83 Yr Old 'Panama Papers' Tax Dodger Sentenced To 4 Years in Prison

We previously posted On February 19, 2020, Former U.S. Taxpayer Pleads Guilty in Panama Papers Investigation, where we discussed that a former U.S. resident and taxpayer who was charged along with three others in connection with a decades-long criminal scheme perpetrated by Mossack Fonseca & Co. (Mossack Fonseca), a Panamanian-based global law firm, and its related entities, pleaded guilty on February 18, 2020 to wire and tax fraud, money laundering, false statements and other charges. 

Harald Joachim von der Goltz, aka “H.J von der Goltz,” “Johan von der Goltz,” “Jochen von der Goltz,” “Tica,” and “Tika,” 82, a citizen of Germany and Guatemala who last resided in Needham, Massachusetts, and Key Biscayne, Florida, pleaded guilty to one count of conspiracy to commit tax evasion, one count of wire fraud, one count of money laundering conspiracy, four counts of willful failure to file reports of foreign bank and financial accounts (Financial Crimes Enforcement Network Reports 114) and two counts of false statements. 

A Manhattan federal judge on September 21, 2020 sentenced Harald Joachim von der Goltz to Four (4) Years In Prison for his long-standing efforts to evade U.S. taxes, which were exposed by the "Panama Papers" document leak from the Mossack Fonseca law firm.

U.S. District Judge Richard M. Berman also fined him $30,000 and ordered him to pay $3.4 million in restitution to the U.S. after the 83-year-old admitted in February to nine criminal counts, including tax evasion from 2000 to 2016, fraud and making false statements.

"These are very serious offenses," said Judge Berman, noting that von der Goltz began breaking the law in his 60s. "The crimes occurred here over a very long period of time. We can't lose sight of that."

"I am Here Before you Humbled and Disgraced with a
Broken Heart," said von der Goltz.

He also faces a potentially significant IRS penalty of about $2.5 million. "The simple truth is I broke the law."

But prosecutor Nathan Rehn said von der Goltz should not derive any "advantage" at sentencing for an "egregious" crime as a result of his advanced age, because he turned up his nose at an IRS amnesty offer and kept lying before he was arrested in the U.K. and extradited to the U.S. in 2018.

Judge Berman's sentence came in below official guidelines that called for one in the range of nine years. Prosecutors had said a sentence of that length wasn't necessary, but asked for a significant period of incarceration.

Toward the end of the 2½-hour sentencing, which was conducted via videoconference, Judge Berman said the sentence came in "remarkably below" guidelines, but a home confinement sentence was not possible.

Having Then Been Given An Opportunity To Say A Final Word, Von Der Goltz Called The Prison Term "Devastating.
I Do Think I'll Die In Jail," He Said.

"At least I was able to have 83 years of the things that I did in life that I'm proud of. I'm sorry it ended up this way. But it is what it is."

Unless the defense prevails on a request to delay his surrender, von der Goltz will report to custody in 60 days, Judge Berman said.

In a statement, acting Manhattan U.S. Attorney Audrey Strauss said von der Goltz was "abetted by the specialized criminal services of the law firm Mossack Fonseca" to rip off the IRS.

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AICPA Says That COVID-19 May Provide Penalty Relief to Those Who Miss Sept. 15 Deadline - Bit of a Reach?

According to Accounting Today, the Sept. 15 tax filing deadline is causing worries among taxpayers and tax practitioners in the midst of the pandemic, but the American Institute of CPAs believes that taxpayers will be able to avoid tax penalties if they write “COVID-19” at the top of their tax return.

AICPA officials have had some conversations with IRS officials about penalty relief and been told informally that practitioners who have made a good-faith effort to meet the filing deadlines on behalf of their clients but are unable to do so because of the coronavirus pandemic can write “COVID-19” at the top of the tax return to indicate the need for penalty relief. 

“Based on our conversations, the IRS does not want to penalize people who are making a good faith effort,” said Melanie Lauridsen, senior manager for tax policy and advocacy at the AICPA. 

“I Think The IRS Truly Does Understand That People
Are Impacted By Coronavirus, And Unfortunately
 Some People Are Impacted To The Point
Where They Just Can’t Meet The Tax Deadlines."

"They don’t want to penalize people who are really trying to do what’s right, trying to meet their compliance, but for whatever reason due to coronavirus they are unable to do so. I think the IRS wants to work with those people and not penalize them.”

She isn’t sure whether the IRS will offer formal relief or guidance, but she pointed to the other forms of disaster relief the IRS has offered in response to the pandemic as well as natural disasters. 

“At any given point in time with disaster relief, it actually ties in with reasonable cause,” she said. “Whether a disaster is deemed to get an extension or not, there will always be people who can’t meet the deadlines and, under reasonable cause, they are able to work with the IRS to see if they can not be penalized. This is more in line with that.” 

An IRS Spokesperson Contacted By Accounting Today
Pointed To The Penalty Relief Due To Reasonable Cause
Page on IRS.gov.

“As always, facts and circumstances are important in any penalty determination,” said a statement from the IRS spokesperson. “We understand the challenges faced by taxpayers due to the pandemic, and IRS remains flexible in granting penalty relief where taxpayers can demonstrate good-faith efforts in filing their returns.” 

Taxpayers Should Also Be Prepared to Prove How the Coronavirus Also Adversely Impacted
Other Administrative Functions of Their Business.

Where every other aspect of the taxpayer's business administratively operated unaffected by the coronavirus, then don't be surprised that the IRS does not accept that the coronavirus resulted in reasonable cause for the late filing, as may be the case with other natural disasters or other disturbances.

Lauridsen noted those reasonable cause provisions are also a part of the Internal Revenue Manual used by the IRS. “If you look at the reasonable cause standards, it’s very clear,” she said. “The reasonable cause standards are found within the IRM, which is the IRS’s Internal Revenue Manual, and in it they say that any matter that establishes a taxpayer exercised ordinary business care and prudence but that nevertheless failed to comply with the tax law may be considered for relief. So if that’s the case, and coronavirus is definitely something that is impacting millions of Americans, and the taxpayer is making a good faith effort, but they still failed to meet the tax laws, then yes, the IRS will work with them.” 

She Stressed, However, That It Doesn’t Offer a
Blanket Excuse For Everybody To Claim.

“Reasonable cause is not a blanket like, ‘Oh, hey, I’ve been a little stressed and I don’t feel like doing the tax return so therefore I’m going to fill out COVID-19.’ But if they are impacted by coronavirus, then yes the IRS will work with them,” said Lauridsen.

She believes this will help relieve some of the stress on taxpayers and practitioners. “When you talk with people who are devastated by coronavirus, it’s heartbreaking,” she said. “I spoke with one member who said it affected five or six people [in his office]. One of his staff got coronavirus and gave it to two or three other people within the office. Then on top of that the spouse of one of the partners or staff passed away during this whole thing. You’re looking at a business that is impacted at such deep levels. How can they manage? This is relief that is absolutely necessary. It’s not even relief to alleviate the burden. They’re working around the clock and there’s no way they can meet these deadlines.” 

Taxpayers and firms who are filing electronically may need to check with their tax software provider to make sure they can add the COVID-19 note to the top of the form. It will probably be an option as the IRS has already allowed taxpayers to append that note as part of the relief it offered earlier during the pandemic, in conjunction with what was offered by the Federal Emergency Management Agency. 

“With coronavirus, the relief was provided for the April to the July 15 deadline, so FEMA did put out COVID-19 relief already,” said Lauridsen. “I would recommend to the practitioners for whatever software you’re working with to give them a call, because some of the software companies are already coded for COVID-19, not specifically for this scenario. However if they connect with their software provider and their e-filer, they can get COVID-19 written at the top of the return, and that will indicate to the IRS that they do need some relief.”

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TIGTA Says IRS Violated Law In Property Seizures Unless The Taxpayer Requested a CDP Appeal

According to Law360, The Internal Revenue Service has seized property from individuals suffering economic hardships, violating a federal tax law requiring the agency to release levies causing financial difficulties, the Treasury Inspector General for Tax Administration said in a recent report.

The IRS agreed to develop new training to stress that agents tasked with property seizures must confirm that taxpayers' levies are valid. 

TIGTA reviewed 60% of the seizures that the IRS conducted between July 2018 and June 2019, and found examples where the agency failed to release levies against taxpayers who were dealing with economic hardships and seized assets including personal residences. 

Under Internal Revenue Code Section 6343, The IRS Is Required To Release Levies Against Those Who May Be
Suffering Economic Hardships.

In the report, the IRS agreed with TIGTA recommendations that the agency develop new training to stress that agents tasked with conducting property seizures properly confirm that those taxpayers' levies are valid. The IRS also agreed to stress to its agents that any proceeds from the sale of seized assets must be immediately applied to that taxpayer's account to satisfy their deficiencies, and pledged to better inform IRS employees of notice requirements associated with property seizures.

The IRS disagreed with two of TIGTA's recommendations to issue additional guidance to prevent seizures on taxpayers suffering economic hardships and another to require IRS agents to document discussions they have with interagency officials about whether a taxpayer is protected from a property seizure. The IRS told TIGTA that those protocols are already included in the Internal Revenue Manual and preseizure checklist, according to the report.

TIGTA said that the IRS' failure to change its rules could lead to additional taxpayers losing their homes. 

The IRS Won't Allow Revenue Agents To Infer That A Taxpayer Is Suffering Economic Hardships Through Their Own Observations, Whether That Be The Inability To Pay Bills
or Afford Essential Goods, 

If They Hold Equity In Assets Such As A Personal Residence, According To The TIGTA Report.

In a number of seizures, the IRS didn't properly follow its protocol, failing to perform required research on those taxpayers who have levies against them or give those taxpayers sufficient notice, according to the report. A majority of seizures focused on taxpayers' "other real property," according to the TIGTA report, but several seizures also involved vehicles and personal residences.

TIGTA Did Find That The IRS Followed Its Protocols and
Didn't Seize Property When Taxpayers Had Filed
A Timely Request For An 
Appeals Hearing For Collection Due Process.

The IRS also sufficiently adhered to the guidelines it had set in scaling back collection and enforcement actions during the novel coronavirus pandemic between March and July, according to the report.

During the time in which the IRS suspended some of its enforcement and collection activities, the agency conducted three seizures, but TIGTA found they were proper in order to "protect the government's interest in collection of significant delinquent amounts due," according to the report.

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Isle of Man a Tax Haven for the Super-Rich & US Expatriates' Private Jets

According to Offshore Bankers Oleg Tinkov is a self-made Russian billionaire with a penchant for private jets and luxury homes around the globe that bear his name, just like the online bank he founded.

For years, Tinkov flaunted this lavish lifestyle on social media. In February, his family flew a $58-million plane between three countries in one day while celebrating his son Roman’s 17th birthday, according to his Instagram posts. 

When Roman was just 10 years old, he posed for an Instagram photo while cutting a ribbon on the staircase of Tinkov’s first jet, worth $28 million. “Roma bought a toy,” the caption read. 

Then in 2013, when he was renouncing his naturalized U.S. citizenship and was required to declare his assets in the process, Tinkov told U.S. authorities that his net worth was $300,000. But prosecutors alleged that his shares in Tinkoff Bank alone were worth over $1 billion. 

He Is Now Fighting Extradition From His Home In London To Face Tax Fraud Charges In The United States. 

While Tinkov has been accused of tax fraud in the U.S., he’s been able to save millions legally in a European tax haven.

 

In the Isle of Man, a British crown dependency in the Irish Sea, Tinkov established an opaque jet leasing structure that enabled him to avoid tax payments on three private jets reportedly worth around $114 million. He effectively leased the jets to himself through anonymous offshore companies, thereby qualifying for tax exemptions that would not apply if he had simply purchased the planes.

 

Tinkov’s scheme was first made public in 2017 with the publication of the Paradise Papers, a leak of documents from a legal services company called Appleby that helped wealthy clients stash their assets offshore.

 

In 2018, the European Commission called for the UK to clamp down on what it called “abusive tax practices in the Isle of Man,” after a BBC investigation found that authorities there refunded more than 790 million pounds to 231 aircraft leasing companies that had imported jets between 2011 and 2017. The UK launched an inquiry, but concluded that there was “no evidence of aircraft VAT [value-added tax] avoidance in the Isle of Man.” A separate European Commission investigation is ongoing.

 

Now, a fresh leak of bank documents from a branch of the Cayman National bank on the Isle of Man demonstrates weak compliance reviews and reveals exactly how these complex corporate structures worked. The new documents also show that Tinkov wasn’t the only one: At least 12 other jet owners used similar schemes, enabling them to reduce their tax bills.

 

Since October 2011, almost 300 applications to the island’s customs authority for a total exemption from VAT for importing a plane have been given the green light, according to data released through Freedom of Information requests. An analysis by Global Witness found this saved the owners almost one billion pounds — equivalent to the Isle of Man government’s entire budget for 2020.

 

The loss of these potential revenues is offset by a flourishing financial services industry that tax havens such as the Isle of Man rely on to fuel their economies. The bank documents also expose the role of financial service providers, bankers, accountants, and corporate service firms, in facilitating such schemes.

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Nursing Home Officer’s Nonpayment of Withholding Taxes Was Not Willful

A California District Court in Preimesberger (08/05/2020) 126 AFTR 2d ¶2020-5143 has found that a nursing home officer’s failure to pay withholding taxes was not willful as a matter of law. The officer paid other creditors before the IRS while trying to comply with mandatory federal and state regulations that required him, despite a severe cash flow problem, to keep the nursing homes operating at the existing standard of care. 

James Preimesberger was employed by Meridian Health Services Holdings, Inc. ("Meridian") to operate five skilled nursing home facilities in California ("the Facilities"). 

From 2010 through 2015, the Facilities accrued substantial Medicare and Medi-Cal receivables due from the United States. Eventually the cash flow problem became so acute that the Facilities could not meet all their operational expenses.

Preimesberger arranged for Meridian to bridge the cash flowHim him him gap by drawing on a line of credit from a bank, Capital Finance, Inc. (CFI). However, CFI only authorized and provided funds for the payment of net wages and other expenses necessary to maintain the Facilities’ standard of care, so the Facilities could not use the funds to pay their withholding tax obligations. 

According to Preimesberger, the Facilities could not simply cease operations to resolve its cash flow problems. Under various federal and state regulations, the Facilities had to remain open and maintain the existing standard of care for all residents, despite its cash flow problems, until it complied with regulatory closing procedures and could officially close. Violations of the regulations carried civil and criminal penalties.

In 2019, the IRS assessed trust fund recovery penalties against Preimesberger for the second, third and fourth quarters of 2014 and the first and second quarters of 2015.

The district court found that Preimesberger’s failure to pay the Facilities’ withholding taxes was not willful as a matter of law.

According to the court, the available evidence showed that the Facilities could not just cease operations because federal and state regulations (“nursing home regulations”) prevented nursing homes and skilled nursing facilities from simply closing their doors. Instead, the nursing home regulations required nursing homes and skilled nursing facilities 

1. to follow a specific closing process and 
2. to maintain the existing standard of care until closure.

Failure to comply with the nursing home regulations could have resulted in civil and criminal penalties.

Based on this evidence, the court determined Preimesberger had to keep the Facilities open and maintain the standard of care until he could comply with the regulatory process for closing them.  

Since there was no evidence that Preimesberger had any funding options other than CFI’s line of credit, the court determined that the only way that Preimesberger could meet his obligations under the nursing home regulations was to comply with the restrictions CFI placed on the funds he borrowed.

The IRS did not allege that Preimesberger had access to any funds, other than the CFI loan, that he could use to pay the withholding taxes. 

In addition to the restrictions imposed on the funds by CFI, the court found that the nursing home regulations appeared to have required that CFI’s loan be used to maintain the standard of care, which arguably made the funds “encumbered” under Nakano. The court determined that, under these circumstances, Preimesberger’s nonpayment of the withholding taxes could be considered involuntary and, therefore, not willful.  

Thinking of Borrowing From Your Company's

Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

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IRS Hits Roadblock in Rejecting E-Filed Returns That Meet the "Beard Test"

The IRS rejects a lot of e-filed returns for reasons that seemingly have nothing to do with whether the taxpayer filed a valid return. (see these Procedurally Taxing posts) This disparity between the way it treats e-filed returns and the way it treats mailed returns caught up with them in Fowler v. Commissioner, 155 T.C. No. 7 (2020) a fully reviewed opinion with no concurrences or dissents. 

In this deficiency case, the taxpayer's self-reported liabilities, for year for which he e-filed return on extended due date that was rejected for failure to provide valid IP PIN and subsequently refiled return with IP PIN which IRS accepted.

The Tax Court determined on summary judgment that taxpayer's 1st submission triggered running of IRC Sec. 6501(a)'s 3-year Statute of limitations for assessment, so deficiency notice that IRS sent outside that period was untimely. Notwithstanding that the IP PINWas omitted, the taxpayer's 1st submission was “required return” and “properly filed.” 

The court held that the 1st submission met the Beard test insofar as it purported to be return, appeared to be honest and reasonable attempt to comply with tax laws as it included his income, deductions, exemptions and credits along with supporting documentation, and was executed under penalties of perjury. 

 The U.S. Tax Court’s opinion in Beard v. Commissioner enumerated several factors to determine the presumptive validity of a taxpayer submission as a tax return. See 82 T.C. 766, 777 (1984), aff’d per curium, 793 F.2d 139 (6th Cir. 1986) (commonly referred to as the “Beard test”). The  Beard test provides that when a taxpayer mails a paper income tax return to the IRS, the return is treated as valid as long as: 

1. the information on the return is sufficient for the IRS to calculate the tax liability; 
2. the filed document purports to be a tax return; 
3. the return makes an honest and reasonable attempt to comply with the tax laws; and 
4. the taxpayer executes the return under penalties of perjury

The IRS's argument that IP PIN was part of signature requirement was unsupported and otherwise failed where internal IRS guidance stated that element other than e-signature could be needed to authenticate electronic returns; where electronic return originator was instructed to verify taxpayer's identity; and where 1st submission included PPIN, which Form 1040 instructions identified as e-signature. 

Also, taxpayer established delivery of his 1st submission to IRS with accountant's affidavit, accounting firm's transmission log, and IRS's acknowledgement of his submission/that taxpayer's e-filing attempt was unsuccessful due to above omission.

Possibly the Fowler case will persuade the IRS to change its practices of rejecting E-filed returns with issues having nothing to do with whether the taxpayer actually filed a return. While this opinion seems correct, we will see whether given the administrative importance of the issue, the IRS will appeal.

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