CPAs and Attorneys Don't Get to Say "They Did Not Know" - Ex-CFO& CPA $44M FBAR Penalty Upheld

According to Law360, The former chief financial officer of a Russian gas company who was sentenced to seven years in prison for hiding money in Swiss banks can't escape the government's civil suit seeking nearly $44 million in reporting penalties, a Florida federal judge ruled Wednesday.

In an order denying a dismissal request by ex-Novatek CFO Mark Gyetvay, U.S. District Judge John L. Badalamenti said the government had sufficiently alleged that Gyetvay had willfully failed to file a foreign bank account report, or FBAR, for 2014 on a Swiss account.

Specifically, The Judge Noted The Government's
Description of Gyetvay As "A Financially Educated, Savvy,
and International Businessman" With A Background as a CERTIFIED PUBLIC ACCOUNTANT and Audit Partner,

Who Retained A Swiss Wealth Firm To Help Him Hide 

His Ownership Of Foreign Accounts.

The government's complaint also presented facts showing Gyetvay transferred the account to his wife after being asked to show he complied with U.S. tax laws, and that he swore to the Internal Revenue Service he lived in Russia when really he had a home in Florida, Judge Badalamenti said.

"In a nutshell, the complaint alleges myriad deliberate actions over the course of a decade by Mr. Gyetvay that establish plausible allegations of willfulness," Judge Badalamenti said in the order.

Gyetvay, in his October request to dismiss the suit, called the government's penalty "staggering." He asked the court to reduce the damages amount to $100,000, the penalty for a lower level of willful FBAR violation. The government's steeper penalty, equal to up to 50% of the account balance, is allowed only for a limited subclass of willful violations, he argued, namely those that involve a failure to report the existence of an account or its identifying information.

Gyetvay did report the account in question to the IRS for 2014, and he included the bank and account number, he said.

Judge Badalamenti rejected that argument Wednesday, saying Gyetvay erroneously interpreted the law as requiring a partial, rather than a full, reporting of account information, which includes the amount of money in the account.

According to the government's June complaint, the U.S. Treasury Department already had slapped Gyetvay with $38.6 million in penalties in 2021 for the inaccurate FBAR for 2014. Gyetvay's failure to pay pushed it to the $44 million being sought, the government said.

Gyetvay falsely reported that he had only signatory authority and no financial interest in the account for 2014, but he later admitted in an amended filing that it contained $79 million, the government said. By falsely claiming only signatory authority, Gyetvay avoided a requirement to report the value of the assets in the account, the government said.

Gyetvay has maintained his innocence since being indicted in 2021 and is appealing his conviction, which triggered not only the prison sentence but an order to pay $4 million in restitution. A Florida federal judge said in October that the appeal was unlikely to succeed, however, and denied Gyetvay's request to delay reporting to prison while he awaits the outcome.

Have an FBAR Penalty Problem?  

 

Never Stop Arguing
Legal Basis for Abatement!

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Appeals Decision in Farhy Limited to DC Circuit?

On May 3, 2024 the the D.C. Circuit Court of Appeals overturned the Tax Court's decision in Farhy v. Commissioner, 160 T.C. No. 6 (2023), which held that the IRS was without the authority to assess the Form 5471 imposed by Internal Revenue Code §6038(b). 

So Where Does That Leave Us?

For one thing this Appeal's decision controls cases, in the DC circuit.

It is also persuasive authority for other circuits, as it relates to interpreting IRC §6038(b) in that it would be unlikely if not just inconsistent for Congress to allow the IRS to assert penalties under §6038(c), but not under §6038 (b) and it goes on to buttress its decision with Congressional Reenactment Doctrine by stating:

"[Our court's] conclusion is buttressed by more than forty years of congressional acquiescence
to the IRS’s practice of assessing section 6038(b) penalties. 'It is well established that when
Congress revisits a statute giving rise to a longstanding administrative interpretation without
pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation
is persuasive evidence that the interpretation is the one intended by Congress.’ Since adding
subsection (b) in 1982, Congress has amended section 6038 seven times; each time, it has
left undisturbed the IRS’s practice of assessing and administratively collecting penalties
imposed under section 6038(b)."

Whether the Congressional Reenactment Doctrine in this decision is dicta and does not need to be followed, I leave up to each of you.

Furthermore, the Tax Court in Mukhi v. Commissioner of Internal Revenue, stated that even though Farhy is on appeal in the D.C. Circuit, Mukhi's case, if appealed, would go to the Eighth Circuit, meaning any ruling from the D.C. Circuit wouldn't be binding for Mukhi, the court said.

So you can still argue that the IRS cannot assess certain information reporting penalties in other circuits and in Tax Court. Whether you be successful, still remains to  be seen?

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

     Contact the Tax Lawyers at

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or Toll Free at 888 8TAXAID (888-882-9243)

IRS Adds Additional Protections To CAF & Transcript Delivery System

In IR-2024-136 the Internal Revenue Service issued on May 8, 2024 additional protections for tax professionals being taken to increase security for the Centralized Authorization File (CAF) program and placed new guidelines on requesting client transcripts by phone.

“Tax professionals continue to present a tempting target to identity thieves and fraudsters,” said IRS Return Integrity and Compliance Services Director James Clifford. 

“With Identity Theft An Ongoing Concern, The IRS
Has Taken Additional Steps Needed To Protect Both
Tax Professionals And Their Clients Given The
Sensitivity And Importance Of The Information Involved.

The IRS will continue working with the tax professional community on these issues to minimize burden on practitioners while also working to ensure the safety and security of this information.” 

Tax Practitioners may also receive CP310 assigning A Personal Identification Number (PIN), which the tax professional Needs to associate with their CAF. This can be done online.

The IRS has become increasingly concerned about the risk a compromised CAF number presents to tax professionals and taxpayers. In these cases, there is risk that fraudsters could use a compromised CAF to obtain transcripts and other sensitive taxpayer personally identifiable information (PII) to commit identity theft refund fraud and other crimes. In many cases, the fraudster has not only obtained a practitioner’s CAF number but also has the practitioner’s sensitive personal information.

To Address This Issue, The IRS Has A Process In Which Suspected Compromised CAF Numbers Are Placed Into
A Suspended Status Pending Further Review.

Once placed into a suspended status, the owner of the CAF number will be contacted to confirm if the CAF number has been compromised. If the compromise is confirmed, the IRS will take the appropriate actions to address the compromised CAF number. The IRS recognizes the significance of the CAF process and is continuously working on ways to expedite this review process for impacted practitioners.

More information about this issue can be found in a special alert issued today by the IRS Office of Professional Responsibility.

In addition to the changes being made to protect tax professionals from a compromised CAF number, the IRS has also taken related security steps to change how tax professionals can order transcripts by phone through the Transcript Delivery System (TDS).

To Address This Issue, The IRS Has A Process In
Which Suspected Compromised CAF Numbers Are 
Placed Into A Suspended Status Pending Further Review.

That is not going to work well, as this week alone I waited one hour before I got complementary hang up, the second time called I waited two hours before I got a complementary hang up and if that wasn't bad enough I also got a call back, which when I picked it up hung up on me after two minutes.

IRS employees on other phone lines may not be authorized to provide transcripts through the SOR delivery method. Tax professionals will need to pass enhanced authentication. If the identity of the caller cannot be verified, transcripts will not be delivered using the SOR delivery method but will instead be mailed to the taxpayer’s address of record.

Tax professionals should also be on the lookout for unsolicited scam emails asking to provide credential information such as CAF number, Electronic Filing Identification Number (EFIN) information and driver’s license. These emails may look like they are coming from the IRS or a tax software company. Tax professionals who receive these unsolicited emails should report them to phishing@irs.gov.

Have an IRS Tax Problem?

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Marini & Associates, P.A. 

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or Toll Free at 888 8TAXAID (888-882-9243)

Doctor Ordered To Stay In Jail Until Assets Repatriated To Pay FBAR Penalty

According to Law360, A Michigan doctor fighting accusations that he failed to report his foreign bank accounts will stay in jail, as a federal court declined to release him when he didn't comply with an order to deposit over $1 million to cover the judgment against him in U.S. v. Kelly, case number 2:21-cv-12570, in the U.S. District Court for the Eastern District of Michigan.

However, the court will allow James Kelly Jr. to file a brief on the issue of his release from custody and will allow the federal government to respond, according to an order from U.S. District Judge Gershwin A. Drain. Kelly is in jail after the court ruled he was in contempt for failing to comply with a January order to deposit $1.1 million into a bank to cover the penalty for failing to file reports of foreign bank and financial accounts.

The case is back in district court after the Sixth Circuit found in February that Kelly clearly met the standard for willful failure to file FBARs.

The court granted the U.S. government's request for summary judgment against Kelly in May, ruling he had deliberately concealed assets he maintained at Finter Bank in Switzerland without filing the required foreign bank and financial account reports from 2013 to 2015. The court issued an order in October that instructed Kelly to deposit assets in a Michigan bank sufficient to satisfy the outstanding debt of $1.1 million.

The government also filed a motion to garnish Kelly's financial accounts at Huntington National Bank.

Have an FBAR Penalty Problem?  

 

 

 Contact the Tax Lawyers at 

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Doctor Facing Jail After Failing to Repatriate $1M FBAR Judgment

According to Law360, a Michigan doctor faces jail time after a federal judge ruled him in contempt of court for not complying with an order to deposit $1.1 million into a bank to cover a judgment for failing to report his foreign bank accounts.

James J. Kelly Jr. has had multiple opportunities to comply, and the threat of prison is necessary, U.S. District Court Judge Gershwin A. Drain said in an order Wednesday, January 4, 2024.

"Incarceration in addition to the daily fine is warranted in this case because defendant will likely be unmoved to comply with this court's repatriation orders by the imposition of a daily fine based on his contumacious conduct before the court," Judge Drain wrote.

Kelly Had Argued That He Should Not Be Held In Contempt Because He Had Complied With Other Orders, Such As Surrendering His Passport. That Does Not Excuse Him From Ignoring An Order To Repatriate Funds, The Judge Said.

Kelly also argued that liquidating his overseas funds is expensive, but he has enough money, Judge Drain said. Kelly's claims that he needs time to obtain a bond for the judgment fall flat because he has had plenty of time to do so, Judge Drain said.

The court granted the U.S. government's request for summary judgment against Kelly in May, ruling he had deliberately concealed assets he maintained at Finter Bank in Switzerland without filing the required foreign bank and financial account reports from 2013 to 2015. The court issued an order in October that instructed Kelly to deposit assets in a Michigan bank sufficient to satisfy the outstanding debt of $1.1 million.

The court denied Kelly a stay in November and ordered him to deposit the funds by Dec. 1, which he failed to do, according to the order.

The court ordered Kelly to surrender to U.S. authorities by Friday, saying it would issue an arrest warrant for him otherwise. It also fined him $100 for each day that he did not comply.

The federal government has said Kelly opened the Finter account in 2008 when he left the U.S. to avoid a criminal inquiry, according to court documents. 

The bank advised him to consider joining the Internal Revenue Service's Offshore Voluntary Disclosure Program, according to the U.S. government. Kelly joined the program but eventually stopped cooperating with the agency and in 2015 he transferred the funds to Bank Alpinum AG in Liechtenstein, the U.S. said.

Have an FBAR Penalty Problem?  

 

 

 Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

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or Toll Free at 888-8TaxAid (888) 882-9243

Code Blue for Ambulance Co.'s Former Owner Who Gets 6 Years For Tax Evasion

According to Law360, the former owner of an ambulance company was sentenced to more than six (6) years in federal prison for failing to pay employment taxes to the federal government and obstructing the Internal Revenue Service as it tried to collect, according to Virginia federal court documents.

James C. Jones Jr., ex-owner of Lifeline Ambulance Service Inc., was sentenced on May 7, 2024 to 78 months in prison and ordered to pay $395,000 in restitution to the IRS, according to a court record of the sentencing hearing. Though he has maintained his innocence, Jones was found guilty by a jury in November of evading employment taxes for 2008 and 2009, filing false individual tax returns for 2013 to 2018, and obstructing the IRS.

As we mentioned throughout our blog, the IRS has been, for the laast  several years, zealously prosecuting and convicting employers for payroll tax violations.

Federal prosecutors had asked the court for the 78-month sentence, at the very top of Jones' recommended sentencing guidelines, calling him "a multimillionaire who has not paid one cent in taxes to the United States government in well over a decade," according to a sentencing memo.

"Despite being obligated by law to withhold taxes from his employees' paychecks and turn them over to the IRS in a timely fashion, Jones refused to do so, all the while amassing a portfolio of luxurious Caribbean real estate and an enviable collection of classic cars for himself," prosecutors said in the memo.

For years, Jones thwarted the IRS' efforts to collect his individual taxes and employee withholdings, sometimes by giving the agency fraudulent documents on which he had forged the signatures of people he knew, prosecutors said. Jones also failed to disclose his assets, which included high-value classic cars and five luxury apartments on St. Maarten, prosecutors said. Overall, he caused a tax loss of nearly $1.5 million, prosecutors said.

At trial, Jones lied on the stand about his ownership of the Caribbean apartments, telling "an epic tale of a dead man being the true owner" and claiming he only took care of the properties "out of the goodness of his heart," prosecutors said.

"Mr. Jones' counsel asserts that his behavior demonstrates he lives in a world populated largely by his own beliefs that have little bearing on reality."

 Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

 Have Payroll Tax Problems?

 

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or Toll Free at 888-8TaxAid (888-882-9243)