Saturday, April 23, 2011

Another UBS Client is Sentenced (4/23/11)

Taxpayer: Ernest Vogliano
Banks : UBS AG
Entities: Yes
Guilt: By Plea Agreement - Klein conspiracy (one count) and tax perjury (five counts)
Incarceration (in months): 0
Probation: 2 years
FBAR penalty: $940,381
Fine: $10,000
Court: SD NY
Judge: Thomas Griesa
Age at sentencing: 80

Wall Street Journal

I will update the spreadsheet tomorrow.


  1. jack,

    money-wise, it is not so bad deal at all. if he were in ovdi 2011, he would have to pay 25% of his 4.9M which is more than his 940,381 civil penalty plus his fine of 10,000.

  2. Jack, just found out he was also charged in NY state court. Just what happens if someone joins ovdi (so no Fed prosecution), before the civil case (ovdi) is closed, would he/she be subject to state criminal prosecution ? or he/she should make VD to state at the same time to avoid state prosecution

  3. Anonymous, as to the first comment above, I think there are some details missing from the report that I have seen, but the suggestion is that the conduct involved post and pre-2003 years. So, trying to compare it to the OVDI may be a bit dicey. For example, what if he only had about $2mm in the highest year beginning on 1/1/2003? Then the settlement would be 50% and would be consistent with the earlier criminal case resolutions. I think we just need more facts and will undoubtedly be able to get them over the next couple of weeks


  4. Anonymous, as to the second comment above, I do not reside in a state that has an income tax and have not handled any cases from a state that does. So I cannot speak directly from personal experience. However, I do know generally that states (and local governments) can have their own enforcement priorities and thus could prosecute even though someone is prosecuted by the federal government. I also understand that states and local government may be content with just collecting back tax and interest where the federal government has prosecuted. But, they also may not be content and thus may piggyback off the federal government's prosecution.

  5. Jack, thanks!

    You are right. I just found that $4.9M was before 2002. After 2003, it was 1.9M. That would be consistent to 50% FBAR penalty.

    As for the state level of prosecution, Would "double jeopardy" be applied for the defense ? Or it is only for the same level of jurisdiction. Particularly, for OVDI applicants, they need to deal with the Federal level first (most state tax is based on Federal Tax return on AGI).

    I can understand the right of the stae to collect tax.

  6. My understanding is that double jeopardy would not prevent the states from prosecuting after a federal conviction for a tax crime.

    Conversely, the federal government may prosecute for a tax crime even after the state has convicted for a tax crime. The DOJ has a dual and successive prosecution policy (referred to as the Petite Policy) (see that may apply to avoid a federal prosecution after a state prosecution. But the feds can prosecute.

    States may have similar policies, but, like the feds, can make an independent decision based on their own law enforcement priorities to prosecute after the other jurisdiction goes first.

  7. Most if not all states have information sharing agreements with IRS. For that reason, if you amend federal returns through OVDI or for whatever reason, it would be prudent to look into the required actions to be compliant in the respective state or states affected. I did the 2009 VDP and handled the state issues myself. It was very simple and straight forward. They only had me amend 3 years of returns. Each state is likely different so folks should proceed with caution.

  8. To the last post,

    Thanks... I think I will notify the affected state first, but my OVDI has just entered the civil phase. My state return is very much based on Federal return on Adjust Gross Income. I can not file amend state return until IRS has accepted my 1040X.

  9. Another point regarding state issue,

    The state matter is only to amend return for unreported income (regardless which part of income). The state has no jurisdiction on international matter. So this matter is only applied to whatever civil penalty or criminal prosecution related to under report income.

    Am I correct, Jack ?

  10. Many states tax world-wide income. Thus, the comment above, that "the state has no jurisdiction on international matter" needs to be explained further; if the implication is that foreign income does not apply to a state tax return, then the taxpayer would have some problems on the state level. Many states have voluntary disclosure programs. Some, like New York, do not impose a penalty in addition to back taxes and interest. Thus, if a taxpayer is addressing cleaning up a foreign account on the federal level, attention should be paid on the state level as well.

  11. I'm not a lawyer, but it seems clear to me that there is no double jeopardy issue at all, since filing a federal return and filing a state return are clearly independent acts state laws and independent prosecution for federal returns (under federal laws) and state returns (under state law) each is possible.

  12. Mr. Rubinstein.

    I think what the previous Anonymous was referring to is that there is no FBAR statute at the state level (with its horrendous potential civil penalties). So under-reported income is the only issue here. There may be few technical issues -- does the state allow foreign tax credits ? Will the state allow the federal PFIC methodology ? And so on.

    One possibility might just be to file amended state tax returns for relevant years "quietly". I think most states will refresh the statute of limitations if a federal return is amended, so a potential OVDI entrant would have to refile all 8 years even if the state has a lower statute of limitations. Its hard to believe that the state would try to follow up on a penalty for relatively small sums. For large sums, the best approach might be to join the state's disclosure scheme if it has one.

    I suppose if one lives in NYC, there are city taxes as well to consider.

  13. I posted earlier about handling my state disclosure following participation in 2009 VDP. I do not know if it was the right protocol but it worked just fine. I made a calculated risk after researching my states revenue laws and disclosure policies carefully. I also called their hotline first. This is what I sent:

    March 8, 2010
    xxxxxxxxxx Department of Revenue, Discovery Unit
    P.O. Box xxxxxx
    xxxxxxx, xx xxxxx
    Re: Voluntary Disclosure Pertaining to xxxxxxxx xxxx xxx
    Dear xxxxxxxxxx Department of Revenue, Discovery Unit
    We have made Voluntary Disclosure to the United States Internal Revenue Service regarding an offshore bank account. The IRS disclosure has progressed to the point that the IRS has sent us a closing agreement which we have signed and returned to them along with payment for tax, interest and penalty that the assigned IRS Revenue Agent assessed. Please note that the IRS disclosure was initially screened by the IRS Criminal Investigations Division to ensure truthfulness, timeliness , legal source of funds and then forwarded to the IRS Civil Examination for tax audit. The initial source of the funds was an inheritance from my father who was an immigrant xxxxxx national, and never a resident of xxxxxxxx. This disclosure covered the years 2003 – 2007. The offshore income was sourced from Time Deposits/Certificate of Deposits from xxxxxx, a xxxxxxxx bank. According to the xxxxxxxx Department of Revenue guidelines for the xxxx/Individual tax, this type of bank CD interest income is not taxable by the state of xxxxxxxxx. We did report this income on our 2008 Federal and xxxxxxxxx returns. We have not been contacted by the xxxxxxxxxx Department of Revenue. In wanting to ensure compliance with the xxxxxxxxx Tax Code, on March 8, 2010 at 9:45 AM eastern time I called the xxxxxxxxx Department of Revenue, Discovery Unit hotline and spoke with Ms. xxxxxxxx about the proper recourse to correct these issues. xxxxxxxxx advised me to file amended xxxxxxxxx Individual returns for the years 2006 and 2007. Our 2008 xxxxxxxxx return was correct as filed. Please find attached copies of our original 2006 and 2007 xxxxxxxxx returns along with amended 2006 and 2007 xxxxxxxxx returns. Please consider this letter along with the attached returns as our formal application for Voluntary Disclosure with the xxxxxxxxx Department of Revenue. Please do not hesitate to contact us should you require any more information or documentation of these facts. Thank you for your consideration of this matter.
    xxxxxxxx xx xxxxx
    SS# xxxxxxxxxxxxx
    Phone: xxx-xxx-xxxx

  14. I started the discussion on state level tax/penalty/prosecution. What I really meant was for someone (like me) in the middle of OVDI and it would take sometime to clear/close the issue with IRS. State tax is based on Federal AGI (adjust gross income), I could just file amend state tax based what I have done with OVDI, but that could change if IRS may calculate it differently. For my case, I have Canadian retirement plan (RRSP) which should have deferal tax had I made an election when I became US person. Now the issue is if IRS woould let me to back file to make an election to defer undistributed income. Otherwise, the whole calculation would be different.

    I don't use any foreign credit (even though between 15-20% has been taxed by oversea gov), as I just want to get it over with ASAP (no harm to pay more to IRS/State and it is small compared to FBAR penalty).

    After seeing Vogliano's state prosecution, I wonder if some zealous local/state prosecutors may take advantage of the information from IRS's OVDI.

    If the issue is merely under report income, then I should have a reasonable cause for the delaying amending state tax.

    I look at my state return form, there is no interest income item (all based on Federal AGI), there is a capital gain item but it seems more for tax credit. My approach is put all gain(capital gain, interets income) into total income. That would save me a lot time and cause no less pay to the due tax.

    Thanks for so many post, and I wish you all the best.

  15. I made a call to Hawaii Tax Department, and learned they did have 2009 OVDP and asked to submit the same pacakge as to IRS and same dead line. However, there is no such a program for 2011 OVDI.

    Lack of consistency from the state level is hard for OVDI applicants to follow.

    Anyway, all I have done so far is to tell them (ask them to take a note), I am in IRS OVDI, and will pay my due to the state as soon as I am done with IRS.

  16. From what I understand, the state government does not even know the federal return is amended till its 'final', barring a high profile event like a federal prosecution. So your state would not know about the amended return till the closing settlement with the Feds. You could probably send in an estimate check to stop the interest clock on the state return (although you'd have to make sure they credit it properly -- if they don't have a formal program, they might not credit it properly).

    Some states might not refresh the statute of limitations if an amended federal return is filed, so you don't have to refile all 8 years with the state, but just 3 or 6 years ?

  17. Jack

    Separate topic here, but so far there has been no John Doe summons on Credit Suisse. Is the government just waiting to release that close to the FBAR filing deadline, or to the end of the OVDI 2011 period, or what ? It seems like they very likely have stronger evidence than they did against HSBC. There might still be some diplomatic issues involved here, or the government might still be assembling its case to make it more bulletproof ?

  18. I don't know why the Government has not done the John Doe summons against Credit Suisse. Indeed, I really don't know that it has not done a John Doe summons against Credit Suisse. The results could be under seal for some period of time or perhaps the Government chose not to publicize it or the press has not picked it up. Probably best not to speculate any more about any delay, however, because speculation is all it would be.

  19. Jack

    Thanks for your response. Can a John Doe Summons be sealed ? I got the impression from one of your earlier postings that an IRS summons cannot be sealed because the opposing parties (in this case the John Does) have the right to challenge (at least in theory).

    I gather a grand jury subpoena, on the other hand, can be sealed, I suppose ?

  20. Good questions.

    I haven’t heard of a John Doe summons getting sealed, but could imagine circumstances in which it might and then it would be only temporary to meet some exigent circumstances. Furthermore, of course, the DOJ and IRS like to publicize its offshore and other initiatives requiring a John Doe Summons, and sealing it defeats this perceived enforcement imperative.

    Moreover, the summons itself is approved by the Judge usually ex parte without the intervention of the ultimate John Does or even the summonsed witness who is the recordkeeper. The proxy for the ultimate John Doe’s right to contest is the intervention and scrutiny of a judge prior to issuance. Keep in mind that the submissions to the Court establish the minimal Powell requirement for summonses which is basically all that a taxpayer can contest in a summons enforcement proceeding or a motion to quash. Once the John Doe summons is issued, I don’t know that it can be contested, although I suppose that if a taxpayer who heard about its issuance wanted to bring a motion to quash before the summonsed witness responds, the judge might consider the merits (such as the DOJ Attorney or the agent signing the summons materially lied to the Judge about the facts relevant to Powell). But then, the taxpayer will have identified himself, herself or itself.

    As to the grand jury subpoena, it is a grand jury matter subject to the strict secrecy rules of Rule 6(e), FRCrP. The subpoena never gets filed publicly; hence there is no reason to seal. The subpoenaed party is usually under no prohibitions from disclosing the receipt of a grand jury subpoena (there are some exceptions, but not pertinent here). But the Government cannot publicly tout the issuance of the grand jury subpoena. And, I suspect that if a grand jury subpoena were issued to any offshore bank, it may have some strong reasons not to publicly tout the receipt of the subpoena.

  21. Jack

    There is one more sentencing related to offshore accounts:

    This seems to be a totally separate prosecution from the DoJ/IRS initiative. I also gather from the description that the person in question was responsible for other financial skullduggery other than pure tax matters, but was convicted for tax matters only. The other 'bad facts' might have been why he got such a stiff sentence (relatively speaking).

  22. Thanks JonF. Just posted an item on this.

  23. I'm not sure the reason why the federal government have not carried out the actual Someone in particular process towards Credit score Suisse. Indeed, I must say i have no idea which it hasn't carried out any Someone in particular bidding towards Credit rating Suisse. The outcome could possibly be beneath close up for a few time period or Authorities select never to advertise that or even the media hasn't selected up. Most likely greatest to not theorize anymore concerning any kind of hold off, nevertheless, simply because forthcoming nexus s almost all it will be.

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