Tuesday, October 20, 2009

Tax Crimes Developments at NYU Federal Tax Institute

Lee Sheppard reports today in Tax Notes on developments at a New York University Institute on Federal Taxation. Lee A. Sheppard, Tax Schemes are Proliferating, Official Tells NYU Conference, 2009 TNT 200-1. The key points I note for tax crimes are:

1. As the title suggests, tax schemes are proliferating. Some of the tax schemes are variations on historic scams. In any event, there should be continuing business for persons practicing in the tax crimes area.

2. On the IRS Voluntary Disclosure front, the following is, in my mind, the key observation:
On average, those who took advantage of the amnesty will lose roughly 50 to 60 percent of the amount in an ordinary deposit account, that is, one without significant earnings, and a higher percentage if the account was an investment account. The amnesty offered a great deal to the traditional tax cheat, said Charles Rettig of Hochman, Salkin, Rettig, Toscher & Perez, but those who missed the October 15 deadline might still want to use the regular voluntary disclosure program to avoid potential criminal prosecution. (For the IRS amnesty instruction, see Doc 2009-14388 [PDF] or 2009 TNT 120-8 .)
3. And, on Voluntary Disclosure:
Matthews marveled at the vast sums that people were willing to park in bank accounts with no paper evidence that they owned the money, and often paper saying that some nominee owned it. He wondered whether these people would be as trusting of other tax havens now that they had been chased out of Switzerland.
I could say more on this, but my readers would think I am just piling on the Swiss banks (not that any thing I would say would materially increase the pile).

4. More important for tax procedure than tax crimes, the historic division of representation in the various forums for civil litigation is blurring. Ms. Sheppard report: "And taxpayer selection of forum does not mean one set of lawyers: IRS lawyers and Justice lawyers are working together in all courts."


  1. Lee Sheppard reports today in Tax Notes (link?). America must reduce the tax gap. I thought UBS had 60,000 US accounts, they disclosed 4,500 of them and only 5,000 more Americans voluntarially disclosed through FUBR. We have 50,000+ known tax cheats still languishing... And that is JUST with UBS. This is not acceptable.

  2. Jack,

    I agree that the historic division of representation is blurring and that there appears to be a much more cohesive working relationship between the IRS's components (exam, appeals, collection, and CID), the IRS's Office of Chief Counsel's components (technically speaking, the Chief Counsel is a senior official of the Dept. of the Treasury and not an IRS official, much like the Director of Practice and the head of the OPR), and the US DOJ (primarily the Tax Division, the local US Attorneys Offices, and in cases involving statutory grants of immunity, non-tax offenses and extradition matters, the Criminal Division).


    1. Much as I have an abiding respect for most tax practitioners (attorneys and nonattorneys), I think that, given the blurring of the lines between administrative, civil and criminal, a client would be much better served by an attorney/tax practitioner conversant in white collar criminal defense including a significant experience in defending clients in federal criminal proceedings. I think that prudence requires an attorney. See generally, Manness v. Meyers, 419 US 449 (1975) (wherein the US Supreme Court expressly recognized that it certainly takes an experienced lawyer to evaluate the applicability of the 5th amendment right/privilege to factually-concrete scenarios). See also, US v. Bohn, 890 F. 2d 1079 (9th. Cir. 1989) (recognizing the right to counsel in an in camera proceeding to determine the validity of the defendant's 5th amendment right and reversing the defendant's conviction because his attorney was excluded from the in camera hearing, which was held to be a critical stage of the criminal proceedings as contemplated by the 6th amendment).

    2. "Kovelizing" professionals, especially accountants and tax preparers, must be done in a manner where caution abounds. Belt and suspenders!

    3. Joint Defense Agreements present special dangers as well as opportunities. Astute legal counsel must do a thorough (if not an outright exhaustive) evaluation of WOTS. Meaning: an assessment of Weaknesses, Opportunities, Threats and Stengths as it pertains to his or her client as well as all actual and potential participant/parties.

    4. Older, yet time-honored methods should be carefully considered based on counsel's clients' specific set of facts and circumstances. Hint: Jack has indicated that I am fond of Baird v. Koerner. While the foundation for the Baird court's decision on the point of attorney-client privilege may be open to serious question because the applicable jurisprudence requires that the privilege must be evaluated with reference to federal and not state law, nevertheless, I would certainly suggest that the "last-link" theory enunciated in that case is very much alive and well.

  3. Anonymous,

    More very good comments. My comments to your comments (paragraphs are the same as yours)

    1. I am unsure whether you are recommeding an attorney for all audits because of concern that the audit might turn criminal. In my experience, in the overwhelming number of audits, there really is no realistic criminal potential, and the taxpayer will get in criminal trouble only if the egregiously obstructs the audit (e.g. submits false documents, etc.). Hence having an attorney involved in all audits is counter productive. Nonattorneys have a valuable role in handling audits.

    2. I agree on Kovelizing when the criminal potential is present.

    3. I would appreciate hearing more of your thoughts on the joint defense agreement. It seems to me that the JDA constrains a defendant / target's ability to negotiate the best deal because the Government may feel that it will be constrained in using the person against others.

    4. I do agree that the reasoning of Koerner v. Baird is still good, even though some might dismiss it as being outdated.


    Jack Townsend

  4. Jack,

    I certainly appreciate the exchange of ideas with you, your readers and especially, your students.

    A few points:

    1. No, I would certainly not recommend that an attorney be retained to assist in all audits. I agree that would be counterproductive. Having said that, I would definitely recommend that an attorney be retained by anyone who has any reasonable fear of self-incrimination or otherwise suspects that the auditor believes that there are "firm indications of fraud" (or false statements in connection with one more returns under examination). If there is exposure to potential criminal prosecution and its natural consequences, including especially but not limited to imprisonment, I would certainly recommend that an experienced tax/white collar defense attorney be retained early on.

    2. In most cases, a nonattorney tax practitioner can handle audits and interact with a variety of IRS officials. Pluralism in tax practice is a big plus because it serves the consumer/taxpayer by promoting compliance with federal, state, local and tribal tax laws at a modest cost.

    3. I would be glad to share more thoughts on JDAs. For starters, I agree with you that a JDA often hinders the defendant's/target's/subject's ability to negotiate the best deal with the government. However, it is not always in a client's best interest to negotiate. Sometimes, it is in a client's best interest to defend him/herself.

    4. A JDA, when approached correctly, can provide tremendous strategic opportunities including "intelligence" to an astute tax/white collar defense attorney without subjecting counsel to the possibility of having potentially unknown nonclients assert an attorney-client relationship. For instance, if A, B, C, and D are parties to a JDA, and C testifies in front of a federal grand jury in accordance with careful instructions (including but not limited to note taking and exiting the GJ room every time a question is posed in order to get appropriate legal guidance), C can share what went on before the grand jury with the balance of the participants including one's own client, A. This provides one's client, A, with tremendous intelligence about how the investigation is going.

    4. JDAs may also work by preventing potentially very adverse witnesses from testifying against one's client. In essence, counsel's interaction with his or her "nonclient" participants may assist counsel in focusing investigative and litigation efforts. In some instances, counsel may obtain discovery from participants (read: potentially adverse witnesses) early on in the process. This begs the question: does counsel wish to fashion a careful JDA and obtain "discovery" early or does he/she wish to wait until he/she receives such discovery per Jenks?
    How does that old saying go? "Keep your friends close, but keep your [potential adversaries and/or potential adverse witnesses] closer."

    5. I look forward to posting more comments on JDAs.


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