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Fraud Victim Cannot Apply Seized Offshore Funds to Tax Liability

Orange County tax litigation attorneys have noted an interesting case that recently came out of the U.S. Tax Court. The case, Kindred v. Commissioner, involved a man named David Kindred who was a client of Aegis Business Trust System. Aegis was involved in a fraud scheme.

Mr. Kindred had transferred money to an offshore bank account controlled by Aegis in 2001. In a federal criminal case, six of the promoters of Aegis were found guilty of fraud and received prison sentences.

The federal government seized the Aegis offshore bank accounts in 2003. After the six promoters were convicted in 2008, the government took the funds in the offshore bank accounts through forfeiture.

In the criminal case, Mr. Kindred tried to intervene to claim an interest in the funds in the offshore bank accounts. The criminal court said that Kindred could not claim an interest in the forfeiture. According to the court, Kindred was just an unsecured creditor of Aegis.

In Tax Court, Mr. Kindred was petitioning to have the court apply some of the seized funds to his tax liability. The government attorneys disagreed that the funds should be applied this way. They argued that the tax court did not have jurisdiction to decide the character of funds seized in a separate criminal case. They also argued that the seized funds could not be considered a tax payment by Mr. Kindred.

The Tax Court judge said that Mr. Kindred was essentially challenging the criminal court's decision that he could not have access to the funds. The Tax Court could not conduct a new trial regarding the nature of Kindred's relationship to the funds. It did not have access to the criminal defendants. As a result, the Tax Court decided that it did not have jurisdiction to consider Mr. Kindred's petition. His case was thrown out.

  • Source: Daily Tax Report "Jurisdiction: Tax Court Finds It Lacks Jurisdiction To Hear Petition To Apply Seized Funds to Tax Liability" May 14, 2010 

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