Friday, May 3, 2013

Article on Bank Leumi Depositors Pre-Cleared in Error (5/3/13)

Jeremy Temkin, here, has published a Forbes article titled:  Bank Leumi Snafu Jeopardizes DOJ-IRS Offshore Enforcement Initiatives (Forbes 5/1/13), here.  See my prior blog on the subject, Bank Leumi U.S. Clients Rejected from OVDP (Federal Tax Crimes Blog 3/8/13), here.  Excerpts are:
While the most recent offer – the 2012 Offshore Voluntary Disclosure Program (OVDP) – remains open indefinitely, the IRS’s recent decision to disqualify approximately 50 taxpayers who disclosed Bank Leumi accounts could undermine the program’s continued success. 
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The about-face was evidently caused by miscommunication between the IRS, which administers the OVDP, and the DOJ, which apparently obtained the names of these accountholders through a separate investigation.  Rather than living with its mistake, the IRS disqualified these individuals from the program.  While taxpayers who were disqualified after they had been “pre-cleared,” but before they completed the next stage of the process arguably were not prejudiced by the IRS’s reversal, taxpayers who had relied on the pre-clearance and submitted detailed information will be materially worse off in the event criminal charges are brought. 
Perhaps recognizing the potential hazards caused by the snafu, Assistant Attorney General for the Tax Division Kathryn Keneally publicly assured the disqualified taxpayers that the DOJ would “consider the facts and circumstances under which any substantive disclosures were made, and the fairness of proceeding” criminally.  Precisely what this means is unclear; at a minimum it likely means the DOJ will not use information obtained from the OVDP submission in the event it prosecutes any of these taxpayers. 
* * * * 
[i]t is doubtful that the Bank Leumi accountholders who not only applied for the OVDP, but had been pre-cleared or preliminarily accepted only to find themselves bounced from the program, will face incarceration if prosecuted.  Under the circumstances, perhaps the IRS should reconsider its treatment of the Bank Leumi accountholders, readmit them to the OVDP and thus restore confidence that it is administering the program fairly and consistently.


  1. Why is it so hard for the IRS to do the right thing? Jemkin's suggestion is so reasonable, and yet, when it comes to doing what the reasonable man would do, they fail. They continue to ignore Nina Olson's suggestions for the OVDP in MSP 8 of her most recent Report to Congress

    It is a sad commentary on the organization who has time and time again, seemed to take the wrong route for encouraging voluntary compliance. This story in Yahoo News also made that point on another of the IRS Big Data efforts....

    IRS Data Web Snares Mostly Low- and Middle-Income Taxpayers

    "tax experts who have worked closely with the IRS suggest that its intent seems to be a "gotcha" strategy aimed at trapping tax cheats rather than deterring bad behavior and encouraging compliance."

  2. I would expect the lawyers representing any of these cases in which the governemnt tried to obtain more than the flat 27.5% penalty to argue that the clients entered the program and supplied information in good faith and that the higher penalty should not apply. (Whether they would be successful is another matter.) On the other hand there might be quite a few who were in the gray area who would not have opted out but the IRS' forced opt out results them in getting a lower penalty.
    But the bigger issue is that by not living to its mistakes regarding 50 disclosures, the IRS is scaring away 500, 5,000 or maybe even 50,000 others from disclosing.


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