Williams v. C.I.R. (FBAR Series)

Williams v. C.I.R., U.S. Court of Appeals, Fourth Circuit | September 9, 2012 | Urbanski, J. | No. 11-1804 | on appeal from:

Williams v. C.I.R., U.S. Tax Court, T.C. Memo 2011-89 | April 21, 2011 | Gustafson, J. | No. 2202–08

Williams v. Commissioner of Internal Revenue, U.S. Tax Court, 131 T.C. 54 | October 2, 2008 | Gustafson, J. | No. 2202–08

Short Summary: Taxpayer petitioned for a redetermination of income tax deficiencies and fraud and accuracy-related penalties arising from his failure to report investment income and consulting fees and his disallowed charitable deductions for gifts of art. The Tax Court, David D. Gustafson, J., 2011 WL 1518581, entered an order upholding notice of deficiency, and taxpayer appealed.

Key Issue: First, whether Williams’ guilty plea to criminal tax evasion collaterally estops him from denying liability for civil fraud penalties. Second whether the income generated by Williams’ income from his consulting services should be attributed to a foreign corporation he formed. Third, whether Williams’ donations of art to several universities should be dedected form his tax obligation.

Primary Holdings:

Tax court had no jurisdiction to review the Secretary’s determination as to petitioner’s liability for FBAR penalties. As a result, the FBAR prayer for relief was stricken from the complaint.
Taxpayer’s guilty plea to criminal tax evasion collaterally estopped him from denying his liability for civil tax fraud penalties;
Income generated by taxpayer’s consulting services was attributable to taxpayer individually; and
Taxpayer’s charitable deduction was limited to his basis in art he donated.

Key points of law:

Tax Court lacked jurisdiction to review Secretary of Treasury’s determination as to taxpayer’s liability for foreign bank account report (FBAR) penalties; taxpayer did not allege that he received any notice of determination upholding any lien or proposed levy as to FBAR penalties, nor did he allege any action whatsoever by Secretary leading toward collection of FBAR penalty.
Taxpayer’s guilty plea to criminal tax evasion collaterally estopped him from denying his liability for civil tax fraud penalties arising from his failure to report investment income and consulting fees over an eight-year period; plain language of superseding criminal information charged taxpayer with tax evasion in each of eight years for which civil penalties were subsequently assessed, taxpayer agreed to file accurate amended personal income tax returns for each of those years and pay past taxes due and owing to Internal Revenue Service (IRS), and his conviction supplied basis for a finding of fraud in subsequent proceeding to determine his tax liability.
Income generated by taxpayer’s consulting services was attributable to taxpayer individually, rather than to foreign corporation he formed; taxpayer was sole operational director and officer of corporation and only person with authority to act on its behalf, he had exclusive signature authority over corporation’s accounts, he had no written employment agreement and received no regular salary or commission payments from corporation, and he had no consulting agreements, notes, or other records reflecting corporation’s business dealings.
Taxpayer’s charitable deduction for art he donated was limited to his basis in art, rather than its fair market value; taxpayer’s initial “Art Purchase Agreement” with seller merely granted him an option to purchase art by providing that he would pay $3,600 to seller, who would then hold that amount in escrow against $72,000 purchase price, title to art did not pass, and delivery was not made, upon execution of Agreement, aside from initial $3,600 payment, taxpayer had no obligation to perform under Agreement, and taxpayer acquired ownership interest in art only after agreeing to pay seller for each batch of appraised art, which payments occurred within a year of each donation he made.