Nonprecedential / Unpublished Appellate Decisions Morphing Into Precedent? (8/29/12)

The Circuit Splits Blog, here, has a new entry titled Copy-and-Paste: the Role of Judicial Clerks in Shaping Precedent (8/29/12), here.  The blog summarizes and points to an article in SSRN:  Soucek, Brian, Copy-Paste Precedent (July 19, 2012), here.  The concept is that nonprecedential decisions can morph into precedents through the stealth of the cut and paste world we live in.  Judicial clerks know how to cut and paste as well.  What are supposed to be nonprecedential decisions become precedent through the ease (and sloppiness) of cutting and pasting.  (I confess that I do a lot of cutting and pasting, so perhaps my blog entry here is an indictment of myself -- cutting and pasting can be quite sloppy.)

This is a stretch, but it can become like the phenomenon observed by many, including Lenin and Goebbels, that a lie told often enough becomes the truth.  See "Proof by assertion" (Wikipedia, accessed August 30, 2012), here. I am not saying that nonprecedential decisions are lies, so the analogy is hyperbole.  Perhaps the better analogy would be sloppy thinking (encouraged by the notion that nobody is listening or will care) if repeated often enough becomes the truth.  The point of the article is that that which was deliberately intended to be nonprecedential can morph without critical thought into the precedential.  Read the cited article.

This discussion is particularly appropriate for the Williams case where the Fourth Circuit recently overturned a trial court holding rejecting the FBAR willfulness penalty.  See Fourth Circuit Reverses Williams on Willfulness (7/20/12; revised 7/24/12), here.  (See also Tax Crimes Student Review and Exercise (2/29/09), here, for a related discussion of nonprecedential decisions.)

With respect to Williams in particular, the bar is much in arms about the direction it perceives is being pointed by the majority opinion in Williams.  The Fourth Circuit itself said that the Williams decision was nonprecedential.  I would think we could take the court at its word.  But, this new article perhaps should give us some concern and may fan the fears of many that the majority "nonprecedential" decision in Williams is heading other panels and other courts in the wrong direction.

Whistleblower with Liechtenstein Bank Data Nails Australian for Australian Tax (8/29/12)

$21m tax case against Brisbane millionaire Harold Murray (Herald Sun 8/29/12), here.  Here's a cut and paste from some introductory paragraphs as a teaser to link to the whole article:

A WHISTLEBLOWER who leaked sensitive client details from a secretive bank in Liechtenstein supplied critical evidence in a successful $21 million tax case against a Brisbane millionaire. 

The former bank staffer of LGT Bank in Liechtenstein, who cannot be named because of a suppression order, copied hundreds of names of clients in November 2002, giving three CD's filled with names to the Australian Taxation Office in October 2006. 

Seven months later the ATO raided the Brisbane home of former expat businessman Harold Murray and a massive tax audit began. 

The leaked details have been used in the Administrative Appeals Tribunal in Brisbane to successfully fight attempts by Mr Murray to avoid paying his tax between 1999 and 2007. 

AAT Deputy President Philip Hack SC ruled this week that the 70 year old from Pullenvale in Brisbane's west, must pay the $11 million in penalties and tax on $25 million in extra income he stashed in an LGT Bank account in Liechtenstein.

AICPA Complains to IRS About Form 3520 Administration Issues (8/29/12)

I received an email from the AICPA today with a letter to  IRS Commissioner Shulman complaining about IRS administration of Form 3520 filings.  The contents of the email, with links, are:

Erroneous IRS Letters to Taxpayers Filing Foreign Trust Form Is Widespread Problem, AICPA Tells IRS

The American Institute of CPAs alerted the Internal Revenue Service yesterday that erroneous letters from the Service to taxpayers filing a foreign trust form is a “widespread problem affecting numerous taxpayers.”  The AICPA urged the IRS to investigate to determine the source of the processing problem so it could stop sending out the erroneous letters and to consider issuing an announcement that such erroneous letters do not require a response.

“The letters are inconveniencing taxpayers and causing them to incur unnecessary professional fees when practitioners must respond to the IRS explaining why the IRS letters are incorrect and request an abatement of the penalties,” the AICPA said in its Aug. 28, 2012 letter to the IRS.

The letters with erroneous conclusions are being received by taxpayers who filed Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, for 2010 and earlier years.

The AICPA letter described six specific errors the IRS letters claim taxpayers have made, including filing Form 3520 late when it was filed on time.

Attorney is Sentenced for Failure to File (8/29/12)

The following is a news release I received in the email today.  I have bold-faced items that may be of particular interest to readers of this blog.  Although not clear from the press release, the trusts he created may have been offshore trusts.  See for a related blog entry involving the Genesis Fund, Atypical Foreign Bank Account Related Sentencing (4/5/12), here.


NEWS RELEASE
Internal Revenue Service - Criminal Investigation
Los Angeles Field Office
Leslie P. DeMarco, Special Agent in Charge

For Immediate Release:  August 27, 2012

Prepared by: Special Agent Felicia McCain, Public Information Officer
Office:  (619) 615-9071
Mobile: (619) 770-9317
Email: Felicia.McCain@ci.irs.gov

Orange County Attorney Sentenced to Six Months Custody for
Failing to File a Federal Income Tax Return

Los Angeles- Today, Kevin J. Mirecki, 53, was sentenced to six months federal custody, one year of supervised release, and ordered to pay restitution of $206,419 to the Internal Revenue Service (“IRS”).  Mirecki was also fined $20,000 by U.S. District Judge Dale S. Fischer for his failure to file Federal income tax returns.

On February 9, 2009, Kevin Mirecki pleaded guilty to three counts of failing to file Federal tax returns.  Mirecki failed to file an individual federal income tax return (Form 1040) and two corporate income tax returns (Forms 1120) for his companies Kevin J. Mirecki, Inc. and American & International Corporate Services (AICS).  According to the plea agreement, Mirecki admitted he failed to report over $1.3 Million in personal income for years 2000 through 2003.  Mirecki also admitted in the plea agreement that he created Genesis Fund Ltd.  as a Nevis  corporation and created trusts for four individuals charged in the March 2005 indictment.  

Evidence Rulings in Sprawling Criminal Case with Tax Charge Add On and Some Sex (8/29/12)

I just read United States v. Dimora, 843 F. Supp. 2d 799 (ND OH 1/4/12).  It is a fascinating case involving charges in the Third Superseding Indictment for,

among other things, RICO conspiracy, conspiracy to commit mail fraud and honest services mail fraud, Hobbs Act conspiracy and Hobbs Act substantive violations, conspiracy to commit bribery in programs receiving federal funds, and conspiracy to obstruct justice. Dimora is also charged with conspiracy to commit wire fraud and honest services wire fraud; destruction, alteration or falsification of records in a federal investigation; mail fraud; and false statements on tax returns."  

Whew, that is quit a bunch of charges.

Dimora offers lessons primarily for students of federal white collar crimes.  Remember, that tax crimes are just a subset of white collar crimes, and many  of the issues presented in the trial of tax crimes are often present in white collar crimes (and vice versa).  It is a very long opinion, and I really don't recommend that even students read it except to address a particular interest piqued by reading my summary of the key points.

So, here are the points I think are key for students:

1.  The Function of the Motion in Limine

The Court resolves key evidentiary issues in advance of trial.  The parties asked the court to resolve these issues by motions in limine.  The Court describes motion in limine procedure as follows (case citaions other than Supreme Court omitted):

Although not explicitly authorized by the Federal Rules of Evidence or the Federal Rules of Criminal Procedure, the practice of ruling on motions in limine "has developed pursuant to the district court's inherent authority to manage the course of trials." Luce v. United States, 469 U.S. 38, 41 n.4 (1984). Motions in limine allow the court to rule on evidentiary issues prior to trial in order to avoid delay and to allow the parties to focus remaining preparation time on issues that will in fact be considered by the jury.  

Courts should exclude evidence on a motion in limine only when it is clearly inadmissible. If the court is unable to determine whether certain evidence is clearly inadmissible, it should defer ruling until trial so that questions of foundation, relevancy, and potential prejudice can be evaluated in proper context. Id. Ultimately, the determination whether to grant or deny a motion in limine is within the sound discretion of the trial court. In limine rulings are preliminary, and the district court may change its ruling at trial for any reason it deems appropriate.

IRS Internal Procedure Document Discusses BSA Record (includingi FBAR) Access for Other Agencies (8/29/12)

In PMTA 2012-015 (5/9/12), here, the IRS discusses into the inner workings for access to BSA records (including FBARs), addressing specifically a change in procedure for requesting FBAR records.  Here are key points:

1.  "FinCEN owns and controls documents required to be filed pursuant to the Bank Secrecy Act (BSA), 31 U.S.C. § 5311 et. seq., including, but not limited to, currency transaction reports, casino transaction reports, registration of money services business, foreign bank account reports, suspicious activity reports, and, if filed after January 1, 2002, reports of over $10,000 received in a trade or business."

2.  As of 1/3/12, FinCEN now is the agency to which requests for FBAR records must be made.  The IRS no longer processes such requests.

3.  The consequence of that "fact" is that the FBAR records are not IRS records and thus not "return information" subject to Section 6103's secrecy / confidentiality requirements until and unless they are use in an IRS investigation.

If a copy of a BSA record is obtained by the IRS in the course of administering the internal revenue laws, then it becomes an IRS record, as well as return information subject to I.R.C. § 6103. As such, the IRS can certify the authenticity of such a record as a genuine copy of a record received from FinCEN. In order to obtain from the IRS a certified copy of a BSA record that has become part of a tax investigation file, and therefore subject to the confidentiality rule of I.R.C. § 6103, U.S. Attorneys must follow the procedures for obtaining an ex parte order pursuant to I.R.C. § 6103(i), if the record will be used in a nontax criminal investigation or proceeding. See I.R.C. § 6103(i)(1)(B).

Seventh Circuit Compels Production of Offshore Bank Under the Required Records Doctrine (8/27/12)

The Seventh Circuit today decided In re Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, 691 F.3d 903 (7th Cir. 2012), here, holding that the required records doctrine requires a taxpayer asserting a Fifth Amendment privilege to produce the documents required to be maintained under the FBAR statute.

The opening paragraph:

In this appeal, we are asked to decide whether compulsory production of foreign bank account records required to be maintained under the Bank Secrecy Act would violate appellee T.W.’s Fifth Amendment privilege against self-incrimination. Because we find that the Required Records Doctrine applicable to this case, we hold that T.W. must produce the subpoenaed records.

The holding agrees with the Ninth Circuit's holding in  M.H. v. United States (In re Grand Jury Investigation M.H.), 648 F.3d 1067 (9th Cir. 2011), here.  See my prior blog on the Ninth Circuit case:  9th Circuit Applies Required Records Doctrine to Defeat 5th Amendment Claim for FBAR Recordkeeping (8/19/11), here.

I have now read the case and offer the following analysis consisting mostly of a cut and paste of the Seventh Circuit's analysis in getting to its holding.  I think I have captured the key trajectory of his reasoning in the Court's own words; in order to avoid distraction from the reasoning, I  omit all case references except for the Supreme Court case and the Ninth Circuit's M.H. case with which the Seventh Circuit delivers its knockout blow:

Because this case concerns the combined effect of the Required Records Doctrine and the act of production privilege, a discussion of both is warranted.

Reasonable Cause Defense for Failure to File Form 3520 (8/25/12)

In James v. United States, 2012 U.S. Dist. LEXIS 114356 (MD FL 2012), here, the court held that, whether defendant's alleged reliance on his accountant in failing to file Form 3520, Annual Return To Report Transactions With  Foreign Trusts and Receipt of Certain Foreign Gifts, current version here, constituted reasonable cause to avoid the penalty for failure to file was an issue to be determined at trial rather than on the Government's motion for summary judgment.  The penalty involved is Section 6677(a); the reasonable cause exception is in Section 6677(d) ("due to reasonable cause and not due to willful neglect").  Section 6677 in its entirety is here.

The IRS "assessed penalties of $67,200, $281,750, and $230,000, for failure to file Form 3520 in years 2001, 2002, and 2003, respectively."  The opinion is rather cryptic, certainly as to the facts leading up to the assessment, so it is difficult to assess precisely what triggered the substantial penalties.

James, a pain management physician, apparently set up the foreign trusts as an asset protection mechanism against malpractice suits.  (I guess his notion was that he and his family were more entitled to those assets than some patient who suffered from his malpractice.)

James proceeded to create an irrevocable foreign trust in Nevis, West Indies, with First Fidelity Trust Limited (FFT) as its trustee. James initially funded the trust in 2001 with a contribution of $192,000. He made additional contributions of $805,000 in 2002 and $607,146 in 2003.

James urged that he informed his accountant about the trust and relied upon his accountant to advise him and prepare the Forms required from these actions.  The Government argued that "James was put on notice of the requirement to file Form 3520, the Government argues that his reliance on Famiglio cannot constitute reasonable cause."  From the wording of this sentence, it would appear that the Government's argument is that factually James was put on notice and that notice was what made his reliance on the accountant untenable.  The opinion, however, does not flesh that out, and I suppose that whether James really had some independent notice that made reliance on his accountant untenable is really a question of fact.

The Court noted at the inception (emphasis suppied):

The IRS has failed to issue regulations explicating the meaning of "reasonable cause" for failure to file Form 3520. In general, reasonable cause exists when a taxpayer exercises ordinary care and prudence in determining his tax obligations despite his failure to comply. See I.R.M. 20.1.1.3.2 (11-25-2011). Whether reasonable cause exists depends upon all of the facts and circumstances of the case, including the taxpayer's reason for failing to properly file, and the extent of his efforts to comply. Id. Moreover, the Internal Revenue Manual ("IRM") provides that ignorance of the law may provide reasonable cause if: "A. A reasonable and good faith effort was made to comply with the law, or B. The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement." I.R.M. 20.1.1.3.2.2.6 (11-25-2011).

As usual in a case involving a failure to file penalty, the Government trotted out United States v. Boyle, 469 U.S. 241 (1985), here.  In Boyle, the Supreme Court rejected a reasonable cause defense for a late filing penalty based on reliance of the attorney who should have known the estate tax filing date and made the filing timely.  The James Court declined to reach the Boyle argument.  (See fn. 1.)  (I should note that I think the Court did reach the argument by denying summary judgment where the Government's point, I think, was that Boyle compelled summary judgment.)

Swiss Data Protection Commissioner Enters the Fray Over Employee Data Turnover to U.S. (8/24/12)

A recent article describes the entry by the Swiss data protection commissioner into the fray about the data turnover to the U.S. of bank employee information.  Matthew Allen, Data protection watchdog supports bank staff (swissinfo.ch 8/22/12), here.

Excerpts from the article (emphasis supplied by JAT):

Hanspeter Thür has written to several banks to determine what data has already been transferred to the US Department of Justice and how they justified including telephone numbers and written correspondence. 

“We have informed them that we are opening an analysis to verify the legality of the data transmitted to the US,” Thür told the Tages Anzeiger on Wednesday. “Until we have the results, we have demanded that no further bank employee data be sent to the US.” 

* * * * 

Several bank staff have complained that this has left them open to criminal prosecution for aiding and abetting tax evasion. Even employees that had nothing to do with advising clients are too fearful of travelling abroad in case they get extradited to the US. 

* * * * 

“We assumed that our concerns would be taken into account,” Thür said. “But last week we received information that HSBC had sent a second batch of bank employee data to the US.” 

“I have grave doubts whether the publication of bank employee data was legal.” 

Thür threatened legal action against banks that fail to comply with his demands for information. 

Defending the government's April decision to allow the data transfer, Finance Minister Eveline Widmer-Schlumpf told the Tribune de Genève newspaper it was the only way to avoid "destroying workplaces". 

"What was the alternative?" she said in the interview. "What would have happened had we forbidden the banks from cooperating and left them with no means to defend themselves against this procedure?"

Prominent Neurosurgeon Convicted for Offshore Accounts (8/23/12)

DOJ Tax has announced the conviction of Dr. Arvind Ahuja on one count of filing false tax returns (tax perjury, Section 7206(1)) and one count of failing to file the FBAR.  The press release is here.

The key facts (or, I hope, reasonable projections from the facts) are:

Taxpayer:  Dr. Arvind Ahuja, a "prominent neurosurgeon"
Age: ___
Conviction Date: 8/22/12
Banks: HSBC in India; also HSBC account  in the Bailiwick of Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy
Enabler:  HSBC India representative in New York
Entities: No.
Guilt: Jury Conviction
Count(s) of Conviction: Tax Perjury (Section 7206(1))-one count; FBAR-1 count
Maximum Possible Sentence:  8 years.
Omitted Income:  $2.7 million for years 2005 through 2009
Estimated Tax Loss:  $900,000 (see discussion below; this is my estimate based on the omitted income; and assuming that the tax loss attributable to the acquitted years will be treated as a tax loss for sentencing purposes; if not, the tax loss for the year involved in the counts of conviction is reported by a commenter below to be $89,000.)
Indicated Sentencing Range: 41-51 months (based on assumption as to the relevant conduct tax loss and without considering good time credit (see discussion below); if the tax loss does not include the years other than the single year for the counts of conviction limiting the tax loss $89,000, the resulting indicated Guidelines range is 27-33 months, which would make a Booker variance down to no material  incarceration much more palatable to the sentencing judge and the appellate panel, if appealed; certainly the cosmetics of $89,000 as opposed to $900,000 is significant)
FBAR Penalty: ? [No indication that this has been set; I would expect it to be agreed upon or paid by sentencing and would be 50% of the highest year, in line with the other cases; the defendant likely will want to resolve this issue prior to sentencing, but is not required to do so]
Sentencing Date:;  1/18/13
Court: ED WI
Judge: Charles N. Clevert, Jr. (Wikipedia entry here)

Credit Suisse / Wegelin Client Pleads Guilty to FBAR Violation in SDNY (8/21/12)

The USAO SDNY has announced the guilty plea of DOJ Tax has announced the sentencing of Jacques Wajsfelner, a former Credit Suisse and Wegelin client.  The USAO press release is here.

The key facts are:

Taxpayer:  Jacques Wajsfelner
Age: 83
Plea Date: 8/20/12
Banks: Wegelin & Co.; Credit Suisse (reported in news but not identified specifically in press release; per the press release, the account in the unnamed bank was transferred to Wegelin as the heat ramped up on UBS)
Enabler:  Beda Singenberger, a Swiss financial adviser
Entities: Yes (Ample Lion, Ltd., a "sham" Hong Kong corporation)
Guilt: By Plea Agreement
Count(s) of Conviction: FBAR (1 count)
Admissions:  Failed to file FBARs from 1995 through 2011; filed false income tax returns by omitting information about his Swiss accounts; "failed to make voluntary disclosures under the IRS's Voluntary Disclosure Program."
Maximum Possible Sentence:  5 years.
Tax Loss: $419,940 (Agreed as restitution; News release says $419,000; see article below)
High Amount: $5,700,000.
FBAR Penalty: $2,840,000 +.  (Amount is per article below; News Release says $2,800,000+)
Court: SD NY
Judge: Naomi Reice Buchwald (Wikipedia entry here)

Judge Apportions Restitution in a Massive Tax Shelter Case (8/20/12)

In United States v. Kerekes, 2012 U.S. Dist. LEXIS 115280 (SDNY 2012), here, Judge Baer of SDNY imposed restitution against one of the individual defendants in the massive BDO Seidman tax shelter case, but apportioned the restitution so that the defendant, who pled to a conspiracy count for the large conspiracy, is liable for only a portion of the tax loss.

Here are the points I believe are key.

1.  The defendant pled to the overarching conspiracy count, a Klein conspiracy count under 18 USC 371, here, and to one count of tax evasion, 26 USC 7201, here.

2.  The defendant was sentenced to "one-year sentence, six months incarceration, and six months home confinement, a $50,000 fine and a $200 special assessment."

3.  Although the Mandatory Victims Restitution Act ("MVRA"), 18 USC 3663A, here, does not apply to the tax crimes established in Title 26, it does apply to conspiracy under Title 18.  Hence, Kerekes was subject to mandatory restitution.

4.  The amount of restitution is normally the loss to the victim.  For Klein conspiracies, the victim is the United States via the IRS.  According to the judge's calculations (after removing some of the claims made by the prosecutors) "the total loss is $61,922,963.96 ($29,547,426.96 attributable to taxes owed and approximately $32,375,537.00 in interest)."  In making this calculation, the judge found that calculating the restitution did not require certainty and would permit reasonable estimates (which he made).

The IRS Administrative Summons as Pretext to Avoid the Need for a John Doe Summons (8/20/12)

I just posted a blog entry titled Do Prosecutors Have Too Much Power? (8/20/12), here.  I  refer to a debate among scholars, one of whom is Professor Nancy Gertner of Harvard Law School.  Professor Gertner is a former federal judge.  Before becoming a judge, her law firm became involved in one of the cases that plays a prominent role in my Federal Tax Procedure and Tax Fraud and Money Laundering classes and the texts spawned from these classes.  The case -- United States v. Gertner, 65 F.3d 963 (1st Cir. 1995), here -- relates to the IRS's improper use of the John Doe Summons, so I thought I would discuss that case since the John Doe Summons has played such a prominent role in many IRS initiatives (including the offshore bank initiative).

The IRS's general compulsory process is the IRS administrative summons.  The IRS administrative summons  identifies the taxpayer whose liabilities are being investigated and compels the party summonsed to give testimony and/or produce documents related to that investigation.  In many respects, it is like a grand jury summons, but the grand jury summons does not have to identify the party or parties being investigated and, practically speaking, the perceived compulsion behind a grand jury summons is much greater than for the IRS administrative summons.  Still, the IRS administrative summons is a significant power.  See, e.g., Kim Dixon, IRS wields summons to pry info out of wealthy, companies (Reuters 8/17/12), here.

The IRS does not have to answer to anyone in issuing the summons.  It just fills out the form and delivers it to the party summonsed.  In most cases, the IRS does have to notify the taxpayer that the summons has been served when the party summonsed is other than the taxpayer.  But that is about it.

Further, in any judicial contest, the IRS administrative summons has minimal requirements.  Those requirements, called the Powell requirements from the case establishing them (United States v. Powell, 379 U.S. 48 (1964)), are:

that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed * * * .

Do Prosecutors Have Too Much Power? (8/20/12)

The New York Times today has a Room for Debate feature where prominent scholers debate whether prosecutors have too much power.  Do Prosecutors Have Too Much Power? (NYT Room for Debate 8/19/12), here  The debate subject is introduced as follows:

A U.S. district judge in Denver recently rejected a plea bargain in a child pornography case because the defendant had agreed to waive his right to appeal. The judge said such a deal would undermine the purpose of appellate courts. (He later accepted a plea bargain without that stipulation.) 

Legal observers — including the editorial board of The New York Times — focused on the judge’s concern as a sign that plea bargains have gotten out of control and in the process given prosecutors too much power. When one party decides whether to bring charges, what charges to bring and whether to offer a plea bargain, is the justice system lacking checks and balances?

Here are blurbs for the "debaters" offerings:

Prosecutors’ Overreaching Goes Unchecked
ANGELA J. DAVIS, AUTHOR, "ARBITRARY JUSTICE"
Unchecked power in the hands of prosecutors is as much a threat to our democracy as it is with any other government official, if not more. 

Judgment Requires Power and Vice Versa
SAMUEL W. BUELL, FORMER FEDERAL PROSECUTOR
Proving sophisticated crimes requires far-reaching statutes and the leeway to use grand juries, charges and agreements for testimony. 

The Problem With Mandatory Minimums
RACHEL E. BARKOW, NEW YORK UNIVERSITY
Far from eliminating disparity by curbing judicial discretion, mandatory minimums simply shift power to prosecutors. 

The Right to Appeal Is an Issue of Fairness
NANCY GERTNER, FORMER JUDGE
You can’t bargain away your right to counsel; you shouldn’t be allowed to bargain away your right to appeal. 

Limit Control Over Charges and Sentencing
PAUL CASSELL, FORMER PROSECUTOR AND JUDGE
We can and should take modest steps to ensure that the power prosecutors exercise does not encroach on the functions of the other branches

The uses and abuses of the prosecutors' power -- often called prosecutors' discretion -- is a constant feature in federal practice generally and federal tax crimes / white collar  practice specifically.  Focusing on the tax crimes area, the various crimes that can be marshaled to support tax charges are many and overlapping, thus permitting great power / flexibility in charging decisions.  While, in  some respects, the Sentencing Guidelines and Booker discretion take away much of the potential for abuse from discretion as to charges, they do leave untouched broad areas of the prosecutors' discretion / powers that can be brought to bear.  The discussion among these debaters is highly recommended.

Swiss Banks Rat Out Their Employees to U.S. (8/18/12; revised 8/21/12)

Reports are that the Swiss banks are ratting out their employees.  See Giles Brown, HSBC, Credit Suisse Sacrifice Employees To U.S., Lawyers Say (Bloomberg 8/16/12), here.

Here are some excerpts:

Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff. 

At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members. 

“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.” 

* * *

Eleventh Circuit Sustains Statute Suspension For Foreign Records Request Under 18 USC 3292 (8/17/12)

In United States v. Broughton, 689 F.3d 1260 (11th Cir. 2012), here, the court affirmed convictions related to finanical fraud.  The Court of Appeals summarized the fraud as:

This criminal case involves sophisticated financial structuring through the interplay of related corporate subsidiaries in the context of the insurance business. While such financial structuring is not inherently improper, here the two Appellants, William Allen Broughton ("Broughton") and Richard William Peterson ("Peterson"), were convicted of conducting a modern-day financial shell game in which they falsified financial statements, exchanged paper ownership over non-extant fraudulent assets, and collected insurance premiums and monthly payments from unwitting innocents.

The investigation leading to the convictions started as follows:

For a little over two years beginning in 1996, the Internal Revenue Service conducted an undercover investigation into insurance fraud in the United States and overseas. In particular, the investigation was directed at individuals and corporations who marketed themselves as insurance providers on the basis of rented assets. Such companies sought to collect insurance premiums while never intending to pay out on any meritorious claims. As will be discussed below, the undercover agents learned of numerous companies, some of which were operated by Appellants, that engaged in a conspiracy to operate in such a fashion.

The facts uncovered from the investigation are a bit convoluted and not important for present purposes where the focus of the discussion is 18 U.S.C § 3292(a), here, which suspends the statute of limitations while request to a foreign country for information is pending pursuant to a grand jury investigation.  See my prior blog Suspension of Statute of Limitations Period During Request for Foreign Assistance to Obtain Evidence (1/28/11), here.  The Government made the application to the district court and the district court granted it.  The issue on appeal was:

A plain reading of § 3292 demonstrates that a district court's decision to suspend the running of a statute of limitations is limited to two considerations: 1) whether an official request was made; and 2) whether that official request was made for evidence that reasonably appears to be in the country to which the request was made. Id. If both those considerations are met, the statute of limitations "shall" be suspended. Id. Therefore, the issue before us is whether those conditions were satisfied.

Confidential Sentencing Recommendations (8/17/12)

In United States v. Godat, 20121 U.S. App. LEXIS 16463 (Eighth Circuit 2012), here, the Eighth Circuit rejected an appeal claiming error in the sentencing judge's possible reliance on factual allegations covered in the Probation Office's confidential recommendations.    The defendant pled guilty to "evading currency-transaction reporting requirements in violation of 31 U.S.C. § 5324(a)(3) and with evading taxes in violation of 26 U.S.C. § 7201."

The Eighth Circuit stated the issue and legal landscape as follows:

Godat first argues that the district court violated his Fifth Amendment right to due process and his Sixth Amendment right to confrontation by considering and relying on factual allegations contained in a confidential sentencing recommendation prepared by the probation office that Godat was not allowed to see or challenge. The Due Process Clause of the Fifth Amendment is implicated when a sentencing court considers evidence that the defendant "had no meaningful opportunity to rebut," and only then when that consideration results in "a sentence based on material misinformation." Kohley v. United States, 784 F.2d 332, 334 (8th Cir. 1986) (per curiam). The Confrontation Clause of the Sixth Amendment is implicated when consideration by the sentencing court of evidence that the defendant was not given an opportunity to rebut results in a defendant being "sentenced on the basis of 'misinformation of constitutional magnitude.'" United States v. Wise, 976 F.2d 393, 402 (8th Cir. 1992) (en banc) (quoting United States v. Tucker, 404 U.S. 443, 447 (1972)).

The Eighth Circuit resolved the issue on the facts -- the Eighth Circuit credited the district judge's claim that, in sentencing Godat, he "did not consider any undisclosed factual allegations."  Further,

The record is thus unambiguous that Godat's sentence did not result from the consideration of facts from the confidential recommendation. Even if the district court had considered these facts in determining Godat's sentence, Godat's claims still would require that the district court considered some piece of misinformation, and the allegations regarding Godat's use of the victim's funds were disclosed to him at sentencing, where he confirmed their accuracy. For these reasons, we reject Godat's Fifth and Sixth Amendment claims.

A Stupid -- At Least Unfair -- IRS OVDI/OVDP Trick; Denying Overpayment Credit for Barred Years (8/13/12)

I write to rant about a practice inside the OVDI/OVDP civil penalty structure.  I start with the relevant Code sections, 6501, here, and 6511, here.  Section 6501(a) provides a 3 year statute of limitations for assessments.  Section 6501(c) provides certain exceptions to the 3 year limitations on assessments.  The key exception for present purposes is the Section 6501(c)(1) "a false or fraudulent return with the intent to evade tax," for which there is no statute of limitations.  (I ignore the 6 year statutes of limitations that might apply, and assume for present purposes they do not apply.)  Section 6511(a) provides a statute of limitations for refunds.  Basically, the taxpayer filing a timely original return and paying the tax has 3 years in which to file a claim for refund of the tax.

The OVDI/OVDP programs have involved a lookback window from 2003 forward.  (I ignore the possibility of a later starting date under 2012 OVDP but even if a later starting date were involved, the concepts discussed in this blog would still apply.)  The taxpayer is required to file amended returns during that lookback period and pay all applicable taxes.

Commenters to other blog entries have noted that, if there are refunds due for years for which refund is barred under the above rules, the IRS will not give the taxpayer credit for those refunds against taxes reported on the amended returns for years in the lookback window.  Here is an example:

2003 – additional tax reported on the OVDP/OVDI amended return - $1,000.
2004 – refund of tax paid with original return but claimed for first time on OVDP/OVDI amended return – ($1,000)
2005 – additional tax reported on the OVDP/OVDI amended return - $1,000.

Assume the years 2003-2005 are closed for assessments and refunds.  As to assessments, assume that the IRS has not made a specific finding of fraud as to the taxpayer and, should it investigate, could not prove fraud by clear and convincing evidence so as to invoke Section 6501(c)(1).   In this case, the IRS will not give the taxpayer credit for the $1,000 overpayment for 2004, even though it collects the underpayments for 2003 and 2005.