Wednesday, May 8, 2013

Judge Rips Into The IRS Over Prosecution Of Widow



You may be aware that the IRS has been going after people with overseas accounts. I have little sympathy for deliberate tax evaders, but the IRS approach can be described as erratic. Very ordinary people are terrorized with outrageous penalties while bigger fish are allowed to swim away.

Therefore, I was very glad to see the resolution of the case against Mary Estelle Curran.

Let us start by saying that Mrs. Curran is very wealthy. Her husband inherited money from an aunt who lived in Monte Carlo. He left the money in a Lichtenstein foundation. There were never any additional deposits into this account. Over the years, the account grew into a sizeable sum, which Mrs. Curran inherited after his death. She then had to learn money management, as her husband had done that for more than 40 years.

This was not chump change: she inherited over $40 million.


She is not a natural object for our sympathy, right?

Not so fast. Having money does not make one guilty any more than being left-handed does.

She asked her accountants and lawyers in Europe how to handle and report the money. Unfortunately, she did not inform her U.S. accountants. She kept this up for several years.

The IRS eventually came out with an amnesty program, and Mrs. Curran decided to do the right thing.  She contacted her European bankers, who put her in touch with a U.S. tax lawyer. She gave the attorney all the information for voluntary disclosure with the IRS.

It took about a month to review and assemble the information and contact the IRS. Would you believe that – in that month - UBS had provided approximately 250 names to the IRS? By the time she submitted her disclosure, the IRS had already had her name for approximately 3 weeks.

The IRS had a rule: if they found out about you before you disclosed, you were not eligible for the voluntary disclosure program. There was a glitch, though: Mrs. Curran had submitted her disclosure seven days before the start of the amnesty program. Too bad, screeched the IRS. No amnesty for you!

Mrs. Curran goes to Court on criminal charges. She pleads guilty to tax evasion and filing false tax returns. She was fined over $26 million for failing to remit approximately $670,000 in tax to the IRS over the years.

OBSERVATION: How much Kool-Aid does one have to drink to think that a fine of $26 million is fair balance for $670,000 in unpaid taxes? If the government applied this ratio to all the earned income tax credit cheats and tax refund thieves we could balance the federal budget. The IRS was not interested in just bringing a noncompliant taxpayer into compliance. No, it had an agenda. 

Mrs. Curran could have even have gone to jail. Her niece – who is blind – offered to serve jail time in place of her 79-year old aunt.

Here is her attorney pleading before the Court:

... 38,000 people went through the three offshore voluntary programs after her and received immunity from prosecution. They were also treated and penalized far different than her. They were penalized mainly at the rate of 20 percent for the FBAR violation of the largest amount of money in the account. She was penalized 50 percent.”

She has been prosecuted criminally, indicted and arrested, and those 38,000 were not. And she has been adjudicated a felon, and all those 38,000 people did not suffer that designation.  

Every one of these 38,000 people were given a second chance..., yet Mrs. Curran never received a second chance at all.”

U.S District Court Judge Kenneth Ryskamp was presiding. Here is the Judge and an IRS (i.e., Justice Department) attorney:

JUDGE: Based upon those facts, did it ever occur to the government that this case ought to be dismissed and let this thing go?
IRS: No, your Honor.
IRS: Your Honor, there is a certain level of randomness to the level of government prosecution...
JUDGE: ... (her) lawyer detained it (the disclosure), and she would have qualified under it (the IRS program).
IRS: ... the government has to draw bright lines as to where...
JUDGE: I don’t know if the government has to do anything. It seems to me that the government has a lot of discretion and the government decided to make a felon out of this woman.
IRS: ... there were numerous articles in the Wall Street Journal, in the New York Times about the government’s investigation of foreign bankers.
JUDGE: This case is totally out of scope of all your other cases where people are skimming, were trying to hide funds. I mean, there was an inheritance over there, and al lot of reasonable people would think you don’t have to report this.”

The Court passes sentence:

A term of imprisonment would be unnecessarily harsh.

It is the finding of the Court that the defendant is not able to pay a fine.

It is the judgment of the Court that the defendant, Mary Estelle Curran, is placed on probation for a period of one year.”

The Court was clearly miffed by the IRS’s behavior.

I’m now revoking probation. Probation is terminated. You were on probation for about five seconds there.

The law requires me to put you on – if I don’t put you in jail – I’ve got to put you on probation. It doesn’t say how long you have to stay there.”

Wow!

The Court continued:

I would urge you to file a petition for a pardon with the executive branch. You can tell them the Court thinks this woman’s felony should be removed. And if the government doesn’t join it, then it’s just spiteful.”

Judge Ryskamp is now famous with tax practitioners. He can count me a fan.

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