Friday, March 8, 2013

CI Stats on Criminal Tax Enforcement, FBAR Sentencing and Deportation (3/8/13)

A recent Tax Notes Today article -- Shamik Trivedi, CI Official Touts Filing Season Enforcement, Tax Crime Enforcement Rate, 2013 TNT 42-19 (3/4/13) -- covers some criminal tax subjects.  The following are the ones that caught my attention:
In 2012, CI initiated more than 5,100 criminal cases and made more than 3,700 prosecution recommendations, Haynes said. It also saw a 93 percent conviction rate and an 81.5 percent imprisonment rate after conviction, Haynes said. That imprisonment rate is important, said Edward Cronin, CI division counsel/associate chief counsel. "Straight probation is less than 20 percent. I really think that's a historically important moment," he said.  
* * * * 
Under section 5K1.1 of the sentencing guidelines, substantial assistance to authorities can reduce a defendant's potential sentence. The sentencing guidelines for crimes related to foreign bank account reporting default to the tax guidelines if the punishment would be greater, said Mark E. Matthews of Caplin & Drysdale. The Title 31 FBAR sentencing guidelines focus on the high balance of the unreported foreign account, he said.  
Convictions for Title 26 tax losses greater than $10,000 can result in deportation for noncitizens, Matthews said. But the Justice Department has offered most offshore account defendants the choice of being sentenced under Title 31 or Title 26 guidelines, he said. Although Title 31 sentences are longer, the risk of deportation disappears, he said. That can be important for green card holders facing expulsion from the United States, he said. 
JAT Comments:
  1. The dangers of stats are always present.  But, I do note that DOJ Tax persistently claims a 97% conviction rate.  Now, not all criminal tax prosecutions come from CI initiated criminal investigations.  Still, I would suspect most do, so it is not clear to me how DOJ Tax can get to 97% conviction rate. 
  2. I enclose below my analysis of the sentencing issue raised by Mr. Matthews.  He certainly is right in practice -- FBAR sentencing defaults to the tax guidelines for legal source FBAR violations.  My thrashing around in the Guidelines suggest at least the possibility of an alternative universe.
  3. I had not been aware that the FBAR conviction avoids the risk of deportation.
Now, on the issue I raised in comment #2, here is a footnote from my Federal Tax Crimes where I nose around the issue presented.
After S.G. 2S1.3(a))(2) [2012 version here] keys the offense level to the theft table in S.G. 2B1.1 (the theft table), it provides certain adjustments in S.G. 2S1.3(b).  The first two of those adjustments relating to illegal activity increase the offense level determined under the theft table, but the third, which applies if the first two do not, decreases the offense level to 6.  The cross reference in S.G. 2S1.3(c) says the offense level for tax crimes is determined under the Chapter Two Part T if they are higher than the S.G. 2S1.3 offense level.  The Part T tax offense level will usually not be higher than the Part S offense level unless the Part S offense is reduced to 6 as noted earlier in this footnote.  So, the “holy grail” is to make sure that the Part S offense level is reduced to 6, otherwise the Part S offense level will usually greatly exceed the Part T offense level and the Part S offense level will apply.  To repeat, you get to offense level 6 only if the first two adjustments in S.G. 2S1.3(b) and certain other conditions do not apply.  For those wanting to follow through on that (particularly important if the defendant is charged or agrees to plea to an FBAR violation), you will have to parse the first two exceptions in S.G. 2S1.3(b).  They are not models of clarity, and I am not aware of any definitive authoritative interpretations of those first two exceptions.  You will have to research and reach your own conclusions, but as noted you definitively do not want either of those exceptions to apply because the resulting Part S offense level will be higher than the Part T offense level which requires that the Part S offense level apply.  I would offer more of a discussion of those two exceptions, except that certain anecdotal evidence from the recent plea agreements to FBAR violations in a tax crime setting suggest that all of the parties – the defendants, the prosecutors, the Probation Office and the courts – seem to assume that sentencing is under the Part T rather than Part S (and, by reference, Part B), which necessarily means that they believe the first two S.G. 2S1.3(b) exceptions do not apply and thus, the third exception applies and drops the Part S offense level to 6.  Having said that, I should also note that one experienced litigator commented during the meeting of the Civil and Criminal Penalties Section at the 2011 ABA Tax Section Meeting that the USAO for SDNY interpreted FBAR violations in a tax setting to invoke one of the two adjustments in S.G. 2S1.3(b), thus precluding application of the Tax Guidelines under S.G. 2T1.  I think the concerrn related to S.G. 2S1.3(b)(2)(B) which applies if the defendant "committed the offense [the FBAR] as part of a pattern of unlawful activity involving more than $100,000 in a 12-month period, increase by 2 levels."  In a legal source and use of proceeds case, the question would be whether this could apply if more than $100,000 is involved in each year and there is a failure to file the FBAR for several years making it a pattern of "illegal" activity.   Therefore, anyone representing a person charged with an FBAR violation must reach his own level of comfort on this issue.  I don’t think it is self-evident from the actual words used.  I do think, however, that the sense of the exceptions is that they should not apply in a legal source and use income tax case.  Note that a similar issue of interpretation of this language is presented in 31 U.S.C. § 5322(b) that, on parallel language, double ups the criminal penalties for FBAR and other Bank Secrecy Act violations.  I reached a similar conclusion in discussing that statute but, not because the text compels it, but because the anecdotal evidence indicates that the language is interpreted not to apply to legal source income tax violations.  I should finally caution that this anecdotal evidence may even be a form of dicta, because in these anecdotal plea settings it was clear that the actual Booker sentence would never get above the base level provided in 31 U.S.C. § 5322(b) and would not be as prescribed in S.G. 2S1.3 by reference to the theft table.  Caution is in order.


  1. Jack- does this mean that if the tax loss is less than $10K the possibility of deportation is eliminated. This should be a lot of relief for minnows who are concerned about the impact on green card status

  2. @Klmj, this is more complex than that. I am not a lawyer, but take the case of Purpura:

    According to court filings, Purpura pleaded guilty to two counts of making false statements on his income tax returns for incorrectly stating on his 1990 and 1991 returns that he didn’t have any financial interest in bank accounts overseas.
    He had bank accounts in Italy at that time, but it was determined that the misstatements on his tax returns didn’t result in any loss to the U.S. government, records show.

    So basically, he got charged with filing a false tax return, and got a fine for only $4,000 for ZERO tax loss.
    17 years later, the judge allowed him to withdraw his guilty plea.
    Still, immigration officials are now citing those convictions as evidence of “moral turpitude” in seeking to boot Purpura out of the country.

    So the real question is how likely is it for minnow immigrants with a small amount of taxes owed, to get charged for filing a false tax return for not checking the checkbox on the 1040?
    A lot of lawyers are saying that OVDI is the only safe solution for immigrants with green cards in this situation.
    This IS extortion. People with small amounts of taxes owed should be able to pay what they owe without being extorted of 27.5% of the max amount of their home accounts... and $40K of lawyer's fees.
    This is a disgrace to America. They don't act any better than the worse corrupt governments in the world. But you know what, this doesn't matter anymore to me. The stress and depression this has caused has cost me my family and health. I will be going home soon.

  3. Deportable aggravated felonies under 8 U.S.C. § 1101(a)(43)(M) are:

    (M) an offense that—
    (i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or
    (ii) is described in section 7201 of title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.

    Now, there is some nuance there, but I think the basic rule is clear. First, the green card holder must have committed a felony of the type described (that is not the same as a conviction for the felony, but the provision is usually invoked only after a conviction); and (2) the felony must involve a loss of more than $10,000.

    Jack Townsend

  4. Well, the criminal tax enforcement is a very serious issue and one should have to deal with full care. The possibility of elimination of deportation should be cleared. I am learning about criminal tax with Liam scully and this post is quite helpful for me.


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