Wednesday, July 30, 2014

UBS Continuing Woes, Including Settlement with Germany (7/30/14)

Katharina Bart, UBS pays out in German tax case as lawsuits target private bank (Reuters 7/29/14), here

Excerpts:
UBS AG booked a near $300 million charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business. 
* * * * 
UBS, which faces a separate probe in Germany and similar probes in Belgium and France, took a 254 million Swiss franc ($280.8 million) charge and said it aimed to have all its German clients come clean by year-end, from more than 95 percent. 
Yet the charge is only one of a slew of legal issues with which the bank is contending. It hiked its provisions against future litigation to nearly 2 billion francs but warned this might still not be enough to cover possible fines and charges. 
The bank has taken a strategic decision to scale back its risky investment banking operations in favor of private banking and asset management, but remains under threat from possible past market transgressions. 
Underscoring that risk, it said in its quarterly results statement U.S. regulators were probing its off-market share trading venue or dark pool, an area where Germany's Deutsche Bank also said it was under scrutiny. 
* * * * 
The settlement in the German tax case comes less than a week after a 15-month French inquiry into UBS escalated, with the bank put under formal investigation on allegations it laundered the proceeds of tax evasion. 
* * * * 
The tax probes are only one of UBS' legal worries. It is among a handful of large banks regulators are investigating over alleged rigging in the $5 trillion-a-day foreign currency market. In March, UBS said it had widened an internal probe of forex to include precious metals trading. 
In the U.S., authorities are probing UBS for criminal fraud after a former broker in Puerto Rico allegedly directed clients to improperly borrow money to buy mutual funds that later plunged, Reuters reported last month. 
The Swiss bank was fined $780 million for helping wealthy U.S. citizens avoid taxes in 2009.

23 comments:

  1. A QD is any amended or original filing of delinquent returns AND or FBARs; basically any filing one would do to be compliant with regards to all missing income and undeclared foreign assets. In the context of this blog, at least, from what I gather, a QD refers to becoming compliant with all foreign income and assets. This means a person may decide, to be compliant, he/she would file amended or original tax returns and/or amended or missing FBARs, and NOT enter into any streamlined domestic offshore program (either SDOP or SFOP), nor into an OVDI/P, and not submitting filings according to any sort of prescribed IRS instruction for persons with foreign income or assets. This is what a QD means.

    Willfulness is a definition built on a compendium of evidence, and baed on a preponderance of the evidence. This is a quote pasted from the article you reference:

    "The increased aggressiveness is attributable, in part, to the I.R.S.’s victories in Williams31 and McBride32 defining the burden of proof to assert an F.B.A.R. penalty for willful failure to file. Although the facts of both cases are extremely favorable to the I.R.S., the courts stated that the burden of proof regarding the penalty for willfulness is the standard based on a preponderance of the evidence rather than clear and convincing evidence..."


    I would advise reading some of the cases and blogs which Jack has posted on here. Start with the Cheeks case. Willfulness is applied a case by case, fact by fact, format. When I spoke of the transition from OVDI/P to SDOP/SFOP, the IRS wants a taxpayer to PROVE nonwilfulness. This is the same with respect to a taxpayer wanting to Opt Out of the OVDI/P. This is from my conversations with OVDI/P Examiners I have had.



    Regardless of the IRS changing methodology in aggressively targeting QD filers, the facts of each taxpayer's case do not change just because the IRS chooses to more aggressively ferret out, and penalize those taxpayers. It is NOT required for a taxpayer to go through OVDI/P, SDOP, SFOP, or the like. Indeed the IRS DOES say that going through SDOP or SFOP affords no lesser chance of an audit than doing a QD. The merits of the case are what is going to allow an IRS assessed penalty to stick. Appeals and the courts are appropriate venues to hash that out, in case the IRS does not believe one's reasons for doing a QD or having missed foreign income/assets on the original returns.


    "The only thing to fear, is fear itself. " -- FDR.

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  2. I agree with you. But according to Jack, the courts have misapplied willfulness, especially in the Safeco and McBride cases. Jack mentions that the willfulness definition as applied in Safeco is NOT the definition of willfulness for FBAR civil penalty purposes. In Global Tech, willful blindness requires "deliberate, conscious action to avoid knowledge." Thus Jack mentions, "recklesness will not suffice."

    Jack's closing statement on this blog:
    "So, that is essentially my reasoning for recklessness is neither willfulness nor willful blindness. (It would seem strange that recklessness could not be willful blindness but could be willfulness itself, particularly where the statute requires intent to violate a known legal duty.)"

    http://federaltaxcrimes.blogspot.com/2014/07/yesterday-i-wrote-blog-titled-willful.html

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  3. usually, the OVDI/P Examiner will provide you a 30 day letter warning you to sign the 906 or be removed from the OVDI/P program. You can, at certain times, request an extension of that, for a valid reason (like if you are reviewing the case with taxpayer advocate service).

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  4. No, you would not. The only transition is the Title 26 penalty to 5% if you are in SDOP. See Transition FAQ 9. The accuracy related penalty, along with failure to file, failure to pay penalty are all required to STILL be paid.

    http://www.irs.gov/Individuals/International-Taxpayers/Transition-Rules-Frequently-Asked-Questions-FAQs

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  5. Spaghestti Robot,


    There is no repurcussion from transitioning or requesting transitioning into SDOP or SFOP (streamlined domestic offshore program, or streamlined foreign offshore program). If the IRS rejects the request for transition, then the taxpayer is still in OVDP. I disagree wtih your second bullet point that the IRS would seek a higher penalty for a failed request to transition from OVDI/P. It's a "freebie" shot. Granted, the efforts to develop a reasonable cause might be more time consuming to prove one's nonwillfulness with an attempt to get into SDOP or SFOP, the repurcussions are virtually nil from the IRS side, assuming there are NO willful bad actors in your case.

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  6. I agree, and I like your comment, but I have to say, that the IRS is coming out of the closet here, and iterating that "negligence" is nonwillfulness. They're spelling it out for you on the certification document. It may not matter all that much (except to save some IRS audits based on negligence of the taxpayer), because the courts say that willfulness is clearly NOT negligence alone. Willful blindness, is another matter, but would involve a person purposedly putting himself/herself out of ways to confirm one's responsibility of legal duties. So, negligence is not the same here.

    So I like your last two sentences, that, "One question to open up is whether or not that matters in practice, i.e., whether there are situations that often arise whereas negligence exists but does not give rise to wilfulness. I would assume that it does and such explanations are the basis for opt outs but would welcome comments from others."

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  7. Spghestii Robot, if it helps, an IRS OVDI/P Examiner told me that they are looking for a taxpayer to PROVE nonwilfulness in order to transition from OVDI/P into SDOP/SFOP. But I am not sure that wading into SDOP/SFOP is inferior to an IRS Opt Out option (unless you are talking about a random audit by the IRS outside of entry into OVDI/P in the first place). Assuming there are no "pathological" examples, as you so put it, which would lead the IRS down the willfulness path, taking a shot at streamlined is NOT a bad idea. Because once you decide to Opt Out, all bets are off. Your same set of reasonable causes and defenses would be presented to the same committee, but you can't run back into OVDI/P like you could after a failed transition request into SDOP/SFOP.


    Having said that, if you do get a rejection to transition into SDOP/SFOP, there are no repurcussions. You're STILL in OVDI/P.


    However, if you do Opt Out, and were not successful with your argument, the IRS appeals division, and the court system do also exist for you to continue your case and explain the nuances of your facts for a more desirable amelioration

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  8. Thanks. This is good. Did you speak to an OVDI/P Examiner or someone in Austin to verify the more comprehensive certifications?

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  9. I respect Jack's opinion highly, but the fact is that courts (including one appellate court) disagree with him, and so I think the IRS/DoJ has the stronger chance of prevailing.

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  10. oopsla1,

    You are entirely correct to be cautious about that position. Actually, two courts have disagreed -- Williams - 4th Cir. and McBride - district court.

    My only point is that the fat lady has not yet sung (so to speak) on this issue. I hope there is still time for a court to take a fresh look at the issue.

    In this regard, even in the Fourth Circuit which decided Williams, the Fourth Circuit itself can and should take a fresh look at the issue because the decision is nonbinding in the Fourth Circuit. So, I am hopeful that, even there, the court may take a fresh look and be open to the possibility that, although the bottom-line result in Williams may be correct, the curt reasoning in getting to that result may not be persuasive.

    Thanks for reminding readers that they should always consider that my opinions / arguments are not necessarily binding on anyone -- not even on me.

    Jack Townsend

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  11. Milan, if one is directly going to SDOP, doesn't one need a RC arguments letter to be sent with the SDOP certification?

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  12. Milan, can you explain what you mean by "bullseye"?
    You said you will have some updates on this. Interested in what you learnt since this post

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  13. Milan can answer for himself, but I think the taxpayer's best case should be stated with the certification. You want the IRS to accept without an audit, if possible.

    Jack Townsend

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  14. Milan,

    1. For those of us entering SDOP directly, does the "bullseye" NW certification requirement apply?

    2. I am working on succinct RC arguments letter. It is bulletpoints running only couple of pages. Elsewhere in this thread you mentioned the NW letter being the final, no chance to add to it. Does that apply to those entering SDOP directly also?


    Thanks!

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  15. Milan, Jack,

    I find these statements particularly interesting

    "He also agreed with me outside of any sort of disclosure program, that willfulness has to be proven by the Service. But he was adamant that inside of OVDP, you HAVE to prove nonwillfulness because even though one might be going for the 5% SDOP, he/she is STILL in OVDP"



    If I am interpreting this right, what the examiner said is


    - If taxpayer does a QD and gets audited, it is IRS's burden to prove willfulness.
    - Whereas if he does SDOP (instead of QD) then it is the taxpayer's burden to prove non-willfulness?


    Am I interpreting it right?


    Thanks!

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  16. Reading this made me wonder
    Regardless of the IRS changing methodology in aggressively targeting QD filers, the facts of each taxpayer's case do not change just because the IRS chooses to more aggressively ferret out, and penalize those taxpayers. It is NOT required for a taxpayer to go through OVDI/P, SDOP, SFOP, or the like. Indeed the IRS DOES say that going through SDOP or SFOP affords no lesser chance of an audit than doing a QD





    What exactly is the benefit of doing SDOP instead of QD in that case?

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  17. I think that is right, but the key will be in the implementation of the SDOP. What level of uncertainty about the nonwillful certification will the IRS require in order to reject the SDOP? I don't think we know that yet.

    We are getting feedback that persons already in OVDP who desire transition streamlined relief may be getting rejected more than we thought, but those persons do have the fall back of opting out. Truly nonwillful people should not fear opting out, although there will be some hassle and expense.

    In SDOP, by contrast, if the IRS denies the certification, it will have to do a considerable audit (the taxpayer will have submitted fewer returns and less information), so the IRS will have to work harder than even an opt out audit. Will it do that? I doubt that the IRS has the audit resources to do that in a significant number of SDOP cases. Administratively, it seems to me, the better part of wisdom in the SDOP is for the IRS to generally accept the certification if the taxpayer's statement of the nonwillful facts and reasonable cause is reasonable based on what is known.

    I would think that the threat that the IRS can audit will be sufficient to keep most certifiers in line. And, I expect that some may be prosecuted.

    Jack Townsend

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  18. Do you think that such a prosecution would be on the basis that a taxpayer makes a objectively false statement on the certification or that the certification itself (while the facts themselves might be true) is subjectively false since it does not meet the non-wilfulness standard. I would think the former possible but the latter would seem very difficult to prosecute, since the definition of wilfulness seems so vague and the difference between negligence and wilfulness so difficult to define.

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  19. Your analysis is a good one. I think there will have to be some problem in the statement supporting the certification. The prosecution would have to be for some form of false statement not false legal conclusion (willful/nonwillful).

    So, I suppose, the certifier protects himself by laying out a fair summary of all the facts (the good, the bad, the ugly) and seeing if the IRS will challenge the certification, which it is likely to do if the facts indicating possible willfulness are fairly summarized along with the facts indicating nonwillfulness.

    Jack Townsend

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  20. So, is that situation different from a case that would be made in opt out? I would assume the opt out letter and supporting evidence is made under penalty of perjury the same as the certification or are there different standards/requirements for the two?

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  21. Jack - When we list out the facts in the Certification for SDOP, do we have to go beyond 2010 or just list the facts for 2010, 2011 and 2012 since we are only submitting the amendments for these 3 years...


    Thanks...

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  22. I would suggest that you stick with the #1 Forex broker.

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