AAG Tax Says DOJ Tax Will Be Fair in Determining Whether to Prosecute Taxpayers Kicked Out of OVDP (4/12/13)

In a prior blog, I reported on news accounts of Bank Leumi clients being kicked out of the offshore voluntary disclosure programs.  See Bank Leumi U.S. Clients Rejected from OVDP (FTCB 3/8/13), here.  Responding to inquiries about whether those taxpayers will be prosecuted, Kathy Keneally, AAG Tax, said the Government would consider fairness.  See Janet Novack, Taxpayers Who Lost Offshore Account Amnesty Promised Fair Treatment (Forbes 4/11/12), here.

Excerpts from Ms. Novack's fine article:

According to their attorneys, some of the taxpayers ejected from the program had already made a full disclosure of offshore accounts and unreported income and had even paid back taxes to the IRS. “It would seem difficult for the government to actually pursue prosecutions of these individuals without a strong showing that such a prosecution is not based on tainted evidence,’’ Edward M. Robbins Jr., of Hochman, Salkin, Rettig, Toscher & Perez, the big West Coast tax defense firm, told Forbes in March. 

Keneally said yesterday that  “the DOJ Tax Division will review each case based on its specific facts and circumstances before authorizing prosecution, as is its practice in all criminal tax investigations.’’ In what was obviously a carefully worded statement, she added:  “In  any case in which an individual received a conditional acceptance letter, made substantive disclosures, but was subsequently disqualified from participation in the OVDP, the Tax Division considers now and will continue to consider the facts and circumstances under which any substantive disclosures were made, and the fairness of proceeding against that individual, as part of the Tax Division’s review.” 

* * * *

While declining to comment on any specific cases, banks or countries, Keneally ticked off several reasons why a taxpayer might be disqualified from the program after originally being accepted, including a failure to cooperate or a failure to alert the U.S. government (as required by law) that he or she was contesting a foreign summons.  Keneally also listed another cause that (in theory) might explain why a clump of Bank Leumi customers were thrown out of the program.  A taxpayer, she noted, might be disqualified if the Department of Justice already had his name but the IRS’s criminal division, which administers the OVDP, was unaware of that fact when it cleared him to participate.

Checking on names is just database work.  I would think that, given the stakes in this adventure, DOJ Tax should be diligent about keeping its database up to date, so that a clearance from the IRS can be definitive.

And, of course, "fair" is in the eye of the beholder.  DOJ Tax will not authorize prosecution for all of those kicked out (or, extrapolating into the future, all of those who might get kicked out as DOJ Tax and the IRS put a "death sentence" threat on depositors in banks with bad behavior (a lot of them, so DOJ Tax and the IRS must pick and choose).  DOJ Tax will pick out the worst of the bunch to prosecute -- and keep in mind that its ability to prosecute and devotion of systemic resources to the exercise is limited.  So, if taxpayers are not in in the worst of the bunch (most taxpayers will need help on that), they will not be prosecuted -- perhaps because DOJ Tax is "fair" (or just limited as to what it and the other criminal resources can devote to tax crimes).

Fairness in this context also involves chance or luck (smattering of good and bad).