Tax Court Finds That IRS Did Not Prove Fraud, Therefore Statute of Limitations Was Closed!

On April 6, 2015, following a trial in Tampa, Florida, the Tax Court ruled that back taxes and penalties imposed upon Mr. Jacoby were unfounded because they had not acted fraudulently in the filing of tax return.   

The Court's ruling overturned the IRS's assessment of approximately $2 million in back taxes and penalties for positions taken by the taxpayers on their 1999 and 2000 tax returns relating to tax shelters promoted by KPMG and others.

Judge Juan F. Vasquez rules that Steven F. Jacoby, who worked as a licensed securities broker and account executive before starting his own financial strategies company, hadn't intended to evade tax through concealing, misleading or otherwise preventing the collection of his taxes owed. 
 

"After reviewing all of the facts and circumstances, the IRS had failed to sustain its heavy burden of proving by clear and convincing evidence that, some 15 years ago, petitioners intended to evade tax known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of tax for the years in issue."

The court says IRS couldn't prove any fraudulent intent by Jacoby and, because the deficiencies occurred on tax returns filed 15 years ago, the limitations period for collecting the taxes owed has expired.

Whether litigated in the context of a civil fraud trial, a criminal prosecution, or an assessment of a hard FBAR penalties, willfulness is willfulness.   The IRS or DOJ has the burden to prove subjective willfulness, and here it did not. 

The Tax Court opinion can be found here.   Tax Analysts coverage of the opinion can be found here. 

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