Thursday, December 29, 2011

Collateral Estoppel on Economic Substance from Prior Criminal Conviction (12/29/11)

In Princeton Strategic Investment Fund, LLC v. United States, 2011 U.S. Dist. LEXIS 147339 (ND CA 2011) (will post a copy when I get a non-copyrighted copy), the principal issue was whether, in a civil TEFRA partnership case, a partnership was bound by the doctrine of collateral estoppel because of the prior convictions of principals affiliated with the partnership.  The criminal case was the criminal convictions of Messrs. Robert Pfaff, John Larson and R. J. Ruble.  (I  refer to this criminal case as United States v. Pfaff (see prior blog on the Second Circuit's affirmance, here.)  United States v. Pfaff was the remnant of the much larger indictment in United States v. Stein in which 13 of the defendants were dismissed for prosecutorial abuse.  (See United States v. Stein, 541 F.3d 130 (2d Cir. 2008).)  These cases arose from the KPMG related shelters, principally the BLIPS shelters.

Messrs. Pfaff and Larson were principals in the firms controlling the partnership and thus all the decisions regarding the BLIPS transaction.  More importantly, they were convicted of a count of conviction for tax evasion with regard to the partnership and tax losses in question.  So the issue was whether the partnership would be collaterally estopped because of their convictions.

The Legitimacy of the Court (12/29/11)

There is an aphorism that the law is what the Supreme Court says it is.  That aphorism probably means whatever the speaker or listener thinks or wants it to mean.  To me, it does not mean that the Supreme Court makes decisions guided only by the world view of a majority of its Justices, but simply that, ultimately, the pronouncement of the majority as to the meaning of the law is the law.  The role of the majority's world view is much more complex.

Linda Greenhouse has written an excellent article on this process and the public view of the Supreme Court's legitimacy where the public recognizes that judicial decision making is not just a matter of calling balls and strikes but is sometimes a process of calling where the strike zone is.  (That's my analogy, not hers; for a fascinating read on the strike zone, see the Wikipedia entry here noting that MLB has "occasionally increased or reduced the size of the strike zone in an attempt to control the balance of power between pitchers and hitters.")

Ms. Greenhouse's article is Linda Greenhouse, What We Think About When We Think About the Court (NYT Opinionator 12/28/11), here.

Wednesday, December 21, 2011

Second Circuit Bad Acts Evidence and Sentencing Decision (12/21/11)

In United States v. Cadet, ___ F.3d ___, 2011 U.S. App. LEXIS 25144 (2d Cir. 2011), here, the Second Circuit addressed several criminal tax issues that, while not particularly exceptional, offers good reminders to readers.

First the background of the case.  The defendant was a return preparer who, allegedly, falsified tax returns for his clients.  As the case went to trial, the charges were 20 counts for Aiding and Assisting, Section 7602(2) for claiming false deductions for the clients.  The defendant was convicted of 16 counts and sentenced to 41 months incarceration and 36 months of supervised release.

Rule 404(b) - Bad Acts Evidence

The Court first addressed Rule 404(b) bad or other acts evidence.  (Other acts may be a bit of a euphemism, since the whole point is for the prosecutor to bring bad stuff about the defendant to the jury's attention to influence their decision to convict.)  The evidence was an IRS agent's testimony that, in a sting operation, upon the IRS agent's statement of concern about the indicated tax payment due, the defendant had offered to use "creative financing" -- really false deductions -- that reduced the indicated tax liability and generated an indicated refund.  So the agent testified, the defendant generated this discussion and charged a higher fee for the indicated results.

The trial court admitted the evidence in under FRE Rule 404(b), although there were no charges related to that conduct.  The defendant objected on appeal but the Second Circuit affirmed.  The analysis is straight-forward and I quote it below (shorn of some case citations and with some quotation marks omitted for better readability).  I do call to readers attention that, in a footnote, the Court deals cryptically with a significant difference between the agent's contrived circumstance and the clients' on the charged counts.  Here is the discussion (most case citations omitted and case quotation marks omitted for readability):

Tuesday, December 20, 2011

Off Topic - A Man Who Was Hardly Strictly Bluegrass (12/20/11)

Since I started this blog, I have had a link in the miscellaneous section on the right to "Hardly Strictly Bluegrass," an annual San Francisco happening sponsored by Warren Hellman -- a force.  I had never heard of Warren Hellman, the sponsor of the event, until the Hardly Strictly Bluegrass annual event crept into my consciousness. Hellman died Sunday.  I thought I would offer links to some of the articles on his life:

Don Clark and Stephen Miller, An Eye for Investments and an Ear for Bluegrass (WSJ 12/20/11), here.

Peter Lattman, Warren Hellman, 77, Investor Who Loved Bluegrass, Dies (NYT 12/19/11), here

Lee Romney, Warren Hellman obituary: San Francisco financier, bluegrass fan (LAT 12/20/11), here

Adam Lashinsky, Sr., Remembering Warren Hellman (CNNMoney 10/19/11), here.

David R. Baker, Warren Hellman, financier and philanthropist, dies at 77 (SFGaste 10/19/11), here.

From one of the articles:

In Warren Hellman we are reminded that those of outsized achievements can be mensches as well.

In addition to the link on the bottom right to the Hardly Strictly Bluegrass web site, here is the link to the Facebook page.

Monday, December 19, 2011

Summary of Foreign Trust Reporting and Penalties (11/19/11)

In ILM 201150029 (11/9/11), the IRS concludes that the Section 6677 penalty for failing to file a foreign trust information return is not divisible for purposes of conferring jurisdiction in a refund suit upon payment of less than the entire amount.  The divisible tax concept deals with the predicates for litigating liability for the tax.  The divisible tax concept mitigates the so-called Flora rule (Flora v. United States, 362 U.S. 145 (1960)) which generally requires full payment before a refund suit may be brought.  For example, the trust fund recovery penalty (TFRP) is a divisible penalty per employee per quarter and thus, upon the IRS's assessment of the TFRP, the taxpayer may pay a relatively minimal amount of one quarter's assessment to litigate in a refund suit.  The IRS's conclusion in this new ILM, if accepted by the courts, will make litigation of the Section 6677 penalty more onerous and, depending upon the taxpayer's financial condition, perhaps prohibitive.  Astute readers of the ILM will be able to pick up and attempt to exploit counter-arguments.

Rather than the issue of remedies which is the main focus of the ILM, I will quote the discussion in the ILM of the events that give rise to the Section 6677 penalty, because the discussion is quite succinct and therefore may be helpful to readers.  Here are the pertinent portions:
1. Section 6048 
Section 6048 contains three distinct and separate reporting obligations. First, under section 6048(a), a responsible party must inform the Service of each occasion upon which a U.S. person creates a foreign trust, transfers money or property to a foreign trust, or when a citizen or resident of the United States dies if the decedent owned a portion of a foreign trust. Second, under section 6048(b), a U.S. person treated as owning a foreign trust under the grantor trust rules (sections 671 through 679) must report information with respect to that trust and also must ensure that the trust itself reports information to the Service and to each U.S. person treated as owning, or receiving a distribution from, the trust. Lastly, under section 6048(c), any U.S. person who receives a distribution from a foreign trust during the taxable year must report information about that distribution to the Service. 

John Doe Summons Fishing for Domestic Tax Cheating (12/19/11)

After suffering an initial defeat in obtaining approval for California records of real property transfers to children and grandchildren by gift (see prior blog John Doe Summonses & Statutes Of Limitations (5/27/11), here, the IRS has persisted and come up with a winning formula for the John Doe Summons.  See Janet Novack, Federal Judge Green Lights IRS Search For California Gift Tax Cheats (Forbes 12/18/11), here. From Ms. Novack's article:
In an affidavit filed in the California case in October, Josephine Bonaffini, the Federal/State Coordinator for the IRS’ Estate and Gift Tax Program, said the agency has so far examined 658 taxpayers identified as transferring  property to relatives and concluded that 238 of them should have, but didn’t,  file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Twenty of those delinquent filers have already been assessed extra tax because they had exceeded the amount each person is allowed to transfer gift tax free, she said.
Sound like fertile ground for targeted use of limited audit resources.

The most famous use of the John Doe Summons -- at least in recent history -- is its use for offshore financial institutions, starting famously with the attack on the use of offshore credit cards and progressing most recently to its use against certain offshore banks, most prominently UBS.

Friday, December 16, 2011

Second Circuit Conscious Avoidance Decision in FCPA Case (12/16/11)

In United States v. Kozeny, 667 F.3d 122 (2d Cir. 2011), here, the Second Circuit addressed the conscious avoidance concept in the context of an FCPA conviction which requires that the defendant act knowingly.  I won't slice and dice here the theoretical differences, if any, between the element knowingly and the element willfully in tax crimes, for that distinction is irrelevant to the points I make in this blog entry.  Suffice it to say that I believe that the conscious avoidance concept applies the same in both contexts.

The Government's theory at trial in Kozeny was that the defendant there (actually one Bourke) acted knowingly -- that he knew what he was doing was illegal.  The district court gave the following  instruction, presumably at the request of the Government:
The FCPA provides that a person's state of mind is knowing with respect to conduct, a circumstance, or a result if, and I'm quoting from the statute, the FCPA, if such person is aware that such person is engaging in such conduct; that such circumstance exist [sic] or that such result substantially is certain to occur, or such person has a firm belief that such circumstances exist or that such result is substantially certain to occur. That's the end of the quote. 
When knowledge of existence of a particular fact is an element of the offense, such knowledge may be established when a person is aware of a high probability of its existence, and consciously and intentionally avoided confirming that fact. Knowledge may be proven in this manner if, but only if, the person suspects the fact, realized its high probability, but refrained from obtaining the final confirmation because he wanted to be able to deny knowledge. 
On the other hand, knowledge is not established in this manner if the person merely failed to learn the fact through negligence or if the person actually believed that the transaction was legal.

IRS Pronouncements on Section 6038D 2011 Filings for Foreign Assets (12/16/11)

The IRS published yesterday temporary and proposed regulations regarding the Section 6038D filing requirement.  As previously noted, the Form 8938 is used, and will commence for tax years after March 18, 2010.   The IRS web page for the Form 8938 is here. The IRS explains in a web page titled Explanation of Section 6038D Temporary and Proposed Regulations, here.  The actual proposed and temporary regs are here and here, respectively, The following is from the version of the IRS Explanation web page dated 12/15/11, with some of the items simply cut and pasted from that web page:.

1. The foreign asset reporting requirement applies to individuals required to file 1040 or 1040-NR and to domestic entities, although only the individual form, Form 8938, is available now.

Exception to Bankruptcy Discharges for Fraudulent Returns or Willful Attempts to Evade or Defeat Tax (12/16/11)

A new case, United States v. Clayton, 2011 U.S. Dist. LEXIS 144031 (MD NC 2011), just in time for the Christmas season, offers a reminder about the confluence of tax and the bankruptcy discharges.  Generally, debtors are entitled to take bankruptcy and be discharged from their debts.  The operative word here, of course, is generally.  And, specifically with regard to tax debts, debtors may often be discharged from their tax debts.  The operative word here is often.

In my Tax Procedure book, I summarize the rules of discharge for individuals as follows:
Income taxes of individuals are not discharged for taxes in the following categories:  (i) taxes where the due date for the return is within three years of the date the bankruptcy petition was filed; (ii) taxes due for a year for which no return was filed; (iii)  taxes for a year for which a delinquent return was filed within 2 years of the bankruptcy petition date; and (iv) taxes (but not penalties) attributable to a fraudulent return or an attempt to evade or defeat the tax; and (v) taxes assessed within 240 days of the date of filing the bankruptcy petition, plus any time plus thirty days during which an offer in compromise was made within 240 days after the assessment was pending. 
Clayton focuses on the procedure for the discharge in the context of the Government's claim that Section 523(a)(1) exempted the tax in question from discharge.  That section exempts tax where "the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax."  (The disjunctive "or" describes arguably different culpable acts, and that disjunctive is relevant to one argument made in Clayton.).

Monday, December 12, 2011

Bad Acts Admissible as Intrinsic Evidence without Regard to FRE 404(b) (12/12/11)

I have written before about government attempts to end run the strictures of FRE Rule 404(b) by arguing that the evidence in question, even if of the type the Rule 404(b), here, would prohibit, could still be admitted if it is intrinsic to the crime(s) charge.  This type of evidence is usually prejudicial to the defendant which is why the prosecutors want it in and the defendant does not want it in.  We have posted that the Seventh Circuit, having previously sanctioned an "inextricable intertwinement" test of intrinsic evidence, had backed away from that test.  See Seventh Circuit Sounds the Death Knell for Inextricable Intertwinement as End-Run Around Rule 404 and 403 (8/3/10), here.

In a recent case, United States v. Shelow, 2011 U.S. Dist. LEXIS 151626 (ED PA 2011), a district court summarized the state of the Third Circuit's consideration of this issue as follows (case citations and some quotation marks omitted for readability):
Rule 404(b) does not apply "to evidence of acts which are 'intrinsic' to the offense charged." Fed. R. Evid. 404(b) advisory committee's note to 1991 amendments. The Third Circuit recently rejected the definition of "intrinsic evidence," common in other circuits, as evidence that is "inextricably intertwined" with the charged offense. United States v. Green, 617 F.3d 233, 248 (3d Cir. 2010), cert. denied, 131 S. Ct. 363 (2010). n2 In Green, the Third Circuit held that the "intrinsic" label applies only to two narrow categories of evidence. The first category is evidence of uncharged acts that directly proves the charged offense.  The second category is evidence of uncharged acts performed contemporaneously with the charged crime that "'facilitate the commission of the charged crime.'" For example, in a hypothetical case where the defendant is charged with the sale of contraband, the defendant's necessary possession of that contraband would be a facilitating act. Evidence of other acts outside of these two narrow categories is extrinsic. 
   n2 The Third Circuit has distinguished its definition of intrinsic evidence from "most courts of appeals," which "hold that acts are 'intrinsic' to the charged offense if they are 'inextricably intertwined' with that offense." Green, 617 F.3d at 245. Before renouncing the "inextricably intertwined" test in Green, the Third Circuit critiqued the definitions of intrinsic evidence as either inextricably intertwined with the charged offense or completing the story' of the charged offense as too narrow and too broad, respectively. However, the Green Court noted that it is unlikely that our holding will exclude much, if any, evidence that is currently admissible as background or 'completes the story' evidence under the inextricably intertwined test.

IRS Gives Agents the Authority for Summonsing Metadata (12/12/11)

In ILM 201146017 (10/14/11), here, the IRS concludes that it may summons a taxpayer's electronic data files (or backup files) in order to obtain associated metadata.  That is the bottom-line conclusion, but the ILM applies the rule in several discrete circumstances.

The ILM defines metadata as and the need for it succinctly:
Generally, metadata is information that describes how, when, and by whom a particular item or set of electronic information was collected, created, accessed, modified, and formatted. The questions above arise in the context of examinations of taxpayers that keep their business records electronically with metadata automatically created as an integral part of the records. In many instances, the Service's examinations would be advanced by accessing metadata that identifies the original date a transaction was entered in the electronic records, the dates of any changes to the entries, and the username of the person who made the entries. The value inherent in an examiner's ability to obtain the date and source of recorded entries is self-evident; the information tends to support or undermine the credibility of the entries in the business records.
See also for types of metadata, the Wikipedia entry on Metadata, here.

"Opting Out" of OVDI and OVDP; What is Really Happening? (12/12/11)

There has been a lot of speculation all over the lot about what the IRS will do on so-called opt-outs from the OVDI and OVDP.  Much of the speculation is that the IRS will be draconian in determining the presence of willfulness for the FBAR willfulness penalty or in applying the FBAR nonwillful penalty.  I personally do not think the IRS will be draconian, but realize that that conclusion is in the eye of the beholder.

I offer this blog entry so that readers can offer real world experiences as to what has happened to them (or, if in process, what is happening to them) after they opt out.  I hope readers will also offer hints and strategies as to how others might mitigate the damage on the opt out.  There is a lot of angst, particularly in the taxpayer community, about the opt out process.  I hope that the comments will offer some comfort to those in the stage of considering whether to opt out or, having made the decision, are at the early stages of the process.

Readers might want to review other blogs relating to the opt out process, which I collect under the links below.

  1. "Opting Out" #2 (3/2/12), here
  2. "Opting Out" #3 (4/4/12), here.

Seventh Circuit Notes Circuit Conflict Over Section 7206(2)'s Disjunctive Textual Requirement (12/12/11)

In United States v. Joyner-Williams, 2011 U.S. App. LEXIS 24511 (7th Cir. 2011), here, the Seventh Circuit by summary order rejected an appeal in which the defendant's counsel filed an Anders brief (Anders v. California, 386 U.S. 738 (1967)) notifying the court that counsel believed the arguments were frivolous and moved to withdraw.  So, summary affirmance is not surprising.  But, the short order contains an interesting footnote regarding the aiding and assisting, Section 7206(2), crime of conviction:
Our understanding of the statutory elements as expressed in Palivos and Hooks appears to be in tension with the text of the statute. Section 7206(2) literally says that a person commits the crime by assisting in "the preparation or presentation" of fraudulent documents in connection with matters arising under the internal revenue laws. This court and the Ninth Circuit, however, read the statute in the conjunctive to require that a defendant assist in both preparing and filing the document. See United States v. Kellogg, 955 F.2d 1244, 1248-49 (9th Cir. 1992) (citing United States v. Dahlstrom, 713 F.2d 1423, 1429 (9th Cir. 1983)). Five other circuits appear to have a contrary view. Three circuits have held—although two of them in unpublished decisions—that preparing a fraudulent return or other document, whether or not filed, is sufficient to violate the statute. United States v. McLain, 646 F.3d 599, 604 (8th Cir. 2011); United States v. Borden, 269 F. App'x 903, 904-05 (11th Cir. 2008) (nonprecedential decision); United States v. Feaster, 843 F.2d 1392, 1988 WL 33814, at *2 (6th Cir. Apr. 15, 1988) (nonprecedential decision). Two other circuits have expressed doubt that the act of filing is an essential element under § 7206(2); both courts hold that even if filing is an element, that element is met when a defendant gives a false return to a third party who is obligated by law to file the return with the IRS. United States v. Cutler, 948 F.2d 691, 694-95 (10th Cir. 1991); United States v. Monteiro, 871 F.2d 204, 209-10 (1st Cir. 1989). It is not necessary to resolve this issue here because there is no question that Joyner-Williams both prepared and filed false tax returns. Moreover, the district court instructed the jury using this court's conjunctive reading of § 7206(2), which, as recognized by the circuits that disagree with us, is more favorable to defendants than the statutory language would seem to permit.

Saturday, December 10, 2011

More on the Strategic Decision to Not Testify as to Good Faith (12/10/11)

In United States v. Stierhoff, 2011 U.S. Dist. LEXIS 138418 (D RI 2011), decided 11/30/11, the defendant was a stalker who also had failed to report and pay tax.  He was convicted by the state of Rhode Island for stalking.  The feds then slammed him with indictment for income tax evasion of approaching $460,000.  He was convicted.  He appealed.  He lost. United States v. Stierhoff, 549 F.3d 19 (1st Cir. 2008).  Stierhoff took another grasp with a motion "a motion to vacate, set aside or correct a sentence pursuant to 28 U.S.C. § 2255."  He lost again.  United States v. Stierhoff, 2011 U.S. Dist. LEXIS 138418 (D RI 2011).

What was his most recent gripe?  He claimed his right to effective representation was denied.  That is usually done in a 2255 proceeding, so nothing unusual here.  As the court noted, "Success on a claimed violation of the right to effective representation of counsel requires a showing of both "deficient performance by counsel and resulting prejudice." [Citations and quotes omitted]  He urged a number of failures by his trial counsel, but the only failure the court could find was his failure to meet the requirements for success.

He raised several points which I find generally unexceptional, but one of his arguments does address a theme I have discussed before -- the interplay between a Cheek good faith defense and the need for a defendant to testify in order to successfully assert the defense.  See my prior blog Making a Cheek Good Faith Defense without Testifying (11/24/11), here.

Stierhoff complained that his attorney was
that trial counsel was ineffective because he advised Stierhoff not to testify and thus failed to have Stierhoff testify about whether he believed he had a legal duty to pay taxes. Likewise, Stierhoff claims that appellate counsel was ineffective for failing to raise the issue. Stierhoff argues that this testimony would have been particularly important to disprove willful intent. Stierhoff contends that trial counsel did not explain to him that the "only way . . . to... counter the substantial amount of circumstantial evidence" would be for him to testify about his good faith belief that he was not violating tax law.
So, here is the Court's excellent discussion of that claim.  I omit most case citations and quotation marks and the footnote for easier readability:

Friday, December 9, 2011

IRS Guidance on U.S. Persons with Foreign Assets and, Coincidentally, Quiet Disclosures on FBAR Delinquencies (12/9/11)

Yesterday, I posted on the News and Rumors page a new IRS web page (or newly revised web page) that provides a fair, succinct summary of obligations for foreign assets, including foreign financial accounts.  The web page is titled U.S. Citizens or Dual Citizens Residing Outside the U.S. (dated 12/7/11), here.  I think, at least on a go-forward basis, this page should be reviewed by all U.S. citizens and non-citizen U.S. persons with offshore assets.

In brief, the page covers (i) the income tax return filing obligations (including the new foreign asset Form 8938 for income tax returns beginning in 2012)  and (ii) the FBAR filing obligations.  The page also summarizes relief from penalties that might apply for income tax underreporting and underpayment and for failure to file FBARs.  It is a good summary.  It is particularly good at providing a fair sense of when the taxpayer may have reasonable cause for income tax and FBAR deficiencies.  This is not definitive advice as to when the reasonable cause exception may apply in a specific case, but for the relatively uninitiated, it is a good starting point.

The FBAR discussion is, in my judgment, incomplete.  It says that a U.S. citizen "may be required to report your interest in certain foreign financial accounts" on the FBAR.  U.S. citizens (and indeed non-U.S. citizens required to file an FBAR) should remember that it is not just a beneficial or title ownership interest that must be disclosed but also signatory and other authority over the account beneficially owned by another person.

Although the page is specifically addressed to U.S. citizens (dual or otherwise) living outside the U.S., the matters covered also apply to U.S. citizens living in the U.S. and non-citizen U.S. persons (e.g., U.S. resident aliens) who own foreign assets (including foreign financial accounts) or, as to the FBAR, have signatory or other authority over foreign financial accounts.

Now, to a point that might particularly interest readers of this blog,  The Fact Sheet does offer some fairly cryptic guidance as to what to do about the past.

Thursday, December 8, 2011

Another UBS Customer Indicted (12/8/11)

Amir Zavieh, a naturalized citizen and resident of San Francisco, has been indicted in the Southern District of Florida.  The indictment is here and the DOJ press release is here.  I have only been able to review the indictment lightly, but I do note that Renzo Gadola, a former Swiss banker cooperating with the Government plays a prominent role as an alleged co-conspirator.  For prior blogs on Gadola, see here.  It is payback time for DOJ's generosity to Gadola!  And Gadola's former sidekick, Martin Lack, is involved as well, also named an alleged co-conspirator.  Lack is or was a Swiss banker who was indicted in August.  See my  prior blog, New Swiss Enabler Indictment (8/2/11), here.  Last I heard, Lack is on the lam and likely to remain so.

It is a familiar pattern of skulduggery and trying to avoid detection.  For those with time on their hands, the alleged Overt Acts of the conspiray may be a good cure for insomnia (alright it is interesting to some tax crime afficionados).

I will post later any items I feel worthy of particular note:

Taxpayer: Amir Zavieh
Bank : UBS and "Cantonal Bank" (a pseudonym)
Counts: Conspiracy (1 count)
Entities: ?
Maximum incarceration period: 60 months
Tax Loss: ?
Court: SD FL
Judge: Donald M. Middlebrooks

Wednesday, December 7, 2011

For Taxpayers and Practitioners Who Cannot Make the 12/8/11 OVDI Deadline (12/7/11)

Most readers of this blog know that there is a 12/8/11 deadline for submissions of the OVDI 2011 package if an extension was requested.  The question is what to do if you can't submit a complete package by that date?  There seems to be a lot of concern among taxpayers and practitioners that taxpayers might be kicked out of OVDI 2011 if the package is not submitted in substantially complete form.  (Whether being kicked out is such a bad thing is something concerned taxpayers should discuss with their practitioners; that is a fact intensive inquiry that I can't address here, other than to identify the issue.)

The purpose of today's blog entry is to offer to readers of this blog only some anecdotal indications of what to do if a reasonably complete package cannot be posted by tomorrow.  Readers must understand that these are only anecdotal indications of what to do and in no way binds the IRS.

First, and probably the most direct way to get some indication from the IRS is to call the OVDI Hotline or some other person associated with the process.  At the recommendation of a fellow practitioner, I yesterday called Carl Barkow, OVDI Supervisor in Austin (512) 460-8953.  Basically, he said that, in the event that despite due diligence, the taxpayer is unable to submit a reasonably complete package, the taxpayer should  submit whatever he or she could submit, along with a cover letter explaining why the package is not reasonably complete and then submit the other items no later than 12/31/11.  I gave him my name, but I don't think he recorded it, and he did say that he was getting a number of calls on this and was giving this advice / suggestion.  So, I think this advice was intended to be generic and not specific to me or my client.

Saturday, December 3, 2011

Opinion Testimony About Intentional Violation of Known Legal Duty / Good Faith (12/3/11)

I have written before on the mens rea requirement for most tax crimes -- willfullness, defined as the intentional violation of a known legal duty. This requirement asks what the actor intended in doing that which, together with the this mens rea, the law criminalized (e.g., in the case of evasion, a tax due and owing and an affirmative act of evasion).

How does one prove or disprove the existence of the required intentional violation of a known legal duty? Unless the defendant admits his or her intent, the Government makes its case on circumstantial evidence that permits a jury to infer beyond a reasonable doubt the existence of the intent. The defendant must either then testify as to his or her lack of such intent or introduce rebuttal evidence that will permit and hopefully convince the jury to conclude that the Government's circumstantial evidence is insufficient.

In a prior blog, I discussed the issue related issues of the role of good faith. Good faith, if present, proves that the defendant did not have the required intent -- the required intent to violate a known legal duty. See my prior blogs on this issue here. Readers will recall that defendants will usually want a specific good faith instruction in addition to the general willfulness instruction which subsumes the good faith defense.

In a recent nonprecedential opinion, United States v. Abramson-Schmeiler, 2011 U.S. App. LEXIS 23789 (10th Cir. 2011), here, the Court addressed variations on this theme. The defendant attempt to introduce lay opinion testimony from the defendant's tax accountant. The defendant sought to have the accountant testify that "if the payments were underreported that he didn't believe that she did it on purpose." The trial court summarily refused to permit the testimony.

Atypical Offshore Account Sentencing (12/3/11)

Michael A. Hase, whose guilty plea was previously discussed here, was sentenced on 12/2/11. The blog discussing the guilty plea Another UBS Client Pleads -- With the Baggage of Illegal Income (9/27/11), here.  I have seen the DOJ press release but it is not yet posted on the DOJ Tax press release site.  When it is posted, I will link it here.  But readers should note particularly that this is an atypical case because of the key charge of Theft of Government Property which probably skewed the sentencing results toward greater punishment.  Had this been a tax related charge (some tax charge(s) without the other charge), I would not have expected, for example, an incarceration sentence of 29 months.

The key features of the sentencing are:

Taxpayer: Michael A.Hase
Bank : UBS AG and its predecessor Swiss Bank Corporation Jersey Islands;
Entities: No
Guilt: By Plea Agreement - 2 counts - theft of government property 18 USC 641 (one count); tax perjury (Section 7206(1)) (1 count covering 10 years).
Maximum Incarceration Period: 13 years (10 years on theft count; 3 years on tax count)
Actual Incarceration Period Sentence (subject to good time credit):  29 months
Unreported Income: $909,156.66 (from prior blog; not in sentencing announcement)
Tax Loss: $254,564.14  (from prior blog; not in sentencing announcement)
FBAR Penalty: $1.937,767 + (Based on 50% of the indicated highest balance of $3,875,934 in 2006).
Restitution: $36,325.52
Court: D DC.
Judge: John D. Bates

I will update the spreadsheet later.

Friday, December 2, 2011

IRS Will Give Canadians Some Breaks!!! (12/2/11)

There is breaking news that the IRS will give some breaks to Canadians in the application of the penalty regimes.  I have not had time to assimilate the information, so just now link to some news items as they come in.  I will later add such summaries and comments as appropriate,'

Addendum 12/3/11:

As reported, the relief is only for U.S. / Canadian dual citizens living in Canada.  I can understand why such dual citizens living in the U.S. would be excluded, but what about such dual citizens whose center of gravity was in Canada but they resided outside both the U.S. and Canada?

The second test they must past is that they owe no U.S. taxes.  Under the two initiatives to date, U.S. persons (regardless of dual nationality) could be penalized even if they owed no U.S. tax (usually because of foreign tax credits or related deductions that might have offset any offshore income); if they failed to report the income even though owing no additional tax, they were subject to penalty.  So this is some relief that would be available.

Finally, this is from an article published to on Tax Notes Today (Kristen A. Parillo, IRS to Minimize Penalties on Dual U.S.-Canadian Citizens Unaware of U.S. Tax Filing Obligations, 2011 TNT 233-9)):
While the IRS spokesperson didn't provide any details on what that guidance will provide, Jacobson said in the Globe and Mail interview that the IRS will make it clear that if a dual citizen living in Canada files a U.S. tax return late and owes no taxes, there will be no penalties for failure to file. The guidance also will provide that those who were unaware of the FBAR filing requirement will be able to file previous reports now, along with a statement explaining why they're filing late, and that no penalty will be imposed if the IRS determines that there is reasonable cause. Finally, individuals who took part in the IRS's 2011 offshore voluntary disclosure initiative or in the 2009 special offshore voluntary disclosure program will be able to get back penalties already paid, according to Jacobson. 
Jacobson said in the interview that it is unclear how many years of back taxes will be covered or what would happen to people who owe relatively small amounts of tax to the IRS.
The news items are:

Barrie McKenna, U.S. taxman to go easy on American residents in Canada (The Globe and Mail 12/2/11), here.

Kristen A. Parillo, IRS to Minimize Penalties on Dual U.S.-Canadian Citizens Unaware of U.S. Tax Filing Obligations, 2011 TNT 233-9)

Thursday, November 24, 2011

Making a Cheek Good Faith "Defense" Without Testifying (11/24/11)

In United States v. Kokenis, 662 F.3d 919 (7th Cir. 2011), here, the Seventh Circuit affirmed a conviction, although the Court rejected the trial court's notion that the defendant must testify -- thereby waiving his Fifth Amendment privilege and subjecting himself to cross-examination -- in order to assert the defense. (Technically, as noted in the excerpts below, the defense is not a defense since the Government must prove willfulness which is absent if the defendant acted in good faith; but in order to rivet the jury's attention on the "defense", the defendant will want to introduce evidence and get a specific good faith instruction.)  The opinion has a good discussion on why the defendant's proferred evidence of his subjective defense was inadequate to raise the "defense" sufficiently to obtain the instruction.  (For my previous discussion of the trial court's holding rejected by the Seventh Circuit, see Cheek Good Faith - Must the Defendant Testify to Assert the Good Faith "Defense" (10/13/10), here.)

The core of the Seventh Circuit's decision is as follows (some case citations omitted for readability):
The court erred in thinking that evidence of Kokenis's state of mind had to come from Kokenis's own testimony. See, e.g., United States v. Lindo, 18 F.3d 353, 356 (6th Cir. 1994) ("'[T]he standard of evidence necessary to warrant a [good-faith reliance] instruction cannot include an absolute requirement that the taxpayer must testify, for that would burden the taxpayer's own Fifth Amendment right against self-incrimination.'") (quoting United States v. Duncan, 850 F.2d 1104, 1115 n.9 (6th Cir. 1988)); United States v. Phillips, 217 F.2d 435, 442 (7th Cir. 1954) (noting that evidence of defendant's good-faith reliance on advice of counsel can come from the government's witnesses or the defendant's witnesses). Although a defendant's own testimony might be the best evidence of that defendant's good faith, a defendant can offer evidence of good faith in other ways. For example, circumstantial evidence may tend to show good faith and hearsay statements of the defendant may suggest a defendant's belief. 
  Nonetheless, Kokenis was not entitled to a good-faith instruction. First, the evidence did not support this theory of good faith. Kokenis's claim that the district court wouldn't allow him to present evidence of good faith unless he testified is wrong. He simply didn't offer any evidence relevant to his good faith.

Wednesday, November 23, 2011

Seventh Circuit Rejects Duplicity, Multiplicity and Other Arguments (11/23/11)

In United States v. Hassebrock, 663 F.3d 906 (7th Cir. 2011), here, the Seventh Circuit addressed a number of interesting issues relate to criminal tax law and sentencing. Hassebrock was a tax protestor (or perhaps more politically correct, a tax defier). Hassebrock "consciously disobeyed his obligation to pay taxes, joined a fictitious Native American tribe to avoid his tax obligation, and attempted to pay taxes with fraudulent sight drafts." Hassebrock was indicted and convicted for one count of tax evasion and one count of failure to file for, respectively, evasion of his 2004 tax liability and failure to file with respect to 2004. (I hope that statement has your antenna raised!)

The indictment for failure to file alleged that he committed the crime by failing to file the 2004 return on or before April 15, 2005. As it turns out, however, there was "strong evidence" that he had not filed for an extension on or before April 15, 2005 (as required for a valid extension) but, on August 12, 2005, had applied for an extension which, if granted, arguably would have extended the filing date until October 15, 2005. There was some argument about the meaning of these events that, but I address it below.

The points of the opinion that I find of interest and believe readers -- at least some readers -- may also be interested in are:

Tuesday, November 22, 2011

Getting the Defendant / Client Real in the Plea Process (11/22/11)

Today, I offer a blog for students and relatively new practitioners in the arcane area of criminal tax law. In United States v. Brandveen, 2011 U.S. Dist. LEXIS 132612 (ED VA 2011), here, the defendant unsuccessfully sought to withdraw a guilty plea. The indictment charged the defendant with a single count of tax evasion (section 7201) and obstruction of an official investigation (18 USC section 1512(c)(2)). (As to the tax evasion count, the underlying tax evaded is unclear, because at points the decision refers to the tax at issue as the tax underlying the trust fund penalty; but I don't think this is relevant for the point I make in this blog.)

In denying the motion to withdraw the plea, the Court has a good and reasonably succinct discussion of the tensions between the defendant and her counsel who were Federal Public Defenders.Keep in mind that, because of the criminal tax system's fairly rigid process for weeding out bad criminal cases, the cases that result in indictment are usually very good. As a result, a very high percentage of those cases plead because of the incentives (such as acceptance of responsibility). This means that the process exemplified in this case is a frequent occurrence in a criminal tax practice. There are good lessons here that can be vicariously learned.

For those reading the opinion, I offer it just as it came from PACER. The full file is 33 pages, but the opinion itself is 11 pages. I recommend that you read only the opinion.

Monday, November 21, 2011

Controversial Pastor, Self Proclaimed Prophet, Indicted re Income from Church Offerings and Offshore Accounts (11/21/11)

Ronald Weinland, a self-proclaimed prophet about the end of times, has been indicted on 5 counts of tax evasion. The Indictment is here. The USAO ED KY press release, here, says in part here relevant:
The Indictment alleges that Ronald Weinland, 62, attempted to evade taxes in the amount of $357,065 over a period of five years starting in 2005.
Robert Weinland’s alleged acts of evasion included filing tax returns, understating his gross income, using church funds for personal expenses and failing to claim those funds as income on his income tax returns, and failing to report the existence of a bank account in Switzerland. He also allegedly failed to report any interest made on that account as income.
Although  I have not seen the indictment yet, the key facts (some to be filled in are):

Taxpayer: Ronald Weinland
Bank : ?
Entities: ?
Counts: Tax Evasion (7201) - 5 Counts
Maximum Incarceration Period - 25 (although a superseding indictment might be brought for the FBAR violations)
Tax Evaded: $357,065
FBAR Penalty: ? (usually resolved in the criminal case only by plea)
Court: ED KY
Judge: Danny C. Reeves

Third Circuit Opinion for Conviction of Offshore Trust Players (11/21/11)

In a recent non-precedential decision, United States v. Crim, 2011 U.S. App. LEXIS 22891 (3d Cir. 2011), here, the Third Circuit addressed some issues that might be of interest to readers of this blog. The opinion covers the background cryptically because the opinion is addressed "primarily for the parties" who already know the background. Basically, the defendants marketed offshore trust schemes intended to fraudulently evade U.S. tax for the clients entering the schemes. The defendants were charged with several of the various tax crimes that the Government can trot out for such schemes. In the balance of this blog, I address only matters that I think of particular interest to readers.

1. The defendants were charged with a Klein conspiracy (the ubiquitous count one for many tax indictments) and at least one of them (one Crim) was charged with tax obstruction under section 7212(a). Crim did not contest his conviction for conspiracy but did contest the conviction for tax obstruction. As I have previously noted in this blog, the two crimes have essentially the same key features, so the Third Circuit rejected the attack on the tax perjury conviction, noting that Crim's "recognition  that the evidence was sufficient to prove that CTC was an illegal conspiracy to promote tax evasion more than establishes Crim's state of mind for the first element of a Section 7212(a) violation." For prior discussions of the overlap between a Klein conspiracy and section 7212(a), see my prior blog, Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (5/26/11), here, and see also my larger, longer article, John A. Townsend, Is Making the IRS's Job Harder Enough?, 9 Hous. & Bus. Tax L.J. 260 (2009), here.

Friday, November 18, 2011

Attacking the Tax Due and Owing Element of Tax Evasion and Tax Loss for Sentencing (11/18/11)

I write today on what I think is a significant new case, United States v. Tilga, 824 F. Supp. 2d 1295 133725 (D. N.M. 2011), here (for full opinion) and here (for excerpts including only the topic of this blog). The case deals with calculating the tax loss for sentencing purposes. The tax loss is the principal driver for Sentencing Guidelines calculations even if not controlling under Booker. The bottom-line in the case is that, for tax loss purposes, the defendant was entitled to accrue a foreign tax credit that she had neither claimed on the original return and, in the final analysis, did not pay. I think the way the court reached that conclusion has implications on the issue of the required tax due and owing element for the crime of tax evasion. Let me just say that the decision is rich in various facets of its holding and analysis. By way of background to the main issues discussed here, I provide the pertinent discussion from my Federal Tax Crimes book, here.

The substantive issue relates to the Code's prescription that a taxpayer can elect to claim a foreign tax credit on an accrual basis even if the foreign tax has not been paid. The construct is that, if the election is made, there is an actual reduction in the tax owing for the year. (This is unlike the net operating loss deduction which may be carried back to an earlier year, reducing the tax otherwise due for the year; rather, the foreign tax credit is a direct credit that “relates back” retroactively to the earlier year in which the income was earned to reduce the tax liability for the year.) To use a simple example, say that the same quantum of income is subject to both U.S. tax and to foreign country X tax and both have the same effective rate. If, for any reason, the foreign country X tax is subject to a U.S. foreign tax credit, the tax will (more precisely, should) be paid to the foreign country and the U.S. foreign tax credit will eliminate the U.S. tax otherwise due. The foreign tax credit permits the taxpayer to elect to claim the foreign tax credit even in advance of it being paid.

UBS Enabler, Renzo Gadola, Gets Sentencing Slap on Wrist (11/18/11)

I recently blogged on the sentencing factor love fest between the prosecutors and one Renzo Gadola, a UBS representative. OK, Mr. Prosecutor, Why Are You Punting on the Relevant Conduct? (11/11/11), here. The context was the Government's sentencing memorandum. Now it appears that the lock step approach -- Gadola wanting the best for Gadola and the prosecutors wanting the best for Gadola -- worked.

Gadola was sentenced today and received the barest slap on the wrist. The sentencing minutes are here. No jail time, 5 years probation. The Sealed Government's Motion for Downward Departure was granted.  Sweet

Of course, Gadola had to sing for these benefits. His U.S. clients should be concerned, but those U.S. clients, if well advised, should have entered the program when he was first snagged and before he started to talk.

Perhaps Gadola's example could encourage other enablers to come forward with hopes of similar treatment or no indictment at all. Kind of like a sub rosa voluntary disclosure program for enablers.

Ex-UBS banker gets 5 years’ probation because of assistance in US tax evasion probes (AP 11/18/1), here, which says in  part:
Prosecutors suggested a sentence of five months behind bars, but they also did not oppose the probation term that was handed down. 
“He went through client by client, colleague by colleague,” said Mark Daly, a trial attorney with the U.S. Justice Department’s tax division. “It has been extremely helpful.”

HSBC Indian Client Indicted (11/18/11)

Ashvin Desai of San Diego has been indicted various counts related to offshore accounts.

Here are the key bullet points:

Taxpayer: Ashvin Desai
Bank : HSBC
Counts: Evasion (7201) - 3 counts, Aiding and Assisting (7206(2)) - 2 counts, and FBAR - 3 counts
Entities: ? (This is not included in the DOJ Tax press release; but it is indicated that he held the account in the name of one of his children which, perhaps, served the same function to disguise the real owner)
Maximum incarceration period: 552 months *
Tax Loss: ? (unknown, but the amount of unreported interest income for Desai for three years is $1,306,810 and interest income for children for whom he prepared false returns for three years is $189,000)
Amount in Account: $8.8 million (2009)
Court: SD CA
Judge: ?

The DOJ Tax press release is here; the indictment is here.

Tuesday, November 15, 2011

Another UBS Client Pleads (11/15/11)

Lothar Hoess has plead to a single count of FBAR violation.  The plea agreement is here, and the information is here.

Here are the key bullet points, followed by comments:

Taxpayer: Lothar Hoess
Bank : UBS AG
Entities: Yes
Guilt: By Plea Agreement
Count:  1 FBAR Count covering 4 years (2005-2008)
Maximum incarceration period:  60 months.
Tax Loss:  ? (unknown, but the payment of tax, penalties and interest is $2,044,029)
FBAR Penalty: $1,372,774 (50% of the indicated highest balance).
Guidelines calculations:  Final Indicated Offense Level: 19 (see discussion below)
Court: NH
Judge: Steven J. McAuliffe

Sentencing Guideline Calculations and comments:

Saturday, November 12, 2011

Clariden Leu, Credit Suisse Affiliate Bank, Rolls Over (11/12/11)

Clariden Leu, a banking affiliate of Credit Suisse, is participating in the disclosure, presumably just because it is a CS affiliate. The general Clariden Leu web site is here. The Clariden Leu public announcement on its web site, here, is:
US Request for administrative assistance 
The US Internal Revenue Service (IRS) recently submitted a request for administrative assistance to the Swiss Federal Tax Administration (SFTA) pursuant to the 1996 double tax treaty between Switzerland and the USA, seeking information with regards to accounts of domiciliary companies belonging to certain US persons as beneficial owners (the Treaty Request). In connection with the IRS Treaty Request, the SFTA has issued an order directing Clariden Leu AG to submit responsive account information to the SFTA.
Presumably the parameters for the treaty request are the same as for  Credit Suisse, previously discussed in my blog The Swiss Government Begins Disclosing Credit Suisse Accounts to IRS (11/8/11), here.

See also Lynnley Browning's Reuters' Blog, Oldest Swiss private bank to offer US client names (11/9/11), here. [For your continuing information, I am adding Lynnley Browning's Reuters' Blog as a link in the right hand column under the category LINKS FOR OFFSHORE MATTERS -- FBARS, PROSECUTIONS AND VOLUNTARY DISCLOSURE.]

Just a reminder: The Credit Suisse and Clairiden Leu announcements are just the beginning phases of post-UBS disclosures that the IRS will obtain. Long ago on this blog, I sounded the theme of "Get in Line Brother," from a famous bluegrass song which I used to encourage U.S. persons with offshore accounts, particularly Swiss accounts, should get right with the IRS. The advice is still good, although the precise method for getting in line might, depending upon the circumstances, not require a voluntary disclosure under the post-OVDI 2011. Talk to your attorney.

Friday, November 11, 2011

OK, Mr. Prosecutor, Why Are You Punting on the Relevant Conduct? (11/11/11)

Renzo Gadola, a UBS representative servicing U.S. customers, pled to "conspiring to urge one U.S. taxpayer not to disclose his secret Swiss bank account to the IRS." See my posts on Gadola here. I post a copy of the prosecutors' sentencing memorandum here. I only make one general comment -- the prosecutors are really helping Gadola get the lightest sentence possible. Readers can read the Sentencing Memoranda and perceive that it is a bit of a love fest between the prosecutors and Gadola.

I do have a specific comment about the tax loss which is generally the principal driver the Sentencing Guidelines calculations. Apparently, in the love est negotiations, the prosecutors and the defendant picked a U.S. client for whom there was a no tax loss. If that were all that were considered determining the base offense level, Gadola would be in striking distance for a light tap on the wrist in terms of sentencing, but the Government in its sentencing memorandum, here, says:
Pursuant to U.S.S.G. $ 181.8, the government has the obligation to inform the Court of loss suffered by the government from the defendant's uncharged conduct, even though the loss cannot be used in determining the advisory Guidelines sentence. As part of the IRS's Offshore Voluntary Disclosure Initiative, twelve (12) U.S. customers disclosed to the Service their secret Swiss bank accounts that they used to conceal their assets and income and evade their taxes and that the defendant was one of the bankers who assisted them in their efforts. These taxpayers estimated that, collectively, they had undeclared assets valued at not less than $18 million and not more than $46 million. n2 The taxpayers estimated that their collective unreported income was at least $2 million. 
n2 Further, records produced by UBS pursuant to the Deferred Prosecution Agreement indicated that the defendant managed undeclared accounts for Robert Greeley a U.S. taxpayer residing in San Francisco, Califomia, that, as of December 31, 2004, had assets in excess of $ 13.7 million. Greeley pleaded guilty to filing a false tax retum for tax year 2008, in violation of 26 U.S.C. $ 7206(l), which failed to report $49,770 in income from his undeclared accounts. United States v. Robert Greelev, 3:1 1-cr-00374-CRB (N.D. CA). on November 9,2011, Greeley was sentenced to: 6 months home confinement; 3 years probation; a $3,000 criminal fine; $16,869 in restitution payable to the IRS (which has already been paid); and $6,861,930 for a civil FBAR penalty (which has already been paid).

Thursday, November 10, 2011

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.

Wednesday, November 9, 2011

Excellent Article on Offshore Accounts - History and Future (11/9/11)

Readers might be interested in a new article published this week in Tax Notes, Charles P. Rettig, Evaluation of an IRS Undisclosed Offshore Account IDR, 133 Tax Notes 759 (Nov. 7, 2011), here. I note the following.

1. Chuck Rettig is a leading practitioner in this area of practice and his articles are always worthy of note.

2. The article is a good summary of the history and current state of the offshore account problem and the IRS initiatives. Much of this discussion in the article is probably already known to readers of this blog.

3. Chuck correctly cites (p. 762 at fn 21) ILM 200603026 where an IRS author concludes that, in an FBAR willfulness penalty case, the Government would be required to prove willfulness by clear and convincing evidence. As I noted, however, in an earlier blog, the Court in the Williams case discussed in Chuck's article, held that the preponderance of the evidence standard applied. See Burden of Proof for Willfulness in FBAR Violations (9/6/11), here.  I agree that the clear and convincing standard should apply, but I think that Williams is the only court that has directly addressed the issue and reached another conclusion. I give my reasons for my conclusion in the cited blog. What the difference is between these standards may appear esoteric, but it is not. Clear and convincing is a burden that is greater than preponderance and lesser than beyond a reasonable doubt. In order to illustrate, I pull out two quotes from my most recent draft of my Federal Tax Crimes book (not yet published):

Tuesday, November 8, 2011

Article Summarizing the Swiss Bank Developments and Process (11/8/11)

I offer here a new article which I think readers might find quite helpful.  Walter H. Boss and William M. Sharp, Sr., The Swiss-U.S. ‘Turnover’ Ground Rules: A Technical Update, 64 Tax Notes International 423 (11/7/2011), here.

Key points which struck me on a quick read are:

1. The article contains a very good short history of the saga involving the Swiss bank accounts.

2. Under the double tax treaty, Switzerland commits to provide information on the U.S.'s request for "tax fraud or the like." Tax fraud for this purpose does not include tax evasion which the Swiss view as a lesser evil than tax fraud. (Tax fraud is really bad rather than just bad.) In this regard, there is a bit of a semantic difference. In the U.S., we generally equate tax fraud and tax evasion, whereas the Swiss make a distinction between tax fraud and tax evasion. Indeed, it seems (see below), tax evasion may be merely failure to report the income and pay the resulting tax.

The Swiss Government Begins Disclosing Credit Suisse Accounts to IRS (11/8/11)

The U.S. Reporter on the Swiss bank beat, Lynnley Browning, reports that Credit Suisse has begun notifying "U.S. clients suspected of offshore tax evasion that it intends to turn over their names to the Internal Revenue Service." Lynnley Browning, Exclusive: Credit Suisse will disclose names of U.S. clients (Reuters 11/7/11), here. The Swiss Government has somehow found an accommodation under the exchange of information provision of the U.S. - Swiss double tax treaty (similar to the accommodation made for UBS and, I project, similar to the accommodation that will be made for other Swiss banks).

Credit Suisse sent a letter to Credit Suisse account holders that the reporter claims to have seen. According to the reporter's quote from the letter, "The I.R.S. is seeking information with regard to accounts of certain U.S. persons owned through a domiciliary company (as beneficial owners) that have been maintained with Credit Suisse AG." Also, the SFTA Order under the treaty "is immediately executable and Credit Suisse as an information holder has no right to appeal."

Monday, November 7, 2011

IRM Addition for FBAR Penalties in Appeals (11/7/11)

The IRS had added IRM 8.11.6 (11/1/11), here, for Appeals Procedures regarding the FBAR penalties.

Here are a few quick observations:

1. FBAR penalties are an Appeals Coordinated Issue (Category of Case) and require a referral to International prior to holding the first conference. International issue guidelines are available from the Appeals International Specialist Coordinator(ISC).

2. Appeals requires 180 days remaining on the assessment statute of limitations at the time the administrative file is received.

3. Post assessment cases can go to Appeals.

4. The statute of limitations for failure to file is: "6 years from the due date of the FBAR report (Due date is 06/30/yyyy)."

5. The statute of limitations for failure to maintain required records is "6 years from the date the IRS first asks for the records." [Query does this permit the IRS to leverage a closed year into an open year or extend the statute for a year beyond the period otherwise allowed from the date of filing?)]

6. Here is an example of the required records statute: An examiner requested the records on March 1, 2008. The assessment statute of limitations for failing to maintain required records expires on March 1, 2014.

7. If both types of violations have occurred (failure to file the FBAR and failure to maintain the records), examiners can assert both the failure-to-file an FBAR report penalty and failure to maintain required records penalty on the same account for the same period. However, Compliance policy in IRM allows examiners discretion over whether to assert multiple violations against one FBAR report.

New FBAR Form Dated November 2011 (11/7/11)

The IRS has posted a new FBAR form dated November 2011, here.

I have not yet analyzed the form for changes, but hopefully can do so soon and add appropriate comments to this blog. In the meantime, I encourage readers to make comments regarding this new form.

Friday, November 4, 2011

Article on Continuing Negotiations with the Swiss Government / Banks (11/4/11)

Lynnley Browning has a new article on this continuing saga, Exclusive: Swiss offer U.S. tax deal for all Swiss banks (Reuters 10/3/11), here.

The thrust of the article is that the Swiss want an all inclusive deal covering  the 11 prominently mentioned Swiss banks and as many as 355 Swiss banks by paying up to $10 billion. Presumably the deal, if accepted by the U.S. would cover civil and criminal exposure for the banks and perhaps their employees and agents. But, according to the article, the U.S. prefers to negotiatewith the individual banks, at least the 11 ildentified egregious offending banks.

The article says in passing that the IRS referred the names of the 11 Swiss banks to the Justice Department. The term referral and its variants often is used to mean a criminal referral -- a referral with a recommendation for prosecution or for further grand jury investigation (perhaps the latter in this case). Also, the article says that the DOJ is conducting a civil investigation of "scores of other Swiss banks among the 355."

Thursday, October 27, 2011

TIGTA Report on IRS Offshore Accounts Initiative Administration (10/27/11)

TIGTA has a new report on the IRS's administration of the offshore account initiatives.  The full report, titled The 2009 Offshore Voluntary Disclosure Initiative Increased Taxpayer Compliance, But Some Improvements are Needed (TIGTA Report 2011-30-118  9/21/11), is here.  Here are  the "Highlights:"
Final Report issued on September 21, 2011
Highlights of Reference Number: 2011-30-118 to the Internal Revenue Service Deputy Commissioner for Services and Enforcement.
Taxpayers with undisclosed foreign accounts or assets who do not submit a voluntary disclosure run the risk of detection by the Internal Revenue Service (IRS). If caught, these taxpayers face the imposition of substantial penalties, including the fraud and foreign information return penalties, as well as an increased risk of criminal prosecution. By making an offshore voluntary disclosure, taxpayers can become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution.
This audit was initiated to determine whether the IRS’s voluntary disclosure practices were effective, especially with the high volume of cases received, and to determine whether all cases have been appropriately assigned and worked. The audit is included in our Fiscal Year 2011 Annual Audit Plan and addresses the major management challenge of Globalization.
The IRS’s voluntary disclosure practices were effective, and cases were being appropriately assigned and verified even with the unusually high volume of disclosure requests received and accepted. However, some improvements are needed.
Our review of 60 closed voluntary disclosure cases showed that 18 cases had no evidence of the taxpayers reconciling the unreported income in their offshore accounts to their amended or newly filed delinquent tax returns. In 28 cases, information from the taxpayers’ financial accounts and promoters either was not captured or was incorrectly transcribed on the data collection system used for current and subsequent data mining efforts. In 31 cases, voluntary disclosure agreements were not printed on IRS watermarked paper or initialed by revenue agents on each page to ensure no alterations to the original document were made by taxpayers.
TIGTA recommended that the Commissioner, Large Business and International Division, implement a requirement for taxpayers to provide a detailed reconciliation of unreported income. The Commissioner, Large Business and International Division, and the Commissioner, Small Business/Self-Employed Division, should develop a quality review process to ensure all data relating to voluntary disclosures are properly transcribed for future data mining and require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.
In their response to the report, IRS management agreed with two of the three recommendations. Management stated that a reconciliation of all unreported taxpayer income from offshore accounts is already a requirement of the 2011 Offshore Voluntary Disclosure Initiative. In addition, management plans to implement procedures to conduct a 100 percent review of inputs to the E-Trak Offshore Voluntary Disclosure Program system. However, management disagreed with our recommendation to require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.

Monday, October 24, 2011

Article on OVDI and Beyond - Highly Recommended (10/24/11)

Scott Michel and Mark Matthews have written a thought-provoking article on the status of the IRS offshore financial account.  See Scott D. Michel and Mark Matthews, OVDI is Over -- What's Next for Voluntary Disclosures?, 133 Tax Notes 369 (Oct. 17, 2011), here.  (The article is offered here with the permission of Tax Analysts, the publisher of Tax Notes.)  Scott and Mark are seasoned practitioners who are major players in this niche area.  The article is excellent and should be read by those interested in this area.  Each reader will take away his own key points from the article, but here are mine:

1. Voluntary disclosure for offshore accounts is still alive and well even after the close of OVDI 2011.  In theory, the voluntary disclosure will be under the noisy disclosure procedures for general voluntary disclosure and there is uncertainty as to the amount of the "in lieu of" penalty. 

2. The authors state:
Admirably, CI used a pre-clearance process in the OVDI programs, and one would think that would remain available. Will "optional intake letters" continue to be required? And how does the process differ for non-foreign-account cases?
 JAT Comment:  I suspect that the IRS will use the administrative process it has refined (original letter by the preclearance letter, a submission like the offshore voluntary disclosure letter and a package like the one required in the program.  This will insure some level of uniformity and consistency for fair treatment relative to those who came forward to join the programs.

3. The authors state:
What civil penalties will be imposed? One would think that the IRS will seek to exact an amount somewhere north of 25 percent for offshore cases, and probably less than the 50 percent paid by most of those who pleaded guilty to criminal tax offenses.
Presumably, whatever that amount is it will function like the program "in lieu of" penalty to resolve the other penalties that could apply (5471, 3520, etc.).

Saturday, October 22, 2011

The Final Nail for Ambassador Egan's Estate (10/22/11)

The First Circuit just put the finishing touch on the Richard Egan estate's hopes to mitigate the damage of Egan's folly in entering a BS tax shelter. Fidelity International Currency Advisor A Fund, LLC v. United States, 661 F.3d 667  (1st Cir. 2011), here. Actually, the district court below did a pretty good job quashing those hopes. I have previously blogged on the district court opinion (see listing of my blogs below).

So what was left for damage control?  Why the appeal? By appealing, the estate hoped to avoid the 40 percent penalty that applies to the portion of a tax underpayment that is "attributable to" a "gross valuation misstatement." § 6662(h). The fulcrum for many bull shit tax shelter transactions when the veneer is stripped away is a gross valuation misstatement.  Ambassador Egan's shelter was no exception. But, as is also often the case, there are other bases for denying the claimed tax shelter benefit besides the gross valuation overstatement.  Ambassador Egan's also was no exception.

This phenomenon of failing on grounds other than the gross valuation misstatement permitted Ambassador Egan's estate to argue that, well, since more than one ground for disallowance of the claimed tax shelter benefit applied, then it could not be said that the disallowance of the benefit was "attributable to" the "gross valuation misstatement." The circuit courts are split on that issue, although critical mass seems to be in favor of rejecting the argument. The cases are cited in the opinion. The First Circuit rejected the argument as well. [My prediction is that ultimately all courts will resolve to rejecting the argument as well, although it may take the Supreme Court to get there.] So much for the estate's hopes to mitigate the damage from Ambassador Egan's participation in this plainly BS shelter.

Monday, October 17, 2011

TIGTA Report on the State of IRS CI (10/17/11)

In August, TIGTA released its report titled Trends in Criminal Investigation’s Enforcement Activities Showed Improvements for Fiscal Year 2010, With Gains in Most Performance Indicators (Ref: 2011-30-068 7/25/11), here. I have finally found time to look at the report, which is an annual report on key areas of priority and statistics for IRS' Criminal Investigation ("CI"), the IRS division charged with investigating tax crimes. CI has other criminal investigation responsibilities, but after the Webster Report in the late 1990s, has been tasked with using more of its resources on criminal tax investigation and, within that category, legal source criminal tax investigations. The notion for focusing more on legal source criminal tax investigation is that that is where the IRS can get the most benefit from its limited resources in terms of supporting the overall tax system. Obtaining and publicizing legal source tax convictions will likely have much more ripple effect on compliance than with obtaining and publicizing illegal source tax convictions.

Most of the report is about statistics, usually presented in graph form (called figures). I caution readers to heed Benjamin Disreali's caution that: "There are three kinds of lies: lies, damned lies and statistics."

Wednesday, October 12, 2011

Reminder re Extended Filing Date for pre-2010 FBAR Signatory Powers (10/12/11)

This is a reminder to readers that November 1, 2011 is the deadline for persons whose relationship to foreign accounts is as signatory only (i.e., those persons who have no ownership or title interest in any foreign accounts but serve as signatory only) to file FBARs for pre-2010 years. See Notice 2011-54, 2011-29 IRB 53, here. Those who qualify for this extended deadline should act timely.

The problem for such signatories, of course, is that U.S. owners (title or beneficial) may have their own FBAR filing requirements and, unless the owners filed (or will file) pursuant to a voluntary disclosure (OVDI or regular (quiet or noisy)), the signatory FBARs will not match to owner FBARs.  For those U.S. taxpayer owners who decided to go forward without correcting the past, their signatories (usually family members or friends) are in a precarious position if they choose not to file the signatory FBARs within this extended deadline.  If they file, their FBARs could be the last link in the chain in identifying the U.S. taxpayer owners who have not gotten right with the IRS and, if they don't file, they are at risk of significant penalties themselves without any mitigation of the owners penalties.  This choice is not a good one for family or friends.  Owners of the accounts should consider now getting right with the IRS (however they do so, whether by guiet or noisy disclosure) so as to mitigate the damage that could be done to the signatories.

GAO Report On Exchange of Information Between U.S. and Its Treaty Partners (10/12/11)

GAO recently issued a report, titled IRS's Information Exchanges with Other Countries Could Be Improved through Better Performance Information (GAO-11-730 September 2011), here, describing the U.S. treaty system for sharing information between treaty partners (the treaties involved are bilateral negotiated treaties involving only two countries (or states in treaty speak). Readers of this blog will recall that, pursuant to pressure on UBS and indirectly the Swiss system of banking secrecy, the United States obtained information about UBS' U.S. clients by treaty request pursuant to the Exchange of Information provision in the U.S. / Swiss Double Tax Treaty.  I call the type of request where the name of the taxpayer is not known a John Doe Treaty Request. Readers will also remember that the U.S. continues to put pressure to obtain this type of information from other Swiss banks. Negotiations regarding that access are ongoing.

The GAO report is a worthwhile read for those interested in the use of treaties to obtain information regarding U.S. persons' offshore accounts. The report is broader than that, of course, but is useful for those interested in offshore accounts. I excerpt below some parts that I think are particularly useful for readers of this blog. I focus only on the concepts involved and not on the specific procedures and implementations (which are summarized in the Report). I also omit footnotes.

Tuesday, October 11, 2011

Swiss Bankers / Enablers Indictment; Reputedly Julius Baer Related (10/11/11)

Today brings another indictment of offshore bank enablers. The enablers are two Swiss bankers -- Daniela Casadei and Fabio Frazzetto -- reputedly associated with Julius Baer, a bank that by rumor has been on the DOJ's hit list for a while. The indictment is here. These indictments are standard fare now -- a conspiracy count with multiple allegations of skulduggery with multiple U.S. taxpayer clients, including accounts with secret codes -- sometimes called "fantasy" names -- and sham entities, all to ward off the evil spirit of the U.S. tax collector.

I presume that these defendants were targeted from the volume of information that the IRS is receiving incident to its special offshore voluntary disclosure programs. I am sure that there will be more to come.

Now, back to the allegations in the indictment, here are some of the fun - well, at least interesting to me -- allegations (Swiss Bank No. 1 being, reputedly, Julius Baer):
 6. From at least in or about the 1990s up through and including in or about 2010, more than 180 U.S. taxpayer-clients of Swiss Bank No. 1  conspired with, at various times, DANIELA CASADEI and FABIO FRAZZETTO, the defendants, and others known and unknown, including other client advisors at Swiss Bank No. 1, to defraud the United States, to conceal from the IRS on false tax returns and otherwise the existence of bank accounts maintained at Swiss Bank No. 1, and. the income earned in these accounts'  (hereafter "the undeclared accounts"), and to evade U.S. taxes on income generated in those accounts. CASADEI, FRAZZETTO and other client advisors at Swiss .Bank No. 1 conspired with U.S.  Taxpayer clients to hide at least $600,000,000 in assets from the IRS at Swiss Bank No. 1, and CASADEI and FRAZZETTO managed undeclared U.S. taxpayer assets worth at least $13,200,000 and $20,500,000 respectively. In furtherance of the conspiracy, CASADEI and FRAZZETTO, among other things, advised and helped U.S. taxpayer-clients open and maintain undeclared accounts in code names or in  [*4] the names of non-U.S. relatives or.sham corporate entities; ensured that mail relating to those accounts was not sent to U.S. taxpayer-clients in the United States; caused U.S. taxpayer-clients to travel to Switzerland to conduct business relating to the undeclared accounts; traveled to the United States to meet with U.S. taxpayers; and, in or about 2008 and 2009, assured U.S. taxpayer-clients not to worry about the undeclared accounts being discovered by the IRS or U.S. law enforcement authorities because, CASADEI and FRAZZETTO advised, unlike UBS AG - another Swiss bank that was being investigated by U.S. authorities for engaging in similar practices - Swiss Bank No. 1 did not have an office in the United States and the accounts would therefore remain secret.

 * * * *

Monday, October 10, 2011

Confusion in the Court of Appeals About the Indirect Method of Proof (10/10/11)

In both criminal and civil cases, the Government sometimes uses what is called an indirect method of proof to show that a taxpayer owes additional tax. A direct method, for example, uses the return as filed and proves omitted income or improperly claimed deductions or credits. The indirect methods essentially reconstruct the taxpayer's tax picture (income, deductions, credits, taxable income) without using the return as the starting point. I explain the general theory of the use of the method in my book as follows:
In many cases, the Government may not be able to assemble proof of a tax due and owing from direct methods of proof. In those cases, the Government has developed indirect methodologies that circumstantially prove tax due and owing. The key cases blessing these indirect methodologies have arisen in the guilt determination phase in tax evasion cases where tax due and owing is an element of the offense or in parallel civil cases. These methodologies are also used also in the sentencing phase, although I am aware of no important case opinions arising from sentencing phase determinations.

All indirect methodologies are based on logic – from the facts proven can the further inference be made that there is a tax due and owing. It is the force of that logic – and that force alone – that permits the use of these methods. And, for conviction, the force of the logic must persuade beyond a reasonable doubt.

For use of an indirect method, the Government should establish that a direct method is either not available or not reliable under the circumstances. For example, the Government should show why the taxpayer’s books and records are not available (taxpayer lost or destroyed them) or, if available, are not reliable (substantial provable irregularities). The indirect methodology itself may be sufficient to show that -- for example, large cash flows not reflected on the books and records establishes that they are unreliable. The Government must also establish either a “likely source” for the unreported income or that it has reasonably negated nontaxable sources of income.

Finally, I provide here only a summary of the principal indirect methods. These methods which are heavily fact dependent can be complex in their application. A good and substantially more detailed discussion of these indirect methods is contained in the CTM.
There are various ways in which the indirect methodologies attempt the reconstruction. The more commonly encountered indirect methodologies go by such labels as the "Net Worth Method" and the "Bank Deposits / Cash Expenditures Method"

In United States v. Khanu,  662 F.3d 1226 (D.C. Cir. 2011), here, the Government used an indirect methodology described as the "cash method of proof." A principal element of the proof as presented by the Government at trial was cash of $1.9 million the Government seized pursuant to executing a search warrant at Khanu's home. At trial, the Government identified another $300,000 which, if it were considered alone, would have still produced tax due and owing, a key element of the tax evasion crime with which Khanu was charged. But, the Government insisted at trial, over Khanu's objection, that the $1,9 million seized be included in computing the tax due and owing amount presented to the jury.

Saturday, October 8, 2011

The Role of the Taxpayer's Independent Lawyer in Tax Shelter Promotions with Promoter Opinions (10/8/11)

In Candyce Martin 1999 Irrevocable Trust v. United States, 822 F. Supp. 2d 968 (ND CA 2011) ("Candyce Martin Trust"), opinion here, the Court trashed another Son-of-Boss tax shelter and imposed accuracy-related penalties upon the taxpayers for entering the transaction. In imposing the accuracy-related penalties, the Court noted inter alia that even if the taxpayers did not know the intricacies of the tax law, they were smart enough to know that the transaction was too good to be true. The Court said:
First, Mr. Folger and the Martin family should have known that the transaction resulting in a $315.7 million tax basis for a $0.9 million offsetting options transaction was "too good to be true." Stobie Creek, 608 F.3d at 1383. Furthermore, they knew that the purpose of the transaction was to boost the basis to generate a large capital loss to offset the capital gains from the CPC sale. Finally, they proceeded with the transaction even after the issuance of Notice 2000-44, entitled "Tax Avoidance Using Artificially High Basis," which alerted them that the basis created by the options transaction would likely be disallowed. Although they were advised by Mr. Sideman that the transaction had a legitimate business purpose, Mr. Folger and the Martin family entered into this transaction with the knowledge that it would generate an artificially high capital loss. Given the level of education and business experience shared by Mr. Folger and the Martin family, they should have known that the absence of a tax liability on a sizeable capital gain did not reflect the economic reality of the transaction. The underpayment of tax was not, therefore, the result of "an honest misunderstanding of fact or law." Treas. Reg. § 1.6664-4(b)(1). Because Mr. Folger, with the consent of the Martin family, did not act in good faith, the court finds that the accuracy-related penalty was appropriately applied here.
This is standard fare now. I write to develop a different angle that is demonstrated in this case -- the role of the taxpayer's own independent tax lawyer.

Thursday, October 6, 2011

Another UBS Client Sentenced (10/6/11)

Another UBS client, Peter A. Schober, was sentenced on 10/5/11.  I blogged the original charges, Other UBS Account Holders are Charged (10/28/10), here.  The following are the key bullet points as of now:

Taxpayer: Peter A. Schober
Bank: UBS
Entity(ies): Yes (Small Guard Foundation)
Guilt: By Plea Agreement - 1 Count FBAR violation.
Sentence: 1 month incarceration; 2 months home; 6 months supervised release
Unreported Income: ?
Tax Loss: $77,870.67
FBAR Penalty: $773,652
Court: D MA
Judge: Nathaniel M. Gorton

I will supplement these bullet points when more information is available.  I will also update the spreadsheet at that time.

Wednesday, October 5, 2011

Lawyers and Obstruction: the Stevens Case (NonTax) Lessons for Tax Lawyers (9/5/11)

This is a guest blog by Scott Schumacher.  Scott is an Associate Professor of Law and Director of the Graduate Program in Taxation at the University of Washington School of Law in Seattle, Washington. Prior to entering academia, he was an attorney with the Department of Justice Tax Division and in private practice with the law firm of Chicoine & Hallett in Seattle. He writes frequently on criminal tax matters and is one of the authors, along with our blog host Jack Townsend, of the book Tax Crimes, here.

In May of this year, the U.S. District Court for the District of Maryland granted a motion for judgment of acquittal in the case of United States v. Stevens (No.: RWT 10 CR 0694 (D. Md. 2011), here. Lauren Stevens, former vice president and associate general counsel of pharmaceutical giant GlaxoSmithKline (GSK), had been charged with obstruction of justice and making false statements during a civil investigation by the FDA.

In a stinging rebuke of the government’s case, the court held that “only with a jaundiced eye and with an inference of guilt that's inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant, and that “it would be a miscarriage of justice to permit this case to go to the jury.” The court concluded that “the defendant in this case should never have been prosecuted and she should be permitted to resume her career.”

Even though the court acquitted Stevens, as I discuss in the Tax Notes article, “Stevens: Is Zealous Advocacy Obstruction of Justice?”, 132 Tax Notes 1169 (9/12/11) here, this prosecution has implications for any lawyer, including tax lawyers, who regularly deal with the government.

Courts Reject More BS Tax Shelters (10/5/11)

DOJ Tax is touting the stunning phenomenon of three major victories in BS tax shelters all in a single day. See Press Release, Justice Department Prevails in Three Tax Shelter Cases on Same Day (10/4/11), here (with links to the pdf files for the opinions). All of these cases were tried to judges in U.S. district courts. (Note the Altria case I discussed in the prior blogs here was tried to a jury with the same outcome.)

The common thread of these tax shelter is captured in Michael Graetz's famous characterization of a tax shelter as: "a deal done by very smart people that, absent tax considerations, would be very stupid." That is not a complete definition -- it is more like Potter Stewart's famous quotation (presented here in full):
I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.
Well, these courts knew abusive tax shelters when they saw them, as did the jury and judges in Altria.

Friday, September 30, 2011

Altria # 4 - Second Circuit Declines Altria's Invitiation to Sustain a BS Tax Shelter (9/30/11)

The Second Circuit recently rejected another hokey tax shelter in Altria Group, Incorporated v. United States, 658 F.3d 276 (2d Cir. 2011), here. I have previously blogged on the trial level results in the following blogs: (i) Altria # 1 - Frank Lyon and tax shelters (3/20/10), here, (2) Altria #2 - Economic Substance and Juries (3/22/10), here, and (iii) Altria #3 - What Were Those Guys Smoking? (3/23/10), here.

The only question I have about the appeal is whether Altria really harbored the fantasy that, having failed to smoke these these shelters past the jury and then the district judge, the Second Circuit just would not be paying attention? Altria's goofy adventures -- first in getting into these shelters and then thinking that it could con the jury and the judges -- should be the best refutation that if we just let business people be business people they will make good decisions.

Wednesday, September 28, 2011

Superseding Indictment for Dr. Ahuja Adding Conspiracy Count (9/28/11)

Jeff Neiman posted a blog this morning in the superseding indictment for Dr. Ahuja. See Jeff Neiman, Superseding Indictment: HSBC India Customer Charged (9/28/11), here. Jeff's Blog entry has a good discussion and link to the superseding indictment, so I recommend it and will not repeat it here, other than to note that the allegations which flesh out any conspiracy charge are quite interesting. I have previously blogged the original indictment which did not include the conspiracy charge, here.
I do note the nature of conspiracy charges in this context by this cut and paste from my book (footnotes omitted):
Not surprisingly, therefore, the Government trots out the conspiracy charge whenever it can imagine more than one bad guy behind the tree – it is so easy to do. The conspiracy count allegations are framed as a cascade of allegations telling a damning story (if true and, although literally true, not misleading), but sometimes producing more heat than light. This contrasts with counts for the tax offenses which are dry, sparse, boring, and usually not even flowered up for dramatic effect. The benefits for the Government are great, and the downsides are few; after all, the prosecutors’ life and liberty are not at stake. This means, of course, that the Government’s power to tack on conspiracy charges can be abused, particularly with a weapon as potent and elastic as conspiracy. The Supreme Court has noted that:
We agree that indictments under the broad language of the general conspiracy statute must be scrutinized carefully as to each of the charged defendants because of the possibility, inherent in a criminal conspiracy charge, that its wide net may ensnare the innocent as well as the culpable.
Addendum on 9/29/11: