Thursday, February 23, 2012

Another Plea Involving Offshore Accounts (2/23/12)

DOJ Tax has this press release, here, cryptically reporting a plea by two taxpayers, husband and wife, to two counts of willful failure to file income tax returns (Section 7203).  In relevant part, the press release says:
Additionally, during the years in question, the Palmers maintained funds in an offshore bank account in the name of The Liahona LLC, an entity of which they were the sole members and managers. Due to the income they received during the prosecution years, the Palmers were required to file tax returns, however, they failed to do so.
It is unclear whether Liahona LLC was a domestic or a foreign entity.  I did a Google search and found a several Liahona LLCs in the U.S. Among the items on a Google search for "Liahona LLC" & Palmer was this one:
Nevis trust company turns over client records to the IRS
Angela Palmer · Baron Abboud · Caribeco USA · Charles Sigerseth ... Dunn · Kredit Privee · Liahona LLC · Pamela Ann Ross · Warren Ross Palmer · Wealth ...
I tried to link to the page but it required a subscription.

So, apparently, the tax haven of choice for them was the Island of Nevis.  Not the first time that tiny country has appeared on our radar screen.  According to the Wikiipedia entry, here:
In 2000 the Financial Action Task Force, part of the Organisation for Economic Cooperation and Development (OECD) issued a blacklist of 35 nations which were said to be non-cooperative in the campaign against tax evasion and money laundering. The list included the Federation of Saint Kitts and Nevis, as well as Liechtenstein, Monaco, Luxembourg, the British Channel Islands, Israel, and Russia.[24] No alleged misconduct had taken place on Nevis, but the island was included in the blanket action against all offshore financial business centres, as such centres cause a considerable loss of tax revenue for the G7 countries.[4] With new regulations in place, Saint Kitts and Nevis were removed from the list in 2002.[25]
One other point, the failure to file crime is a misdemeanor.  Misdemeanors are crimes where incarceration cannot exceed one year.  Practitioners generally prefer to plead their clients to misdemeanors.  Felony convictions have certain collateral consequences that are better avoided.  And, at least for most people, a misdemeanor conviction just has better optics than a felony conviction.  Kind of like the difference between a minor criminal and a major criminal, although I suspect that many persons treat tax felony convictions like misdemeanors.  Still the optics are better, and practitioners will strive mightily to convince the Government to charge the misdemeanor rather than the felony.  That striving is usually unsuccessful, but apparently worked in the Palmers' case where, I suspect, the Government could have charged as either tax evasion (Section 7201) or, perhaps,  tax obstruction (Section 7212(a)).  (I doubt that they would have charged husband and wife as a Klein conspiracy, but they can do basically the same thing with tax obstruction, albeit with a 3 year period rather than a 5 year period.

I provide a cautionary note taxpayers and practitioners.  Achieving the misdemeanor result may not affect sentencing.  Tax misdemeanors are lumped together with tax felonies for the Sentencing Guidelines calculations, so the indicated sentencing range is the same.  For sentencing  purposes, the key benefit of misdemeanors is that, with a one year max, the maximum sentence that can be imposed is 1 year times the counts of conviction -- here two counts.  So the Palmers' plea caps their potential sentence at 2 years.  Of course, given the pattern of sentencing (assuming this prosecution was really driven by the offshore account(s)), they are likely to get minimal, if any sentences, so the cap may not  be that meaningful.

Addendum 2/23/12:

After posting the above, I found the following recent article on St. Kitts and Nevis.  Atossa Araxia Abrahamian, Special Report: Passports . . . for a price (Reuters 2/12/12), here.

1 comment:

  1. So far 79 have been charged, though not all the cases have been through the court system.

    So I'm wondering ...

    Why only 79 out of the 250+/- whose identities were disclosed without the possibility of joining OVDI?

    Is it only because of the time it takes to develop a case, especially where there is no voluntary disclosure and the IRS must develop the information. Or is it maybe that the IRS wasn't quite sure of the likelihood of obtaining a conviction and those cases were settled out of court for monetary penalties but no jail time?

    Any thoughts?


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