Recently in Tax Fraud Category

Tax Evasion Conviction of Las Vegas Attorney Paul Wommer Upheld by 9th Circuit Court of Appeals

January 6, 2015,


Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn't committed "tax evasion" under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the "additions to the tax, additional amounts, and penalties provided by this chapter," the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:

Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

IRC Section 6671(a) provides:

Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

Thus, as the 9th Circuit saw it, tax evasion includes evading the payment of interest and tax penalties. Still its striking that the IRS would choose to pursue a criminal tax case based upon such a small amount of unpaid interest and penalties. Clients often do not view their conduct as being criminal, or they believe that because they are "small fish," that the IRS will not bring a criminal tax case. While that may be true a lot of the time as Mr. Wommer found out with the wrong set of facts even small tax debts can morph into big tax problems.

Wommer's case illustrates an increasing use of the evasion of payment prong of the criminal tax evasion statute. Internal Revenue Code Section 7201 makes it a crime not only to evade tax (as in filing a fraudulent tax return), but also willfully evading the payment of tax. Thus someone who willfully fails to pay their tax debt can be convicted of tax fraud even though their original tax return was perfectly proper. Of course not all non-payment of tax debt is considered tax evasion. However, Wommer stepped over the line when he started depositing money into the account of another individual in order to prevent the IRS from issuing a tax levy.

Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Florida Doctor Sentenced in Criminal Tax Case for Concealing Assets and Filing False Individual Income Tax Returns

September 16, 2014,


Individuals using offshore bank accounts to conceal assets and facilitate tax fraud continue to be prosecuted by the Department of Justice. Under the Bank Secrecy Act, citizens and lawful permanent residents (i.e. "Green Card" holders) that have an interest in or signature authority over a financial account in a foreign country with assets in excess of $10,000 at any time during the year are required to disclose the accounts on their individual income tax returns, both on Schedule B, and if the accounts are large enough on Form 8938. They must also file a FBAR (Report of Foreign Bank and Financial Accounts) on FINCen Form 114 disclosing any financial account in a foreign country with assets in excess of $10,000. Dr. Patricia Lynn Hough was recently convicted of conspiracy to defraud the IRS by keeping money in offshore bank accounts and filing false individual income tax returns that failed to report the income received by her on the foreign bank accounts. Hough was sentenced to 24 months in jail and ordered to pay over $15 million in restitution in addition to paying over $40,000 in prosecution costs.

Hough, a United States resident and the owner of 2 medical schools in the Caribbean, created nominee entities and used undeclared foreign bank accounts to conceal assets from the IRS. Upon selling the medical schools for over $35 million, the entire proceeds from the sale were deposited into undeclared accounts in the names of the nominee entities. The majority of the sale proceeds were not reported on her tax returns. The unpaid taxes totaled over $15 million. In addition to the proceeds received from the sale of the medical schools, Hough also failed to report a large amount of interest and investment income and failed to report that she had an interest in bank securities or other financial accounts located in foreign countries.

The money in the accounts, though, didn't go untouched. Through evidence including e-mails, telephone calls and in-person meetings, the IRS was able to establish that Hough and her husband had asset managers that made investments and transferred funds from the offshore accounts in the names of the entities and medical schools to offshore accounts in their own names. The funds were later used to fund what the Justice Department referred to as "their lavish lifestyle."

Tax evasion through the use of offshore bank account continues to be a high priority for the IRS, and taxpayers may face high penalties and possible jail time if they are caught prior to making a voluntary disclosure.

If you have any offshore bank accounts and you want to discuss your options in light of the harsh penalties given out by the U.S. government, contact the tax controversy attorneys at Brager Tax Law Group, A P.C. for a confidential consultation.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Business Owners Get Jail Time for Tax Evasion

September 3, 2014,


Sometimes understating income is just carelessness. Sometimes its tax fraud or tax evasion. People don't always realize that tax fraud or tax evasion can lead to time in jail.

Convincing judges to sentence defendants to prison for criminal tax evasion continues to be a priority for the Department of Justice where taxpayers have willfully underreported their income or made false statements to the IRS revenue agents regarding their tax liabilities, as shown by unrelated decisions handed down against Abdelhamid M. Horany and Robert C. Sathre.

Horany, a business owner, admitted to underreporting his income by approximately $175,000, which resulted in his underreporting his tax due and owing by over $60,000 in 2007 alone. In total, Horany underreported his tax due by more than $145,000; he was sentenced to 12 months in prison for his actions. Sometimes taxpayers try to convince themselves that the IRS won't go after them because they are "minnows." This case is a warning that it is not necessary to evade millions of dollars in taxes in order to be prosecuted for tax evasion.

Sathre, also a business owner, was a much bigger fish; he pled guilty to charges of tax evasion and was sentenced to 36 months in prison and was ordered to pay $3,113,882 in restitution for willfully evading payment of his taxes for 1995 and 1996. According to the Department of Justice press release, Sathre concealed income from a property he sold, for which he received over $3 million in installment payments. Sathre compounded the problem by sending over $500,000 during 2005 and 2006 to an offshore bank account in the Caribbean, and later wired $900,000 from the sale of another property to the same offshore account in an attempt keep the funds out of the reach of the IRS. In addition, Sathre supplied the Caribbean bank with false declarations and false promissory notes and also claimed he was neither a citizen nor a resident of the United States. Although not mentioned in the press release, one would assume that Sathre also failed to file Foreign Bank Account Reports (FBARs) on TD-F 90-22.1 (now known as FinCEN Form 114). These criminal tax cases (among many others) demonstrate that the IRS takes the issue of underreporting income very seriously and will not hesitate to press for a prison sentence in cases involving tax evasion.

Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Swisspartners Group Entered Into NPA to Avoid Criminal Tax Prosecution But Must Pay $4.4 Million in Forfeiture and Restitution for Assisting U.S. Tax Evasion

June 13, 2014,


To avoid prosecution for tax evasion and other alleged crimes, the Swisspartners Investment Network AG, a Swiss-based asset management firm, and three of its wholly-owned subsidiaries (collectively, the Swisspartners Group) entered into a non-prosecution agreement (NPA) with the U.S. Attorney's Office. Although many taxpayers have been entering the IRS Offshore Voluntary Disclosure Program (OVDP), for some taxpayers it is now too late as the Swisspartners Group has already disclosed to the U.S. Attorney's Office the names of 110 U.S. taxpayers who may have failed to file Foreign Bank Account Reports (FBARs) and/or been engaged in tax fraud.

Although the Swisspartners Group avoided criminal prosecution for assisting U.S. taxpayers in opening and maintaining undeclared foreign bank accounts from about 2001 to 2011, it couldn't avoid paying large sums of money for its wrongdoing. Swisspartners Group agreed to pay $4.4 million in forfeiture and restitution. Of the $4.4 million, $3.5 million represents fees that Swisspartners Group earned by assisting U.S. taxpayers in opening and maintaining undeclared accounts, and $900,000 represents the approximate amount of unpaid taxes arising from the Swisspartners Group involvement in tax evasion.

There are several factors that led to the NPA between the U.S. Attorney's Office and Swisspartners Group: (1) beginning around May 2008, the Swisspartners Group voluntarily implemented remedial measures against offshore tax evasion; (2) without any pressure from the U.S. authorities or obligation under a criminal investigation or prosecution, the Swisspartners Group reported criminal conduct by its clients; (3) the Swisspartners Group produced 110 account files that identified U.S. taxpayers who evaded taxes; (4) the Swisspartners Group's willingness and ongoing cooperation with the U.S. authorities to combat tax evasion; and (5) the Swisspartners Group, when investigated by outside counsel, made true representations of the misconduct that was under investigation.

The Swisspartners Group admitted, as part of the NPA, that it knew certain U.S. taxpayers maintained undeclared foreign bank accounts with the intent to evade U.S. taxes. Swisspartners Group also admitted that it helped certain U.S. taxpayers conceal beneficial ownership of undeclared assets from the IRS by, among other things: (1) creating sham foundations or other sham entities that operated as the nominal account holders; (2) using non-U.S. nationals on accounts or insurance policies; (3) facilitating the transportation of large amounts of cash into the U.S. for the benefit of U.S. taxpayers; and (4) arranging large cash deposits in Swiss financial institutions for the benefit of U.S. taxpayers.

Under the NPA, the Swisspartners Group must continue to cooperate with the U.S. tax authorities for at least three years from the date of the agreement; otherwise, the U.S. Attorney's Office may prosecute the Swisspartners Group.

Continue reading "Swisspartners Group Entered Into NPA to Avoid Criminal Tax Prosecution But Must Pay $4.4 Million in Forfeiture and Restitution for Assisting U.S. Tax Evasion " »

Grim Outlook for Congressman Michael Grimm after 20-Count Indictment Alleging Tax Fraud

May 22, 2014,


Congressman Michael Grimm faces a 20-count indictment in federal court for allegedly committing tax fraud, and evading taxes by concealing more than $1million in sales and understating wages. He is charged with five counts of mail fraud, five counts of wire fraud, three counts of aiding and assisting in the preparation of false federal tax returns, one count of conspiring to defraud the United States, one count of impeding the IRS, one count of health care fraud, one count of engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, two counts of perjury, and one count of obstructing an official proceeding.

If convicted, Grimm faces up to 20 years for each mail and wire fraud charge and for the obstruction charge, up to 10 years of imprisonment for the health care fraud charge, and up to five years of imprisonment for the charge of conspiring to defraud the U.S. and for each perjury charge. Furthermore, he faces a term of imprisonment of up to three years for each charge of aiding and assisting in the preparation of false and fraudulent tax returns and for the charge of obstructing and impeding the due administration of the tax laws. Finally, he faces up to six months of imprisonment for engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, as well as forfeiture, restitution, and fines.

It is ironic that Congressman Grimm would be involved in such actions given that as a former FBI agent he was investigating fraud. The former Marine, FBI agent, accountant, attorney, and small business owner might now be able to add tax evasion and fraud to his otherwise impressive and distinguished resume.

According to the indictment, Grimm was one of the owners and managing member of "Healthalicious," a fast food restaurant located in Manhattan. From 2007 through 2010, Grimm oversaw the day-to-day operations of the restaurant and also managed the restaurant's payroll. Allegedly, he fraudulently under-reported wages he paid his workers and under-reported the true amount of money the restaurant earned to both federal and New York State tax and insurance authorities. Because many of his workers did not have legal status to work in the United States, he paid a large portion of payroll in cash, which in turn, lowered the company's payroll tax expense. Moreover, a lower payroll reported to the New York State Insurance Fund (NYSIF) allowed him to receive lower monthly worker's compensation premiums. He also lowered his income tax liability to the federal and state governments by under-reporting the amount of gross receipts the company earned.

To make matters worse, when confronted in a deposition about his duties as owner and manager of the company, he attempted to conceal his illegal actions. He allegedly lied about several material matters in connection with the lawsuit such as: (1) whether he paid his employees in cash; (2) whether he had interacted with the payroll processing companies; (3) whether he corresponded regarding Healthalicious business through e-mail; and (4) whether he still had access to such an email account.

Contact our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

IRS Criminal Tax Investigation Interesting Facts

April 18, 2014,

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Criminal tax cases generally start out in the IRS' Criminal Investigation (CI) division. It is therefore instructive to look at CI's annual report that was issued earlier this year for the 2013 fiscal year. To some extent, there were no surprises. International tax evasion and the voluntary disclosure program were among Criminal Investigation's top priorities. Also included on the list was the tax fraud referral program, and Bank Secrecy Act (BSA) and Suspicious Activity Report (SAR) review teams.

The criminal tax folks also touted an increase in prosecution recommendations of 17.9% over the previous fiscal year. The Criminal Investigation division also trumpeted a conviction rate of 93.1%! It is this high conviction rate which drives the strategy of most criminal tax lawyers which is generally to seek to avoid indictment in the first place. Of course, that's easier said than done, but at a minimum it requires understanding all of the facts, good and bad, as early as possible.

Here are just a few of the tax evasion cases highlighted by Criminal Investigation in its annual report.

• 27 months in prison, and restitution of over $429,000. An Idaho general contractor concealed his business receipts from 2005 through 2008 by, among other things, instructing his customers to make checks payable to him personally rather than his business, and then failed to deposit those checks into the business' main bank account.

• 63 months in prison, and restitution of over 1.7 million dollars. A Chicago accountant embezzled millions of dollars from a family that owned a chain of plumbing wholesale supply companies. Believe it or not he had the sole authority to sign checks, transfer funds, and sign tax returns for the trusts he was managing. Apparently, the temptation was too much. Of course he didn't report the embezzled income; hence the tax fraud conviction.

• 36 months in prison, and over $2 million in restitution for a Santa Monica California lawyer. He pled guilty to willfully subscribing and filing false tax returns. The court filings indicated he used shell entities and trust to hide almost 1 million dollars in client fees and assets from the IRS. On top of that, he submitted a false offer in compromise to the IRS.

There is an urban myth that it is better to file no tax return than a fraudulent tax return. Like all urban myths it has a grain of truth. Failure to file a tax return is punishable by "only" one year in jail. Tax fraud or tax evasion is punishable by up to 5 years in jail. However, it is sometimes possible for federal tax prosecutors to charge a failure to file a tax return as tax evasion. This occurs where, in addition to failing to file the tax return, the person commits "overt acts" in furtherance of hiding the failure to file. Just ask the Nevada physician Robert David Forsyth who according to court documents was sentenced to 27 months in prison and ordered to pay over $306,000. In addition to failing to file tax returns, he closed all of his personal bank accounts and used a third party business to cash his paychecks. He also used cash to pay his expenses. That was sufficient to support a tax fraud conviction with the higher sentence.

If you have been contacted by the Criminal Investigation division you should immediately contact a criminal tax lawyer before you speak to the IRS.

If you have any offshore bank account or other tax problems call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Tax Fraud Investigation Leads to California Construction Company Owner's Guilty Plea to Criminal Tax Charges

January 2, 2014,


Civil tax problems were the least of Brian Kenny's worries on Thanksgiving. The California construction company owner, age 40, of San Francisco, pled guilty in November to filing false tax returns for his company, SF Bay Construction, for the 2006 tax year.

According to the press release from the Department of Justice ("DOJ") and the indictment, Kenny incorporated his business as an S Corporation in February of 2005, and was its sole shareholder through the end of 2007. Kenny's business tax returns for the years at issue, ranged from reporting a loss of $15,000 to a gain of $1.3 million at various times. The indictment alleged that all of these returns vastly underreported Kenny's business income. Originally, Kenny was charged with five criminal tax counts stemming from alleged under-inclusion of business income for the 2006 and 2007 tax years. The indictment also alleged that he filed a false Form 941, employment tax return. Ultimately, through a plea agreement, Kenny pled guilty to criminal tax charges only for the 2006 tax year. Kenny admitted that he failed to report more than $470,000 in gross receipts for 2006, and that he intentionally failed to supply accurate income information to his tax preparer.

Kenny's sentencing is scheduled for February 11, 2014, at which time he faces a maximum penalty of three years in federal prison and a fine of up to $250,000. The three-year prison sentence and accompanying fine faced by Kenny is for the single count of aiding and assisting in the preparation and presentation of a false U.S. income tax return, in violation of Title 26, U.S.C. § 7206(2); had he been charged with tax evasion, or tax fraud, Kenny would have faced an even more severe penalty.

From the information provided in the DOJ's indictment and release, it appears that Kenny intentionally provided false information to his tax preparer instead of preparing the fraudulent tax returns himself. This did not, however, reduce Kenny's culpability or lessen his tax problems in any way. In fact, it is likely that the IRS had Kenny's tax preparer lined up to testify against him. Generally speaking, the CPA or other tax return preparer is one of the first people IRS Special Agents contact whenever they build a criminal tax case.

If you have received a tax audit notice, or are under civil or criminal investigation by the IRS you should contact a tax litigation attorney to find out your options.

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The Family That Commits Tax Evasion Together May Go to Prison Together

October 4, 2013,

While tax fraud is often perpetrated by a single person, a recent case shows that offshore tax evasion can sometimes be a family affair as well. U.S. Attorney Preet Bharara recently announced a prosecution of an offshore tax evasion case involving multiple family members. This case illustrates the dangers involved when an older family member passes on without cleaning up his tax problems; this is especially true where there has been a failure to file Form TDF 90-22.1, Report of Foreign Bank Account (FBAR). Henry Seggerman, of New York and Los Angeles, pled guilty this summer to one count of conspiracy to defraud the U.S., as well as two counts of filing false tax returns in connection with his family's criminal tax evasion scheme.
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Along with four other siblings, Seggerman inherited a substantial estate from his father Harry Seggerman, a wealthy New York businessman who passed away in 2001. According to the Department of Justice ("DOJ"), the senior Seggerman's fortune totaled $24 million, over half of which was held in undeclared Swiss bank accounts. While the DOJ did not say that either Henry Seggerman or any of his siblings actively assisted the late Harry Seggerman with his offshore tax fraud during his lifetime, Henry Seggerman allegedly filed false tax returns after his father's death that grossly underreported the value of his father's estate. Furthermore, the tax return that Henry filed on behalf of his father's estate failed to disclose the over $12 million hidden in Swiss bank accounts.

According to the DOJ, Henry Seggerman and his family continued this offshore tax fraud scheme for over a decade after their father's death. Seggerman was accused of taking further steps to set up new Swiss bank accounts to conceal the funds inherited by himself and his siblings. Aside from controlling his own offshore bank account, Seggerman was accused of helping his brother repatriate funds from a Swiss bank account to the U.S. under the guise of loans from a foundation that he controlled.

Similar to many others who have been accused of committing offshore tax evasion, Seggerman is expected to fully cooperate with U.S. authorities in exchange for the possibility of a reduced sentence. Seggerman is expected to testify on behalf of the U.S. in the trial of Michael Little, an attorney who advised the Seggermans on financial issues. Little, who is accused of operating an 11-year offshore tax fraud conspiracy, has pleaded not guilty and is awaiting trial. Additionally, three of Seggerman's siblings have already pled guilty to conspiracy to defraud the United States and filing fraudulent tax returns. All three siblings are currently awaiting sentencing.

While no sentencing date has been set for Seggerman, he faces a maximum penalty of 11 years in federal prison. Additionally, he has already agreed to make a $600,000 restitution payment at the time of his sentencing; if the case follows past patterns it would not be surprising if the total restitution payments are in the 6 million dollar range.

Continue reading "The Family That Commits Tax Evasion Together May Go to Prison Together " »

78-year-old Illinois Businessman Sentenced to Prison for Multi-Year Offshore Tax Evasion Scheme

August 12, 2013,

Tax fraud is not limited to the young. The IRS has once again demonstrated that its pursuit of American citizens who commit tax evasion through the use of offshore bank accounts does not diminish when taxpayers of advanced age are involved. Seventy eight- year-old Peter Troost, of Skokie, Illinois, recently pled guilty to tax fraud charges stemming from his use of a Swiss bank account to evade more than $1 million in taxes dating back to 1999. Earlier this year, the TaxProblemAttorneyBlog discussed the prosecution and ultimate acquittal of Hawaiian auto mogul James Pflueger for offshore tax evasion and other criminal tax charges, noting that despite his age of 87 years old, the Department of Justice vigorously prosecuted the case arising from his offshore bank accounts.

ID-100104416.jpgNow, Peter Troost, the owner of Troost Memorials, a seller of gravestones and other cemetery markers, has pled guilty to an offshore tax evasion scheme in which he diverted income from both his business and various rental properties into a Swiss Bank Account located at UBS. According to his plea agreement, Troost diverted taxable income into his UBS account for at least 10 years, beginning in 1999. Troost admitted to intentionally failing to report both interest income and income from his business throughout his offshore tax evasion scheme. The timing of the end of Troost's offshore arrangement (and its discovery) is unsurprising, considering the IRS' increased scrutiny of offshore banks accounts resulting from UBS' deferred prosecution agreement to provide information about U.S. account holders that began in 2009.

According to the Department of Justice, Troost is the first taxpayer to be charged in Federal Court in Chicago arising out of the United States' 2009 agreement with UBS and other Swiss banks for those banks to provide information about U.S. taxpayers holding offshore bank accounts. Given the Department of Justice's vigorous prosecution of taxpayers who commit offshore tax fraud, Troost may not be the last Chicago-area businessperson to be investigated for use of an overseas bank account. Although Troost's involvement with UBS lasted for at least 10 years, given the IRS' increased enforcement efforts against individuals who own undeclared offshore bank accounts it is unlikely that many taxpayers will remain undetected for that long in the future.

Although Troost had already paid a substantial amount to the IRS including over $1 million in back taxes and a $3.75 million civil penalty, U.S. District Judge John Tharp, Jr. felt that financial penalties alone would not suffice to deter other potential tax cheats. In sentencing Troost to one year in federal prison followed by a year of supervised release and 200 hours of community service (not to mention an additional $32,500 fine), Judge Tharp stated that Troost's "deliberate, conscious decision" to evade taxes merited the more substantial sentence that he imposed. Despite Troost's advanced age, no special consideration was given to him during the sentencing.

If you have tax problems, don't let them turn into criminal tax problems. Contact a tax litigation lawyer for help.

Offshore Account Holders Beware. More Swiss Bank Account Information to Be Turned Over to the IRS

July 15, 2013,


In a move which should send shivers through the spines of delinquent FBAR (Foreign Bank Account Report) filers the Swiss Federal Supreme Court has granted the IRS' request for the names of U.S persons holding "secret" Swiss bank accounts. The IRS had originally submitted a so-called group request in September 2011, but an account holder brought an appeal to the Swiss Federal Administrative Court which held that the group request was too vague and amounted to a fishing expedition. The IRS amended its group request, and the Federal Administrative Court ruled the amended request was allowable under the provisions of 1996 Convention between the United States and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income (the "Treaty").

Under the Treaty, the Swiss will supply information if the IRS can show a suspicion of "fraud or the like." Since Swiss and U.S. law are very different in terms of defining tax fraud it is sometimes difficult for tax attorneys in the U.S. to understand whether a particular set of factual circumstances will be considered fraud or the like. Indeed, "mere tax evasion" is not a crime in Switzerland. The key issue in the Credit Suisse case, however, was whether a "group request" i.e. one which describes a particular set of persons by their characteristics as opposed to providing a specific name could ever be honored.

According to its press release the Swiss Federal Supreme Court held that:

[R]equests for administrative assistance in relation with fraud and the like are in principle admissible under the 1996 Double Taxation Agreement with the United States, regardless of whether the suspicion falls on one or more persons and whether the said persons are explicitly named in the request.

In another words in the future the IRS can describe a class of individuals, and a Swiss Bank will be required to turn over their bank records. It wouldn't be a bit surprising if the IRS already has group requests in the works at other Swiss banks including those reportedly under investigation such as Julius Baer, Basler Kantonalbank, Zuercher Kantonalbank, HSBC, and Pictet.

It is hard to believe that anyone with a Swiss bank account is still laboring under the belief that their offshore accounts will remain secret from the IRS. The penalties for failure to file FBARS are very severe, and can include criminal convictions, as well as civil penalties which can reach 300% of the offshore account balances. In addition, criminal tax evasion charges could be brought by the IRS. Anyone with an offshore account needs to give serious consideration to whether or not they should enter the IRS' Offshore Voluntary Disclosure Program (OVDP). With the IRS racking up continued success in obtaining the cooperation of foreign banks it could decide to close the OVDP at any time, and therefore waiting may not be an option.

87 Year Old Hawaiian Auto Mogul Acquitted of all Tax Fraud and Conspiracy Charges after District Court for District of Hawaii Finds Lack of Intent and Willfulness

May 2, 2013,

The U.S. District Court for the District of Hawaii recently acquitted an 87-year-old auto dealership mogul of all tax fraud and conspiracy charges that the U.S. Government had brought against him. James Pflueger, who was facing multiple counts of both tax fraud and conspiracy to defraud the government, had been indicted on those charges in 2010 based on his alleged involvement in two separate tax fraud schemes. On March 20th, 2013, however, Pflueger was acquitted of all charges in what his criminal tax attorneys called "the Justice Department's first unsuccessful prosecution relating to the use of foreign bank accounts in the Government's ongoing international enforcement efforts."

Pflueger was initially indicted on tax fraud and conspiracy charges related to two separate incidents, the first of which involved a situation where Pflueger's company allegedly improperly paid for personal expenses of Pflueger's family, and the second of which involved alleged underreporting of gain from Pflueger's sale of one of his properties, known as Hacienda. The government also initially charged Pflueger with the failure to file a Report of Foreign Bank and Financial Accounts (FBAR), but dropped that charge before trial.

Dennis Duban, the accountant who handled Pflueger's financial affairs, had pled guilty in October 2012 to conspiracy and aiding in the filing of a false tax return. According to the government, Duban and Pflueger engineered the Hacienda sale to effect offshore tax evasion by transferring the proceeds from the sale to a Swiss bank account in order to prevent the proceeds from being used to pay civil claims arising from a 2006 accident at another of Pflueger's properties. However, Pflueger's criminal tax attorneys were successful in arguing that Pflueger was not responsible for his IRS tax problems, and that Duban was the sole mastermind of the tax fraud.

Over the course of a bench trial (which was elected by Pflueger's counsel partly due to concerns about jury prejudice resulting from the aforementioned well-publicized accidents at Pflueger's property), Judge Kobayashi of the District Court for the District of Hawaii held that the government failed to prove beyond a reasonable doubt that Pflueger had conspired to obstruct the IRS. Kobayashi also agreed with Pflueger's arguments that he lacked the requisite intent for a conspiracy conviction (as well as a lack of financial wherewithal and knowledge), finding that "Pflueger relied in good faith on his company's accounting staff, and especially on Duban" in all matters related to his company's books. Kobayashi also acquitted Pflueger of the charges of filing false returns for 2004 and 2007, finding again that Pflueger lacked willfulness, and had relied in good faith on others that had committed tax fraud.

While Pflueger was ultimately acquitted it is worth noting that his advanced age, and his claimed reliance on his accountant did not nothing to stop the IRS from putting him through the stress and expense of a trial.

If you have received a tax audit notice, or are under civil or criminal investigation by the IRS you should contact a tax litigation attorney to find out your options.

Tax Preparers Beware! 6th Circuit Court of Appeals Affirms Dismissal of Tax Refund Suit Due to Inability to Prove Timely Filing of Amended Return

April 11, 2013,

The 6th Circuit recently taught an expensive lesson to a Michigan couple about carefully following procedure when dealing with IRS Tax Problems. In Stocker v. United States (6th Cir. 2013), the 6th Circuit affirmed the dismissal of Robert and Laurel Stocker's suit against the IRS challenging the IRS' denial of a $64,000 tax refund, holding that because the Stockers could not prove the timely filing of their amended federal tax return under the methods established in Internal Revenue Code (IRC) Section 7502, the District Court for the Western District of Michigan was correct in dismissing the case.

The Stockers' tax problems and subsequent loss of their $64,000 refund occurred because of a seeming minor error. Following an IRS tax audit of a business in which the Stockers had invested and lost money, Mr. Stocker's CPA prepared amended 2003 federal tax returns for the Stockers that entitled them to a $64,000 refund. Mr. Stocker's CPA advised him that the returns had to be mailed by October 15, 2007 to comply with the tax law. Unfortunately, though Mr. Stocker testified that he mailed the returns on that day, he neglected to bring copies of the certified mail receipts to the post office, therefore failing to obtain date-stamped receipts. Apparently this was because although the CPA's office manager prepared postage prepaid, certified mail return receipted requested envelopes for the Stockers she mistakenly retained the customer copies of the certified mail receipts for the 2003 amended returns, rather than giving these copies to Mr. Stocker so that he could present them at the post office as he mailed the returns.

This left the Stockers at a disadvantage when their tax dispute began, as the IRS' records stated that the envelope containing the Stockers' amended 2003 return was postmarked four days late. Compounding the Stockers' tax problems, the IRS failed to retain the postmarked envelope in question. Seeking help in their tax dispute the Stockers brought suit, but the District Court granted the IRS' motion to dismiss for lack of jurisdiction due to the suit being barred as past the three-year period for filing a claim for a tax refund. On appeal, the 6th Circuit affirmed.

The 6th Circuit was unmoved by the Stockers' attempts to prove the mailing date of their return through means other than those set forth in IRC Section 7502. As the IRS' records indicated that the returns were postmarked four days late, the Stockers could not prove timely delivery under IRC Sec. 7502(a)(1), which states that the postmark of the returns establishes the date of mailing. Additionally, Mr. Stocker's failure to obtain the certified mail receipt precluded the use of IRC section 7502(c)(1), which states that the "date of registration shall be deemed the postmark date". The court rebuffed the Stockers' attempts to prove timely delivery through circumstantial evidence; rather, the Court stated that its own precedent prevented any other method of proof. Finally, the court held that the District Court had not abused its discretion in refusing to draw the inference that the Stockers had timely filed their returns because of the IRS' failure to retain the postmarked envelope in violation of internal policy.

Despite the seemingly minor nature of the Stockers' mistakes, the 6th Circuit was highly unsympathetic to their plight. Ultimately, the court reiterated that only certain procedures are available to prove timely filing, and the Stockers' own mistakes precluded them from receiving relief, despite their innocent nature. While calling it "unfortunate" that the Stockers could not prove the timeliness of their return, the court sent a strong message to taxpayers that it was unwilling to make exceptions for even the most innocent of mistakes.

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Prominent Tax Attorney Found Liable for Civil Tax Fraud Penalties Due to Finding of "Willful Blindness" to Underreporting of Income

March 20, 2013,

After being convicted of criminal tax fraud and serving 18 months in federal prison, a prominent former California tax attorney recently found himself again the subject of an IRS investigation into his alleged tax fraud. After a criminal tax case that culminated in Owen G. Fiore's guilty plea to tax evasion for the 1999 tax year, the IRS began to seek civil tax fraud penalties against Mr. Fiore for 1996 through 1999. Although Mr. Fiore conceded the tax disputes and the tax fraud charges for 1998 and 1999, he disputed his fraud liability for 1996 and 1997. While the Tax Court felt that it was unclear whether some of Mr. Fiore's actions weighed in favor of a finding of tax fraud, the court took a novel approach and ultimately held that Mr. Fiore had been "willfully blind" to his unreported income, and consequently found him liable for tax fraud for the 1996 and 1997 tax years.

Borrowing heavily from criminal law principles and discussing relevant appellate jurisprudence on the issue, the Tax Court applied the infrequently-used (at least in the area of civil tax fraud) willful blindness concept to Mr. Fiore's actions in the years in question. Specifically, the court stated that if the IRS could prove by clear and convincing evidence that Mr. Fiore was "aware of a high probability of unreported income or improper deductions" and "deliberately avoided steps to confirm this awareness," the standard for civil tax fraud would be met.

Ultimately, the Tax Court found that Mr. Fiore met both prongs of the test for willful blindness. Discussing Mr. Fiore's extensive work experience and education, the court found that such experience ensured that he was aware of the risk of underreporting his income through generally neglecting firm administration. Furthermore, the court discussed Mr. Fiore's significant use of funds during the period in question, and inferred from this that he consciously chose to not pay taxes in order to have more funds on hand. As to the second prong of the test, the court found that since Fiore had access to bank statements, bills and deposit slips for each taxable year, yet failed to check them when preparing his tax returns, this constituted "deliberate" avoidance of steps to confirm the underreporting of his income.

After this discussion of Mr. Fiore's tax return problems, the Tax Court concluded that the finding of willful blindness not only weighed in favor of tax fraud, but deserved "particular weight" in determining whether Mr. Fiore had committed tax fraud. When added to other factors such as Mr. Fiore's repeated failure to cooperate in his IRS tax audits, consistent underreporting of income, and haphazard recordkeeping (none of which conclusively weighed in favor of a finding of tax fraud on their own), the court found that the IRS had met the burden of proof to show that Mr. Fiore committed tax fraud in 1996 and 1997.

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Streamlined Foreign Bank Account Report (FBAR) Filing Compliance Procedure FAQs Issued by IRS for Non-Resident Taxpayers

March 6, 2013,

Last year the IRS announced an alternative to its Offshore Voluntary Compliance Program (OVDP) which was being made available to a limited group of non-resident individuals who failed to file Foreign Bank Account Reports (FBARs) on Form TDF 90-22.1. Our tax lawyers blogged about the Streamlined Program previously, taking a look at some of the pros and cons. Now the IRS has issued six Frequently Asked Questions about the Streamlined Compliance Program.

The most important FAQ is the first one. It makes clear that taxpayers who have a tax liability greater than $1,500 may apply to the Streamlined Program. It cautions that if a taxpayer exceeds the $1,500 threshold he or she may be classified as higher risk, and under FAQ No. 2 may be subject to higher penalties. It appears that the Streamlined Program may be a good bet for those individuals whose liability exceeds the threshold by a relatively small amount, perhaps $1,000 or $2,000, or even as much as $3,500. In the judgment of our tax attorneys going over that amount could be problematic, although as with tax problems in general and FBAR problems in particular, there is no substitute for a review of all of the facts. Simply put, a case by case determination is necessary before making the decision.

FAQ No. 3 provides that an individual who is already in the 2011 Offshore Voluntary Disclosure initiative (OVDI) or the earlier or later OVDP, who qualifies under the
Streamlined Procedure may move over from those programs into the Streamlined Procedure. Like everything else about the IRS' OVDP it is not possible to do so without risk. Specifically, the FAQs require one to opt-out of the OVDP by way of an irrevocable election. Only then will the examiner determine whether the taxpayer meets all of the qualifications of the Streamlined Procedure. So it is possible, especially in cases where the taxpayer is over the $1,500 per year threshold , to opt out, and wind up in a situation with the IRS asserting either a non-willful FBAR penalty, or even a willful FBAR penalty.

This is just another example of the IRS making FBAR compliance more difficult than necessary. There is no good reason why the IRS could simply combine the OVDP and the Streamlined Procedure into one coordinated system. A taxpayer wishing to come clean, and who believes she qualifies, could apply under the Streamlined Procedure, and then if the IRS disagreed that person would automatically be phased into the standard OVDP.

The reverse should also be the case. If a taxpayer is already in OVDP she should be able to get a determination as to whether she qualifies under the Streamlined Procedure without having to opt out, and possibly incur disastrous consequences.

As in all FBAR cases involving substantial dollars a knowledgeable tax lawyer should be consulted before anything is done.

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San Diego Used Car Dealer Sentenced in Tax Fraud Case

January 28, 2013,

Many people have the preconceived notion that used car salesmen are less than scrupulous and Mohammad Jafar Nikbakht didn't do anything to help that stereotype. Late last year in the United States District Court for the Southern District of California, Mohammad Nikbakht aka Freydoon Nikbakht was sentenced to 15 months in prison for criminal tax evasion for the year 2007. Mr. Nikbakht was the owner or co-owner of a number of wholesale used car dealerships in and around San Diego, California. He willfully and fraudulently understated his income on his Forms 1040 in a conscious attempt to avoid paying his federal income tax totaling over $200,000.

According to papers filed in his criminal tax case beginning in October 1999, Mr. Nikbakht purposely caused a false joint income tax return to be prepared on behalf of himself and his wife for tax year 1998, which substantially understated their income. Mr. Nikbakht signed and filed this fraudulent return with the Internal Revenue Service as well as doing the same for tax years 1999 and 2000. His intention was to knowingly and wantonly defraud the U.S. government of tax due and owing for those years.

In addition to filing false returns for 1998 through 2000, Mohammad Nikbakht allegedly also committed tax fraud by filing fraudulent Forms 1040 for the years 2002, 2003 and 2004, again purposely understating his income. For the years 2006 and 2007 he didn't file tax returns even though they were required. In his attempt to further criminally evade the income tax due and owing he operated a wholesale auto dealership under another dealer's license and had all of his income payments made payable to either cash or his ex-wife in an effort to hide his income. He moved money into, out of and between various bank accounts to hide the money from the IRS and created a sham corporation, opening a bank account in that corporation's name that he used to pay his personal expenses, again in a concerted effort to conceal his income.

Mr. Nikbakht eventually pled guilty to one count of the criminal tax indictment for 2007 with the remaining counts dismissed on the motion of the United States. In addition to 15 months in prison, Mr. Nikbakht was ordered to pay the IRS $124,454 in restitution and upon his release from prison will be on supervised release for three years. He will also be prohibited from opening checking accounts or incurring new credit card charges or opening additional lines of credit without approval of his probation officer.

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