Julius Baer Retired Banker Pleads to FBAR Crime (6/28/13)

Pius Kampfen, a Julius Baer retired banker and resident of California, pled today to "an information charging him with willful failure to file the required reports of foreign bank accounts (FBAR) for a Swiss bank account he controlled."  The DOJ press release is here.  The charging information is here.

Key facts:

Defendant:  Pius Kampfen.
Count of Conviction (by information and plea):  FBAR Willful failure to file.
Maximum incarceration period:  5 years.
FBAR Penalty:  $1,465,393 (How calculated is not provided).
Entity:  Yes.
Banks:  UBS AG, Pictet & Cie, ABN-AMRO, Bank Vontobel and Baumann & Cie. (The quote in the opening paragraph indicates one bank account on the count of conviction; it is not clear which one of these relates to the count of conviction).
Admits:  Tax noncompliance on accounts and failure to file FBAR.

JAT comment:  Everyone watching the Swiss-U.S. spat knows that Julius Baer is a target of the U.S. angst over Swiss bank misbehavior.  Apparently Mr. Kampfen has the characteristics that would get the IRS's and DOJ Tax's attention anyway.  But the fact that he was a Julius Baer banker and perhaps even an enabler as well made likely him particularly attractive for the U.S. to send a signal to Switzerland.

There is a web page for Kampfen Investment Services, here.  The "about" page says:

Prior to forming the firm, Kampfen spent 17 years as the Senior Representative for Julius Baer Group on the US West Coast, a Swiss bank specializing in private banking and global and international money management for high net worth individuals, foundations and private corporations. Prior to joining Julius Baer, he worked for over 20 years for other Swiss financial corporations, including Union Bank of Switzerland, where he served as a portfolio manager for international clients.

Articles of Interest to Tax Crimes Enthusiasts (6/27/13)

These are some new articles.  Enjoy!

• Stever Toscher and Della Bauserman, Suprise-The Tax Fraud of YOur Tax Preparer May Extend the Statute of Limitations on Tax Assessments, J. Tax Prac. & Proc. 31 (April-May 2013), here.

The authors review the wreckage from Allen v. Commissioner, 128 T.C. 37 (2007).  Although I have written about Allen before, this excerpt should remind readers. 

The issue in Allen was whether the taxpayer must have an intent to evade tax in order to keep the statute of limitations on assessment open indefinitely under Code Sec. 6501(c)(1). The Tax Court concluded the statute of limitations would remain open if the tax preparer had the intent to evade tax. To state this conclusion another way, the Tax Court allowed the statute of limitations on assessment to remain open forever  when the tax preparer has fraudulently filed a tax return even if the innocent taxpayer was also defrauded by the tax preparer. This was a startling proposition—at least at first blush—for most of us in the tax litigation field.

• Josh Ungerman, What to Do When the Special Agent Arrives (Outline for speech at the Tax Alliance Conference 6/12/13), here.

Josh offers some good insights on the initial surprise "interview" by Special Agents and then damage control after it occurs.

• Charles P. Rettig, IRS Offshore Voluntary Disclosure Program: Opt-Outs, a Revised FBAR and Rescissions of Pre-Clearance Letters by Criminal Investigation, J. Tax Prac. & Proc. 23 (April-May 2013), here.

Chuck provides some timely information about developments in the offshore account area, including most prominently (i) summary observations on joining OVDP in the first place and then in opting out and (ii) lines of inquiry that might be asked by the agent on the opt out or an AUSAs or IRS agent assisting a grand jury investigation of enablers.

• Edward M. Robbins, Jr., The Fifth Amendment FBAR Lives!, 139 Tax Notes 1546 (June 24, 2013) [no link for this yet, but will post it when I get it; in the meantime, readers might check his firm's publications page here]

Criminal Complaints in Tax Crimes (6/27/13)

One of my co-authors of the Tax Crimes book published by LEXIS-NEXIS started a discussion among us yesterday about the role of the criminal complaint.  I thought it might be helpful to share the fruits of that discussion.  First I start with the criminal complaint that started the discussion:

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
UNITED STATES OF AMERICA
v.
YETUNDE OSENI
12902 Crickmore Trace
Bowie, MD 20720-4683
DOB 1/7/1976; SSN ***-**-5682
Defendant(s)
Case No. 13-1016 JKS
CRIMINAL COMPLAINT
I, the complainant in this case, state that the following is true to the best of my knowledge and belief. On or about the date(s) of 8/22/2009 - 11/29/2012 in the county of Prince George's in the District of Maryland, the defendant(s) violated:
Code Section: 18 U.S.C. 641
Offense Description: knowingly and unlawfully embezzle, steal, purloin and knowingly convert to her use things of value of the United States, to wit: household items and food products purchased using a government purchase card belonging to the Internal Revenue Service.
This criminal complaint is based on these facts:
See attached affidavit.
Continued on the attached sheet.
[signed]
Complainant's signature
S.A. Tracey Giannakoulias, TIGTA
Printed name and title
Sworn to before me and signed in my presence.
[signed]
Jillyn K. Schulz
Judge's signature
Date: 05/02/2013
City and state: Greenbelt, Maryland
Thomas M. DiGirolamo,
U.S. Magistrate Judge
Printed name and title
AFFIDAVIT
I, Tracey V. Giannakoulias being duly sworn, depose and state:
INTRODUCTION
I am a Special Agent with the United States Treasury Inspector General for Tax Administration (TIGTA), Washington Field Division, New Carrollton, Maryland Post of Duty. I was also a Special Agent for The United States Department of Education Office of Inspector General: I have been a special agent for the past fifteen years. I attended Treasury Inspector General for Tax Administration Special Agent Basic Training at the Federal Law Enforcement Training Center. I have a Bachelor and Master Degrees in Criminal Justice. I am duly commissioned as a Special Agent, and I am authorized to conduct criminal and other investigations arising under the laws of the United States, regulations administered by the Department of the Treasury and the Internal Revenue Service (IRS), to carry firearms, to execute and serve search or arrest warrants, to make arrests without warrant, to serve subpoenas and summons, and to require and receive information relating to such laws and regulations. I have conducted and participated in numerous investigations of criminal violations involving the IRS, including fraud, theft, embezzlement, assault and threats and attempts to interfere with the administration of IRS laws. I have executed and participated in several search warrants and seized evidence relating to criminal activity.

New Taxpayer Advocate Discussion of Problems with IRS OVDI/P Program (6/26/13)

The Taxpayer advocate has issue a new report.  The portion relate to the IRS's OVDI/P initiatives is here.  I cut and paste some of the discussion (footnotes and tables omitted):

A Government Accountability Office (GAO) analysis shows that the offshore penalty paid by those with the smallest accounts (i.e., those in the 10th percentile with accounts of $78,315) was disproportionate – at least 575 percent of the tax, interest, and penalties on their unreported income. It was also disproportionately greater than the amount paid by those with the largest accounts (i.e., those in the 90th percentile with accounts of more than $4 million) who paid 86 percent or less. Moreover, the IRS initially processed applications from benign actors who are expected to opt out much more slowly than others, though it has recently begun to process them more quickly, as shown by the following table  

In 2012, the IRS began allowing certain “low risk,” nonresident nonfilers – those with  simple returns and owing less than $1,500 in tax – to file the returns without triggering
penalties (the “Streamlined Nonresident Filing Initiative”). In January 2013, following
the National Taxpayer Advocate’s recommendation to expand the Streamlined Nonresident Filing Initiative to both U.S. residents and those owing more than $1,500, IRS officials publicly announced the IRS had eliminated the $1,500 threshold .
Although this is a positive change, the National Taxpayer Advocate remains concerned that the IRS does not have a simple and easy method for allowing benign actors who are U.S. residents to resolve past filing delinquencies. Nor has it provided clear guidance about key terms that it has used in its programs, such as when someone will be considered “high risk,” how they may avoid a penalty (e.g., by demonstrating “reasonable cause”), and when they will be subject to the lower penalty applicable to “nonwillful” conduct. The uncertainty surrounding these terms and the consequences of opting out has likely prompted some benign actors to pay more than they should inside the OVD programs  

* * * * 

Finally, in FY 2012 and FY 2013 YTD, TAS assisted 474 taxpayers with OVD-related problems and issued four taxpayer assistance orders (TAOs). In the three cases in which the IRS did not comply with the TAOs, the National Taxpayer Advocate elevated (or plans to elevate) them to the Operating Division Commissioner level or above.

For an article discussing an Opt Out Strategy, with some assistance fro the TAO, see An OVDI Odyssey - an Opt Out Success Story (Federal Tax Crimes Blog 6/16/13), here.

Immigration Consequences of Tax Crimes Convictions (6/26/13)

Two recent Second Circuit summary nonprecedential decisions  involving criminal tax convictions have involved  the immigration consequences of the convictions.

In Evangelista v. United States, 2013 U.S. App. LEXIS 12436 (2d Cir. 2013), here, the Second Circuit, affirmed the denial of his writ for coram nobis to vacate the count of tax evasion which had subjected him to deportation.  Among his claims was  "counsel's ineffectiveness in failing to inform him of the immigration consequences of conviction after trial provide sound reasons for his delay in seeking the relief here at issue."  In this regard, the Supreme Court had previously held that failure to advise of immigration consequences in considering a plea can be ineffective assistance of counsel.

Similarly, even if Evangelista did not know the immigration consequences of his conviction at the time judgment was entered, but see INS v. St. Cyr, 533 U.S. 289, 322 (2001) (recognizing, as general matter, that "alien defendants considering whether to enter into a plea agreement are acutely aware of the immigration consequences of their convictions"), he would certainly have had such knowledge by April 14, 1998, when the Immigration and Naturalization Service issued a Notice To Appear, stating that Evangelista was subject to removal based on his conviction for an "aggravated felony" as defined in the Immigration and Naturalization Act. Evangelista v. Ashcroft, 359 F.3d 145, 148 (2d Cir. 2004). Thus, even if Evangelista's counsel failed to raise this issue on direct appeal, Evangelista presents no reason why he could not have pursued the matter in a petition pursuant to 28 U.S.C. § 2255 asserting ineffective assistance of counsel. See Massaro v. United States, 538 U.S. 500, 504 (2003) (holding that ineffective-assistance-of-counsel claims need not be brought on direct appeal).

It is not clear to me what Evangelista's claim really was.  Perhaps it was that, based on bad advice, he had turned down a plea deal that would have avoided the immigration consequences and had, after trial, been convicted of counts that had immigration consequences, but that is not clear to me.

It is interesting to note that Evangelista's original criminal case is a key one I use in my Federal tax Crimes book to illustrate some key points regarding Section 7202 and prosecutor's improper comments.  See United States v. Evangelista, 122 F.3d 112 (2d Cir. 1997), cert denied 118 S. Ct. 1048 (1998), here.  A question I do have is why the Section 7202 and 18 USC 371 (Klein/defraud conspiracy) convictions would not have been sufficient for deportation.  I am not an immigration lawyer and do not have the time or interest to chase that question down right now.

Offshore Bank Convicted Defendant Denied Early Termination of Probation (6/22/13)

I previously blogged on the plea of Juergen Homann for an FBAR violation.  See Another UBS Related Plea Agreement (9/28/09), here.  One of the consequences of such a plea is a period of probation if there is no incarceration or of supervised released after incarceration.  Here, Homann received probation.  In United States v. Homann, 2013 U.S. Dist. LEXIS 87271 (D NJ 6/18/13), the Court denied his request for early termination of his period of probation.  The opinion is  a nonprecedential, but might be useful to students and relative new practitioners in the criminal area.  I quote the short opinion in full:

This matter comes before the Court on Defendant Juergen Homann's motion for early termination of his probation pursuant to 18 U.S.C. § 3564(c). (Docket Entry 21) The United States of America (the "Government") has opposed the motion. (Docket Entry 23) The Court opts to rule on the instant motion without oral argument. The Court has considered the papers filed by the parties and will deny the motion. 

On September 25, 2009, Defendant pled guilty to a one-count information charging him with Willful Failure to File Report of Foreign and Financial Accounts, in violation of 31 U.S.C. §§ 5314 and 5322(a). Defendant's sentence included a five-year probation term, which Defendant now seeks to terminate because it makes his frequent business-related international travel inconvenient. 

§ 3564(c) provides the standard for early termination of probation: 

The court, after considering the factors set forth in section 3553(a) to the extent that they are applicable, may, pursuant to the provisions of the Federal Rules of Criminal Procedure relating to the modification of probation, terminate a term of probation previously ordered and discharge the defendant at any time in the case of a misdemeanor or an infraction or at any time after the expiration of one year of probation in the case of a felony, if it is satisfied that such action is warranted by the conduct of the defendant and the interest of justice.

Swiss - U.S. Stalemate Over Bank Information on U.S. Clients -- Next Move - U.S. (6/20/13)

I have mostly avoided bothering with the day-to-day posturings between the U.S. and Switzerland over access to data about Swiss Bank U.S. clients.  Most of  those publicly observable posturings have been by the Swiss, because, at least publicly, the U.S. stays publicly quiet and we are left to discern the U.S. posturings from the Swiss posturings.  Nevertheless, perhaps an interim definitive moment arrived in the last couple of days.  The Swiss legislature is reported to reject some type of global resolution.  See e.g., Ruben Sprich, Switzerland buries U.S. tax law, banks seen at risk (Reuters 6/19/13), here.

The speculation is that the U.S. response to that development will be compliance initiatives, including most prominently indictments in the relatively short term of one or two Swiss banks.  I understand that there are open grand jury investigations which have a plethora of damning (that probably is the same as indictable) information about certain Swiss banks developed from the IRS OVDI/P initiatives and from other sources (perhaps internal bank sources fishing for individual exoneration and perhaps whistleblower awards).  The article mentions among the following banks are among those under "formal investigation:" Credit Suisse, Julius Baer, the Swiss arm of Britain's HSBC, privately held Pictet in Geneva and local government-backed Zuercher Kantonalbank and Basler Kantonalbank."  Note the "includes" -- there are others and many of those have been bantered about in the internet and newspapers.  I suspect that there are some on the radar screen that have not gotten public press.

My speculation is that those observing this tit for a tat are observing in slow motion the truism mouthed by Sancho Panza in Man of La Mancha to the effect that whether the rock hits the pitcher or the pitcher hits the rock, it is going to be bad for the pitcher.  (I am not talking about a baseball pitcher, although the saying might work there also; baseball pitchers are likely to be on the suffering end of any pitcher-rock encounter.)

Criminal Restitution for Employment Taxes and Trust Fund Liability Under Section 6672 (6/18/13)

In Ross v. United States, 949 F. Supp. 2d 272 (D DC 2013), here, the defendant had been convicted of  tax evasion under Section 7201, here, for failure to pay employment taxes of a corporation he owned. (Note that the other principal felony charge that for nonpayment of employment taxes is Section 7202, here, which is a criminal counterpart to a civil liability for the trust fund portion of employment taxes under Section 6672, here; presumably, the defendant could have been charged under that Section 7202, but was instead charged with evading the corporation's liability for trust fund taxes.)

Pursuant to the plea agreement, the court ordered restitution for the corporation's liability for the employment taxes in the amount of "the actual [employment] tax of $203,651.43 and the resulting interest."

At this point, it is helpful to note the components of employment taxes that were the subject of restitution.  Employment taxes consist of:  (i) withholding income tax from the employees' wages and the employee's share of FICA and Medicare tax, also withheld from the employee's wages, referred to as the trust fund portion; and (ii) the employer's share of FICA and Medicare taxes, referred to as the nontrust fund portion.  (In other words, the trust fund portion is the amounts withheld from employee for remission to the IRS for application against the employee's tax liabilities for income tax, FICA and Medicare tax.  The restitution was for the corporation's employment tax without any differentiation between trust fund and nontrust fund portions.

The plea agreement did not provide as to how the restitution payments would be allocated between trust fund and nontrust fund portions.  Therein lay the rub.  (Outside the criminal context, the standard gambit is to insure, if possible, that taxes paid be applied first to the trust fund portion of the tax liability, but neither the plea agreement nor the restitution order addressed that issue.)

The IRS assessed the Section 6672 penalty, referred to as the trust fund recovery penalty ("TFRP"), against the defendant.  As a result, the defendant obviously preferred that the restitution payments be applied first to the trust fund portion because that was the only portion of the corporation's employment tax liability that he was personally liable for.  That was an issue in the case.

Silence in Response to Questions Without Miranda Warning in NonCustodial Setting May Be Evidence of Guilt (6/18/13)

Two days ago, I posted a blog discussing a case where the defendant argued that the prosecution had improperly used his failure to respond to the IRS during the IRS investigations against him in a criminal case.  See Third Circuit Speaks on Fifth Amendment and Willfulness in Tax Case (Federal Tax Crimes Blog 6/16/13), here, discussing United States v. Bean, 2014 U.S. App. LEXIS 11810 (3d Cir. 2013), here.  Yesterday, the Supreme Court decided a case involving a variation of that issue.  The case is Salinas v. Texas, 570 U.S.    , 133 S. Ct. 2174 (2013), here.  The gravamen of the case is reflected in the Syllabus, which I quote in full, omitting case citations, quotation marks and page citations for better readability):

Petitioner, without being placed in custody or receiving Miranda warnings, voluntarily answered some of a police officer’s questions about a murder, but fell silent when asked whether ballistics testing would match his shotgun to shell casings found at the scene of the crime. At petitioner’s murder trial in Texas state court, and over his objection, the prosecution used his failure to answer the question as evidence of guilt. He was convicted, and both the State Court of Appeals and Court of Criminal Appeals affirmed, rejecting his claim that the prosecution’s use of his silence in its case in chief violated the Fifth Amendment. 

Held: The judgment is affirmed. 

369 S. W. 3d 176, affirmed. 

JUSTICE ALITO , joined by THE CHIEF JUSTICE and JUSTICE KENNEDY, concluded that petitioner’s Fifth Amendment claim fails because he did not expressly invoke the privilege in response to the officer’s question. 

(a) To prevent the privilege against self-incrimination from shielding information not properly within its scope, a witness who desires the protection of the privilege . . . must claim it at the time he relies on it. This Court has recognized two exceptions to that requirement. First, a criminal defendant need not take the stand and assert the privilege at his own trial. Petitioner’s silence falls outside this exception because he had no comparable unqualified right not to speak during his police interview. Second, a witness’ failure to invoke the privilege against self-incrimination must be excused where governmental coercion makes his forfeiture of the privilege involuntary. Petitioner cannot benefit from this principle because it is undisputed that he agreed to accompany the officers to the station and was free to leave at any time.

Court Holds Criminal Restitution Trumps Bankruptcy Automatic Stay Against Debtor and Bankruptcy Estate (6/17/13)

In United States v. Robinson, 2013 U.S. Dist. LEXIS 83915 (WD TN 6/14/13), here, the District Court, reversing the Bankruptcy Court, held that criminal restitution trumps the bankruptcy automatic stay, so that criminal restitution could be collected from the bankrupt and the bankruptcy estate.  The case does not involve restitution for taxes, but the principal would apply to restitution for taxes.  Restitution for taxes, of course, would not be dischargeable in bankruptcy, but here the question is whether the restitution is collectible more quickly than indefinitely, if at all, in the future simply because the restitution was not discharged.  The opinion is very well reasoned, and that is the reason I offer it here.  I commend it to readers desiring to pursue the issue of the interface of criminal restitution and bankruptcy and quote here just the two final paragraphs:

To the extent the Bankruptcy Court held that the criminal actions and proceedings exception allowed the United States to enforce a criminal fine or restitution order as against the debtor in bankruptcy (or his property) personally, the Court agrees. Where the Bankruptcy Court found public policy mandated the protection of property of the bankruptcy estate as against the United States government when continuing a criminal action, the Court believes the Bankruptcy Court struck the wrong balance. Section 3613(a) provides a clear congressional mandate: despite the operation of other law, the United States must be able to enforce criminal fines and restitution orders against the property of criminal defendants ordered to pay them. Congress, in enacting the Bankruptcy Code, noted that it did not intend the Bankruptcy Code to interfere with the swift and sure operation of justice. In light of these Congressional statements of public policy, the Court cannot agree with the Bankruptcy Court that public policy now demands it allow a criminal defendant, adjudged guilty in a competent court and ordered to pay restitution, to delay justice by taking refuge under the Bankruptcy Code. 

CONCLUSION 

Because the Court finds Congress' plain language indicates it intended § 3613(a) to sweep aside the protections of the Bankruptcy Code, the Court determines the United States may enforce its restitution orders against Robinson's property, whether nominally held by Robinson or Robinson's bankruptcy estate. Therefore, the Court VACATES the portions of the Bankruptcy Court's Order inconsistent with this Order, and REMANDS this case to the Bankruptcy Court for further proceedings. 

IT IS SO ORDERED.

SEC Suit for Disgorgement of Federal Income Tax Related to Securities Fraud (6/16/13)

In SEC v. Wyly, 2013 U.S. Dist. LEXIS 83897 (SD NY 6/13/13), here, the SEC sued the Wyly brothers (Wikipedia entries for the two here and here) for certain securities violations related to holdings in offshore trusts designed to avoid / evade federal income tax and the securities laws.  Their offshore trust holdings were investigated by the Senate Finance Permanent Subcommittee on Investigations and a report issued titled Tax Haven Abuses:  The Enablers, the Tools and Secrecy, which can be downloaded here. (See the end of this blog for a newspaper summary of the Report's discussion of the Wylys.)

Among the relief sought by the SEC was disgorgement of income tax avoided / evaded by certain offshore shenanigans, apparently within scope of the Senate Report, that were at the center of the alleged securities violations.  The question presented in the opinion I discuss here is whether the SEC can sue for disgorgement of their tax savings.

The first issue is one of disgorgement as a remedy at all.  The district court had previously held that the SEC's penalty claims were time-barred.  See a Reuter's article on the previous holding, here.  However, that holding was not dispositive of the issue of disgorgement which, although not a penalty, is a remedy that is available to the SEC if it can prove fraud.  The Court said (footnote omitted):

In an Opinion and Order dated June 6, 2013 ("June 6 Opinion"), I held, among other things, that the Securities and Exchange Commission's ("SEC") penalty claims against defendants in this case were time barred insofar as they accrued more than five years before tolling agreements with the SEC took effect. Therefore, for those claims against the Wylys that accrued prior to February 1, 2001, the only monetary relief available is disgorgement. For the Wylys' alleged failure to disclose their beneficial ownership of certain securities in SEC filings, the SEC contends that the measure of disgorgement is the amount of federal income taxes that the Wylys allegedly avoided by transferring stock options to the Offshore Corporations1 and failing to disclose their control over the options. The sole issue addressed in this Opinion is whether the SEC has the authority to seek disgorgement measured as the amount of federal income taxes it claims the Wylys would have been required to pay if they had disclosed their beneficial ownership of the securities in question, or whether such relief impermissibly impinges upon the Secretary of the Treasury's ("Secretary") exclusive authority to assess and collect taxes.

The Court described the applicable law as follows (most quotation marks and all footnotes omitted for better readability):

Third Circuit Speaks on Fifth Amendment and Willfulness in Tax Case (6/16/13)

In United States v. Bean, 2014 U.S. App. LEXIS 11810 (3d Cir. 2013), here [a nonprededential opinion, the defendant, an accountant, appealed his convictions for tax obstruction (§ 7212(a)), tax evasion (§ 7201), and failure to file (§ 7203).  The actus rea occurred after he had become enthralled with one of the various trust schemes that many taxpayers fall prey to.  Taxpayers convince themselves that the tax evasion trust scheme will be sufficient at least to avoid a criminal prosecution because, they think, they really believe it works and therefore cannot act willfully.  These criminal prosecutions establish that a jury will usually not believe that the taxpayers really believe that nonsense.  On appeal, the defendant raised two interesting arguments that I address in this blog.  He did raise a sufficiency of the evidence, but that is routine and not interesting as presented in the opinion.  I write this blog primarily to students, since most practitioners will be familiar with the context and holdings of the court.

I do note at the outset that this is a nonprecedential decision and hence the Court of Appeals says:

We write principally for the parties, who are familiar with the factual context and legal history of this case. Therefore, we will set forth only those facts necessary to our analysis.

So, the Court says it is giving us the facts necessary for the issues it decides, but there is undoubtedly nuance (e.g., helpful facts) not presented.  Still for the issues I discuss, I think we have everything we need.  With that caveat, let's go!

First, the defendant made an interesting Fifth Amendment argument.  During the course of the IRS audits and collection activity forming the basis for the criminal proceedings, the defendant had obstructed the investigation, in part, by not responding to the IRS and not showing up for scheduled meetings.  During the trial, the prosecutors adduced evidence of that conduct and argued it to the jury.  The defendant says that, through such conduct, he was exercising his Fifth Amendment privilege and that, therefore, the prosecutors should not have been allowed to comment on that exercise, either by testimony, argument or otherwise.  Here is how the Court handled that argument:

Beam also challenges the government's comments during trial on his silence with respect to the IRS audits. Specifically, Beam asserts that "IRS Agents Thomas Kurtz and William Welsh testified that they called, sent letters and made appointments to meet with Troy Beam, but that he would never respond or show up for meetings," and that "[b]ecause Troy Beam had a right to remain silent, the Government's use of his silence against him violates the Fifth Amendment." Appellant's Br. at 20. Beam admits  that this alleged error was not brought to the District Court's attention, and thus our review is for plain error. 

This Court may, in its discretion under Rule 52(b) of the Federal Rules of Criminal Procedure, correct an error not raised at trial where the appellant demonstrates that "(1) there is an error; (2) the error is clear or obvious, rather than subject to reasonable dispute; (3) the error affected the appellant's substantial rights, which in the ordinary case means it affected the outcome of the district court proceedings; and (4) the error seriously affects the fairness, integrity, or public reputation of judicial proceedings." United States v. Marcus, 130 S. Ct. 2159, 2164 (2010) (internal quotation marks omitted).

An OVDI Odyssey - an Opt Out Success Story (6/16/13)

A reader of this blog with whom I have corresponded during her journey through the maze of a couple of iterations of the ODVP/OVDI has offered to share her journey with other readers.  She ultimately received a favorable outcome -- on opt out, a no FBAR penalty letter (Letter 3800).  Her journey was tortuous.  I think in part that was due to the design of the program that was a bit simplistic (still is in many respects) and both practitioners and the IRS had to deal with the nuances and uncertainties that had not been considered in designing the program.  This resulted in long delays and twists and turns in her case -- also experienced by others in their respective situations. Ultimately, after a lot of grief and angst, this reader got assigned an agent to process the case within the program penalty structure and then for opt out.  And the right result prevailed.

This reader has offered a narrative of her journey and the key documents in the hope that other readers will find them useful and be encouraged that, at the end of their respective journeys which, hopefully, will have fewer twists and turns, they too will achieve a fair result.  In the process, she hopes that others will not be frightened to opt out because of the mere remote possibility of hypothetical onerous penalties.

Here are the links to her documents.  The key document is the summary.  It is extended (16 pages), but well worth the read.  She presents the materials well.

• A summary (actually detailed) presentation of her journey, here.
• Her opt out letter, here.
• Her opt out reasonable cause arguments, here.
• A Streamlined Program acceptance letter, here.
• Her Letter 3800, here.
• A spreadsheet with the Agent calculation of mitigated Level II Non-Willful Penalties, here.

I think that there are some in the OVDI/OVDP programs who should opt out but do not because they fear what the IRS could do.  For example, many of the agents are trained when asked about what penalties could apply on opt out to assert that the IRS could, depending on the facts, assert the maximum willful penalties for up to six years (depending on the FBAR statute of limitations still open).  This is truly scary that an agent will tell his customer -- in the IRS metaphor -- that this could happen.  Yet, although apparently telling this reader that whopping amount, the agent immediately said:

IRS Makes Treaty Request for Wegelin Information Involving Asset Management Companies (6/15/13)

The IRS has filed a treaty request for U.S. taxpayer information from Wegelin & Company, the company that pled and went under.  See US continues hunt for tax dodgers in Swiss banks (6/14/13), here.  The following are key excerpts:

The United States tax authorities have filed a request for legal assistance to identify former American clients of the private bank Wegelin who are suspected of tax dodging. It is the fourth such request against a Swiss financial institute. 

Wegelin, which announced at the beginning of this year it would close its doors, on Friday confirmed reports that it had received notification by Switzerland’s Federal Tax Authorities to comply with the US request, based on a 1996 double taxation agreement.

A bank official added that Wegelin would submit the necessary information.

The request focuses on former Wegelin clients who were listed as beneficiaries of asset management companies between 2002 and 2012 and are suspected of fiscal fraud, according to the Neue Zürcher Zeitung newspaper on Friday. 

* * * * 

It is the fourth such demand against Swiss banks. The country’s two main banks, UBS and Credit Suisse, have also faced requests against a particular group of clients over the past few years.

JAT Comments:

Preparer Can Be Guilty of Aiding and Assisting Despite Not Being Subject to Circular 230 (6/15/13)

In criminal cases, lawyers need to be creative, always being careful not to go too far on the wild side in the arguments they make.  I illustrate creativity to in a case raising an argument I have not seen before.  The argument is perhaps on the wild side.

In United States v. Tomlinson, 2013 U.S. Dist. LEXIS 82436 (D KS 2013) [link to come], the defendant, a return preparer, was tried for aiding and assisting, under Section 7206(2), here.  One of the arguments the defendant made was that she could not be convicted for Section 7206(2) because, at the time of the alleged offense, as a preparer, she was not subject to Circular 230, the regulation guiding persons practicing before the IRS; therefore she urged she could not have willfully violated Section 7206(2).  What's wrong with this argument? The Court tells us as follows:

As for the fourth element, willfulness, the defendant argues that (1) she was under no legal duty to prepare and present the returns truthfully and (2) even if she was under a legal duty, she did not prepare and present the false returns intentionally. The defendant's first argument focuses primarily on the applicability of a Treasury Department regulation commonly referred to as Circular 230, which contains duties and restrictions relating to practice before the IRS. Loving v. I.R.S., No. 12-385, 2013 U.S. Dist. LEXIS 7980, 2013 WL 204667, at *3 (D.D.C. Jan. 18, 2013). These regulations are published in the Code of Federal Regulations, Title 31, part 10 and reprinted under the name "Treasury Department Circular No. 230." Id. Before 2011, Circular 230 applied only to attorneys, CPAs, and other specified tax professionals (collectively, "practitioners"). Id. The defendant argues that Circular 230 did not apply to her when she prepared the false returns from 2008 through 2009 because at that time she was simply a return preparer and not a practitioner. Therefore, the defendant argues, according to IRS rules and regulations, she was under no legal duty to aid in the preparation and presentation to the IRS of tax returns that were not false as to any material matter.

New Indictment Related to Offshore Accounts (6/15/13)

DOJ Tax has announced, here, the indictment of a Wyoming couple, Robert and Judy Sathre, for filing a false tax return for 2007.  The indictment (with attached penalty summary) is here.  He had a substantial amount of income in the mid-1990s which he concealed from the IRS and failed to pay tax.  Those years are, of course, beyond the criminal statute of limitations.  But, for years within the statute he further concealed income in an offshore bank and thus filed a false tax return.  The following is the description of the allegations from the DOJ Tax Press release:

According to the indictment, the Sathres concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts. In a ten-month period spanning 2005-2006, Mr. Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS. When Robert Sathre sold the Rock Stop in 2007, he had over $1,250,000 from the sale proceeds wired to the trust account of a Wyoming law firm. Later the Sathres directed the law firm to wire $900,000 from the trust account to their account at the Bank of Nevis. They also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer. Robert Sathre obtained a debit card linked to the foreign account to access funds locally. He also provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States. 

The indictment also alleges that the Sathres tried to conceal their ownership of real estate. They used a purported trust to encumber their residence at Troon Place in Sheridan and to conceal their ownership of property in Hennepin County in Minnesota. To conceal ownership of the Rock Stop, they similarly used a second purported trust, at one point resigning as trustees and appointing their teenage daughter as the trustee. 

The indictment also charges Judy Sathre with one count of filing a false tax return for 2007. The indictment alleges that the return was false both for reporting only $42 in interest income and for failing to disclose that she had a financial interest and signatory authority over the bank account at the Bank of Nevis.

It is unclear why, with this fact pattern, the indictment would charge a single count.  Of course, these offshore cases often ultimately plead to a single count.  But, why would there not be additional tax perjury counts and/or FBAR counts pending the plea?  Perhaps the plea bargain is wired into the original indictment, but that can usually be handled a different way.

U.S. Civil Suit for 4 Years of Willful Penalty of 50% Per Year (6/14/13)

In United States v. Zwerner (SD FL No. 13-cv-22082-CMA), the IRS is suing to obtain judgment on an FBAR willful penalty assessment for 4 years.  The civil Complaint is here.  Here is a cut and paste of paragraph 18:

18. Due to Zwerner’s willful failure to file FBARs reporting his financial interest in the Swiss bank account during 2004-2007, a delegate of the Secretary of the Treasury of the United States assessed penalties against him under 31 U.S.C. § 5321(a)(5) in the amount of 50% of the balance of his account at the time of the violations for each year, as follows:
(a) 2004 – $723,762, assessed on June 21, 2011.
(b) 2005 – $745,209, assessed on August 10, 2011.
(c) 2006 – $772,838, assessed on August 10, 2011.
(d) 2007 – $845,527 assessed on August 10, 2011.

Many practitioners, myself included, have operated on the assumption that the worst FBAR violation cases would draw a civil penalty not exceeding the 50% high year, which is the penalty required in the criminal cases that have been prosecuted and convicted.  Indeed, I have heard even one prominent Government official say that the delta between the then 25% OVDI in lieu of penalty and the "worst case" FBAR penalty was 25% (on similar reason would be 22 1/2% based on the 27 1/2% in lieu of penalty).

And, my mea culpa, I was just this week ragging on an IRS manager about the worst case scenario the agent provided upon our request incident to considering opt out.  The computation sent by the agent was the 50% per year for six years (the civil statute of limitations).  While speaking with the manager on another issue, I kicked in on this issue by noting that providing that information of a risk of a 6-year 50% penalty was absolutely useless information since there was no possibility that the IRS would assert that multi-year penalty and indeed, from a practical perspective, the max would be 50% high year.  I argued that she should pass on to the powers that be that the IRS should not be promulgating useless, theoretical only information and that, if they provided any information, perhaps it could be something like that, in practice, they have not asserted more than 50%.  Even the latter limited information -- if true -- would be useful to taxpayers considering opt out because they could then bracket their situations with known cases of the 50% penalty -- i.e., in simplified analysis, I am only 50% as bad (no entities, etc.) as that 50% penalized case, so my worst willful case would be 25% (the same as the OVDI in  lieu of penalty), with a possibility of less on opt out.  (This is rough and ready and needs to be fine-tuned, but that type of analysis should be taken on opt out if we can determine the high end of the spectrum.)

At any rate, here is the civil suit that the IRS may exceed a single year willful penalty -- and not just exceed but substantially exceed -- ratcheting up to 4 years.  On a static amount that should be reported on the FBAR (say $1,000,000 per year for six years), the maximum theoretical penalty would be $3,000,000, or 300%.

Supreme Court Reminds that Judges Should Not Participate in Plea Negotiations (6/14/13)

In United States v. Davila, ___ U.S. ___, 2013 U.S. LEXIS 4541 (2013), a criminal tax case, here, decided yesterday, the defendant was charged with multiple counts of tax fraud and conspiracy.  As is typical, the Government indicated a willingness to accept a plea for one count of conspiracy (referred to by the DOJ CTM as the major count) and dismiss the remaining counts.  As I have noted before, achieving a dismissal of such remaining counts upon plea often achieves nothing practical for the defendant because of the operating of the Sentencing Guidelines, but the plea agreement itself can be rewarded under the Sentencing Guidelines by downward adjustment for Acceptance of Responsibility.  The defendant finally did accept a plea, but not before he initially resisted and received some inappropriate advice to plead from the Magistrate Judge.

By way of background, most criminal tax cases, as most criminal cases generally, are resolved by plea agreement.  (See the addendum below on a recent article on statistics dealing with the role of pleas in the federal criminal system.)  For example, assume that potential client A comes into your office the day after he was indicted for several tax crimes.  A announces that he came to you because you had the reputation of being the best criminal tax lawyer in the universe (you modestly but not totally candidly disavow that reputation).  A then outlines his cryptic view of why he is innocent.  He then asks what are the chances of you obtaining an acquittal for him.  All you know is his cryptic account which or may not  be a fair representation or summary of the facts, but that cryptic account proclaims his complete innocence, at least on the willfulness element of the tax crimes charged because he says he is innocent.  So, you remind him that he is asking you to state conclusions based on cryptic facts which may or may not be true and which you have not investigated.  On that basis, you advise first that, if the cryptic statement is a fair representation of the case that will be presented at trial, then he has a very good chance of being acquitted.  You then state that your experience is that such cryptic initial accounts generally are too cryptic for anyone to feel comfortable that that is the way it will play out at trial.  You then state that, given the highly selective systemic selection of criminal tax cases, culminating in DOJ Tax and AUSA review before indictment, the facts may well not play out that nicely at trial.  You then tell him, that given that selectivity, the posted rates of conviction in tax cases are very high -- exceeding 90% (maybe, see my several other postings on the conviction rates in tax cases).  You then tell him, based on that statistic alone, and discounting his cryptic proclamation of innocence, there is a 90+% chance he will be convicted.  You finally tell him there is a systemic preference in the federal criminal system generally and in the tax crimes subset of that system to resolve cases by plea -- indeed a defendant is given a substantial benefit in the Sentencing Guidelines by resolving the case by plea.  The combination of likely conviction and the benefit of pleading for a reduced sentence is a powerful incentive to plead. (Indeed as others have noted, it may be so powerful in some cases that the innocent plead, provided that they can clear the hurdle of allocution of guilt.)

Now, with that background, the defendant in Davila was unhappy with his attorney who, apparently with more facts in hand as to how the trial would play out, advised the Davila to accept  the plea proffered by the prosecutor.  Davila interpreted that recommendation as being a reflection of the fact that the attorney had no defensive strategy.  That is probably a fair lay interpretation, but criminal defense lawyer would characterize the recommendation as a conclusion that the defendant almost certainly would be convicted.  Davila's strategy then was to request new counsel.  An ex parte hearing or meeting on that request was held with the U.S. Magistrate Judge.  The prosecutor was not present (not clear why, but that was a no-no.).  During the course of the hearing or meeting, the Magistrate Judge advised that defendant that he would not get another court-appointed attorney and that his best course, given the strength of the Government's case, was to accept the plea.  Davila was not convinced.  Time passed.  Finally, he became convinced and pled with a full allocution saying that he was guilty of the crime to which he pled and that nothing had been promised him in return, etc., etc.