Thursday, May 31, 2012

Another UBS Related Taxpayer Plea Agreement (5/31/12)

DOJ Tax has announced yet another taxpayer plea agreement regarding UBS accounts.  The DOJ Tax press release is here.  The plea agreement is here.  Here are the key features based on these documents.

Defendant:  Wolfgang Roessel
Banks:  UBS, Wegelin, Bank A
Entities:  Yes (Cyan United A)
High Balance:  $11,501,868 (derived from statement that penalty was 50% of high balance)
FBAR Penalty: 5,750,933.99
High Balance:  Derived from penalty - $11,501,868
Count of Plea:  Tax perjury, Section 7206(1) with 3 year max sentence
Tax Loss: $312,802.95
5K1 Departure Possibility:  Yes
Judge:  Kathleen Williams

Fact Summary (from press release because these are not covered in the plea agreement; apparently they were stated in  court at the plea hearing or otherwise put in writing in the record):
[D]ating back to the 1980s and up through the late 2000s, Roessel held accounts at different times at Bank Wegelin and another Swiss bank (Bank A) into which he deposited foreign proceeds from his business, yet which he neither reported on his tax returns nor on the required FBARs. In the early 2000s, the foreign account at Bank A was put into the nominee name of Cyan United. A Swiss money manager made investments on Roessel’s behalf and met with the defendant periodically to discuss the performance of the account. In 2008 and 2009, during which period the defendant was aware of the government’s grand jury investigation into his foreign UBS accounts, the defendant disclosed only the existence of the UBS accounts on his tax returns for those years and did not report the other Swiss account.

Tea Party and Tax Compliance (5/31/12)

Richard Lavoie, a professor at the University of Akron, here, has posted an interesting article, here.  Here is the introduction (cut and paste):

Richard Lavoie* 
Given the rise of the tea party movement, which draws strength from the historical linkage between patriotism and tax protests in the United States, the role of patriotism as a general tax compliance factor is  examined in light of the extant empirical evidence. The existing research suggests that patriotism may be a weaker tax compliance factor in the United States than  it is  elsewhere. In light of this possibility, the tea party movement has the potential to weaken this compliance factor even more. Further, when considered in light of the broader tax morale factors that contribute to tax compliance, the tea party movement also poses a risk of destabilizing the social contract framework that underlies our established taxpaying ethos. In order to strengthen the impact of patriotism on tax compliance and lessen any adverse impact of the tea party movement on the country’s taxpaying ethos, the government should take steps to disentangle American patriotism from its anti-tax roots. Important first steps in this regard are outlined in this Article, including the creation of a voluntary “Patriotic Remittance Tax.” Making such changes will strengthen the bond between taxpayers and the government and help promote a vision of American patriotism that is positively associated with taxation rather than antithetical to it
Thanks to the Tax Prof Blog posting on the article here, I do recommend to my readers, particularly professionals, with an interest in tax that they read the Tax Prof Blog daily here.  Paul Caron is author of the Tax Prof Blog and does not limit his blogs to just tax.

Kevin Downing Joins Miller & Chevalier (5/31/12; revised 6/4/12)

Reports are circulating that Kevin Downing is resigning effective June 4, 2012.  See David Voreacos, Tax Division’s Downing Said To Resign From Justice Department  (5/31/12), here.  Kevin Downing, an attorney in DOJ Tax CES, has been a key player in the DOJ offshore juggernaut since the John Doe Summons proceeding against UBS.  Downing has been frequently mentioned in this blog.  See collection of blogs based on "Downing" search, here.  I would normally have posted this item on the page for "News / Rumors on Offshore Evasion,." I thought that some readers may want to comment on this news, and thus needed a dedicated place to make those comments.  I remind readers to keep the comments appropriate.  I will not approve them if they are not appropriate.

Before stirring up trouble in the offshore account arena, Mr. Downing stirred up trouble over the KPMG tax shelters in SDNY which is where I first encountered him.  He has been busy in his DOJ Tax CES career.  I'll just say that I encountered Mr. Downing in the KPMG individual defendant criminal prosecution.  I observed that he is a zealous advocate and true believer in the righteousness of his cause.  At least in the KPMG matter, as the court ultimately held, the ends sought by the prosecution team on which Mr. Downing served did not justify the means the team chose to achieve the ends.  United States v. Stein, 541 F.3d 130 (2d Cir. 2008).

Addendum 6/4/12: Main Justice (the web publication) reports that Mr. Downing is joining Miller & Chevalier. See Elizabeth Murphy, Longtime Tax Division Lawyer Joins Miller & Chevalier (Main Justice 6/4/12), here.  MIller & Chevalier's web site is here and the firm's announcement for Mr. Downing's joining is here.

Wednesday, May 30, 2012

Plea for Defendant Charged with Tax Crimes (including FBAR) (5/30/12)

I previously reported on the criminal case involving Charles Alan Pflueger.  See Court Holds FBAR Duty is Clear and Willfulness Is a Trial Issue (4/10/12), here.  The gravamen of the case was a traditional tax crimes case, although an FBAR violation was charged as well.  Mr. Pflueger and others recently pled guilty.  See DOJ Tax Press Release, here.  The pleas were to traditional tax crimes.  Mr. Pflueger, who had the offshore account and was the defendant charged with the FBAR violation, pled to a single tax perjury, Section 7206(1), here, charge for the year 2005.  His plea agreement is here.  This gravamen of this case was not the offshore account charge, so I will not spend much time on it here.

I do point out the following with respect to Mr. Pflueger's plea agreement:

1.  The plea agreement imposes contractual restitution for the tax loss, including relevant conduct as determined by the Court.  Except for the plea agreement, the sentencing court would not be authorized to order restitution for a Title 26 crime of conviction, except perhaps as a condition of some sentencing benefit (such as probation).  The court will be authorized to order restitution pursuant to the plea agreement.  The amount of the restitution will be determined by the time of sentencing.  Once determined at sentencing, the amount of the restitution may be immediately assessed under Section 6201(a)(4), here.   The IRS may use its tax collection authority with respect to the assessments (including the fraud assessment), regardless of any restitution schedule ordered by the sentencing court.

2.  The defendant also consents to the assessment of the fraud penalty for the year of conviction and agrees not  to contest the fraud penalty.  Technically, the fraud penalty would not be restitution and the plea agreement is careful not to call it restitution.  The fraud penalty is a penalty, rather than recompense.  Presumably, this agreement for immediate assessments operates like a Form 870, Waiver of Restrictions on Assessment, although I am surprised that the Government did not require that Pflueger execute that form.

Tuesday, May 29, 2012

Why We Cheat and Lie -- Taxes Included (5/29/12)

In an excellent article adapted from an upcoming book, Dan Ariely,  James B. Duke Professor of Behavior Economics at Duke University, offers insight from his research about why people lie.  Dan Ariely, Why We Lie (WSJ 5/26/12), here.  The name of the book is The Honest Truth About Dishonesty: How We Lie to Everyone---Especially Ourselves (Harper June 5, 2012), here.  Dan Ariely's Duke bio is here.

Here are some quotes easily applied to taxes that might entice readers to read the article and then, when published, the book.
What we have found, in a nutshell: Everybody has the capacity to be dishonest, and almost everybody cheats—just by a little. Except for a few outliers at the top and bottom [the top and bottom are those small percentages who will not cheat at all and those at the other extreme who will cheat big], the behavior of almost everyone is driven by two opposing motivations. On the one hand, we want to benefit from cheating and get as much money and glory as possible; on the other hand, we want to view ourselves as honest, honorable people. Sadly, it is this kind of small-scale mass cheating, not the high-profile cases, that is most corrosive to society. 
* * * * 
"[T]he level of cheating was unaffected by the probability of getting caught." 
* * * * 
The results of these experiments should leave you wondering about the ways that we currently try to keep people honest. Does the prospect of heavy fines or increased enforcement really make someone less likely to cheat on their taxes, to fill out a fraudulent insurance claim, to recommend a bum investment or to steal from his or her company? It may have a small effect on our behavior, but it is probably going to be of little consequence when it comes up against the brute psychological force of "I'm only fudging a little" or "Everyone does it" or "It's for a greater good." 
* * * * 
Another set of our experiments, conducted with mock tax forms, convinced us that it would be better to have people put their signature at the top of the forms (before they filled in false information) rather than at the bottom (after the lying was done)

Sunday, May 27, 2012

Pastor Going to Trial for Tax Charges Predicts Jesus Will Come Today (5/27/12)

I have previously blogged on Ronald Weinland.  See Controversial Pastor, Self Proclaimed Prophet, Indicted re Income from Church Offerings and Offshore Accounts (11/21/11), here.  My impression from afar is that he is just a charlatan (see here) in the guise of a religious person.  Just in case he has some connection with God (maybe a prophet?), I thought I would inform readers of this blog that he is predicting that Jesus will return to the Earth today.  Church of God pastor indicted for tax evasion, predicts coming of Christ (Fox 19 5/22/12), here.  Sorry for being late on this report.

If Jesus does come, I suppose, Weinland will miss his upcoming trial for tax charges.  And, I will have to give up my blogging.  I also suppose that, although the time is nigh, those who are concerned might want to get right with Jesus. Just a variation of exploiting Pascal's Wager, see Wikipedia entry, here.  There is always the last minute come to Jesus moment.  See the story of the penitent thief on the cross alongside Jesus, at Wikipedia, here.  (It is unclear whether the penitent thief was exploiting Pascal's Wager or really had an epiphany. The point is that there's still time, that is, if you read this blog in time (or otherwise get the news).  Readers can rest assured that I am doing all that is appropriate.

Update 5/28/12:  Jesus did not come yesterday.  Let me clarify, I do not have any credible report that Jesus  did come yesterday.  Even Mr. Weinland has changed his prediction, though, so that the prediction is not inconsistent with the facts.  It now appears that Mr. Weinland  has recalibrated and has announced that Jesus will come next year. Ron Weinland: Oops! My Bad! Jesus Is Coming Next Year, or Maybe After That, or Maybe..... (Armstrongism Blog 5/28/12), here.  (This may be viewed as an application of Bayesian analysis, although it seems to me that he does not have the right prior.)   So, Mr. Weinland will go to trial after all (unless he chooses to plead guilty or the Government drops the charges, neither of which seem likely at this point)..

It seems to me that in addition to not looking at the right time for Jesus, Mr. Weinland is looking for Jesus in all the wrong places such as foreign bank accounts.

And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.
Matthew 25:40 (King James Version), here.

Friday, May 25, 2012

Has DOJ Tax Crossed the Line in its Press Releases? (5/25/12)

Press releases are an important component of the Government's war on tax crime.  The notion is that, for maximum general tax enforcement bang for the limited criminal enforcement buck, the public needs to hear that tax crimes are enforced and thereby encourage better tax behavior.  Hence, publicity of criminal tax charges, convictions and sentences, by the IRS and by DOJ Tax is standard, almost daily, fare.  For the IRS's publicity policy statement, see IRM  (Approved 05-23-1986), Policy Statement 1-183, here; for DOJ Tax's Policies, see AAG Memo of 9/8/2000, here; For DOJ Tax's 2012 press releases, see here.  U.S. Attorneys also issue press releases in selective tax cases.

DOJ Tax recently issued a press release that has drawn controversy.  The title of the press release is:  Georgia Tax Cheats Indicted for Conspiring to Defraud the United States (5/23/12), here,  The White Collar Crime Prof Blog questions the ethical propriety of the release.  See DOJ Press Release Treads on Presumption of Innocence (White Collar Crime Prof Blog 5/24/12), here.  Not only does the author of the blog call out DOJ Tax, but, via a comment to that blog (see the blog), so does Professor Monroe Freedman, a law professor and noted expert on ethics, see here.  The point is that by calling them tax cheats DOJ has pronounced their guilt in a way that impairs the presumption of innocence.  It would have been better to just say that the individuals were charged rather than calling the tax cheats or, alternatively, calling them alleged tax cheats.  But alleged tax cheats may not have the same punch as just tax cheats.

I would appreciate comment from this community on the issues raised as to press releases.

I am aware of no response yet from DOJ Tax.  I will post one if I hear of it.

Thursday, May 24, 2012

Family Member Enabler Charge Dismissed re Offshore Accounts (5/24/12)

The USAO SDNY dismissed charges against Samuel Phineas Upham.  David Voreaco, U.S. Drops Case of Man Accused of Helping Mom Hide Money (BloombergBusinessweek 5/23/12), here.  The charge was that he had assisted his mother, Sybil Nancy Upham, in hiding offshore accounts.  I have previously blogged on the son's charges, Another UBS Related Defendant is Charged for Offshore Accounts (12/9/10), here.

Not much to say, at least for now, except that it is refreshing to see prosecutors, while not admitting that they made a mistake, are willing to update their conclusions based on new information rather than stick to the conclusions.  Good Bayesian approach.

The mother pled guilty in November 2010.  I don't have information on her sentencing.  If someone has that information, I would appreciate them emailing me the information or a link to the information.

Wednesday, May 23, 2012

Tax Due and Owing, Tax Loss, Restitution, Civil Tax (5/23/12)

Today, I make an offering on some legal jargon all having to do with tax evaded in a criminal case.  This article is inspired by the following article:  Jeremiah Coder, ABA Meeting: DOJ Officials Discuss Calculating Tax Loss for Restitution and Sentencing, 2012 TNT 94-8 (5/15/12), here.  Thanks to Tax Analysts for permission to post the case for review and downloading.

This article reports a discussion at the ABA Tax Section Meeting in mid-May 2012 regarding the relationship between tax loss numbers, restitution, and civil tax numbers.  For example, some courts hold that unclaimed deductions are not included in the sentencing tax loss so that, conceivably at least, the Court will calculate sentencing on a tax loss that exceeds the real tax due whereas for restitution purposes, it is the real tax loss and for civil tax purposes it is the real tax loss.  The notion is that the Sentencing Guidelines defines the tax loss as the tax loss that was intended -- the object of the offense (USSG § 2T1.1(c)(1))where the taxpayer does not claim the deductions he or she would have been otherwise entitled to, his object or intent, presumably, is to save the tax due without the benefit of the deductions.  I certainly see the textual basis for that notion, but I personally think it is stupid.

I understand the sentencing courts and appellate courts do not want to get slowed down over tax computations.  I suppose that, since most taxpayers claim deductions that they are entitled to, the odds are that, in the bulk of the cases, there are not really credible unclaimed deductions.  But, a taxpayer desperate to lower the tax loss for the sentencing benefit will be tempted to throw marginal claims on the table and force the courts to deal with them.  So, for courts buying into this notion, it is better just not to have to deal with them.  But they thereby create the anomaly noted where the tax loss can materially exceed the restitution amount.

Even worse, at least conceptually, the tax loss can exceed the criminal tax number that the Government would have to prove in the first case in a tax evasion trial.  Let me use an example:  Say the real civil tax deficiency is $50 after all components entering the calculation (including unclaimed deductions) are considered, but that, if the unclaimed deductions are not considered, the sentencing tax loss is $100.  At the guilt or innocence phase of the trial, the Government would have to allow real unclaimed deductions (and would probably tilt in doubt in favor of the taxpayer in making the tax calculation).  The use of the real tax due is the Spies element of the offense.  So the taxpayer would be found guilty on a tax loss of $50, but will be sentenced on a tax loss of $100 and, if restitution is imposed (usually not without consent in tax crimes), at $50.

Friday, May 18, 2012

IRS Warning Letters May be Sufficient for Some NonWillful Violations (5/18/12)

In a Tax Notes Today report of statements made at the Eastern Pennsylvania Working Together Conference in Malvern, PA, Jason Kuratnick, IRS Associate Area Counsel (Philadelphia), Small Business / Self-Employed Division is reported to have said:
The IRS may send a warning letter in lieu of asserting penalties for failure to file a Form TD F 90-22.1, "Report of Foreign Bank and Financial Accounts," if it would be sufficient to bring the individual into compliance, an IRS official said May 17.
Matthew Dalton, IRS May Issue Warning Letters on FBARs Instead of Penalties, 2012 TNT 97-3 (5/18/12).

The report is too cryptic to draw any firm conclusions and certainly is not a definitive statement of the IRS position.  I do  think, however, that the statement is a helpful indication that the IRS will be reasonable in applying the nonwillful penalty in audits (whether on opt out, quiet disclosure or go-forward) and, with other indications, may allay some of the fears in the community of taxpayers who had nonwillful violations.

I think that for most taxpayers an IRS warning letter would in fact do the job of getting them into compliance.  Indeed, I think that if the IRS were to give more assurance to taxpayers of reasonableness, the IRS might find much more willingness in taxpayers to correct some past years' income tax underreporting and thus bring at least some marginal revenue into the Treasury for income tax.  In other words, it could become really win-win for the IRS and at least the minnow taxpayers -- they get the assurance of moving into compliance with some correction of past years at the cost principally of income tax and perhaps and income tax penalty, but with no draconian FBAR penalty.

Indeed, I think the IRS and the country would be well served to announce that persons who will not be subject to the willful FBAR penalties (they will have to take the risk of making the right determination here) and who desire to join the OVDI program will get an FBAR penalty of no more than 1/2 the amount of the regular audit FBAR penalty.  Of course, if the regular audit penalty for a nonwillful violator is zero, the program penalty would be zero.  But, what this would do is to offer an incentive to these taxpayers to correct the income taxes for 2003 forward with some assurance that they will not be hammered by the FBAR penalty for coming into the program.  And, keep in mind that the taxpayers submits all of the information to the make the income tax assessments, so that the IRS devotion of audit resources could be light.  Win-Win.

Thursday, May 17, 2012

Renunciation of U.S. Citizenship to Save U.S. Tax (5/17/12; Revised 5/20/12)

There is a good article on renunciation of U.S. citizenship to save U.S. tax in this mornings Tax Notes Today.  Marie Sapirie, Facebook Expat Is Latest Billionaire Without Borders, 2012 TNT 96-1 (5/17/12).  I do and have a link to the article.

This article discusses the brouhaha over Eduardo Saverin's renunciation of citizenship.  Saverin is a Facebook founder with a minority interest in the company going public.  His renunciation of citizenship is speculated to save him millions in U.S. tax.

Ms. Sapirie has some very good comments on the tax aspects of renouncing citizenship.  I have exerpted them and present those exerpts here
Section 877A, enacted as part of the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, revised the exit tax consequences imposed under section 877 by establishing a mark-to-market regime in which the property of covered expatriates is treated as being sold for fair market value on the day before the expatriation date. Any gain arising from the deemed sale is taken into account for the tax year of the deemed sale, less an exclusion amount that is indexed for inflation. An expatriating taxpayer may elect to defer payment of the tax until the property that was marked to market is disposed of.  
* * * * 
Regardless of whether they meet the 877(a) tests, before expatriating all individuals must certify that their past five years of U.S. tax returns are fully compliant. Before that certification can be made, many nonresident citizens must file returns and foreign bank account reports, Mehany said. Part of the analysis in that step is to determine whether it is in the taxpayer's interest to enter the offshore voluntary disclosure initiative or to explore other planning alternatives before starting the expatriation process to allow the taxpayer time to become compliant, she said.

Wednesday, May 16, 2012

Good Case on Grouping for Tax Crimes for Sentencing Purposes (5/16/12)

In United States v. Register, 678 F.3d 1262 (11th Cir. 2012), here, the Eleventh Circuit held that grouping under SG § 3D1.2(d), here, is required for counts of conviction for failure to pay over,  §  7202 (13 counts), and tax perjury,  §  7212 (4 counts).  Generally, for a defendant, grouping is good and not grouping is bad.  Bottom line, the Court on the facts found sufficient nexus between the two crimes to group.  The opinion is very good and I highly recommend it to readers.

Because the opinion is so good and reasonably succinct, I don't try to summarize.  Rather, I refer readers interested in the grouping concept to read the opinion.  For persons not that familiar with the concept, I offer the following from my Federal Tax Crimes book (as revised for the Register case, but omitting the footnotes).

To Group or Not to Group - That is a Question.

I noted repeatedly in the crimes section that a pattern of criminal activity that is essentially a unified crime may violate more than one criminal statute and thus could give rise to several or even many criminal counts in an indictment drafted at the discretion / whim of the prosecutor.  For example, a pattern of conduct might constitute tax evasion and tax perjury – i.e., the taxpayer files a false return underreporting his or her tax liability.  Should the prosecutor be able to squeeze out a greater sentence by charging tax evasion and tax perjury for the same pattern of activity?

Saturday, May 12, 2012

Moneyball on Go-Forwards - Show Me the Data (5/12/12)

I had a comment posted today here as follows:
Many Americans Abroad Surprised by Tax Code's Nasty Bite
From the above article
FBAR forms filed in 2009 276,386
filed in 2011 618,134
The commenter was referring to statistics in the following article: Brian Knowlton, Many Americans Abroad Surprised by Tax Code's Nasty Bite (NYT 5/10/12), here.

I will use a separate blog entry to respond to this data.  My response is in the form of a question to which I hope readers will respond, particularly readers with some experience with criminal tax practice.

I suspect that the bulk of the delta filers between 2009 and 2011 (app 340,000, including the first time filers in 2010) are had accounts prior 2010 who did not join OVDI or do a quiet disclosure.  Let's just say that 250,00 of them are first time filers in 2010 or 2011 who had accounts in prior years but did not join OVDI or make a quiet disclosure.  They are the go-forward data set.

How many do you think will be (a) investigated criminally for past years or (b) prosecuted for past years?

Keep in mind that DOJ Tax CES prosecutes at most, say, 3,000 tax cases (max) of all sorts every year.

And, a related question, how do you think the IRS will investigate civilly -- well audit, even if not civilly (sorry for the pun -- in enough detail to consider significant civil penalties?  Keep in mind in this regard that well-advised taxpayers doing a go-forward will have self-selected a data set in which the IRS will not be able to assert or sustain significant penalties in the bulk of the cases.  And, if the IRS perceives that, will it nevertheless divert major resources -- which are limited and will take away from other enforcement efforts -- to chase down relatively small penalties?  Finally, keep in mind that the FBAR penalties the IRS asserts after this major audit enforcement initiative would then have to be followed by more civil litigation enforcement than either DOJ Tax or the Courts likely have otherwise uncommitted resources to handle.

Friday, May 11, 2012

British Lawyer Charged in Swiss Bank Mess Related to UBS Account (5/11/12)

In a Sealed Complaint (now unsealed) dated May 10, 2012, here, the Government charges Michael Little, a British lawyer with (a) one count of conspiracy (as alleged, it is both a a Klein conspiracy and an offense conspiracy to violated Sections 7201 and 7212(a)) and (b) one count of tax obstruction under 7212(a).  The co-conspirators are identified generally as Little and "others known and unknown, including a Swiss Lawyer, a New Jersey Accountant and five members of a United States-based family (the "S Family")."  The S Family members include the S Family Patriarch and S Family Matriarch who are singled out in the Overt Acts.  S Family Member-1 has pled to "certain conspiracy charges relating to her failure to report to the Internal Revenue Service her ownership and control of a foreign bank account located in Switzerland and is a "cooperating witness."  S Family Members -3 and -4 gave "proffer sessions attended in the hopes of entering cooperation agreements with the United States Attorney's offices in the future."  In addition, the information in the complaint is alleged to come from a variety of sources.

S Family Member-2, identified in the NYT article below as Henry Seggerman,, is apparently still at the highest risk (assuming that S Family Members -3 and -4 ultimately get some type of cooperation agreement with a lesser plea).  S Family Member -2 "oversaw the family's dealing with MICHAEL LITTLE, the defendant, and also tried to place his mother, the S Family Member Matriarch, on a budget with respect to her spending of the amounts she would be bringing to the United States from foreign locations."

The New York times has an article on the unsealed complaint with some details not in the unsealed complaint.  Benjamin Weiser, Family Told How to Hide Inheritance, U.S. Claims (NYT 5/11/12), here.  I think the article is interesting and gives a hint that there are real stories and real lives behind the more egregious attempts to exploit offshore accounts to avoid U.S. tax liability.  The article contains the following selective details:

1.  The defendant, Mr. Little, was arrested yesterday at the airport, hence the unsealing of the complaint.  (How many more sealed complaints or indictments are there out there  for others?)
2.  Bail was granted at $2,000,000.
3.  The Family is the family of "Patriarch" Harr G.A. Seggerman, a respected investment fund president.
4.  S Family Member-1 is Suzanne Seggerman.  Her Wikipedia entry is here.
5.  A grand jury investigation is continuing.

Here are some of my unfiltered quick thoughts:

Wednesday, May 9, 2012

Seventh Circuit Affirms Sentencing for Tax Related Crimes Involving Foreign Accounts (5/9/12)

In United States v. Ghaddar, 678 F.3d 600 (7th Cir. 2012), here, the defendant pled to counts of mail fraud and tax obstruction.  The defendant operated retail tobacco shops and skimmed currency which he used both for the business (paying employees and suppliers) and for his own personal purposes, including diverting to his offshore accounts which were owned individually rather than through entities.
He also channeled a substantial portion of the currency to bank accounts he controlled in Lebanon, his homeland, where he owns property and maintains a residence. He accomplished this overseas transfer by carrying currency or cashier's checks with him when he traveled, wiring money from noncorporate accounts he controlled at stateside banks, and shifting money into the accounts of relatives and associates, who then wired it to his Lebanese accounts. In addition, on at least three occasions, Ghaddar directed his accountant to make multiple deposits of currency in amounts around $9,000 and then transfer lump sums to an account in the Channel Islands (British Crown Dependencies off the French Coast of Normandy). The account was under Ghaddar's control but not in his name; the name of the account holder is not disclosed in the record.
At sentencing, the defendant opposed a 2 point upward adjustment for "sophisticated means."  This adjustment applies under the Chapter 2 Guidelines for both to wire fraud convictions and tax convictions and are interpreted consistently.  U.S.S.G. §§ 2B1.1(b)(10)(C), 2T1.1(b)(2).
Both provisions apply to "especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense," and both guidelines include an application note identifying, as examples of conduct ordinarily warranting the increase, the concealment of assets and transactions "through the use of fictitious entities, corporate shells, or offshore financial accounts." U.S.S.G. §§ 2B1.1 cmt. n.8(B); 2T1.1 cmt. n.4.
The defendant argued that his conduct was not sophisticated and hence the adjustment should not apply.  He attempted to characterize the gravamen of his conduct as mere skimming which should not constitute sophisticated mean.  The Court rejected the argument on the following reasoning (most case citations and quotation marks omitted):

Tuesday, May 8, 2012

Swiss Bank Pictet Turns Over U.S. Client Data (5/8/12)

Swiss bank Pictet & Cie, here, is reportedly swept up in the milieu, although it was not one of the 11 banks previously in the IRS's cross-hairs.  See Swiss bank Pictet gave data to U.S. in tax probe (Reuters 5/6/12), here.  Pictet, of course, had U.S. clients all along, but had a much lower profile than other Swiss banks.  As reported in the article the particular accounts in issue were accounts transferred to Pictet from UBS after UBS was targeted by the IRS. According to the article, Pictet turned over the information to the IRS in November 2010 pursuant to a treaty request.  Pictet says it is not targeted by the IRS..

It is not clear whether Pictet disclosed U.S. customers than the two mentioned in the article.  There were others.

Pictet is the unidentified Swiss Bank A in the indictment of Messrs. Kerr, Quiel and Rusch, which I previously discussed in the blog entitled 2 Taxpayers and their U.S. Lawyer Indicted re Foreign Accounts (2/1/12), here.  I don't know if the disclosure of documents discussed in the article relates to any of those individuals or not.

Friday, May 4, 2012

Another UBS Depositor Pleads Guilty (5/4/12)

Yesterday, Humberto Gomez pled guilty, according to a DOJ Tax press release, here [the link is not yet available; I will post the link when I have it].  The press release is rather cryptic, but here are the key details:

Defendant:  Humberto Gomez
Bank:  UBS
Entities:  Yes (Bullrush Overseas, Ltd.)
High Balance:  $1,412,026 (2006 & 2007)
Count of Plea:  Tax perjury, Section 7206(1) - one count (but may cover two years, 2006 & 2007)
Tax Loss: $10,478 (2006 & 2007)
Judge:  Jose Martinez, SD Florida

The tax loss seems low.  The press release says:  "For the years 2006 and 2007, the criminal tax loss associated with the Bullrush account at UBS is approximately $10,478."  I suspect that there is more to the story.  In another cryptic statement, the press release says:  "Between August 2006 and December 2007, the defendant allegedly made deposits, including business receipts for Venezuelan corporations, in his Swiss UBS account totaling approximately $1,887,859."  The tax loss thus must be the tax on the earnings on the UBS account rather than any tax associated with the deposits into the UBS account.  As the press release is worded, that may be an open issue.

Thursday, May 3, 2012

Cincinnati Attorney Pleads to Tax Obstruction (5/3/12)

Suzanne Land, a Cincinnati attorney, has pled to one count of tax obstruction, Section 7212(a), here, a three year felony.  The DOJ Tax press release is here.  I will obtain the guilty plea when available and post it.

The press release describes her conduct as follows:
According to the plea agreement and statements made in court, to conceal from the IRS the deficiencies in the documents that she drafted for her wealthy clients, Land forged the posthumous signatures of both her deceased clients and their living children on amendments to the documents. Land also misled an appraiser as to the value of the estates, created fake legal invoices that reflected work she never performed, and lied to the IRS about the circumstances surrounding the creation of the amendments. According to the terms of the plea agreement, Land admitted that the "relevant and foreseeable" tax loss that could have resulted from her obstruction was approximately $1,140,636.
I don't have the plea agreement yet, so don't know whether it sets forth the parties' understandings and agreements as to the sentencing guidelines components.  However, my rough calculation suggests a sentencing range of 30-37 months.  The cap on sentencing will, of course, be 3 years because she pled to a single Section 7212(a) count.  I will fine tune that calculation when I get the plea agreement.

Addendum on 5/9/12:  I have obtained 2 pages of the plea agreement, here, with the rest under seal.  The unsealed portion (2 pages) gives some details within the scope of the general statement in the press release.  The plea agreement states:  "LAND was motivated to take these actions because she feared a malpractice suit from the administrator of her client's estate."

My web search indicates that Ms. Land was an accomplished and respect attorney.  Her bio at a law firm is here. Th bio may not be there for long so I cut and pasted the following:

Wednesday, May 2, 2012

Convictions of Mail Fraud, False Claims and Conspiracy; Use of Offshore Accounts (5/2/12)

According to a DOJ Press Release, here [will post link when available], Curtis Morris and Richard Kellog Armstrong were convicted of "for mail fraud, filing false claims against the United States and conspiracy to file false claims against the United States."  "Morris was found guilty of three counts of mail fraud, seventeen counts of filing false claims against the United States and one count of conspiracy to defraud the United States. Armstrong was found guilty of one count of mail fraud, eight counts of filing false claims against the United States, three counts of engaging in monetary transactions in property derived from mail fraud and one count for conspiracy to defraud the United States."

The method they used to file the false claims was the use of Forms 1099-OID which reported bogus withholdings which they used to claim large refunds.
Armstrong received over $1.6 million and, according to the testimony at trial, quickly moved most of this money into accounts in the names of shell entities and offshore bank accounts.
I suspect that Mr. Armstrong did not report the offshore bank accounts either on FBARs or 1040s, but do not know why he was not prosecuted for either violation (of course, there may not have been any or significant earnings on the accounts).  Given the charges and convictions, adding additional counts would not make any difference in terms of sentence or deterrence effect.  And, the gravamen of the Government's complaints against the pair was stealing from the Government and not violation of reporting obligations.  Still, under the facts the FBAR reporting requirement would directly implicate his Fifth Amendment privilege and perhaps that was a consideration in not charging FBAR.

Tuesday, May 1, 2012

Second Circuit Reverses and Vacates Convictions for Wire Fraud and Tax Evasion (5/1/12)

In  United States v. Litwok, 678 F.3d 208 (2d Cir. 2012), here, the Second Circuit  upset convictions for wire fraud and tax evasion, applying seeming settled principles.

I address first the tax evasion convictions, although the Court addressed first the wire fraud conviction.  The defendant's tax evasion convictions for 3 years arose from her failure to file income tax returns for those years where she omitted substantial income unrelated to the wire fraud.  Normally, a failure to file income tax returns establishes only the crime of failure to file, Section 7203, a misdemeanor.  In order to prove tax evasion in the context of failure to file, the Government has to prove some affirmative element other than just failure to file.  The Second Circuit held, cryptically, that, for two of the years, the evidence was insufficient to support conviction for two of the three years but was sufficient for the third year, reasoning as follows (case citations and quotations omitted):
(i) 1995 Tax Count 
We have previously described as examples of affirmative acts conduct such as making false statements to the IRS for the purpose of evading taxes, establishing accounts in the names of other entities to conceal income, and handling of one's affairs to avoid making the records usual in transactions of the kind, More broadly, we have held that an affirmative act includes any conduct, the likely effect of which would be to mislead or to conceal.
With these principles in mind, we review the evidence relating to the tax evasion count for 1995 (Count Two). The most significant testimony relating to that count was that of Peter Testaverde [an accountant]. As set forth above, Testaverde testified that Litwok barred him from verifying the accuracy of the trading account statements that she claimed were inaccurate and thereby prevented him from preparing 1995 K-1 tax forms for Kohn Investment I LP's partners — including its general partner, Kohn Investment Management, which Litwok owned. Without K-1 tax forms, the company's partners could not determine their income and file their returns. Based on Testaverde's testimony, a rational juror could find that Litwok actively prevented the filing of her returns that year. On a sufficiency challenge, her conduct constitutes an affirmative act sufficient to sustain her conviction on Count Two.
(ii) 1996 and 1997 Tax Counts 
In contrast to the evidence relating to the calendar year 1995, there was no evidence at trial  of any affirmative act beyond a mere failure to file tax returns for calendar years 1996 and 1997. For the first time at oral argument on appeal, the Government sought to defend the convictions for tax evasion for 1996 and 1997 (Counts Three and Four) in two ways. First, it claimed that Litwok had an affirmative, fiduciary duty to prepare K-1 tax forms for Kohn's partners, and that her failure to do so constituted the requisite affirmative acts. Second, it argued that Litwok's refusal to allow Testaverde to verify financial documents for 1995 constituted an affirmative act of tax evasion in 1996 and 1997 because it prevented the calculation of accurate income for those later years. Because it did not raise either of these arguments in its brief or before the District Court, these arguments were forfeited, and we decline to consider them. Accordingly, we reverse the judgment of conviction as to Counts Three and Four.