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."