Rigas Claims of Prosecutorial Abuse Rejected (6/25/11)

Most long-term readers will recognize the name Rigas. Rigas family members looted Adelphia Communications Corporation. Those members were prosecuted for their misdeeds. I have previously covered some of the issues in those Rigas prosecutions here.

After being convicted of financial crimes related to their looting of Adelphia, the Rigases were prosecuted for tax crimes. By Memorandum and Order dated June 14, 2011, the District Court rejected the Rigases' claims in the tax prosecutions the their Fifth and Sixth Amendment rights had been violated by the Government's actions in putting pressure on Adelphia to fire the Rigases before the first prosecution. United States v. Rigas, 2011 U.S. Dist. LEXIS 66147 (MD PA 2011). The Rigases sought support in the Stein case where the Court dismissed 13 defendants for prosecutorial abuse of forcing KPMG to withdraw attorney fee support. See United States v. Stein, 435 F. Supp. 2d. 330 (S.D.N.Y. 2006), eventually affirmed United States v. Stein, 541 F.3d 130 (2d Cir. 2008), here.  The Court rejected the Rigases' claims because the constitutional violations, if they occurred, occurred prior to the first prosecution wheter the claims should have been but were not presented.

More Saber Rattling At Offshore Banks Playing the Offshore Bank Game (6/23/11)

Bloomberg news today has this report buried among other news (emphasis supplied):

The U.S. could try to bar certain foreign banks from the federal banking system for helping American citizens evade taxes through offshore accounts, a prosecutor said.

Kevin Downing, who led the prosecution of UBS AG (UBSN) in 2009, said the Justice Department’s tax division is reviewing correspondent accounts used by foreign banks without a presence in the U.S. Prosecutors could take action against some of those banks, Downing said yesterday at a New York City Bar Association event.

Conscious Avoidance / Deliberate Ignorance -- Assuming the Jury Acted Properly (6/23/11)

In United States v. Hillman, 642 F. 3d. 929 (10th Cir. 2011), here, the defendant was "convicted of several crimes arising from a scheme to steal hundreds of thousands of dollars from an insurance company for which he worked." The counts of conviction were: "one count of conspiracy to engage in money laundering (18 U.S.C. § 1956(h)), five counts of money laundering (18 U.S.C. §§ 1957(a) & 2), and one count of false statements to a federal law enforcement agent (18 U.S.C. § 1001(a)(2))." The false statements were made to an IRS Agent.

The defendant raised several issues on appeal, but I focus on the deliberate ignorance issue. I have previously written about deliberate ignorance, which goes by several different names such as conscious avoidance etc. See prior blogs here.

The jury was properly instructed that it could convict based on defendant's own knowledge. The judge also instructed the jury that deliberate ignorance would suffice to establish the knowledge requirement. The jury returned a general verdict of guilty on each count. Defendant complained on appeal that the trial court should not have instructed the jury on deliberate ignorance. You will recall that all courts say that the deliberate ignorance instruction is to be rarely used, but sustain its use in appropriate cases. The defendant's point was that it was inappropriately used in this case and that, if so, the guilty verdict should be reversed because it could have been based on the inappropriate instruction.

Relaxed Evidentiary Requirements for Preponderance of Evidence at Sentencing (6/22/11)

I write today about a recent case, United States v. O'Doherty, 643 F.3d 209 (7th Cir. 2011), here, about a commodities trader who "paid for the services of a fraudulent tax consultant, and, under that individual's guidance, he did not file individual income tax returns for the better part of a decade." O'Doherty claimed that the Government violated the plea agreement by raising relevant conduct for noncharged years. The Court applied a straightforward contractual interpretation of the plea agreement to reject that claim. O'Doherty claimed also that his tax fraud did not involve sophisticated means.  The Court rejected that applying a standard interpretation of sophisticated means.  I think the more interesting issue on appeal was the issue of how the Probation Office determined the tax loss in the PSR.

The tax loss must be proved by a preponderance of the evidence. And, sentencing determinations are not bound by the rules of evidence that might otherwise apply. Thus, hearsay evidence that otherwise might be excluded may be used if persuasive by a preponderance of the evidence. The sentencing court determined the tax loss based upon the PSR. On appeal, O'Doherty urged that reliance the PSR alone was not evidence that the sentencing court could rely upon to support a finding by the required preponderance of the evidence. The court of appeals stated his argument (fn. 4) as follows:

Further Comments on the Briefing in the Larson, Pfaff and Ruble Cert Petitions (6/21/11)

I have just received the Government's Brief in Opposition to Certiorari in the Larson and Pfaff cases (Sup. Ct. Dkt No. 10-1049) and Brief in Opposition to Certiorar in the Ruble Case (Sup. Ct. Dkt No. 10-1061). I have previously blogged on the Petitions for Certiorai in those cases in the following blog entries: Petitions for Cert in US v. Pfaff, Ruble & Larson and The Conduct Too Remote Is Not Evasion Argument in the Larson & Pfaff Petition for Certiorari . I have just a few points that I wish to make on the documents documents I just received:

1. The issue that I think is worthy of certiorari is whether the economic substance doctrine draws a sufficiently knowable criminal line. (I have previously blogged on facets of this issue here.)  The problem, in my mind, is that the Supreme Court itself has botched the analysis and approved civilly transactions that lack economic substance relative to the taxpayer's participation in the shelters / arrangements. Charles Kingson, are respected observer in this area, has said pungently:

Another UBS Charge and Guilty Plea - Husband and Wife (6/21/11)

Yet another plea was entered yesterday. The DOJ Tax Press Release is here. The key facts form the DOJ Tax Press Release and the Plea Agreements (below) are.

Taxpayers: Sean Roberts & Nadia Roberts, husband and wife.
Banks : UBS AG, an unnamed Isle of Man Branch of UK bank, an unnamed Lichtenstein bank, an unnamed Hong Kong bank, an unnamed bank in New Zealand and an unnamed bank in South Africa.
Entities: Yes.
Guilt: By Plea Agreement - Tax Perjury (one count).
Tax Loss:  $709,765 (includes relevant conduct beyond the year of conviction)
Restitution: $709,675 (joint between the two; will be credited to tax due)
Cooperation:  Agreement to cooperate in (i) determining tax liability for 2003 forward (note the tax loss and restitution are just a floor.); and (ii) in "investigation and proseuction of other individuals involved in possible violation of federal and state law."  The latter is coupled with the usual non-committal 5K1.1 departure for cooperation.
Enablers (in addition to the banks):  Isle of Man cororate and trust services company; UBS BANKER C.U.; ACCCOUNT MANAGER B.S., owner of a Zurich based financial services company.  (Substantial in U.S. activity by the individuals.)
FBAR penalty: 50% of highest amount for one year.
Court: ED CA.
Judge: Anthony W. Ishi.

Documents:
Husband Information
Husband Plea Agreement
Wife Information
Wife Plea Agreement

FBAR Part II and III Reporting for Title Owners who Are Not Beneficial Owners (6/18/11)

I have recently encountered an issue as to how the FBAR is to be completed in the following circumstance:

W reside in Europe. H is not a U.S. Citizen; W is a U.S. citizen. H has accounts in which he has all beneficial interest under the local law of the country in which they reside. W is listed as an account owner on his accounts, but in fact that is just to give her access to the funds if something happens to H. It is designed to serve as a testamentary disposition to W in the event of H's death; it could also serve as a way for W to access the funds for H's benefit in the event of H's becoming incapacitated. W made no deposits into the accounts, made no withdrawals, and has done nothing with the accounts and is not expected or authorized, as between W and H, to do so until those events. Bottom line, the mechanism of naming W as an account owner at the bank does not give W any ownership interest in the account. It does permit the bank to take instructions from W (including withdrawals).

The question is how W must make an FBAR report? I think all of us recognize instinctively that the FBAR requirement was designed to flush out a report from W, because W certainly has signature authority over the account. I address here how W reports on the form because there has been some confusion about that. For those not interested in the details, here is the bottom line. W should report on Part III in this instance and, if W were the sole title owner (but not beneficial owner), W should report on Part II. There is some nuance behind this bottom-line, so the following discussion may be important to some.

Another Criminal Charge for UBS Depositor (6/16/11)

I present for readers another charge against yet another UBS depositor. This time the case is United States v. Robert E. Greeley (N.D. CA CR 11 0374 CRB). The case is apparently assigned to Judge Charles R. Breyer, brother of Supreme Court Justice Stephen Breyer.

The charge is by information which suggests that there is a plea deal afoot. The charge is to one count of tax perjury for the year 2008. The bank is UBS. I know of little else when this blog is first posted, will add key points to this blog as I learn them.

Pre-2010 FBAR Filing Extension to 11/1/11 for Signatories Only (6/16/11)

The IRS has previously granted an FBAR filing extension until 6/30/11 for signatories only with respect to foreign accounts. Today, the IRS granted a further extension until 11/1/11. See IRS Notice 2011-54.  The guts of the notice is:

Persons having signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years for which the reporting deadline was extended by Notice 2009-62 or Notice 2010-23 will now have until November 1, 2011, to file FBARs with respect to those accounts. The deadline for reporting signature authority over, or a financial interest in, foreign financial accounts for the 2010 calendar year remains June 30, 2011.

Quiet Disclosures Being Moved into OVDI 2011 Process? (6/16/11)

There is some buzz in the community that persons making quiet disclosures are being moved into the OVDI 2011 process. While the information I have received to date is only sporadic and anecdotal, I thought it would be helpful to review the statute of quiet disclosures for foreign financial account tax and FBAR noncompliance.

I assume that readers of this blog are very familiar with the two successive programs -- OVDP 2009 and OVDI 2011. Many taxpayers who wanted to get into compliance felt that the civil penalties offered under these programs were too harsh under their facts. As I and commenters discuss in Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11), taxpayers could get into the program, achieve its principal benefit of no prosecution, and opt out to try to present the equities of their situation as a basis for achieving lesser penalties than offered under the programs. The fear among practitioners and taxpayers is that the IRS will harshly treat the taxpayers opting out. Certainly, for administrative purposes, the IRS wants to create significant risks to opting out in order to encourage the critical mass of taxpayers to stay in the program where the processing costs per taxpayer are significantly less than will be obtained in processing the audits and post-audit processes (including appeals and litigation) of taxpayers opting out.

New Draft Section 6038D Income Tax Form -- FBAR Like Form for the Form 1040 (6/15/11)

Readers will recall that recently enacted Section 6038D of the Code. See my prior blog titled Foreign Financial Information - New Provisions (5/3/10). The IRS has a new draft Form 8938 (as of 6/21/11) to implement the requirement. Note the following:

1. As to foreign financial accounts, the draft Form 8938 would require more information than required by the FBAR (at least current and past iterations of the FBAR). Specifically, it asks if the account was opened or closed during the year. Part I, 1c(1) & (2). It also asks information about the conversion to U.S. dollars in stating the maximum amount. Part I, 1f.
2. The draft Form 8938 goes farther than the FBAR in requiring information about "Other Foreign Assets" -- assets other than financial accounts -- and asks for similar information about these assets. Part II.
3. The draft Form 8938 asks for a "Summary of Tax Items Attributable to Specified Foreign Financial Assets." Part III. I suppose this is a gentle reminder to taxpayers to report those items elsewhere on the return and a roadmap for where they are reported.
4. The draft Form 8938 asks taxpayers to identify foreign financial assets excepted by other forms (such as Form 3521, 5471). Part IV.

Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11)

Readers have commented on prior blog entries about the opportunities and risks of opting out of the IRS 2009 OVDP and 2001 OVDI. I thought I would devote a specific blog entry to the subject to better focus readers comments, particularly as anecdotal evidence comes out about how the IRS is actually dealing with opt outs, and make them more easily accessible to readers.

The fear among taxpayers and practitioners is that the IRS will be punitive in its application of the penalty structure. We don't know yet whether the fear will be realized.

First, I quote the 2011 OVDI FAQ 51 for the opt out (as updated 6/2/11):

If, after making a voluntary disclosure, a taxpayer disagrees with the application of the offshore penalty, what can the taxpayer do?

Matthew Krane Sentenced Regarding Quellos Shelters (6/14/11)

Matthew Krane, a tax attorney involved in the Quellos matter, has been sentenced. (I have previously blogged about Krane here and Quellos here.) Specifically, I discussed the bizarre facts of the Krane prosecution here. Krane has been sentenced to 36 months and must (i) return $17.9 million in fees to a wealthy former client and (ii) pay $23.1 million in back taxes. The relatively light sentence was "reward" for Krane's cooperation.

Hat tip to Tax Prof Blog
See also Kelly Phillips Erb, Show Biz Lawyer Finally Sentenced in Massive Fraud Case, TaxGirl Forbes Blog (6/11/11)

Sheppard on Shaxson Book on Tax and Regulatory Havens (6/11/11)

Tax gadfly Lee Sheppard reviews a new book on Tax Havens by Nicholas Shaxson, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens (Palgrave Macmillan, 2011). See Lee A. Sheppard, A Tax Haven by Any Other Name, 131 Tax Notes 1111 (June 13, 2011). The review and the book are both worth reading for those interested in this area. Sheppard and Shaxson note that the tax havens not serve as tax havens but also regulation havens where risky and often criminal financial behavior can go unregulated.

Some interesting comments from Sheppard's review:

The Tax Justice Network's Financial Secrecy Index ranked the United States as the world's principal secrecy jurisdiction, based on how secretive it is in global finance relative to the services offered. Luxembourg was second, Switzerland third, and the Cayman Islands fourth. The United Kingdom ranked fifth, based on mainland transparency, despite its haven spider web.

U.S. Swiss Negotiations for Multi-Bank Settlement on Swiss Bank Enabled U.S. Tax Evasion (6/11/11)

There are news reports that the U.S. and the Swiss Government are in negotiations regarding a multi-bank settlement regarding Swiss bank's participation in U.S. tax evasion. The source report I have seen to date is Lynnley Browning, Swiss, U.S. in talks on tax probe settlement -sources, Thompson Reuters News & Insight (6/9/11); see also Randall Jackson, U.S., Switzerland Negotiating Expanded Tax Evasion Settlement, 2011 TNT 113-6 (6/13/11); see also Randall Jackson, U.S., Switzerland Negotiating Expanded Tax Evasion Settlement, 2011 TNT 113-6 (6/13/11) (which I extrapolate may be based at least in part on Browning's article).

The takeaway for U.S. taxpayers playing the offshore financial account game -- particularly with Swiss banks -- who have not done a voluntary disclosure (OVDP or OVDI), the risk/reward ratio is rising.  Now is the time to reconsider whether to join the OVDI.  Of course, after the OVDI ends in August 30, 2011 (subject to the good faith extension to obtain the necessary documents), the IRS may still permit taxpayers to come into a voluntary disclosure program but the costs will likely rise significantly.

Addendum 6/13/11:
Matthew Allen, The IRS is building up pressure, Swissinfo.ch (6/10/11)

Filing Returns During a Criminal Tax Investigation (6/7/11)

In Dingman v. Commissioner, T.C. Memo. 2011-116, while the taxpayer was under criminal investigation, the taxpayer's attorney delivered delinquent returns and checks for some of the tax due to the IRS criminal investigation special agent. The IRS processed the checks and credited the amounts to his account on February 19, 2003; what exactly happened procedurally to the returns is unclear. On February 26, 2006, the IRS assessed a Section 6651(f), fraudulent failure to file, penalty. Bottom line, the court held that February 19, 2003 was the latest date that the returns were filed (by inference from the fact that the checks were credited that date) and thus that the ultimate assessment was untimely.

More on the Daugerdas Case - The Role of Nonpromoter Enablers (6/5/11)

The Chicago Tribune reports on the consequences of BDO Seidman's love affair with the Daugerdas shelters. See Ameet Sachdev, Tax shelters put BDO Seidman in middle of firestorm with federal prosecutors, Chicago Tribune, Business (6/4/11). It is interesting to consider what additional retribution, if any, the Government may visit on BDO now that its former chief executive, Denis Field, has been convicted and others down the BDO food chain have pled. For all of the firms participating in this genre of shelters, one has to ask where the gatekeeper was or the gatekeepers were. Was anyone concerned about the well-being of the firm?

Someone has asked that question about Jenkens & Gilchrist, the Dallas based firm with national ambitions that drove it to expand, inter alia, into Chicago and pick up the now disgraced and convicted tax shelter promoter par excellence, Paul Daugerdas. I have written about Daugerdas before and want to discuss here a variation of the Jenkens & Gilchrist story recounted in a recent article, Milton C. Regan, Jr., Taxes and Death: The Rise and Demise of an American Law Firm, STUDIES IN LAW, POLITICS AND SOCIETY: LAW FIRMS, LEGAL CULTURE, AND LEGAL PRACTICE, Vol. 52, pp. 107-144, Austin Sarat, ed., JAI Press 2010; Georgetown Law and Economics Research Paper No. 11-08.

IRS Updates and Expands 2011 OVDI FAQs - Extension of 8/31/11 Deadline, Opting Out & 5% Penalty (6/3/11)

The IRS 2011 OVDI FAQs have been expanded and updated as follows:

25.1 (New). Provides for good faith extensions to the 8/31/11 deadline.

51 (Updated) Discusses the Opt Out procedure. Reminds taxpayers that Opting Out will entail a full scope examination in which taxpayers must cooperate to get the benefit of being in the VD program and that, if additional issues not disclosed are found, CI might institute a criminal examination.

51.1 (New) Gives examples of when it might be favorable to opt out.

51.2 (New) Gives examples of when it might be favorable not to opt out.

51.3 (New) Another reminder that the audit from an an opt out may identify other noncompliance which, if not disclosed by the taxpayer in his or her OVDI submissions, could result in criminal investigation and possible prosecution.

52. (Updated) Adds a new category.  (See prior discussion of FAQ 52 here.)