announced that they intend to issue guidance related to the treatment of certain NFTs as section 408(m) collectibles. 

This treatment is also relevant for other purposes of the Code, including the long-term capital gains tax rate under section 1(h). The notice also describes how the IRS intends to determine whether an NFT constitutes a section 408(m) collectible, pending the issuance of that guidance, and requests comments generally on the treatment of NFTs as a section 408(m) collectible, as well as comments on specific questions listed in the notice.

A Nonfungible Token (NFT) Is A Unique Digital
Identifier That Is Recorded Using Distributed Ledger
Technology And May Be Used To Certify Authenticity
And Ownership Of An Associated Right Or Asset.

Distributed ledger technology, such as blockchain technology, uses independent digital systems to record, share and synchronize transactions, the details of which are recorded simultaneously on multiple nodes in a network. A token is an entry of data encoded on a distributed ledger. A distributed ledger can be used to identify ownership of both NFTs and fungible tokens, such as cryptocurrency, as described in Rev. Rul. 2019-24.

Section 408(m)(2) of the tax code provides for a specific list of items that constitute collectibles for certain purposes. Acquisition of a collectible by an individual retirement account (IRA) or individually-directed account of a qualified plan is treated as a distribution from the account equal to the cost to the account of the collectible. Generally, collectibles also do not have as advantageous capital-gains tax treatment as other capital assets.

Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a “look-through analysis.” Under the look-through analysis, an NFT is treated as a collectible if the NFT’s associated right or asset falls under the definition of collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.

In Notice 2023-27, the Treasury Department and the IRS are requesting comments on any aspect of NFTs that might affect the treatment of an NFT as a collectible as well as certain comments specifically set out in the notice.

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Willful Taxpayer Tries To Stretch Bittner, But Bittner Was a Nonwillful Case - Lots of Luck!

On February 20, 2023, we posted SCOTUS Ruled That Non-willful Failure To File A FBAR Report Warrants a $10,000 Penalty Per Form Not Per Account!, where we discussed that the U.S. Supreme Court ruled on February 28, 2023, in Alexandru Bittner v. U.S., case number 21-1195, that the Bank Secrecy Act's $10,000 maximum penalty for the nonwillful failure to report foreign bank accounts applies on a per-form basis and not per account. 

Now According to Law360, in U.S. v. Katholos, case number 1:17-cv-00531, in the U.S. District Court for the Western District of New York, a woman given a $4.5 million penalty for willfully failing to report a foreign bank account told a New York federal court that a recent ruling by the U.S. Supreme Court should reduce that amount.

In Bittner v. U.S., the court found the $10,000 maximum penalty for nonwillful failure to report foreign bank accounts applies annually and not per account, should apply to Marika Katholos, according to her attorneys. The decision should mean Katholos' penalty is capped at $100,000 instead of 50% of the balance in the account, the lawyers told the U.S. District Court for the Western District of New York.

The U.S. Department of Justice, however, said that Bittner is irrelevant to Katholos' case. Bittner applies to nonwillful violations, whereas the U.S. said Katholos deliberately failed to identify her accounts. The Bittner case also involved multiple bank accounts, whereas there is only a single account at issue in Katholos' case, the government added. 

Katholos' attorneys argued the majority in Bittner noted that many tax professionals were unaware of the reporting requirement until the government began aggressive enforcement around 2008 or 2009. That may have included the tax professionals advising Katholos, who took their misguided advice. The attorneys sought permission for an expert witness to testify in a proceeding to reconsider whether she made an honest mistake.

The court requested letters March 1 from each party explaining how the Bittner decision could affect the case.

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FAQ s & Other Guidance on Beneficial Ownership Issued By FinCEN

According to Law360, the Financial Crimes Enforcement Network issued its first guidance on reporting beneficial ownership information on Friday, March 24, 2023. This FAQ is a milestone under the Corporate Transparency Act's crackdown on the abuse of shell companies.

The guidance, which applies beginning Jan. 1, 2024 includes a 14-page document with answers to frequently asked questions, a summary of key filing dates, another summary of key questions and two videos aimed at informing more than 30 million businesses about the CTA's requirements. The law, passed in 2021, requires businesses to file reports on beneficial ownership in an effort to crack down on tax evasion, money laundering, sanctions evasion and illicit finance.

"We are committed to making this transparency process as simple as possible, particularly for small businesses who may have never heard of or interacted with FinCEN before," Himamauli Das, acting director of FinCEN, said in a statement Friday.

Erica Hanichak, government affairs director at the Financial Accountability and Corporate Transparency Coalition, or FACT Coalition, told Law360 on Friday that reporting templates that should have been relatively innocuous actually threaten to derail the CTA's entire agenda by giving reporting companies an unanticipated escape hatch. Companies would have the option to say they were "unable to obtain" or "unable to identify" either beneficial owners or company applicants, according to a draft intake form.

"In Allowing Entities To Check Those Boxes And Not Provide That Information, FinCEN Completely Bankrupts The Purpose And Intent Of The Statute To Require Mandatory Reporting
Of Beneficial Ownership Information," Hanichak Said.

Hanichak said the guidance released Friday was a good first step to let businesses know about their reporting obligations, but she said she hopes the agency will offer more in-depth guidance in the future covering topics like how entities with multiple layers that certain U.S. states facilitate will be affected. 

For Example, Wyoming Trusts, Delaware Trusts,
New Hampshire Foundations And Series LLCs Present
Complex Arrangements That Could Warrant Tailored
Guidance For Addressing Them, According To Hanichak.

On March 15, a bipartisan group of five senators aired grievances to FinCEN about how access rules would hamper law enforcement with onerous requirements, a lack of verification processes, and a hamstringing of banks' ability to use the data for other regulatory checks. The American Bankers Association had raised the latter concern in February, saying banks would be prohibited from using the registry for sanctions enforcement, anti-fraud efforts and screening under the Bank Secrecy Act.

"As FinCEN has previously stated, we take feedback from public comments on FinCEN's proposed rule very seriously and are carefully considering all comments as we complete our work," Candice Basso, a spokesperson for the agency, told Law360 on Friday.

Have A Beneficial Ownership Problem?

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Attorney Wife Can not Get Innocent Spouse Relief - No Surprise Here

According to Law360, A Maryland lawyer cannot be granted innocent spouse relief to avoid paying taxes on $227,000 of unreported income, partly because she should have known her husband was embezzling from a church where he was the finance director, the U.S. Tax Court said.

Kelli Hunter Reynolds had a duty to ask questions about additional checks from National City Christian Church that appeared in the couple's joint bank accounts in amounts similar to wages paid to her husband as part of his $95,000 salary, the court said. The couple didn't report those additional amounts for tax years 2004 to 2007, according to the opinion.

That Reynolds did not notice a discrepancy between the balances in their accounts and the amount they reported to the Internal Revenue Service, even though she spent money from the accounts and had legal training, disqualified her from claiming relief for not knowing about the underreporting, the Tax Court said.

Furthermore, Reynolds, Who Works For The
U.S. Department Of Agriculture, Benefited From The
Additional And Unreported Income, The Tax Court Said.

The Family Paid Private School Tuition For
Their Children And Owned Four Cars.

The Tax Court also rejected Reynolds' argument that she qualified for relief because she and her husband were separated and not living in the same household while he was in prison for embezzlement in 2013. The court said only a judicial decree of legal separation, which the couple did not obtain, would help qualify her for relief.

The Tax Court also rejected Reynolds' argument that paying the tax bill would create economic hardship, saying that it empathized with her as the sole breadwinner for a family of seven but that her reported monthly expenditures of $10,000 exceeded basic living expenses.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
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or Toll Free at 888 8TAXAID (888-882-9243)