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Summary Opinions for 01/03/2014

Posted on Jan. 6, 2014

Happy New Year!!!  Procedurally Taxing is looking forward to its first full year, and next week we will get back to our normal posting schedule.  As a kick off, here is our first Summary Opinions for 2014.  Here are the tax procedure items we were reading this week.

  • Let’s start the New Year will a reference to one or our favorite blogs, Jack Townsend’s Federal Tax Crimes Blog, where he uses Les’ recent post on tax snakes on a plane to discuss civil fraud, and does a brief comparison to evasion.   Specifically, Mr. Townsend considers Judge Holmes’ discussion of documents created after a return was filed to “evidence” the position taken, and how in civil fraud, at least in this case, it was not a major factor, but in criminal tax evasion it likely would be sufficient.
  • Journal of Accountancy and various other outlets are reporting that six additional countries have signed FATCA agreements.  The Netherlands, Malta, Jersey, Guernsey, and the Isle of Man all signed Model 1a agreements, where the banks report to the home country, which is then disclosed to the Service.  Bermuda signed a Model 2 agreement, where its banks will report directly to the Service.  Are the various channel islands and Bermuda all “countries”?
  • From the United States Tax Court Group on LinkedIn, Reuben Muller has added some comments to his initial post on the Jackson case we discussed last year, where the Service was using Form 3219N as a SNOD, which the Tax Court questioned.  Mr. Muller appears to have gone “Man from Uncle” and taken pictures of the government’s response, which can be found here.  Mr. Muller has some initial comments, which I have also taken from the comment section on his post, which are worthwhile.  His comments are as follows:

Not surprisingly, petitioners haven’t responded to the judge’s order.

IRS takes position that Form 3219N is a valid NOD.

The 3219N is still being issued – but with an explanatory letter until a revised form is ready. See ¶ 15.

The response doesn’t address what happens precisely when the taxpayer sends in a tax return in response to the Notice. See ¶ 14.

  • The Fourth Circuit has joined the other Circuits in holding that the required records doctrine compels the production of bank records otherwise subject to the Bank Secrecy Act regardless of a Fifth Amendment claim of self-incrimination.  In US v. Under Seal, the Fourth Circuit stated the recordkeeping requirements of the BSA are regulatory in nature, and not targeted at illegal activity or persons suspected of criminal activity.  Further, these records were customarily kept for tax and other reporting, and accessing accounts. Finally, the records have “public aspects”, as required under the case law.  This is in line with the 5th, 7th, and 11th Circuits – and perhaps others.  I am not aware of any Circuits holding for taxpayers on this matter, and SCOTUS has declined review at least twice.  We touch on this line of cases in Saltzman and Book, Section 13.10.  Looks like an uphill battle for anyone trying to make this claim moving forward.
  • Let’s take this back towards the lowbrow.  Tax Girl has written about some exceptional tax advice given by the rapper The Game.  This is a family friendly blog, so I will forgo my normal linking of a song or quoting of lyrics.  So, what tax advice did the Game have for us?  I quote from Tax Girls’ blog:

Taxes?  You can write off damn near anything, man….You can write off strip clubs…making it rain…Buying Jordans…You can write off buying medical marijuana.

Tax Girl proceeds to explain why much of that may not actually be deductible (killjoy), or at least not fully deductible.  Interestingly, my wife said that attending a strip club and making it rain might be research for his song writing—maybe ordinary and necessary research?  She was also unequivocal in her stating that tax lawyers do not need to do that type of research, deductible or not.   Looks like I will be paying for a lot of things with ones this week.

  • A blog we haven’t linked to before, Taxable Talk, has highlighted its “tax offender of the year”.  I like this concept, and maybe we will have to select a scofflaw of the year.  The winner on Taxable Talk is the government for its handling of the 501(c)(4) scandal (not that exciting).  The two runners up, however, are more entertaining and worth a read.  They include murder for hire against a judge who sentenced someone on tax evasion, and big casino gambling on not paying taxes.
  • A recent order by the Northern District of Georgia caught my eye in Kearney Partners Fund, LLC v. US.  This case and the Florida Kearney Partners case are both interesting, and I think both stem from the same tax shelter.  The Georgia order partially granted and partially denied an accountant’s use of the Fifth Amendment to decline answering questions regarding the shelter that her accounting firm created, marketed and helped implement.  The Court held that she did not have to answer questions that were self-incriminating and went to the creation of the scheme, its marketing and the specific implementation, but she was required to answer questions about loss generation in general. The order contains the questions that were allowed.  I could not find a free version of the order, but can get a copy for readers upon request.
  • From the Ninth Circuit comes a strange tax evasion case in Kahre v. United States, which many readers may have heard about as it was working its way through the courts.  In Kahre, the 9th Cir. affirmed the criminal tax convictions of three individuals for using silver and gold coins to pay wages, who claimed they thought they could use the very low face value (not fair market value) of the currency for employment and income tax purposes.  In the underlying jury trial, the jurors did not believe that Mr. Kahre thought Congress allowed the use of the face and not fair market value—probably because that is crazy. The other facts contained in the lengthy opinion did not help Mr. Kahre’s position either.
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