West Palm Beach Man Must Repatriate $18.2M To Satisfy FBAR Penalty Assessment

According to Law360,  Florida man must repatriate roughly $18.2 million held in his overseas bank accounts to pay a court judgment finding he failed to disclose his Swiss accounts to the Internal Revenue Service, a federal judge said.

A federal magistrate judge correctly decided that Isac Schwarzbaum must repatriate funds in his overseas accounts to satisfy the judgment for his failure to timely file his reports of foreign bank and financial accounts with the IRS, U.S. District Judge Beth Bloom said in an order Monday.

Judge Bloom rejected Schwarzbaum's arguments that the government's request for a repatriation order represented an improper workaround of the Federal Debt Collection Procedures Act. A repatriation order instead complies with the FDCPA, which provides rules the government must follow when collecting pre- and post-judgment debts, according to the order.

"The Government's Request That The Court Issue An Order Directing Schwarzbaum To Bring Sufficient Funds To The United States To Satisfy The Judgment Is Not Misplaced,"
Judge Bloom Said.

Schwarzbaum's assertions that the FDCPA doesn't apply to his funds because they were never in the U.S. are also unconvincing, Judge Bloom said.

The order Monday adopted recommendations from Magistrate Judge Bruce Reinhart, who said on June 30 that the court has personal jurisdiction over Schwarzbaum, a dual U.S.-German citizen, and can force him to repatriate the funds.

In August, the federal court found that Schwarzbaum willingly failed to report his foreign bank accounts from 2007 through 2009 and was consequently liable for penalties and interest. That amount has since increased to more than $18 million, including civil penalties, late payment penalties and prejudgment interest, according to court filings. Schwarzbaum has appealed that ruling to the Eleventh Circuit.

The government has contended that he has more than $49 million in assets in his overseas accounts that can be used to satisfy some of his debts to the U.S. Schwarzbaum, meanwhile, argued in a filing in July that the government's request for a repatriation order constituted an unauthorized get-around of the FDCPA.

He also said that the government should be relying on the FDCPA's garnishment provision and not the All Writs Act, which the government cited as justification for its repatriation request.

But Judge Bloom said Monday that the FDCPA incorporates the All Writs Act, giving the "courts the authority to take the necessary steps to aid their jurisdiction or to protect their judgments." The court is consequently not using the All Writs Act to improperly supersede the FDCPA as Schwarzbaum has contended, according to the order. 

Moreover, the applicable precedent supports the court's authority to order Schwarzbaum to repatriate the funds, the judge said.

Judge Bloom also noted that Schwarzbaum is allowed to request a pause on the execution of the judgment, pending his Eleventh Circuit appeal. 

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Another Criminal Prosecution for Failure to Pay Payroll Taxes

On September 1, 2021 we posted IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised! where we discussed that we posted The IRS is Now Criminally Prosecuting Employers For Failure To Pay Withheld Payroll Taxes! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes and unlisted several other criminal prosecutions for failing to pay to the IRS withheld payroll taxes. 

Now according to the DoJ, a West Virginia woman pleaded guilty on November 4, 2021 to willfully failing to pay over to the IRS employment taxes withheld from employees’ wages.

According to court documents and statements made in court, Diann Clark was an office manager and bookkeeper at Alpha Associates, an architectural firm in Morgantown where she managed payroll between 2014 and 2018. 

Clark was responsible for collecting and paying over to the IRS Social Security, Medicare and income taxes withheld from the wages of Alpha Associates employees. 

Despite Knowing The Firm Withheld Payroll Taxes 

From Its Employees’ Paychecks, Clark Did Not
Pay Over These Taxes to The IRS.
As A Result, Clark Caused A Total Tax Loss Of $1,986,410.

Clark is scheduled to be sentenced at a later date. She faces a statutory maximum sentence of five years in prison, as well as a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors. 

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

You Better Thank Again, if You Like Your Freedom!

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IRS Releases Reporting Guidance For Partnership Carried Interests

The Internal Revenue Service today posted detailed reporting directions for certain passthrough entities and taxpayers reporting of partnership interests held in connection with the performance of services, often referred to as “carried interests”, in the form of frequently asked questions (FAQs).

Section 1061 was added to the Internal Revenue Code as part of the Tax Cuts and Jobs Act (TCJA). For taxable years beginning after December 31, 2017, section 1061 recharacterizes certain net long-term capital gains of a partner that holds one or more applicable partnership interests as short-term capital gains. The provision generally requires that a capital asset be held for more than three years for capital gain allocated with respect to any applicable partnership interest (API) to be treated as long-term capital gain. Proposed regulations (REG-107213-18) were published in the Federal Register on August 14, 2020. Final regulations (TD 9945) were published in the Federal Register on January 19, 2021. Owner Taxpayers and Passthrough Entities may rely on the proposed regulations for taxable years beginning before January 19, 2021 (the date final regulations were published in the Federal Register), provided they follow the proposed regulations in their entirety and in a consistent manner. An Owner Taxpayer or a Passthrough Entity may choose to apply the final regulations to a taxable year beginning after December 31, 2017, provided that it consistently applies the final section 1061 regulations in their entirety to that year and all subsequent years. 

Owner Taxpayers and Passthrough Entities must apply the final regulations to taxable years beginning on or after January 19, 2021 (the date final regulations were published in the Federal Register).

The FAQs contain sample worksheets that certain passthrough entities and taxpayers may be required to use in reporting “carried interests,” partnership interests held in connection with the performance of services for tax returns, filed after Dec. 31, 2021 in which a passthrough entity applies the final regulations.

In addition, the FAQs contain additional instructions for certain passthrough entities and taxpayers who though not required to file the sample worksheets must provide similar information and must disclose whether the information was determined under the proposed regulations or another method for tax returns filed after Dec. 31, 2021 for a taxable year beginning before Jan. 19, 2021.

A 2017 tax law change recharacterized certain net long-term capital gains of a partnership that holds one or more applicable partnership interest (APIs) as short-term capital gains. The provision generally requires that a capital asset be held for more than three years for capital gains allocated with respect to any API to be treated as a long-term capital gain.

The purpose of the FAQs is to provide guidance relating to both Passthrough Entity filing and reporting requirements and Owner Taxpayer filing requirements in accordance with Department of the Treasury regulations revised in TD 9945 (.pdf).

This updated reporting guidance will also be added to the next revision of Publication 541-Partnerships, which will be released in 2022.

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IRS Can Summons Couple's Bank Docs On Behalf of Revenue Canada

The Internal Revenue Service can obtain a Canadian couple's bank records from Wells Fargo Bank to aid the Canada's investigation of their tax liabilities for a period spanning nearly a decade, a California federal court ruled in Jen (Hua Yu) Zhang et al. v. U.S., case number 3:21-cv-04655, in the U.S. District Court for the Northern District of California.

The agency can proceed with a summons to Wells Fargo for bank account information, including opening statements and wire transfer authorizations, for Jen (Hua Yu) and Charles (Zhi Yu) Zhang, U.S. District Judge Charles R. Breyer said.

The Summons Is Consistent With A Tax Treaty Between The U.S. And Canada That Allows Such Information Sharing,
And The Information Sought Is Related To The Canada’s Investigation of The 
Couple’s Taxes From 2010 Through 2018,
The Judge Ruled.

The judge rejected the couple's arguments that Canada's tax investigation is improper and that the summons should be consequently discarded, finding that the court's job was only to ascertain any potential improprieties on the IRS' end.

"The court's focus is whether the IRS is acting in good faith," the opinion said. "It appears to be doing so."

The IRS summons to Wells Fargo was issued in April, following a request from the Canadian tax authorities indicating that the couple were under investigation for their taxes for the nine-year period, according to the order. The country was looking into whether they reported the correct amount of tax for those years, the court said.

The couple filed a petition in June seeking to eliminate the summons, and they have argued that Canada improperly issued the summons in pursuit of a criminal investigation.

The U.S. government, for its part, argued in a motion to dismiss that it proved it issued the documents request in good faith and that Canada's criminal investigation into the couple doesn't prohibit the summons.

In the order, Judge Breyer said the IRS could go through with the summons as it satisfied the four requirements for issuing such information requests. Those requirements include that the Canadian tax authorities don't already have the information requested, that the information is relevant to the investigation of the couple and that the IRS has abided by the required administrative steps for issuing it, according to the order. 

Furthermore, there's no referral from the U.S. Department of Justice for prosecution that would bar the IRS from issuing the summons as the couple had suggested, according to the order.

Judge Breyer also found it wasn't in the court's purview to consider the couple's arguments that the Canadian authorities used the incorrect methods to obtain information in the criminal investigation, saying, "It is not this court's job to interpret Canadian law." 

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Ex-Hospital Administrator Can't Borrow from IRS Payroll Taxes to Fund Patient Care

According to Law360, the former chief administrator of a Houston hospital is on the hook for penalties asserted by the IRS to recover the cash-strapped hospital's unpaid employment taxes even though she was prioritizing patient care, the U.S. Tax Court said on October 27, 2021 in Cashaw v. Commissioner, docket number 9352-16L, in the U.S. Tax Court.

Pamela Cashaw owes nearly $26,000 in trust fund recovery penalties to the Internal Revenue Service for periods beginning in 2013 in which Riverside General Hospital did not remit employment taxes after severe financial setbacks, the court found in a memorandum opinion. 

Although Cashaw argued she had a responsibility to direct funds to ensure patients were cared for, she still failed to collect and remit the required funds, the court said.

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Partner Can't Escape $1.9M Tax Penalty, Since He Failed To Contest The Penalty During An Earlier Proceeding

According to Law360, a Florida investor can't escape a nearly $1.9 million penalty and interest bill for claiming an improper $10 million partnership loss because he failed to adequately challenge the IRS' approval of the penalty in earlier proceedings, the Eleventh Circuit said in Alan H. Ginsburg v. U.S., case number 19-11836, in the U.S. Court of Appeals for the Eleventh Circuit.

Alan H. Ginsburg Did Not Challenge The IRS's Potentially Untimely Supervisory Approval Of The Penalty In Administrative Proceedings, Forbidding Him From
it's Advancing Those Claims In The Courts,
The Eleventh Circuit Said In An Opinion October 26, 2021.

The appeals court said that although a form from the IRS asserting the $984,000 gross understatement penalty against Ginsburg lacked a signature from an agency supervisor, he didn't exhaust that argument in IRS administrative proceedings as required by Internal Revenue Code Section 7422(a). The Florida federal court that considered his case was consequently correct in tossing his claims, according to the opinion.

"Because the district court was limited to the grounds Ginsburg raised in his claim for refund, and because the supervisory approval argument wasn't exhausted before the [IRS], the district court rightly didn't consider it in Ginsburg's refund lawsuit," the opinion said.

The Eleventh Circuit Also Found That Ginsburg Improperly Raised His Supervisory Approval Challenge
In His Partner-Level Proceedings.

He Should Have Made That Argument When The Partnership, Through Which He Claimed The Roughly $10 Million Loss,
Was Engaged In Partnership-Level Proceedings With The IRS About Its Tax Reporting, The Appeals Court Found.

Ginsburg's dispute with the IRS deals with the supervisory approval requirement under IRC Section 6751(b)(1), which requires an agency supervisor to provide written approval before the initial determination of a tax penalty.

The 40% penalty for his tax understatement at issue, which now includes $876,000 in interest, stems from a $10 million loss Ginsburg claimed on his 2001 tax return through his interest in AHG Investments LLC, according to the opinion. The loss Ginsburg claimed was far more than the total $25,600 loss the company claimed on its partnership tax return, and he used the loss to decrease his tax bill by roughly $2.6 million, according to the opinion.

The lower court said it couldn't consider his supervisory approval arguments because he didn't raise them in proceedings with the IRS, according to the opinion.

In his appeal to the Eleventh Circuit, Ginsburg repeated his arguments that an IRS supervisor failed to timely sign off on the 40% penalty, and that the government was required but failed to demonstrate it met this requirement, according to filings. For its part, the government has contended that it wasn't obligated to show the penalty got the requisite approval and that Ginsburg didn't exhaust his supervisory approval requirement arguments in the administrative proceedings.

The U.S. government has also argued that Ginsburg was required to raise his Section 6751(b)(1) arguments during the partnership-level proceedings. 

The Eleventh Circuit's opinion sided with the government, rejecting Ginsburg's arguments that the courts should have forced the government to prove it met the supervisory approval requirement despite his failure to raise his arguments sooner.

The appeals court also found that Ginsburg should have raised his arguments in the partnership-level proceedings to comport with TEFRA's intent to prevent repetitive proceedings when tax issues aren't adequately addressed before they float down to partners.  

"The Section 6751(b)(1) supervisory approval issue was not personal to Ginsburg, and he could have raised it at the partnership level," the appeals court said. "It is not a partner-level defense."

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

Court Orders Man To Repatriate $18.2M in to Pay for His FBAR Penalties

According to Law360,  Florida man must repatriate roughly $18.2 million held in his overseas bank accounts to pay a court judgment finding he failed to disclose his Swiss accounts to the Internal Revenue Service, a federal judge said.
 

A federal magistrate judge correctly decided that Isac Schwarzbaum must repatriate funds in his overseas accounts to satisfy the judgment for his failure to timely file his reports of foreign bank and financial accounts with the IRS, U.S. District Judge Beth Bloom said in an order dated October 25, 2021.

Judge Bloom rejected Schwarzbaum's arguments that the government's request for a repatriation order represented an improper workaround of the Federal Debt Collection Procedures Act. A repatriation order instead complies with the FDCPA, which provides rules the government must follow when collecting pre- and post-judgment debts, according to the order.

"The Government's Request That The Court Issue An
Order Directing Schwarzbaum To Bring Sufficient Funds
To The United States To Satisfy The Judgment
Is Not Misplaced," Judge Bloom Said.

The U.S. government is looking to get around federal law governing debt collections to force Isac Schwarzbaum to repatriate the cash to satisfy the judgment for his failure to timely file his reports of Foreign Bank and Financial Accounts. A repatriation order instead complies with the FDCPA, which provides rules the government must follow when collecting pre- and post-judgment debts, according to the order. 

Isac Schwarzbaum Told A Federal Court That He Shouldn't
Be Forced To Repatriate $18.2 Million Held In
Overseas Banks To Satisfy A Judgment For Failing To Report
His Swiss Bank Accounts To The Internal Revenue Service.

Moreover, the government's arguments that it can use the All Writs Act to order repatriation are misguided, according to the filing. 

The Filing Objected To Recommendations From Magistrate Judge Bruce Reinhart, Who Said June 30 That The Court
Has Personal Jurisdiction Over Schwarzbaum,
 A Dual U.S.-German Citizen, And
Can Force Him To Repatriate The Funds.

An August court judgment found that he willingly failed to report his foreign bank accounts from 2007 through 2009 and was consequently liable for the $15.7 million penalty and interest amount after the IRS supplied an incorrect $13.7 million figure. He also failed to report his foreign accounts during 2006, but that action did not constitute a willful violation, the court had found.

Schwarzbaum's debt to the U.S. now totals more than $18 million, including civil penalties, late payment penalties and pre-judgment interest, according to court filings. The federal government argued that he has more than $49 million in assets in his overseas accounts that can be used to satisfy some of his debts to the U.S.

 Do You Have Undeclared Offshore Income?

 

Want to Know Which
Voluntary Disclosure Program
is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243