A Class Action For Taxpayer Refunds?

Hammer on the desk. Separate with good copy space. Dramatic lighting.

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In this issue of Willis Weighs In, Benjamin M. Willis, Editor of Tax Notes, talks to Mark Oberstaedt and Ken Ahl, Partners at Archer, about their help in a major taxpayer victory over foreign bank account penalties.

Here are a few highlights from their discussion, edited for length and clarity.

Benjamin M. Willis: Today we are discussing [foreign bank account report] Penalty shoot-out with Mark Oberstaedt and Ken Ahl, who most recently helped in a big taxpayer victory in court. Mark and Ken successfully represented Frank Giraldi on a very important case involving FBAR stacking.

The central question in the United States v Giraldi case was whether to impose a per-account or per-form penalty for not deliberately not disclosing a foreign account. Can you tell us about the FBAR requirements?

Ken Ahl: The FBAR is a reporting requirement for foreign financial accounts. US persons must report whether they own the account or whether they have authority to sign the account. Originally, it was only intended for someone who deliberately failed to file an FBAR report. In 2004 the law was changed to provide a different penalty for non-deliberate filings. The problem for our client, Frank Giraldi, was whether he was fined tens of thousands of dollars per account for not deliberately failing to file an FBAR. The court disagreed with the government’s interpretation and found that the non-intentional fine of US $ 10,000 per form was imposed.

Mark Oberstädt: Frank Giraldi worked for AT&T for many years. While he was working there, he met his wife. She was about 14 years younger than Frank. When he retired in 1991, he had to make a decision about his pension. Frank made the decision to base his pension payment on his own life and put that money in and invest it as a lump sum. He invested it in three pensions and a financial account in Switzerland because he trusted the Swiss banking system.

Then the government resorted to per-account rather than per-form penalties. So he was hit with four $ 10,000 fines for each of the four years, for a total of $ 160,000. On a pro-form basis, the grand total would have been 25 percent of that, or $ 10,000 a year for a total of $ 40,000, which the court approved.

I think judges [Susan D.] Wigenton of the New Jersey District Court really kicked it out of the park. She compared the 1970 provision on intentional punishment with that added in 2004 on intentional punishment. The language was different, and the non-premeditated language did not support an account-related punishment like the premeditated punishment language.

Benjamin M. Willis: I am sure that Mr Giraldi was extremely pleased with the result. It is important that taxpayers be aware of their rights when the government tries to collect more taxes and penalties and the law clearly allows it to do so.

Mark Oberstädt: In the US vs. Boyd decision, which came eight days after our decision, the Ninth District came to a similar result of the sentence. The dishes are agreed from coast to coast. Why not opt ​​in favor of the taxpayer. We are talking about ambiguities in the legal building industry.

We also saw another case from Texas called Bittner where they say, “Look, unless it’s very clear that Congress wanted to impose these penalties this way, that’s not how we are going to make it into law . ” The call should be very interesting.

Benjamin M. Willis: I think if the language is not clear then tax rules and penalties should be construed against the author. The Boyd case employs this principle of legal construction.

Mark Oberstädt: Taxpayers have the right to make claims for illegal extortion, such as over-taxation. Ben, you actually drew my attention to the last Mendu case. The old Flora case stands for the thesis that if you want to sue the government for taxes, you have to pay the entire tax. You can’t pay less than all of the tax. In Mendu, the plaintiff ruled that the Flora Rule does not apply to FBAR penalties, which opens up the possibility of legal action. So if a taxpayer has paid less than the full amount of the fine, they are entitled to a reimbursement from the government under a squeeze theory.

Ken Ahl: And to make matters worse, Ben, the government has taken the position in certain legal disputes that it can hide the reasons why it chose intentional rather than non-premeditated punishment behind deliberative trial privilege. I think you will see a lot of litigation behind this issue too.

Benjamin M. Willis: Mark, please keep me updated when the class action starts because it looks like there might be a big one. I can’t imagine that there aren’t a lot of people who want to hear about it.

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