Illustration of Why a 366 Day Sentence is better than 365 Days (2/20/15)

In a case of some noteriety in the U.S. -- the McDonnell prosecution in Virginia, whether the former governor and his wife were convicted -- the wife was sentenced today to 1 year and 1 day.  The Washington Post had this explanation of the federal good time credit to cut the actual time served.  Why a 366-day sentence is better than 365 sentence is better than 365 (2/2/15), here.  The discussion is short, but still I include only a portion:

U.S. District Judge James R. Spencer just sentenced Maureen McDonnell to a year and a day in prison — which is actually better news than if she had been sentenced to exactly a year. 

In the federal system, inmates with sentences longer than a year can get them reduced 54 days a year for good behavior. If McDonnell had received a sentence of a year or less, she would not have been eligible.

One should not jump to the conclusion that Mrs. McDonnell will actually serve 366 days less 54 days (assuming as is usually the case in white collar crime cases, the defendant qualifies for the good time credit).  Rather, the actual incarceration reduction in this case is 47 days.  Why?

It is all in how the statute is interpreted.  The statute is 18 U. S. C. §3624(b)(1), here.  The key language is:

a prisoner who is serving a term of imprisonment of more than 1 year  [1] other than a term of imprisonment for the duration of the prisoner’s life, may receive credit toward the service of the prisoner’s sentence, beyond the time served, of up to 54 days at the end of each year of the prisoner’s term of imprisonment, beginning at the end of the first year of the term, 

[Note the [1] is a footnote indication that the original has no comma this point but probably should]

In Barber v. Thomas, 560 U.S. 474, 478-479) (2010), here, the Court, in approving the Bureau of Prison's methodology interpreting the credit to permit only 47 days, used this example (involving a longer sentence but the principle is the same):

Thus, at the end of the first year (Year 1) that prisoner would earn the statute's maximum credit of 54 days. The relevant official (whom we shall call the “good time calculator”) would note that fact and, in effect, preliminarily put the 54 days to the side. At the end of Year 2 the prisoner would earn an additional 54 days of good time credit. The good time calculator would add this 54 days to the first 54 days, note the provisional total of 108 days, and again put the 108 days' credit to the side. By the end of Year 8, the prisoner would have earned a total of 432 days of good time credit (8 years times 54 days). At that time, the good time calculator would note that the difference between the time remaining in the sentence (2 years, or 730 days) and the amount of accumulated good time credit (432 days) is less than 1 year (730 minus 432 equals 298 days, which is less than 365). The 432 days of good time credit that the prisoner has earned by the end of Year 8 are sufficient to wipe out all of the last year of the 10-year prison term and to shorten the prisoner's 9th year of imprisonment by 67 days. 

Year 9 of the sentence will consequently become the prisoner's last year of imprisonment. Further, because the prisoner has already earned 67 days of credit against that year (432 days already earned minus 365 days applied to Year 10 leaves 67 days to apply to Year 9), the prisoner will have no more than 298 days left to serve in Year 9. Now the good time calculator will have to work out just how much good time the prisoner can earn, and credit against, these remaining 298 days. 

As we said, the statute provides that “good time” for this “last year or portion” thereof shall be “prorated.” Thus, the good time calculator must divide the 298 days into two parts: (1) days that the prisoner will have to serve in prison, and (2) credit for good behavior the prisoner will earn during the days served in Year 9. In other words, the number of days to be served in Year 9 plus the number of good time credit days earned will be equal to the number of days left in the sentence, namely, 298. And to keep the award of credit in the last year proportional to awards in other years, the ratio of these two parts of Year 9 (i.e., the number of good time days, divided by the number of days served) must be 54 divided by 365, the same ratio that the BOP applies to full years served. We can use some elementary algebra, described in the Appendix, infra, to work out the rest. The result is that if the prisoner serves 260 days, he can earn an additional 38 days of credit for good behavior. That is to say, of the 298 days remaining in his sentence, the prisoner will have to serve 260 days in confinement, after which point, his sentence will be fully accounted for (given the additional 38 days' credit earned), and he will be released. In sum, a prisoner subject to a 10-year (3,650-day) sentence who earns the maximum number of days the statute permits will serve 3,180 days in confinement and receive 470 days of “good time” credit, about 15% of the prison time actually served.

Thus, in order to achieve a full 54 day credit reduction for the first year, Mrs. McDonnell would have to serve 365 days.  But, with the good time credit, she will not actually serve 365 days.  Hence, her credit will have to be less, prorated based on her time actually served after the credit is considered.  That requires some calculation, but the gurus who do this say that the good time credit is 47 days.  Hence, she will have to serve 319 days (366 less 47 days).

I have posted before the on federal good time credit.  See particularly paragraph 1 in Another UBS Client Bites the Dust - One Year Sentence (Federal Tax Crimes Blog 9/17/10), here.

Another UBS Client Bites the Dust - One Year Sentence (9/17/10)

Another UBS client was sentenced today in New York. According to this blog posting by Janet Novack of Forbes' Taxing Matters, Frederico Hernandez was sentenced to a year in prison. After I get more details, I may do another posting if there is something material to add or correct. In the meantime, I recommend you to Ms. Novack's blog post which is quite good for such quick reporting.

I do make the following points:

1. The report is that Mr. Hernandez got a one-year sentence.  Mr. Hernandez would have been better off to get a sentence of 1 year and 1 day because the good time credit (about 15%, although the calculation can be tricky) is not available for sentences of less than one year and one day. 18 USC 3624(b). The good time credit for a sentence of one year and one day is 47 days, making the defendant with good time serve only 319 days. A defendant with a one year sentence must serve 365 days with no good time credit.  What a difference a day makes..  The Judge (Denny Chin) surely knew of this difference and, apparently was not quite willing to go there for this defendant.

2. Hernandez and the Government agreed in the plea that the tax loss was $84,423. However, the Government apparently asserted at sentencing that the real tax loss was in excess of $500,000. I have not seen the plea agreement, so there is a nuance somewhere that I am missing on this. In any event, the Probation Office and the Court are not locked into the tax loss that the Government and the defendant agree upon in the plea agreement (dare I say conspire to smoke past the court; the devil made me say that). The higher tax loss would, of course drive up the base offense level and, as a result, the Guidelines sentencing range after all adjustments.  And, of course, with a higher Guidelines sentencing range, a sentencing judge will have to vary more than if the sentencing range were lower.

3. According to the article, the plea was for tax perjury (Section 7206(1)) for the years 2004-2008, during which period he reported $503,682 of AGI, whereas during the period his real AGI was $1.9 million. And, as alleged by the government, he had the same pattern of conduct in the years 2001 through 2003. With the higher amounts, the Guidelines range would have been 30 to 37 months. Question for students: assuming that the pattern of the conduct was the same in all years, what would have been the effect had he pleaded to a single count?

4. Even the year is the longest UBS depositor sentence to date. Was this guy worse than the earlier ones or did he just get in line later than they did? What does that portend for later comers?

5. The Government urged the Court to sentence to 18 to 24 months to send a message. The court obviously wanted to send a different message -- first to the defendant before the court and, perhaps only derivatively, to the universe of tax cheats and wannabe tax cheats.

Ms. Novack also has a prior blog on how courts are lenient in tax crimes and certain other federal crimes relative to the typical federal crimes prosecuted in the courts. That blog is here.

Addendum:  9/17 @ 5:40pm:  Readers might want to take a look at this, at least tangentially related, WSJ Law Blog titled Planning A Prison Stay? The Options Can Be Overwhelming.

Addendum #2 9/18 @ 9:15am:  I have corrected the federal good time credit calculation which was in error in an earlier version of the blog.  There has been some confusion over the years about precisely how it is calculated.  But, the BOP controls the process and calculates it to allow 47 days GTC for a 1 year and 1 day sentence.  For a discussion, see here.

Addendum #3 9/20/10 @ 10:15am.  See Bloomberg article here and USAO SDNY release here.

Defendant (A Former Tax Lobbyist and DOJ Tax Attorney) Sentenced to 1 Year for Tax Perjury Conviction (12/13/19)

I previously blogged on the plea agreement for James F. Miller, a former tax lobbyist (and former DOJ Tax attorney).  Former DOJ Tax Attorney Pleads to Tax Perjury (Federal Tax Crimes Blog 6/21/19; 6/22/19), here.  DOJ Tax has a press release on his sentencing.  Virginia Tax Lobbyist Sentenced to Prison for Filing a False Tax Return (12/13/19), with a by-line: “Concealed More than $2.2 Million in Income.” 

The release is somewhat cryptic, but here are key excerpts:

An Alexandria, Virginia, tax lobbyist was sentenced to one year in prison today for willfully filing a false tax return * * * * 

According to court documents, attorney James F. Miller, 67, underreported his gross income on his 2010 through 2014 tax returns by more than $2.2 million. Miller, a tax policy lobbyist and former employee of the Justice Department’s Tax Division, filed multiple false tax returns with the Internal Revenue Service (IRS). These returns omitted partnership income he received from two law firms and the gross receipts he received from his own lobbying firm. The total tax loss resulting from Miller’s fraudulent conduct was more than $730,000. 

In addition to the term of imprisonment, U.S. District Judge T.S. Ellis, III, ordered Miller to serve one year of supervised release and to pay restitution to the United States in the amount of $735,933.

JAT Comments:

1. My rough and ready calculation of his guideline sentencing range is 24-30 months based on the following assumptions as to adjustments: (i) a base offense level of 20 based on tax loss of $730,000 with no adjustments for unreported income from criminal activity or sophisticated means; (ii) a 3-level reduction for acceptance of responsibility; and a resulting 5.A. sentencing level of 17 and indicated range of 24-30 months.

2. The press release indicates that the sentence was for one year.  Often that type of sentencing is 1 year and 1 day, in order to permit the defendant to qualify for the good time credit, which would reduce the actual incarceration time by about 15%.  A sentence of one year does not qualify for the good time credit.

Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor (2/16/13)

On February 15, 2013, Bae Soo “Chris” Chon, age 49, was sentenced to one year and one day after pleading guilty to one count of tax evasion related to foreign accounts.  (The 1 year + one day is the trick to qualify the defendant for the good time credit that will make the actual sentence less than one year (see 18 USC 3624 here).) The plea agreement is here, and the Press Release for the sentencing is here.

The Key Facts:

Defendant:  Bae Soo "Chris" Chon
Age:  49
Conviction (by Plea):  Tax Evasion (1 count)
Sentence: 1 year and 1 day (see good time credit 18 USC 3624, here)
Restitution:  $412,404 to the IRS (to be used for civil assessment) and $172,884.43 to the Maryland Office of the Comptroller.
Banks:  Bank Woori, HSBC
Entities:  Yes (Giant Century Holdings Limited (GCHL) (a Hong Kong shell company).
FBAR Penalty: $441,482.50 (50% of high balance)
High Balance:  $882,965.00
Tax Loss: $812,581.03 (If 2010 is included and including State of Maryland tax as relevant conduct); Federal Tax for period is $640,696.60 (if 2010 is included); but if 2010 is not included will not affect the sentencing guideline which is in the $400,000 - $1,000,000 range.
Court:  D-MD
Judge:  William D. Quarles (Wikipedia Entry, here)

The following is from the plea agreement:

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

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

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

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

New DOJ Policies for Prosecution of Entities and the Individuals Within Them Most Responsible (11/30/18)

Deputy Attorney General Rod Rosenstein announced yesterday important changes to Government policy on prosecuting corporations and individuals yesterday at a conference on the FCPA.  See DOJ announcement here.  I include below the key excerpts (lengthy) explaining the policy:

Under our revised policy, pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation. 

It is important to impose penalties on corporations that engage in misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing. Corporate-level resolutions also allow us to reward effective compliance programs and penalize companies that condone or ignore wrongdoing. 

But the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions. Corporate cases often penalize innocent employees and shareholders without effectively punishing the human beings responsible for making corrupt decisions.  

The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes.  So we revised our policy to make clear that absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability. 

Our revised policy also makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.  

In response to concerns raised about the inefficiency of requiring companies to identify every employee involved regardless of relative culpability, however, we now make clear that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted. 

We want to focus on the individuals who play significant roles in setting a company on a course of criminal conduct.  We want to know who authorized the misconduct, and what they knew about it. 

The notion that companies should be required to locate and report to the government every person involved in alleged misconduct in any way, regardless of their role, may sound reasonable. In fact, my own initial reaction was that it seemed like a great idea. But consider cases in which the government alleges that routine activities of many employees of a large corporation were part of an illegal scheme. 

When the government alleges violations that involved activities throughout the company over a long period of time, it is not practical to require the company to identify every employee who played any role in the conduct. That is particularly challenging when the company and the government want to resolve the matter even though they disagree about the scope of the misconduct. In fact, we learned that the policy was not strictly enforced in some cases because it would have impeded resolutions and wasted resources. Our policies need to work in the real world of limited investigative resources. 

Companies that want to cooperate in exchange for credit are encouraged to have full and frank discussions with prosecutors about how to gather the relevant facts.  If we find that a company is not operating in good faith to identify individuals who were substantially involved in or responsible for wrongdoing, we will not award any cooperation credit.  

A Reminder on the Cheek Good Faith Defense -- It Usually Does Not Work (10/12/19)

The United States Attorney for Nevada announced here the sentencing of William Waller Jr., a Las Vegas real estate broker and the owner of Burbank Holdings or Platinum Properties for convictions of tax evasion and willful failure to file.  His sentence was 78 months and restitution imposed is $1,459,535.70.  Key excerpts are:

According to court pleadings and evidence presented at trial, Waller sought to evade taxes by incorporating a shell entity, opening bank accounts in its name, and directing his income into those accounts rather than accounts in his own name.  He also dealt extensively in cash and reduced his equity in his home, the only asset he held in his own name, thereby making it an unattractive asset for the IRS to seize.  

Waller testified at trial that he believed that he was not required to file tax returns or pay taxes, but acknowledged that he was influenced by the teachings of several prominent tax defiers. These included one, who had been convicted three times of tax fraud, and another, who had been stripped of his CPA license. Waller also admitted to purchasing and watching tax defier courses, including one on how to beat criminal tax charges.  Following the defendant’s testimony and the conclusion of the trial, the jury returned guilty verdicts on March 18, 2019.

The first two sentences of the second paragraph describe, somewhat cryptically, his Cheek good faith defense.  That defense is that, in effect, he, in good faith, did not intend to violate a known legal duty.  See Cheek v. United States, 498 U.S. 192 (1991), here, defining willfulness (an element of most Internal Revenue Code (Title 26) tax crimes) as voluntary, intentional violation of a known legal duty.  United States v. Pomponio, 429 U.S. 10, 13 (1976), here.  As I have conceptualized that element of the crime, (i) the duty must be knowable (the law must be clear and not ambiguous, per the line of cases going back to James v. United States, 366 U.S. 213 (1961), here) and (ii) the defendant must have known the knowable duty.  A defendant's good faith belief that he is not violating the law is a defense.  In other words, real, good faith ignorance of the law (but not feigned ignorance) is a defense.

In Cheek, the defendant was successful in establishing that he was entitled to an instruction properly advising the jury of the defense, thus entitling him to retrial where the Government must prove that he intended to violate a known legal duty.  The defendant lost on retrial.  United States v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994), here.

I don't have statistics on how many cases in which this defense has been raised on trial it has been successful, but my sense from watching these cases over a number of years is that it is rarely successful.  It certainly did not work for Mr. Waller in the case prompting this blog.

I thought I would include some discussion of the Cheek good faith defense from Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, ¶12.05. Selected Criminal Tax Topics (of which I am the principal author):

Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)? (11/21/14)

DOJ has this press release:  Credit Suisse Sentenced for Conspiracy to Help U.S. Taxpayers Hide Offshore Accounts from Internal Revenue Service (11/21/14), here.  Excerpts (Bold-face by JAT):

Credit Suisse AG was sentenced today for conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).  Credit Suisse pleaded guilty to conspiracy on May 19. * * * * 

At sentencing in the U.S. District Court for the Eastern District of Virginia, U.S. District Chief Judge Rebecca Beach Smith entered judgment and conviction and a restitution order requiring Credit Suisse to pay approximately $1.8 billion dollars to the United States by Nov. 28, per the plea agreement.  Credit Suisse will pay the Justice Department’s Crime Victims Fund, through the District Court Clerk’s Office for the Eastern District of Virginia, a fine of approximately $1.136 billion and will pay the IRS $666.5 million in restitution.  The parties agreed that Credit Suisse cannot challenge the restitution amount, which can also provide a basis for an IRS civil tax assessment.
 * * * * 

The plea agreement, along with agreements made with state and federal agencies, provides that Credit Suisse will pay a total of approximately $2.6 billion—approximately $1.8 billion in a criminal fine and restitution, $100 million to the Federal Reserve and $715 million to the New York State Department of Financial Services.  Earlier this year, Credit Suisse negotiated cease and desist orders with the Federal Reserve and the state of New York requiring the bank to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations in addition to the civil penalties.  Credit Suisse also paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.  Together, these actions by U.S. law enforcement and state and federal partners appropriately punish Credit Suisse for its past behavior in these matters.
As part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.
According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by: 

• Assisting clients in using sham entities to hide undeclared accounts;
• Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
• Failing to maintain records in the United States related to the accounts;
• Destroying account records sent to the United States for client review;
• Using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts;
• Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;
• Structuring transfers of funds to evade currency transaction reporting requirements; and
• Providing offshore credit and debit cards to repatriate funds in the undeclared accounts.

As part of the plea agreement, Credit Suisse further agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.  Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers. 

On December 5, two former employees of a Credit Suisse subsidiary will be sentenced for their involvement in assisting U.S. customers to evade their taxes.  On March 12, Andreas Bachmann, a former banker at Credit Suisse Fides pleaded guilty to a superseding indictment in connection with his work as a banker at Credit Suisse Fides.  On April 30, Josef Dörig, a former Credit Suisse Fides employee and owner/operator of a trust company, pleaded guilty to conspiring to defraud the IRS in connection with his role managing offshore entities used by U.S. taxpayers to conceal their accounts at Credit Suisse.  The pleas were accepted by U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia.  Bachmann and Dörig each face a statutory maximum sentence of five years in prison.

JAT Comments:

Opinion on Discovery in Tax Evasion Case of Reliance on Counsel Documents (1/26/18)

In United States v. Scali, 2018 U.S. Dist. LEXIS 8137 (S.D. N.Y. 2018), here, the defendant was (bold=face supplied by JAT):

charged in a ten-count indictment with (1) mail fraud in violation of 18 U.S.C. § 1341; (2) structuring to evade currency transaction reports in violation of 31 U.S.C. § 5324(a)(3); (3)—(4) false statements in violation of 18 U.S.C. § 1001; (5) corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue Laws in violation of 26 U.S.C. § 7212(a); (6) tax evasion for the year 2011 in violation of 26 U.S.C. § 7201; (7) tax evasion for the year 2012 in violation of 26 U.S.C. § 7201; (8) obstruction of justice in violation of 18 U.S.C. § 1503; (9) perjury in violation of 18 U.S.C. § 1623; and (10) mail fraud in violation of 18 U.S.C. § 1341.

The Court acted on the Government's motion in limine on a number of issues.  The only issue and its resolution that interested me is the "Advice of Counsel Defense."  The discussion is short, so I excerpt it in full:

V. Advice of Counsel Defense 

The Government's motion for an order compelling Defendant to provide prompt notice and to produce all discovery relating to any advice of counsel defense he intends to advance at trial is granted in part. The question of whether the Defendant will assert an advice of counsel defense with regards to the two tax evasion counts is moot because the Defendant unequivocally admitted to it in his pleadings. (Def. Mot. 25 ("Scali intends to demonstrate that he is not guilty of tax evasion because, for the years in question, he followed counsel's advice and provided his complete books and records to the IRS").) See Royal Park Investments SA/NV v. United States Bank National Association, 14 Civ. 2590 (VM), 2017 U.S. Dist. LEXIS 157986, 2017 WL 4174926, at *9 (S.D.N.Y. Aug. 28, 2017) ("[A] defendant must clearly elect whether it will raise an advice-of-counsel defense before the close of discovery and in time to allow for such discovery") (citation and quotations omitted). As a result, the Defendant should have made pertinent disclosures during discovery, absent special considerations. See id; see also United States v. Wells Fargo Bank, N.A., 2015 U.S. Dist. LEXIS 84602, 2015 WL 3999074, *1 (S.D.N.Y. June 30, 2015) ("[T]he burden is on the party who intends to rely at trial on a good faith defense to make a full disclosure during discovery and the failure to do so constitutes a waiver of that defense") (quotations and citations omitted); Arista Records LLC v. Lime Grp. LLC, No. 06 CV 5936(KMW), 2011 U.S. Dist. LEXIS 42881, 2011 WL 1642434, at *2 (S.D.N.Y. Apr. 20, 2011) ("[A] party who intends to rely at trial on the advice of counsel must make a full disclosure during discovery; failure to do so constitutes a waiver of the advice-of-counsel defense.") (citations and quotations omitted); United States v. Hatfield, No. 06-CR-0550 (JS), 2010 U.S. Dist. LEXIS 4026, 2010 WL 183522, *13 (E.D.N.Y. Jan. 8, 2010) ("This disclosure should include not only those documents which support [the] defense, but also all documents (including attorney-client and attorney work product documents) that might impeach or undermine such a defense"). 

The parties contest whether the Defendant made full disclosure. Therefore, the Court orders as follows: (1) the Defendant produce all discovery relating to any advice of counsel defense he intends to advance at trial by January 23rd, 2018; and (2) that the parties address whether the Defendant has proffered the factual prerequisites of an advice of counsel Defense at the scheduled status conference on January 19, 2018. n4
   n4 The Government suggests that the Defendant may be precluded from asserting an advice of counsel defense, but does not make the argument forthright. Guided by efficiency and judicial economy, it behooves the Court to address this issue before trial. See United States v. Paul, 110 F.3d 869, 871 (2d Cir. 1997) ("[I]t is appropriate for a court to hold a pretrial evidentiary hearing to determine whether a defense fails as a matter of law").

Credit Suisse Reports (5/6/14; 5/7/14)

Credit Suisse is reportedly in talks to pay well over $ 1 billion to resolve its woes with the U.S. DOJ regarding its offering of offshore accounts for U.S. tax evasion.  See Credit Suisse in Talks to Pay $1.6 Billion to Resolve US Tax Probe: Report (NDTV Profit, incorporating a Reuters report 5/6/14), here.  An excerpt:

Credit Suisse Group AG is in talks with the US Justice Department to pay as much as $1.6 billion to resolve an investigation into the bank's role in helping Americans evade US taxes, a person familiar with the matter said on Monday. 

The penalty could be roughly twice the amount paid by UBS AG, which settled similar charges in 2009 for $780 million and agreed to identify its customers. 

Prosecutors have also been pushing for Credit Suisse to plead guilty in connection with the probe, two people with knowledge of the talks said. 

The settlement talks are in progress, and the details are still being finalised. An agreement could come in the next few weeks, the sources said.

Some reading of the tea leaves regarding the negotiations are (Tom Schoenberg, David Voreacos and Elena Logutenkova, Credit Suisse Said Near U.S. Tax Deal for Over $1 Billion (Bloomberg 5/6/14), here):

Credit Suisse Group AG (CSGN) is close to resolving a U.S. tax-evasion probe with an agreement that might include a penalty of more than $1 billion, after creating a separate entity last year to house the businesses involved. 

The resolution of the investigation may also include a guilty plea, according to a person familiar with the talks who asked not to be identified because the matter is private. The new unit, CS International Advisors AG, was incorporated in December with a Swiss banking license. In February, Credit Suisse moved its U.S. cross-border business into the fully owned entity, according to records from the Commercial Register of the Canton of Zurich. 

The Justice Department, cracking down on foreign banks that help Americans cheat the Internal Revenue Service, may charge the unit instead of the whole firm, said Scott Michel, a tax lawyer at Caplin & Drysdale in Washington. Prosecutors, who must weigh economic consequences when taking action, have expressed concern about the potential fallout from charging big banks.
“It has the earmarks of a structural step that somebody has thought of to try to protect the bank as a whole in the event that a guilty plea is required,” Michel said. “I’ve had a couple of criminal tax cases over the years where the client created a corporate entity to enter a guilty plea.”

Addendum 5/6/14 1:15pm:  

See also Mark Hosenball and Aruna Viswanatha and Oliver Hirt, Credit Suisse in talks to pay $1.6 billion to resolve U.S. tax probe: source (Reuters 5/5/14), here.

The penalty would exceed the 895 million Swiss francs ($1 billion) that Credit Suisse has set aside to pay potential penalties to the United States. 

It's also much tougher than the settlement the Justice Department reached in 2009 with Credit Suisse's hometown rival UBS AG, which was also accused of helping Americans dodge taxes.
In that settlement, UBS paid $780 million to settle similar charges, roughly half the amount being discussed for Credit Suisse, even though the latter's offshore private banking business was much smaller than UBS's. 

Also, UBS was allowed to enter a deferred prosecution agreement and criminal charges were later dropped against the firm.

 The article also addresses how the anticipated resolution is factored into the CS market price and certain U.S. prosecution policy factors for entity misbehavior.

Addendum 5/7/14 8:15 am:

From Andrew Velarde, Credit Suisse Settlement Will Be Benchmark for Future Cases, 2014 TNT 88-2 (5/7/14):

Thierry Boitelle of Bonnard Lawson said that given the circumstances, confirmation of the penalty amounts would be good news for Credit Suisse and all category 1 Swiss banks. 

Under the DOJ's Swiss bank program, category 2 banks must agree to a penalty of 20 percent of the value of undisclosed accounts held by U.S. taxpayers. Boitelle cited Credit Suisse CEO Brady W. Dougan's admission to the Senate subcommittee that about $7 billion out of $10 billion to $12 billion of assets held at the bank by U.S. persons was undeclared, 20 percent of which would be $1.4 billion -- close to the $1.6 billion penalty the bank is reportedly facing. 

"So it would be as if [Credit Suisse] finds itself in the program under category 2 after all. That would certainly be a better than expected outcome for the bank," Boitelle said. 

* * * * 

Boitelle said that one big open question on the purported plea and settlement is the disclosure of the names of the account holders. 

"Apparently the Swiss Federal Council turned down [Credit Suisse's] request for a special emergency law allowing it to share a substantial number of names with the DOJ," Boitelle said. At the time of the UBS indictment, the council did issue an emergency decree to save UBS from prosecution, he said, adding, "According to Swiss media reports, the Federal Council doesn't want to do this again. So the million-dollar question to me is how [Credit Suisse] and the DOJ will deal with the request for the names of the account holders.

Reliance on Attorney Good Faith Rejected as Defense to Guilt May Mitigate the Sentence (8/22/11)

In United States v. Renner, 648 F.3d 680 (8th Cir. 2011), here, the defendant asserted a Cheek type good faith defense. The argument was that the defendant had relied upon his tax attorney. The tax attorney gave favorable testimony, but the jury did not accept the good faith defense. The tax attorney renewed his favorable testimony, by letter, for sentencing. The district judge apparently good faith related to the attorney consulation for sentencing.

The facts, highly summarized, were as follows: The taxpayer operated a business through a single-member LLC which was disregarded and treated as a Schedule C entity. The business he ran was to provide something like a debit card service for certain types of purchases. The business was not a bank and did not require that he do anything with his clients' cash deposits other than have a general obligation to apply them when the clients drew them. In other words, he could deposit them into the general business account and, herein lies the rub, use them in the interim as he saw fit. He did see fit and used them for various nonbusiness purposes (living expenses, etc.) The defendant was indicted for tax evasion for initially not filing and then filing delinquent returns omitted the income that he lived on from the customers' cash.

A Great Opt Out Result! IRS Gets Good Press! (9/15/12)

I post today a reader's result from opting out.  Regular readers of this blog's comments will recognize the poster's pseudonym - "ij".  He has been a source of excellent comments as he worked his way through the initial filing to opting out and now completing the audit on opting out.  So, I offer here his comments.

Jack, 

   I just got a letter 3800 from IRS, that is a warning letter on my failure to report foreign bank accounts.   Even though I recommended $650/year FBAR penalty myself to make it up the tax loss for the closing years after opting-out.  IRS decided to issue a warning letter under my examiner's recommendation.   I have been lucky to have both examiners who have been treating me with dignity and professionalism. 

   Here are some facts of my case, 12 years US resident with offshore assets peak at 68K plus 50K registered retirement plan.  Total tax loss to IRS is around 2K during these years of ignorance.  I was such a fool that I even did not claim tax credit on Schedule M in 2009 but IRS corrected my return and gave over $800 back to me. 

  Here is my time line. 

  Package submitted in April 2011, revised in July 2011 on PFIC.
  First contact by an examiner in Dec. 2011,
  Full package of bank statement was sent in Jan. 2012 upon request.
  Form 906 arrived in July 2012, and request of opting-out letter was sent a few days later.
  Letter 3800 arrived today (Sept. 14, 2012).

Attacks on Indicted Tax Court Judge Kroupa's Decisions (8/26/16)

I blogged earlier in the indictment of Tax Court Judge Kroupa. Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (Federal Tax Crimes Blog 4/5/16; 4/6/16), here  (Note I had planned to get back with additional thoughts about the indictment and charging decisions, but have not yet done so.)

It now appears that taxpayers are attempting to attack Judge Kroupa's orders or decisions in cases she decided while she was committing the conduct subject to the indictment and was even under audit that led to the indictment.  See e.g., Andrew R. Roberson, Taxpayer Argues First Circuit Should Not Follow Tax Court Decision by Judge Indicted for Tax Fraud (McDermott Will & Emory's Tax Controversy 360), here.  In the immediate subject of that blog entry, the taxpayer prevailed in the district court with respect to a foreign tax credit generator transaction.  Santander Holdings USA, Inc. v. United States, 144 F. Supp. 3d 239 (D MA 2015), on appeal to the First Circuit (No. 16-1282) (the brief is linked on the MWE blog).  The genre of transaction in issue in Santander, although sustained by the district court in that case, had been rejected by Judge Kroupa in the Tax Court and, based on Judge Kroupa's opinion, by the Second Circuit.  Bank of N.Y. Mellon Corp. v. Commissioner, 140 T.C. 15, as amended by 106 T.C.M. (CCH) 367 (2013), aff’d, 801 F.3d 104 (2d Cir. 2015), cert. denied,  136 S. Ct. 1377 (2016) (“BNY”).

On the merits, Santander tries to bootstrap victory, as it did below, on two related holdings Compaq Comput. Corp. & Subsidiaries v. Commissioner,  277 F.3d 778 (5th Cir. 2001) and IES Indus., Inc. v. United States, 253 F.3d 350 (8th Cir. 2001), both involving foreign tax credit generator transactions of a different sort.  I noted in a revision to my Federal Tax Procedure Book the following (Revision to Texts on Tax Shelters and Case Assignment (Federal Tax Procedure Blog 9/24/15), here:

A good example of a classic tax shelter is Compaq Computer Corp. v. Commissioner, 113 T.C. 214 (1999), rev’d 277 F.3d 778 (5th Cir. 2002).  Please read both the Tax Court and the Appellate opinions now.  In net, a classic abusive tax feature present in the case is that, except for the benefit of the foreign tax credit for foreign taxes paid that Compaq did not bear the economic burden, the deal was a money-loser.  The Tax Court viewed the transaction as abusive and imposed penalties; the Fifth Circuit blessed the transaction.  It was a tax shelter; it was just a tax shelter that, at least the appellate court, believed – or at least held, regardless of what it believed – was legal and not abusive.  Both the Tax Court and the Fifth Circuit are good courts, with good judges having radically different views of what is an abusive tax shelter and where to draw the line.  (Note the Fifth Circuit’s opinion, however, has not worn well with time.) fn
   fn E.g., Bank of N.Y. Mellon Corp. v. Commissioner, 801 F.3d 104 (2d Cir. 2015), cert. denied,  136 S. Ct. 1377 (2016) (“In so holding, we agree with the Federal Circuit in Salem and disagree with decisions of the Fifth and Eighth Circuits (Compaq and IES, respectively));” Lee A. Sheppard, The Fun Goes Out of Foreign Tax Credit Planning, 148 Tax Notes 1283 (Sept. 21, 2015) (hyperbolically, as is her wont, “The Second Circuit essentially reversed the Compaq and IES decisions.”)  [JAT Note: the hyperbole is that the Second Circuit cannot reverse Compaq and IES but it can and did, at least according to the esteemed Ms. Sheppard, destroy any persuasive value they had (although, I think, most observers had viewed Compaq and IES as sua sponte without any continuing precedential value except perhaps, for exactly the same type of transaction, already legislative overruled, until reversed, by those respective circuits .]

Santander tries to breathe life into the earlier Compaq and IES decisions.  But, since the Second Circuit and the Federal Circuit were the latest to pronounce on the specific type of tax credit generator transactions, Santander has to say something about those authorities.  It tries to attack BNY based on Judge Kroupa's indictment.  Here's how (footnote omitted):

Credit Suisse Banker, Fugitive from Indictment, Pleads Guilty for Offshore Enabler Misbehavior (6/29/16)

I am late in reporting this guilty plea by a previous indicted Swiss banker who was a fugitive until his guilty plea.  The DOJ Press Release is here.

Michele Bergantino, 48, a citizen of Italy and a resident of Switzerland, pleaded guilty before U.S. District Judge Gerald Bruce Lee to conspiring to defraud the United States by assisting U.S. taxpayers to conceal foreign accounts and evade U.S. tax during his employment as a banker working for Credit Suisse AG on its North American desk. 

“Mr. Bergantino is now the third fugitive to come to the United States and plead guilty to charges in this case,” said Acting Assistant Attorney General Ciraolo. “To those who have actively assisted U.S. taxpayers in using offshore accounts to evade taxes, the message is clear:  staying outside the United States will provide little comfort.  We will investigate and charge you, and will work relentlessly to hold you to account for your actions.” 

“Hiding assets and creating secret accounts in an attempt to evade income taxes is a losing game,” said U.S. Attorney Boente. “Today’s plea shows that we will continue to prosecute bankers and U.S. citizens who engage in this criminal activity. I want to thank our law enforcement partners and prosecutors for their work on this important case.” 

Bergantino admitted that from 2002 to 2009, while working as a relationship manager for Credit Suisse in Switzerland, he participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts.  Bergantino oversaw a portfolio of accounts, largely owned by U.S. taxpayers residing on the West Coast, which grew to approximately $700 million of assets under management.  Bergantino admitted that the tax loss associated with his criminal conduct was more than $1.5 million but less than or equal to $3.5 million.   

During his time as a relationship manager, Bergantino assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of the U.S clients’ undeclared financial accounts from the U.S. Treasury Department and the Internal Revenue Service (IRS).  Among the steps taken by Bergantino to assist clients in hiding their Swiss accounts were the following:  assuring them that Swiss bank secrecy laws would prevent Credit Suisse from disclosing their undeclared accounts to U.S. law enforcement; discussing business with clients only when they traveled to Zurich to meet him; structuring withdrawals from their undeclared accounts by sending multiple checks, each in amounts below $10,000, to clients in the United States; facilitating the withdrawal of large sums of cash by U.S. customers from their Credit Suisse accounts at Credit Suisse offices in the Bahamas, in Switzerland, particularly the Credit Suisse branch at the Zurich airport and at a financial institution in the United Kingdom; holding clients’ mail from delivery to the United States; issuing withdrawal checks from Credit Suisse’s correspondent bank in the United States; and taking actions to remove evidence of a U.S. client’s control over an account because the U.S. client intended to file a false and fraudulent income tax return.  Moreover, Bergantino understood that a number of his U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations. 

A good article is David Voreacos, Ex-Credit Suisse Banker Pleads Guilty in Tax Evasion Case (Bloonberg 6/22/16), here.

Bergantino did not have to subject himself to U.S. criminal jurisdiction.  He was a resident of Switzerland which does not extradited for tax crimes.  He could have remained in Switzerland; Switzerland is a good place to live but it can be confining for people used to traveling in Europe and beyond.  (As I have noted, it can operate sort of as a "Club Fed."  See Switzerland as Club Fed for Swiss Enablers of U.S. Tax Crimes (Federal Tax Crimes Blog 10/24/13), here; for other Federal Tax Crimes Blogs mentioning or discussing "Club Fed", see here).  I infer that, in his assessment of whether to subject himself  to U.S. criminal jurisdiction and plead, Bergantino must have determined that the benefits outweighed the costs and risks.  The major risk for him is that the Court would impose material incarceration period.  But, I suspect that his very able lawyer mitigated the risk of that in the plea agreement, so that he will obtain either no incarceration period or a very short period, and that mitigation was key to Bergantino's cost/risk assessment.

One of the risks if he did not subject himself to U.S. jurisdiction voluntarily is that, should he leave Switzerland, he  might be subjected involuntarily through the INTERPOL Red Notice.  I discuss the INTERPOL Red Notice in a blog immediately following this blog entry.

Paul Daugerdas' 15 Year Sentence is Commuted with Only Around 9 Years' Incarceration Served (12/20/24)

I learned today that, on December 12, 2024, President Biden commuted the sentence of Paul Daugerdas who, as described in the DOJ press release for his sentencing “was sentenced today in Manhattan federal court to serve 15 years in prison for orchestrating a massive fraudulent tax shelter scheme in which he and his co-conspirators designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS).” I have written often on the Daugerdas saga here (in relevance order, but can be sorted by reverse chronological). The documents indicating the commutation are here (White House) and here (DOJ).

Some key points:

1. A commutation merely lessens the sentence and does not alter the finding of guilt or any other attribute of the sentence (e.g., restitution or disqualifications). (See LII Wex here.) The commutation does not suggest that there was a wrongful conviction or wrongful sentence because commutation can be based on other factors (such as health or perhaps even political sway (although I have no indication that politics entered this pardon)). Daugerdas’ commutation was among 1,499 commutations at the same time without explanation for Daugerdas’ and most other commutations.

Another UBS Client is Sentenced - 1 Year and 1 Day (11/10/11)

According to the USAO SDNY press release (not yet mounted on the USAO SDNY web site), Richard Werdiger, "a former client of Swiss bank UBS AG (“UBS”), was sentenced today to one year and one day in prison for conspiring to defraud the Internal Revenue Service (“IRS”) by hiding more than $7.1 million at UBS, filing false federal income tax returns, and evading nearly $400,000 of taxes." Here are the key stats:

Taxpayer: Richard A. Werdiger
Bank : UBS AG
Entities: Yes
Guilt: By Plea Agreement
Sentence: 1 year and 1 day.
Admits: Failure to File FBARs but not charged or pled
Unreported Income: $1.300,000 +
Tax Loss: $400,000
FBAR Penalty: $3,844,129 (apparently based on 50% of the indicated highest balance).
Restitution: To be determined later
Fine: $50,000
Court: SDNY
Judge: Paul G. Gardephe

Recall that the good credit (18 USC 3624(b), here), which is available for sentences greater than 1 year (hence one year and one day is a sentence imposed to allow the good time credit).

I will update the spreadsheet later today.

DOJ Investigating Credit Suisse (7/15/11)

In a July 15 press release, Credit Suisse advised:

As previously disclosed, Credit Suisse has been responding to requests for information, including subpoenas, in an investigation by the US Department of Justice (DoJ) and other US authorities. The investigation concerns historical Private Banking services provided on a cross-border basis to US persons. As part of this process, on July 14, 2011, Credit Suisse received a letter notifying it that it is a target of the DoJ investigation. It has been reported that the US authorities are conducting a broader industry inquiry. Subject to our Swiss legal obligations, we will continue to cooperate with the US authorities in an effort to resolve these matters.

Comments:

Around the Net on Offshore Accounts While Otherwise Unproductive (3/20/14)

This will aggregate some of the information I  picked up today in my automated Google searches of the web.

Item #1

A PR Newswire loudly [loudly is my web euphemism for hyperbolically] announced the following:  New Website to Assist Millions of Taxpayers with Undisclosed, Offshore Accounts (3/20/14), here.  I think this is an advertisement to attract those alleged millions and their resources to his coffers.  (I hope he has a good database and staff skills to handle the influx.)  The announcement includes the following:

For those US taxpayers in this precarious position they need expert advice and decisive action to pre-empt imposition of civil tax fraud and criminal tax evasion civil and criminal penalties, which may include: wire fraud, mail fraud, money laundering, failure to file FBAR forms (now known as FinCen Form 1114). Total penalties may be millions of dollars with jail sentences imposed for a maximum of over 80 years for all tax-related felonies.

This is, of course, fear mongering.  The real world is different.  Check out the spreadsheet here which indicates far less -- even minuscule sentences -- in the real world compared to this promo piece.  That does not mean that taxpayer do not face substantial downsides from the behavior, of course.

Item #2

A Wall Street Journal article addresses the expat  issue:  Nearly One-Third of Expats Confused by U.S. Tax Filing Requirements, here.

I don't subscribe to the WSJ because it is a business iteration of Fox News Network (which I like because of the blondes but I won't pay for that anymore because of the WSJ/blonde biases do not match my biases).  So, if you want to read that article, you will have to be a subscriber.  But, if I can speculate about the contents, are they really saying the 2/3's + of expats are not confused and that, therefore, they commit tax fraud when they don't report foreign income (including financial account income) and file FBARs.  WSJ being a Republican rag, I doubt that they intended to infer that because, I suspect, that data set includes a significant number in the "base" to which WSJ pitches its goods.  Really, what they might want to rag on is the IRS and Obama as being responsible for anything inappropriate by anybody anywhere, including expats.

Item #3

DOJ SG 5K1 and § 3553(e) Departure Request for Rubinstein

You will recall that Mr. Rubinstein was the first of the UBS clients to plead (see my original Get-in-Line Brother blog here). Mr. Rubinstein pled to a § 7260(1) count with a maximum incarceration period of 3 years. Sentencing time is nigh. Apparently the Guideline range for Mr. Rubinstein is 18 to 24 months. The Government has filed it's SG 5K1 and § 3553(e) request which, in its entirety (exclusive of sealed submissions), is:

1. On April 1, 2009, defendant Steven Michael Rubinstein was charged with a complaint alleging that he filed a false tax return, in violation of Title 18, United States Code Section 7206(1). On June 26, 2009, the defendant waived indictment, and entered a plea of guilty to a one-count Information charging the same. The defendant admitted to failing to disclose of the existence of and the income associated with an undeclared Swiss bank account at UBS, AG.
2. Pursuant to an agreement with the United States, the defendant cooperated with the United States in its ongoing investigation into offshore tax evasion. Since entering into this agreement, the defendant has provided substantial assistance in the investigation of others who have committed offenses against the United States. This substantial assistance has been timely, significant, useful, truthful, complete, and reliable.
3. In February 2009, pursuant to a deferred prosecution agreement, UBS AG, Switzerland's largest bank, provided the United States Department of Justice the identities and account information for certain United States clients that were believed to have not disclosed the existence of or reported the income associated with offshore bank accounts at UBS in Switzerland.
4. Information provided by UBS pursuant to the deferred prosecution agreement has led to the investigation of more than 150 United States taxpayers. The defendant was the first such person to be prosecuted. To date, six additional former UBS customers have been prosecuted throughout the United States. Additionally, a federal grand jury in the Southern District of Florida returned a one-count conspiracy indictment against Swiss banker, Hansruedi Schumacher, and Swiss attorney, Matthias Rickenbach (Case No. 09-60210-CR-HURLEY).
5. On the heals of the deferred prosecution agreement, the Internal Revenue Service announced a six-month program to encourage Americans to voluntarily disclose the existence of offshore bank accounts. In exchange for coming forward, the IRS agreed to reduced penalties and to not recommend prosecution of the taxpayer. In an average year, less than 100 individuals take advantage of the Internal Revenue Service's voluntary disclosure program. The IRS recently announced that so far this year more than 7,500 taxpayers voluntarily disclosed the existence of their offshore assets.
6. The prosecution and guilty plea of this defendant has generated tremendous publicity. This publicity, without a doubt, contributed, in part, to the drastic increase of taxpayers who voluntarily disclosed their offshore accounts to the IRS.
7. The United States will provide, under seal, to this Court details of additional substantial assistance provided by the defendant.
8. The defendant's current advisory guideline range is 18 to 24 months. Pursuant to the plea agreement, the United States will ask this Court to sentence the defendant to the low-end of the advisory guideline range. Pursuant to Title 18, United States Code, Section 3553(e), and Section 5K1.1, United States Sentencing Guidelines, the United States asks this Court to reduce the defendant's sentence by one-third percent and to impose a sentence of 12 months.

Just a couple of points about this filing:

1. Paragraph 8 needs some clarification. Context makes clear that the Government did not intend to be stingy in its recommendation of a "one third percent" reduction which would be virtually nothing. The Government really meant a "one-third" reduction from 18 months which is the bottom of the advisory range. And, of course, even here, surely the Government does not really mean a 12 month sentence which would insure Mr. Rubinstein's incarceration for a longer period than if he receives a 12 month and 1 day sentence (the old good time credit thing).

2. The Government says that its voluntary disclosure program normally generates only about 100 disclosures by individuals a year. The Government cannot be including the quiet disclosures made by filings with the service center. I have only anecdotal experience from my own practice and talking with others having similar practices, but I think it fair to project from this experience that the quiet disclosures are in the thousands each year. Of course, there is no way for the Government to quantify that since no one that I know of embazons in red on the amended returns "Voluntary Disclosure - Quiet Type" (indeed, then it would not be quiet). Quiet voluntary disclosures are an important compliance measure to collect the back revenue (with interest) and get those now compliant taxpayers back into the system or back fully into the system.

3. DOJ Tax wants to give credit for the effect Rubinstein's plea had on encouraging others to join the voluntary disclosure program. Yet, since DOJ Tax usually seeks publicity to encourage others to do right, should that be an extra factor warranting a downward departure? Surely, now practitioners will argue that it does. Perhaps they can argue that the publicity of the convictions spread by the news media and even blogs such as this warrant departure, particularly if the Government makes a 5K1 departure request for other reasons.

Impact of Credit Suisse Guilty Plea on Resolution of Other Swiss Bank U.S. Tax Issues (5/21/14)

A Swiss web report has a good discussion of comments from various parts of the Swiss bank community regarding the effect of the Credit Suisse guilty plea.  Credit Suisse Deal Seen Paving Way for Swiss Banks to Settle (swissinfo.ch 5/210/14), here.  Excerpts that caught my attention are:

The Department of Justice reached the [Credit Suisse] deal after years investigating more than a dozen Swiss firms, including Julius Baer Group Ltd., the nation’s third-largest wealth manager. Many of the companies are close to settlements, said Andreas Brun, an analyst with Zuercher Kantonalbank in Zurich. 

“I expect resolutions in the next couple of weeks,” he said. 

* * * * 

'Speedy Resolution’ 

Julius Baer, which had 264 billion francs ($296 billion) of client assets worldwide at the end of April, may achieve a better deal than Credit Suisse as it has no business operations in the U.S.
“I can now see Julius Baer settling rapidly as well,” said Alevizos Alevizakos, a London-based analyst with Mediobanca SpA. In this bank’s case, four analysts polled by Bloomberg News estimated fines ranging from 400 million francs to 2 billion francs. 

Julius Baer dropped 0.8 percent to 39.4 francs as of 3:21 p.m. in Zurich today, extending the stock’s decline this year to 9 percent. 

“Removing the overhang of these tax disputes will be beneficial for any Category 1 bank,” Alevizakos said, using a Justice Department term for Swiss banks under investigation before it opened a voluntary disclosure program. “A speedy resolution in the coming weeks or months would be marginally positive for Julius Baer.” 

* * * *