The Tax Times
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The court agreed with the Internal Revenue Service that Mark Strom, a former cardiac and thoracic surgeon and husband of a former InfoSpace president and COO, Bernee Strom, knew of his wife's exercising of stock options that led to unreported income of $100.5 million.
Just Knowing About The Understatement,
The Court Said, Torpedoed His Claim For Relief
From Joint And Several Liability.
Now according to the DoJ, an Arizona man pleaded guilty on May 17, 2024 to two counts of assisting in the preparation of false tax returns for individuals who used an abusive-trust tax shelter to underreport their income and tax liabilities.
According to court documents and statements made in court, from 2017 to 2023, Kent Ellsworth operated Ellsworth Stauffer P.C., a return preparation business. During that time, Ellsworth participated in a scheme to defraud the IRS that involved the promotion, sale and implementation of a fraudulent tax shelter. Ellsworth participated by preparing and filing over 500 false tax returns for approximately 60 clients nationwide who used the tax shelter to conceal income from the IRS and not pay tax. Ellsworth intentionally caused more than $60 million in income to be fraudulently sheltered from the IRS, which resulted in a tax loss to the IRS of approximately $17 million.
Ellsworth Prepared The False Tax Returns To Further The Abusive-Trust Tax Shelter Scheme Carried Out By Others.
Clients who purchased the tax shelter, most of whom were successful business owners, were directed to assign or “donate” nearly all of their income to sham trusts and a so-called “private family foundation” to create the illusion that the income was not theirs. However, the sham trusts and foundations were nothing more than bank accounts designed to hold funds the clients earned and continued to control.
Ellsworth is scheduled to be sentenced on Aug. 14. He faces a maximum penalty of three (3) years in prison for each count of preparing and filing false tax returns. Ellsworth also faces a maximum fine of $250,000, a period of supervised release and the costs of prosecution for each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
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So Where Does That Leave Us?
For one thing this Appeal's decision controls cases, in the DC circuit.
It is also persuasive authority for other circuits, as it relates to interpreting IRC §6038(b) in that it would be unlikely if not just inconsistent for Congress to allow the IRS to assert penalties under §6038(c), but not under §6038 (b) and it goes on to buttress its decision with Congressional Reenactment Doctrine by stating:
"[Our court's] conclusion is buttressed by more
than forty years of congressional acquiescence
to the IRS’s practice of
assessing section 6038(b) penalties. 'It is well established that when
Congress revisits a statute giving rise to a longstanding administrative interpretation without
pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation
is persuasive evidence that the
interpretation is the one intended by Congress.’ Since adding
subsection (b) in 1982, Congress has amended section 6038 seven times; each time, it has
left undisturbed the IRS’s practice of assessing and administratively collecting
penalties
imposed under section 6038(b)."
Whether the Congressional Reenactment Doctrine in this decision is dicta and does not need to be followed, I leave up to each of you.
Furthermore, the Tax Court in Mukhi v. Commissioner of Internal Revenue, stated that even though Farhy is on appeal in the D.C. Circuit, Mukhi's case, if appealed, would go to the Eighth Circuit, meaning any ruling from the D.C. Circuit wouldn't be binding for Mukhi, the court said.
So you can still argue that the IRS cannot assess certain information reporting penalties in other circuits and in Tax Court. Whether you be successful, still remains to be seen?
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“Tax professionals continue to present a tempting target to identity thieves and fraudsters,” said IRS Return Integrity and Compliance Services Director James Clifford.
“With Identity Theft An Ongoing Concern, The IRS
Has Taken Additional Steps Needed To Protect Both
Tax Professionals And Their Clients Given The
Sensitivity And Importance Of The Information Involved.
The IRS will continue working with the tax professional community on these issues to minimize burden on practitioners while also working to ensure the safety and security of this information.”
Tax Practitioners may also receive CP310 assigning A Personal Identification Number (PIN), which the tax professional Needs to associate with their CAF. This can be done online.
The IRS has become increasingly concerned about the risk a compromised CAF number presents to tax professionals and taxpayers. In these cases, there is risk that fraudsters could use a compromised CAF to obtain transcripts and other sensitive taxpayer personally identifiable information (PII) to commit identity theft refund fraud and other crimes. In many cases, the fraudster has not only obtained a practitioner’s CAF number but also has the practitioner’s sensitive personal information.
To Address This Issue, The IRS Has A Process In Which Suspected Compromised CAF Numbers Are Placed Into
A Suspended Status Pending Further Review.
Once placed into a suspended status, the owner of the CAF number will be contacted to confirm if the CAF number has been compromised. If the compromise is confirmed, the IRS will take the appropriate actions to address the compromised CAF number. The IRS recognizes the significance of the CAF process and is continuously working on ways to expedite this review process for impacted practitioners.
More information about this issue can be found in a special alert issued today by the IRS Office of Professional Responsibility.
In addition to the changes being made to protect tax professionals from a compromised CAF number, the IRS has also taken related security steps to change how tax professionals can order transcripts by phone through the Transcript Delivery System (TDS).
To Address This Issue, The IRS Has A Process In
Which Suspected Compromised CAF Numbers Are
Placed Into A Suspended Status Pending Further Review.
That is not going to work well, as this week alone I waited one hour before I got complementary hang up, the second time called I waited two hours before I got a complementary hang up and if that wasn't bad enough I also got a call back, which when I picked it up hung up on me after two minutes.
IRS employees on other phone lines may not be authorized to provide transcripts through the SOR delivery method. Tax professionals will need to pass enhanced authentication. If the identity of the caller cannot be verified, transcripts will not be delivered using the SOR delivery method but will instead be mailed to the taxpayer’s address of record.
Tax professionals should also be on the lookout for unsolicited scam emails asking to provide credential information such as CAF number, Electronic Filing Identification Number (EFIN) information and driver’s license. These emails may look like they are coming from the IRS or a tax software company. Tax professionals who receive these unsolicited emails should report them to phishing@irs.gov.
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