Wednesday, September 30, 2009

Summons Power to Force Summonsed Party to Gather Records from Third Parties (9/30/09)


In a recent summons enforcement case (United States v. Bright, 2009 U.S. Dist. LEXIS 84577 (D. Haw. Sept. 15, 2009), and predecessor case, United States v. Bright, 2009 U.S. Dist. LEXIS 70911 (D. Haw. 2009)), the summonsed party (the taxpayer in the case) was held in contempt for failing to make proper efforts to secure information from a tax haven bank for credit card information related to her account. The court seems to have assumed that it had the contempt power to force the taxpayer to gather the records for the IRS.

I was surprised based on my anecdotal experience that the IRS could force the witness to retrieve information for the IRS. Certainly, the witness would have to produce documents within the scope of the summons held by the witness' agent (such as an attorney or an accountant). Any documents constructively in the witness' possession through agents are certainly fair game. So, the issue is whether the summons power includes the power to direct the summonsed party to use his or her best efforts to get the documents from third parties who are not agents simply because they can.

For example, can the IRS issue a summons to me for today's New York Times that I do not possess and thereby force me to go buy one that I can then produce? I do not think so.

Now, let's focus on bank records. At least for U.S. banks, the historical practice that I have encountered is for the IRS to summons the bank and not the a depositor (usually the taxpayer being investigated) to force him to retrieve the bank records and turn them over. Now, of course, for foreign banks -- tax haven banks in particular -- the IRS usually has no way to summons them or otherwise pressure them for the documents. (In countries with some type of exchange of information agreement, such as the standard double tax treaty, the U.S. with the proper information (taxpayer, bank, etc.,) can get the treaty partner to get the documents, but that is a hassle that can be short circuited through the process discussed here.) Should it make a difference whether the bank is a U.S. bank or a foreign bank or a tax haven bank in terms of defining the proper scope of the summons and contempt power?

Monday, September 28, 2009

DOJ Tax's Further Attempts to Drum Up Business / Revenue (12/26/09)

Notice: This Blog will be supplemented from time to time as I receive reports of the occurrences at the ABA Tax Section that I feel worthy of passing on.

DOJ Tax is on a public relations blitz to drum up business / revenue by incentivizing taxpayers with unreported offshore bank accounts to join the IRS voluntary disclosure initiative ending 10/15. A key facet of the blitz is the high profile indictments recently obtained. At last week's ABA Tax Section meeting, DOJ Tax rolled out its mouthpiece, Kevin Downing himself at the forefront of the prosecution side of this juggernaut, to remind practitioners and, through them and the press attendin, the public that they should pony up in the voluntary disclosure program. Here are a few highlights from the ABA Tax Section meeting (which I will supplement as more come to my attention):

1. Announcements of new prosecutions -- probably coupled with guilty pleas -- will be "a few every couple of weeks," according to Downing. Obviously, DOJ Tax wants to keep the matter in the public eye to encourage the mass of offshore account holders to open their pocketbooks and come into the fold of the voluntary disclosure initiative which expires October 15.

2. DOJ Tax and the IRS will target U.S. enablers such as banks and financial advisors. Reuters reports that, "on the sidelines," Downing advised Reuters specifically "that U.S. banks that helped U.S. clients hide money off-shore are a target."

3. The U.S. is making headway with a lot of foreign banks other than UBS. He is reported to have said: "Let your clients know if they think it's just UBS they are mistaken."

Items beginning at par. 4 were added on 9/29/09

4. Another good snippet reputedly from Downing consistent with his man on a righteous mission persona is: "I want to go after the privileged people who've had the benefits of this country and are cheating their taxes, get them in front of local juries and convict them." Lee A. Sheppard, The UBS Endgame, 2009 TNT 186-1 (9/29/2009). Even the crusty Lee Sheppard is enthralled by Himself, following up with: "It is reasonable to assume that the blasé Swiss and the complacent rich American tax cheats never counted on meeting up with a guy like Kevin Downing, senior trial counsel in the Justice Department's Tax Division, who has been leading the prosecutions against Swiss bank UBS AG. Downing, a former Marine."

Another UBS Related Plea Agreement (9/28/09)

Juergen Homann pled guilty. The DOJ press release is here. The key points are:

1. The plea agreement is to one count of willful failure to file the FBAR in violation of 31 U. S. C. §§ 5314 and 5322(a). This is a 5 year count.

2. The defendant is relieved of criminal prosecution for tax crimes related to his UBS accounts. For my students, I offer some nuance on this. Normally, one U.S. Attorney's office (USAO) cannot bind other USAOs, but this agreement joins DOJ Tax as a contracting party. DOJ Tax must approve tax and tax related crimes. Thus, as a practical matter, this binds the DOJ (which includes all USAOs). Nice. But, in true cautionary fashion, the agreement later provides that the agreement is limited only the USAO for DNJ and "cannot bind other federal, state or local authorities." The Government will, however, "bring this agreement to the attention of other prosecuting offices, if requested to do so."

3. The judge may order restitution. Note that the plea is to a nontax crime. Restitution is not allowed for a tax crime unless contractually agreed to in the plea agreement or imposed as a condition to some sentencing benefit. The other parts of the agreement suggest that the "victim" -- the United States -- may be paid before sentencing, so restitution may not be a practical issue.

4. The Government retains the right to bring appropriate sentencing factors to the sentencing court (subject to the stipulated sentencing factors discussed below). The form of this agreement is:
Rights of the Offices Regarding Sentencing
Except as otherwise provided in this agreement, the Offices reserves its right to take any position with respect to the appropriate sentence to be imposed on Juergen Homann by the sentencing judge, to correct any misstatements relating to the sentencing proceedings, and to provide the sentencing judge and the United States Probation Office all law and information relevant to sentencing, favorable or otherwise. In addition, the Offices may inform the sentencing judge and the United States Probation Office of: (1) this agreement; and (2) the full nature and extent of Juergen Homann's activities and relevant conduct with respect to this case.
5. As noted, the parties stipulate as to certain sentencing factors, but the Government reserves the right to avoid any stipulation that it subsequently determines to be untrue. Furthermore, the stipulations do not prevent the Government from responding to questions from the Court or correcting misinformation provided to the Court.

Thursday, September 24, 2009

DOJ Tax Goes Wild for Girls Gone Wild Promoter

On the eve of trial for tax evasion, Girls Gone Wild promoter, Joseph Francis, has pled guilty to two crimes. First, he pled to two counts of the lesser, much lesser tax misdemeanor (i.e., one year or less) offense of § 7207 (willful submission of a materially false return or statement). Second, he pled to a bribery offense under 18 U.S.C. § 201(c)(1)(A). The tax offenses have a maximum 2 year sentence (i..e., 1 year for each count), and the bribery offense has a maximum 2 year sentence. Hence, his maximum incarceration exposure is 4 years.

As not unusual, the parties try to steer the court to their desired result by agreeing that “the appropriate disposition of this is that the Court impose a sentence of” (i) incarceration of 301 days, being the 301 days Frances had already served, (ii) a one-year period of supervised release, and (iii) restitution of $249,705. Interestingly, perhaps in a further attempt to keep the Court on the reservation, the parties request immediate sentencing without a presentencing investigation report by the probation office. I guess the parties hope that the Judge just does not go wild.

By attachment to the plea agreement (Exhibit C), the parties stipulate a significant criminal history which hardly seems the type that would endear Mr. Francis to a sentencing court. I include the content of Exhibit C below. I would not hazard a guess as to what a court will do in Mr. Francis’ case, but I extrapolate / speculate from my own anecdotal experience (a highly selective and wholly inadequate sample) that most judges would be suspicious of the parties’ proffered 301 day sentence (not for the tax offenses alone, but for the bribery offense when considered with the tax offenses and the criminal history). We’ll see.

From a tax perspective, the interesting feature of the plea is the downgrading of the offense of conviction from the charged felony tax evasion to the § 7207 misdemeanor offenses. Most practitioners have argued for, pleaded, cajoled, etc. (but not bribed) tax prosecutors for such a downgrade without any success. (For DOJ’s policies on this, see here.) I imagine that DOJ Tax would have declined to do that here except for the bribery plea. My gut tells me that, in terms of sentencing, the sentencing judge is likely to focus more on the bribery plea and perhaps the criminal history; the maximum 4 year incarceration for the combined pleas will give the judge ample room to do justice.


The defendant's Criminal History is as follows:

(1 ) On September 26, 2006, the defendant pled guilty in the Central District of California to two counts of 18 U.S.C. § 2257(f)(1) (Failure to Make and Maintain Required Records; Aiding and Abetting and Causing an Act to Be Done);

(2) On April 23, 2007, the defendant pled guilty in the Northern District of Florida to one count of Criminal Contempt pursuant to 18 U.S.C. § 401; and

(3) On March 12, 2008, the defendant pled no contest in Panama City, Florida, to one felony count of Child Abuse, in violation of Fl. Stat. Ann. § 827.03(1)(c), two misdemeanor counts of Prostitution in violation of Fl. Stat. Ann. § 796.07(2)(f), and two misdemeanor counts of Violating a Posted Jail Rule.

Wednesday, September 23, 2009

Golf Pro Pleads Guilty to Tax Crime

A plea announcement published in this morning’s Tax Notes Today (2009 TNT 182-26) grabbed my attention. On September 22, 2009, the U.S. Attorney for the Middle District of Florida announced a plea agreement with a professional golfer, one Jimmie L. Thorpe. The announcement has not yet been posted to the press release page of the U.S. Attorney’s web site. The press release page for September is here and presumably the posting will appear today or, at least, soon.

I am not a big golf fan, so don't know who he is and where or even if he ranks in the pantheon of golfers. His celebrity status, if any aside, the plea agreement is interesting on several points of interest to the criminal tax afficionado.

First, the plea is for two counts of failure to pay under § 7203. Failure to pay is a misdemeanor (i.e., maximum sentence of one year per count). On the facts stated in the announcement, it would appear that failure to pay and/or perhaps failure to file (also criminalized under § 7203) were the crimes in play. The plea is only to failure to pay. The facts contained in the announcement establish that three years were in play. I surmise the compromise to reach agreement was that only two years / counts would be admitted, hence capping the possible punishment to 2 years incarceration. This capping of the possible sentence was likely important to the defendant because, in his case, the tax loss numbers and other sentencing considerations could easily produce a sentence greatly in excess of 2 years. I have previously published an article addressing the use of counts to cap a sentence that could otherwise go much higher. John A. Townsend, Analysis of the Fastow Plea Agreements, 2004 TNT 44-46.

Second, a subtext in some of these cases is tax evasion through failure to file and/or failure to pay (as well as at least one other affirmative act). The Government will sometimes try to make a tax evasion case where the failure to file or failure to pay is a prominent element in the attempt to evade tax. But such cases are often more difficult for the Government to make, and the Government can fall back on the more easily proved case of failure to file or failure to pay. By charging the “lesser crime,” the Government can more easily extract a guilty plea in such cases, thus satisfying its imperative to get the maximum number of convictions and prominent publicity. Thus, had the Government pursued tax evasion (a 5 year incarceration period per count), it may have had difficult incentivizing Mr. Thorpe to plead where he faced the realistic possibility of more than 2 years incarceration.

Third, the announcement indicates that the defendant may be subject to a fine of up to $4,125,152.52. The basis for the fine is not stated in the plea agreement but can be easily derived. My students will remember that the Code provisions state a maximum fine. Section 7203 states a maximum fine of $25,000 for an individual, so that with two counts the Code maximum fine would be $50,000, far short of the fine agreed to in this case. My students will also remember, however, that the real fine provision is § 3571 which permits a maximum fine for a class A misdemeanor of $100,000 for individuals or, if greater, double the pecuniary gain to the defendant or the pecuniary loss to the victim. According to the announcement, the fine amount is just double (rounded) the stipulated tax loss amount of $2,062,576.27. So, this facially explains the large amount of the potential fine. In my experience fines do not play a significant role in tax cases because the taxpayer will often have paid the tax, penalties and interest before or during the prosecution phase or will agree to contractual restitution.

Finally, the announcement implies that defendant was a repeat offender . He had previously been investigated by IRS CI for the years 1993 and 1994. The announcement notes that he had asserted a reliance on accountants defense, although the announcement does not say that this defense is why he was not prosecuted for those years. (OK, the implication is that this defense was a material part of the reason for nonprosecution, but announcement does not say that.) But, this guy was put on notice of his tax obligations and could not have reasonably expected that type of defense to fly twice, particularly given the repeated pattern for the years involved in this prosecution.

Errata: The above discussion has been amended as of 5:20pm 9/23/05 to correct a misstatement about the fine. Before revision, the statement was that the defendant had agreed to the large fine. He had not. The accouncement merely said that the fine could be up to the amount. Thanks to the readers for tolerating my hopefully infrequent errors.

Monday, September 21, 2009

IRS Extends FBAR / Foreign Entity Relief Deadline to 10/15/09

The IRS has extended to 10/15/09 the deadline for joining its special initiative voluntary disclosure practice with respect to foreign bank accounts and entities. The announcement is here. The IRS updated its FAQs here with this extension (see opening unnumbered paragraphs).

I think this will be win-win for the IRS. There will still be plenty of taxpayers who choose not to try to enter the program or, if they try, will be disqualified. The initiative and this extension will thus flush out a lot of tax dollars with relatively little IRS audit / criminal investigatiove costs, and much of the dollars might have otherwise escaped the IRS's radar screen or willingness to pursue.

I think it will also be win-win for the taxpayers involved. The taxpayers entering the practice and not disqualified will receive a pass on criminal prosecution and will pay taxes, penalties and interest that are far less than might otherwise be the case.

Friday, September 18, 2009

Scalia on My Cousin Vinny

I head off in about an hour to San Francisco for baby sitting chores for the weekend. Since I have been crunched lately with the voluntary disclosure initiative expiring 9/23 (which, by the way, is my birthday), I have been silent for a while, but today I offer something on the lighter side. I cover civil and criminal tax litigation in my classes at UH Law and recommend to my students. If nothing else, it is great entertainment, but it also, even though exaggerated has has some good things about litigation.

In this morning's ABA Journal here, I picked up the following:
During his Chevy Chase, Md., appearance, [Justice] Scalia also offered some personal information about himself, revealing that his favorite legal movie is My Cousin Vinny * * *.

And, the justice added, the character played in the movie by actress Marisa Tomei is "a killer."

The politico article from which this came is here.

And the ABA Journal here has another article referencing My Cousin Vinny. A good reade.

Thursday, September 10, 2009

Certainty of the Law's Command and Willfulness (9/10/09)

In my last blog here, I concluded as follows:
In this proposed instruction, the court pre-empts the issue of uncertainty in the law. Once the court finds the uncertainty in the law, then, as in James, any conviction based on the defendant’s intent to violate the law is irrelevant. (I will discuss this aspect of James in my next blog.)
The James point is that, if the law is uncertain in some objective sense, the defendant can have the blackest, darkest, most evil specific subject intent to violate the law, and that will be irrelevant. Anglo-American jurisprudence simply does not permit convictions for evil intent alone. The following is from my recent article (John A. Townsend, Is Making the IRS's Job Harder Enough?, 9 Hous. & Bus. Tax L.J. 260, 263-4 (2009), here):
In its third meaning - i.e., in the Cheek meaning applicable to substantive tax crimes generally [that the defendant know the law and intend to violate it] - the requirement of willfulness has both objective and subjective components. 47 Objectively, as a matter of law, the law's command must be knowable - the law's command is sufficiently certain that it is capable of being known by a citizen. 48 Subjectively, the defendant must have actually known the rule and have intended to violate it. 49

The objective component invokes the court's function to determine whether the law is sufficiently certain that it sets an appropriate standard to guide and judge conduct where the law requires that the defendant know that he or she is violating the law. If it does not, then even if the defendant clearly intended to violate some law that he mistakenly thought was certain, he cannot be tried for it. 50
n47. See supra note 46 and accompanying text.
n48. See, e.g., United States v. Pirro, 212 F.3d 86, 91 (2000) ("Because only willful conduct is criminal under § 7206 and because willfulness requires a voluntary intentional violation of a known duty, the duty involved must be knowable.") (internal quotations omitted); see also James v. United States, 366 U.S. 213, 224, 82 S. Ct. 1052, 1058 (1961) [here] (describing what a "knowable" legal duty is); United States v. Critzer, 498 F.2d 1160, 1162-63 (4th Cir. 1974); Garber v. United States, 607 F.2d 92, 97-98 (5th Cir. 1979) (en banc); United States v. Dahlstrom, 713 F.2d 1423, 1428 (9th Cir. 1983), cert. denied, 466 U.S. 980 (1984); United States v. Mallas, 762 F.2d 361, 363 (4th Cir. 1985); United States v. Harris, 942 F.2d 1125, 1131 (7th Cir. 1991). Uncertainty of the law's requirements, often the by-product of tax law complexity and ambiguity, can defeat willfulness as a matter of law. See, e.g., Harris, 942 F.2d at 1131. The civil penalty regime of the tax law includes concepts for analysis in dealing with uncertainty in the law. The tax world deals daily with concepts such as frivolous, non-frivolous but not reasonable, reasonable basis, substantial authority, more likely than not, should, will or what have you. See infra note 75. By analogy to the willfulness requirement of the criminal tax laws, only the frivolous position would seem to support an environment where, as a matter of law, the taxpayer or the practitioner could be willful. This knowability standard is closely related to the rule of lenity, discussed below. See infra Part VII.
n49. See Cheek, 498 U.S. at 201; Bryan, 524 U.S. at 193-94.
n50. This point is established by the majority, concurring, and dissenting opinions in James v. United States, 366 U.S. 213, 221-22, 224-25, 246 (1961), a tax evasion case. After trial, the jury found the defendant guilty, which necessarily meant that the jury found he intended to violate the tax law. Id. The Supreme Court said that the law was sufficiently uncertain that a defendant could not be held to the standard even if he may have intended to violate the law. Id.

Tuesday, September 8, 2009

Uncertainty in the Law As a Defense in Tax Cases

Recently, I posted a blog here on our firm’s sister site, Tax Controversy Update, which deals principally with the civil side of tax controversy practice. My partner, Larry Jones, takes the laboring oar for the Tax Controversy Update blog, but sometimes I make contributions. The topic of my recent blog was the Tax Court’s rebuff of a taxpayer’s request for discovery of the many MLTN opinions regarding Son-of-Boss shelters in the IRS’s possession. The taxpayer urged that this discovery was relevant to the taxpayer’s reasonable cause defense against the assertion of the accuracy related penalty. The taxpayer’s rationale for relevance was that the fact that there were many supposedly reputable law firms giving MLTN opinions for the Son-of-Boss transaction somehow supported the reasonableness of the taxpayer’s reliance on the particular MLTN opinion that the taxpayer allegedly relied upon. The Tax Court rejected the request for discovery based on relevance grounds and based on the general prohibition of Section 6103.

I would like in this Federal Tax Crimes Blog to expand that discussion into the criminal arena. I will try to be brief, but caution that it is a large subject and thus being brief necessarily entails painting in broad strokes.

The starting point is the seminal rule in tax crimes that, if the law is not certain, there can be no criminal conviction. This concept has developed from a line of Supreme Court cases from James to Cheek to a host of lower court cases (Dahlstrom, Critzer, Garber, Harris, Pirro). For a taxpayer to be convicted, the law must first be knowable (an objective standard) and the taxpayer must in fact know the law and intend to violate the law (a subjective standard).

The Son-of-Boss shelters exploited Helmer v. Commissioner, 34 T.C.M. (CCH) 727 (1975), a case in which the Tax Court adopted the IRS position as that contingent liability was not a liability. The precise parameters and potential scope of the Helmer holding (and cases with other similar holdings) was uncertain for years and became the basis for a number of shelter manipulations, including the Son-of-Boss shelters. The IRS finally began shutting down Son-of-Boss by a Notice in 2000 by making them listed transactions. The IRS thereafter adopted its position in regulations that, under Chevron, may adopt among competing positions and establish the law. But before that occurred, as several courts have noted, Helmer was a fair interpretation of the state of the law.

Prior to at least the 2000 Notice, Helmer was a fair interpretation of the law. I doubt that, under the knowable standard, shelters exploiting Helmer alone could be considered criminal on the notion that the world should know that Helmer was not the law. And, certainly, given the uncertainty in the law and its common use in shelters designed by prominent legal professionals, I am certain that many people participating in the shelters would have known that Helmer was not the law. I would think that the state of interpretation of the law among many practitioners should be considered by the Court in determining knowability and is relevant to the issue of whether the particular defendants knew that knowable law and intended to violate that known law.

The problem with these shelters, as I have noted earlier, is the lie. They, like many of the earlier shelters, had plausible – noncriminal – legal constructs; the problem was that the facts – often the economics – simply did not support the legal constructs. In Son-of-Boss, because of the economics of the shelter, the lie presented itself in the profit motive representation that was the infirm foundation for the whole superstructure. The Helmer legal foundation itself was criminal. Unless that distinction is made clear to the jury, the jury might convict simply because it believes that the defendant(s) criminally behaved by participating in a something too good to be true – artificial basis by a legal fiction of contingent liability. The lie may not be the reason the jury convicts or it may convict because of mixed legal reasons. Unless carefully instructed the jury could convict because the jury believes that the Helmer legal fiction was not true and the defendants knew it was not true. I think that the instruction should be something like (more artfully worded but the concept is here).
In determining whether the defendant(s) is guilty of the crime of tax evasion (or whatever crime is alleged), you must assume that the law does or should permit a taxpayer to create artificial basis by use of contingent liability of the type alleged in this case. You are only to convict if you find that the defendants knew that the purported factual basis supporting the use of the contingent liability here was in fact false.

Sure, the court should fluff it up and flesh it out, but that is the concept.

In this proposed instruction, the court pre-empts the issue of uncertainty in the law. Once the court finds the uncertainty in the law, then, as in James, any conviction based on the defendant’s intent to violate the law is irrelevant. (I will discuss this aspect of James in my next blog.)

Wednesday, September 2, 2009

Confusion about the Defraud Conspiracy (9/2/09)

Conspiracy is a frequent charge in tax related indictments. Indeed, Judge Easterbrook of the Seventh Circuit has lamented, with some hyperbole, that, in federal crimes generally, a conspiracy charge is “inevitable because prosecutors seem to have conspiracy on their word processors as Count I; rare is the case omitting such a charge.” United States v. Reynolds, 919 F.2d 435, 439 (7th Cir. 1990) (Reynolds is important in the tax crimes area for other reasons, but I won't digress).

The general conspiracy statute (18 U.S.C. § 371) defines two types of conspiracy -- an offense conspiracy and a defraud conspiracy. The offense conspiracy is a conspiracy to commit an act otherwise defined in the law as an offense. A tax example is a conspiracy to commit tax evasion; tax evasion is a substantive offense defined in 26 U.S.C. § 7201. The defraud conspiracy is not a conspiracy to commit a substantive offense, but in a tax setting is a conspiracy to impair or impede the lawful functioning of the IRS in the administration of the tax law. In a tax setting, the defraud conspiracy is often referred to as a Klein conspiracy, named after the leading case of United States v. Klein, 247 F.2d 908, 920 (2d Cir. 1957), cert. denied 355 U.S. 924 (1958).

In a recent article (cited at the end of this blog), I note the importance of distinguishing between the two types of conspiracy in tax crimes because the offense conspiracy requires the same proof of mens rea as the substantive offense that is the object of the conspiracy. Although the conspiracy statute says nothing about willfulness, when tax crimes are the object of the offense conspiracy, a willfulness element is imported as an element of the offense conspiracy because tax crimes require willfulness. Willfulness is a high standard of proof -- that the defendant knew the law and intended to violate the law. (By contrast to other areas of the law, the crime is committed if the defendant knew he was doing the activity that the law defines as criminal whether or not he knew that the law so defined the activity as criminal; ignorance of the law is no excuse; in tax crimes, however, ignorance of the law is an excuse.) The defraud conspiracy, like the offense conspiracy, has no textual requirement of willfulness but, unlike the offense conspiracy, has no referrant from which to import a requirement of willfulness.

For purposes of this blog, I just want the reader to understand that the offense conspiracy requires an offense as the object of the conspiracy whereas the defraud conspiracy does not. So, with that background, consider the following statement in a case I read today:

Get in Line Brother #25 - IRS Plans for Life After Voluntary Disclosure

In an article in today's Tax Notes Today, David Stewart reports that the IRS is creating "a new group within its Large and Midsize Business Division to examine wealthy taxpayers who use offshore arrangements for tax evasion."

The focus of the new group is "on examinations involving webs of entities and arrangements controlled by the high wealth taxpayer segment."

This development should be considered by those still sitting on the fence as to whether to join the IRS's voluntary disclosure initiative which ends 9/23/09. For those who had already decided to just hunker down for the long haul (hoping the statutes of limitations expire without discovery) rather than join the inititive, this might be a reason to reconsider that decision. Of course, many who have made the decision to hunker down are individuals with direct ownership involving no foreign entities or maneuverings to further obscure their ownership. In the current groupthink, these individuals with, to use sentencing jargon, less sophisticated means / culpability, may not be the focus of this particular follow-through, but the unquantifiable risk is that many of these persons will be discovered in the process of the new IRS group's activities. Their ability to hunker down without discovery for the long-term may be impaired. Moreover, at least for banks in Switzerland and even other countries in the ambit of influence of the OECD, the same imperatives that caused relaxation of treaty interpretation for Switzerland may encourage them to be more open than they previously have. Keep in mind that there is a long statute of limitations on potential civil and criminal penalties, so hunkering down involves years of a long period of potential risk, even if they clean up their acts on a go-forward basis.

Article citation: David D. Stewart, New IRS Group to Examine Wealthy Individuals Using Offshore Arrangements for Evasion, 2009 TNT 168-1.

9/2/2009 9:20 - see also a Bloomberg News article here.