Tax Notes Today reports this morning that the Senate is poised to pass the Foreign Account Tax Compliance Act of 2009 (FATCA) as part of the larger bill now called Hiring Incentives to Restore Employment (HIRE) Act.
Tax Notes reports the key provisions of the FATCA subtitle would:
• impose a 30 percent tax withholding on payments either to foreign banks and trusts that fail to identify U.S. accounts and their owners and assets to the IRS, or to foreign corporations that do not supply the name, address, and tax identification number of any U.S. individual with at least 10 percent ownership in the firm (effective for payments made after December 31, 2012, with certain exceptions for grandfathered agreements);
• extend bearer-bond tax penalties to any such bonds marketed to offshore investors, and prevent the U.S. government from issuing bearer bonds (effective two years after the date of enactment);
• impose penalties as high as $50,000 on U.S. taxpayers who own at least $50,000 in offshore accounts or assets but fail to report the accounts on their annual income tax return (effective for tax years beginning after the date of enactment);
• levy a 40 percent penalty on the amount of any understatement attributed to undisclosed foreign assets (effective for tax years after the date of enactment);
• extend to six years the statute of limitations for "substantial" omissions -- exceeding $5,000 and 25 percent of reported income -- derived from offshore assets (effective for returns filed after the date of enactment, or for any return filed on or before that date if the section 6501 assessment period for that return has not expired as of the date of enactment);
• require shareholders in passive foreign investment companies to file annual returns (effective upon enactment);
• mandate that financial firms file electronic returns with respect to withholding taxes, even if they file fewer than 250 returns annually (effective for returns due after the date of enactment);
• codify Treasury regulations that treat foreign trusts as having U.S. beneficiaries if any current, future, or contingent beneficiary is a U.S. person;
• allow the Treasury Department to presume that a foreign trust has U.S. beneficiaries if a U.S. person directly or indirectly transfers property to the trust (effective for transfers of property after the date of enactment);
• establish a $10,000 minimum failure-to-file penalty for certain foreign-trust-related information returns (effective for notices and returns due after December 31, 2009); and
• subject dividend equivalent payments included in notional principal contracts and paid to overseas corporations to the same 30 percent withholding tax levied on dividends paid to foreign investors (effective for payments made on or after 180 days after enactment).
Addendum
The provisions of the HIRE Act are accessible at the Wikisource web site here. The particular provisions relevant to this discussion are in Title V Subtitle A, Foreign Account Tax Compliance Act (FATCA) here.
Showing posts with label Legislative Proposals. Show all posts
Showing posts with label Legislative Proposals. Show all posts
Tuesday, March 16, 2010
Thursday, December 3, 2009
Congress Watch -- The Political Theater
It is nice to know that our Congressmen are on the watch. Here is a press release from Congressman John R. Carter, R-Texas, on his new bill titled the Geithner Penalty Waiver Act. The Act would impose the same penalty rate for persons joiniing the special voluntary disclosure program as imposed on Timothy Geithner, the Secretary of Treasury. The rhetoric is interesting; seems to me more for political theater than being a serious proposal.
Thursday, May 21, 2009
Obama Legislative Proposal - Assessment of Restitution as Tax
I have previously blogged here a very brief summary of the President's tax related legislative agenda, presented in which is known as the "Greenbook" and is available here. I now discuss in more detail some of the proposals. Today, I discuss the following proposal (pp. 97-98 of the Greenbook):
Usually, the IRS is unable to marshall its collection enforcement tools right away because, most of the taxes involved in criminal cases, require a predicate notice of deficiency and then permit prepayment administrative review and litigation before the IRS can assess the tax. Assessment is the predicate act required to using the IRS enforcement tools. The proposal allows the immediate assessment of the amount of the restitution without any other applicable statutory or administrative predicates. Thus, the restitution amount can be assessed without a notice of deficiency and the remedies / delay opportunities it affords.
Of course, in many cases where restitution is agreed upon as part of the plea bargain, the defendant will have the incentive to fully pay the restitution amount in order to obtain sentencing benefits. The proposal thus affects only restitution amounts that are not paid at or before sentencing.
Finally, the proposal does not address the defendant upon whom restitution is not imposed. In tax cases, this could occur where the only crime(s) of conviction are tax crimes and the defendant does not agree to restitution or accept some benefit having a condition of restitution. The IRS will then have to issue a notice of deficiency for those taxes where one is required (income and estate and gift tax) and await the taxpayer's pursuit of administrative or judicial remedies before assessing. This will be true even if the sentencing court determines a tax loss number in the sentencing phase. (On a related topic, I have previously discussed here the application of collateral estoppel on the basis of events at the sentencing.)
By way of background, and as noted in the cryptic statement of current law, restitution is not statutorily authorized for convictions of pure tax offenses. The reason is that the IRS has assessment and collection mechanisms for collecting taxes that are deemed quite effective for collecting taxes and hence Congress did not deem it appropriate to overlay the separate system for collecting restitution. Notwithstanding this general notion that restitution is not available in tax cases, many tax crimes are charged along with Title 18 offenses for which restitution is allowed. Thus, for example, the indictment in tax crimes often includes a defraud / Klein conspiracy (18 U.S.C. § 371) charge that is a separate crime under Title 18 and thus permits the Court to impose restitution. More importantly, the Department of Justice Tax Division requires that plea agreements contain a restitution provision for tax and some of the penalties regardless of whether, absent the plea agreement, the sentencing court could impose restitution. (For the DOJ Tax CTM discussion of Restitution in tax cases, see here., which among other things provides that the prosecutor cannot word the restitution agreement as a compromise of the underlying civil tax liability.) As best I understand DOJ Tax's policy decision to require restitution in tax cases, it is not to end-run the congressional judgment to not allow restitution in tax cases, but to force some monetary resolution in the criminal case in advance of the IRS using its collection enforcement tools.ALLOW ASSESSMENT OF CRIMINAL RESTITUTION AS TAX
Current Law
In criminal tax cases, a District Court may issue an order requiring the defendant to pay restitution of existing tax liabilities. The District Court has authority to order restitution under the criminal provisions of Title 18, not the Internal Revenue Code (Code). Because the assessment procedures under the Code apply only to taxes imposed by the Code, those procedures do not apply to restitution orders issued under Title 18, even if the restitution order relates to an existing tax liability.
Reasons for Change
Because court-ordered restitution in criminal tax cases cannot be assessed as a tax, the IRS cannot use its existing assessment systems to collect and enforce the restitution obligation. This leads to unnecessary duplication of efforts, delays, and confusion in the administration of court-ordered restitution.Proposal
The proposal would allow the IRS and the Treasury Department to immediately assess, without issuing a statutory notice of deficiency, and collect as a tax debt court-ordered restitution. The taxpayer would not be able to collaterally attack the amount of restitution ordered by the court, but would retain the ability to challenge the method of collection.
The proposal would be effective after December 31, 2010.
Usually, the IRS is unable to marshall its collection enforcement tools right away because, most of the taxes involved in criminal cases, require a predicate notice of deficiency and then permit prepayment administrative review and litigation before the IRS can assess the tax. Assessment is the predicate act required to using the IRS enforcement tools. The proposal allows the immediate assessment of the amount of the restitution without any other applicable statutory or administrative predicates. Thus, the restitution amount can be assessed without a notice of deficiency and the remedies / delay opportunities it affords.
Of course, in many cases where restitution is agreed upon as part of the plea bargain, the defendant will have the incentive to fully pay the restitution amount in order to obtain sentencing benefits. The proposal thus affects only restitution amounts that are not paid at or before sentencing.
Finally, the proposal does not address the defendant upon whom restitution is not imposed. In tax cases, this could occur where the only crime(s) of conviction are tax crimes and the defendant does not agree to restitution or accept some benefit having a condition of restitution. The IRS will then have to issue a notice of deficiency for those taxes where one is required (income and estate and gift tax) and await the taxpayer's pursuit of administrative or judicial remedies before assessing. This will be true even if the sentencing court determines a tax loss number in the sentencing phase. (On a related topic, I have previously discussed here the application of collateral estoppel on the basis of events at the sentencing.)
Wednesday, May 13, 2009
Obama's Tax Proposals Relating to Tax Crimes
I have briefly reviewed the so-called "Greenbook," which is the common name for a tome titled "General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals" dated May 2009. Based on my limited review, here are the items that are most relevant to the general topic of federal tax crimes (including civil penalties that often accompany tax crimes). I present here the proposals themselves without discussion of the current law or reasons for the change. Most practitioners reading this blog will already know the current law and can easily imagine reasons for the change. Perhaps in subsequent blogs where I address the proposals in more detail. In this blog, however, I just alert practitioners to the proposals.
1. FBAR and Related Foreign Account Provisions
This blog's readers certainly know by now what the FBAR is, but as a reminder it is the form due by June 30 of each year with respect to foreign financial accounts over which a U.S. taxpayer had certain powers during the preceding year (the year for which the report is made). (For the FBAR form, click here and for IRS FAQs on the FBAR, click here.) Suffice it to say significant numbers of U.S. taxpayers do not comply with the FBAR requirement or answer properly the related questions on Form 1040 Schedule B about foreign bank accounts. Taxpayers failing to file the FBAR also often -- indeed generally -- do not pay U.S. tax (income or estate and gift tax with respect to such accounts). The IRS has a major enforcement initiative with respect to foreign accounts and these obligations for FBARs and income tax return reporting. The Obama proposal is to require U.S. individual taxpayers to disclose on their 1040s information paralleling the disclosures on the FBAR.
As a backup to the foregoing obligations, the Obama proposal will require U.S. financial intermediary firms to report (i) transfers with a value of more than $10,000 to a foreign bank, brokerage, or other financial account on behalf of a U.S. person and (ii) receipts with a value of more than $10,000 from a from a foreign bank, brokerage, or other financial account on behalf of a U.S. person. A U.S. financial intermediary that opens a foreign account for a U.S. person will be required to report regarding the account and transfers to the account. Treasury would be given regulatory authority to promulgate rules and exemptions.
A negative presumption will apply in civil cases that a person having a foreign account had the amount required to have an FBAR obligation. A related negative presumption would treat the taxpayer's failure to report foreign accounts with over $200,000 as willful, thus attracting the more draconian FBAR penalties unless the taxpayer rebuts the negative presumption. A related provision extends the statute of limitations for failure to report until 6 years after the taxpayer reports the information required to be reported.
The accuracy related penalty for failure to report income for accounts required to be reported would be doubled from 20% to 40%.
2. Tax Restitution
Restitution is not permitted (absent the defendant's agreement or in exchange for a benefit given by the sentencing court) for Title 26 (Internal Revenue Code) offenses. Restitution is permitted for tax flavored crimes charged under Title 18 (e.g., defraud conspiracy). But, the IRS has no authority to assess the amounts in the restitution obligation and thus cannot use its substantial collection powers with respect to such amounts because restitution amounts have not been assessed as a tax. The proposal is (i) to give the IRS authority to assess immediately the amount of the restitution (without a notice of deficiency) and (ii) to deny the defendant taxpayer the right to collaterally attack liability for the restitution as tax in a civil tax proceeding.
3. Make repeated Failure to File a Tax Felony.
A U.S. taxpayer failing to file for 3 out of 5 years involving an aggregate tax liability of $50,000 or more could be charged as a felony rather than the normal misdemeanor attaching to failure to file. This enhanced felony status would be called an aggravated failure to file. The maximum incarceration period would be five years and the maximum fine would be $250,000 ($500,000 in the case of a corporation).
4. Investigative disclosures
The proposal will give IRS agents authority to identify themselves, their organizational affiliation, and the nature and subject of an investigation, when contacting third parties in connection with a civil or criminal tax investigation.
1. FBAR and Related Foreign Account Provisions
This blog's readers certainly know by now what the FBAR is, but as a reminder it is the form due by June 30 of each year with respect to foreign financial accounts over which a U.S. taxpayer had certain powers during the preceding year (the year for which the report is made). (For the FBAR form, click here and for IRS FAQs on the FBAR, click here.) Suffice it to say significant numbers of U.S. taxpayers do not comply with the FBAR requirement or answer properly the related questions on Form 1040 Schedule B about foreign bank accounts. Taxpayers failing to file the FBAR also often -- indeed generally -- do not pay U.S. tax (income or estate and gift tax with respect to such accounts). The IRS has a major enforcement initiative with respect to foreign accounts and these obligations for FBARs and income tax return reporting. The Obama proposal is to require U.S. individual taxpayers to disclose on their 1040s information paralleling the disclosures on the FBAR.
As a backup to the foregoing obligations, the Obama proposal will require U.S. financial intermediary firms to report (i) transfers with a value of more than $10,000 to a foreign bank, brokerage, or other financial account on behalf of a U.S. person and (ii) receipts with a value of more than $10,000 from a from a foreign bank, brokerage, or other financial account on behalf of a U.S. person. A U.S. financial intermediary that opens a foreign account for a U.S. person will be required to report regarding the account and transfers to the account. Treasury would be given regulatory authority to promulgate rules and exemptions.
A negative presumption will apply in civil cases that a person having a foreign account had the amount required to have an FBAR obligation. A related negative presumption would treat the taxpayer's failure to report foreign accounts with over $200,000 as willful, thus attracting the more draconian FBAR penalties unless the taxpayer rebuts the negative presumption. A related provision extends the statute of limitations for failure to report until 6 years after the taxpayer reports the information required to be reported.
The accuracy related penalty for failure to report income for accounts required to be reported would be doubled from 20% to 40%.
2. Tax Restitution
Restitution is not permitted (absent the defendant's agreement or in exchange for a benefit given by the sentencing court) for Title 26 (Internal Revenue Code) offenses. Restitution is permitted for tax flavored crimes charged under Title 18 (e.g., defraud conspiracy). But, the IRS has no authority to assess the amounts in the restitution obligation and thus cannot use its substantial collection powers with respect to such amounts because restitution amounts have not been assessed as a tax. The proposal is (i) to give the IRS authority to assess immediately the amount of the restitution (without a notice of deficiency) and (ii) to deny the defendant taxpayer the right to collaterally attack liability for the restitution as tax in a civil tax proceeding.
3. Make repeated Failure to File a Tax Felony.
A U.S. taxpayer failing to file for 3 out of 5 years involving an aggregate tax liability of $50,000 or more could be charged as a felony rather than the normal misdemeanor attaching to failure to file. This enhanced felony status would be called an aggravated failure to file. The maximum incarceration period would be five years and the maximum fine would be $250,000 ($500,000 in the case of a corporation).
4. Investigative disclosures
The proposal will give IRS agents authority to identify themselves, their organizational affiliation, and the nature and subject of an investigation, when contacting third parties in connection with a civil or criminal tax investigation.
Thursday, May 7, 2009
Obama's International Tax Legislative Proposals
The Obama Administration has announced a major legislative proposal related to international tax. The press release may be viewed here. In the area of tax crimes, the significant proposals are:
1. Strengthen the Qualified Intermediary ("QI") program by taking a tough stance with U.S. taxpayers who use offshore accounts that are not with a QI. The QI is supposed to know the customer and report to the U.S. with respect to U.S. taxpayers. Offshore financial institutions that are not QI's do not report, which, of course, is often why U.S. taxpayers use those non-QI offshore financial institutions. The proposal therefore is:
2. Create new proof mechanisms for applying the penalties. The proposal is to "create rebuttable evidentiary presumptions that any foreign bank, brokerage, or other financial account held by a U.S. citizen at a non-QI contains enough funds to require that an FBAR be filed, and that any failure to file an FBAR is willful if an account at a non-QI has a balance of greater than $200,000 at any point during the calendar year." The press release notes that these presumptions will make the IRS's job easier and are consistent with Senator Levin's proposals. Note in this regard that, although Section 7491(c) imposes a production burden on the IRS for penalties under the IRC (thus leaving the ultimate burden of persuasion with the taxpayer, the draconian FBAR penalties are not imposed under the IRC.
3. Increase penalties. The proposal is to double certain penalties (the press release does not say which penalties, but presumably the penalties include the FBAR penalty).
4. Extend the civil statute of Limitations until six years after the taxpayer submits the required documentation.
5. Enhanced information reporting. I will perhaps have more about this later.
6. Enhanced IRS Staff in International Enforcement. The proposal is to hire nearly 800 "new agents, economists, lawyers and specialists, increasing the IRS' ability to crack down on offshore tax avoidance and evasion, including through transfer pricing and financial products and transactions such as purported securities loans."
1. Strengthen the Qualified Intermediary ("QI") program by taking a tough stance with U.S. taxpayers who use offshore accounts that are not with a QI. The QI is supposed to know the customer and report to the U.S. with respect to U.S. taxpayers. Offshore financial institutions that are not QI's do not report, which, of course, is often why U.S. taxpayers use those non-QI offshore financial institutions. The proposal therefore is:
Impose Significant Tax Withholding On Transactions Involving Non-Qualifying Intermediaries: The Administration's plan would require U.S. financial institutions to withhold 20 percent to 30 percent of U.S. payments to individuals who use non-QIs. To get a refund for the amount withheld, investors must disclose their identities and demonstrate that they're obeying the law.
2. Create new proof mechanisms for applying the penalties. The proposal is to "create rebuttable evidentiary presumptions that any foreign bank, brokerage, or other financial account held by a U.S. citizen at a non-QI contains enough funds to require that an FBAR be filed, and that any failure to file an FBAR is willful if an account at a non-QI has a balance of greater than $200,000 at any point during the calendar year." The press release notes that these presumptions will make the IRS's job easier and are consistent with Senator Levin's proposals. Note in this regard that, although Section 7491(c) imposes a production burden on the IRS for penalties under the IRC (thus leaving the ultimate burden of persuasion with the taxpayer, the draconian FBAR penalties are not imposed under the IRC.
3. Increase penalties. The proposal is to double certain penalties (the press release does not say which penalties, but presumably the penalties include the FBAR penalty).
4. Extend the civil statute of Limitations until six years after the taxpayer submits the required documentation.
5. Enhanced information reporting. I will perhaps have more about this later.
6. Enhanced IRS Staff in International Enforcement. The proposal is to hire nearly 800 "new agents, economists, lawyers and specialists, increasing the IRS' ability to crack down on offshore tax avoidance and evasion, including through transfer pricing and financial products and transactions such as purported securities loans."
Thursday, February 12, 2009
Proposed Expansion of Money Laundering to Cover Tax Crimes
UPDATE AS OF MAY 26 2009: The House version of this bill did not include the expansion of money laundering for tax crimes and the House prevailed in conference. The proposal is thus defeated for now. Senator Grassley, however, indicated that he will pursue this issue "at every available opportunity."
Original Post:
The transportation money laundering provision does not include tax evasion as a specified unlawful activity (SUA), so moving money around related to just tax evasion is not per se a crime. (All right, if the Government chooses to claim that the tax evasion is effected in part by the mails or by the wires (which it almost invariably is, the Government can claim that the tax evasion invokes the mail fraud and wire fraud predicate acts which are SUA). From an exercise of prosecutorial discretion, the Government has historically not charged mail fraud and wire fraud when just garden-variety tax evasion is involved (see Tax Division Directive No. 128), even though the Government has done just that in some prominent cases (e.g., United States v. Yusuf, 536 F.3d 178 (3d Cir. 2008), cert. pending by petition for cert filed 1/30/2009).
The Department of Justice has recommended to Congress that, given globalization and the use of off shore banking and financing, it is now time to expand the transportation money laundering crime to include tax evasion. I have not yet seen the proposal itself (I will update when I get it), but a summary of the proposal from the DOJ's statement to the Judiciary by Rita Glavin, Acting AAG, Criminal Division, on 2/11/2009 is:
Amending the Money Laundering statute to apply to tax evasion.
Sixth, subsection 2(g) of the Act would add a new provision to the international money laundering offense, section 1956(a)(2)(A) of Title 18, United States Code, to make it applicable to tax evasion. Due to the rapid globalization of the financial system in the last two decades and the development of offshore banking centers, we have seen the development of a troubling growth of income tax evasion that exploits the international funds transfer mechanisms and these offshore centers. In many cases, these tax evasion schemes utilize the same methods and mechanisms as money laundering schemes which involve criminal proceeds. In some, but not all cases, the offshore movement of funds for the purpose of evading income taxes can contribute to the development of offshore centers, and businesses operated by international criminal organizations, that facilitate the laundering of proceeds of drug trafficking and other serious offenses. These activities represent a threat to our financial system beyond the evasion of income taxes.
The proposed amendment to section 1956(a)(2)(A) will address this threat by criminalizing the transfer of funds into or out of the United States with the intent to engage in conduct constituting a violation of our income tax laws. The amendment will not only allow the government to bring civil forfeiture actions against tax evasion funds sent abroad, but will also help U.S. prosecutors enforce forfeiture orders for foreign tax offenses.
Original Post:
The transportation money laundering provision does not include tax evasion as a specified unlawful activity (SUA), so moving money around related to just tax evasion is not per se a crime. (All right, if the Government chooses to claim that the tax evasion is effected in part by the mails or by the wires (which it almost invariably is, the Government can claim that the tax evasion invokes the mail fraud and wire fraud predicate acts which are SUA). From an exercise of prosecutorial discretion, the Government has historically not charged mail fraud and wire fraud when just garden-variety tax evasion is involved (see Tax Division Directive No. 128), even though the Government has done just that in some prominent cases (e.g., United States v. Yusuf, 536 F.3d 178 (3d Cir. 2008), cert. pending by petition for cert filed 1/30/2009).
The Department of Justice has recommended to Congress that, given globalization and the use of off shore banking and financing, it is now time to expand the transportation money laundering crime to include tax evasion. I have not yet seen the proposal itself (I will update when I get it), but a summary of the proposal from the DOJ's statement to the Judiciary by Rita Glavin, Acting AAG, Criminal Division, on 2/11/2009 is:
Amending the Money Laundering statute to apply to tax evasion.
Sixth, subsection 2(g) of the Act would add a new provision to the international money laundering offense, section 1956(a)(2)(A) of Title 18, United States Code, to make it applicable to tax evasion. Due to the rapid globalization of the financial system in the last two decades and the development of offshore banking centers, we have seen the development of a troubling growth of income tax evasion that exploits the international funds transfer mechanisms and these offshore centers. In many cases, these tax evasion schemes utilize the same methods and mechanisms as money laundering schemes which involve criminal proceeds. In some, but not all cases, the offshore movement of funds for the purpose of evading income taxes can contribute to the development of offshore centers, and businesses operated by international criminal organizations, that facilitate the laundering of proceeds of drug trafficking and other serious offenses. These activities represent a threat to our financial system beyond the evasion of income taxes.
The proposed amendment to section 1956(a)(2)(A) will address this threat by criminalizing the transfer of funds into or out of the United States with the intent to engage in conduct constituting a violation of our income tax laws. The amendment will not only allow the government to bring civil forfeiture actions against tax evasion funds sent abroad, but will also help U.S. prosecutors enforce forfeiture orders for foreign tax offenses.
Subscribe to:
Posts (Atom)