TRAC Report on “Equal Justice and Sentencing Practices Among Federal District Court Judges” (9/30/21)

Transactional Records Access Clearinghouse (“TRAC”) has a new report titled Equal Justice and Sentencing Practices Among Federal District Court Judges, here.  The email I received with a summary of the report was titled:  “The Impact of the Identity of the Judge on Sentencing.”

TRAC gathers and maintains a lot of data and ways to access and analyze data at its web site, here.  For example, TRAC provides reports and bulletins on the IRS .  Scholars, practitioners, and students should familiarize themselves generally with the TRAC offerings and studies.

The particular TRAC offering discussed here on sentencing practices should be interesting for scholars, practitioners and students of federal tax crimes.  Sentencing, after all, is where the rubber hits the road so to speak.  So, I offer some excerpts first from the email summary and then the report (with some redundancy):

Excerpts from the Email Summary

            While judges need sufficient discretion to consider the totality of circumstances in assigning a sentence in a specific case to ensure it is "just," a fair court system always seeks to provide equal justice under the law, working to ensure that sentencing patterns of judges are not widely different for similar kinds of cases.

            While special circumstances might account for some of these differences, half of the courthouses in the country had median differences in prison sentences of 16 months or more, and average differences of 21 months or more. Five courthouses showed more than 60 months difference in the median prison sentence handed out across judges serving on the same bench.

Indictments of Swiss Enablers for U.S. Tax Evasion through a "Singapore Solution;" One U.S. Taxpayer Guilty Plea (9/28/21)

DOJ Tax issued this press release today: Indictment Unsealed Against Six Individuals and Foreign Financial Service Firm for Tax Evasion Conspiracy: Defendants Allegedly Used ‘Singapore Solution’ to Enable U.S. Clients to Evade Taxes on Over $60 Million Hidden Offshore, here.  In a related action, the press release states that another person pled guilty to one count of tax evasion.  I copy and paste the relevant information:

An indictment was unsealed today in New York, New York, that charges  offshore financial service executives and a Swiss financial services company with conspiracy to defraud the IRS by helping three large-value U.S. taxpayer-clients conceal more than $60 million in income and assets held in undeclared, offshore bank accounts and to evade U.S. income taxes.

 According to the indictment, from 2009 to 2014, Ivo Bechtiger, Bernhard Lampert, Peter Rüegg, Roderic Sage, Rolf Schnellmann, Daniel Wälchli and Zurich, Switzerland-based Allied Finance Trust AG allegedly defrauded the IRS by concealing income and assets of certain U.S. taxpayer clients with undeclared bank accounts located at Privatbank IHAG (IHAG), a Swiss private bank in Zurich, Switzerland, and elsewhere. In order to assist those clients, the defendants and others allegedly devised and used a scheme called the “Singapore Solution” to conceal the bank accounts of the U.S.-based clients, their assets, and their income from U.S. authorities. In furtherance of the scheme, the defendants and others allegedly conspired to transfer more than $60 million from undeclared IHAG bank accounts of the three U.S. clients through a series of nominee bank accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG, ostensibly held in the name of a Singapore-based asset manager. The U.S. clients allegedly paid large fees to IHAG and others to help them conceal their funds and assets. 

        * * *

“As alleged, the individual defendants and the Swiss firm Allied Finance conspired to defraud the IRS by assisting U.S. taxpayers in avoiding their tax obligations,” said U.S. Attorney Audrey Strauss for the Southern District of New York. “They allegedly did this through an elaborate scheme that involved concealing customer assets at a Swiss private bank through nominee bank accounts in Hong Kong and elsewhere, with funds returning to the private bank in the name of a Singapore firm. One such U.S. customer, Wayne Chinn, pleaded guilty to his participation in the so-called ‘Singapore Solution,’ forfeited more than $2 million to the United States, and awaits sentencing for his admitted crime.”

        * * *

Also unsealed today was the guilty plea of Wayne Franklyn Chinn, of Vietnam and San Francisco, California, one of the U.S. taxpayer-clients, who participated in the Singapore Solution scheme.

 According to court documents filed in relation to his guilty plea, from 2001 through 2018, Chinn concealed approximately $5 million in undisclosed and untaxed income. During this period, Chinn held accounts in nominee names at Privatbank IHAG. Beginning in 2010, Chinn wired funds from these offshore accounts through nominee accounts in Hong Kong before returning them to newly opened accounts at IHAG held in the name of a Singapore based trust company acting on behalf of two foundations created to conceal Chinn’s ownership of the accounts. Chinn subsequently transferred the funds out of Switzerland to undeclared accounts in Singapore. Chinn did not file any tax returns or disclose his foreign bank accounts during the years at issue.

 Chinn pleaded guilty to one count of tax evasion which carries a maximum penalty of five years in prison. Chinn also consented to the civil forfeiture of 83% of the funds held in five accounts at two Singapore banks, which resulted in the successful forfeiture and repatriation to the United States of approximately $2.2 million. The civil forfeiture proceeding is United States of America v. Certain Funds on Deposit in Various Accounts, 20 Civ. 3397 (LJL).

 Chinn is scheduled to be sentenced on Nov. 19, and faces a maximum penalty of five years in prison. He also faces a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

ABA Tax Section Comments on Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures (9/28/21)

The ABA Section of Taxation has submitted, here, comments on the Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures.  I have not had time to review them.  I post them now to get them out there for those who may not have received or may have overlooked the email notice.

I may comment later.

JAT Comments (added 10/29/21 at 4:00 pm):

On reading through the ABA Tax Section Comments, two items caught my attention:

1.  The problem of requiring disclosure for preclearance in Form 14457, Part I, of the foreign accounts gives the IRS (and DOJ) potentially incriminating information and thus creates the risk that that information may be used against the taxpayer if the IRS denies preclearance.  The recommended solution to the problem is (p. 6 footnote omitted):

• We recommend that the Service remove item #10 from Part I (requiring the disclosure of noncompliant accounts) and move it to Part II of Form 14457, so that the disclosure of the noncompliant accounts is made after (1) the taxpayer is precleared to make a voluntary disclosure and (2) the practitioner has time to conduct due diligence with respect to items that may constitute noncompliant accounts. The goal of preclearance is for the Service to determine that a taxpayer is “eligible for making a voluntary disclosure, including establishing unreported income is from legal sources and that the timeliness requirements are met.” We do not believe the bank account information is required to make such a preclearance determination. Requesting identification of, and information on, noncompliant accounts in advance of the preclearance determination requires the taxpayer to disclose incriminating information before he or she is cleared to proceed with disclosure. This deters taxpayers from using, and practitioners from recommending, the VDP.

Article on German Wealthy Renewed Interest in Swiss Financial Institutions Because of Potential Tax Increase (9/26/21)

This is an interesting phenomenon about German wealthy fearing higher taxes to try to move and hide assets (and related taxable income).  See Oliver Hurt, German millionaires rush assets to Switzerland ahead of election (Reuters 9/24/21), here. 

Some excerpts:

ZURICH, Sept 24 (Reuters) - A potential lurch to the left in Germany's election on Sunday is scaring millionaires into moving assets into Switzerland, bankers and tax lawyers say.

If the centre-left Social Democrats (SPD), hard-left Linke and environmentalist Greens come to power, the reintroduction of a wealth tax and a tightening of inheritance tax could be on the political agenda.

"For the super-rich, this is red hot," said a German-based tax lawyer with extensive Swiss operations. "Entrepreneurial families are highly alarmed."

The move shows how many rich people still see Switzerland as an attractive place to park ealth, despite its efforts to abolish its image as a billionaires' safe haven.

    * * *

Grand Jury Indicts Alleged Offshore Willful Actor Who Should Have Entered OVDP But Attempted SFCP (9/24/21; 9/27/21)

DOJ Tax announced here the indictment of Mark Anthony Gyetvay.  Basically, as  I  understand  it on  quick review, Gytevay made  mega million in Russian related adventures and failed to (i)  pay tax and (ii) file appropriate FBARs.  A fair inference on the facts claimed in the  Press Release (and presumably the indictment) is that those failures were willful.  Then, Gyetvay tried to enter “Streamlined Filing Compliance Procedures in which he attested that his prior failure to file FBARs and tax returns was non-willful.”  Bad moves.

The opening  paragraph says:

A federal grand jury in Fort Myers, Florida, returned an indictment on Sept. 22 charging a Florida businessman with defrauding the United States by not disclosing his substantial offshore assets, failing to report substantial income on his tax returns, failing to pay millions of dollars of taxes and submitting a false offshore compliance filing with the IRS in an attempt to avoid substantial penalties and criminal prosecution.’ 

There is no mention in the opening paragraph of wire fraud.  But  later, the press release  says (emphasis supplied):

If convicted, he faces a maximum penalty of 20 years in prison for each wire fraud count, five years in prison for each failure to file FBAR count, five years in prison for tax evasion, five years in prison for making a false statement, three years in prison for each count of assisting in the preparation of a false tax return and one year in prison for each willful failure to file a tax return count.

I am in travel status now and so only post this for information purposes now.  I  probably will add some detail later after reviewing the indictment and thinking more about it.  In short, though,  for now, this guy has to be incredibly stupid and greedy (or some combination thereof) to forego the regular OVDP  and attempt the  SFCP.

JAT Comments (added 9/27/21):

Appeals Arguments Over Whether Government Brought Evasion and Tax Conspiracy Charges Within Statute of Limitations With No Mention of WSLA (9/19/21)

In United States v. Pursley (on appeal to CA 5, Dkt. No. 20-20454), Pursley was convicted of 1 count of conspiracy related to tax and three counts of tax evasion, two for Pursley’s taxes and one for the taxes of another.  See the judgment here.  Pursley was a lawyer in Houston who enabled tax evasion by a client by moving untaxed monies from foreign accounts into the U.S. without accounting to the IRS for the unpaid tax.  Pursley’s client ultimately joined the OVDP, thus avoiding his own criminal exposure.  As required under the OVDP, the client had to disclose the enabler of the tax evasion scheme.

At the conclusion of trial after the guilty verdicts were returned, the judge sentenced Pursley to 24 months incarceration, ordered restitution of $2.5 million and imposed standard conditions.  I think the restitution was for Pursley’s taxes rather than the client’s taxes, because the client’s taxes had been paid in the OVDP.  So just from the restitution of Pursley’s taxes for two years, one can infer that he made a lot of money for his conduct.  But that need not detain us here.

On the appeal, Pursley raises only statute of limitations issues.  The parties’ briefs on appeal are:  Pursley’s opening brief, here; United States’ answering brief, here; and Pursley’s reply brief here. Pursley’s arguments are:

1.     As to all counts, the indictment was brought outside the statute  of limitations.

2.     As to the conspiracy count, the trial court erred by failing to give a requested instruction that it must find one overt act within the statute of limitations.

3.     As to the tax evasion counts, the trial court erred by failing to give a requested instruction that it must find one affirmative act within the statute of limitations.

The first argument, if successful, would require complete reversal and expungement of the conviction.  The second two would require retrial where, if there is enough evidence to get to the jury, the jury will almost certainly find at least one affirmative act within the statute of limitations.

Pursley makes no argument that the jury verdict of guilt should be overturned, except as required by the statute of limitations arguments.

The key statute of limitations argument (in # 1 above) is that the indictment was not brought within the applicable statute of limitations.  The judgment here provides in relevant part:  

Title & Section	Nature of the Offense	Offense Ended	Count
18 U.S.C. § 371	Conspiracy to defraud the U.S.	05/31/2013	1
26 U.S.C. § 7201	Tax evasion	09/20/2018	2
26 U.S.C. § 7201	Tax evasion	12/31/2012	3
26 U.S.C. § 7201	Tax evasion	10/31/2011	4

The indictment, here, was filed on September 20, 2018.  Just on the face of the judgment, it would appear that, without more, the six-year criminal statute of limitations would have expired on Count 4 on 10/31/2017, but the other counts would have been timely under the six-year statute.

Ninth Circuit Adopts Primary Purpose Test for Attorney-Client Privilege (9/14/21; 1/28/22)

Caveats: 

1. The Supreme Court granted the taxpayer's petition for writ of certiorari in this case.  See Supreme Court Grants Cert to Determine Whether Dual-Purpose Communications Involving Legal and Non-Legal Advice (in Tax Return Preparation Setting) is Protected by Attorney-Client Privilege (10/3/22), here; and On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

2. The original discussed in this blog entry was revised and republished (as revised) by Order and Amended Opinion dated 1/27/22, here.  The Order and Amended Opinion changed the term "tax advice" in footnote 5 to "tax return preparation assistance" (see Slip Op. 14 n. 5 of the Amended Opinion).  As revised the footnote is (with revised text in red):

   n5 We are aware, for example, that normal tax return preparation assistance—even coming from lawyers—is generally not privileged, and courts should be careful to not accidentally create an accountant’s privilege where none is supposed to exist. See Frederick, 182 F.3d at 500 (“There is no common law accountant’s or tax preparer’s privilege, and a taxpayer must not be allowed, by hiring a lawyer to do the work that an accountant, or other tax preparer, or the taxpayer himself or herself, normally would do, to obtain greater protection from government investigators than a taxpayer who did not use a lawyer as his tax preparer would be entitled to.” (cleaned up)). Thus, it is not clear whether a more protective version of the primary-purpose test is appropriate in this context.

The original blog entry is below.  The revision and Amended Opinion do not affect the issues discussed in the original blog entry.

In In re Grand Jury, 13 F.4th 710 (9th Cir. Sep. 13, 2021), CA 9 here, the Court held that the “because of” test imported from the work-product context did not apply to the attorney-client privilege and instead applied a predominant purpose test for dual-purpose communications.  The opinion is short (14 pages) and the summary offered by the Court is good, so I just copy and paste the summary here.

Grand Jury Subpoenas

            The panel affirmed the district court’s orders holding appellants, a company and a law firm, in contempt for failure to comply with grand jury subpoenas related to a criminal investigation, in a case in which the district court ruled that certain dual-purpose communications were not privileged because the “primary purpose” of the documents was to obtain tax advice, not legal advice.

            Appellants argued that the district court erred in relying on the “primary purpose” test and should have instead relied on a broader “because of” test. Under the “primary purpose” test, courts look at whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice. The “because of” test—which typically applies in the work-product context—considers the totality of the circumstances and affords protection when it  can fairly be said that the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation. The panel rejected appellants’ invitation to extend the “because of” test to the attorney-client privilege context, and held that the “primary purpose” test applies to dual-purpose communications.

            The panel left open whether this court should adopt “a primary purpose” instead of “the primary purpose” as the [*3] test, as the D.C. Circuit did in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). The panel wrote that Kellogg’s reasoning in the very specific context of corporate internal investigations does not apply with equal force in the tax context, and that the disputed communications in this case do not fall within the narrow universe where the Kellogg test would change the outcome of the privilege analysis.

            The panel addressed remaining issues in a concurrently filed, sealed memorandum disposition.

 JAT Comments:

Prosecution IRS Agent’s Contact with Defense Expert Without Defense Counsel (9/8/21)

In United States v. Shun, 2021 U.S. Dist. LEXIS 161023 (W.D.N.Y. Aug. 25, 2021), Cl here, in a tax crimes prosecution (conspiracy and tax perjury), one of the questions discussed in the opinion is whether an attempt by IRS CI agents assisting the prosecutor in the case to interview an expert designated by the defense was a violation of the defendant’s Sixth Amendment right to counsel.  The discussion is short but instructive, so I just cut and paste (Slip Op. pp. 4-7): 

Shun's Motion for Relief Based on Violations of her Sixth Amendment Rights

            On July 22, 2021, IRS Criminal Investigation Division Special Agent Scott Simmons, together with another IRS special agent, visited the offices of Freed Maxick CPAs, P.C. and attempted to interview Certified Public Accountant Richard Wright, who had previously been identified by Shun as a potential expert witness for the defense in this case. (Dkt. No. 186) Wright was not present at the Freed Maxick office when Simmons and the other agent arrived. (Id.) The agents spoke with another employee of the accounting firm and requested that the employee instruct Wright to call the agents when he returned. (Id.) Wright called later that same day and spoke with Simmons and the other agent briefly on speaker phone. (Id.) Agent Simmons asked Wright some questions and inquired about documents pertaining to the case. (Id.) Wright informed Simmons that he believed defense counsel should be present for their communications and terminated the call. (Id.)

            Defendant Shun contends that Agent Simmons' contact with Wright was a "willful and deliberate attempt to interfere with the effectiveness of her defense" in violation of her Sixth Amendment right to counsel. (Dkt. No. 186) Defendant requests various remedies because of this alleged violation, including that the Court: (1) order the Government to produce information about the nature and purpose of Agent Simmons' visit to Freed Maxick and telephone conversation with Wright; (2) deem the income tax principles to which Wright is anticipated to testify about at trial as "accepted" for purposes of the trial and prohibit the Government from offering contradictory testimony; and (3) grant additional sanctions in the form of fees and reimbursements to defendant. (Id.)

Ninth Circuit Panel Requires Cheek-Type Specific Intent for Civil Willfully Preparer Penalty (8/31/21)

In Rodgers v. United States,   (9th Cir. 7/6/21), CA9 here (unpublished and nonprecedential), the Court held (based on a prior appeal) that the return preparer penalty under § 6694(b)(2)(A) for a “willful attempt in any manner to understate the liability for tax on the return or claim” requires “specific intent to understate tax liability on tax returns or claims.”  Basically, the panel held, the civil penalty requires the same level of intent as § 7206, which is the Cheek-type of intent – specific intent to violate a known legal duty.  (The panel opinion does not cite Cheek, but that is the way I read the opinion.)

The opinion is nonprecedential because, as interpreted by the panel, the Ninth Circuit’s precedent compelled the conclusion.  Accordingly, the panel reversed because the district court held that willful blindness satisfied the test of willfulness.

JAT Comments:

1. A civil penalty statutory willfully “element” often is not interpreted and applied the same as the tax crime willfully "element." The obvious example for those who follow this blog is the FBAR civil willful penalty under 31 U.S.C. § 5321(a)(5)(C).  The FBAR criminal penalty requires Cheek-type specific intent willfulness.  Ratzlaf v. United States, 510 U.S. 135 (1994).  But the FBAR civil penalty with the same word (willfully), as interpreted and applied by the courts, requires a less specific intent, including willful blindness and reckless conduct.

Willful Blindness As Permitting Only an Inference of Knowledge (8/30/21)

I have written on the question of whether the willful blindness concept permits conviction of a knowledge element crime upon the finding of willful blindness or, instead, permits only an inference of the knowledge element upon showing willful blindness.  See blog entries here.  In other words, if the criminal statute requires a knowledge element, will a showing of willful blindness require conviction or only permit conviction. 

The key in jury cases is the instruction.  In United States v. Henson, 9 F.4th 1258, 1278 (10th Cir. Aug. 19, 2021), CA10 here and GS here, the Court affirmed a challenge to the following instruction for an offense requiring knowingly as an element (a less rigid intent element than willfully for tax crimes):

The term "knowingly" means that defendant [*38]  realized what he was doing and was aware of the nature of his conduct and did not act through ignorance, mistake, or accident.

When the word "knowingly" is used in these instructions, it means that the act was done voluntarily and intentionally, and not because of mistake or accident. Although knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself or herself to the existence of a fact. Knowledge can be inferred if the defendant was aware of a high probability of the existence of the fact in question, unless the defendant did not actually believe the fact in question.

I have bold-faced the key language.  To which I say, exactly!

Newsletter Focusing on DOJ Tax Criminal Enforcement Section (8/25/21)

I received the email below from Jeff Beinholt, an alumnus of DOJ Tax CES (the Criminal Section initialism).  The content speaks for itself.  Some readers of this blog may be within the target audience for his newsletter focusing on CES.

"Greetings. Jeff Breinholt here, an alumnus of the Tax (Crim) Division (1990-1997). About six months ago, I launched a newsletter devoted to Tax Division history, culture, and lore, called The Malone Report. It's a private online newsletter/blog that is only available to registered members (though it's free). Would any of you Tax Division alums like to be added? If so, you can send an email to GMAD2021@yahoo.com." 

Daugerdas Re-Appears on the Tax Scene - This Time in a CDP Proceeding for Restitution Based Assessment (8/12/21)

In Daugerdas v. Commissioner (T.C. Dkt.7350-20L Order Dated 8/11/21), here, the Tax Court (Judge Goeke) in addressed some issues arising in a CDP proceeding arising from a lien filing related to a restitution-based assessment (“RBA”) under § 6201(a)(4) for tax loss arising from Title 18 crimes of conviction.  Long-term readers of this blog may recognize the petition, Paul M. Daugerdas.  A link to posts mentioning Daugerdas is here (sorted by relevance but can be sorted in reverse chronological order).

I find the order confusing so I will try to work through the order adding some of my own nuance (at the risk of further confusion).  I caution readers that I am confused about some of the Order and may be missing the point in some of my comments.  Nevertheless here is my best shot at working through the order.  I find it very difficult to summarize in fewer words in a meaningful way.

Judge Goeke summarizes Daugerdas’ relevant trajectory as follows (Order 1-2):

            For more than a decade beginning in the early 1990s, petitioner, a former tax attorney, designed, sold, and implemented fraudulent tax shelters to his clients to enabled them  to evade tax. In October 2013 he was convicted in the U.S. District Court for the Southern District of New York on mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States. United States v. Daugerdas, 837 F.2d 212, 218 (2nd Cir. 2016). He was acquitted of tax evasion for his personal income tax. At a sentencing hearing on June 25, 2014, the District Court sentenced petitioner to 180 months incarceration, 3 years of supervised release, restitution of $371,006,397, and preliminary forfeiture of $164,737,500 of petitioner’s assets.

Petitioner agreed to the restitution calculations submitted by the Government, and the District Court adopted those calculations. At the sentencing hearing, the District Court stated that the restitution pursuant to the Mandatory Victims Restitution Act (MVRA) and named the IRS as petitioner’s victim. It did not address a payment schedule or expressly state whether payment was due immediately. Addressing how to portion the restitution among petitioner and his co-defendants, it stated that petitioner is “responsible for the full amount of restitution” and made him jointly and severally liable with his co-defendants for $258.6 million of the restitution. The Court noted that petitioner had criminal proceeds of $97 million, i.e., tax shelter fees.

The IRS then made a § 6201(a)(4) assessment.  That provision is:

(4) Certain orders of criminal restitution
(A)In general. The Secretary shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.
(B)Time of assessment. An assessment of an amount of restitution under an order described in subparagraph (A) shall not be made before all appeals of such order are concluded and the right to make all such appeals has expired.
(C)Restriction on challenge of assessment. The amount of such restitution may not be challenged by the person against whom assessed on the basis of the existence or amount of the underlying tax liability in any proceeding authorized under this title (including in any suit or proceeding in court permitted under section 7422).

To repeat, the crimes of conviction were:  “mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States.”  Restitution law divides the tax loss universe into tax loss related to Title 26 crimes (which includes tax evasion and obstruction of the administration of the internal revenue laws) and tax loss related to crimes under other Code provisions, principally Title 18 (which includes mail fraud and conspiracy).  Restitution for tax loss for Title 26 crimes is not generally available; restitution for tax loss for Title 18 crimes is generally available.  I say generally not available for Title 26 crimes, but a court can impose restitution for Title 26 tax crimes: (i) as a condition of supervised release after the defendant serves his incarceration period (see Order p. 8); or (ii) by consent of the defendant (which is a common condition in cases resolved by plea agreement, but there is no indication that Daugerdas consented here).  Judge Goeke discusses the supervised release that the sentencing court ordered (Order p. 8) but fails to tie it to the restitution ordered by the sentencing court.  In other words, from the factual recounting in the Order, the restitution did not include restitution for the tax crimes of conviction but only for the Title 18 crimes of conviction, so even if the court had imposed (which it does not seem to have done) restitution as a condition of supervised release, the need to tie restitution to tax crimes of conviction would seem unnecessary and nonsensical.  (The Order is not clear on this point, so I am taking a bit of a leap to conclude that the restitution related only to Title 18 crimes of conviction.)

2021 Federal Tax Procedure Editions Now Available for Download on SSRN (8/8/21)

 I have posted to SSRN the 2021 editions of my Federal Tax Procedure Book.  I have not been formally notified by SSRN that they have been accepted (whatever that means; the author paper page shows them as “Submitted;” when accepted the status will change to “Distributed.”).  Nevertheless, it appears that they are available for the community to download.

 The links to download are here:

• Federal Tax Procedure (2021 Student Ed.), SSRN here.
• Federal Tax Procedure (2021 Practitioner Ed.), SSRN here.

Looking toward the next editions in August 2022, I am constantly revising the 2021 edition which became the working draft for the 2022 editions.  I make hundreds of changes during the year, some to add new "stuff," others to correct or better state the old "stuff," and still others for reasons that feel right at the time.  For the significant changes, I post the changes on the Federal Tax Procedure Blog page to the right titled "Federal Tax Procedure Book 2021 Editions Updates (8/9/21)", here.  Each time I make post a significant change, I reset the date in parentheses.

I ask that those desiring a copy of either or both editions download from the SSRN web site.  SSRN maintains statistics on downloads that are useful for scholars.  So, please, rather than sharing a copy of the pdf in each case, direct anyone you think may be interested to the SSRN site page for the publication so that the download metric can be useful.

Also, I urge those using the book to advise me when they think the book can be improved.  Most importantly I would like to know where I have misstated or omitted something of importance.  Also, even for more mundane matters such as wording or syntax that can be improved.  Your input will permit me to make updates on the Federal Tax Procedure Blog and then make the 2022 version better.

Thank you.

This blog entry is cross-posted on the Federal Tax Procedure Blog, here.

USAO SDNY and Bank of Butterfield Enter NPA (8/3/21)

The USAO SDNY has issued this press release:  Manhattan U.S. Attorney Announces Agreement With Bermudian Bank To Resolve Criminal Tax Investigation: The Bank of N.T. Butterfield & Son Limited Pays $5.6 Million in Forfeiture and Restitution; Receives Non-Prosecution Agreement as a Result of its Cooperation, here.  The combined NPA and Statement of Facts are linked in the press release; direct link is here.

Key excerpts from the press release:

Audrey Strauss, the United States Attorney for the Southern District of New York, Stuart M. Goldberg, Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, and James C. Lee, Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that Bank of N.T. Butterfield & Son Limited (“BUTTERFIELD”) entered into a non-prosecution agreement (“NPA”) with the U.S. Attorney’s Office and agreed to pay $5.6 million to the United States for assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from 2001 through 2013.  The NPA was based on BUTTERFIELD’s extraordinary cooperation, including its efforts in providing 386 client files for non-compliant U.S. taxpayer-clients, and provides that BUTTERFIELD will not be criminally prosecuted.  The NPA requires BUTTERFIELD to forfeit $4.896 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $704,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by BUTTERFIELD’s U.S. taxpayer-clients.

2d Circuit Holds that A U.S. Person Who Is Both Owner and Beneficiary of Foreign Trust Is Liable for Separate Penalties for Failure to Report in Both Categories (8/2/21)

There is a U.S. tax compliance problem with offshore activity often beyond the ability of the IRS to obtain or easily obtain relevant information and ensure that tax is properly reported and collected.  A prominent topic on this blog has been the FBAR reporting obligation that, as relevant to tax, assists in U.S. tax compliance with respect to foreign financial accounts.  A similar problem exists for foreign trusts with U.S. owners and beneficiaries and, not surprisingly, there are obligations for the U.S. owners and beneficiaries to report information to the IRS useful for tax compliance.

In Wilson v. United States, 6 F.4th 432 (2d Cir. July 28, 2021), 2d Cir. here and GS here, the Court held that the following are two separate filing or reporting obligations that can attract separate penalties when both apply:  

• § 6048(b)(1) requires “any United States person [who] receives . . . during any taxable year . . . any distribution from a foreign trust” to “make a return with respect to such trust for such year” that includes, inter alia, “the aggregate amount of the distributions so received from such trust;” the penalty for violating this obligation is 5% (by substitution for the 35% amount) for the § 6048(c)(1) penalty). § 6677(b)(2).
• § 6048(c)(1) requires U.S. owners “of any portion of a foreign trust” to “ensure that . . . such trust makes a return for such [taxable] year which sets forth a full and complete accounting of all trust activities and operations for the year” and “other information as the Secretary [of the Treasury] may prescribe;” the penalty is 35% of the gross reportable amount.  § 6677(a)

For those wanting to read the statutes, § 6048 is here and § 6077 is here.

Based on that holding, the Court reversed the district court’s holding that a U.S. person subject who was both owner and distribution beneficiary could be subject to only the owner penalty of 5%.

Basically, the Court’s reasoning is that the plain meaning of the statutes imposes two separate reporting obligations and separate penalties for each without any indication that only one penalty applies for a pattern of conduct that violates both reporting obligations.  

Tax Court Finds Offshore Account Owner Not Credible; Determines Income Tax Deficiency and Civil Fraud Penalty (8/1/21)

In Harrington v. Commissioner, T.C. Memo. 2021-95, GS here, the Court (Judge Lauber) determined deficiencies and the civil fraud penalty for a taxpayer who played the offshore account game (a pernicious variation of the audit lottery) and lost.  The taxpayer was a UBS depositor; UBS disclosed the taxpayer’s information and documents.  And the rest was, in a sense, inevitable. I won’t detail the particular facts of the taxpayer's audit lottery gaming, but will discuss the role of credibility.

I offer a series of excerpts directly or indirectly addressing the Court’s credibility assessments which did not go well for the taxpayer (boldface supplied by JAT except for title headings).

[*5] 

Petitioner testified that he lent this $350,000 to EWH as part of his effort to stabilize the company, by showing “potential creditors that * * * [EWH] had money in the bank.” There is no evidence that petitioner executed a loan agreement with Mr. Glube [Canadian lawyer] or EWH, and we did not find petitioner’s testimony credible.  We find that petitioner was impressed with Mr. Glube’s proficiency at secreting assets in the Cayman Islands and wished to secure the same treatment for his $350,000 nest egg.

A UBS document dated May 2002 identified petitioner and his wife as the “beneficial owners” of the Reed Account. In 2003 he traveled from New Zealand to the Cayman Islands and signed a variety of documents, one of which gave him a “power of attorney for the management of [Reed International’s] assets.” Despite being a beneficial owner of the Reed Account and having a power of attorney to manage the company’s assets, petitioner testified that he did not have “any access or control * * * to get the money back.” We did not find that testimony credible.

On the badges of fraud considered in imposing the civil fraud penalty: 

Government Abuse of Rule 6(e)’s Grand Jury Secrecy Requirement (7/31/21)

In Harbor Healthcare System, L.P. v. United States, 2021 U.S. App. LEXIS 20988  (5th Cir. 7/15/21) (Unpublished), here, a nontax case, the Court had this interesting footnote (Slip Op. 6 n. 1):

   n1 The government asserts several times in its brief that “Harbor is a subject of a grand jury proceeding.” Under Rule 6 of the Federal Rules of Criminal Procedure, the government’s attorneys “must not disclose a matter occurring before the grand jury.” Fed. R. Crim. P. 6(e)(2)(B)(vi); see also In re Grand Jury Investigation, 610 F.2d 202, 213, 219 (5th Cir. 1980) (“Punishment for contempt of court is the sanction specifically authorized by Rule 6(e)(1) for violations of its provisions, and a contempt citation will generally provide an adequate remedy for such violation.”); Wayne R. LaFave et al., Secrecy Requirements, 4 Crim. Proc. § 15.2(i) (4th ed. 2020) (discussing the need to “keep secret the subject of the grand jury’s inquiry while it is considering the possible issuance of an indictment” (citing United States v. Proctor & Gamble Co., 356 U.S. 677, 681 n.6 (1958))). An exception exists for “[t]he court [to] authorize disclosure—at a time, in a manner, and subject to any other conditions that it directs—of a grand-jury matter preliminarily to or in connection with a judicial proceeding.” Fed. R. Crim. P. 6(e)(3)(E)(i). The government has not pointed to such authorization by this or another court.

JAT Comments:

1. I am sure that attorneys with substantial experience in white-collar crimes, including tax crimes, have had instances, particularly in the old days when the Thompson memorandum applied, where the Government let the entity know that an employee was not “cooperating” after the employee asserted the Fifth Amendment either in a proffer session or before the grand jury.

D.C. SDNY Approves John Doe Summons re Offshore Enablers (7/30/21; 7/31/21)

In The Matter of the Tax Liabilities of John Does, United States Taxpayers (S.D. N.Y. 7/15/21), CL here, the Court ordered the service of a John Doe Summons upon several prominent financial services businesses related to taxpayers who may have used an offshore law firm, Panama Offshore Legal Services for U.S. tax noncompliance.  I first cut and paste the order (short 2 pages) and then link to and excerpt from the USAO SDNY Press Release explaining more about the perfunctory order.

1. The Order

UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK

IN THE MATTER OF THE TAX
LIABILITIES OF:

JOHN DOES, United States taxpayers who, at any time during the years ended December 31, 2013, through December 31, 2020, used the services of Panama Offshore Legal Services, including its predecessors, subsidiaries, and associates, to establish, maintain, operate, or control any foreign financial account or other asset; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account or other asset in the name of such foreign entity.

Case No. 21 Misc. 424

ORDER GRANTING EX PARTE
PETITION FOR LEAVE TO
SERVE “JOHN DOE”
SUMMONSES

THIS MATTER is before the Court upon the United States of America’s “Ex Parte Petition for Leave to Serve ‘John Doe’ Summonses” (the “Petition”). Based upon a review of the Petition and supporting documents, the Court has determined that the “John Doe” summonses to Federal Express Corporation a/k/a FedEx Express; Fed Ex Ground Package System, Inc. a/k/a FedEx Ground; DHL Express (USA), Inc.; United Parcel Service, Inc.; the Federal Reserve Bank of New York; The Clearing House Payments Company LLC; HSBC Bank USA, N.A.; Citibank, N.A.; Wells Fargo Bank, N.A.; and Bank of America, N.A. (the “Summoned Parties”) relate to the investigation of an ascertainable group or class of persons, that there is a reasonable basis for believing that such group or class of persons has failed or may have failed to comply with any provision of any internal revenue law, and that the information sought to be obtained from the examination of the records or testimony (and the identities of the persons with respect to whose liability the summonses are issued) are not readily available from other sources. Moreover, the information sought to be obtained by the summonses is narrowly [*2] tailored to information that pertains to the failure (or potential failure) of the group or class of persons to comply with one or more provisions of the internal revenue law. It is therefore:

ORDERED AND ADJUDGED that the Internal Revenue Service, through Revenue Agent Katy Fuentes or any other authorized officer or agent, may serve Internal Revenue Service “John Doe” summonses upon the Summoned Parties in substantially the form as attached as Exhibits A-F to the May 4, 2021 Declaration of Katy Fuentes, Dkt. No. 4, and Exhibits G-J to the July 15, 2021 Letter from Talia Kramer, Dkt. No. 18. A copy of this Order shall be served together with the summonses.