Another UBS Customer is Charged (2/28/13)

Peter Troost, owner of Troost Memorials, has been charged with tax evasion.  The press release by the USAO ND IL is here.

According to the press release:

1.  "Troost is the first taxpayer charged in Federal Court in Chicago in connection with an ongoing investigation of U.S. taxpayer clients of UBS and other overseas banks that hid foreign accounts from the Internal Revenue Service"

2. "Troost maintained at least one offshore account with UBS, which he managed with the assistance of a UBS personal banker based on the island of Jersey."

3.  The plea is to evasion in one year.  The fact that he was charged by complaint and that only one count is involved may indicate that a plea deal is in the offing.  However, as we all know, counts can be added later by original indictment after a complaint, superseding indictment or even dismissal of this indictment and re-indictment.  Also, if a plea deal were in the offing, this one appears outside the plea deals previously require and made.  The plea deals previously made consisted of either FBAR count or Tax Perjury Count.  The Tax Perjury Count is a 3-year felony.  I have not heard that the prosecutors in plea negotiations required the plea to Evasion (5-year count).  So, there will be more to come on this.

4. Although not clear from the press release, the year for the evasion charge 2007 in which Troost's gross income was $647,040, his income tax was at least $212,503, and he attempted to evade tax of $193,641.  There were also significant income omissions in other years.

5.  Troost answered the Schedule B question about foreign bank accounts "No." He also failed to file the required FBARs.

6.  Troost is 78 years old.

As is typical of charges publicly announced during the tax season, the press release quotes the special agent as saying:

“With the April tax deadline looming, we encourage taxpayers to think of the serious consequences, including civil and criminal penalties, for willfully presenting false information on their federal tax returns. All taxpayers must honor their obligation to report all of their income and pay all of the taxes they owe,” Mr. Lee said.

I will update this blog entry as more information comes in and will post an updated spreadsheet by next Monday.

Mr. Cummings' Defense of Aggressive Tax Shelter Professionals (2/28/13)

I write to offer readers the following article:  Jasper L. Cummings, Jr., DOJ Criminal Tax Overreach, 138 Tax Notes 745 (Feb. 11, 2013), here, permitted with the permission of Tax Analysts.  I also offer below a brief summary and my comments.

Mr. Cummings, a frequent commentator on the tax law and its ripples (including criminal tax law), advises right up front that his principal points are:

This article makes the following principal points: 

•  The tax bar should have been somewhat more concerned about the way the Department of Justice Tax Division has prosecuted selected major law and accounting firm tax professionals who participated in the planning of, opinions on, or audit defense of some structured transactions during the most recent tax shelter boom that ended in the early 21st century. 

•  The type of arguments that the DOJ pursued against defendants like those in the Coplan case, recently affirmed in part and reversed in part by the Second Circuit, n1 might produce numerous convicted felons if applied to activities in which many readers have participated in.
   n1 United States v. Coplan, No. 10-583 (2d Cir. 2012), Doc 2012-24490, 2012 TNT 231-17 . [JAT Note:  the citation for Coplan is 703 F.3d 46 (2d Cir. 20122) and the opinion is here.]

•  The most troubling aspect of the Coplan and other prosecutions is that they follow a trend to criminalize advising, and even defending, a transaction that the DOJ believes does not produce the desired tax results under the (civil) economic substance doctrine.

Mr. Cummings uses the Coplan case as a point of departure.  (For my prior blogs on Coplan, see Major CA2 Decision on E&Y Tax Shelter Convictions (11/29/12), here, with links to the 8 other blogs on aspects of the Second Circuit's decision in Coplan.) He laments that the tax bar has just rolled over to prosecutions and convictions in tax shelter cases as a way to do damage control for their franchise in the aggressive tax planning area.  (Let a few be prosecuted so that the others can continue to play with relatively minor risk because only a few can be prosecuted).  He says (footnote omitted):

Prosecutor Charging Discretion (2/28/13)

Recently in my Tax Fraud class at the University of Houston Law School, we covered the broad charging discretion the prosecutor has for federal tax crimes.  We noted that this broad discretion existed for federal crimes generally and probably, in most jurisdictions, for state crimes as well.  I have just reviewed the following article:  Reynolds, Glenn Harlan, Ham Sandwich Nation: Due Process When Everything is a Crime (January 20, 2013). Available at SSRN: http://ssrn.com/abstract=2203713, here. Professoror Reynolds' article deals with the same theme.  I recommend the article to students as a good short discussion of the problem and potential solutions.

Here are some excerpts:\

As Tim Wu recounted in 2007, a popular game in the U.S. Attorney’s office in the Southern District of New York was to name a famous person – Mother Teresa, John Lennon -- and decide how they could be prosecuted.: 

It would then be up to the junior prosecutors to figure out a plausible crime for which to indict him or her.  The crimes were not usually rape, murder or the other crrimes you'd see on Law & Order but rather the incredibly broad yet obscure crimes that populate the U.S. Code like a kind of jurisprudential minefield:  Crimes like "false statement" (a felony up to five years), "obstructing the mails" (five years), or "false pretenses on the high seas" (also five years).  The trick and the skill lay in finding the more obscure offenses that fit the character of the celebrity and carried the toughest sentences.  The result, however, was inevitable: "prison time."\ 

* * * * 

This problem has been discussed at length in Gene Healy’s Go Directly To Jail: The  Criminalization of  Almost  Everything, and  Harvey  Silverglate’s  Three Felonies  A  Day. The  upshot  of  both  is  that  the  proliferation  of  federal criminal statutes and regulations has reached the point that virtually ever citizen, knowingly or not (usually not) is potentially at  risk for prosecution. That is undoubtedly true, and the consequences are drastic and troubling. 

* * * * 

Most of us remain safe.   Prosecutors have limited resources, and there are political constraints on egregious overreaching.   And, most of the time, prosecutors can be expected to exercise their discretion soundly. Unfortunately, these limitations on prosecutorial power are likely to be least effective where prosecutors act badly because  of  politics  or  prejudice Limited resources or not, a prosecutor who is anxious to go after a political enemy will always find sufficient staff to bring charges, and political constraints are least effective where a prosecutor is playing to public passions or hysteria. 

* * * *

Taxing Illegal Income (2/28/13)

CNN Money has an interesting article on the requirement that recipients of illegal income report and pay tax on their income.  Steve Hargreaves, The IRS wants to tax your illegal income (CNN Money 2/28/13), here. The author opens with the following:  "As ridiculous as it sounds, the federal government requires that money acquired through illegal means be reported and taxed just like legitimate income."  I suppose these things are in the eye of the beholder, but I don't see why taxing illegal income is "ridiculous."  Criminals have gone to jail for tax crimes for years because the courts hold that they knew the requirement that they report and pay tax on their illegal income.  There is a simple syllogism that can hardly escape the understanding of even the most learning-challenged:  The major premise: all income is taxed.  The minor premise: illegal income is income.  The conclusion: illegal income is taxed.  What's hard to understand about that?  And, to address the author's point, why is that ridiculous?

As a result of simple syllogism, as noted in the article, some of the smarter criminals may report their income.  Properly guided, they will do some without running afoul of some other tax crime (such as tax perjury, Section 7206(1), here, for misdescribing the income).  But most criminals do not report the income.  And then, if they are to be prosecuted for a tax crime, the Government will have to prove willfulness -- intentional violation of a known legal duty.  Whether or not the Government will be able to do that is fact-dependent, but often the jury will be permitted to make the inference of willfulness and, in this type of case, may do so.

The article also suggests that, if the IRS learns of a taxpayer's income, the IRS will share it with appropriate law enforcement agencies even though prohibited by Section 6103, here.  I am skeptical.  I can't say it never happens, but I would be surprised if it were the routine matter claimed or suggested by the persons quoted in the article.

Finally, I would like to cut and paste the discussion in my Federal Tax Crimes book of a famous case involving this genre of issue.

In United States v. Reynolds [919 F.2d 435, 437 (7th Cir. 1990)], the taxpayer skimmed money from a public project.  However, he elected to file a form 1040EZ which is supposed to be filed only by relatively low income taxpayers.  The 1040EZ requested information only for wages, salaries, tips and interest.  The taxpayer dutifully inserted all information requested on the return.  The taxpayer did not include the skimmed income because it fit none of the categories on the form.  The question was whether he could be prosecuted under § 7206(1).  The Government’s theory was that by including only the information requested on the form, he implicitly represented that he had no other income.  The Court responded:  

The prosecutor's argument that by filing form 1040EZ a taxpayer implicitly represents that he has no additional income has more substance, but this is not the theory in the indictment. It charged that line 7, specifically, was false, and line 7 is derived arithmetically from other lines.  Section 7206(1) is a perjury statute, and literal truth is a defense to perjury, even if the answer is highly misleading.  Using the wrong form does not violate § 7206(1).  If the form has an open-ended line calling for § 61 income, and the taxpayer leaves some income out, § 7206(1) applies.  Form 1040EZ is anything but open-ended, however.  The right charges are tax evasion (26 U.S.C. § 7201) and failure to supply information required by law (26 U.S.C. § 7203).  Reynolds did not reveal his complete income (§ 7203) and evaded taxation on that income (§ 7201).  Neither the indictment nor the charge to the jury set out the elements of these offenses, so the problem is deeper than a citation to the wrong statute in the indictment.  We vacate Reynolds' tax convictions, without foreclosing indictment and trial for the offenses that match the prosecution's theory of the case.

Yet Another Bullshit Tax Shelter Bites the Dust (2/27/13)

We have yet another court rejection of a bullshit tax shelter.  Chemtech Royalty Associates LP et al. v. United States, 2013 U.S. Dist. 26329 (MD LA 2013), here  This time it is Dow Chemical who tried unsuccessfully to underpay its taxes and thus shift its share of the burden of Government to the citizens of this country.  This bullshit tax shelter was cooked up by Goldman Sachs in league with lawyers at King & Spalding.

The trial judge says:  "Both arrangements are enormously complicated in their construction and operation."  Which brings me to the features of a tax shelter.  I address this in my Federal Tax Procedure Book and this is a portion of that discussion (footnotes omitted):

Tax shelters are many and varied.  Some are outright fraudulent wrapped in what is disguised as a real deal.  The more sophisticated, however, are often without substance but do have some at least tenuous claim to legality.  Some of the characteristics that I have observed for tax shelters that the Government might perceive as abusive are that (i) the transaction is outside the mainstream activity of the taxpayer, (ii) the transaction is incredibly complex in its structure and steps so that not many (including specifically IRS auditors) will have the ability, tenacity, time and resources to trace it out to its illogical conclusion (this feature is often included to increase the taxpayer’s odds of winning the audit lottery); (iii) the transaction costs of the arrangement and risks involved, even where large relative to the deal, still have a favorable cost benefit/ratio only because of the tax benefits to be offered by the audit lottery, (iv) the promoters of the adventure make a lot more than even an hourly rate even at the high end for professionals (the so-called value added fee), which in the final analysis is simply a premium for putting the reputations and perhaps their freedom at risk to give a comfort opinion that the deal which will not work if discovered, and (v) the objective indications as to the taxpayer's purpose for entering the transaction are a tax savings motive rather than any type of purposive business or investment motive.  More succinctly, a Yale Law Professor has described an abusive tax shelter as “[a] deal done by very smart people that, absent tax considerations, would be very stupid.”  Other thoughtful observers vary the theme, e.g. a tax shelter “is a deal done by very smart people who are pretending to be rather stupid themselves for financial gain.”

Yet Another Bullshit Tax Shelter Bites the Dust (2/26/13)

In Crispin v. Commissioner, 708 F.3d 507 (3d Cir. 2013), here, as had the Tax Court, the Third Circuit smacked down yet another Bullshit tax shelter, this one of the CARDS variety.  Also, as had the Tax Court, the Third Circuit addressed the credibility of the taxpayer's representations of profit motive.

The CARDS Shelter.  Although the patched together CARDS transactions have nuances, here is the broad overview by the Third Circuit:

      A CARDS transaction is a tax-avoidance scheme that was widely marketed to wealthy individuals during the 1990's and early 2000's. It purports to generate, through a series of pre-arranged steps, large "paper" losses deductible from ordinary income. First, a tax-indifferent party, such as a foreign entity not subject to United States taxation, borrows foreign currency from a foreign bank (a "CARDS Loan"). Then, a United States taxpayer purchases a small amount, such as 15 percent, of the borrowed foreign currency by assuming liability for a an equal amount of the CARDS Loan. The taxpayer also agrees to be jointly liable with the foreign borrower for the remainder of the CARDS Loan and so the taxpayer purports to establish a basis equal to the entire borrowed amount. n3 Finally, the taxpayer exchanges the foreign currency he purchased for United States dollars. That exchange is a taxable event, and the taxpayer claims a loss equal to the full amount of his supposed basis in the CARDS Loan, less the proceeds of the relatively small amount of currency actually exchanged. The taxpayer uses that loss to shelter unrelated income. n4
   n3
The Commissioner contends that that step in the CARDS transaction "is predicated on an invalid application of the ... basis provisions of the Internal Revenue Code." (Appellee's Br. at 4.) Specifically, I.R.C. § 1012 provides that a taxpayer's basis in property is generally equal to the purchase price paid by the taxpayer. That purchase price includes the amount of the seller's liabilities assumed by the taxpayer as part of the purchase, on the assumption that the taxpayer will eventually repay those liabilities. See Comm'r v. Tufts, 461 U.S. 300, 308-09, 103 S. Ct. 1826, 75 L. Ed. 2d 863 (1983). But in a CARDS transaction, the Commissioner argues, the  taxpayer and the foreign borrower agree that the taxpayer will repay only the portion of the loan equal to the amount of currency the taxpayer actually purchases.  [JAT NOTE:  This footnote 3 is as revised by subsequent order, Crispin v. Commissioner, 2013 U.S. App. LEXIS 5341 (3d Cir. Mar. 19, 2013).]   n4 The general structure of a CARDS transaction is well and thoroughly set forth in Gustashaw v. Commissioner, 696 F.3d 1124, 1127-28, 1130-31 (11th Cir. 2012).

The following is the gravamen of the smack down on the merits -- actually lack of merits (footnote omitted):

Court Rejects Claim of Ineffective Assistance of Counsel for Failure to Assert Sex Addition to Mitigate Sentence (2/23/13)

The old adage that sex sells seems not to account for the wild popularity of the tax law.  Tax law just has no sex in it.  But every now and then, sex rises up in tax cases.  And, so it did in Carroll v. United States, 2013 U.S. Dist. LEXIS 23769 (ND OH 2013).

In a six-count information, Carroll was charged with "with participating in three separate bribery schemes, making false statements to law enforcement officers, and falsifying his federal income tax returns."  He pled guilty and was sentenced "to 108 months imprisonment, followed by two years of supervised release, a $600 special assessment and ordered Petitioner to pay $728,000 in restitution."  He did not take a direct appeal, but thereafter filed a "§ 2255 motion, asserting he received ineffective assistance of counsel at sentencing."  The claims of ineffective assistance, apparently focused most on his bribery conduct, were (record citations omitted):

First, Petitioner claims that trial counsel was ineffective for failing to seek a downward departure pursuant to U.S.S.G. §5K2.13 for diminished capacity in light of his "addiction to sex." Second, Petitioner asserts that trial counsel was ineffective for failing to argue for a departure pursuant to U.S.S.G. §5K2.20 for aberrant behavior because the "bribery conspiracy was driven by sexual addiction and not avarice . . . ." 

The Court later summarizes the basis for his claim as follows (record citations omitted):

Petitioner claims that trial counsel was ineffective for failing to request downward departures for diminished capacity pursuant to U.S.S.G. §5K2.13 and for aberrant behavior pursuant to U.S.S.G. §5K2.20. In support of his argument, petitioner maintains that he developed a "raging addiction to sex" after meeting coconspirator Nilesh Patel ("Patel"), that "the entire bribery scheme between [Patel] and [himself] was driven by the insatiable desire for sex[,]" and that he and Patel "conspired to defraud the hospital so [they] could travel for sex." Petitioner further asserts that "there is no question my mental state was compromised by this addiction[,]" that he sought treatment in April or May 2010 for his sex addiction, but that his trial counsel "asked prosecutors to let it rest for fear of embarrassing [him]." Additionally, he contends that the only reason the government did not find "hidden accounts or cash in his home" was that the bribery conspiracy in this case "was driven by a sexual addiction and not avarice . . . ." According to Petitioner, his attorney "missed the entire defense of diminished capacity," and "should have argued for a sentence reduction based on the guidelines for Aberrant Behavior."

Required Records Subpoenas Enforced (2/20/13)

Judge Pauley of SD NY has ordered compliance with 5 required records subpoenas issued by an  SD NY grand jury.  In re Various Grand Jury Subpoenas, 924 F. Supp. 2d 549 (D.N.Y. 2013), here. From the opinion:

The Subjects contend that these records are not customarily kept by foreign bank account holders who wish their accounts to remain secret. But they cite no authority for this proposition.

I would have thought the contention was an obvious proposition that would not have required authority..

Readers will recall that there is pending now a petition for certiorari on the Seventh Circuit decision.  Petition for Cert filed in FBAR Required Records Case (Federal Tax Crimes Blog 1/18/13), here.

The opinion is relatively short because the ground is well-traveled and new ground is not covered.

The original article informing me of this opinion is Patricia Hurtado and Christie Smythe, Grand Jury Probing Foreign Bank Accounts, U.S. Judge Says (Bloomberg 2/20/13), here.

Pistorius' Brother and Lawyer Allegedly Removed Documents from the Crime Scene Related to Offshore Bank Accounts (2/20/13)

While not the U.S.-centric news with which this blog normally deals, the New York Times included the following in an article on the Pistorius saga:

Mr. Pistorius’s lawyer and brother were accused of removing documents relating to offshore bank accounts from a safe in the house, according to the prosecution testimony

Lydia Polgreen and Alan Cowel, Police Say Testosterone Found at Home of Pistorius (NYT 2/20/13), here.

I have not traced down whether offshore bank accounts can be used for tax evasion in South Africa, but the perceived need to remove the documents from a crime scene might suggest that.  In addition, on the news this morning, it was reported that, when the police arrived, the brother and the lawyer were already on the scene.  Interesting.

Bank Leumi and Mizrahi-Tefahot Reportedly Under U.S. Criminal Investigation (2/19/13)

I reported Saturday on a plea agreement involving a U.S. customer of Bank Leumi (Bank B in the plea agreement) and Mizrahi-Tefahot Bank (Bank A in the plea agreement).  See New Plea Agreement Involving Israeli Banks (2/15/13), here.  Today, a Bloomberg reporter, David Voreacos, follows through his early news report on that plea with a new report, perhaps implicit in the earlier one, that these banks are getting focused attention of U.S. criminal tax enforcement authorities and specifically a federal grand jury.  See
David Voreacos, Bank Leumi, Mizrahi Clients Said to Aid U.S. Tax Probe (Bloomberg 2/19/13), here.

As usual, readers should read Mr. Voreacos' entire article.  Here are some excerpts that caught my attention.

Dozens of U.S. citizens who used offshore accounts to avoid taxes have helped the federal government in a criminal investigation of two Israeli banks, Bank Leumi Le-Israel Ltd. and Mizrahi Tefahot Bank Ltd., two people familiar with the matter said. 

* * * * 

“Those two banks are under investigation for making loans to permit their depositors to repatriate undeclared, offshore assets to the U.S.,” said Robert Fink, a tax attorney at Kostelanetz & Fink LLP in New York who represents clients who have come forward. “The focus is on undeclared foreign bank accounts on which income has been earned that has not been reported to the IRS.”

Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor (2/16/13)

On February 15, 2013, Bae Soo “Chris” Chon, age 49, was sentenced to one year and one day after pleading guilty to one count of tax evasion related to foreign accounts.  (The 1 year + one day is the trick to qualify the defendant for the good time credit that will make the actual sentence less than one year (see 18 USC 3624 here).) The plea agreement is here, and the Press Release for the sentencing is here.

The Key Facts:

Defendant:  Bae Soo "Chris" Chon
Age:  49
Conviction (by Plea):  Tax Evasion (1 count)
Sentence: 1 year and 1 day (see good time credit 18 USC 3624, here)
Restitution:  $412,404 to the IRS (to be used for civil assessment) and $172,884.43 to the Maryland Office of the Comptroller.
Banks:  Bank Woori, HSBC
Entities:  Yes (Giant Century Holdings Limited (GCHL) (a Hong Kong shell company).
FBAR Penalty: $441,482.50 (50% of high balance)
High Balance:  $882,965.00
Tax Loss: $812,581.03 (If 2010 is included and including State of Maryland tax as relevant conduct); Federal Tax for period is $640,696.60 (if 2010 is included); but if 2010 is not included will not affect the sentencing guideline which is in the $400,000 - $1,000,000 range.
Court:  D-MD
Judge:  William D. Quarles (Wikipedia Entry, here)

The following is from the plea agreement:

New Plea Agreement Involving Israeli Banks (2/15/13)

According to reports, Zvi Sperling pled guilty to a conspiracy count related to offshore accounts.  The Plea Ageement is here and the Sperling Information is here.

Key Facts


Defendant:  Sperling, Zvi
Conviction (by Plea):  Conspiracy (One Count)
Banks:  Bank Leumi (Bank B),  Mizrahi-Tefahot Bank (Bank A)
Entities:  Yes (Orot Investments Ltd, incorporated in Island of Nevis)
Tax Loss;  $30,000 - $80,000 range (this is a Sentencing Guideline Range)
FBAR Penalty: 50% of high balance
Court:  CD CA
Judge:


The article making the report is David Voreacos & Tom Schoenberg, Bank Leumi Said to Help California Man Cheat IRS, here. Some cuts and pastes from Mr. Voreacos' article are:

A California man agreed to plead guilty to conspiring with people at Bank Leumi Le-Israel Ltd. and Mizrahi Tefahot Bank Ltd. to hide offshore accounts and income from the U.S. Internal Revenue Service, according to court filings and people familiar with the matter. 

Zvi Sperling was accused Feb. 14 by federal prosecutors in Los Angeles of conspiring with people at two Tel Aviv-based banks, identified only as Bank A and Bank B. The charging document and plea agreement didn’t identify the banks. Bank A is Mizrahi, according to a person who wasn’t authorized to speak publicly about the case. Bank B is Leumi, according to a second person, who asked not to be identified for the same reason. 

* * * * 

“Sperling wanted to keep the money secret from the United States government and Banker 1 ensured that the money would be secret at Bank A in Israel,” according to the agreement. “Banker 1 also explained that Sperling would use the money by borrowing against the money at Bank A in the United States.”

Many more details are in the article.

Facts (fairly typical in their pattern):

1. The conspiracy related to the Israeli Banks started in 2001.  Existed with other banks prior to that date.
2. Israeli banks as of 2001, principally Bank A.
3. Bank A had U.S. offices where certain of the documents (back-to-back loans) were effected. The back-to-back loans were apparently loans secured by the secret Israeli accounts.  When Bank A closed its U.S. office, Bank B then pitched that it could do such loans and keep the foreign accounts secret  better than Bank A.  The funds were moved to Bank B.
4. A foreign entity was used, Orot Investments Limited, an Island of Nevis corporation.
5. An Israeli attorney, Attorney 1, was used 
6. Bankers 1 through 5, of Bank A, are mentioned in the information.
7. Representatives of Bank A met with defendant in the U.S. to discuss the opening of the account and thereafter traveled to U.S. to discuss the account

Plea Agreements:

1. Cooperation agreements: Defendant agrees to (i) "cooperate cooperate fully with the USAO, the Internal Revenue Service, and, as directed by the USAO, any other federal, state, local, or foreign prosecuting, enforcement, administrative, or regulatory authority;" and (ii) pay civil fraud penalty for years 2006 through 2011 on on his beneficial interest in unreported income from all funds held through foreign accounts; (iii) pay 50% on his interest in Bank Account A accounts.
2. Nonprosecution agreements:  Will not prosecute "Jacob Sperling, Shelly Sperling, and Miri Sperling"
3. Sentencing Factors:

   a.  Tax Loss:  $30,000 - $80,000, with indicated SG Guidelines  Offense Level of 14.
   b.  Sophisticated Means Enhancement:  +2
   c.  Acceptance of Responsibility Adjustment:  -2 or -3.
   d.  Potential for 5K1 departure.  (This means that he is cooperation with respect to others, including possibly his brother and the Israeli Banks)

Swiss and US Sign IGA (2/15/13)

On February 14, the U.S. and Switzerland on February 14 signed an intergovernmental agreement (IGA) implementing the Foreign Account Tax Compliance Act.  The IGA is here.  The Swiss announcement is here.

According to a Tax Notes Today article (Kristen Parillo, Switzerland, U.S. Sign FATCA Agreement (TNT 2/15/13):

The Swiss IGA largely follows the Model II template  released by Treasury in November, although there are some deviations that seem to reflect the more sensitive nature of the Swiss-U.S. negotiations. For example, the opening of the Swiss IGA includes the recital: "Whereas, in the expectation of contributing to a solid basis for an enhanced cooperation in tax matters with the United States, Switzerland is supportive of the implementation of FATCA." 

* * * * [Jane Newton of DLA Piper's London Office said that] the Swiss IGA does not contain a commitment, contained in article 5 of Model II (and article 6 of Model I), to work with other countries to develop a common model for automatic information exchange.
The omission of that commitment reflects the Swiss government's cautious approach to entering into special tax cooperation agreements, Newton said. "The Swiss have been taking a risk-based approach to these agreements and are only signing bilateral agreements with countries that are economically important to Switzerland -- the U.S., the U.K., Austria, and Germany," she said, referring to the withholding tax agreements Switzerland signed with the United Kingdom, Austria, and Germany (although the German parliament did not approve the agreement). 

Granwell noted that there is a significant difference between the approach taken by the Swiss withholding agreements and the Swiss IGA: the former generally preserve Swiss bank secrecy, while the latter does not. Under the IGA approach, the residence country obtains information on its residents' Swiss bank accounts. Under the withholding agreement approach, the residence country obtains tax revenue through anonymous withholding on its residents' Swiss bank accounts, but generally doesn't receive information on those accounts.

NYT Article on "Navigating Between Tax Avoidance and Evasion" (2/13/13)

The NYT recently published an article discussing tax avoidance and tax evasion.  Paul Sullivan, Navigating Between Tax Avoidance and Evasion (NYT 2/11/13), here.

In order to discern the dividing line between tax avoidance and tax evasion, we need first to define the two.  The key difference, in the popular legal imagination, is that avoidance is not a criminal act, whereas tax evasion is a criminal act.  This handy distinction, often used, does not really tell where the dividing line is or describe what the two concepts are.  I offer some snippets from various sources below on the subject, but moving to the article which addresses, inter alia, the offshore bank account issue, here are some snippets from the article:

“We all tailor our notion of fairness to our self-interest,” said Meir Statman, a professor of finance at Santa Clara University in California and the author of “What Investors Really Want,” which has a chapter on great tax cheats. “People will tell themselves that I evade taxes because the government wastes it or there are people who evade even more taxes than me. People get themselves into tricky tax situations because of their anger at what they perceive as unfairness.”\ 

Today’s highly politicized tax atmosphere ensures that Mr. Mickelson [the Golfer] and Mrs. Curran [the offshore account defendant] come off badly in the public eye and suggests that legal tax avoidance and illegal tax evasion have a future. As far as evasion goes, where is the most peril?

So, I refer readers to the NYT article for more.

Hear are some snippets from various Law Review articles that deal with the subject of tax evasion and tax avoidance:

Interview of R. J. Ruble, A Tax Lawyer Incarcerated for Tax Shelter Crimes (2/13/13)

The most recent edition, Winter 2013, of the ABA Tax Section NewsQuarterly has an interview of R.J. Ruble by Jasper L. Cummings, Jr.  The interview is here.

Mr. Ruble was the law firm partner convicted in the major KPMG individual defendant tax shelter prosecution, the first of three successive prosecutions of tax shelter promoters associated with major accounting firms and law firms.  Readers of this blog  will remember that that case, in addition to producing convictions of three prominent tax professionals (including Mr. Ruble), had earlier seen the dismissal of thirteen tax professionals associated with KPMG because the prosecutors had pressured KPMG to quit paying their legal fees.  See United States v. Stein, 541 F.3d 130 (2d Cir. 2008), here.  As to Mr. Ruble, I blogged the Second Circuit's affirmance of his conviction in the following blog:  Larson, Pfaff, Ruble Convictions In KPMG Tax Shelters Case Affirmed (Federal Tax Crime Blog 8/27/10), here.  Mr. Ruble remains incarcerated.

I thought that, pending the availability of the full interview, I would offer the final Q&A (hopefully fair use):

Q  Is there anything else you would like your fellow tax attorneys to know about being a lawyer in prison? 

A  Once you’re in prison, it doesn’t matter what you did on the outside, and the skills you had may not be particularly useful in a prison environment. It’s a very humbling experience. I think that, as with all things in life, you need to be  reflective about how you live your life from day to day, to decide what you can do that gives you satisfaction, and to move forward as best you can. For those who have friends or acquaintances inside, realize that for those of us here any positive connection with those on the outside makes life here much more tolerable, and that what may seem as a small act of kindness becomes magnified many times over to the recipient.

Mr. Cummings, the interviewer, has recently written an article that questions the convictions of tax shelter promoters such as Mr. Ruble for the types of shelters involved in these major prosecutions.  Jasper L. Cummings, Jr., DOJ Criminal Tax Overreach, 138 Tax Notes 745 (Feb. 11, 2013).  I have received permission from Tax Analysts to provide that article on February 25 and plan to have a blog on the article on that date.

Ahuja Sentencing (2/12/13; Expanded 2/13/13)

Key features (combining info from prior blog, here, with the new information in red):

Taxpayer:  A. Ahuja
Age: ___
Conviction Date: 8/22/12
Sentence Date: 2/1/13
Banks: HSBC in India; also HSBC account  in the Bailiwick of Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy
Enabler:  HSBC India representative in New York
Entities: No.
Guilt: Jury Conviction
Count(s) of Conviction: Tax Perjury (Section 7206(1))-one count; FBAR-1 count
Maximum Possible Sentence:  8 years.
Omitted Income:  $2.7 million for years 2005 through 2009
Tax Loss:  Because some key sentencing documents are under seal, it is unclear what  tax loss number was determined by the Court.  In its Sentencing Memorandum, the Government requested a tax loss finding of $967,944.66 (including (i) the federal tax loss for the 2009 year of conviction and the acquittal years that can be included under the relevant conduct concept and (ii) the state tax loss).  In his Sentencing Memorandum, Ahuja requested a tax loss finding of $ -0-, arguing that the Government had not proved by the required preponderance of the evidence that there was any tax loss.  I provide links to the submissions below, so those with the interest and time should pull them down to read.
Guidelines Indicated Sentencing Range:  Gov't calculation: 41-51 months; Ahuja calculation: -0- months incarceration.
FBAR Penalty: ?  [This is a civil penalty not resolved in a criminal case except by agreement of the parties; this is usually handled by plea agreement, but there was no plea agreement here.
Actual Sentence:  Incarceration - 0 months; probation 3 years.
Home Detention: 3 months
Fine:  $350,000.
Court: ED WI
Judge: Charles N. Clevert, Jr. (Wikipedia entry here)

Another Bullshit Tax Shelter Bites the Dust (2/12/13)

In Bank of New York Mellon Corp. v. Commissioner, 140 T.C. No. 2 (2013), here, the Tax Court knocked down yet another another bullshit tax shelter.  It is a complex case, and for purposes of this blog, I will not get into the weeds (this genre of tax shelter usually has many weeds designed to obscure the big picture what is really going on -- i.e., pretty much nothing except paper and money shuffling and re-shuffling, with net effect mostly to the promoters).  I will just summarize the gravamen of the opinion:

The Court opens the opinion (after finding the bullshit facts) as follows (emphasis supplied):

This complex transaction presents a case of first impression in this Court. We are asked to decide whether petitioner is entitled to foreign tax credits and certain expense deductions from the STARS transaction and also whether petitioner is entitled to report income generated from the STARS assets as foreign source income. Respondent argues that the STARS transaction lacked economic substance. Respondent asserts consequently that the foreign tax credits and expenses attributable to STARS should be disallowed and the income from the STARS assets should be characterized as U.S. source. n7 Petitioner, in contrast, contends the STARS transaction had economic substance. In this regard, petitioner asserts that BNY entered into STARS to obtain low-cost funding for its banking business and that it reasonably expected to earn a pre-tax profit from STARS. Additionally, petitioner contends that the U.S. foreign tax credit was intended for transactions like STARS.
   n7 Respondent also argues that the foreign tax credits BNY claimed are disallowed under substance over form doctrines (including the step transaction doctrine) and under the statutory anti-abuse rule in sec. 269(a). We need not decide these arguments because of our other holdings.

The Court  then concludes that, on the facts, there was no economic substance.  That holding seems solid.

Tax Protestor Convictions Affirmed (2/11/13)

In United States v. Hopkins, 2013 U.S. App. LEXIS 2488 (10 Cir. 2013), here, the defendants, husband and wife, were convicted of tax evasion and Klein conspiracy.  The Court offers a good summary of the facts leading to the indictments (footnote omitted):

After becoming increasingly involved in tax-protester groups, Defendants decided to stop "volunteering" to pay federal and state taxes. From 1996 to 2009, they paid no income tax. Instead, Defendants created several trust accounts, which they believed were tax proof, and designated family members and friends as trust beneficiaries and themselves as trust managers. The trusts were "sovereign trusts" sold to them by tax-protester seminar leaders who touted the trusts as tax exempt. Mark Hopkins, an emergency-room doctor, had his employers (medical institutions) pay his earnings to a trust, Shalom Enterprises, an entity incorporated under Oregon nonprofit law. According to Defendants Shalom Enterprises was a nonprofit ministry corporation, but in fact its funds were used to finance their living expenses. Defendants transferred funds and property among their numerous trusts to evade detection by the Internal Revenue Service (IRS). Predictably, Defendants faced mounting difficulties with the IRS, and on April 9, 2009, they were indicted on seven counts of tax evasion under 26 U.S.C. § 7201 and one count of conspiracy to defraud the United States under 18 U.S.C. § 371.

Most tax protestors are not charged criminally; the IRS deals with their cases on the civil side (if not always, perhaps, civilly).  But some are charged, and when charged they usually go down (are convicted).  For example, Cheek went down, ultimately.  The Hopkinses went down in this case.

On appeal, they complained about an IRS levy preventing them from obtaining certain proceeds that they had paid into the court registry in connection with their pretrial release.  Prior to trial, upon motion by them, the district court ordered that the funds be released to them.  Whereupon, having previous tax assessments against the defendants, the IRS levied on the clerk of court to deliver the funds to the IRS rather than the defendants.  The defendants did not appreciate that and complained.  Their complaints at the trial and appellate levels were for naught.

One facet of their complaints was the the levy interfered with their Sixth Amendment right to counsel.  When the district court sustained the levy, their first counsel moved to withdraw for nonpayment of fees.  The district court granted the motion.  The district court then granted Mrs. Hopkins ("Wife") appointed counsel, but she somehow quickly retained Tommy Cryer, a well know tax-protestor type lawyer (even has a Wikipedia entry describing his adventures, here).

Tax Muckraker Offers Ideas on Tax Compliance (2/11/13)

This morning, I was reading Paul Krugman's column titled, The Ignorance Caucus (NYT 2/10/13),  here (which I recommend to readers).  His point is that some influencing how our Government works prefer ideology over evidence.  That is perhaps not a surprise to any observer of the game.  But the phenomenon plays out in tax enforcement.  Some just hate the idea of the IRS, so  underfunding is the priority.  This theme plays out today in an article in Tax Notes.  David Cay Johnston, Law and Order: Tax Squad, 138 Tax Notes 759 (Feb. 11, 2013), here (thanks to Tax Prof Blog, here).  Professor Johnston is a noted tax curmudgeon who likes to burst conventional wisdom and put the searchlight on hypocrisy.

Here is an excerpt for flavor (emphasis supplied by JAT):

My proposal is to significantly increase tax law enforcement. In looking over a pile of IRS data going back to 1992 to see how vigorously our tax laws are being enforced, either of two conclusions struck me as reasonable just based on the numbers. 

One conclusion would be that individuals and corporations are more law-abiding now than they were two decades ago. Criminal tax prosecutions in fiscal 2012 were down 44 percent from 1992, according to Justice Department data posted by the Transactional Records Access Clearinghouse. If you control for population growth, the drop in prosecutions is 54 percent. On the corporate side, additional taxes and penalties recommended after audit are down 11 percent in real terms over the same 21 years.

Good Faith as a Defense to Tax Crimes (2/9/13)

I wrote earlier about a criminal case -- United States v. Haynor and Flask (WD OH No. 1:09-CR-172) -- where the defendants were acquitted.  The judge instructed the jury that the defendants' good faith could establish that they did not act "corruptly," an element of Section 7212(a), here, tax obstruction.  See Jury Instructions in Tax Obstruction and Klein Conspiracy Case (2/6/13), here.  I added an addendum to the earlier blog entry that covered some of the ground I cover in this blog, but I thought the issue addressed in the addendum was worthy of further development in a separate blog entry; hence, I offer the following and have deleted the addendum to the earlier blog with a link to this blog entry..

Tax crimes generally require that the defendant act "willfully."  E.g., Sections 7201 (evasion), 7206(1) (tax perjury), 7206(2) (aiding and assisting) and 7203 (failure to file, etc.).   In Cheek, the Supreme Court defined willfully as used in tax crimes as the intentional violation of a known legal duty.  The defendant must intend not only to commit the acts that the law requires but must also know the law and intend to violate the law.  And, a good faith belief -- whether reasonable or not -- that the law does not apply defeats the crime.  Ignorance of the law is an excuse to the crime.  That willfulness mens rea standard is the exception in Anglo-American jurisprudence where ignorance of the law does not usually excuse the crime.  Usually, crimes require mens rea, but the mens rea is only that the defendant intend to commit the acts that the law defines as a crime, regardless of whether or not the actor knew the acts were illegal.

The example I have used before -- perhaps not the best -- illustrates the point:  If the law says that knowing possession of a drug is a crime, then the possessor can be convicted of the crime if he knows he possesses the drug, regardless of whether he knows that possession is a crime.  The Government still has to prove that the defendant knew he possessed the drugs.  The question is what is the role, if any, that the actor's "good faith" may play in terms of the elements of the crime and prosecution for the crime.

Good faith makes sense in the Cheek context involving a statutory element of willfulness defined as the intentional violation of a known legal duty.  Even an objectively unreasonable good faith belief that the law did not command the conduct will defeat willfulness.  By contrast, in the drug possession situation, if the prosecution proves knowledge of possession (having nothing to do with knowledge of the law), then it would seem that possessor's good faith is irrelevant.  But, is it?  What if the possessor found the drug on the street and, knowing that it to be an illegal drug, takes possession of it for delivery to law enforcement officials?  In that case it can be said that the possession was in good faith and that good faith should defeat prosecution for the crime of possession (even if a prosecutor would have the temerity to prosecute the crime).

New Version of Federal Tax Crimes Book (2/8/13)

I have posted the updated version of my Federal Tax Crimes book on the SSRN site here.

Here is the SSRN abstract:

Abstract: 

This is the 2013 01 edition of the Federal Tax Crimes book that I started many years ago for use in a Tax Fraud and Money Laundering course at the University of Houston Law School. With some colleagues, we substantially revised that earlier version into a separately targeted book, titled Tax Crimes published by LEXIS-NEXIS. The full title of the LEXIS-NEXIS book is John Townsend, Larry Campagna, Steve Johnson and Scott Schumacher, Tax Crimes (LEXIS-NEXIS Graduate Tax Series 2008).  

This pdf text offered here is a self-published version of my original text that I have kept up since publication of the LEXIS-NEXIS book. The LEXIS-NEXIS book is more suitable for students in a classroom setting and is targeted specifically for graduate tax students. This pdf book I make available here is not suitable for students in a class setting, but is more suitable for lawyers in practice, covering far more topics and with far more detail and footnotes that may be helpful to the busy practitioner. It cannot be used fruitfully for the target audience of the LEXIS-NEXIS book. 

Number of Pages in PDF File: 849\ 

Keywords: Tax Crimes, Tax Evasion, Tax Perjury, Aiding and Assisting, Tax Obstruction, Tax Conspiracy, Money Laundering, False Statements, White Collar Crime

I invite suggestions from users as to how the next version might be improved.

Another Circuit -- the 11th -- Sustains Required Records Doctrine for Foreign Account Records (2/8/13)

The Eleventh Circuit today joined the chorus of Appeals Courts holding the Required Records Doctrine overrides any Act of Production Fifth Amendment claim with respect to foreign account records.  See IN RE: Grand Jury Proceedings, No. 4-10, 707 F.3d 1262 (11th Cir. 2012), here.  I have not studied the opinion, but I don't think it breaks new ground.  Just another opinion stating the same rationale as stated in the three preceding appellate opinions.   In re Special Feb. 2011-1 Grand Jury Subpoena Dated Sept. 12, 2011, 691 F.3d 903, 905–09 (7th Cir. 2012), petition for certiorari filed; In re Grand Jury Investigation M.H., 648 F.3d 1067, 1071–79 (9th Cir. 2011), cert. denied, 133 S. Ct. 26 (2012); In re Grand Jury Subpoena, 696 F.3d 428, 432–36 (5th Cir. 2012).  These earlier opinions were discussed in prior blogs that may be searched by clicking the required records link below.

The Court concludes:

In sum, to the extent that the Required Records Exception operates to extinguish the Target’s Fifth Amendment privilege against self-incrimination, it necessarily extinguishes this privilege as to both the act of producing the records and the records themselves.

I don't know precisely what "and the records themselves" means.  I think that the law is clear that the records and their contents have no Fifth Amendment privilege, so except for any testimony inherent in compulsion to produce them, the Fifth Amendment is not implicated and there is no potential for conflict between the Required Records Doctrine and the Fifth Amendment.

Judges Blast UBS Depositors Who Sued UBS (2/8/13)

In Thomas v. UBS AG, 706 F.3d 846 (7th Cir. 2013), here, Judge Posner, joined by Judges Wood and Williams, rejects the claims of UBS depositors that they are entitled to damages from their co-conspirator, UBS AG.  For the earlier blog entry on the case, see Class Action Suit by U.S. Depositors in UBS (8/4/11), here.

As I noted in a prior blog just days ago, another judge reached the same conclusion.  See UBS Depositors Fail on Pleadings in Civil Case Against UBS (Federal Tax Crimes Blog 2/2/13), here.  But, Judge Posner brings power in his analytical skills, and, well, rhetorical skills, to the opinion.

Readers of this blog know the pattern.  UBS promotes to U.S. taxpayers "secret" Swiss accounts (UBS accounts in particular) to avoid paying U.S. tax.  U.S. taxpayers "willfully" -- that is a term of  art -- choose to follow that siren song.  UBS and the U.S. taxpayers thus become co-adventurers -- technical term co-conspirators -- in U.S. tax evasion.  UBS is caught flat-footed and pays a whopping $780 million fine to make its peace with the US Government.  But, UBS also rats on its former co-conspirators.  The U.S. taxpayers are targeted.  Some are prosecuted and required to pay large income tax, penalties and interest and even larger FBAR penalty. Others either join the IRS offshore voluntary disclosure initiatives or are audited; in either event they pay large income tax, penalties and interest and either  even larger  FBAR miscellaneous penalty mimicking the FBAR penalty or the FBAR penalty.  Those taxpayers are not happy.  They did not get the benefit of their bargain with UBS -- tax evasion.  Rather than take their lumps, they want to blame someone else.  So, they sue their co-conspirator, UBS.  Judge Posner trashes their claims.

After dealing with choice of law issues the only lawyers can love (well, maybe like), Judge Posner weighs in (bold face added):

Stop the Indictment; My Client Wants Off (1/31/13)

I was inspired initially to write this blog by a recent article in Champion.  Jon May, Stopping the Train Before It Leaves the Station: Convincing Prosecutors Not to Charge Your Client, 36 Champion 34 (2012), here (posted with permission).  I include pertinent quotes from the article in my discussion which deals with the topic in a tax crimes context.  Mr. May cites an article  by a prominent tax crimes defense attorney dealing with the same subject in a tax setting.  The article is Nathan J. Hochman, formerly AAG of DOJ Tax.  The title of the article is: Everything You Wanted to Know About How to Obtain a Prosecutorial Declination of a Federal Tax Case but Were Afraid to Ask, J. Tax Prac. & Proc. 31 (Dec 2009 - Jan 2010), here.  I will weave themes from  both of these articles into this blog entry.  I am sure that my select summary here probably does not do justice to these articles, so I do strongly recommend those articles for those having the interest or need.

Readers who are tax professionals will know that there are several opportunities to stop a federal tax indictment.  These are (following the general progression of from the IRS through indictment):  (1) if in a civil audit (often referred to as an eggshell audit), to avoid having the civil agent refer the case to CI; (2) if in a CI investigation, to convince the principal CI Special Agent not to recommend to his superiors that the case be referred to DOJ Tax CES; (3) then, in a meeting with CI Special Agent in Charge or his delegate and the CI Counsel, to convince them not to refer the case to DOJ Tax CES, (4) then at DOJ Tax CES, to convince the reviewing attorney not to authorize the indictment; and (5) then with the AUSA or DOJ Tax attorney who will actually present the case to the grand jury to convince him or her that the indictment should not be sought or pursued.  Others are involved in the process as well (DOJ Tax CES decision makers and the AUSA's boss in the local district), so all presentations should be made with them in mind.  But the foregoing principal steps are the ones where there is an opportunity to stop the indictment.

Mr. May's article starts with the truism that, if you wait until the indictment, you have probably already lost. Here is Mr. May's introduction to that truism (footnote omitted and emphasis supplied):

Most [criminal] cases in federal court are not defendable. This is the reason 97 percent of cases in federal court end up as pleas. Of the 3 percent that go to trial, probably 50 percent are not defendable either, but the client is a level 42 and has nothing to lose. Now we are down to 50 percent of the 3 percent. Those are the cases that can be won. So why would defense attorneys want to disclose their defense to the government and lose the opportunity for surprise?

Article for Canadians with Unreported Canadian Retirement Plans and Accounts (2/6/13)

Hale Sheppard has a new article that should be of interest to Canadians.  The article is introduced on  his firm's Blog,  IRS Introduces Two Unique Remedies for U.S. Persons with Unreported Canadian Retirement Plans and Accounts, here.  The article can be linked to in that blog entry or can be linked here.  The summary of the article is:

Life isn’t fair.  Neither is the IRS’s most recent settlement initiative designed to entice taxpayers to proactively resolve their international tax non-compliance, such as failing to report foreign income, foreign accounts, foreign entities, etc.  In both instances, some people win and some people lose, often with little or no regard to what is equitable.  Among those basking in the benefits of favored status lately are certain Canadians, residing either in the United States or the homeland, who have neglected their tax-related obligations with Uncle Sam.  Indeed, thanks to recent modifications to the offshore voluntary disclosure program (“OVDP”) and the introduction of a special “streamline procedure” for select expatriates, many Canadians are able to resolve their tax transgressions on terms vastly superior to those applicable to the masses.  This is particularly true for persons with specific types of Canadian retirement plans.  The article, published in the most recent edition of the International Tax Journal, analyzes the unique options available to Canadians.

Jury Instructions in Tax Obstruction and Klein Conspiracy Case (2/6/13)

In  the Tax Fraud and Money Laundering class that Larry Campagna and I teach at UH Law School, in Monday's class, we covered tax obstruction, Section 7212(a), here.  Next week we will cover the defraud conspiracy in 18 USC Section 371, here, commonly called a Klein conspiracy in a tax setting.  Both of these crimes are described by the statutes and their interpretations as crimes where the conduct does or is intended to impair or impede the lawful function of the IRS.  Hence, the tax obstruction crime has been called a one person Klein conspiracy.  But, as articulated in the text of Section 371, the conspiracy is not an offense conspiracy to commit tax obstruction under Section 7212(a) (meaning that it is not an offense conspiracy), but is rather a conspiracy having as its object tax obstruction rather than a statutory offense.  (I won't dig any further into that now, since it gets into more esoterica than I need to for the scope of this blog.)

I have just become aware of a recent acquittal where defendants were charged with both of these crimes.  I am not sure why both overlapping crimes were charged.  I suppose, perhaps, it was to protect against the possibility that the jury would find tax obstruction generally, but would not find a conspiracy to obstruct.  Setting that aside, I thought it might help students to see the instructions in the case.  So, I provide the entire instructions here.  I include the entire instructions because students should see a complete set to understand the specific instructions I focus on here -- the Klein conspiracy instruction and the tax obstruction instruction.  So, I do encourage students to read the entire instructions just to get a feel what a complete set does.

I quote immediately below  the instructions related to the two counts of the indictment (pp. 19-25 of the instructions; I have added bold face to draw your particular attention to parts of the instruction I discuss below after presenting the instructions; I also insert in brackets the paragraph number of the corresponding comment, e.g., [1], etc.):

UBS Depositors Fail on Pleadings in Civil Case Against UBS (2/2/13)

Several UBS depositors have just suffered a reversal in a civil suit they filed against UBS.  Roberts et al. v. UBS AG, 2013 U.S. Dist. LEXIS 12779 (ED CA 2013) here..  Readers may recognize some from the list of plaintiffs (where appropriate with a link blog discussions to their plea convictions or sentencings):

• Nadia Roberts and Sean Roberts, discussion of plea conviction here.  
• Bernhard Gubser and Heidi Gubser, who entered the OVDI and thus were not prosecuted or convicted (hence not subject to a blog discussion).
• Anton Ginzburg, discussion of plea conviction here.
• Arthur Joel Eisenberg, discussion of sentencing here:
• Jeffrey Chernick, individually and on behalf of SHAMBA, a foreign corporation, SIMBA, a foreign corporation - discussion of sentencing here.

All of these were represented in the action by William J. King, LEAD ATTORNEY, The WJK Law Firm, Tustin, CA.

Here is the Court's short presentation of the plaintiff's individual circumstances:

Execution Of The Scheme As To Plaintiffs
The Roberts
The Roberts are married. In 2004, Sean Roberts ("Mr. Roberts") owned a UBS AG  account in the Isle of Mann and UBS AG  banker Claude Ullman convinced Mr. Roberts to transfer his account to UBS AG's  Swiss location. UBS AG  engaged defendant Beda Singenberger ("Mr. Singenberger") to create a third-party trust for Mr. Roberts but neither UBS AG  nor Mr. Singenberger "advised plaintiffs of the illegal nature of said third party trust and/or plaintiffs' reporting requirements." UBS AG  failed to advise the Roberts of the QI Agreement, that their accounts violated the QI Agreement, and that the Roberts "needed to take steps to advise the IRS and mitigate their damages." In February 2009, UBS AG  sent information to the IRS about the Roberts but delayed until November 2009 to advise the Roberts of an amnesty Voluntary Disclosure program.
In June 2011, the Roberts entered into plea agreements to plead guilty to filing a false tax return.
The Gubsers
The Gubsers were married during 1978-2008 and held a Swiss UBS AG  account which they allowed to sit and which experienced income growth during 2004-2009. UBS AG  never advised the Gubsers that they were subject to the QI Agreement. In December 2010, the Gubsers "realized that they may be subject to prosecution by the IRS for failing to declare a 40-year old account originating in Switzerland." The Gubsers participated in the Voluntary Disclosure program.
Dr. Ginzburg
In 2000, UBS AG  banker Gian Gisler ("Mr. Gisler") advised Dr. Ginzburg to change the structure of Dr. Ginzburg's UBS AG  funds. UBS AG representatives advised Dr. Ginzburg to close a Liechtenstein-based trust structure in favor of a Hong Kong-based trust, that Dr. Ginzburg "would not have to pay any taxes on any capital gains or dividends until the funds were repatriated" to Dr. Ginzburg's country of future domicile, the United States or Israel, and that he would pay only taxes on possible capital gains and dividends when he repatriated the funds. Dr. Ginzburg was never informed of the QI Agreement, and in November 2008, UBS AG  froze his accounts to prevent him to mitigate market losses. UBS AG  representatives refused to disclose information about Dr. Ginzburg's accounts and liquidated the stock portfolio at 2009 levels to result in a $1.5 million loss.
In July 2011, Dr. Ginzburg pled guilty to criminal tax fraud.
Mr. Eisenberg
Mr. Eisenberg held a UBS AG  account in the Grand Caymans and during a vacation there, entered a UBS AG  branch to inquire about the account. He was informed that his account was on the "abandoned accounts" list and transferred to Switzerland. Mr. Eisenberg traveled to Switzerland and defendant Hansredi Schumacher ("Mr. Schumacher") advised Mr. Eisenberg to set up a trust. Mr. Eisenberg permitted Mr. Schumacher to set up a Liechtenstein account and was advised "that he would not be required to disclose his account because of the trust formation." In 2010, Mr. Eisenberg discovered that UBS AG  double charged fees during the account's life.
UBS AG  failed to advise Mr. Eisenberg of the QI Agreement, the need to report his account for taxes, and release by UBS AG  of his name to the United States to preclude Mr. Eisenberg to correct defects or seek voluntary disclosure. The IRS prosecuted Mr. Eisenberg who entered into a December 2010 agreement to plead guilty to filing a false tax return and paid $2.5 million penalties on a $65,000 tax bill.
Mr. Chernick
Mr. Chernick succeeded in manufacturing toys with his Shumba corporation. In 2000, UBS AG  executive director Phillip Bigger ("Mr. Bigger") recommended to move Mr. Chernick's Cayman Islands account to UBS AG's  Hong Kong office, and Mr. Chernick opened up UBS AG  Hong Kong accounts. Mr. Chernick was advised to hold U.S. securities in the Hong Kong accounts "without disclosing that Chernick would have to report such holdings to the U.S. or otherwise advising him of the QI Agreement terms." In 2002, defendant Matthias Rickenbach with UBS AG's authorization "caused the setup of a sham entity to hold Shumba and Simba." In 2006, Mr. Bigger caused Mr. Chernick to close his Shumba account at the UBS Hong Kong office and transferred the account's assets, including U.S. securities, to a UBS AG  Zurich account. UBS AG  failed to inform Mr. Chernick of the QI Agreement requirements to file IRS forms or UBS AG  withholding of taxes.
Mr. Chernick entered into a July 2009 agreement to plead guilty to filing a false tax return.

Article on Taxing Administration for Offshore Accounts (2/2/13)

I just reviewed a recent article by Itai Grinberg, a Georgetown University Law Center professor, titled The Battle Over Taxing Offshore Accounts, 60 UCLA L. Rev. 304 (2012), here.  Until the summer of 2011, Professor Grinberg

served in the Office of International Tax Counsel at the U.S. Department of the Treasury. In that capacity, he was substantially involved in the Obama administration's legislative and regulatory efforts to address offshore tax evasion, and he also represented the United States at the OECD and at the Global Forum on Transparency and Exchange of Information for Tax Purposes.

The article addresses the roles and interests of the various players in the offshore account phenomenon.  The article is very good, so I commend it.  The author does caution in footnote 3 that, because of how the article developed:  "Readers should view events after July 1, 2012 as generally beyond the scope of this Article."

Here is the abstract:

The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts. At stake is the extent of many countries' capacity to tax investment income of individuals and profits of closely held businesses through an income tax in an increasingly financially integrated world. 

Incongruent initiatives of the European Union, the Organisation for Economic Cooperation and Development (OECD), Switzerland, and the United States together represent an emerging international regime in which financial institutions act to facilitate countries' ability to tax their residents' offshore accounts. The growing consensus that financial institutions should act as cross-border tax intermediaries represents a remarkable shift in international norms that has yet to be recognized in the academic literature. 

The debate, however, is about how financial institutions should serve as cross-border tax intermediaries, and for which countries. Different outcomes in this contest portend starkly different futures for the extent of cross-border tax administrative assistance available to most countries. The triumph of an automatic information reporting model over an anonymous withholding model is key to (1) allowing for the taxation of principal, (2) ensuring that most countries are included in the benefit of financial institutions serving as cross-border tax intermediaries, (3) encouraging taxpayer engagement with the polity, and (4) supporting sovereign policy flexibility, especially in emerging and developing economies. This Article closes with proposals to help reconcile the emerging automatic information exchange approaches to produce an effective multilateral system.

Report of Government Comments on FBAR Penalties at ABA Tax Section Meeting (2/1/13)

I have just picked up the TNT report for a session that I did not attend at the Orlando ABA Tax Section meeting last weekend.  Jeremiah Coder, OVDP Opt-Outs Face Normal Exam Procedures, 2013 TNT 19-6 (1/29/13).  The report is of a Court Procedure and Practice session.  I offer some excerpts from the report and some comments.  The items presented in the following discussion are my own thoughts except as attributed to the article.

1. The context.  As I have noted before, the OVDI/P benefits principally persons who (1) have material criminal exposure and (2) have material civil penalty exposure based on civil fraud or the FBAR equivalent of willfulness.  Those exposures substantially overlap -- i.e., material criminal exposure would certainly indicate material civil penalty exposure.  Persons without those exposures can generally obtain better results outside the inside the program penalty structure (principally the 20%/25%/27.5% miscellaneous or in lieu of penalty).  Those persons can obtain those better results upon opt out or simply by not getting into the program to start with.  There is a lot of nuance behind this context, but readers of this blog should be able to pick up much of that nuance from earlier blogs.

2.  Mr. McDougal, a principal IRS player in the process, was a participant and made some comments.

3.  Mr. McDougal raised the point that all of us knew anyway -- in an opt out audit, the IRS can audit the entire return and not just the offshore account related matters.  (Note this is the opt out analog to the Form 906 provision that permits audits for other matters even if the inside penalty structure is accepted.)  I address that potential with my clients early on in the process of preparing the amended returns to submit in the program.  I tell the client to identify all issues whether related to the offshore accounts or any other aspect of the return.  I then ask the accountants to be looking for issues other than those related to the offshore accounts.  I emphasize to the clients that the amended returns have to be true, correct and complete and not just correcting the offshore account matters.  With that scrubbing, at least in our cases assuming the truthfulness of the clients, we do not fear an opt out audit except for the time and resulting expense involved.

Getting Cheeky Beyond Tax Crimes (2/1/13)

There is an interesting article in the New York Times today about some law enforcement officers saying that they will not honor any new laws Congress enacts on gun control.  See Dan Frosch, Some Sheriffs Object to Call for Tougher Gun Laws (NYT 1/31/13), here.  Here is the money quote to which I direct this blog entry:\

“I don’t plan on helping or assisting with any of the federal gun laws because I have the U.S. Supreme Court and the U.S. Constitution on my side,” said Sheriff John Cooke of Weld County, Colo.

So let's see if the tax crimes law offers some insight into that notion.

Practitioners and students will recall that, in the landmark Cheek case (Cheek v. United States, 498 U.S. 192 (1991), see links below), the Supreme Court synthesized its prior holdings into the iconic statement of the willfulness element for federal tax crimes:  "intentional violation of a known legal duty."  Subsumed within that element of the crime, the Supreme Court held, was a defense that the defendant's subjective good faith belief that his conduct was legal defeated willfulness and thus the tax crime.  But, the Supreme Court cautioned, arguments as to unconstitutionality will not defeat the crime, because the defendant asserting the unconstitutionality claim is admitting that he or she knows the law and intends to violate the law so as to meet the willfulness element of the crime.  Claims of unconstitutionality will not defeat the criminal conduct.

It seems to me that,  in order to avoid the claims made by these maverick law enforcement officials who will not enforce the law, the law could provide that any law enforcement personnel who know the law will be subject to criminal prosecution.  If the law is unconstitutional, then those sheriffs will have ridden the  right horse, so to speak, and won't go to jail.  But, if the law is constitutional, then their choice not to enforce the law would mean that they have mounted the horse to prison.  So, Cheek can have broader application.