The Tax Times

Monday, May 18, 2026

Robocall Fundraiser’s Estate On The Hook For $4.3M In Payroll Taxes

On May 15, 2026, the U.S. District Court for the Eastern District of Michigan entered judgment in United States v. Estate of Richard T. Cole Jr., Deceased, et al., Case No. 2:22‑cv‑12916, holding the estate of a telemarketing entrepreneur liable for more than $4.3 million in unpaid payroll taxes tied to his robocall fundraising business. The ruling underscores how aggressively the government will pursue responsible persons—even after death—when withheld employment taxes are not paid over to the IRS.

Background: A Telemarketing Fundraiser That Didn’t Pay Payroll Tax

The defendant in the case was the estate of Richard T. Cole Jr., identified in court and media filings as a co‑founder of a defunct telemarketing fundraising company that operated large‑scale robocall campaigns. According to the government’s complaint, the company withheld federal income tax and FICA from its employees’ wages but failed to remit those “trust fund” amounts to the IRS over multiple quarters, generating millions of dollars in unpaid tax, penalties, and interest.

The United States filed suit in December 2022 in the Eastern District of Michigan, Detroit Division, to reduce to judgment the trust fund recovery penalty and related assessments that had been made against Cole during his lifetime. After Cole’s death, the case proceeded against his estate and associated defendants, with the government seeking to collect from probate assets based on his role in the company and its payroll tax compliance.

The Court’s Ruling: Personal Liability Survives Death

In its May 2026 decision, the court granted the government’s motion to hold Cole’s estate liable for more than $4.3 million in unpaid payroll taxes. While the written opinion is technical, several themes stand out for tax practitioners and business owners:

· The court accepted the government’s position that Cole was a “responsible person” who willfully failed to collect, account for, and pay over trust fund taxes for the company.

· The government’s assessments and supporting account transcripts were sufficient to establish the amount of liability, shifting the burden to the estate to rebut those figures, which it apparently could not do.

· The court allowed the United States to enforce those assessments against the decedent’s estate, confirming that trust fund and related payroll tax liabilities remain collectible from estate assets even after the responsible person’s death.

The net result was a judgment of more than $4.3 million in favor of the United States, to be satisfied from the assets of Cole’s estate and any other property reachable under federal collection law.

Why Payroll Taxes Are So Dangerous

The case is a vivid illustration of why employment tax noncompliance is often described as “the nuclear issue” in federal tax enforcement. When an employer withholds federal income tax and the employee’s share of FICA from wages, those amounts are held in trust for the United States, and using them as working capital is treated as a serious breach of duty.

Key risk points highlighted by the case include:

· Trust fund recovery exposure: Individuals who have authority over payroll, bank accounts, or bill‑paying decisions can be tagged as “responsible persons” and assessed personally under the trust fund recovery provisions if they willfully allow withheld taxes to go unpaid.

· No corporate veil: The government is not limited to the employer entity; it can and will pursue officers, owners, and other responsible persons individually.

· Liability outlives the taxpayer: As Cole’s estate learned, trust fund liabilities do not evaporate upon death; they become claims against the estate, competing with other creditors and heirs for limited assets.

For closely held businesses with cash‑flow issues, there is often intense pressure to use withheld taxes to cover payroll, vendors, or lenders, but this case reinforces that doing so simply converts a business cash‑flow problem into a long‑term personal collection problem.

Practical Takeaways For Business Owners And Fiduciaries

For business owners, officers, and professional fiduciaries, United States v. Estate of Cole offers several practical lessons.

· Always prioritize payroll deposits. Federal employment tax deposits should be treated as a non‑negotiable expense; if the business cannot make its payroll tax deposits in full, that is a red flag that the underlying business model may be unsustainable.

· Document who is responsible. Boards and owners should be deliberate about who has signatory authority, who approves disbursements, and who oversees payroll tax filings; those roles are precisely what the government looks at in assessing trust fund liability.

· Address problems early. If a pattern of missed deposits emerges, prompt engagement with a tax professional and, where appropriate, the IRS Collection function can prevent a manageable shortfall from snowballing into multi‑million‑dollar personal liability.

· Estate and probate implications. Personal representatives should expect that significant unpaid payroll tax liability will surface as a federal claim against the estate, and they should factor that into decisions about distributions, creditor negotiations, and litigation strategy.

If your business has ever delayed payroll tax deposits to cover other expenses, now is the time to evaluate your risk and discuss options, not after the IRS has filed suit.

Have Payroll Tax Problems?

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:

1. https://law.justia.com/cases/federal/district-courts/michigan/miedce/2:2022cv12916/366243/67/

2. https://www.law360.com/employment-authority/other/articles/2478384/co-founder-of-robocall-company-liable-for-4-3m-tax-debt

3. https://www.law360.com/tax-authority/federal/articles/2478384/co-founder-of-robocall-company-liable-for-4-3m-tax-debt

4. https://dockets.justia.com/docket/michigan/miedce/2:2022cv12916/366243

5. https://www.law360.com/cases/63891cb6df8164027bcba22c

6. https://appliedantitrust.com/06_conspiracy/b_twombly/allegations_sufficient/packaged_ice/packaged_ice_edmich_docket_sheet.pdf

7. https://case-law.vlex.com/vid/u-s-v-cole-888382328

8. https://www.ca10.uscourts.gov/sites/ca10/files/opinions/01019203633.pdf

9. https://www.govinfo.gov/content/pkg/USCOURTS-mied-5_24-cv-10560/pdf/USCOURTS-mied-5_24-cv-10560-2.pdf

10. https://www.govinfo.gov/app/details/USCOURTS-ca6-08-05752

11. https://litigationtracker.law.georgetown.edu/wp-content/uploads/2023/01/Long-Island-Anesthesiologists_2024.10.14_REPLY-IN-SUPPORT-OF-MOTION-TO-DISMISS-PLAINTIFF-AMENDED-COMPLAINT.pdf

12. https://48hourprobate.com/guides-media/2020/04/In-re-Estate-of-Cole.pdf

13. https://case-law.vlex.com/vid/in-re-in-the-888083798

14. https://www.law360.com/cases/686533726e2dfd36435e400e

15. https://law.justia.com/cases/texas/second-court-of-appeals/2022/02-21-00410-cv.html

16. https://law.justia.com/cases/federal/district-courts/michigan/miedce/2:2022cv12916/366243/67/

17. https://www.law360.com/employment-authority/other/articles/2478384/co-founder-of-robocall-company-liable-for-4-3m-tax-debt

18. https://www.law360.com/tax-authority/federal/articles/2478384/co-founder-of-robocall-company-liable-for-4-3m-tax-debt

19. https://dockets.justia.com/docket/michigan/miedce/2:2022cv12916/366243

Wednesday, May 13, 2026

IRS Offers Reduced Penalties in New Conservation Easement Settlement Program

In IR-2026-65 the IRS has released a new, time-limited settlement initiative for taxpayers involved in conservation easement and historic preservation easement disputes, signaling both continued enforcement pressure and a renewed effort to resolve a large inventory of pending cases.

A Shift in Settlement Strategy

Since 2020, the IRS has offered settlement programs in syndicated conservation easement cases, generally requiring taxpayers to concede the charitable deduction entirely, accept penalties, and retain only a limited deduction for out-of-pocket costs. While those initiatives resolved over 400 cases, acceptance rates remained relatively modest.

This new initiative attempts to remove key barriers to participation—most notably by eliminating the requirement for an upfront payment in many cases and reopening settlement opportunities for taxpayers who previously declined or were ineligible.

Key Terms of the New Initiative

Eligible partnerships will receive individualized settlement offers, with a structured timeline and tiered penalty framework:

· No charitable contribution deduction will be allowed.

· Taxpayers may claim an “other deduction,” typically equal to estimated out-of-pocket costs.

· A reduced gross valuation misstatement penalty applies:

o 10% if accepted within the initial 90-day window

o 20% if accepted within the following 45 days

· Interest will continue to accrue under normal rules.

· No upfront payment is required at the time of election (a notable departure from prior initiatives).

· Cases will be resolved through stipulated decisions (for docketed cases) or closing agreements (for non-docketed cases).

After 135 days, the IRS will only consider settlements based on hazards of litigation—typically reflecting just 5% to 7% of the claimed deduction and a 40% penalty.

Scope and Eligibility

The initiative potentially affects a significant portion of the IRS’s current inventory:

· Approximately 1,100 total cases remain pending.

· Nearly 450 cases will benefit from deferred payment terms.

· Around 500 previously rejected or expired offers may be revived.

· Up to 175 new cases may now be eligible.

However, several categories are excluded, including cases on appeal, cases already tried, and certain imminent or designated test cases.

Litigation Reality Continues to Favor the Government

The IRS emphasized that recent court outcomes have overwhelmingly favored the government. On average, the Tax Court has allowed only about 6% of claimed deductions in these cases, typically coupled with a 40% gross valuation misstatement penalty and interest.

This context is central to evaluating the new offer: even with the disallowance of the deduction, the reduced penalty structure and deferred payment terms may produce a materially better economic outcome than continued litigation.

TEFRA vs. BBA Considerations

The mechanics of liability will differ depending on the applicable partnership regime:

· TEFRA cases (generally pre-2018): Investors will receive computational adjustments after settlement.

· BBA cases (2018 and later): Liability generally remains at the partnership level unless a push-out election applies, in which case partners will bear the adjustments individually.

Practical Takeaways

This initiative reinforces the IRS’s dual-track approach: aggressive litigation paired with structured settlement opportunities. For taxpayers and advisors, the decision is less about whether to concede and more about when—and on what terms.

The reduced penalty tiers, elimination of upfront payment in many cases, and the IRS’s strong litigation record all point to a narrow window for achieving a more favorable resolution.

Taxpayers with pending cases should expect individualized correspondence and should be prepared to act quickly, as no extensions will be granted.

How Our Firm Can Help

Once the IRS releases the detailed terms of the new settlement initiative, affected taxpayers will need to make fast, high‑stakes decisions. We expect the program to involve trade‑offs between certainty, cost, and the likelihood of success in continued litigation.

Our firm can assist by:

· Reviewing your existing conservation easement transactions and identifying which are likely to be targeted.

· Evaluating the strengths and weaknesses of your position in light of recent court decisions and IRS guidance.

· Modeling the financial impact of potential settlement versus continued dispute.

· Guiding you through the procedural steps of responding to settlement offers, negotiating where appropriate, and coordinating with other partners and advisers.

If you are involved in a conservation easement transaction or have received IRS correspondence regarding such an investment, now is the time to get ahead of the forthcoming settlement opportunity—not after the clock starts running.

Have A Conservation Easement 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)

Tuesday, May 12, 2026

Federal Court Upholds IRS Penalty Power On Foreign Wedding Gifts: Zhang v. IRS

A recent decision from the U.S. District Court for the Northern District of California adds a major new chapter to the running fight over international information‑return penalties. In Zhang v. Internal Revenue Service et al., No. 24‑cv‑8210 (N.D. Cal. May 4, 2026), the court held that the IRS does have statutory authority to assess penalties under Internal Revenue Code section 6039F for failure to report large foreign gifts—dealing a setback to efforts to extend Farhy‑style arguments to foreign gift penalties.

The story: a foreign wedding, late reporting, and a big bill

The plaintiff, Jinming Zhang, is a U.S. person who received about $287,100 in wedding gifts from family members in China. Those gifts were not taxable income, but they did trigger a reporting obligation under section 6039F, which requires U.S. recipients of large foreign gifts to file Form 3520.

Zhang filed the required reporting form late. The IRS responded by asserting a section 6039F(c) penalty of roughly $68,000—about 25% of the gift value—consistent with the statutory regime that allows a 5% per‑month penalty up to a 25% cap for late or non‑filed disclosures. After paying, Zhang sued for a refund, arguing that the IRS lacked authority to assess the penalty and therefore could not collect it administratively.

The legal theory: importing Farhy into the foreign gift world

Zhang’s complaint tried to build on the Tax Court’s 2023 decision in Farhy v. Commissioner, 160 T.C. No. 6, which held that the IRS had no statutory authority to assess penalties under section 6038(b) for certain information‑return failures. In Farhy, the Tax Court reasoned that because Congress had not expressly made those penalties “assessable,” the IRS could not simply post them on its books and collect them administratively; instead, the government would have to bring a civil suit under 28 U.S.C. section 2461(a).

Zhang argued that section 6039F(c) penalties for late‑filed foreign gift reports sit in a similar posture. The statute imposes a penalty, but does not spell out assessment procedures or clearly designate the penalty as assessable. According to the complaint, that silence meant the IRS could not treat section 6039F penalties like other assessable penalties under section 6201(a) and could not use standard collection tools such as offsets, liens, and levies.

The court’s holding: yes, the IRS can assess section 6039F penalties

In its May 4, 2026 decision—reported at 2026 WL 1210079—the Northern District of California rejected Zhang’s challenge and upheld the IRS’s authority to assess the section 6039F penalty. Coverage indicates that the court concluded that:

· The general assessment authority in section 6201(a) is broad enough to encompass section 6039F penalties, even though 6039F does not use the word “assessable.”

· Congress’s structure and cross‑references for international information‑return penalties support the view that section 6039F penalties are meant to be assessed and administratively collected, not pursued only through stand‑alone civil lawsuits.

· As a result, Zhang’s refund challenge based on lack of assessment authority failed, and her ability to contest the penalty is limited to the usual grounds (reasonable cause, computation issues, etc.), not a broad attack on the IRS’s power to assess.

In practical terms, the court refused to extend Farhy beyond its specific statutory context and signaled that, at least in the foreign‑gift setting, the IRS’s existing penalty assessment practices pass muster.

Why this matters: limits on Farhy‑based refund strategies

Ever since Farhy, taxpayers and practitioners have explored whether other international information‑return penalties—Forms 3520, 3520‑A, 5471, 5472, 8865, 8938, and others—are vulnerable to similar statutory‑authority challenges. Commentators have warned that the reasoning could extend beyond the specific penalty at issue in Farhy, potentially undermining large swaths of the IRS’s international penalty regime.

Zhang is a clear signal that at least one federal district court is unwilling to take that leap for section 6039F. Combined with the IRS’s recent procedural changes and ongoing commentary criticizing “draconian” foreign gift penalties, it suggests a landscape where:

· Courts may enforce the penalties as legally assessable while still scrutinizing how the IRS exercises its discretion in imposing them.

· Pure “no assessment authority” refund suits under section 6039F will face an uphill battle in the Northern District of California and potentially beyond.

· Taxpayers may be better served focusing on reasonable cause, reliance on professional advice, and proportionality arguments, rather than betting the case on a Farhy‑style structural attack.

Practical takeaways for taxpayers and advisors

For U.S. persons with foreign family wealth, Zhang underscores a few key points.

· Late foreign gift reporting is expensive. The statute allows penalties up to 25% of the gift value, and courts are showing increasing willingness to uphold the IRS’s ability to assess them.

· Early, accurate filing is the best defense. If there is any possibility that foreign cash transfers or gifts exceed the section 6039F threshold, advisors should raise the Form 3520 issue proactively—especially in life‑events settings like weddings, house purchases, or relocations.

· If you’re already late, fix it thoughtfully. Several recent cases and commentaries highlight situations where taxpayers tried to clean up past non‑compliance and still faced large penalties, sometimes after receiving bad advice. A carefully documented reasonable‑cause narrative, anchored in contemporaneous facts and professional guidance, remains critical.

· Farhy is not a magic wand. While Farhy remains important for certain categories of penalties, Zhang shows that courts can distinguish foreign gift penalties and uphold the IRS’s assessment power, limiting how far Farhy will travel.

Looking ahead

Zhang will not be the final word on foreign gift penalties. Other refund suits and potential appeals may raise different statutory and procedural arguments, and scholarship is already questioning the structure and policy rationale behind section 6039F. At the same time, the IRS has begun to tweak its procedures for late‑filed foreign gift and trust forms, suggesting at least some recognition of how harsh current practices can be in real‑world cases.

For now, though, the message from Zhang is straightforward: section 6039F penalties are very real, and the IRS can assess them. For taxpayers with foreign family support, that makes careful planning, early advice, and meticulous documentation more important than ever.

Need To Successfully Contest Form 5471,
5472, 8938, & 3520 Late Filing Penalties?