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Why the IRS likes to attack the "little guys" and avoid the "whales"

by: Anthony Parent   2017-12-08

Two recent court decisions, one involving civil FBAR penalties and the other involving a huge alleged criminal conspiracy illustrate the perversion of our legal system. Those who are small-time offenders often are hit the hardest, meanwhile those who are much larger players, somehow avoid the full brunt of the US government.

The IRS wins a non-willful FBAR case against minnows


The Jarnagin FBAR cases involves a married couple who had a legitimate business in Canada. They hired a CPA who purported to be an expert in international reporting.  Despite this, an FBAR was not prepared or filed for the Jarnagins.


So, if you are the IRS, what do you do?


  1. Assess no FBAR penalty, as taxpayers should be allowed to rely on expert advice. And plus, it's not like the Jarnagins were trying to avoid taxes or engaged in some sort of international criminal conspiracy.
  2. Penalize them as hard as you possibly can.


Answer 2, of course, is correct.


The IRS flat-out refused to grant reasonable cause and instead assessed 4 FBAR non-wilful penalties against both hsuband and wife for the same exact periods for a total of 8 non-willful penalties of $80,000.


There were absolutely no facts to indicate the Jarnagin's did anything intentional, so these 8 non-wilfull penalties were exactly as hard as the IRS could hit them. And that they did. Because they could.


The IRS tries to land a "whale" and completely fails


The reason why the IRS does not like going after whales is that whales have a tendancy to fight back. And when taxpayers fight back, the results for the IRS are not all that pretty. 


"A former Swiss banker [Stefan Buck] was acquitted of helping U.S. clients dodge taxes, dealing prosecutors a dramatic loss in their efforts to hold individuals responsible after the government successfully targeted financial institutions.


"The Department of Justice has had a spotty record prosecuting more than three dozen offshore bankers, lawyers and advisers charged with enabling tax evasion by U.S. clients. While several have pleaded guilty, at least three, including Buck, have been acquitted by jurors. The rest remain overseas."


"'Any time the government is not able to prove its case to the jury against one of the bank executives that is charged with these tax-related crimes, the government’s deterrent efforts suffer,' said Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division."




Why "minnows" have the most to lose --- they assume a fair and just system. 


Minnows make the mistaken assumption that the IRS isn't interesting in pursusing them in an unreasonable fashion, that the IRS is saving all their ammunition for  the big guys.


But don't you see? The IRS can't get the victories it wants, so it will get the victories it can. That means attacking small time offenders with the utmost visciousness.  The IRS hopes that they don't realize the true nature of the attack, thus fail to adequately defend themselves. And that's the surest way to an IRS victory.


However, when a taxpayer does put resources into a real defense, that's when the IRS may abandon what it wanted to do, and look for an easier targets --- those not smart enough to know the IRS is fine completely ruining them for a small technical mistake.





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