Plea to Tax Obstruction in Evasion of Payment Case (1/31/13)

I cut and paste this IRS news release principally for the benefit of students just being introduced to federal tax crimes.  First, the press release illustrates that the criminal enforcement system seeks to undergird the federal tax system by publicizing compliance initiatives that will encourage other taxpayers to voluntarily comply.  The IRS thus issues press releases for criminal actions.  DOJ Tax and U.S. Attorneys Offices issue press releases as well.  I often refer to the DOJ Tax and USAO press releases and have links to the right of the blogs to DOJ Tax's press release sites.  Second, this particular plea illustrates a matter we covered last week in the Federal Tax Crimes class at UH Law School.  We were covering tax evasion.  Tax evasion under Section 7201, here, is usually evasion of assessment (principally by false return underreporting tax liability), but sometimes by evasion of payment.  The case described in the press release below seems to fit the pattern of an an evasion of payment case, although the charge was not tax evasion.  The pattern for evasion of payment that we discussed in class was for a taxpayer to have unpaid assessed tax liabilities (often reported by him or set up on audit) that he avoids paying and takes affirmative steps to avoid paying.  That appears to be what this defendant did.

We have also noted in class that a pattern of conduct can often fit within the elements of two or more crimes.  Here, the pattern of conduct could have been charged as evasion of payment but was charged as tax obstruction, Section 7212(a), here.  This was a plea deal and perhaps the "lesser" crime of tax obstruction is what the defendant required in order to plea.  Facially, it is a lesser crime than tax evasion.  Tax evasion is a five year maximum sentence, whereas tax obstruction is a three year maximum sentence.  Given the amount of the tax loss ($1.7 million), it is possible that the three year count of conviction could be less than at least the top of the sentencing guideline range.  I did a fairly clean calculation of the guidelines range (only factors were the tax loss and the 3-level reduction for acceptance) and determined an indicated guidelines range of 30-37 months, so the maximum period allowed by a Section 7212(a) plea will cap the sentence at 36 months.  And this is true not only as to the guidelines range, but also as to any possibility of an upward Booker variance.  Some of the foregoing will be unintelligible to students in the early part of the course, but will be easily understood once we complete the Guidelines chapter.

Warnings on Continued Government Patience for Offshore Account Ostriches (1/31/13)

A Tax Notes Today article reports that the Assistant Attorney General for the Tax Division, Kathy Keneally, has warned that amnesty for offshore account evasion will not last forever.  Jeremiah Coder, Keneally Says Government's Patience with OVDP Holdouts Has Limits, 2013 TNT 21-3 (1/31/13).  The opening quotes are:

The Justice Department Tax Division and the IRS will not forever offer criminal amnesty to taxpayers who continue to avoid reporting their undeclared offshore bank accounts, Kathryn Keneally, assistant attorney general for the Tax Division, said on January 29. 

Account holders should disclose their accounts through the IRS offshore voluntary disclosure program (OVDP) as quickly as possible, "because sitting it out at this point is extremely dangerous," Keneally said at a roundtable discussion held at the University of Southern California's annual tax institute. If a taxpayer knows a criminal investigation is underway, "it's too late" to enter the OVDP and avoid investigation by the DOJ, she said.  

Several offshore cases that started out as civil IRS exams have now gone criminal, Keneally said. "This idea of sitting it out, and if the government goes after me I'll only have civil penalties to deal with -- people need to get over that," she warned.

JAT Note:  She is right, of course.  But there is nuance in what she says.  When advising a U.S. taxpayer with this problem whether to enter the applicable version of the IRS OVDI/P  program, the key initial inquiry is whether that taxpayer has material criminal fraud risk and, correspondingly, material civil fraud risk that might result in the civil consequences of fraud (specifically, (i) for income tax, the unlimited statute of limitations and the civil fraud penalty) and (ii) the civil fraud FBAR counterpart, the willfulness penalty.  If those risks are material, the taxpayer certainly should get into the program.  If those risks are not material, then getting into the program may offer very little benefit.  The reason is that can happen when the risks have been accurately assessed to be minimal is that the taxpayer will be subjected to civil audit if the IRS chooses to audit.  Inside the program, the taxpayer with that profile will usually be a candidate for opting out and, upon opt out, will get an audit.  The taxpayer is no worse off and, indeed, the taxpayer may  be better off if he or she is not audited.  Of course, accurately assessing the criminal prosecution risk and the civil fraud consequences requires experienced judgment because of the consequences of missing a material risk assessment.

Another UBS Depositor Pleads (1/31/13)

DOJ Tax has announced the guilty plea of "Christopher B. Berg * * * to an information charging him with willful failure to file the required report of foreign bank account (FBAR) for an account he controlled at UBS in Switzerland in the year 2005."  The announcement is here.

Key elements:

Plea: FBAR (1 count)
Maximum Possible Sentence:  5 years.
Conviction (Plea) Date: 1/30/13
Bank: UBS
Entities: ?
Omitted Income:  $642,070
Tax Loss (called Tax Harm):  $270,757
High Balance: ?
FBAR Penalty: ?
Sentencing Date: 7/8/13
Court: California Northern District
Judge: ?
Other factors:  Used account funds to pay Eurocard while traveling in Europe

I will update the spreadsheet and post it later.  I will also update this blog entry as new information comes in.

Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases (1/29/13)

I write today to direct readers to a recent very good article by Susan E. Brune and Laurie Edelstein titled Jury Instructions: Key Topics in Federal White Collar Cases, 36 Champion 26 (2012), here.  The authors' web site is here and their bios are here (Brune) and here (Edelstein).

The introduction:  "The right jury charge can make the difference between conviction and acquittal. "  The article then explores some contexts in which instructions can be particularly helpful in white collar crime cases.  As most readers will know (and as I remind my Tax Fraud class), tax crimes are a subject of white collar crimes, hence it is not surprising that the authors deal with instructions in tax crimes cases.

The six areas discussed are (1) Reasonable Doubt, (2) Willful Blindness, (3) Venue, (4) Securities Fraud, (5) Tax Evasion: Economic Substance, and (6) Antitrust.  I will focus on the comments on (1) Reasonable Doubt, (2) Willful Blindness and (3) Tax Evasion: Economic Substance.

Reasonable Doubt

The authors clearly summarize the courts' continuing inability to formulate instructions to explain reasonable doubt to a jury in a way that we can have confidence that the jurors understand the concept.  None of the various circuit courts' formulations is perfect, but the suggest that (footnotes omitted):

Defense counsel might consider proposing the Federal Judicial Center's (FJC) pattern instruction on reasonable doubt, which Justice Ginsburg highlighted in Victor. This instruction does away with the "hesitate to act" analogy and instead focuses on whether the government has met its burden of proof: "Proof beyond a reasonable doubt is proof that leaves you firmly convinced of the defendant's guilt." The "firmly convinced" standard, which certain circuits have approved, more accurately reflects the state of certainty required to find a defendant guilty.  

* * * * 

Because the Supreme Court's decision in Victor effectively held that problematic words or definitions in a reasonable doubt charge can be neutralized by words or phrases that preclude the jury from requiring more than a reasonable doubt to acquit, it is unlikely that a reasonable doubt charge will provide grounds for reversal of a guilty verdict on appeal. Advocating for a charge that focuses on the government's burden and instructs the jury that it cannot convict unless it is firmly convinced of the defendant's guilt thus can be critical. It may help secure an acquittal in the first instance.

IRS Issues John Doe Summons to UBS (All Over Again) (1/28/13; updated 2/2/13)

A federal district judge in SDNY has authorized the issuance of a John Doe Summons to UBS for its correspondence accounts related to Wegelin and, through Wegelin, some other Swiss banks.  The USAO SDNY press release is here. The Government's Memorandum of Law in Support of the United States' Ex Parte Petition for Leave to Serve John Doe Summons is here.  Wegelin has previously pled guilty to conspiracy to defraud the IRS through promoting and exploiting secret accounts permitting U.S. taxpayers, co-conspirators, to avoid their income tax reporting and payment and their FBAR reporting requirements.

According to the press release:

U.S. District Judge William H. Pauley III entered an order authorizing the Internal Revenue Service to issue a summons requiring UBS AG (“UBS”) to produce information about U.S. taxpayers who may hold accounts at the Swiss bank Wegelin & Co. (“Wegelin”) and other banks based in Switzerland to evade federal income taxes. Specifically, the IRS summons seeks records of Wegelin’s United States correspondent account at UBS, which will allow the United States to determine the identity of the U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions that used Wegelin’s UBS account. 

Conscious Avoidance All Over Again (1/23/13)

I am again back on the conscious avoidance issue in its use generally and specifically in tax crimes.  The background is that tax crimes are the -- certainly an -- exception in Anglo-American jurisprudence where ignorance of the law is a defense.  Tax crimes require knowledge that the known facts are a crime.  Generally, crimes requiring knowledge merely require knowledge of the facts and not that the law defines knowledge that those facts constitute a crime.  Hence, for crimes requiring knowledge of facts, ignorance of the law is not a defense so long as the facts are known; for tax crimes requiring as an element intentional violation of a known legal duty, ignorance is a defense or, to put be more technically correct, the Government has not proved beyond a reasonable doubt that the defendant intended to violate a known legal duty where the defendant does not know the law.  I have obsessed on that fundamental point in early email, so I will not cover that ground again but will extend the obsession by addressing related points.

We all learned in law school (at least the older lawyers among us) that irrebuttable or conclusive presumptions of fact are suspect.  For example, if the element of the crime (or, in a civil context, an element of the cause of action, requires that fact A exist, then can the statute -- key here, statute -- require that A be conclusively -- or irrebuttably -- presumed if Fact B exists?  At one time in our jurisprudence, that type of conclusive or irrebuttable presumption was deemed to be constitutionally suspect, even in civil contexts.  But, wait, the effect of such a statutorily compelled conclusive or irrebuttable presumption is that the crime (or civil action) exists, whether or not A exists (or at least in the absence of proof that A exists), so long as B exists.  In other words, the substantive elements of the crime (or cause of action) have changed.  And, certainly, so long as the Congress (or the relevant legislature) has legislated that change, there would seem to be no due process problem so long as there is some reasonable -- not perfect, but reasonable -- relationship between Fact A and Fact B.  But this assumes that Congress (or a relevant legislature) has statutorily legislated presumption.

The application of conscious avoidance in the federal criminal law, however, is not based on legislation.  Rather, it is based on judicial interpretation.  Therein lies the problem.  Certainly, in the context of tax crimes, Congress has not said that conscious avoidance is a substitute for specific intent to violate a known legal duty.  Only the courts, or at least some of them, have made that bold suggestion (and send defendants to jail based on the bold suggestion).

The conscious avoidance concept is that, depending upon how it is interpreted and applied, it either: (1) PERMITS an inference of Fact A (knowing conduct) from proof of Fact B (conscious avoidance of knowledge of Fact B) or (2) it COMPELS an inference of Fact A (knowing conduct) from proof Fact B (conscious avoidance of Fact B).  The second alternative is where the problem lies.  And, as applied to tax crimes, it is not simply knowledge of the fact that the law mandates to be a crime but knowledge of the law itself.  The conscious avoidance concept is not really designed to deal with that construct, unless knowledge of the law is a fact that can be plugged into these formulae.

Fifth Circuit Sustains Jury Verdict Despite Admittedly Erroneous Conscious Avoidance Instruction (1/23/12)

I write today again about conscious avoidance (which readers will recall goes by several names, such as willful ignorance, deliberate ignorance, etc.).  This blog entry is occasioned by United States v. Roussel, 705 F.3d 184 1385 (5th Cir. 2013), here.  The defendant was convicted of two wire fraud counts and conspiracy involving a scheme to defraud a New Orleans-based utilities provider.  The trial court gave the jury a conscious avoidance instructions, apparently based on the Fifth Circuit pattern jury instructions 1.37, quoted in the opinion as follows:

You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.

Like other courts, the Fifth Circuit believes that the conscious avoidance instruction carries great risks to a fair trial.  Quoting an earlier precedent, the Court said:

We have often cautioned against the use of the deliberate ignorance instruction. Because the instruction permits a jury to convict a defendant without a finding that the defendant was actually aware of the existence of illegal conduct, the deliberate ignorance instruction poses the risk that a jury might convict the defendant on a lesser negligence standard—the defendant should have been aware of the illegal conduct.

Further, quoting a subsequent precedent, Court said:

Last year, we further elaborated that "[d]eliberate indifference instructions are inappropriate in the usual case, where the evidence presents a simple choice between a version of the facts in which the defendant had actual knowledge, and one in which the defendant was no more than negligent or stupid."

Steps in OVDI/P Processing and Opting Out

An anonymous commenter going under the name "Anonymous" posted the comment below.  It is a very good comment and solicits other comments, so I am posting it as a blog entry so that readers do not miss the excellent analysis and make comments as appropriate.

Anonymous 01/22/13 11:04 AM

I am listing below the steps leading to opting out of OVDI as I understand them from what I've read on this blog. I am not a professional, just a layman involved in OVDP. I am not sure everything is correct and would appreciate input. I've numbered the steps so intermediate steps can be added or the steps can be referred to by number.

1. Taxpayer decides to enter OVDP, possibly because of the risk of quiet disclosure or forward compliance.

2. Submit preclearance.

3. Submit intake letter.

4. Submit "package" of amended returns with payment of additional tax, 20% penalty on taxes, and interest on both, as well as penalty calculation worksheet.

4A. At this point, or once Federal returns are finalized, residents of many states will also need to file amended state income tax returns. The procedure, number of years, penalties, etc. vary by state and I'm just mentioning this so as not to leave it out.

5. After months, examiner assigned.

6. Examiner audit. Might be straighforward if returns prepared by professional.

More on Conscious Avoidance (1/21/13)

Caveat to readers -- the initial version of this blog cited the Ramsey case as a new opinion.  It was not a new opinion but from 1986.  I picked the case up from Judge Holmes decision in Fiore which I discussed in  Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence (1/19/13), here.  I was just moving too incautiously to pick up the case as an earlier decision rather than a recent one.  My apologies to readers; however, I have gone back through my discussion and I think the points remain good despite the age of the case. 

I return to the conscious avoidance issue today because of an exceptional opinion by Judge Easterbrook of the Seventh Circuit in a nontax case, United States v.Ramsey, 785 F.2d 184 (7th Cir. 1986), which Judge Holmes cited in his opinion in Fiore.  Conscious avoidance is also called willful blindness, willful ignorance, deliberate ignorance and various similar formulations.  I generally prefer conscious avoidance.  (For all blog entries on the subject, click  on the label "Conscious Avoidance" at the end of this blog.)  Before getting to Judge Easterbrook's opinion, however, I want to draw the parallel between conscious avoidance, at least as sometimes articulated, and the defraud conspiracy.

Readers will recall that, in an exceptional recent opinion, the Second Circuit questioned the validity of the expansive interpretation of the defraud conspiracy (in a tax iteration, referred to as a Klein conspiracy) to criminalize conduct that did not involve a defraud element as the word defraud has been traditionally applied and consistently applied in other criminal statutes.  In essence, the Court suggested that the expansion,  which was done solely by the judiciary -- and in particular, the Supreme Court -- and not  by Congress in the language it used might be an impermissible common law, nonstatutory crime through interpretation.  For my blogs on this, see Coplan #1 - Panel Questions Validity of Klein Conspiracy (12/1/12), here, and Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (12/18/12), here.

Focusing on the conscious avoidance issue in the context of federal tax crimes where the general mens rea requirement is willfulness -- a term that can have various meanings depending upon context but which in the tax crime area is interpreted to mean intentional violation of a known legal duty.  It is a specific intent crime.  Ignorance of the law is a defense.  Further, even if one knew the law, ignorance of the facts that would invoke the known legal consequences would not be willfulness as defined.  Here is a flavor for what the Supreme Court has said somewhat expansively (Bryan v. United States, 524 U.S. 184, 194 (1998))

In certain cases involving willful violations of the tax laws, we have concluded that the jury must find that the defendant was aware of the specific provision of the tax code that he was charged with violating.  See, e.g., Cheek v. United States, 498 U.S. 192 (1991).

The Supreme Court just got carried away in Bryan in saying that willfulness in tax crimes required knowledge of the specific tax section violated.  E.g., United States v. Mousavi, 604 F.3d 1084, 1092 (9th Cir. 2010); United States v. Patridge, 507 F.3d 1092, 1094 (7th Cir. 2007), cert. den. 552 U.S. 1228 (2008) ("Knowledge of the law's demands does not depend on knowing the citation any more than ability to watch a program on TV depends on knowing the frequency on which the signal is broadcast.").  But the general concept that a tax crime requires knowledge of the law's command  and an intent to violate the known law is irrefutable and a bedrock of the criminal tax provisions.

Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence (1/19/13)

In Fiore v. Commissioner, T.C. Memo. 2013-21, here, the Tax Court (Judge Holmes) held the taxpayer liable for the civil fraud penalty.  Apparently critical to its holding was an application of the willful blindness concept that has rarely if ever been applied in a civil fraud context.  I have written often on willful blindness -- which goes by several different names, the one I usually use is conscious avoidance -- in a criminal context.  My blogs discussing the concept are here.  My criticism of the concept in a criminal context is that, when as in tax crimes the statute requires willfulness, which is definitively interpreted to mean intentional violation of known legal duty, ignorance is not intent to violate a known legal duty.  According to that intentional violation of a known legal duty interpretation (on its face), anything less than intentional conduct will not do.  And, in the context of tax crimes, it is intent to violate the tax law that is required.  Willful blindness or conscious avoidance or similar phrasings do not connote specific intent.

Now to the use of this concept in a civil context.  There are usually two consequence of "fraud" in a civil context -- (1) an unlimited statute of limitations under Section 6501(c)(1), here, and a civil fraud penalty under Section 6663, here.  Essentially, the type of conduct that invokes these consequences is the type that would be evasion in a criminal context under Section 7201, here.  The key differences relate to the nature of the proceeding.  In a criminal case, the Government must prove the elements -- including intentional violation of a known legal duty -- beyond a reasonable doubt.  In a civil cause, where fraud is at issue, the Government must prove the fraud by clear convincing evidence.

Some of the key facts are:

1.  The defendant was a tax lawyer.

2.  The defendant was indicted for four counts of tax evasion, Section 7201, for the years 1996 through 1999.  As is typical in such cases, the defendant pled to a single count of tax evasion for 1999.  However, he agreed that the tax losses for the other years were "relevant conduct," but agreed that the IRS could determine additional taxes for the year of conviction and the relevant conduct years.  He did attempt to mitigate the force of the relevant conduct agreement at the sentencing hearing where he claimed:  "I recognize that I brought this on myself relating to one year, 1999. I deny strongly as I can in this situation that the prior years, other than being relevant conduct for purposes of determining apparently the so-called tax loss, which I've fully paid, that the prior years have anything to do with or anywhere near the same conduct that I pled guilty to."  [There is a long discussion about this, but I don't develop it in this blog entry in order to focus on willful blindness.]

Is it Pled or Pleaded? (1/18/13)

I have not dealt previously with some of the finer points of the English language.  However, I do today after reading an ABA Journal Law News Now blog on the topic "Is it 'pleaded' or 'pled'?, here  (Actually, I am not sure that this is one of the finer points; notice also that I reversed the order in the topic of this blog, signaling my preferred usage.)  This brief ABA article links to a longer one at Daily Report:  John Chandler and Brian Boone, War of the Words: pleaded vs. pled (Daily Report 1/15/13), here.

Readers who are interested in the question have probably noticed that I usually use "pled" in this blog.  It sounds right to me.

The article by Messrs. Chandler and Boone is helpful:

Mr. Chandler's view (said to be minority) (footnotes omitted):

Use "pled." Boone needs to get out more—"pleaded" may seem fine on paper, but lawyers chuck the word when they head to court. A lawyer arguing a motion to dismiss doesn't say, "They haven't pleaded scienter." He says, "They haven't pled scienter." 

* * * * 

Twice, legal tabloid/blog Above the Law has asked its readers which they prefer—"pleaded" or "pled." Twice, strong majorities chose "pled." Check Westlaw or Lexis, and you'll find that judges use "pled" more often than "pleaded." 

* * * * 

Boone can wield a pen, but on this one, he's stuck in the past. Use "pled."

Mr. Boone's view (said to be majority)

Petition for Cert filed in FBAR Required Records Case (1/18/13)

As readers know, taxpayer have won some of the temporary battles in required records cases, but have always lost the war at the court of appeals level.  (For blogs on this subject, click on the label below.)

One of the losers in the court of appeals has now filed a petition for certiorari in the Supreme Court.  The petition is here.  The lead attorney for the petitioner is Paul D. Clement, a formidable Supreme Court advocate and former Solicitor General.  His bio is here and his Wikiepdia entry is here.  Mark Matthews, a prominent player in the offshore account area, is also on the brief.  Mark's bio is here.

Here is the introduction to the petition:

This case presents an exceptionally important question about the relationship between two aspects of this Court’s Fifth Amendment jurisprudence: the “act-of-production privilege” and the “required records doctrine.” The government served Petitioner with a subpoena demanding a record of any foreign banking interests he may have held during a specified period. The Bank Secrecy Act presumptively requires all taxpayers, on pain of criminal penalty, to create, retain, and file records of their foreign banking interests. Because Petitioner has not disclosed any such interests during the relevant period, the government concedes, as it must, that the act of producing the records it requests would incriminate Petitioner. For that reason, there is no dispute that Petitioner has asserted a valid Fifth Amendment privilege under the Court’s “act-of-production” cases, which hold that the compelled act of producing papers may be protected by the privilege, even if the contents of the papers are not, when the act of production itself could reveal incriminatory information. 

Nonetheless, the Court of Appeals accepted the government’s contention that the “required records doctrine,” a 65-year-old doctrine necessitated by a conception of the Fifth Amendment that the Court has long since abandoned, “overrides” otherwise valid invocations of the privilege against self-incrimination, under the fiction that an individual waives his constitutional privilege whenever he engages in any conduct for which records must be kept. That decision is part of a pattern of recent Court of Appeals decisions treating the judicially created and arguably  [*2]   obsolete required records doctrine as an “exception” to the Constitution’s Fifth Amendment privilege in materially analogous contexts.

Doing Your Time (1/17/12)

This TIGTA Report suggests that, if you are sentenced to prison,  perhaps there is still some opportunities for gainful employment.   TIGTA, Further Efforts Are Needed to Ensure the Internal Revenue Service Prisoner File Is Accurate and Complete (December 18, 2012 Ref#:  2013-40-011), here.

Report on Webinar on Opting Out and Litigating FBAR Penalties (1/17/13; with Caveat Update on 2/1/13)

Yesterday, I attended via computer the ABA Webinar titled Through the Looking Glass (Parts 1 and II) Opting Out of the OVDI Penalty Structure and Litigating FBAR Penalties (1/16/13).  The information about the meeting and  the participants is here.  The participants were:

Megan L. Brackney, Kostelanetz & Fink LLP, New York, NY
David A. Breen, Senior Counsel, Office of Chief Counsel, SB/SE, IRS, Philadelphia, PA
Caroline D. Ciraolo, Rosenberg Martin Greenberg LLP, Baltimore, MD
David H. Dickieson, Schertler & Onorato LLP, Washington, DC
Mark E. Matthews, Caplin & Drysdale Chartered, Washington, DC
John C. McDougal, Special Trial Attorney, Small Business/Self-Employed Division, Office of Chief Counsel, IRS, Washington, DC
Richard J. Sapinski, Sills Cummis & Gross PC, Newark, NJ
Thomas J. Sawyer, Senior Litigation Counsel, Counsel for International Tax Matters, Tax Division, Department of Justice, Washington, DC
Zhanna A. Ziering, Caplin & Drysdale Chartered, New York, NY

For those having access to TNT, a good summary is Jeremiah Coder, Taxpayers Face Hurdles and Risks When Opting Out of OVDP, 2013 TNT 12-4 (1/17/13).

The following is my summary (parallel to in many respects but not the same as Mr. Coder's):

1. Megan Brackney, a practitioner, opened with a summary of the Taxpayer Advocates recent report. I have previously reported on the report in a blog entitled TA Report Identifies IRS' OVDP / OVDI As Problem (1/9/13), here.   She presented the chart in the Report regarding processing times, opt  outs, etc.  She said that the low number of OVDI 2011 opt outs probably reflects the slow processing time to the point of opt out, with most cases not at that point yet.  She noted that the average FBAR penalty on opt out, about $15,000, was encouraging that the IRS was not being punitive on opt outs.

2. Mark Matthews, a practitioner, suggested that, for the more benign players (referred to on this blog as minnows), the threshold decision of whether to even join OVDI (currently 2012 OVDP) is important.  Certainly, for those joining with the expectation of opting out may have good alternatives to joining.  I think his comments were consistent with the point I have made several times -- that the profile of someone who would opt out (i.e., no risk of willfulness (or its income tax counterpart, civil fraud)) does not obtain the principal benefit of the program in the first place -- eliminating the criminal exposure -- and thus have only an audit risk if they don't join which is the risk -- indeed the certainty -- they have if they do join.

3. One of the alternatives to joining the program he discussed was filing perhaps 3 years of amended returns and some number of years of delinquent FBARs (I presume perhaps 4-6 years).  Mr. McDougal, an IRS lawyer heavily involved in the program and penalty assertion, countered with the oft-repeated claim that the IRS is screening amended returns reporting offshore account income (and presumably screening delinquent FBARs as well), but did acknowledge that it was a screening process and there is not 100% audit coverage.

4. Of course, historically, for taxpayers with criminal exposure, quiet disclosures by filing amended returns, was a practically effective -- if not guaranteed -- way to eliminate or mitigate the criminal exposure, but at the risk (but not often the actuality) of full bore civil fraud penalty exposure.

Defendant Screws Up His Acceptance of Responsibility (1/15/12)

In United States v. Bigica, 2013 U.S. Dist. LEXIS 3772 (D NJ 1/10/13), an unpublished decision, the Court denied the defendant, who had pled to a tax obstruction count and an elections count, the 3 level Sentencing Guidelines downward adjustment.  The reason:  Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct.  Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial.  Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.

The opinion is quite a read, but I can summarize it here as to the tax charge -- Section 7212(a), here, criminalizing corrupt attempts to interfere with the administration of the internal revenue laws.  The defendant, although making large income over many years, failed to file tax returns and, when the IRS started inquiring into his failure to file, took a series of steps to put his assets beyond the IRS's ability to collect what he knew would be a large tax liability, all the while living a lavish lifestyle.  The problem was that, even after the plea to one tax obstruction count and one election law count, he continued to live a lavish lifestyle, secreting money, not truthfully accounting for his assets, and failing to pay the IRS.

The court first resolved a grouping issue against the defendant, requiring a 2 level increase because, the court determined, the two counts of conviction did not arise from the same harm.

The Court then turned to acceptance of responsibility which the defendant hoped to achieve by virtue of his guilty plea.  The probation officer gave a marginal recommendation for the 3-level downward adjustment.  But, the Court rejected the adjustment because the defendant had continued his obstructive conduct even after the plea and while dealing with the Probation Office.  The Court details the defendants obstructive behavior.  Key quotes (one footnote omitted):

This Court has not had another defendant in over a dozen years on the bench who has shown this level of continued financial evasion in his representations to the United States Probation Department. Defendant was untruthful, cavalier and evasive to the United States Probation Office regarding his financial status and his ability to pay restitution. In addition, while Defendant stated in his plea agreement his intention to make "full restitution," he failed to pay anything toward restitution during the long interval between the plea and sentencing, despite earning nearly $1,000,000.00 in 2011 and more than $40,000.00 per month for each of the first six months of 2012. And, while earning such huge sums, Defendant continued to pay for lavish luxury expenses of others, including, but not limited to, a monthly mortgage payment of $19,563.00 ($234,756.00 annually) for a mortgage on a home he insists is not his own asset.  * * * *

The Big Boys Get Better Treatment in Our Tax System Than Do Minnows (1/12/13)

I speak again on the basic relative unfairness of the treatment of many, if not most, in the IRS's offshore voluntary disclosure initiatives.  The title to this blog entry is that Big Boys get better treatment than do Minnows.  That has always been the case.  So why is it noteworthy here?  Maybe its not, and those readers who think that is acceptable and fair in our country may not be interested in this blog entry.

I refer readers to Carl Levin's October 5, 2012 letter to the leaders of the tax writing committees, here. Senator Levin provides a list of what he calls "loopholes" related to U.S. offshore taxation that should be closed.  Most of these loopholes he identifies are exploited by powerful U.S. corporations who have a major interest -- translated into major lobbying -- in keeping the loopholes as they are -- exploitable and very lucrative in a zero-sum game with the U.S. fisc and U.S. taxpayers.  The term loophole, in a broader sense, can refer to (i) provisions of law helping certain narrow interests, sometimes unintentionally or unknown to most legislators enacting them, or having real or perceived ambiguities which can be exploited by powerful interests, or (ii) to deficiencies in enforcement of the legislative scheme where little or no ambiguity exists.  In the latter sense, until recently, offshore accounts used for tax evasion might be considered loopholes -- not legal ones, but practical ones because of enforcement deficiencies.  For more on the concept of loopholes, see Wikipedia entry, here.  So too, Son-of-Boss and other abusive tax shelters might have been considered loopholes until the IRS discovered their mass marketing and took steps to close down most of them, with collection of tax penalties and interest.  The line between what is a loophole in the law and enforcement loopholes may sometimes be difficult to draw.  This difficulty is what taxpayers and tax professionals such as those implementing the corporate bullshit shelters I have discussed here, attempt to exploit by imagining different locations for the line than any rational person would believe it to be and hoping that the IRS's enforcement deficiencies will give them a win in audit lottery or, if caught, will reward their imaginations will little or no penalties.

Senator Levin provides a list of loopholes that are variations of both varieties.  Here is Senator Levin's list of loopholes that:

(1) allow U.S. multinational corporations to shift profits offshore through abusive transfer pricing arrangements;
(2) allow U.S. multinationals to pretend to keep profits offshore, while actually returning offshore cash tax-free to the United States through serial loans;
(3) allow U.S. multinationals to pretend to keep profits offshore while using offshore subsidiaries to place the offshore cash in U.S. banks and investments;
(4) allow U.S. entities operated and managed out of the United States to incorporate offshore, claim foreign status, and dodge substantial U.S. taxes;
(5) allow U.S. financial firms to treat swap payments received from the United States as nontaxable foreign source income;
(6) allow U.S. multinationals to make an offshore subsidiary invisible for tax purposes and avoid taxation of passive offshore income under the so-called "check-the-box" and "CFC look-through" rules;
(7) allow U.S. multinationals to deduct the costs of moving jobs and operations offshore;
(8) allow mutual funds to dodge limits and taxes on commodity speculation by routing their commodity activities through offshore shell corporations;
(9) hamstring U.S. tax enforcement with inadequate tools to combat taxpayers hiding assets in secret tax haven bank accounts; and
(10) allow U.S. taxpayers to hide assets in U.S. bank accounts opened in the name of offshore entities.

DOJ Tax CES Attorney Comments on Offshore Criminal Enforcement Initiatives (1/12/13)

In a new article in Tax Notes, Lee Sheppard reports on comments of participants on a panel at the Florida Bar Annual International Tax Conference in Miami Lee A. Sheppard, IRS Officials Discuss Streamlined Voluntary Compliance, 2013 TNT 9-6 (1/14/13).  I am not much interested in the Streamlined Program because if its limited benefit, but here are some snippets on broader issues attributed to Mark Daly, a DOJ Tax CES attorney who is a major participant in the criminal enforcement efforst related to offshore accounts:

Mark Daly of the Justice Department Tax Division Criminal Enforcement Section talked about DOJ's approach to using data so gathered. DOJ is especially interested in bankers who helped fleeing UBS customers move to other banks. "They're the most culpable," Daly said. 

Swiss bankers are so nervous and so inconvenienced by their inability to travel that they have been offering bank account information to DOJ in an effort to obtain immunity. And there are a lot of CDs floating around Europe. 

"We're finding a lot more people knocking at our door," said Daly. "Your banker knows who you are." Moreover, DOJ can reconstruct bank account data to find transactions like monthly wires structured to evade suspicious transaction reports. 

But DOJ does not interpret the money laundering (18 U.S.C. section 1956) rules to grab income tax violations. According to the U.S. Attorneys' Manual, mailing a false tax return is not considered mail fraud, a predicate offense to money laundering. There has been no change in policy, according to Daly.

Daugerdas Defendant Loses Ineffective Counsel Claim (1/11/13)

In United States v. Daugerdas, 2013 U.S. Dist. LEXIS 2516 (SD NY 1/3/13), David Parse, the "Daugerdas" defendant, who did not get a new trial for juror misconduct, was denied his last-ditch bid to obtain a new trial for ineffective assistance of counsel.  Ineffective assistance of counsel is tested under Strickland v. Washington, 466 U.S. 668, 685 (1984) and is very difficult to establish.  See my prior blogs:  Daugerdas Defendant Whose Conviction Was Not Dismissed Claims Ineffective Assistance of Counsel (Federal Tax Crimes Blog 8/7/12), here; Daugerdas and Others, But Not All, Get New Trial (Federal Tax Crimes Blog 6/4/12; revised 6/22/12), here.

Defense counsel make many strategic calls, both inside and outside the courtroom, many of which are not pre-cleared with a fully informed client.  Those strategic calls are not always right -- from the benefit of hindsight -- but they are made by effective counsel in the course of even simple trials.  Parse was involved in complex tax shelter criminal litigation.  Perfect calls cannot be expected. But calls by effective counsel can be expected and rarely fall short of the standard of ineffective assistance counsel.

The Court's opinion is short, so I quote it substantially (parallel citations omitted):

DISCUSSION 

"[The assistance of counsel] is one of the safeguards of the Sixth Amendment deemed necessary to insure fundamental human rights of life and liberty..... The Sixth Amendment stands  as a constant admonition that if the constitutional safeguards it provides be lost, justice will not still be done." Johnson v. Zerbst, 304 U.S. 458, 462 (1938) (internal quotation omitted). Access to counsel's skill and knowledge is necessary to afford defendants "ample opportunity" to meet the prosecution's case. Adams v. United States ex rel. McCann, 317 U.S. 269, 275  (1942). But mere access to an attorney is not sufficient. "An accused is entitled to be assisted by an attorney ... who plays the role necessary to ensure that the trial is fair." Strickland v. Washington, 466 U.S. 668, 685 (1984). Thus, the Sixth Amendment right to counsel is "the right to the effective assistance of counsel." McMann v. Richardson, 397 U.S. 759, 771 n.14 (1970). 

The Due Process Clause guarantees a fair trial and "[t]he benchmark for judging any claim of ineffectiveness must be whether counsel's conduct so undermined the proper functioning of the adversarial process that the trial cannot be relied on as having produced a just result." Strickland, 466 U.S. at 686. To prevail on an ineffective assistance claim, a defendant must show that his counsel's performance fell below an objective standard of reasonableness and that, but for the deficiency, the outcome would have likely been different. See Strickland, 466 U.S. at 688, 694.

Court of Appeals for the D.C. Circuit Rejects Another BullShit Tax Shelter (1/11/13)

In Consolidated Edison Company of New York v. United States,  703 F.3d 1367 (Fed. Cir. 2013), here, the D.C. Circuit rejected another bull shit tax shelter.  This opinion was presaged in Wells Fargo & Company v. United States, 91 Fed. Cl. 35 (2010), discussed in a prior blog, Court Finds Tax Motivated Transactions are Bullshit (Federal Tax Crimes Blog 1/11/10), here.

I previously described the trial court opinion as " a major, if perhaps temporary, victory."  DC Circuit Discusses Cost / Benefit Analysis for Tax Evasion (Federal Tax Crimes Blog 11/9/09), here.  (In that blog I cite readers to the D.C. Circuit's discussion of cost-benefit analyses in hokey tax shelters and related scams in Mayer Brown LLP v. IRS, 562 F.3d 1190 (D.C. Cir. 2009), here.  This latter case was an attempt by Consolidated Edison's lawyers to get information from the Government that it imagined might help in its and related litigation.  It did not work, perhaps because the underlying genre of shelter had an odor piscatorial, although that particular iteration had not yet been called foul by the D.C. Circuit.  Now it has been called foul.

I have said before that, when major companies hide bull shit behind smoke and mirrors, I don't understand why that is not criminal behavior.  The smoke and mirrors in this and related cases had no real purpose of than hiding the fact that there was no real deal there.  Is this just a different package for the type of ploy that drew criminal penalties in Son-of-Boss?

And, since we spend a lot of time on this blog on offshore conduct, I ask readers to consider whether the conduct of corporations, individuals and others who enter these bullshit tax shelters with the intent to hide them from the IRS are any more praiseworthy than the majority of those with offshore accounts?  Yet, they are not having to give up high percentages of their net worth.  All they are doing is paying the tax they already owed after the IRS lucked into finding the shelter and perhaps some penalty, but not much in terms of the culpability of the conduct.  Shame on the IRS, and shame on Congress for allowing it.

Bank Leumi Signals Cooperation with U.S. on Offshore Accounts (1/11/13)

Reuters reports on developments with Bank Leumi, an Israeli bank.  Lynnley Browning, Bank Leumi sends letter to U.S. customers about IRS program (Reuters 1/10/13), here.

Excerpts:

Bank Leumi, the largest commercial bank in Israel, has urged U.S. clients to disclose information about their accounts to U.S. authorities, who are investigating Leumi and many other foreign banks over possible tax avoidance by Americans. 

In a Dec. 16 letter obtained by Reuters, Bank Leumi le-Israel BM urged U.S. clients to enter the Internal Revenue Service's voluntary disclosure program, part of a wide-ranging U.S. crackdown on offshore tax dodging. 

* * * * 

As previously reported by Reuters, Leumi and two other Israeli banks, Bank Hapoalim and Mizrahi-Tefahot , are under investigation by the U.S. Justice Department in connection with offshore private banking services that may have enabled wealthy Americans to evade taxes. 

* * * * 

Bryan Skarlatos, a New York tax lawyer with Leumi clients who got the letter, said it "is the result of ratcheted up pressure on Bank Leumi." He said U.S. officials "are asking clients questions about Leumi accounts: who the bankers were, what they said, did they come to the U.S., whose idea was it." 

* * * * 

Jeffrey Neiman, a criminal defense lawyer and former federal prosecutor who was involved in the UBS case, said U.S. officials are eager to expand their push beyond Switzerland, "and the Israeli banks have whetted their appetite."

 Also, some quotes from Shamik Trivedi, Israeli Bank's Letter Seen as Step Toward Turning Over Account Data, 2013 TNT 9-5 (1/14/13) (emphasis supplied):

Leumi is one of three Israeli banks under investigation by the Justice Department. In September the DOJ announced it was looking into allegations of tax evasion conspiracy by the Swiss branches of Leumi and two other Israeli banks, Bank Hapoalim and Bank Mizrahi-Tefahot. * * * *

Robert S. Fink of Kostelanetz & Fink LLP said it is his understanding that Leumi is negotiating with the Justice Department and that it has a tentative agreement to hand over the account information of U.S. persons, but is attempting to extract some promises from the government regarding the bank's liability and the liability of bank employees. 

* * * * 

Unlike Wegelin, which had only a correspondent account with UBS in Stamford, Conn., Leumi has offices in New York, California, Florida, and Illinois. 

* * * * 

* * * * Under FAQ 21 of the OVDP's frequently asked questions , the IRS maintains the right to exclude from the voluntary disclosure program taxpayers who have or had accounts at specific banks. The IRS has not yet announced which taxpayers, if any, fall into that category. 

* * * * 

Fink said that for taxpayers, the situation is now essentially "a race to the courthouse" with the IRS, meaning that a taxpayer has to submit his or her package under the OVDP before the IRS receives that information from the bank. * * * *

"Those who know what's happening realize that this is a precursor," and that the next letter sent by the bank might say that the names have been given or are about to be given, he [Fink] said.

Of course, once the bank gives up information on a U.S. taxpayer, it is too late to get assurance of the benefits of OVDP 2012, particularly no criminal prosecution.

3d Circuit Reverses False Statement Conviction Because Truth is a Defense (1/10/13)

In United States v. Castro, ___ F.3d ___, 2013 U.S. App. 442 (3d Cir. 2013), here, the Third Circuit reversed a conviction for false statements under 18 USC 1001, here.  Although Castro is not a tax case, the false statement charge is often made in tax cases.  Hence, Castro is worthy of consideration for the point I discuss below.

The key facts, highly summarized, is that the FBI pulled a sting operation on a Philadelphia Police Department official, Castro.  In part here pertinent, FBI money was used in the sting operation to pay Castro what was represented in the sting operation to be proceeds of a debtor, Encarnacion, of Castro paying the debt.  Castro then made statements to the FBI that "he had not received payments from [the debtor] towards the debt [the debtor] supposed owed him."  That statement was the basis of a false statement charge.  Castro was convicted of the charge but was hung on the remaining 8 counts.  Rather than face retrial, Castro entered a plea agreement with a seeming comprehensive appeals waiver.

The substantive problem, as you see, is that, even though Castro intended to make a false statement, it was in fact a true statement.  The money came from the FBI, not from the debtor.  The procedural problem was the appeals waiver.

I do not focus this blog on the appeals waiver.  Suffice it to say that the Court of Appeals got past that point.

Now, focusing on the false statement claim, the Court of Appeals held handily that Castro's intention to make a false statement was not enough; he had to make a false statement; and the statement was not false.  This gets to the literal truth defense, originating in Bronston v. United States, 409 U.S. 352 (1973).  The precise application of Bronston to 18 USC 1001 is not settled (see the concluding portion of this blog), but suffice it to say that the Third Circuit decided the case on the basis of Bronston, noting that 18 USC 1001 is a "close kin" to perjury, citing United States v. Serafini, 167 F.3d 812 (3d Cir. 1999).

I have given you the bottom-line holding.  Here is the Court's reasoning (footnote omitted):

Supreme Court Decision on Burden of Proof for Affirmative Defense of Withdrawal from Conspiracy (1/10/13)

Conspiracy charges are common in the federal crimes universe and in federal tax crimes universe, specifically.  This blog has dealt frequently with the principal conspiracy charge, the Klein conspiracy which is the tax iteration of the defraud conspiracy in 18 USC 371, here.

The Supreme Court yesterday delivered a major conspiracy decision in a non-tax case, holding that the defendant must prove the defense of withdrawal from the conspiracy.  Smith v. United States, ___ U.S. ___, 2013 U.S. LEXIS 601 (2013), here.  The decision is unanimous and is authored by Justice Scalia.  Although not couched in this language, the Court held that, on the affirmative defense of withdrawal, the defendant bears the burden on persuasion (stated in risk terms, the risk of nonpersuasion).  It is a very short opinion, so I encourage readers interested in the subject of withdrawal from a conspiracy or burdens imposed upon the parties in a criminal case with respect to affirmative defenses to read the opinion.  I will introduce the opinion by the key excerpts from the Syllabus (page and case citations omitted):

Held: A defendant bears the burden of proving a defense of withdrawal.
(a) Allocating to the defendant the burden of proving withdrawal does not violate the Due Process Clause. Unless an affirmative defense negates  an element of the crime, the Government has no constitutional duty to overcome the defense beyond a reasonable doubt. Withdrawal does not negate an element of the conspiracy crimes charged here, but instead presupposes that the defendant committed the offense. Withdrawal terminates a defendant’s liability for his co-conspirators’ post-withdrawal acts, but he remains guilty of conspiracy.
Withdrawal that occurs beyond the statute-of-limitations period provides a complete defense to prosecution, but does not render the underlying conduct noncriminal. Thus, while union of withdrawal with a statute-of-limitations defense can free a defendant of criminal liability, it does not place upon the prosecution a constitutional responsibility to prove that he did not withdraw. As with other affirmative defenses, the burden is on him. Pp. 3-6.
(b) Although Congress may assign the Government the burden of proving the nonexistence of withdrawal, it did not do so here. Because Congress did not address the burden of proof for withdrawal in 21 U. S. C. §846 or 18 U. S. C. §1962(d), it is presumed that Congress intended to preserve the common-law rule that affirmative defenses are for the defendant to prove. The analysis does not change when withdrawal is the basis for a statute-of-limitations defense. In that circumstance, the Government need only prove that the conspiracy continued past the statute-of-limitations period. A conspiracy continues until it is terminated or, as to a particular defendant, until that defendant withdraws. And the burden of establishing withdrawal rests upon the defendant.

TA Report Identifies IRS' OVDP / OVDI As Problem (1/9/13)

The Taxpayer Advocate has issued her new Report to Congress, here.

In it, she identifies specific problems, among which is:  The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts, here.

Eliezer Mishory, a 2L student at George Washington University Law School, notified me of the Report and provided the following summary (which I may supplement later after I have had time to review in detail):

It may be newsworthy that the OVDP “made it” to Nina Olsen’s Taxpayer Advocate Report to Congress as “Most Serious Problem” number 8. I have only scanned the report but it seems that her chief grievances are (1) that the program treats “benign actors” who had reasonable cause or inadvertently failed to file FBARs the same way as “bad actors”, (2) the difficulty in opting out of the OVDP, and (3) the unnecessary burden on taxpayers caused by the overlap of FBAR and Form 8938. 

The report recommends establishing three (3) categories of taxpayers: 

1) Taxpayers who only underpaid a small amount should be able to come compliant without any penalties (essentially expanding the new program for foreign residents to include taxpayers who reside in the US). 

2) Taxpayers who have reasonable cause, or inadvertently failed to file ("benign actors"), should be able to pay the lower non-wilful FBAR penalties without having to opt out of the OVDP. 

3) Taxpayers who are not category 1 or 2 should come forward under the current OVDP rules.

Thanks to Mr. Mishory!

Addendum 1/10/13 4:30pm.

NInth Circuit Holds that Government Established Foregone Conclusion as to Documents to Override the Act of Production Privilege (1/9/13)

United States v. Sideman & Bancroft, LLP, 704 F.3d 1197 (9th Cir. 2013), here, the Ninth Circuit yesterday affirmed the district court's finding that the "foregone conclusion" doctrine applied to override the target's Fifth Amendment Act of Production privilege.  I previously blogged on the district court's opinion, Summons Production Ordered from Law Firm for Client Documents in Its Possession (Federal Tax Crimes Blogs 4/14/11), here.

Key steps in the holding, whether articulated this way or not are:

1.  There is no Fifth Amendment for the contents of documents.

2.  Notwithstanding, there is a Fifth Amendment privilege for any testimony inherent in the act of responding to compulsory process by producing the documents.  This is commonly referred to as the "Act of Production" doctrine.

3.  Still, notwithstanding the Act of Production doctrine, it will not apply where the Government can independently show that, at the time of the compulsory process, it had sufficient information to show certain key elements as "foregone conclusions."  Best to now let the Court of Appeals speak

"The authenticity prong of the foregone conclusion doctrine requires the government to establish that it can independently verify that the compelled documents 'are in fact what they purport to be.'" Id. at 912 (quoting United States v. Stone, 976 F.2d 909, 911 (4th Cir. 1992)). We have explained that not only must the Government show that it can independently establish that the summonsed documents are what they purport to be, it must demonstrate that it is not "compelling the [taxpayer] to use his discretion in selecting and assembling the responsive documents, and thereby tacitly providing identifying information that is necessary to the government's authentication of the subpoenaed documents." Id.

Fitch Ratings Cites Swiss Settlement with U.S. as "Best Option" (1/9/13)

Fitch Ratings, homepage here, one of the three principal rating organizations along with Moody's and S&P (see below), has a release titled "US Global Tax Settlement Best Option for Swiss Banks," (Fitch Ratings 1/7/13), here.

According to Wikipedia, here:

Fitch Ratings, dual-headquartered in New York and London, was one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's. It is considered one of the "Big Three credit rating agencies" (Standard & Poor's, Moody's Investor Service and Fitch Ratings).

Some significant excerpts from the release:

A government-led global settlement would be the best option for all Swiss banks involved in the dispute with US authorities about the private banks allegedly helping US citizens evade taxes, Fitch Ratings says.  

A global settlement has been pursued by the Swiss government since early 2012. While potentially costly, in our view it would remove the risk of potential indictments and other legal action, including ultimately the exclusion from US dollar clearing. This would allow the banks to refocus management attention on their core (non-US) private banking operations. 

Repercussions from inquiries and potential indictments by US authorities could be significant, take a long time to resolve and ultimately damage the banks' business models. This is despite US offshore clients typically accounting for a small proportion of the banks' earnings and assets under management.  

* * * 

The Swiss private banks will have to continue to centre their business models on fully-declared off-shore client assets and on-shore operations, notably in European markets given the US investigations and also negotiations between Switzerland and several European countries (including Germany) about revised double-taxation agreements. Many banks, in particular the larger private banks, have pursued this strategy since the late 1990s, anticipating continued pressure on undeclared client assets.

Another UBS Client Pleads (1/8/13)

Mary Estelle Curran of Palm Beach, FL, pled guilty to 2 counts of tax perjury, Section 7206(1).  The DOJ Press release is here; the plea agreement is here.

The following are the key stats:

Defendant:  Mary Estelle Curran
Plea: Tax Perjury (2 counts)
Maximum Possible Sentence:  6 years.
Indicated Guidelines Range: 30-37 months
Conviction/Plea Date: 1/8/13
Age at Conviction:  79
Bank: UBS and an unnamed Liechtenstein bank.
Entities: Yes
Estimated Tax Loss:  Per plea - $400,000 - $1 million
High Balance:  > $43,000,000 (year end)
FBAR Penalty:  $21,666,929 (50% of year-end high balance)
Court: SD FL
Judge:  Kenneth L. Ryskamp (Wikipedia entry here)

Article:  David Voreacos, UBS Client Pleads Guilty in U.S. Tax Case in Florida (Bloomberg 1/8/12) here.

Some points I found interesting:

HSBC Depositor Pleads Guilty to Conspiracy (1/7/13)

Sanjay Sethi, a business owner, has pled to a conspiracy count for activities related to an offshore account with HSBC.

Plea: Conspiracy (1 count)
Maximum Possible Sentence:  5 years.
Conviction Date: 1/7/13
Bank: HSBC
Enablers: Names via Pseudonyms as " U.S. Banker A, a senior vice president in New York of a cross-border banking group within the private banking division; U.K. Banker A, a 'high-ranking executive' in London and head of a cross-border banking group focusing on clients with ties to south Asia; and Swiss Banker A, a financial adviser based in Geneva."
Entities: Yes
Omitted Income:  ?
Estimated Tax Loss:  Per plea - $80-200,000
High Balance $4.7 million
FBAR Penalty: $2.37 million
Sentencing Date:;
Court: D NJ
Judge: Linares, Jose (Wikipedia entry here.)

Wegelin & Co. Pleads Guity to Conspiracy (1/3/13)

The USAO SDNY announces here that Wegelin & Co. has pled guilty "to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and the income generated in these accounts from the Internal Revenue Service (the 'IRS')."  The plea agreement is here (with two pages at end omitted to eliminate personal identifying information that is not relevant to readers of this blog)  The indictment to which the plea is entered is here. The indictment charges both an offense conspiracy (to file false federal income tax returns and evade federal income taxes) and the ubiquitous defraud / Klein conspiracy to defraud the IRS.

As part of its guilty plea, WEGELIN agreed to pay approximately $20 million in restitution to the IRS and to pay a $22.05 million fine. In addition, WEGELIN agreed to the civil forfeiture of an additional $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of U.S. taxpayers. Together with the April 2012 forfeiture of over $16.2 million from WEGELIN’s correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million.

The press release is a lot more detailed than most such announcements, but conviction of Wegelin, although practically defunct, is a major development.  I recommend reading the press release.  The press release contains a link to the indictment.

Addendum on 1/5/12 4:35 pm:

1. Probably the biggest point is that the U.S. brought a Swiss bank with deliberately minimum U.S. contacts to the table to take a plea agreement.

Article on the Emerging Consensus for Taxing Offshore Accounts (1/3/13)

Itai Grinberg, The Battle Over Taxing Offshore Accounts,  60 UCLA L. Rev. 304 (2012), here.

ABSTRACT 

The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts.  At stake is the extent of many countries’ capacity to tax investment income of individuals and profits of closely held businesses through an income tax in an increasingly financially integrated world. 

Incongruent initiatives of the European Union, the Organisation for Economic Cooperation and Development (OECD), Switzerland, and the United States together represent an emerging international regime in which financial institutions act to facilitate countries’ ability to tax their residents’ offshore accounts.  The growing consensus that financial institutions should act as cross-border tax intermediaries represents a remarkable shift in international norms that has yet to be recognized in the academic literature. 

The debate, however, is about how financial institutions should serve as cross-border tax intermediaries, and for which countries.  Different outcomes in this contest portend starkly different futures for the extent of cross-border tax administrative assistance available to most countries.  The triumph of an automatic information reporting model over an anonymous withholding model is key to (1) allowing for the taxation of principal, (2) ensuring that most countries are included in the benefit of financial institutions serving as cross-border tax intermediaries, (3) encouraging taxpayer engagement with the polity, and (4) supporting sovereign policy flexibility, especially in emerging and developing economies.  This Article closes with proposals to help reconcile the emerging automatic information exchange approaches to produce an effective multilateral system.