IRS’ $429 million claim puts TelexFree victim payouts at risk
Although claim dispute filings continue to clog the TelexFree case docket, litigation between the Trustee and IRS is likely the reason no claim distributions have gone out.
We’ve known about the IRS’ claims against the Trustee for a while, but today is the first time we examine the case and what it potentially means for TelexFree victims.
The TelexFree Trustee v. IRS case dates back to a July 2018 complaint.
In the complaint the Trustee seeks to bar the IRS from collecting $429 million dollars.
The Trustee alleges the IRS’ claims are miscalculated, because
TelexFree had no taxable income for the specified years.
Although (TelexFree) earned current taxable income in calendar year 2012, the losses sustained by (TelexFree) in calendar years 2013 and 2014 offset any taxable income for calendar year 2012.
In October 2018 the Trustee moved for partial summary judgment on counts four and five of his complaint.
These counts pertained to the IRS’ claims for 2013 and 2014 (~$15 million).
The IRS filed its opposition in November 2018, which included it’s own motion for partial summary judgment on the same counts.
On February 2019 a hearing was held on the motions. The court took the matter under advisement.
In September 2019 the IRS filed a second motion for partial summary judgment, pertaining again to counts four and five.
The Trustee filed his response in opposition in November 2019.
A hearing was held on the motion on December 18th, 2019. Once again the matter was taken under advisement.
On March 26th, 2020, the court finally issued orders on the partial judgment motions:
- The Trustee was granted summary judgment on counts four and five;
- The IRS’s cross-motion on the same claims was denied; and
- The IRS’ second motion for partial summary judgment was also denied.
All in all a win for the Trustee and TelexFree claim victims, however the lawsuit is far from over.
As per the Trustee’s original 2018 complaint, the IRS is seeking
- an administrative claim aggregating approximately $69,000,000;
- a priority unsecured claim of approximately $285,000,000; and
- a non-priority unsecured claim of approximately $75,000,000.
Together this comes to $429 million. If we subtract the $15 million disallowed in counts four and five, the IRS still has claims totaling ~$414 million dollars.
Details on how much the Trustee is currently sitting on is surprisingly scarce. With Receivership’s they typically have to file periodic reports with the court. The Trustee has no such responsibility and I can’t find any recent filings detailing the Trustee’s current assets.
The first and only claim status report was filed back in April 2019, detailing $346 million in allowed claims at the time.
Since then there have been hundreds of claim related filings in the case, so what that number is now is anyone’s guess.
It’s no secret that the TelexFree victim claim process has unacceptably dragged on. We’re well past the point where victims deserve an update as to what on Earth is going on.
As has been put forth by readers, if unresolved claims are to blame, there’s nothing stopping the Trustee from putting aside an amount to secure these claims. What’s left can then be put towards paying out accepted claims, putting aside enough to continue the Receivership until outstanding matters are settled.
That brings us to the IRS’ claim, which at $414 million dollars is by far the largest outstanding claim yet to be resolved.
I haven’t seen any clarification on this from either the Trustee or the IRS, but the general sentiment seems to be if the IRS prevails, there won’t be anything left for TelexFree victims.
Seeing as the IRS’ claim is likely to clean the Trusteeship out, this is behind the ongoing claim distribution delays.
At the time of publication the court has not set a trial date for the TelexFree Trustee v. IRS lawsuit. We’ll keep an eye out for updates on the case docket, but in the meantime I think it’d go a long way for the Trustee to communicate with claim holders as to what is going on.
It’s been literally years since an official Trustee update regarding claims was sent out.
With respect to the possibility of the IRS prevailing in court, I think the Trustee said it best in his original complaint;
The IRS seeks to tax, not punish illegal activities.
The recognition of this rule is particularly appropriate in the present case, where the creditors of TelexFree are the millions of individuals who were defrauded by TelexFree and whose recovery will be substantially diminished by the claim of the IRS if it is allowed.
Pending either a long overdue update from the Trustee or setting of a trial date, stay tuned…
Update 28th April 2020 – As per an update from the TelexFree Trustee, a settlement on the IRS’ claims has been reached.
What ever happened to the 30+ properties named in the forfeiture order, that were turned over by the debtors,(plus another 14 or so recovered as claw backs by the trustee) there where also boats and ferraris And stuff. Any word if any of that has been sold?
They just keep us in the dark…. smh
Wagalo I told you they where playing us!
Does anyone know if all main telexfree fraudsters are behind bars? Merrill, Sanderley and the main one,Carlos Wanzeler? Still a fugitive in Brazil?
Did anyone actually get prison time for the scam? If so when and how long?
^^ These are all questions easily answered via search.
A Ponzi scheme cannot be liable to pay tax because it doesn’t have any profits to pay tax on.
This sounds like a complete try-on by the IRS to me.
My skim of the 2018 document suggests that the IRS are indeed pretending the liabilities to TelexFree failed scammers don’t exist but their corresponding increments did in order to generate their claim.
This is no different to the IRS attempting to tax a legitimate business on their turnover rather than their profits, and when you provide them with a list of all your deductible expenses, saying “yeah, but we’re going to pretend those don’t exist and drag you to court on that basis because we it’s worth a go”.
The fact that TelexFree was an illegal Ponzi scheme doesn’t change the absurdity of pretending its liabilities didn’t exist.
the problem is, the trustee already tried that argument in court, and it didn’t fly…..
the IRS argument is, that telexfree, because it was not a business, it is not eligible for tax deductions as the trustee is claiming.
this dispute has been going on since 2015, the trustee has tirelessly tried to be rid of it to no avail.. so CLEARLY, the IRS claim has SOME standing….
Nobody and nothing in the world is liable for tax on taking money in without a credit for paying the same money out, or being obliged to. Not even Ponzi schemes. Profit is taxed, not turnover; interest, not return of capital.
If TelexFree had had a Damascene conversion and paid all that investors’ money back to them, would the IRS attempt to tax the return of their own money as income?
The fact that TelexFree didn’t repay the money because it was stolen doesn’t mean it magically becomes taxable.
This has been dragging on since 2015 because the IRS has an unlimited pool of other people’s money and unlimited patience to drag fatuous try-ons through the courts.
and surprisingly.. the same judge that has denied ruling in favor of the trustee dismissing the IRs’s claim.. is the same judge wo was had hearing after hearing with the telexfree victims with claims, for years now, so he himself know that there are real vitctims with real damages claiming that money.
the judge himself said on one of the padt hearings (audio publicly available) he said: “this case cant go on forever”…why he hasnt ruled in favor of stephen darr is unknown, but clearly it has been as ease as just saying no.
This is at kccllc.net/TelexFree
Does this means that Mr. Darr reached an agreement with an IRS??
Sure looks like it.
And he’s given an update on distribution too. You’re welcome?
I believe they still have a court session in May, however it might be postponed with all this COVID-19 constraints.
Only after that session they will be sending emails to everyone.
Also I’m wondering how will they be contacting everyone (email probably) and how they will be transferring funds for those outside US.
In Receiverships OS claimants are usually sent checks from memory.
Not sure if a Trusteeship will be different.
claimants with approved claims will have to option of choosing any of the following payment options:
-paypal
-venmo
-zelle
-direct deposit
-amazon
-credit or debit card
-paper check