Monday, August 29, 2011

Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)

Some readers have commented about the use of the Taxpayer Advocate Service ("TAS") of the IRS to intermediate differences between the IRS and the taxpayer regarding the seemingly rigid application of OVDP 2009 and OVDI 2011, thereby producing harsh results.  The TAS may also play a role in opt outs where the fear is that the IRS will be punitive or in audits for taxpayers who never joined either initiative where the same fear exists.  I thought it would be helpful to offer readers a blog and thread devoted to just the advantages and limitations of the Taxpayer Advocate Service in these IRS initiatives.  Readers thoughts and experiences are solicited.

The Taxpayer Advocate Service website is here.

I do encourage those who have submitted comments on the TAS to re-post them here, modified as appropriate for subsequent developments.  I can assure you all that you will be doing a service for a lot of people in stress.

Friday, August 26, 2011

IRS Extends OVDI Big Package Deadline Until 9/9/11 (8/26/11)

The announcement may be viewed in its full splendor here.  The pertinent portions are:

IRS Statement: OVDI Deadline Extension
(Aug. 26, 2011)

Due to the potential impact of Hurricane Irene, the IRS has extended the due date for offshore voluntary disclosure initiative requests until September 9, 2011. For those taxpayers who have not yet submitted their request and any documents, the following actions are necessary by September 9, 2011:

Identifying information must be submitted to the Criminal Investigation office. This includes name, address, date of birth, and social security number and as much of the other information requested in the Offshore Voluntary Disclosures Letter as possible. This information must be sent to:
Offshore Voluntary Disclosure Coordinator
600 Arch Street, Room 6404
Philadelphia, PA 19106.

Send a request for a 90-day extension for submitting the complete voluntary disclosure package of information to the Austin campus. This request must be sent to:
Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: 2011 Offshore Voluntary Disclosure Initiative

Monday, August 22, 2011

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

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

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

Saturday, August 20, 2011

Brady and Third Party Records / Databases (8/20/11)

In United States v. Gray, 648 F.3d 562 (7th Cir. 2011) (opinion here), Judge Posner rejects a defendant's argument that the Government had a Brady obligation to have a third party extract data from its databases that might potentially have helped the defendant. While the third party, EDS (a data service company), had the data in its databases, EDS would have had to create a program to extra the data and then run the program on its databases. Judge Posner held that Brady did not impose the obligation on the Government to extract the data from the third party that might be helpful to the defendant. He reasoned (several case citations and quotation marks omitted for readability):
If a prosecutor possesses exculpatory evidence that had it been disclosed to the defense might have induced a reasonable jury to acquit, failure to provide it to the defense would be a reversible error. Brady v. Maryland, 373 U.S. 83 (1963). The rule has been expanded to take in investigators and other members of the "prosecutorial team" broadly understood. Otherwise investigators assisting in a prosecution could conceal from the prosecutors exculpatory evidence that the investigation had revealed and then the evidence would never be revealed to the defense. But EDS was not a part of the prosecutorial team. It had been hired as we said to process and pay bills submitted to Indiana Medicaid. It was not a private detective agency hired by the state agency to assist state and federal prosecutors in prosecuting Medicaid fraud. Medicaid fraud investigators were part of the prosecutorial team, but EDS was not. Because it does the billing for Indiana Medicaid, the company has records that can be useful as evidence in fraud prosecutions. But the defense had the same access to those records as the prosecutors did, and so there was no suppression of evidence.

Second Circuit Opinion on Derivative Liability (8/20/11)

I write today on a fascinating recent decision from the Second Circuit in a nontax case. United States v. Ferguson, 653 F.3d 61 (2d Cir. 2011). The opinion is here.  The opening paragraph introduces the case as follows:
This criminal appeal arose from a "finite reinsurance" transaction between American International Group, Inc. ("AIG") and General Reinsurance Corporation ("Gen Re"). That transaction (the "Loss Portfolio Transfer," or "LPT") reallocated risk in a way that shored up AIG's flagging loss reserves, which were feared to be dragging down its stock price. Finite reinsurance transactions, which entail some (usually low) risk, are acceptable accounting measures in the insurance industry, and have their uses; but in this instance it is charged that the transaction entailed no risk at all, and was a fraud. The defendants, four executives of Gen Re and one of AIG, appeal from judgments entered in 2008 and 2009 by the United States District Court for the District of Connecticut (Droney, J.), convicting them of conspiracy, mail fraud, securities fraud, and false statements made to the Securities and Exchange Commission ("SEC"). They were sentenced principally to prison terms ranging from one to four years, and are free on bail pending this appeal.
I write principally because of the Court's discussion of the theories of vicarious liability. I have previously discussed those theories in various blogs can be viewed by clicking on the key words that I assign to this page. (I am also currently returning soon to my draft article on this subject which I hope to wrap up soon and will post to a blog at some time.)

Friday, August 19, 2011

9th Circuit Applies Required Records Doctrine to Defeat 5th Amendment Claim for FBAR Recordkeeping (8/19/11)

The Ninth Circuit today issued an opinion applying the required records doctrine to defeat a Fifth Amendment claim related to the FBAR record keeping requirement. M.H. v. United States (In re Grand Jury Investigation M.H.), 648 F.3d 1067 (9th Cir. 2011), here.

Addendum 8/19/11:  Here is the conclusion (p. 20 of the slip opinoin):

Because the records sought through the subpoena fall under the Required Records Doctrine, the Fifth Amendment privilege against self-incrimination is inapplicable, and M.H. may not invoke it to resist compliance with the subpoena’s command. See Doe M.D., 801 F.2d at 1167 (“Records that are required to be maintained by law are outside the scope of the privilege [against self-incrimination].”). Because M.H.’s Fifth Amendment privilege is not implicated, we need not address his request for immunity. Bouknight, 493 U.S. at 562 (declining to “define the precise limitations that may exist upon the State’s ability to use the testimonial aspects of Bouknight’s act of production in subsequent criminal proceedings”).

The district court’s order is AFFIRMED.
Addendum 8/20/11:  JAT comments on the decision:

Wednesday, August 17, 2011

IRS Responds to Indian-American Community's Concerns Over OVDI (8/17/11)

I previously posted a blog on Indian American community requests for relief with respect to the OVDI initiative. See Indian American Groups Push for Foreign Account Relief (7/29/11) here.  I provide below a response from Heather Maloy, IRS Commissioner, LB&I. I do not yet have a public link to the letter itself, but will provide the link when I get it.  (Readers with access to Tax Notes Today can find it at 2011 TNT 159-16.)


August 4, 2011

Mr. Inder Singh
GOPIO International
P.O. Box 560117
New York, NY 11356

Dear Mr. Singh:

I am responding to your letter to Secretary Geithner dated June 27, 2011. You asked about relief available to certain taxpayers under the 2011 Offshore Voluntary Disclosure Initiative (OVDI). Thank you for your interest in the OVDI.

The OVDI provides a way for taxpayers with undeclared assets offshore to resolve their tax problems. The terms of the OVDI require taxpayers to pay the following penalties:

• A 20 percent accuracy-related penalty under section 6662 of the Internal Revenue Code (Code);
• A failure-to-file penalty under section 6651(a)(1) of the Code;
• A failure-to-pay penalty under section 6651 (a)(2) of the Code; and
• An offshore penalty equal to 25 percent of the highest aggregate balance in foreign bank accounts and entities or the value of foreign assets during the period covered by the voluntary disclosure in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties.

Tuesday, August 16, 2011

Tenth Circuit Decision on Unclaimed Deductions for Sentencing Tax Loss Calculations (8/16/11)

The Tenth Circuit recently rendered a very good decision on the issue of a convicted defendant using unclaimed deductions to reduce the tax loss for sentencing purposes. The decision is United States v. Hoskins, 654 F.3d 1086 (10th Cir. 2011) and may be viewed or downloaded here.  First a little background.

Tax crimes afficionados know, that the tax loss is the principal determinant in sentencing for tax crimes and the drill for the defendant and his or her lawyer is to get that number down.  But there is another key context in which a similar concept is used in tax crimes.  Tax evasion is the key tax crime where tax loss -- called tax due and owing -- is an element of the crime. The Government must actually prove a tax due and owing, basically the same as a sentencing tax loss. (I have discussed previously in this blog the issue of whether that tax due and owing must be substantial, but that is not the issue here; in all events there must be a tax due and owing.) In the case of an allegedly false return, the Government will usually make its proof usually by showing omitted income, falsely claimed deductions or falsely claimed credits, and make the resulting adjustments to the return to determine the tax allegedly due and owing. But the taxpayer may want to put in play unclaimed deductions, overreported income or unclaimed credits to offset the Government claims. The taxpayer can do that in the tax evasion case in chief as bearing on the issue of whether the Government has proved a tax due and owing. (There are some interesting burden of proof issues as to the unclaimed tax benefits, but I forego them for now.)  For example, in her now infamous criminal trial, Leona Helmsley (“only little people pay taxes”) asserted this defense by claiming that her husband's real estate empire generated far more depreciation deductions than they had claimed on their returns that so offended the Government. Indeed, she urged, the unclaimed deductions were more than sufficient to eliminate this element despite omission of large sums of income. It did not work for her, but it is an avenue that the experienced practitioner will explore. See United States v. Helmsley, 941 F.2d 71 (1991), cert denied, 502 U.S. 1091 (1991).

Monday, August 15, 2011

Tax Notes Article on Practitioner Assessment of Offshore Initiatives (8/15/11)

Tax Notes has published an article, Marie Sapirie, Practitioners Assess Offshore Initiative as Deadline Approaches, 132 Tax Notes 664 (Aug. 15, 2011). With permission of Tax Analysts, I make it available to readers here.

The article is short and worth reading in its entirety. Some excerpts:

"The second voluntary initiative gives people a fair way to resolve their tax problems," IRS Commissioner Douglas Shulman said August 8 in a reminder that the 2011 OVDI is ending.

Not all practitioners agree. The standardized penalty structure of the OVDP and OVDI "has led to some incredibly disproportionate and painful results," said Michel.

* * * *

The program's inability to differentiate between taxpayers' conduct and their culpability is frustrating, said Jeffrey A. Neiman, who led the prosecution of Swiss bank UBS as an assistant U.S. attorney in the Southern District of Florida. "If the OVDI program were more fair for these taxpayers who were not acting willfully, you would not have an issue with quiet disclosures or opting out, and you would probably have more compliance as well," he said.

Noises that Credit Suisse Is Ready to Surrender (8/15/11)

The news purveyors are reporting that Credit Suisse is ready to give it up -- including admitting wrongdoing and giving up $1 billion.  The actual details are not known, but the speculation is that the template for the deal will be the UBS arrangement with a deferred prosecutions agreement.

I will amend or supplement this blog entry as I become aware of additional material details.


See David Voreacos, Credit Suisse May Settle U.S. Probe by Admitting Wrongdoing, Paying Fine (Bloomberg 8/14/11).

Thursday, August 11, 2011

Some IRS Interpretations / Applications of OVDI 2011 (8/11/11)

A member of a group to which I belong has shared the following which are key items of his talk with an IRS Hotline OVDI person:

1. The 5%, 12% or 25% offshore penalty does not have to be submitted with the Submission Requirements that are due August 31.

2. The understatement of tax and related penalties thereon are due by August 31, but the interest on the tax and penalty does not have to be included. The IRS understands that most taxpayers don't have the capability to compute interest. If you attempt to compute the interest, then that is okay too.

3. The deadline to be precertified into the 2011 OVDI is August 31 (no extension available), but (as you know) the deadline for submitting the Submission Requirements can be extended, if request prior to August 31 and meet the elements in the 2011 OVDI Q&A number 25.1.

4. The Offshore Voluntary Disclosure Letter must be filed with Philadelphia to qualify for the 2011 OVDI, but you don't have to do both the precertified and the letter prior to August 31. Only one of the two needs to be done before August 31.  [SEE THE POST BELOW INDICATING THAT THE VDL MUST BE FILED BY THE EXTENDED DATE OF 9/9/11.]

See the post below of a comment dated 8/29/11:

Roy Berg said...

I just spoke with CI out of WA DC. The agent told me that the Voluntary Disclosure Letter MUST be filed with Philly by the (new) 9/9 deadline notwithstanding having made a timely pre-clearance request.

Wednesday, August 10, 2011

New York State Bar Comments to IRS to Make OVDI Fairer (8/10/11)

By letter dated August 5, 2011, the New York State Bar Tax Section submitted comments to the Commissioner, Chief Counsel and Acting Assistant Treasury Secretary on how to make the OVDI 2011 fairer and more administrable. I encourage readers to review or download the letter here.

The format is to comment on specific FAQs and we encourage readers to review the letter for those specific comments.. Preceding the specific comments is the following:

We recognize that the Service cannot evaluate the willfulness of every taxpayer who wishes to participate in the 2009 OVDP or the 2011 OVDI and that is why the Services has created a mechanism for taxpayers to opt out of the programs and undergo an audit. We agree that, given the large number of voluntary disclosures, this is an appropriate way to evaluate the culpability of particular taxpayers who believe that they did not act willfully. However, we are concerned that certain statements have been made by Service personnel that strongly encourage taxpayers to participate in the voluntary disclosure programs or face maximum criminal and civil penalties under the law. n5 In addition, FAQ 15 states that "[taxpayers are strongly encouraged to come forward under the 2011 OVDI . . . Those taxpayers making 'quiet' disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years." While these statements and procedures refer to taxpayers who have not made voluntary disclosures, taxpayers and practitioners have expressed concern that taxpayers who opt out of a voluntary disclosure program will face the same level of scrutiny and skepticism by the Service as if they had never participated in the program in the first place. Indeed, many revenue agents in the field have indicated that taxpayers who opt out of the voluntary disclosure programs will have a very difficult time convincing the Service not to impose maximum civil penalties.

Saturday, August 6, 2011

Yet another plea deal for UBS Depositor (8/6/11)

Taxpayer: Michael Reiss
Bank : UBS AG; two other unidentified Swiss bank, but one is pseudonymed "Swiss Bank No. 1"
Swiss Enabler: Beda Singenberger (see blogs here)
Entities: Yes (sham foundation and apparently sham corporation)
Guilt: By Plea Agreement - False FBAR (1 count)
Maximum Incarceration Period: 5 years.
Admits: Other false FBARs and failure to file FBARs
Tax Loss: $400,000 (at least)
FBAR Penalty: $1,200,000 + (FBAR penalty; perhaps 50% of highest balance for one year).
Court: SD NY
Judge Accepting Plea: Henry B. Pitman, Magistrate Judge, USDC SDNY

Friday, August 5, 2011

Prominent Lawyer Pleads to Mainstream Tax Crimes (8/5/11)

I have spent a disproportionate number of blogs on the foreign account / asset issue (principally the offshore voluntary disclosure initiatives). But mainstream criminal tax issues proceed apace. I do not normally pay much attention to general failures to file, tax or pay evasion, tax perjury, Klein defraud conspiracies, except in those cases where there is something unusual.

So, today, I bring something that is mainstream but unusual. A lawyer has pled guilty to two counts of failure to file income tax returns and two counts of failure to pay income tax. The USAO SDNY press release is here.  The maximum sentence when these 1 year counts are stacked is 4 years. (The Sentencing Guidelines range will sure indicate a fulsome sentence.) The lawyer is not just any lawyer -- he was a partner during most of the years that he failed to file tax returns with a very prominent law firm, Sullivan & Cromwell LLP (website here). He is John J. O'Brien, formerly a partner specializing in mergers and acquisitions at Sullivan & Cromwell LLP. 

The guts of the press release (cut and paste) is :

Another UBS Related Enabler is Indicted (8/5/11)

Yesterday brought another UBS enabler indictment against Gian Gisler, a resident of Zurich, Switzerland.  Here is the USAO SDNY Press Release.  I haven't had time yet to analyze the details and will probably wait until I get a copy of the indictment (if anyone has it please email it to me).  In the meantime, I just cut and paste the part of the press release summarizing the indictment:

From the mid 1990s until late 2008, Gisler was a client adviser at UBS. From early 2009 until at least 2010, Gisler was a client adviser at two different asset management firms (Swiss Asset Management Firm No. 1 and Swiss Asset Management Firm No. 2). From the mid-1990s through at least 2010, Gisler allegedly conspired with various U.S. taxpayers and others to ensure that his clients could hide their Swiss bank accounts and the income they generated from the IRS.

In 2001, UBS, one of the Swiss banks at which Gisler helped his U.S. taxpayer clients hide accounts, voluntarily agreed with the IRS to collect information from account holders concerning the true owners of accounts at those banks. In furtherance of the conspiracy, Gisler, together with his U.S. taxpayer clients and others, used sham entities created under the laws of countries other than the United States to hide from the IRS the Swiss bank accounts, and the income they generated, and to circumvent the commitments that UBS and, later, other Swiss banks, had made to the IRS.

Thursday, August 4, 2011

Foreign Corrupt Practices Act ("FCPA") Crimes and Tax Crimes (8/4/11)

The Foreign Corrupt Practices Act (commonly referred to as "FCPA") is much in vogue these days. Tax crimes often accompany FCPA violations. (See e.g., my prior blog The Giffen Plea -- The Cost of Justice (8/18/10)). Readers of this blog might appreciate reading Morgan R. Hirst and Elizabeth H. Jenkins, Adding Insult to Injury: Tax Consequences of FCPA Violations, 131 Tax Notes 1073 (June 6, 2011).  The authors discuss, inter alia, the Giffen case.

Class Action Suit by U.S. Depositors in UBS (8/4/11)

A class action suit has been filed against UBS in the North District of Illinois. The complaint is here. The class of plaintiffs includes certain U.S. depositors in UBS who held account(s) from 2002 - 2008 and who attempted to join an IRS voluntary disclosure program. The complaint contains the expected allegations of skullduggery. I have cut and paste below certain allegations regarding the class of plaintiffs and the plaintiff's lawyers (some of the formatting is not perfect).


MATTHEW THOMAS and HIMANSHU                                NO. 1 :11-cv-4798
PATEL, on their own behalf and on behalf
of all others similarly situated,
                                                                                                 PLAINTIFFS' ORIGINAL
                                                                                                 CLASS ACTION COMPLAINT

v.                                                                                              JURY TRIAL DEMANDED




* * * *


9. Plaintiffs bring this action on their own behalf and, pursuant to Rule 23(b)(l)(A), (b )(2), and/or (b )(3) of the Federal Rules of Civil Procedure, as a class action on behalf of themselves and the nationwide class of all persons (the "Class Members," the "alleged class" or the "Class") defined below against Defendant:


All United States citizens who held an account in Switzerland with UBS at any time from 2002 through 2008 and who have paid or offered to pay the United States Internal Revenue Service ("IRS") back-taxes and penalties and/or interest under the 2009 IRS Voluntary Disclosure Initiative or similar program as a result of not disclosing or declaring such Swiss account to the IRS or not paying income tax to the IRS derived from such Swiss Account. This Class is intended to include all persons who went to Switzerland to open the Swiss Account; opened the Swiss Account from the United States or any other place outside of Switzerland; inherited the Swiss Account; or came into ownership of possession of the Swiss Account through any other means or circumstances.

Wednesday, August 3, 2011

Yet Another Plea Deal on UBS Offshore Accounts (8/3/11)

Taxpayer: Robert E. Greeley (prior blog here).

Bank : UBS AG
Swiss Enabler: Renzo Gadola (see blogs here)
Entities: Yes
Guilt: By Plea Agreement - tax perjury (Section 7206(1)) - 1 count for 2008.
Maximum Incarceration Period:  3 years.
Admits: Failure to File FBARs but not charged or pled
Unreported Income: $734,000 (Interest) (all relevant conduct years between 2002 and 2008)
Tax Loss: ?
FBAR Penalty: $6,800,000 + (FBAR penalty; unclear whether 50% of highest balance for one year).
Court: ND CA (San Francisco)
Judge: Charles R. Breyer

David Voreacos, Ex-UBS Client Greeley Admits to Concealing $13 Million in U.S. Tax Dodge (Bloomberg 8/3/11).

Tuesday, August 2, 2011

New Swiss Enabler Indictment (8/2/11)

Today brings a new Swiss enabler Indictment in the Southern District of Florida, a hotbed of the DOJ juggernaut against banks and enablers. Martin Lack, a citizen and resident of Switzerland, was indicted for the defraud / Klein conspiracy. The indictment is here

Lack operates Lack & Partner Asset Management AG in Zurich and is a confederate of Renzo Gadola, previously indicted and blogged here.

As is the way with defraud / Klein conspiracy indictments, Lack's indictment is flowered up with a lot of detailed allegations of skullduggery presented as overt acts. These are just variations on the themes of how far the -- at least some -- Swiss bankers went to accommodate the U.S. clients' needs to hide their tax evasion (for a share of the ill-gotten gains, of course). For example, it is alleged that Lack solicited cash deposits in the U.S. in furtherance of the scheme and further failing to file the required Form 8300.  Thus, the following allegation:
26. It was further a part of the conspiracy that defendant MARTIN LACK and his conspirators would and did assist United States customers with undeclared Swiss accounts at Cantonal Bank in structuring the transfer of funds, including cash, within the United States without disclosing such transfers to the United States government on a Form 8300 as required by law.

Monday, August 1, 2011

Of Fear and Hostages: A Mid-Sight Editorial on The OVDI Program and Extortion (8/1/11)

I write tonight an editorial comment on the OVDI program (and the OVDP program as well). Hindsight, they say, is always better than foresight. When the IRS designed these programs, the IRS did not have the benefit of hindsight. Nor, of course, do I have the benefit of hindsight. I must address the program mid-sight, which is where we are.

My mid-sight view of the OVDI (and its predecessor OVDP) is that it has some very rough edges -- some basic unfairness issues that the IRS should move affirmatively to address and resolve. I doubt that the IRS will listen to me, but I offer my views anyway and hope that the IRS or Congress will listen -- not because this is my issue but because the concerns I address are the concerns of many people who are hurting because of the way the IRS is administering the program and because of fears as to the way the IRS will administer the program.