Dist. Ct. Determined That a Liechtenstein Stiftung is a "Foreign Trust" for US Tax Purposes

According to Law360, in  Daphne Jeanette Rost, executor of the Estate of John H. Rebold, v. U.S., case number 1:19-cv-00607, in the U.S. District Court for the Western District of Texas the court held that an estate will not recover almost $600,000 in penalties and interest it had paid for failing to report foreign financial accounts after a federal court determined there was no dispute that it had established an entity qualifying as a foreign trust. 

John H. Rebold's estate set up a foundation that clearly was a trust because it did not conduct business and existed for beneficiaries that did not control it, the court ruled in a decision released Monday. The estate offered no facts to rebut the government's argument that it was not a domestic entity, the court added, dismissing the case. 

Rebold traveled to Switzerland in 2005 to establish the foundation, which was formed under Liechtenstein law as an entity known as a Stiftung. He deposited $2 million in 2005 and $1 million in 2007. Rebold failed to report the creation, the transfers or his ownership on his 2005-2007 tax returns. 

The nternal Revenue Service deemed the entity a foreign trust and assessed interest and penalties of $596,830 against Rebold. He paid and filed a refund suit before dying. Both the estate and the government filed for summary judgment. 

The core of the dispute is whether the foundation qualifies as a foreign trust for tax purposes, the court said. Treasury Regulations Sections 301.7701–1 and 301.7701–4(a) state that an entity is a trust if it preserves property for beneficiaries who do not participate in these duties and are not associates in a business.

The foundation meets these criteria, the court said. Its formation documents state its purpose is defraying the costs of Rebold's family. The documents also specifically state the foundation does not conduct business, the court said.

The next question is whether the foundation is a foreign trust, the court said. Federal law defines a foreign trust as any trust that is not domestic, it said. A domestic trust, it said, must meet two tests: It is administered by a U.S. court and controlled by a person in the U.S. The estate failed to present any evidence on these questions, so the court awarded summary judgment for the government.

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TIGTA Reviewed IRS Levies and Found That The IRS Generally Complied With Legal And Administrative Requirements.

TIGTA reviewed levies issued for over 2 million taxpayers by IRS Collection functions during the period October 1, 2019, through September 30, 2020, and found that the IRS generally complied with legal and administrative requirements. 

However, There Were Some Instances of Noncompliance In Which An Estimated 1,306 Taxpayers’ Rights Were Potentially Violated And
1,186 Taxpayers Were Potentially Burdened.

TIGTA’s review of levies issued by the Automated Levy Programs found:

·         Federal Payment Levy Program – from a population of 1,018,356 taxpayers: 9 taxpayers were not notified of their CDP rights and an estimated 33 taxpayers were levied while a CDP hearing was pending. From a population of 1,944 taxpayers with disqualified employment tax levies and 1,034 taxpayers with Federal contractor levies issued through the Federal Payment Levy Program, 36 taxpayers were not notified of their CDP rights and 18 taxpayers were not timely notified of their CDP rights.

·         State Income Tax Levy Program – from a population of 367,293 taxpayers, 28 taxpayers were not notified of their CDP rights and an estimated 1,186 taxpayers were potentially burdened when they did not timely receive their post-levy CDP rights. An estimated 34 taxpayers did not receive a new CDP notice after an additional tax assessment was made.

·         Municipal Tax Levy Program – from a population of 423,075 taxpayers, an estimated 528 taxpayers did not receive a new CDP notice after an additional tax assessment was made. An estimated 171 taxpayers were levied while a CDP hearing was pending.

From a population of 180,620 taxpayers levied through the Automated Collection System, TIGTA found that 81 taxpayers were not notified of their CDP rights and 7 taxpayers were not timely notified of their CDP rights. Also, 190 taxpayers did not receive a new CDP notice after an additional tax assessment was made, and 46 taxpayers were levied while a CDP hearing was  pending.

From a population of 35,978 taxpayers levied by revenue officers through the Integrated Collection System, TIGTA found that 50 taxpayers were not notified of their CDP rights and 23 taxpayers were not timely notified of their CDP rights. Also, 18 taxpayers did not receive a new CDP notice after an additional tax assessment was made, and 32 taxpayers were levied while a CDP hearing was pending.

TIGTA made eight recommendations to help improve the proper issuance of levies by the IRS. The IRS agreed with seven recommendations. The IRS disagreed with one recommendation to ensure that post-levy CDP notices are    issued to taxpayers within 30 days of receipt of levy proceeds, but plans to review reports every 60 days to identify accounts for which a post-levy CDP notice was not sent within a reasonable period and promptly address those situations.

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Is the CDP Petition Filing Deadline Jurisdictional? - SC Agrees to Hear The Issue.

According to Procedurally Taxing, the U.S. Supreme Court agreed to hear Boechler v. Commissioner of Internal Revenue, appealed from the Eighth Circuit. 

The Question Presented Is Whether the Time Limit in Section 6330 (D)(1) Is a Jurisdictional Requirement or a
Claim Processing Rule
Subject to the Equitable Tolling?

In Boechler, P.C. v. Commissioner, 2020 U.S. App. LEXIS 23306, on July 24, [2020], the Eighth Circuit aligned itself with the Ninth Circuit in Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), and held that, even considering recent Supreme Court case law that generally treats filing deadlines as not jurisdictional, the Collection Due Process (CDP) Tax Court filing deadline at section 6330(d)(1) is jurisdictional.  

The majority predicated its holding on an exception that Congress may override the general rule by making a clear statement in the statute that Congress wants the filing deadline to be jurisdictional.  

In ruling that Congress had made a clear enough statement in the CDP provision, the Boechler majority rejected the D.C. Circuit’s opinion in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), holding that the similarly-worded Tax Court filing deadline at section 7623(b)(4) for whistleblower award actions is not jurisdictional.  

A concurring judge in Boechler said she felt bound to agree with the majority because of prior Eighth Circuit precedent, but if she were presented with the issue without that precedent, she would hold the filing deadline not jurisdictional.

The petition for writ of certiorari emphasizes this clear circuit court split and urges the Court to resolve the matter. Boechler further argues:

        Review is also warranted because the Eighth Circuit aligned itself with the wrong side of the split.         This Court has made clear that statutory time limits are quintessential claim-processing rules                    presumptively subject to equitable tolling unless Congress has clearly indicated to the contrary. And         Section 6330(d)(1) is not the “rare statute of limitations that can deprive a court of jurisdiction.”            United States v. Kwai Fun Wong, 575 U.S. 402, 410 (2015).

The petition cites a line of important non-tax cases including Henderson v. Shinseki and Irwin v. Dept. of Veterans Affairs. As Kristin Hickman observed, the case presents yet another issue at the intersection of tax procedure with important administrative law doctrine. Carl Smith deserves credit as the architect of many of the arguments against strict jurisdictional limits in the Code, going back to the 2016 Tax Court loss in Guralnik.

 

The issue of jurisdictional time periods is undoubtedly important doctrinally, but it is also of great practical importance. Two amicus briefs, both with PT connections, supported the petition for certiorari. The Center for Taxpayer Rights, represented by the Tax Clinic at the Legal Services Center of Harvard, filed an amicus brief emphasizing the judicial resources consumed by the strict policing of jurisdictional time periods. Keith blogged about one recent example here. The Center’s brief also urges the Court to specifically rule on whether the CDP petition filing deadline is subject to equitable tolling, describing common circumstances and compelling cases in which taxpayers lost their right to judicial review. These include case of taxpayers being actively misled by IRS errors, taxpayers suffering misfortunes such as late-delivered and undelivered mail, and taxpayers who file timely in the wrong forum.

The second amicus brief was filed by the Villanova (My Alma Mater) Federal Tax Clinic and the Seton Hall Center for Social Justice Impact Litigation Clinic, represented by pro bono counsel from Skadden Arps. This amicus brief makes two points. First, the clinics argue that treating section 6330(d)(1) as jurisdictional would undermine Congress’s intent in creating Collection Due Process as a check on IRS collection activity. Second, the brief emphasizes the disproportionate harm to low-income taxpayers effected by treating the filing deadline as jurisdictional.

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Chile, the Dominican Republic & Singapore Agree to Automatically Share Financial Information With the US

The Internal Revenue Service released Revenue Procedure 2021-32 that added three countries to lists of those with agreements with the U.S. regarding sharing taxpayer deposit interest information.

• Chile will have an agreement in effect with the U.S. starting Jan. 1, 2022, that some paying deposit interest to resident aliens in the country will share information regarding the interest paid and 
• Singapore and the Dominican Republic have agreed to automatically share such information as of the date the guidance was issued.

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6 Individuals & Foreign Financial Firm Indicted for the Tax Evasion Conspiracy Known As The ‘Singapore Solution’

According to the DoJ, an indictment was unsealed in New York, that charges  offshore financial service executives and a Swiss financial services company with conspiracy to defraud the IRS by helping three large-value U.S. taxpayer-clients conceal more than $60 million in income and assets held in undeclared, offshore bank accounts and to evade U.S. income taxes.

According to the indictment, from 2009 to 2014, Ivo Bechtiger, Bernhard Lampert, Peter Rüegg, Roderic Sage, Rolf Schnellmann, Daniel Wälchli and Zurich, Switzerland-based Allied Finance Trust AG allegedly defrauded the IRS by concealing income and assets of certain U.S. taxpayer clients with undeclared bank accounts located at Privatbank IHAG (IHAG), a Swiss private bank in Zurich, Switzerland, and elsewhere.

In order to assist those clients, the defendants and others allegedly devised and used a scheme called the “Singapore Solution” to conceal the bank accounts of the U.S.-based clients, their assets, and their income from U.S. authorities. In furtherance of the scheme, the defendants and others allegedly conspired to transfer more than $60 million from undeclared IHAG bank accounts of the three U.S. clients through a series of nominee bank accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG, ostensibly held in the name of a Singapore-based asset manager. The U.S. clients allegedly paid large fees to IHAG and others to help them conceal their funds and assets. 

“Prosecuting offshore tax evasion remains one of the Tax Division’s highest priorities,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division. 

“Taxpayers Contemplating Hiding Money Abroad And The Foreign Bankers, Attorneys And Finance Professionals Who Design And Execute Strategies To Assist Their Evasion; 

Should Know That The Tax Division And IRS Have The
Investigative Resources And Expertise To
Unravel Even The Most Elaborate Schemes.”

“As alleged, the individual defendants and the Swiss firm Allied Finance conspired to defraud the IRS by assisting U.S. taxpayers in avoiding their tax obligations,” said U.S. Attorney Audrey Strauss for the Southern District of New York. “They allegedly did this through an elaborate scheme that involved concealing customer assets at a Swiss private bank through nominee bank accounts in Hong Kong and elsewhere, with funds returning to the private bank in the name of a Singapore firm. One such U.S. customer, Wayne Chinn, pleaded guilty to his participation in the so-called ‘Singapore Solution,’ forfeited more than $2 million to the United States, and awaits sentencing for his admitted crime.”

If convicted, the defendants face a maximum penalty of five (5) years in prison, supervised release, and monetary penalties, and the corporate defendant faces monetary penalties. An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Also unsealed was the guilty plea of Wayne Franklyn Chinn, of Vietnam and San Francisco, California, one of the U.S. taxpayer-clients, who participated in the Singapore Solution scheme. 

Chinn pleaded guilty to one count of tax evasion which carries a maximum penalty of five (5) years in prison. Chinn also consented to the civil forfeiture of 83% of the funds held in five accounts at two Singapore banks, which resulted in the successful forfeiture and repatriation to the United States of approximately $2.2 million. The civil forfeiture proceeding is United States of America v. Certain Funds on Deposit in Various Accounts, 20 Civ. 3397 (LJL). 

Chinn is scheduled to be sentenced on Nov. 19, and faces a maximum penalty of five (5) years in prison. He also faces 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.

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New $67 User Fee For Estate Tax Closing Letters

The Internal Revenue Service announced that starting Oct. 28, 2021 a new $67 user fee will apply to any estate that requests a closing letter for its federal estate tax return.

The new user fee was authorized under final regulations, TD 9957, available today in the Federal Register. Closing letter requests must be made using Pay.gov. The IRS will provide further procedural details before the user fee goes into effect.

By law, federal agencies are required to charge a user fee to cover the cost of providing certain services to the public that confer a special benefit to the recipient. Moreover, agencies must review these fees every two years to determine whether they are recovering the cost of these services.

Under The Final Regulations, The IRS Has Determined That Issuing Closing Letters Is A Service That
Confers A Special Benefit Warranting A User Fee.

That’s because, though obtaining a closing letter from the IRS can be helpful to an executor of an estate, it is not required by law. Moreover, the estate has the option of obtaining from the IRS, free of charge, an account transcript, showing certain information from the estate tax return, comparable to that found in a closing letter. 

As noted in the final regulations, account transcripts can be used to confirm that an estate tax return examination has been completed and the IRS file has been closed, which is the reason most often cited for requesting a closing letter.

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TIGTA Highlights Improvements To Identify Fraudulent Individual International Tax Returns

TIGTA initiated this audit to evaluate IRS processes to identify and prevent potentially fraudulent individual international tax returns. Nonresident aliens (hereafter referred to as nonresidents) are generally required to file a tax return to report their U.S. source income and pay any tax due. In contrast, residents of a U.S. territory generally report their U.S. source income on their territory tax return (i.e., do not have a U.S. tax return filing requirement), unless these individuals have self-employment income of $400 or more, or are eligible to claim certain tax credits.

The IRS does not have sufficient processes in place to identify potentially fraudulent individual international tax returns at the time these returns are filed. TIGTA’s review of Tax Year 2018 tax returns identified 8,332 international tax returns with potentially erroneous or fraudulent refunds totaling nearly $20.6 million that were not identified by the IRS. The IRS currently has no processes and procedures in place to ensure the legitimacy of ****** at the time returns are filed. ****** are taxed at a reduced rate or are exempt from U.S. taxes on certain U.S. source income. TIGTA identified 130,448 international tax returns with a ****** or which the IRS These Individuals Reduced or Eliminated The Federal Income Tax Paid On Nearly $2 Billion In Income. The IRS also has not implemented processes to verify that international taxpayers ****** at the time the return is filed. TIGTA identified 50,297 ******, that were incorrectly filed by residents of a U.S. territory and nonresidents. As a result of incorrectly filing *** ***, these individuals received erroneous Earned Income Tax Credits, Additional Child Tax Credits, and American Opportunity Tax Credits totaling more than $83.7 million. TIGTA made 15 recommendations. TIGTA recommended that the IRS improve the identification and prevention of potentially fraudulent individual international tax returns, require individuals who report a ****** to provide documentation ******, and develop processes to address claims for which the documentation is not provided. TIGTA also recommended that the IRS develop processes to systemically identify and address international taxpayers who are potentially filing ****** to receive refundable tax credits. The IRS agreed with 12 of the 15 recommendations. The IRS did not agree to require ****** documents for ****** or to work with the Department of Education to obtain and perfect eligible educational institution Employer Identification Number data.

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