Unreported Offshore Accounts Remains on IRS Dirty Dozen" List (1/29/15)

The IRS released IR-2015-09 (1/28/15), here, which I quote in full:

Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season 

IR-2015-09, Jan. 28, 2015 

WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season. 

"The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone.  The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. 

The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. 

Through the years, offshore accounts have been used to lure taxpayers into scams and schemes. 

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes. 

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them. 

Hiding Income Offshore 

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. 

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases. 

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution. 

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult. 

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Why the Lenient Sentencing for Offshore Account Tax Crimes (1/16/15)

I have previously noted the phenomenon that sentencings for tax crimes committed through offshore accounts draw more lenient sentences than tax crimes crimes committed in other contexts.  The term tax crimes here includes tax related crimes, including FBAR crimes where legal source income and assets are involved.  The question is why tax crimes draw more lenient sentences.  The inference one might draw is that tax crimes through offshore accounts are societally more acceptable.  But there is nothing in the statutes or their interpretation that would suggest that any tax crimes should be treated more leniently.  Certainly, the Sentencing Guidelines, here, and the Section 3553(a), here, factors do not hint at any such leniency

I quipped earlier that perhaps judges had more empathy for the type of taxpayer who would commit tax crimes through offshore accounts than the type of taxpayer who commits tax crimes in  other ways.  My notion was that the former was more likely the type of person the judge -- who is generally high middle to upper income person and moves in circles with such people, whether at Church or Synagogue, the country club and other venues. My specific example was that these defendants were often the type of person the judge would see at the country club.

I have just read a very interesting article in the New  York Times that brushes on this very general topic.  The article is titled "Is the Defendant White or Not?" by Nour Kteily, an assistant professor of management and organizations at the Kellogg School of Management at Northwestern University, and Sarah Cotterill, a doctoral student in the department of psychology at Harvard.  The article may be viewed here.

The general thesis of the article,  presented in the context of the Tsarnaev terrorist trial, is that

We also found that such whiteness perceptions had the potential to play an important role in the outcome of Mr. Tsarnaev’s trial. The lower that individuals rated Mr. Tsarnaev as looking white, the more willing they were to punish him severely. In a case like Mr. Tsarnaev’s, where guilt is widely presumed and where the outcome will most likely fall on one side of the line between life imprisonment and death, this finding seems especially relevant.

This is a similar phenomenon in the offshore account tax crimes prosecutions -- by the time the Government brings charges, guilt is presumed and, in fact, admitted by the defendant in his or her guilty plea.  The only issue is punishment.  In that context, the whiteness phenomenon may help explain in part the lenient sentencing.  By whiteness, I don't mean literally whiteness.  I mean the ability of the judge to relate to the defendant better than the typical defendant charged with a tax crime.

As I employ the concept, it is necessarily a loose and fuzzy notion, without the type of research the authors present in the article.  Certainly, I do not have type of research performed by those authors in the specific context they discuss.

But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy -- i.e., punishable -- than commission of tax crimes in other contexts.  (Merely saying that will probably exclude me from representing persons charged with offshore tax crimes.)  So what explains the difference?

I would appreciate readers views on this subject.

Fifth Circuit Rejects Attempt on Direct Appeal to Withdraw Guilty Plea in False Claims Conspiracy Case (1/24/15)

In United States v. Harrison, ___ F.3d ___, 2015 U.S. App. LEXIS 966 (5th Cir. 2015), here, the court provided the following introduction which sets up what I want to discuss in this blog (footnotes omitted):

A grand jury charged Harrison in a multi-count, multi-defendantn1 indictment with conspiracy to defraud the Internal Revenue Service ("IRS") by filing false claims and with two counts of filing a false claim. Three days before his trial was set to begin, Harrison signed a plea agreement in which he agreed to plead guilty to the conspiracy charge. In exchange, the government agreed to dismiss the remaining charges. Pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C), the parties agreed to a sentence of eighty-four months, which was twenty-four months below the statutory minimum as calculated based on Harrison's offense level and criminal history category. Harrison also agreed to waive his right to appeal his conviction and sentence, but he expressly reserved the right to challenge the voluntariness of his guilty plea or waiver of appeal and the right to bring a claim of ineffective assistance of counsel.

The conspiracy count was under 18 USC 286, here, which provides a 10 year maximum sentence; as stated, the sentence shall be "not more than ten years.".  By contrast, the general conspiracy charge under 18 USC 371, here, employed in many tax cases has a 5 year maximum  sentence.  The defendant pled to the conspiracy count, with the Government dismissing the remaining courts.  The court states that the agreed upon sentence was "below the statutory minimum."  There is no statutory minimum.  The court apparently refers to the lower end of the Guidelines range calculated for the defendant.  The purpose of the FRCrP 11(c)(1)(C), here, was to lock in that lower than Guidelines sentence.

As usual with such guilty pleas, the defendant agreed to the key facts, including his participation in a conspiracy to file false claims.  After a proper colloquy and presentation of agreed facts supporting the plea, the Court accepted the plea and sentenced Harrison to the agreed eighty-four months.  After the plea, but before the PSR was prepared, Harrison moved to withdraw his plea, claiming that it was not voluntary.  Harrison's attorneys moved to withdraw based on irreconcilable differences.

The district court denied the motion to withdraw the plea.  Harrison moved to reconsider.  The district court denied that motion.  At sentencing, Harrison again asked to withdraw the plea. He requested an evidentiary hearing (footnotes omitted):

so that he could present evidence supporting his actual innocence, "to include but not limited to codefendant statements affirming that [he] did not conspire nor participate in the [scheme]." He claimed that he pled guilty under duress and coercion because the prosecutor would agree to favorable eighty-four-month sentences for each defendant only if "all siblings [pled] guilty," and he felt pressured to accept the plea because his brothers otherwise faced up to forty years of imprisonment. Finally, he argued that he received ineffective assistance of counsel when counsel advised him to enter the plea agreement despite his assertion of innocence because counsel erroneously suggested that he would be prejudiced by a prior sexual assault conviction and because counsel did not investigate or discover exonerating evidence, "for example, the true identi[ty] of Chris Smith ."

The district court again denied the request to withdraw and denied the request for a hearing.  The district court was obviously peeved that Harrison would admit guilt in the plea colloquy and the agreed facts supporting the plea and now reverse, in effect saying that he lied in making the original guilty plea. (That is a phenomenon present in all guilty pleas with a proper colloquy.)  As to the argument of ineffective assistance of counsel, the Court declined to address the issue (it is normally handled in a post-sentencing 28 USC 2255, here, proceeding), but did give the following signal:

 . . [Y]ou will be entitled to raise an ineffective assistance of counsel claim. I do not know what happened here. I know [your attorney]. He comes into this court regularly. He is one of the best lawyers in town, and you just have to understand and face that.

The Fifth Circuit first addressed the issue of whether the appeal waiver in the plea precluded consideration of Harrison's appeal of the denial of his right to withdraw the guilty plea and hold an evidentiary hearing.  Applying contract principles, the Court said that the appeal waiver permitted the appeal.

USAO SDNY Announces Another Offshore Account Client Plea (1/21/15)

The USAO SDNY issued a press release, here, on the plea of George Landegger, he Chairman and CEO of an international pulp mill company, to one count of FBAR violation.  Key excerpts:

From at least the early 2000s, up until 2010, LANDEGGER maintained undeclared bank accounts on his own behalf at the Swiss Bank. In 2005, a representative of the Swiss Bank (“Swiss Bank Representative-1”) recommended to LANDEGGER that for the protection of LANDEGGER and the Swiss Bank, LANDEGGER utilize the services of an attorney based in Zurich, Switzerland, to form a sham entity to hold LANDEGGER’s undeclared accounts at the Swiss Bank. Thereafter, a sham trust was formed to hold LANDEGGER’s undeclared accounts at the Swiss Bank and further conceal LANDEGGER’s ownership of those accounts from the IRS. The sham trust, which was organized under the laws of Lichtenstein, was named “Onicuppac,” which is the word “Cappucino” in reverse. 

In April 2009, LANDEGGER, Swiss Bank Representative-1, and another individual had a meeting in Switzerland, the purpose of which was to discuss the future of LANDEGGER’s undeclared accounts at the Swiss Bank, in light of the public news that another Swiss bank, UBS AG, had been investigated by United States law enforcement authorities for helping U.S. taxpayers maintain undeclared accounts. During that meeting, LANDEGGER and Swiss Bank Representative-1 discussed the possibility of LANDEGGER disclosing his undeclared accounts to the IRS, including by entering the IRS’s offshore voluntary disclosure program (the “OVDP”). LANDEGGER affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS, whether by entering the OVDP or by any other method. Instead, LANDEGGER and Swiss Bank Representative-1 determined to empty the accounts of their assets by slowly moving the undeclared assets out of Switzerland. Thereafter, between May 2009 and July 2010, LANDEGGER, with the assistance of Swiss Bank Representative-1 and others at the Swiss Bank, emptied the assets from his undeclared accounts at the Swiss Bank by transferring a portion of those undeclared assets to a new, declared account in Canada, and by transferring the remainder of the undeclared assets to an account maintained by another individual in Hong Kong. 

During the time LANDEGGER maintained his undeclared accounts at the Swiss Bank, capital gains and losses were generated in the account from LANDEGGER’s investments in foreign securities. Between 2007 and 2010, the high value of LANDEGGER’s undeclared assets was over $8.4 million. For each of the calendar years from at least the early 2000s through 2010, LANDEGGER failed to file FBARs with the IRS, as he was required to, disclosing his signatory or other authority over his undeclared accounts at the Swiss Bank. 

* * * * 

As part of his plea, LANDEGGER has agreed to pay a civil penalty of over $4.2 million and back taxes of over $71,000.

JAT Comments:

1. Greed can make some very smart / successful people do very stupid things.
2. I don't know the bank or the bank representative, but will update the blog when I do.
3. The wording for the FBAR failure to file is odd -- indicating that he failed to disclose his signatory or other authority.  I thought he had the ultimate beneficial ownership which is not mere signatory of other authority.
4. The wording of the high amount is odd because it does not give the relevant period in which the high balance was over 8.4 million.  Presumably, only six years could be included.
5. Given the multi-year nature, the back taxes of "over $71,000" seems a little low.
6. The press release states at the beginning that he pled to failure to file FBAR reports (plural), but the sentencing exposure of 5 years indicates that he pled as to only one failure to file.

Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (1/16/15)

USAO MA has announced, here, that a Chiropractor, Stephen Jacobs, has been sentenced to 9 months in  prison for bribing an IRS agent.

In August 2013, an IRS auditor met with Jacobs, a chiropractor, to examine numerous issues with his federal income tax forms for 2011.  During the initial interview, the auditor advised Jacobs that two $5,000 payments were not allowable deductions after Jacobs admitted that each was a payment to two different women after they accused him of touching them inappropriately during medical treatments.  Jacobs told the auditor that he paid the women because he was concerned that they would report him to the police or to the chiropractic board.  Jacobs admitted that he had begun kissing one woman’s feet while he was treating her.  He also admitted to other inappropriate contact when he was giving the second woman a massage. 

Jacobs asked the IRS auditor if there was anything he could do to “just deal with this…”  When the agent said he could not “just deal with this,” Jacobs became agitated and combative, ultimately threatening the agent that he would “ruin [his] career.” 

The following month, after several electronically monitored discussions regarding his non-deductible expenses, Jacobs offered to bribe the auditor in exchange for terminating the examination, saying, “. . . you want a bribe? You want me to pay you?...”  The auditor, acting under the direction of law enforcement, then accepted Jacobs’s offer of $5,000 to give Jacobs a favorable audit letter showing no additional tax for one year and a small refund for the next year.  Jacobs paid the auditor $5,000 in cash for the favorable treatment.  

According to another reports, the electronically monitored discussions included an email in which he opened the opportunity for a bribe:  "You want a bribe? You want me to pay you?" Andy Sheets, Off the Beaten Tax: Girls Gone Wild Lawyers Sue IRS, 2015 TNT 11-5 (1/16/15).  Well, even attempting a bribe is bad.  Starting the discussion by email is not just bad it is dumb.  Even dumber than kissing a patient's feet.  And this is not to mention the stupidity in threatening an IRS agent.

Miscellaneous Offshore Account Articles (1/15/15)

This blog entry will be a catchall for various web articles on matters related to offshore accounts.  I have been heavily involved in client matters and preparing for an office move, so will only be able to post the article and links and perhaps some excerpts:

Irit Avissar,  Swiss banks target Israeli tax evaders (Globes 12/31/14), here.

Swiss banks are training their crosshairs on Israeli customers. Legal sources said that in the past two weeks, the large banks in Switzerland have begun sending many queries to their Israeli customers demanding confirmation either that the assets deposited with the banks were reported to the Israeli tax authorities, or that the customers have begun a process of voluntary disclosure to the authorities in Israel. 

"After dealing with their US and European customers, the banks in Switzerland have moved on to their Israeli customers. They have decided to verify that all the assets in their accounts are reported and are in compliance with the rules," said Adv. Leor Nouman, who heads the Tax group at the S. Horowitz & Co. law firm. 

The Israel Tax Authority is currently conducting an investigation against dozens of Israelis suspected of concealing assets through accounts at Swiss bank UBS. "Globes" revealed yesterday that Haifa District Court Judge Moshe Gilad is one of those being investigated. This investigation may also have been the catalyst for a decision by the Swiss banks to make requirements of all their Israeli customers. Last September, the Israel Tax Authority announced a new anonymous voluntary disclosure program giving Israeli citizens an opportunity to legalize their unreported assets. According to Nouman, the banks in Switzerland are aware of the Tax Authority's new program, and are encouraging their customers to join it.

Katherina Bart, Swiss citizens come clean on undeclared funds following probes (Reuters 1/7/15), here.

A U.S. criminal investigation into how Swiss banks helped wealthy Americans hide their money has had an unexpected side effect: shaking out scores of tax cheats among the Swiss themselves. 

Secrecy laws in Switzerland, the world's largest offshore financial center with trillions in assets, have been under siege in recent years from massive international pressure, including long-running investigations by U.S., German and French prosecutors. 

Despite widespread indignation in Switzerland over the campaign, and efforts to enshrine data privacy for residents into the constitution, data shows the Swiss have been coming clean in record numbers on their own undeclared funds. 

A total of 15,039 Swiss residents have filed voluntary disclosures since the government introduced an amnesty for its own citizens five years ago, according to Swiss tax data.
Officials say that number is set to rise as voluntary disclosures from 2013 and last year are processed by cantonal authorities and included in the overall federal tally.

Katharina Bart, Hacker posts client emails from Swiss bank BCGE (Reuters 1/9/15), here.

A hacker claiming to be behind a cyber attack on Banque Cantonale de Geneve on Friday divulged confidential client information after the Swiss bank failed to meet demands for payment. 

In the latest case of a breach of customer information at a financial firm, an anonymous person or group using the Twitter moniker Rex Mundi said it had hacked the Genevan cantonal (state) bank's servers and downloaded more than 30,000 emails by Swiss and foreign clients. 

Hours after the hacker's 1700 GMT (12 noon EST) ultimatum expired, the bank issued a statement saying that the intercepted material had been published, but added that it represented "no particular financial risk for clients or the bank".

Taxpayer Advocate Annual Report Is Out; the Executive Summary on Offshore Matters (1/15/15)

The Taxpayer Advocate has issued the 2014 Annual Report.  The main page with links for downloading and viewing is here.

The portion of the Report most relevant for the subject of this blog are under a couple of headings:

Under the section on Most Serious Problems Encountered by Taxpayers:

The Right to a Fair and Just Tax System: Complexity
7. OFFSHORE VOLUNTARY DISCLOSURE (OVD): The OVD Programs Initially Undermined the Law and Still Violate Taxpayer Rights

Under the section on Legislative Recommendations:

The Right to a Fair and Just Tax System: Complexity
6.  FOREIGN ACCOUNT REPORTING: Legislative Recommendations to Reduce the Burden of Filing a Report of Foreign Bank and Financial Accounts (FBAR) and Improve the Civil Penalty Structure
PENALTIES: Improve the Proportionality of the Civil FBAR Penalty
PENALTIES: Require the Government to Prove Actual Willfulness Before Imposing the Penalty for Willful FBAR Violations
FBAR FORMS: Reduce the Burden of Foreign Account Reporting

In this blog entry, I will first quote in the entirety the Executive Summary discussion  of the above topics.  The executive summary may be viewed in its entirety here.  I may add comments below the excerpts as I have time and may have subsequent individual blogs related to portions of the detailed Report.  (For example, I plan -- subject to time constraints -- to discuss the IRS resource issues which are addressed in the Report.)

The portions of the Executive Summary relevant to offshore and related matters is (the initialisms MSP and LR are for Most Serious Problems and Legislative Recommendations, respectively):

MSP #7 OFFSHORE VOLUNTARY DISCLOSURE (OVD): The OVD Programs Initially Undermined the Law and Still Violate Taxpayer Rights Problem 

Before it updated the “streamlined” program in 2014, the IRS generally required those who failed to report offshore income and file a related information return (e.g., a Report of Foreign Bank and Financial Accounts (FBAR)) to enter into an offshore voluntary disclosure (OVD) settlement program and pay an “offshore penalty” designed for bad actors. “Benign actors” with inadvertent violations generally had to “opt out” and be audited to obtain a lesser penalty.  Uncertainty about what penalty might apply in the audit, the IRS’s one-sided interpretation of the program terms, processing delays, and the cost of representation in an audit prompted some to pay a disproportionate offshore penalty. Inside the 2011 OVD programs, taxpayers with small accounts paid over eight times the unreported tax—over ten times the 75 percent penalty for civil tax fraud—and those who were unrepresented generally paid even more.  

Analysis 

Because violations by taxpayers who have small accounts or are unrepresented are more likely to have been inadvertent, the OVD programs undermined the statutory scheme, which applies a higher penalty to “willful” than non-willful violations or those due to “reasonable cause.” The IRS’s one-sided interpretations of its OVD FAQs, which were not explained, appealable, or published, eroded confidence that the IRS would be reasonable in a post-opt-out examination. The IRS now allows benign actors to pay a smaller penalty under the 2014 streamlined program. However, unlike the last time it made taxpayer-favorable changes to an OVD program, the IRS will not allow those with signed closing agreements to benefit from the most recent changes, thereby punishing taxpayers who came in early. Thus, the IRS’s OVD programs eroded taxpayer rights, such as the rights to pay no more than the correct amount of tax, challenge the IRS’s position and be heard, appeal an IRS decision in an independent forum, to be informed, and to a fair and just tax system.

Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation (1/8/15)

I write today on a recent sentencing for Gabriel Gabella.  Judge Jack Weinstein, U.S. district judge for ED NY, a giant among great judges, imposed the sentence.  (Weinstein's Wikipedia entry is here.)  The sentencing decision is quoted in full below.  See United States v. Gabella, 2014 U.S. Dist. LEXIS 176367 (ED NY 2014).  The USAO EDNY's press release on the  plea of guilty is here.  The guilty plea announcement succinctly sets forth the key background:

Gabriel Gabella, a former client of the Swiss bank UBS AG, pleaded guilty today at the federal courthouse in Brooklyn, New York, to a felony information charging him with concealing ownership of his Swiss UBS AG bank account from the United States by willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR). When sentenced, Gabella faces a statutory maximum of five years’ incarceration for his crime. In the plea agreement he entered today, Gabella agreed to pay a civil penalty of $3,140,346, which is half the value of his unreported Swiss bank account in 2007, for the willful failure to file the FBAR. Gabella also agreed to make restitution of $239,012 to the Internal Revenue Service for federal income taxes he failed to pay for 2005, 2006 and 2007 by hiding his ownership of his UBS account. 

Judge Weinstein imposed a sentence of three years of probation, with a fine $50,000.   Here is the opinion in full (caption omitted):

I. Introduction 

On June 18, 2014, Gabriel Gabella pled guilty to one count of willful failure to file a report of foreign bank and financial accounts. 31 U.S.C. §§ 5314, 5322(a). 

On December 9, 2014, Gabella was sentenced to a term of three years of probation and fined $50,000. The proceeding was videotaped in order to develop an accurate record of the courtroom atmosphere, as well as the factors and considerations that a district court must evaluate in imposing a sentence in accordance with section 3553(a) of Title 18. See In re Sentencing, 219 F.R.D. 262, 264-65 (E.D.N.Y. 2004) (describing the value of video recording for the review of sentences on appeal). 

II. Offense Level and Category 

The total offense level is 17. The criminal history category is I, yielding a guidelines imprisonment range of 24-30 months. U.S.S.G. Ch. 5 Pt. A. 

III. Law

China's Worldwide Tax System (1/7/14; 1/9/14)

Given the discussion on this blog of how the U.S. is abusive to U.S. citizens abroad because of the U.S. system of worldwide taxation, I thought this was an interesting and might draw some comments from readers.  Keith Bradsher, China Wants Taxes Paid by Citizens Living Afar (NYT 1/7/15), here.

Here are the opening paragraphs:

 As Chinese individuals and companies head overseas in greater numbers, the country’s tax authorities are starting to follow. 

The Beijing billionaires who set up cryptically named companies in the British Virgin Islands to hold their fortunes are in the cross hairs. So are the Guangdong salesmen living and working in Africa and Latin America. China’s tax officials are now demanding that citizens start reporting exactly how much money they earn overseas. 

In asking for this information, national and municipal tax agencies in China are quietly beginning to enforce a little-known and widely ignored regulation: Citizens and companies must pay domestic taxes on their entire worldwide incomes, not just on what they earn in China.

I am not sure that the U.S. Congress (which determines our tax regime (I know some tea parties think it is the IRS; they are wrong)) can take great comfort in the fact that China has a similar system.  Indeed, many of us have lived our lives listening to U.S. politicians (Congressmen included) vilify China (think McCarthy and his ilk and then segueing into Vietnam where the domino theory was based on China and Russia toppling the dominoes and bringing great woe to all of humanity).

But the broader issue is whether, given a global economy, a single country worldwide (sometimes called citizen based taxation) system is a good thing.  There are people paid a lot more than I am to struggle with that issue, but I am sure that readers will have some feelings.  Let's here them.

My thought is that, eventually, in a broader sense, we are all in this together.  By we, I mean our progeny who, in my view, are we.  We all sink or swim on a globe that must sustain us.  In my mind, we need to pull together a global government or at least a global organization that will coordinate the effort to, in William Faulkner's words, insure that "man will not merely endure: he will prevail."  There must be some system that, in the final analysis, make sure that we all contribute to enduring and prevailing.  That requires a compulsory tax because we are too selfish to make voluntary contributions to a system that allows us to endure or prevail.  And that is why government or quasi-government is so important.

Addendum 1/9/15 1:30am:

A commenter pointed out a rebuttal to the New York Times article.  See No, China does not have citizenship-based taxation (Isaac Brock Society 1/8/15), here, written by someone identified only as Eric in the blog.  The rebuttal is quite detailed and, taken at face -- I can't speak as to whether it is more accurate than the NYT article on the point of contention -- seems to be a detailed rebuttal of the notion in the article that the Chinese taxation system parallels in some respect the U.S. CBT system.  So, I invite readers to consider the Eric blog entry, and thank the commenter for calling it to our attention.  I do note that, as of 1/9/15 at 1:31am, the NYT has not acknowledged that the article errs in this respect.  (The article does provide two unrelated corrections; I presume that someone has called it to the attention of the NYT and the authors of the NYT article.)

Reasonable Doubt and Jury Nullification (12/30/14)

This is good stuff guys.  Read and enjoy:  Eugene Volokh, ‘If you do not have a reasonable doubt … then you will enter a verdict of guilty’ (Volokh Conspiracy 12/24/14), here.

I will post later some recent musings I have had about reasonable doubt.  In the meantime, those with an interest should just link to this short blog entry.

Article on Swiss Enabler Fugitives Avoiding U.S. Indictments (12/26/14)

Giles Broom and David Voreacos, Swiss Bankers in Limbo After U.S. Jury Clears Ex-UBS Manager (12/22/14), here.  Excerpts:

Twenty-five offshore bankers, lawyers and advisers have yet to answer U.S. Justice Department charges that they helped Americans evade taxes. Most live in Switzerland, where they remain off-limits to U.S. prosecutors because the country doesn’t extradite people for tax crimes. If they cross the border into another country, they risk arrest, and the U.S. charges have no expiration date. 

* * * * 

Weil’s compatriots were cheered by his court victory, with Geneva financial newspaper L’Agefi calling him a “national hero” of “remarkable courage.” His success may tempt others to take their chances with a jury or to plead guilty and help prosecutors in bids for leniency. 

They include former employees of Switzerland’s top three wealth managers -- UBS, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) Just 10 days after Weil’s acquittal, Martin Dunki, a 66-year-old retired client adviser at Zurich-based Rahn & Bodmer Banquiers, a private bank established in 1750, was indicted on a charge of conspiring to help Americans hide hundreds of millions of dollars in offshore accounts. 

* * * * 

Making Deals 

“Client advisers who committed egregious offenses are probably trying to cooperate and strike a deal with the Justice Department,” Patel said. “Bankers fear coming to the U.S. because the DOJ can detain them on arrival pending trial. Therefore, walking around freely in Switzerland may be a more appealing option, even if the charges remain unresolved.” 

Stefan Buck, who was Bank Frey & Co.’s head of private banking, was indicted last year in New York. His lawyer filed a motion seeking bail without Buck’s first having to appear in a New York courtroom. Buck ultimately “wishes to leave the ‘safe haven’ of Switzerland to appear in a U.S. court to clear his name,” the filing said. Prosecutors oppose his bail motion, which is pending. 

Josef Dorig, who founded a Swiss trust company after working 36 years at Credit Suisse, pleaded guilty in April, admitting he created phony structures to help clients cheat the IRS. Dorig, 72, cooperated with U.S. prosecutors and is slated for sentencing Jan. 16 in federal court in Alexandria, Virginia. 

Probation Sought

In a pre-sentencing memorandum filed with the court, his lawyers said he deserves probation because he accepted responsibility and was not extraditable from Switzerland.
“Mr. Dorig had absolutely no incentive to voluntarily enter the United States to answer the charges against him or cooperate with the government,” his lawyers wrote. “He easily could have stayed in Switzerland and lived the rest of his life peacefully and happily in his homeland. But he did not.” 

The U.S. probe has benefited from voluntary disclosures by at least 45,000 taxpayers and more than 100 Swiss banks seeking to reduce penalties through non-prosecution agreements. Information passed to U.S. authorities contains thousands of employee names, according to Douglas Hornung, a Geneva-based lawyer who represents Swiss financial workers. 

“Weil’s acquittal was far from good news for bank employees lower down the food chain,” Hornung [Douglas Hornung, a Geneva-based attorney] said. “After losing face in court in November, U.S. prosecutors will redouble their efforts to pursue smaller fish.”

JAT Comments:

IRS Updates List of Foreign Financial Institutions or Faciliators with Bank Leumi and Sovereign Management & Legal Ltd. (12/26/14)

The IRS has updated its list of Foreign Financial Institutions or Facilitators, here.  One function of this list is to identify banks that the insided OVDP penalty rate increases to 50%. (See FAQ 7.2, here.)

The new list is as follows (with the additions in bold-face):

• UBS AG
• Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
• Wegelin & Co.
• Liechtensteinische Landesbank AG
• Zurcher Kantonalbank
• swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
• CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
• Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
• The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
• The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
• Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates
• Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA

For the Federal Tax Crimes Blogs postings on the newly added institutions, see:

• Bank Leumi Admits Tax Wrongdoing, Agrees to Deferred Prosecution agreement, and Agrees to $400 Million Payments (Federal Tax Crimes Blog 12/22/14), here.
• New Direction for John Doe Summonses to An Enabler's Service Providers Subject to Summons Power (Federal Tax Crimes Blog 12/19/14), here.

Article Tallying Results on U.S. Prosecution of Offshore Account Enablers (12/23/14)

Bloomberg has this article on prosecution of enablers:  David Voreacos, Offshore Tax Crimes Scorecard: Bankers, Lawyers, Advisers (Bloomberg 12/22/14), here.  The article has specifics on the enablers involved.  The article starts with:

The U.S. Justice Department has a mixed record of success in prosecuting offshore bankers, lawyers and advisers accused of helping U.S. taxpayers cheat on their taxes. 

Since 2008, the U.S. has charged 38 people, including bankers from Switzerland’s three top wealth managers -- UBS Group AG, Credit Suisse Group AG and Julius Baer Group Ltd. 

On Nov. 3, federal jurors in Fort Lauderdale, Florida, acquitted Raoul Weil, the former head of wealth management for UBS, who was accused of conspiring to help thousands of U.S. clients use Swiss banking secrecy to evade taxes. Weil was the highest-ranking bank executive charged by the U.S. 

Of the 38, 25 have yet to answer the charges in court, and most live in Switzerland. Seven pleaded guilty, two were convicted at trial, two await trial and two were acquitted, including Weil. Here are the cases:

Tax Return Preparers Convicted of Conspiracy and Failure to File FBARs (12/23/14)

DOJ Tax announced in a press release, here, that David Kalai and Nadav Kalai, tax return preparers, were convicted by a jury of one count of conspiracy to defraud the Internal Revenue Service (IRS) and two counts  of willfully failing to file FBARs.  Key excerpts are:

According to the second superseding indictment and evidence introduced at trial, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with 12 offices located throughout the United States.  David Kalai worked primarily at URS’s former headquarters in Newport Beach, California, and later at URS’s location in Costa Mesa, California.  Nadav Kalai, who is David Kalai’s son, worked out of URS’s headquarters in Bethesda, Maryland, as well as the URS locations in Newport Beach and Costa Mesa.  David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.  

* * * * 

The second superseding indictment and the evidence introduced at trial established that the co-conspirators prepared false individual income tax returns that did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts.  In order to conceal the clients’ ownership and control of assets and to conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B.  Bank A is a large financial institution headquartered in Tel -Aviv, Israel, with branches worldwide.  Bank B is a mid-size financial institution, also headquartered in Tel Aviv, with a presence on four continents.  

As further proven at trial, the co-conspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks.  The co-conspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense.  The co-conspirators also failed to disclose the existence of, and the clients’ financial interest in and authority over, the secret accounts and caused the clients to fail to file FBARs with the U.S. Treasury.  \ 

* * * * 

The evidence at trial established that David Kalai and Nadav Kalai each failed to file FBARs for calendar years 2008 and 2009 concerning a foreign account held at Bank A in Luxembourg.  The bank account was held in the name of a nominee corporation in Belize and held over $300,000. 

I think the banks are Bank Leumi and Bank Hapaolim, both Israeli banks.

Bank Leumi Admits Tax Wrongdoing, Agrees to Deferred Prosecution agreement, and Agrees to $400 Million Payments (12/22/14)

DOJ Tax just issued this press release -- "Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts," here.  Key excerpts (bold-face supplied by JAT)

A major Israeli international bank admitted that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the Internal Revenue Service (IRS) by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.  A deferred prosecution agreement between the Bank Leumi Group and the Department of Justice was filed today in the Central District of California that defers prosecution on a criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service.  This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States. 

The Bank Leumi Group’s parent company is Bank Leumi le-Israel, B.M.  Bank Leumi le-Israel is one of Israel’s largest banks, with subsidiaries in seven countries and more than 13,000 employees.  Other subsidiary banks entering into this deferred prosecution agreement include The Bank Leumi le-Israel Trust Company Ltd., the oldest and largest of all bank trust companies in Israel; Leumi Private Bank S.A., a Switzerland-based subsidiary; Bank Leumi (Luxembourg) S.A., a Luxembourg-based subsidiary; and Bank Leumi USA, a FDIC-insured, full-service commercial bank with offices in California, Florida, Illinois and New York. 

According to documents filed in the case, to account for their criminal conduct, Bank Leumi Group will pay the United States a total of $270 million. Of this total payment, $157 million represents a penalty for U.S. taxpayer accounts held at Leumi Private Bank in Switzerland.  This $157 million penalty is consistent with the department’s Swiss Bank Program, which permits certain Swiss Banks to avoid prosecution by making a full and complete disclosure of their U.S. taxpayer-held accounts and paying substantial penalties.  The agreement further provides that Bank Leumi Luxembourg and Leumi Private Bank will cease to provide banking and investment services for all accounts held or beneficially owned by U.S. taxpayers. 

* * * * 

According to the filed statement of facts, from at least 2000 until early 2011, the Bank Leumi Group took affirmative and extensive steps to assist U.S. clients in concealing their assets offshore, including:

• surreptiously sending private bankers from Israel and elsewhere around the world to the United States to meet secretly with U.S. clients at hotels, parks and coffee shops to discuss their offshore account activity;

• assisting U.S. clients in using nominee corporate entities created in Belize and other foreign jurisdictions to hide their undeclared accounts by concealing the U.S. client as the true beneficial owner of the account;

• using the Bank Leumi le-Israel Trust Company as a nominee account holder for U.S. clients with accounts in Israel to conceal the U.S. client as the true beneficial owner of the account;

• maintaining U.S. clients’ undeclared offshore accounts under assumed names or numbered accounts to conceal the U.S. client as the true beneficial owner of the account;

• providing hold mail services so that correspondence and other account information would not go directly to the U.S. client to make it more difficult to connect the client to the secret offshore account;

• extending loans to U.S. clients from Bank Leumi USA that were collateralized by the assets in those clients’ offshore accounts, so that the clients could leverage their offshore assets to obtain and use capital in the United States while keeping their foreign accounts secret and undetected from the U.S. government; and

• after the department’s investigation into UBS and other Swiss banks’ criminal conduct in aiding U.S. taxpayers to evade their taxes became public, the Bank Leumi Group opened and maintained accounts for U.S. taxpayers who left UBS and other Swiss banks due to the investigation in an effort to continue to avoid detection by the U.S. government.

* * * * 

According to documents filed in the case, as part of its agreement with the department, the Bank Leumi Group provided the names of more than 1,500 of its U.S. account holders.  As part of the agreement, the Bank Leumi Group will continue to disclose information to the government regarding its cross-border business and provide testimony and information regarding other investigations. 

For articles I just picked up, see

• Israel's Bank Leumi to pay $400 million for U.S. tax settlement (Reuters 12/22/14), here.

New Direction for John Doe Summonses to An Enabler's Service Providers Subject to Summons Power (12/19/14)

USAO SDNY has issued a press release titled "Court Authorizes Irs To Issue Summonses For Records Relating To U.S. Taxpayers Who Used Services Of Sovereign Management & Legal, Ltd., To Conceal Offshore Accounts, Assets, Or Entities", here.  The JDS Order was signed yesterday by the judge in SDNY.  Key excerpts:

In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House, and HSBC USA. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these eight entities to produce records that will assist the IRS in identifying U.S. taxpayers who, from the years 2005 through 2013, used Sovereign’s services to establish, maintain, operate, or control any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity. 

* * * *\ 

Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama as well as offshore entities. Related services provided by Sovereign include the maintenance and operation of offshore structures, mail forwarding, the availability of virtual offices, re-invoicing, and the provision of professional managers who appoint themselves directors of the client’s entity while the client maintains ultimate control over the assets. 

As a result of a DEA investigation of online narcotics trafficking known as OPERATION ADAM BOMB, the IRS learned that Sovereign was involved in assisting U.S. clients with tax evasion. During the IRS’s investigation of Sovereign’s conduct, one taxpayer, making a voluntary disclosure of tax non-compliance to avoid prosecution, reported that Sovereign helped the taxpayer form an anonymous corporation in Panama that the taxpayer used to control assets without appearing to own them. 

The IRS investigation also determined that Sovereign uses Federal Express, UPS, and DHL to correspond with U.S. clients, and Western Union to transmit funds to and from clients in the U.S. In addition, the IRS learned that the wire services operated by the FRBNY and Clearing House, and the U.S. correspondent bank accounts that HSBC USA holds for Sovereign’s banks in Panama and Hong Kong, are likely to have records of financial transactions between Sovereign and its clients in the U.S. By obtaining information from these entities through John Doe summonses, the IRS expects to be able to identify Sovereign’s U.S. clients who may be avoiding or evading taxes.

I infer from this action that the US for some reason is unable to blast this information out of Sovereign.

From the multiple John Doe Summonsees and the likely considerable effort to follow the leads that will be generated, it would appear that the Government believes Sovereign is a major enabler in offshore evasion.

Another UBS Depositor Pleads Guilty (12/19/14)

USAO NDGA announced here the guilty plea for Gregg A. Kaminsky.  The following are the key excerpts from the press release:

Kaminsky is an Internet entrepreneur who serves as the Chief Executive Officer of Circlenet LLC, based in Atlanta, Ga.  From 2000 through 2008, Kaminsky owned and controlled a foreign bank account with Union Bank of Switzerland AG (“UBS”), one of the biggest banks in Switzerland and largest wealth managers in the world.  By 2006, Kaminsky’s UBS account held approximately $1.1 million.  From time to time between 2002 and 2009, Kaminsky caused funds to be wire-transferred from his UBS account in Switzerland to other foreign bank accounts controlled by him in Thailand and Hong Kong.  Also during that time, Kaminsky caused his income from at least two different U.S. companies to be direct-deposited into his UBS account in Switzerland.
Yet, over this period, Kaminsky did not disclose his UBS account or other foreign financial accounts to the U. S. Treasury Department as required, and thereby concealed several hundred thousand dollars in taxable income, interest, and dividends from the U.S. Internal Revenue Service (IRS). 

In addition, in 2007 and 2008, Kaminsky omitted his UBS account and associated income from Free Applications for Federal Student Aid (FASFA) that he electronically filed with the U.S. Department of Education in order to qualify for need-based federal financial aid assistance to fund his tuition for an Executive MBA program at Emory University.  At the time of the FASFA applications, Kaminsky controlled over a half million dollars in his UBS account, which would have made him ineligible for federal student loan assistance. 

On June 30, 2008, the U.S. Department of Justice sought court approval to compel UBS to disclose the identities of U.S. accountholders who may be using UBS accounts to hide assets overseas and thereby evade U.S. taxes.  The request and the order authorizing it were widely reported by the media throughout the United States, which coverage continued throughout 2008 and 2009 as the U.S., UBS, and Switzerland negotiated a resolution and UBS began disclosing U.S. account holders to the IRS. 

Following this news, Kaminsky closed his UBS account and transferred the balance of his UBS account to an account that he controlled at HSBC Bank in Hong Kong.  Further, in spring 2010, Kaminsky filed FBARs for his Swiss and Hong Kong accounts for the very first time, also filing amended individual income tax returns for 2007 and 2008 that disclosed the previously unreported income in his UBS account.  However, in his amended 2007 and 2008 returns, and in his subsequently filed returns for 2009 through 2011, Kaminsky still failed to report nearly $150,000 in taxable income earned from his business activities in the virtual world, “Second Life.”

More on the Need for a Pending Proceeding for Tax Obstruction, Section 7212(a) (12/19/14)

I recently blogged on United States v. Miner, ___ F.3d ___, 2014 U.S. App. LEXIS 23367 (6th Cir. 2014), here.  The blog entry is Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (Federal Tax Crimes Blog 12/13/14), here.  In Miner, the Sixth Circuit said that its decision in United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998) that a pending IRS proceeding was required was the applicable precedent in the Sixth Circuit, despite a case after Kassouf, United States v. Bowman, 173 F.3d 595 (6th Cir. 1999), stated, suggested or even held otherwise.  The issue has arisen in another case in another circuit with a different outcome at the trial level.

In United States v. Huff, 2014 U.S. Dist. LEXIS 174978 (SDNY 2014), defendant Huff

allegedly defrauded both the Internal Revenue Service ("IRS") and clients of "02HR," a professional employer organization, by directing 02HR to fail to pay to the IRS and to insurance companies $58 million in funds provided to 02HR by clients to cover their tax and insurance obligations.

For that conduct, he was charged with wire fraud, tax evasion and tax obstruction.  I focus on the tax obstruction charge in a single count, Count 7, the same charge involved in Miner, Kassouf and Bowmen.  I cut and paste immediately below the Court's entire discussion of the issue:

III. Count Seven 

Count Seven charges Huff with corruptly endeavoring to obstruct and impede the due administration of the tax laws by causing 02HR employees to, inter alia, file false Forms 941, cease filing Forms 941, cease making payments to the IRS, divert funds intended for the IRS, and conceal from 02HR's clients its failure to make payments to the IRS, in violation of 26 U.S.C. § 7212. Indictment ¶ 21. Extrapolating from cases successful prosecutions under Section 7212, Huff argues that a conviction under this provision requires "proof of a scheme [either] to conceal income or to impede an IRS investigation or proceeding, neither of which is alleged in the Indictment." Def's Reply at 18-19. 

Huff is correct that it is difficult to find cases in which defendants have been convicted under Section 7212 without either impeding an IRS proceeding or, more often, concealing their own income. However, the mere lack of cases falling outside this dichotomy does not transform the two precedential patterns into statutory requirements. 

First, courts have found that the "omnibus clause" under which Huff has been charged is, as its title implies, subject to an expansive interpretation. See United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998) (noting that "the second or 'omnibus' clause is not so limited, and renders criminal 'any other' action which serves to obstruct or impede the due administration of the revenue laws" and that "the plain language of section 7212 does not support [a] narrow interpretation of the statute").