Offers in Compromise and Dissipated Assets

Under IRC Sec. 7122(a), taxpayers may request an offer in compromise (OIC) with the IRS to settle outstanding tax liabilities for less than the full amount owed. To qualify, taxpayers must prove that their outstanding tax liabilities exceed the amount of income and assets available to satisfy those liabilities during the time remaining in the collection period, generally, the statute of limitation. This is known as establishing the taxpayer’s reasonable collection potential (RCP).

The higher the taxpayer’s RCP, the lower the taxpayer’s chances of qualifying for an OIC. In calculating the RCP, the IRS takes into account current and potential earnings, as well as the value of assets exceeding those needed for necessary living expenses. The sum of the taxpayer’s income and assets is treated as available to satisfy the taxpayer’s federal tax liability.

Taxpayers that dispose of their assets solely to qualify for an OIC are likely to fail, since a number of court cases support the IRS’ practice of including dissipated assets in the RCP calculation. A dissipated asset is defined as any asset (liquid or nonliquid) that has been sold, transferred or spent on nonpriority items or debts and that is no longer available to pay the tax liability.

 The Tax Court recently decided two cases upholding the IRS’ rejection of OICs where the court found that the taxpayers had disposed of assets that would otherwise have been available to satisfy their outstanding tax liabilities. In Tucker, T.C. Memo. 2011-67, the individual taxpayer’s request for an OIC was denied when the examiner included dissipated assets in the RCP calculation, resulting in an RCP sufficient to satisfy the outstanding tax liability within the statutory collection period. The taxpayer was aware of his unpaid tax liabilities when he transferred funds into an online brokerage account to engage in day trading and subsequently lost a portion of the money. The IRS determined, and the Tax Court held, that the taxpayer lost the money in disregard of his outstanding tax liability. But for the failed investments, the taxpayer’s reasonable collection potential exceeded his outstanding tax liabilities, and the court held that the settlement officer did not err in determining that the taxpayer could fully pay his federal income tax liabilities.

 

Dissipated assets are not limited to those lost through negligence or disregard of one’s tax liabilities, however. In Layton, T.C. Memo. 2011-194, the taxpayer’s request for an OIC was rejected after the IRS examiner included the excess balance of an IRA distribution in the RCP calculation. The taxpayer had been unemployed for several years and had liquidated an IRA account to help pay her necessary living expenses. The remaining balance of the taxpayer’s IRA distributions, however, went to pay other nonessential debts. The taxpayer was not able to demonstrate that the debts she paid were necessary living expenses, so the Tax Court ruled in favor of the IRS.

http://www.journalofaccountancy.com/Issues/2011/Dec/20114622

European Commission Pushes U.K., Germany to Renegotiate Terms of Swiss Tax Deals

The European Commission legal services have concluded that bilateral tax treaties signed by Switzerland, the United Kingdom, and Germany violate European Union law, but European Taxation Commissioner Algirdas Semeta is hopeful that both EU member states will revise the terms of the Swiss deals without having to revert to a long-drawn out legal challenge.

European Commission Spokeswoman Emer Traynor denied media reports that Semeta was threatening legal action against the United Kingdom over the terms of its recently agreed bilateral deal with Switzerland. She noted that the United Kingdom and Germany agreements with Switzerland have not been ratified and that the EU executive was confident that each side “will work to remove the parts that impinge on EU law.”

A legal battle between the European Commission and the United Kingdom and Germany has been brewing since August when the bilateral deals, which are designed to repatriate billions of dollars in revenue hidden in secret Swiss bank accounts, were first announced. Both agreements commit the Swiss to impose penalties but would not alter their bank secrecy laws any more than they have already done to meet OECD and G-20 requirements on tax havens.

The European Commission believes the Swiss deals with the United Kingdom and Germany are illegal because they go against the terms of the EU cross-border savings tax legislation that calls for a system of automatic information exchange.

IRS Criminal Tax Bulletin Highlights Recent Rulings

The IRS Nov. 18 posted to its website an issue of the Criminal Tax Bulletin, published by the Criminal Tax Division of the Office of Chief Counsel, which summarizes notable federal appellate rulings addressing criminal issues between April and September 2011.

Among the decisions summarized in the bulletin were the 9th Circuit's rulings that the Fifth Amendment Privilege Is Inapplicable to Subpoena for Foreign Bank Records.

 

In re Grand Jury Investigation M.H. v. United States, 648 F.3d 1067 (9th Cir. 2011), the Ninth Circuit held that foreign bank account records required to be kept under the Bank Secrecy Act (“BSA”) fall within the Required Records Doctrine, thus rendering the Fifth Amendment privilege against self-incrimination inapplicable to a subpoena for these records.

IRS Identifies Gift Tax Non-Filers Using State Property Records

According Forbes, Josephine Bonaffini, the Federal/State Coordinator for the IRS Estate and Gift Tax Program, between sixty percent and ninety percent of taxpayers fail to file a gift tax return despite having engaged in a transaction requiring a return.

Although gift tax audits are historically rare, the IRS has examined hundreds of taxpayers in the last two years whom the IRS suspects made large gifts, yet failed to file the appropriate returns.

Borrowing from techniques long employed to identify noncompliant taxpayers in the income tax context, the IRS is using records obtained from third parties—namely, land records maintained in state and county offices—to root out intra-family land transfers for little or no consideration.

According to Bonaffini, in the past two years, 323 taxpayers have been audited for failure to file gift tax returns relating to gifts of real property, 217 cases were still under examination, and another 250 cases were being researched to determine whether to conduct gift tax audits. At the time, the IRS had determined that ninety-seven taxpayers had violated gift tax reporting requirements by failing to file, and just twelve cases resulted in assessment of tax and penalties.

The recent flurry of gift tax compliance activity took many in the tax community by surprise. The compliance initiative received no appreciable public attention until the recent dispute in California federal court where the District Court for the Eastern District of California, refused to enforce the IRS' John Do Summons against the California Board of Equalization (“BOE”) where it refused to voluntarily turn over this requested information. The court’s denial of the government’s petition may embolden additional states to refuse the IRS’s request for records.

As National Debts Pile Up, Tax Evaders Face Greater Scrutiny

NY Times-London - Disputes are raging from Athens to Washington about how to reduce government debt without further damaging already weak economies.  But there is at least one thing on which global leaders seem to agree: cracking down on tax havens and tax evasion would help. 

Tax evasion and compliance was on the agenda of the meeting of the Group of 20 countries in Cannes amid hope that the economic crisis has given policy makers new impetus to push for a coordinated attempt to hunt for some of that offshore wealth. 

Assets held offshore by individuals worldwide have probably almost doubled from $11.5 trillion six years ago, according to the Tax Justice Network, a nongovernmental organization. 

Efforts to go after tax evaders range from investing in technology and hiring tax officers to working with the O.E.C.D. to reach agreements governing tax havens. 

Whatever steps are taken, policy makers agree that it takes international cooperation and initiatives by individual countries to reduce tax evasion.

Willful Failure to File FBARs - What if you Really Did not Know?

BNA - Over the past three years, the U.S. government has intensified its pursuit of taxpayers who fail to pay taxes on money held in foreign bank accounts; this includes a massive increase in criminal investigations and prosecutions.

While “willfulness” is generally recognized to be a high legal standard requiring proof that the accused acted in conscious violation of a known legal duty, IRS's published guidance and filed actions suggested the IRS believed it could do more with less.

But two recent cases—an FBAR case out of the U.S. District Court for the Eastern District of Virginia and patent infringement case out of the U.S. Supreme Court—call both assumptions into significant question.

FBAR enforcement will continue to be a powerful tool for IRS. But in cases where knowledge is a contested issue, the government will have to do more than it has previously done. Cases based upon what a taxpayer should have known or could have discovered based on knowledge of a substantial risk will not satisfy the standards established by Williams and Global-Tech.

If you really did not know, you really did not know.

IRS On Track to Issue Proposed Rules, Draft Bank Agreement Under FATCA

Internal Revenue Service is “on track” to issue proposed regulations on the Foreign Account Tax Compliance Act (FATCA) around the end of the year, a top IRS international official said Nov. 17.

IRS Large Business & International Division Deputy Commissioner (International) Michael Danilack said if the guidance does not come out by Dec. 31, he expects it will be issued shortly thereafter.

Danilack said that along with the regulations, IRS hopes to issue a draft agreement for foreign financial institutions that want to start reporting U.S.-owned accounts to U.S. tax authorities under FATCA. The law requires such reporting or banks may face a 30 percent withholding tax.

The IRS official said if the draft agreement does not come out together with the rules, it will be issued soon after that guidance is released. He said IRS is envisioning a system where banks will be able to apply online and will be immediately given an identification number. “We're in very good shape on that,” Danilack said.

In another key point, the official said he expects that there will be bilateral agreements between the United States and other countries on the implementation of FATCA.

Switzerland Eases Rules on Account Data Transfer for U.S. Clients of Swiss Banks

The government of Switzerland has agreed to ease existing rules on the transfer of information on secret Swiss bank accounts of U.S. clients in a further effort to diffuse tensions with the United States over funds hidden away in Swiss banks.

The Swiss government announced Nov. 16 that the Federal Council, the government’s executive arm, adopted amendments to a June 1998 ordinance on the implementation of an existing 1996 U.S.-Swiss double taxation agreement.

The amendments will allow U.S. requests for information on U.S. clients suspected of tax fraud to be made under the existing 1996 treaty based on “certain patterns of behavior” rather than requiring the identification of the U.S. taxpayer.

The decision follows the Nov. 8 admission by Swiss tax authorities that they had received a U.S. request for administrative assistance in suspected cases of tax fraud, based on the 1996 double tax agreement. A spokesman for Credit Suisse, Switzerland’s second largest bank, confirmed the same day that the bank was ordered by Swiss tax authorities to hand over information with regard to accounts of domiciliary companies belonging to certain U.S. persons as beneficial owners.

Is Domestic Asset Protection Dead?

There has been quite a bit of buzz about a recent bankruptcy case involving an Alaska asset protection trust. However, the case merely confirms a weakness in the use of domestic asset protection trusts that was obvious even before this case.  

Domestic asset protection trusts (DAPTs) promise the holy grail of creditor protection - a trust where the settlor/grantor can transfer assets to, be a discretionary beneficiary of. but still have the assets of the trust be protected from the settlor's/grantor's creditors. Alaska, Delaware, and Nevada are three popular jurisdictions for these trusts.

There are open questions about the effectiveness of the trusts for creditor protection purpose, including enforceability across state lines under the U.S. Constitution. A major issue is the 10 year voidability provision of 11 U.S.c. Section 548(e) that entered the U.S. Bankruptcy Code in 2005.

In Battley v. Mortensen, a bankruptcy court in Alaska found that a transfer to a DAPT could run afoul of 11 U.s.e. Section 548(e), even though the debtor was solvent at the time of creation of the trust.
The court noted:  

"when property is transferred to a self-settled trust with the intention of protecting it from creditors, and the trust's express purpose is to protect that asset from creditors, both the trust and the transfer manifest the same intent. In this case, I found that the trust's express purpose could provide evidence of fraudulent intent."

Since a debtor can be placed in bankruptcy by his creditors on an involuntary basis, one cannot simply avoid this exposure by not filing for bankruptcy protection.

The result in Mortensen is clear: Domestic Asset Protection Trusts don’t protect assets from creditors for the first ten years after the trust is settled.

As we have been advising clients for years, only a Foreign (Non US) Juridiction can provide certainty of your asset protection solutions.  With Domestic Asset Protection, you never KNOW that you do not have it until, a US Judge decides that you do not have it!

Swiss Parliament Approves Amended U.S.-Switzerland Tax Treaty

A Swiss parliamentary committee Nov. 10 gave its go-ahead to proposed amendments to a new U.S.-Swiss double taxation treaty that would make it easier for U.S. authorities to seek information on secret bank accounts held by U.S. taxpayers with Swiss banks.

The amendment allows for the handover of files on suspected tax offenders to the U.S. in cases where the U.S. authorities don’t know the identities of American holders of Swiss bank accounts and are basing requests for information merely on certain patterns of behavior.

According to the amendment, Switzerland will only grant administrative assistance in cases where the U.S. tax authorities produce clear evidence of a suspected offense, Eugen David, the president of the committee, told reporters in the capital, Bern. In addition, they must detail the pattern of behavior and explain why they need the information.

There must be evidence of wrongdoing by the Swiss bank where the U.S. client had the account and the mere fact that a U.S. citizen had an account with a Swiss bank isn’t sufficient, David said.

The Council of States decided on Sept. 21 to send the amended treaties back to the foreign affairs committee. The upper house “wants to wait until the Federal Council makes clear progress towards a comprehensive solution to the tax dispute with the United States.”

For more information go to: http://www.businessweek.com/news/2011-11-10/swiss-parliament-panel-approves-amendment-to-tax-deal-with-u-s-.html

Former UBS Client Sentenced for Stashing $7.1 Million in Swiss Accounts

Bloomberg reports that Richard Werdiger, 64, is one of 36 Americans charged since 2007 in a U.S. crackdown on offshore tax evasion, and his was the longest prison term by a day. Werdiger, who pleaded guilty in March in federal court in New York, paid a civil penalty of $3.84 million and was fined $50,000 yesterday at his sentencing.

A New York diamond merchant, who is a former client of the Swiss banking giant UBS AG has, been sentenced to a year and a day in prison for hiding more than $7.1 million in Swiss bank accounts and evading more than $400,000 in U.S. taxes, prosecutors announced Nov. 9 (United States v. Werdiger, S.D.N.Y., No. 10-CR-325, sentencing 11/9/11).

The penalty was part of his plea agreement when he admitted in March to a single count of conspiring to defraud IRS and five counts of filing false tax returns. His prison term was just over half of the lower end of a range of 24 months to 30 months recommended in the plea agreement.

Public Anger and Shareholder Unease Threaten Tax Havens' Tranquility

The Economist recently reported that - Under intense international pressure to lift banking secrecy, the first and biggest of the world’s “tax havens”—places that charge low or no taxes to foreigners—is ceding some ground. In a deal signed on October 6th, Switzerland agreed to tax money held in its banks by British residents (it had already done a similar deal with Germany). These customers face a levy of up to 34% as well as, from 2013, a withholding tax.

That could bring the British treasury around £5 billion ($7.8 billion). But Nicholas Shaxson, author of “Treasure Islands”, a book on offshore finance (and a former contributor to this paper), calls it a “Swiss tax swizz”: the country will in effect pay a fat fee to avoid revealing clients’ names. That undermines efforts at the Organisation for Economic Co-operation and Development, a Paris-based club of mostly rich countries, to set international standards on tax evasion.

Global Financial Integrity, a campaigning group, says poor countries “lose” more than $1 trillion a year to tax havens, around ten times the aid they receive. Two-thirds of this is tax evasion and avoidance, the group says, the rest transfers by criminals and the corrupt. Another outfit of fiscal inquisitors, the Tax Justice Network (TJN), cites research by the Bank for International Settlements, the Boston Consulting Group and McKinsey to calculate that global offshore deposits amount to at least $9 trillion, some $2 trillion more than the total held at home by American banks. ActionAid, a charity, published research this week showing that the companies in the FTSE 100 index had 8,492 offshore subsidiaries.

Campaigners also want to see more countries agree to the automatic exchange of tax information on non-residents. Bilateral tax treaties normally require such exchanges only on request. This works if the government seeking information knows precisely what it is looking for and if the host government can obtain it. As this issue has moved up policymakers’ agendas, some havens have voluntarily become more co-operative. The Isle of Man, for instance, now automatically swaps information (though Jersey refuses to follow suit for fear of losing “competitive advantage”).

Overall, however, resistance to change remains strong, not least in big Western financial centre's such as Wall Street and in the City of London, which see the flexibility offered by tax havens as an essential part of their business model. Public discontent may be filling the campaigners’ sails, but political support for reforms is still patchy. France, which holds the presidency of the Group of 20 (a club of the world’s biggest economies) wants to discuss tax havens at next month’s meeting in Cannes. But other countries are less keen, and more urgent items crowd the agenda.

Swiss Order Credit Suisse to Disclose U.S. Account Information

The Swiss government has ordered Credit Suisse, the country’s second-largest bank, to hand over information on undeclared bank accounts held by U.S. taxpayers, a move that represents the latest escalation of U.S. efforts to tear down Switzerland’s previously impenetrable wall of banking secrecy.

Credit Suisse AG, Switzerland's second-largest bank, has begun notifying certain U.S. clients suspected of offshore tax evasion that it intends to turn over their names to the U.S. Internal Revenue Service, with the help of Swiss tax authorities.

The bank has been asked by the U.S. Internal Revenue Service to provide the requested information in line with an existing 1996 bilateral tax treaty between Switzerland and the United States, a Credit Suisse spokesman confirmed Nov. 8.

Credit Suisse mailed letters Nov. 2 to certain U.S. clients notifying them that the bank has been ordered to deliver information to the Swiss authorities, the spokesman said. The clients have also been told they must provide the Swiss authorities the name of a person authorized in Switzerland to receive legal documents and orders on their behalf.

The move by Credit Suisse to disclose American client names and account information is the latest twist in a showdown between Switzerland and the United States over the battered tradition of Swiss bank secrecy.

U.S. authorities, who suspect tens of thousands of wealthy Americans of evading billions of dollars in taxes through Swiss private banks in recent years, are conducting a widening criminal investigation into scores of Swiss banks, including Credit Suisse.

It is unclear how many American clients of Credit Suisse hold private banking accounts that have gone undeclared to U.S. tax authorities.

For more information go to Reuters.

Disregarded Entities Are Not Always Disregarded

Under the check the box rules, entities owned by one person can often be disregarded for federal tax purposes. Such entities are referred to as "disregarded entities."

 

As time has progressed since the passage of the check the box rules, the IRS has created more and more exceptions to the disregarded treatment. The following is a summary of the principal exceptions, but is not intended to be exhaustive. If any readers think we have missed anything major, please feel free to comment to this posting.

1. Status is modified if the single owner of the entity is a bank. Treas. Regs. Section 301.7701-2(c)(2) (iii). 
2. Status is modified for certain tax liabilities. Treas. Regs. Section 301.7701-2(c)(2)(iii). These include: (1) federal tax liabilities of the entity with respect to any taxable period for which the entity was not disregarded; (2) federal tax liabilities of any other entity for which the entity is liable; and (3) refunds or credits of federal tax. 
3. Disregarded status ignored or modified for taxes imposed under Subtitle - Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A 24, and 25 of the Code) and taxes imposed under Subtitle A including Chapter 2 - Tax on SelffEmployment Income. Treas. Regs. Section 301.7701-2(c) (2) (iv) (A). 
4. Status is modified for certain excise taxes, as described in Treas.Regs. Section 301.7701-2(c)(2J(v). Although liability for excise taxes isn't dependent on an entity's classification, an entity's classification is relevant for certain tax administration purposes, such as determining the proper location for filing a notice of federal tax lien and the place for hand-carrying a return under Code Section 6091
5. Conduit financing proposed regulations will treat a disregarded entity as separate from its single member. Code Section 7701 (I).
6. Special rules will apply in hybrid situations. Hybrid situations are circumstances where an entity is not disregarded in one jurisdiction but is disregarded in another.

Switzerland, Liechtenstein Among 11 ‘Tax Havens'

President Nicolas Sarkozy Nov. 4 named 11 jurisdictions that he said the world's leading economies consider “tax havens,” because they have failed to adequately adopt or implement legal systems to allow tax information exchange and transparency.

Countries Identified as Havens.

In his final press conference in which he described summit outcomes, Sarkozy said that, in a report to the G-20, the Global Forum on Transparency and Information Exchange for Tax Purposes, fingered:

• Antigua
• Barbados
• Botswana
• Brunei
• Panama
• the Seychelles
• Trinidad and Tobago
• Uruguay and
• Vanuatu

as lacking legal systems that allow exchange of information for tax purposes.

He said the reports name two more, Liechtenstein and Switzerland, that he said have failed to adequately implement information exchange mechanisms that they have recently adopted.

“Countries that remain tax havens with banking secrecy will have to answer to the international committee,” Sarkozy warned.

OECD Comment.
The Organization for Economic Cooperation and Development, which hosts the Global Forum, cautioned that the 11 countries Sarkozy named, which are all forum members, have committed to make changes to improve their information exchange.

Another BLACK LIST? 

Stay Tuned!

No Swiss payment offer over U.S. tax probe

ZURICH, Nov 4 (Reuters) - Switzerland has not offered a financial settlement to end a U.S. tax investigation into a number of Swiss banks but remains willing to hand over bank client names as part of any deal, a government spokesman said on Friday.
Basler Kantonalbank , Credit Suisse and Julius Baer are among 11 Swiss banks under investigation in connection with allegations they helped Americans dodge taxes.

Mario Tuor, a spokesman for the Swiss department responsible for international financial affairs, reiterated Switzerland's stance that client names could be transferred under existing double-taxation treaties.

While Switzerland has expressed an interest in sealing a deal for the whole banking sector, Tuor would not comment on a report that the government had offered a deal for the country's more than 300 banks.

"I assume that we will find a solution by the end of the year," she told the weekly Bilanz, adding Switzerland would continue to refuse any so-called 'fishing expeditions', or broad requests for bank client data with little evidence.

But parliament should deal with a government proposal to allow U.S. authorities to request help finding names of suspected tax dodgers based on defined behavioural patterns in its December session, she told Bilanz.

Credit Suisse said earlier this week it had taken a provision of 295 million Swiss francs ($334 million) for settling the U.S. investigation, suggesting a deal might be near. It said the final settlement might exceed the current provision.

Asked whether Credit Suisse would have to hand over more client details than the 4,450 UBS had to provide, Widmer-Schlumpf said Switzerland would only deliver more bank data when its courts had denied any client appeals.

Opting Out Of IRS Voluntary Disclosure?

OVCI #2 was announced February 8, 2011, to allow taxpayers to come clean with foreign accounts and get into compliance with the IRS. The program runs through August 31, 2011, but in some cases can be extended until November 29, 2011.
Some find the system inflexible and fear they may be paying more than necessary given their facts.

There’s been discussion of “opting out” of the program to take your chances in audit, but it’s a topic fraught with fear. Now, however, there is guidance about opting out of the program that makes much of it transparent.

Program Basics. Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010. If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent. See FAQ 53. Moreover, in limited inheritance situations, a penalty of only 5 percent may be imposed. See FAQ 52.

These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties. Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report. Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.
Opting Out. Opting out of the program can make sense for some, though it involves taking your chances with an IRS examination. The IRS has published a separate guide detailing the rules and procedures for opting out. The IRS illustrates pros and cons of opting out with examples.  See FAQ 51.
Here are some of the rules.

1.     Program Status Report. Before you can opt out, the IRS sends a letter reporting on the status of your disclosure and what you still must submit. If you’ve given enough data, the IRS will calculate what you would owe under the OVDI. You should provide any missing items within 30 days.

2.     Written Warning. The IRS sends another letter explaining that opting out must be in writing and is irrevocable. You have 20 days thereafter to opt out in writing.

3.     Taxpayer Submission. Within 20 days, the taxpayer opts out in writing and makes a written case what penalties should apply and why.

4.     IRS Summary. The IRS employee who has been handling your case summarizes it, agreeing or disagreeing with your view of penalties, and listing how extensive an audit he or she recommends.

5.     Central Committee. A Committee of IRS Managers reviews the summary and decides how extensive an audit to conduct. The IRS says “the taxpayer is not to be punished (or rewarded) for opting out.” The Committee also decides whether to assign your case for a normal civil audit or to assign it for a Criminal exam.

6.     Interview? Some audits will include taxpayer interviews.

Bottom Line? The opt out procedure is helpful but still a bit daunting.

If you are considering it, make sure you get some solid advice from an experienced tax lawyer about the nature of your facts. See FAQ 51.

Tax Court Finds Use of Offshore Account Extends Assessment Period for Transaction

While the Internal Revenue Service determined that the president and chief executive officer of a company used an offshore leasing arrangement to conceal income after the limitations period had run, the U.S. Tax Court found he was still liable for deficiencies for several of the years at issue due to his fraudulent concealment of a related offshore bank account during those years (Browning v. Commissioner, T.C., No. 3531-08, T.C. Memo. 2011-261, 11/3/11).

According to the Tax Court, Perry W. Browning was the principal shareholder, president, and CEO of S B Electronics (SBE). It said that, during the 1995 through 2000 tax years, Browning received compensation for his services on behalf of SBE that were greater than what he reported as wages by the offshore employee leasing (OEL) company.

Judge James S. Halpern noted that the three- and six-year limitations periods for assessment had expired before the Internal Revenue Service issued Browning notices of deficiency. Because of this, Halpern said that the returns filed for the 1995 through 1997 tax years were not fraudulent and the related notices of deficiency were barred. However, because Browning concealed a Bahamas bank account and associated credit cards for the 1998 through 2000 tax years, Halpern said the fraud exception applies and upheld the associated notices of deficiency. Halpern also upheld the fraud penalties for those years