Julius Baer Retired Banker Pleads to FBAR Crime (6/28/13)

Pius Kampfen, a Julius Baer retired banker and resident of California, pled today to "an information charging him with willful failure to file the required reports of foreign bank accounts (FBAR) for a Swiss bank account he controlled."  The DOJ press release is here.  The charging information is here.

Key facts:

Defendant:  Pius Kampfen.
Count of Conviction (by information and plea):  FBAR Willful failure to file.
Maximum incarceration period:  5 years.
FBAR Penalty:  $1,465,393 (How calculated is not provided).
Entity:  Yes.
Banks:  UBS AG, Pictet & Cie, ABN-AMRO, Bank Vontobel and Baumann & Cie. (The quote in the opening paragraph indicates one bank account on the count of conviction; it is not clear which one of these relates to the count of conviction).
Admits:  Tax noncompliance on accounts and failure to file FBAR.

JAT comment:  Everyone watching the Swiss-U.S. spat knows that Julius Baer is a target of the U.S. angst over Swiss bank misbehavior.  Apparently Mr. Kampfen has the characteristics that would get the IRS's and DOJ Tax's attention anyway.  But the fact that he was a Julius Baer banker and perhaps even an enabler as well made likely him particularly attractive for the U.S. to send a signal to Switzerland.

There is a web page for Kampfen Investment Services, here.  The "about" page says:

Prior to forming the firm, Kampfen spent 17 years as the Senior Representative for Julius Baer Group on the US West Coast, a Swiss bank specializing in private banking and global and international money management for high net worth individuals, foundations and private corporations. Prior to joining Julius Baer, he worked for over 20 years for other Swiss financial corporations, including Union Bank of Switzerland, where he served as a portfolio manager for international clients.

Articles of Interest to Tax Crimes Enthusiasts (6/27/13)

These are some new articles.  Enjoy!

• Stever Toscher and Della Bauserman, Suprise-The Tax Fraud of YOur Tax Preparer May Extend the Statute of Limitations on Tax Assessments, J. Tax Prac. & Proc. 31 (April-May 2013), here.

The authors review the wreckage from Allen v. Commissioner, 128 T.C. 37 (2007).  Although I have written about Allen before, this excerpt should remind readers. 

The issue in Allen was whether the taxpayer must have an intent to evade tax in order to keep the statute of limitations on assessment open indefinitely under Code Sec. 6501(c)(1). The Tax Court concluded the statute of limitations would remain open if the tax preparer had the intent to evade tax. To state this conclusion another way, the Tax Court allowed the statute of limitations on assessment to remain open forever  when the tax preparer has fraudulently filed a tax return even if the innocent taxpayer was also defrauded by the tax preparer. This was a startling proposition—at least at first blush—for most of us in the tax litigation field.

• Josh Ungerman, What to Do When the Special Agent Arrives (Outline for speech at the Tax Alliance Conference 6/12/13), here.

Josh offers some good insights on the initial surprise "interview" by Special Agents and then damage control after it occurs.

• Charles P. Rettig, IRS Offshore Voluntary Disclosure Program: Opt-Outs, a Revised FBAR and Rescissions of Pre-Clearance Letters by Criminal Investigation, J. Tax Prac. & Proc. 23 (April-May 2013), here.

Chuck provides some timely information about developments in the offshore account area, including most prominently (i) summary observations on joining OVDP in the first place and then in opting out and (ii) lines of inquiry that might be asked by the agent on the opt out or an AUSAs or IRS agent assisting a grand jury investigation of enablers.

• Edward M. Robbins, Jr., The Fifth Amendment FBAR Lives!, 139 Tax Notes 1546 (June 24, 2013) [no link for this yet, but will post it when I get it; in the meantime, readers might check his firm's publications page here]

Criminal Complaints in Tax Crimes (6/27/13)

One of my co-authors of the Tax Crimes book published by LEXIS-NEXIS started a discussion among us yesterday about the role of the criminal complaint.  I thought it might be helpful to share the fruits of that discussion.  First I start with the criminal complaint that started the discussion:

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
UNITED STATES OF AMERICA
v.
YETUNDE OSENI
12902 Crickmore Trace
Bowie, MD 20720-4683
DOB 1/7/1976; SSN ***-**-5682
Defendant(s)
Case No. 13-1016 JKS
CRIMINAL COMPLAINT
I, the complainant in this case, state that the following is true to the best of my knowledge and belief. On or about the date(s) of 8/22/2009 - 11/29/2012 in the county of Prince George's in the District of Maryland, the defendant(s) violated:
Code Section: 18 U.S.C. 641
Offense Description: knowingly and unlawfully embezzle, steal, purloin and knowingly convert to her use things of value of the United States, to wit: household items and food products purchased using a government purchase card belonging to the Internal Revenue Service.
This criminal complaint is based on these facts:
See attached affidavit.
Continued on the attached sheet.
[signed]
Complainant's signature
S.A. Tracey Giannakoulias, TIGTA
Printed name and title
Sworn to before me and signed in my presence.
[signed]
Jillyn K. Schulz
Judge's signature
Date: 05/02/2013
City and state: Greenbelt, Maryland
Thomas M. DiGirolamo,
U.S. Magistrate Judge
Printed name and title
AFFIDAVIT
I, Tracey V. Giannakoulias being duly sworn, depose and state:
INTRODUCTION
I am a Special Agent with the United States Treasury Inspector General for Tax Administration (TIGTA), Washington Field Division, New Carrollton, Maryland Post of Duty. I was also a Special Agent for The United States Department of Education Office of Inspector General: I have been a special agent for the past fifteen years. I attended Treasury Inspector General for Tax Administration Special Agent Basic Training at the Federal Law Enforcement Training Center. I have a Bachelor and Master Degrees in Criminal Justice. I am duly commissioned as a Special Agent, and I am authorized to conduct criminal and other investigations arising under the laws of the United States, regulations administered by the Department of the Treasury and the Internal Revenue Service (IRS), to carry firearms, to execute and serve search or arrest warrants, to make arrests without warrant, to serve subpoenas and summons, and to require and receive information relating to such laws and regulations. I have conducted and participated in numerous investigations of criminal violations involving the IRS, including fraud, theft, embezzlement, assault and threats and attempts to interfere with the administration of IRS laws. I have executed and participated in several search warrants and seized evidence relating to criminal activity.

New Taxpayer Advocate Discussion of Problems with IRS OVDI/P Program (6/26/13)

The Taxpayer advocate has issue a new report.  The portion relate to the IRS's OVDI/P initiatives is here.  I cut and paste some of the discussion (footnotes and tables omitted):

A Government Accountability Office (GAO) analysis shows that the offshore penalty paid by those with the smallest accounts (i.e., those in the 10th percentile with accounts of $78,315) was disproportionate – at least 575 percent of the tax, interest, and penalties on their unreported income. It was also disproportionately greater than the amount paid by those with the largest accounts (i.e., those in the 90th percentile with accounts of more than $4 million) who paid 86 percent or less. Moreover, the IRS initially processed applications from benign actors who are expected to opt out much more slowly than others, though it has recently begun to process them more quickly, as shown by the following table  

In 2012, the IRS began allowing certain “low risk,” nonresident nonfilers – those with  simple returns and owing less than $1,500 in tax – to file the returns without triggering
penalties (the “Streamlined Nonresident Filing Initiative”). In January 2013, following
the National Taxpayer Advocate’s recommendation to expand the Streamlined Nonresident Filing Initiative to both U.S. residents and those owing more than $1,500, IRS officials publicly announced the IRS had eliminated the $1,500 threshold .
Although this is a positive change, the National Taxpayer Advocate remains concerned that the IRS does not have a simple and easy method for allowing benign actors who are U.S. residents to resolve past filing delinquencies. Nor has it provided clear guidance about key terms that it has used in its programs, such as when someone will be considered “high risk,” how they may avoid a penalty (e.g., by demonstrating “reasonable cause”), and when they will be subject to the lower penalty applicable to “nonwillful” conduct. The uncertainty surrounding these terms and the consequences of opting out has likely prompted some benign actors to pay more than they should inside the OVD programs  

* * * * 

Finally, in FY 2012 and FY 2013 YTD, TAS assisted 474 taxpayers with OVD-related problems and issued four taxpayer assistance orders (TAOs). In the three cases in which the IRS did not comply with the TAOs, the National Taxpayer Advocate elevated (or plans to elevate) them to the Operating Division Commissioner level or above.

For an article discussing an Opt Out Strategy, with some assistance fro the TAO, see An OVDI Odyssey - an Opt Out Success Story (Federal Tax Crimes Blog 6/16/13), here.

Immigration Consequences of Tax Crimes Convictions (6/26/13)

Two recent Second Circuit summary nonprecedential decisions  involving criminal tax convictions have involved  the immigration consequences of the convictions.

In Evangelista v. United States, 2013 U.S. App. LEXIS 12436 (2d Cir. 2013), here, the Second Circuit, affirmed the denial of his writ for coram nobis to vacate the count of tax evasion which had subjected him to deportation.  Among his claims was  "counsel's ineffectiveness in failing to inform him of the immigration consequences of conviction after trial provide sound reasons for his delay in seeking the relief here at issue."  In this regard, the Supreme Court had previously held that failure to advise of immigration consequences in considering a plea can be ineffective assistance of counsel.

Similarly, even if Evangelista did not know the immigration consequences of his conviction at the time judgment was entered, but see INS v. St. Cyr, 533 U.S. 289, 322 (2001) (recognizing, as general matter, that "alien defendants considering whether to enter into a plea agreement are acutely aware of the immigration consequences of their convictions"), he would certainly have had such knowledge by April 14, 1998, when the Immigration and Naturalization Service issued a Notice To Appear, stating that Evangelista was subject to removal based on his conviction for an "aggravated felony" as defined in the Immigration and Naturalization Act. Evangelista v. Ashcroft, 359 F.3d 145, 148 (2d Cir. 2004). Thus, even if Evangelista's counsel failed to raise this issue on direct appeal, Evangelista presents no reason why he could not have pursued the matter in a petition pursuant to 28 U.S.C. § 2255 asserting ineffective assistance of counsel. See Massaro v. United States, 538 U.S. 500, 504 (2003) (holding that ineffective-assistance-of-counsel claims need not be brought on direct appeal).

It is not clear to me what Evangelista's claim really was.  Perhaps it was that, based on bad advice, he had turned down a plea deal that would have avoided the immigration consequences and had, after trial, been convicted of counts that had immigration consequences, but that is not clear to me.

It is interesting to note that Evangelista's original criminal case is a key one I use in my Federal tax Crimes book to illustrate some key points regarding Section 7202 and prosecutor's improper comments.  See United States v. Evangelista, 122 F.3d 112 (2d Cir. 1997), cert denied 118 S. Ct. 1048 (1998), here.  A question I do have is why the Section 7202 and 18 USC 371 (Klein/defraud conspiracy) convictions would not have been sufficient for deportation.  I am not an immigration lawyer and do not have the time or interest to chase that question down right now.

Offshore Bank Convicted Defendant Denied Early Termination of Probation (6/22/13)

I previously blogged on the plea of Juergen Homann for an FBAR violation.  See Another UBS Related Plea Agreement (9/28/09), here.  One of the consequences of such a plea is a period of probation if there is no incarceration or of supervised released after incarceration.  Here, Homann received probation.  In United States v. Homann, 2013 U.S. Dist. LEXIS 87271 (D NJ 6/18/13), the Court denied his request for early termination of his period of probation.  The opinion is  a nonprecedential, but might be useful to students and relative new practitioners in the criminal area.  I quote the short opinion in full:

This matter comes before the Court on Defendant Juergen Homann's motion for early termination of his probation pursuant to 18 U.S.C. § 3564(c). (Docket Entry 21) The United States of America (the "Government") has opposed the motion. (Docket Entry 23) The Court opts to rule on the instant motion without oral argument. The Court has considered the papers filed by the parties and will deny the motion. 

On September 25, 2009, Defendant pled guilty to a one-count information charging him with Willful Failure to File Report of Foreign and Financial Accounts, in violation of 31 U.S.C. §§ 5314 and 5322(a). Defendant's sentence included a five-year probation term, which Defendant now seeks to terminate because it makes his frequent business-related international travel inconvenient. 

§ 3564(c) provides the standard for early termination of probation: 

The court, after considering the factors set forth in section 3553(a) to the extent that they are applicable, may, pursuant to the provisions of the Federal Rules of Criminal Procedure relating to the modification of probation, terminate a term of probation previously ordered and discharge the defendant at any time in the case of a misdemeanor or an infraction or at any time after the expiration of one year of probation in the case of a felony, if it is satisfied that such action is warranted by the conduct of the defendant and the interest of justice.

Swiss - U.S. Stalemate Over Bank Information on U.S. Clients -- Next Move - U.S. (6/20/13)

I have mostly avoided bothering with the day-to-day posturings between the U.S. and Switzerland over access to data about Swiss Bank U.S. clients.  Most of  those publicly observable posturings have been by the Swiss, because, at least publicly, the U.S. stays publicly quiet and we are left to discern the U.S. posturings from the Swiss posturings.  Nevertheless, perhaps an interim definitive moment arrived in the last couple of days.  The Swiss legislature is reported to reject some type of global resolution.  See e.g., Ruben Sprich, Switzerland buries U.S. tax law, banks seen at risk (Reuters 6/19/13), here.

The speculation is that the U.S. response to that development will be compliance initiatives, including most prominently indictments in the relatively short term of one or two Swiss banks.  I understand that there are open grand jury investigations which have a plethora of damning (that probably is the same as indictable) information about certain Swiss banks developed from the IRS OVDI/P initiatives and from other sources (perhaps internal bank sources fishing for individual exoneration and perhaps whistleblower awards).  The article mentions among the following banks are among those under "formal investigation:" Credit Suisse, Julius Baer, the Swiss arm of Britain's HSBC, privately held Pictet in Geneva and local government-backed Zuercher Kantonalbank and Basler Kantonalbank."  Note the "includes" -- there are others and many of those have been bantered about in the internet and newspapers.  I suspect that there are some on the radar screen that have not gotten public press.

My speculation is that those observing this tit for a tat are observing in slow motion the truism mouthed by Sancho Panza in Man of La Mancha to the effect that whether the rock hits the pitcher or the pitcher hits the rock, it is going to be bad for the pitcher.  (I am not talking about a baseball pitcher, although the saying might work there also; baseball pitchers are likely to be on the suffering end of any pitcher-rock encounter.)

Criminal Restitution for Employment Taxes and Trust Fund Liability Under Section 6672 (6/18/13)

In Ross v. United States, 949 F. Supp. 2d 272 (D DC 2013), here, the defendant had been convicted of  tax evasion under Section 7201, here, for failure to pay employment taxes of a corporation he owned. (Note that the other principal felony charge that for nonpayment of employment taxes is Section 7202, here, which is a criminal counterpart to a civil liability for the trust fund portion of employment taxes under Section 6672, here; presumably, the defendant could have been charged under that Section 7202, but was instead charged with evading the corporation's liability for trust fund taxes.)

Pursuant to the plea agreement, the court ordered restitution for the corporation's liability for the employment taxes in the amount of "the actual [employment] tax of $203,651.43 and the resulting interest."

At this point, it is helpful to note the components of employment taxes that were the subject of restitution.  Employment taxes consist of:  (i) withholding income tax from the employees' wages and the employee's share of FICA and Medicare tax, also withheld from the employee's wages, referred to as the trust fund portion; and (ii) the employer's share of FICA and Medicare taxes, referred to as the nontrust fund portion.  (In other words, the trust fund portion is the amounts withheld from employee for remission to the IRS for application against the employee's tax liabilities for income tax, FICA and Medicare tax.  The restitution was for the corporation's employment tax without any differentiation between trust fund and nontrust fund portions.

The plea agreement did not provide as to how the restitution payments would be allocated between trust fund and nontrust fund portions.  Therein lay the rub.  (Outside the criminal context, the standard gambit is to insure, if possible, that taxes paid be applied first to the trust fund portion of the tax liability, but neither the plea agreement nor the restitution order addressed that issue.)

The IRS assessed the Section 6672 penalty, referred to as the trust fund recovery penalty ("TFRP"), against the defendant.  As a result, the defendant obviously preferred that the restitution payments be applied first to the trust fund portion because that was the only portion of the corporation's employment tax liability that he was personally liable for.  That was an issue in the case.

Silence in Response to Questions Without Miranda Warning in NonCustodial Setting May Be Evidence of Guilt (6/18/13)

Two days ago, I posted a blog discussing a case where the defendant argued that the prosecution had improperly used his failure to respond to the IRS during the IRS investigations against him in a criminal case.  See Third Circuit Speaks on Fifth Amendment and Willfulness in Tax Case (Federal Tax Crimes Blog 6/16/13), here, discussing United States v. Bean, 2014 U.S. App. LEXIS 11810 (3d Cir. 2013), here.  Yesterday, the Supreme Court decided a case involving a variation of that issue.  The case is Salinas v. Texas, 570 U.S.    , 133 S. Ct. 2174 (2013), here.  The gravamen of the case is reflected in the Syllabus, which I quote in full, omitting case citations, quotation marks and page citations for better readability):

Petitioner, without being placed in custody or receiving Miranda warnings, voluntarily answered some of a police officer’s questions about a murder, but fell silent when asked whether ballistics testing would match his shotgun to shell casings found at the scene of the crime. At petitioner’s murder trial in Texas state court, and over his objection, the prosecution used his failure to answer the question as evidence of guilt. He was convicted, and both the State Court of Appeals and Court of Criminal Appeals affirmed, rejecting his claim that the prosecution’s use of his silence in its case in chief violated the Fifth Amendment. 

Held: The judgment is affirmed. 

369 S. W. 3d 176, affirmed. 

JUSTICE ALITO , joined by THE CHIEF JUSTICE and JUSTICE KENNEDY, concluded that petitioner’s Fifth Amendment claim fails because he did not expressly invoke the privilege in response to the officer’s question. 

(a) To prevent the privilege against self-incrimination from shielding information not properly within its scope, a witness who desires the protection of the privilege . . . must claim it at the time he relies on it. This Court has recognized two exceptions to that requirement. First, a criminal defendant need not take the stand and assert the privilege at his own trial. Petitioner’s silence falls outside this exception because he had no comparable unqualified right not to speak during his police interview. Second, a witness’ failure to invoke the privilege against self-incrimination must be excused where governmental coercion makes his forfeiture of the privilege involuntary. Petitioner cannot benefit from this principle because it is undisputed that he agreed to accompany the officers to the station and was free to leave at any time.

Court Holds Criminal Restitution Trumps Bankruptcy Automatic Stay Against Debtor and Bankruptcy Estate (6/17/13)

In United States v. Robinson, 2013 U.S. Dist. LEXIS 83915 (WD TN 6/14/13), here, the District Court, reversing the Bankruptcy Court, held that criminal restitution trumps the bankruptcy automatic stay, so that criminal restitution could be collected from the bankrupt and the bankruptcy estate.  The case does not involve restitution for taxes, but the principal would apply to restitution for taxes.  Restitution for taxes, of course, would not be dischargeable in bankruptcy, but here the question is whether the restitution is collectible more quickly than indefinitely, if at all, in the future simply because the restitution was not discharged.  The opinion is very well reasoned, and that is the reason I offer it here.  I commend it to readers desiring to pursue the issue of the interface of criminal restitution and bankruptcy and quote here just the two final paragraphs:

To the extent the Bankruptcy Court held that the criminal actions and proceedings exception allowed the United States to enforce a criminal fine or restitution order as against the debtor in bankruptcy (or his property) personally, the Court agrees. Where the Bankruptcy Court found public policy mandated the protection of property of the bankruptcy estate as against the United States government when continuing a criminal action, the Court believes the Bankruptcy Court struck the wrong balance. Section 3613(a) provides a clear congressional mandate: despite the operation of other law, the United States must be able to enforce criminal fines and restitution orders against the property of criminal defendants ordered to pay them. Congress, in enacting the Bankruptcy Code, noted that it did not intend the Bankruptcy Code to interfere with the swift and sure operation of justice. In light of these Congressional statements of public policy, the Court cannot agree with the Bankruptcy Court that public policy now demands it allow a criminal defendant, adjudged guilty in a competent court and ordered to pay restitution, to delay justice by taking refuge under the Bankruptcy Code. 

CONCLUSION 

Because the Court finds Congress' plain language indicates it intended § 3613(a) to sweep aside the protections of the Bankruptcy Code, the Court determines the United States may enforce its restitution orders against Robinson's property, whether nominally held by Robinson or Robinson's bankruptcy estate. Therefore, the Court VACATES the portions of the Bankruptcy Court's Order inconsistent with this Order, and REMANDS this case to the Bankruptcy Court for further proceedings. 

IT IS SO ORDERED.

SEC Suit for Disgorgement of Federal Income Tax Related to Securities Fraud (6/16/13)

In SEC v. Wyly, 2013 U.S. Dist. LEXIS 83897 (SD NY 6/13/13), here, the SEC sued the Wyly brothers (Wikipedia entries for the two here and here) for certain securities violations related to holdings in offshore trusts designed to avoid / evade federal income tax and the securities laws.  Their offshore trust holdings were investigated by the Senate Finance Permanent Subcommittee on Investigations and a report issued titled Tax Haven Abuses:  The Enablers, the Tools and Secrecy, which can be downloaded here. (See the end of this blog for a newspaper summary of the Report's discussion of the Wylys.)

Among the relief sought by the SEC was disgorgement of income tax avoided / evaded by certain offshore shenanigans, apparently within scope of the Senate Report, that were at the center of the alleged securities violations.  The question presented in the opinion I discuss here is whether the SEC can sue for disgorgement of their tax savings.

The first issue is one of disgorgement as a remedy at all.  The district court had previously held that the SEC's penalty claims were time-barred.  See a Reuter's article on the previous holding, here.  However, that holding was not dispositive of the issue of disgorgement which, although not a penalty, is a remedy that is available to the SEC if it can prove fraud.  The Court said (footnote omitted):

In an Opinion and Order dated June 6, 2013 ("June 6 Opinion"), I held, among other things, that the Securities and Exchange Commission's ("SEC") penalty claims against defendants in this case were time barred insofar as they accrued more than five years before tolling agreements with the SEC took effect. Therefore, for those claims against the Wylys that accrued prior to February 1, 2001, the only monetary relief available is disgorgement. For the Wylys' alleged failure to disclose their beneficial ownership of certain securities in SEC filings, the SEC contends that the measure of disgorgement is the amount of federal income taxes that the Wylys allegedly avoided by transferring stock options to the Offshore Corporations1 and failing to disclose their control over the options. The sole issue addressed in this Opinion is whether the SEC has the authority to seek disgorgement measured as the amount of federal income taxes it claims the Wylys would have been required to pay if they had disclosed their beneficial ownership of the securities in question, or whether such relief impermissibly impinges upon the Secretary of the Treasury's ("Secretary") exclusive authority to assess and collect taxes.

The Court described the applicable law as follows (most quotation marks and all footnotes omitted for better readability):

Third Circuit Speaks on Fifth Amendment and Willfulness in Tax Case (6/16/13)

In United States v. Bean, 2014 U.S. App. LEXIS 11810 (3d Cir. 2013), here [a nonprededential opinion, the defendant, an accountant, appealed his convictions for tax obstruction (§ 7212(a)), tax evasion (§ 7201), and failure to file (§ 7203).  The actus rea occurred after he had become enthralled with one of the various trust schemes that many taxpayers fall prey to.  Taxpayers convince themselves that the tax evasion trust scheme will be sufficient at least to avoid a criminal prosecution because, they think, they really believe it works and therefore cannot act willfully.  These criminal prosecutions establish that a jury will usually not believe that the taxpayers really believe that nonsense.  On appeal, the defendant raised two interesting arguments that I address in this blog.  He did raise a sufficiency of the evidence, but that is routine and not interesting as presented in the opinion.  I write this blog primarily to students, since most practitioners will be familiar with the context and holdings of the court.

I do note at the outset that this is a nonprecedential decision and hence the Court of Appeals says:

We write principally for the parties, who are familiar with the factual context and legal history of this case. Therefore, we will set forth only those facts necessary to our analysis.

So, the Court says it is giving us the facts necessary for the issues it decides, but there is undoubtedly nuance (e.g., helpful facts) not presented.  Still for the issues I discuss, I think we have everything we need.  With that caveat, let's go!

First, the defendant made an interesting Fifth Amendment argument.  During the course of the IRS audits and collection activity forming the basis for the criminal proceedings, the defendant had obstructed the investigation, in part, by not responding to the IRS and not showing up for scheduled meetings.  During the trial, the prosecutors adduced evidence of that conduct and argued it to the jury.  The defendant says that, through such conduct, he was exercising his Fifth Amendment privilege and that, therefore, the prosecutors should not have been allowed to comment on that exercise, either by testimony, argument or otherwise.  Here is how the Court handled that argument:

Beam also challenges the government's comments during trial on his silence with respect to the IRS audits. Specifically, Beam asserts that "IRS Agents Thomas Kurtz and William Welsh testified that they called, sent letters and made appointments to meet with Troy Beam, but that he would never respond or show up for meetings," and that "[b]ecause Troy Beam had a right to remain silent, the Government's use of his silence against him violates the Fifth Amendment." Appellant's Br. at 20. Beam admits  that this alleged error was not brought to the District Court's attention, and thus our review is for plain error. 

This Court may, in its discretion under Rule 52(b) of the Federal Rules of Criminal Procedure, correct an error not raised at trial where the appellant demonstrates that "(1) there is an error; (2) the error is clear or obvious, rather than subject to reasonable dispute; (3) the error affected the appellant's substantial rights, which in the ordinary case means it affected the outcome of the district court proceedings; and (4) the error seriously affects the fairness, integrity, or public reputation of judicial proceedings." United States v. Marcus, 130 S. Ct. 2159, 2164 (2010) (internal quotation marks omitted).

An OVDI Odyssey - an Opt Out Success Story (6/16/13)

A reader of this blog with whom I have corresponded during her journey through the maze of a couple of iterations of the ODVP/OVDI has offered to share her journey with other readers.  She ultimately received a favorable outcome -- on opt out, a no FBAR penalty letter (Letter 3800).  Her journey was tortuous.  I think in part that was due to the design of the program that was a bit simplistic (still is in many respects) and both practitioners and the IRS had to deal with the nuances and uncertainties that had not been considered in designing the program.  This resulted in long delays and twists and turns in her case -- also experienced by others in their respective situations. Ultimately, after a lot of grief and angst, this reader got assigned an agent to process the case within the program penalty structure and then for opt out.  And the right result prevailed.

This reader has offered a narrative of her journey and the key documents in the hope that other readers will find them useful and be encouraged that, at the end of their respective journeys which, hopefully, will have fewer twists and turns, they too will achieve a fair result.  In the process, she hopes that others will not be frightened to opt out because of the mere remote possibility of hypothetical onerous penalties.

Here are the links to her documents.  The key document is the summary.  It is extended (16 pages), but well worth the read.  She presents the materials well.

• A summary (actually detailed) presentation of her journey, here.
• Her opt out letter, here.
• Her opt out reasonable cause arguments, here.
• A Streamlined Program acceptance letter, here.
• Her Letter 3800, here.
• A spreadsheet with the Agent calculation of mitigated Level II Non-Willful Penalties, here.

I think that there are some in the OVDI/OVDP programs who should opt out but do not because they fear what the IRS could do.  For example, many of the agents are trained when asked about what penalties could apply on opt out to assert that the IRS could, depending on the facts, assert the maximum willful penalties for up to six years (depending on the FBAR statute of limitations still open).  This is truly scary that an agent will tell his customer -- in the IRS metaphor -- that this could happen.  Yet, although apparently telling this reader that whopping amount, the agent immediately said:

IRS Makes Treaty Request for Wegelin Information Involving Asset Management Companies (6/15/13)

The IRS has filed a treaty request for U.S. taxpayer information from Wegelin & Company, the company that pled and went under.  See US continues hunt for tax dodgers in Swiss banks (6/14/13), here.  The following are key excerpts:

The United States tax authorities have filed a request for legal assistance to identify former American clients of the private bank Wegelin who are suspected of tax dodging. It is the fourth such request against a Swiss financial institute. 

Wegelin, which announced at the beginning of this year it would close its doors, on Friday confirmed reports that it had received notification by Switzerland’s Federal Tax Authorities to comply with the US request, based on a 1996 double taxation agreement.

A bank official added that Wegelin would submit the necessary information.

The request focuses on former Wegelin clients who were listed as beneficiaries of asset management companies between 2002 and 2012 and are suspected of fiscal fraud, according to the Neue Zürcher Zeitung newspaper on Friday. 

* * * * 

It is the fourth such demand against Swiss banks. The country’s two main banks, UBS and Credit Suisse, have also faced requests against a particular group of clients over the past few years.

JAT Comments:

Preparer Can Be Guilty of Aiding and Assisting Despite Not Being Subject to Circular 230 (6/15/13)

In criminal cases, lawyers need to be creative, always being careful not to go too far on the wild side in the arguments they make.  I illustrate creativity to in a case raising an argument I have not seen before.  The argument is perhaps on the wild side.

In United States v. Tomlinson, 2013 U.S. Dist. LEXIS 82436 (D KS 2013) [link to come], the defendant, a return preparer, was tried for aiding and assisting, under Section 7206(2), here.  One of the arguments the defendant made was that she could not be convicted for Section 7206(2) because, at the time of the alleged offense, as a preparer, she was not subject to Circular 230, the regulation guiding persons practicing before the IRS; therefore she urged she could not have willfully violated Section 7206(2).  What's wrong with this argument? The Court tells us as follows:

As for the fourth element, willfulness, the defendant argues that (1) she was under no legal duty to prepare and present the returns truthfully and (2) even if she was under a legal duty, she did not prepare and present the false returns intentionally. The defendant's first argument focuses primarily on the applicability of a Treasury Department regulation commonly referred to as Circular 230, which contains duties and restrictions relating to practice before the IRS. Loving v. I.R.S., No. 12-385, 2013 U.S. Dist. LEXIS 7980, 2013 WL 204667, at *3 (D.D.C. Jan. 18, 2013). These regulations are published in the Code of Federal Regulations, Title 31, part 10 and reprinted under the name "Treasury Department Circular No. 230." Id. Before 2011, Circular 230 applied only to attorneys, CPAs, and other specified tax professionals (collectively, "practitioners"). Id. The defendant argues that Circular 230 did not apply to her when she prepared the false returns from 2008 through 2009 because at that time she was simply a return preparer and not a practitioner. Therefore, the defendant argues, according to IRS rules and regulations, she was under no legal duty to aid in the preparation and presentation to the IRS of tax returns that were not false as to any material matter.

New Indictment Related to Offshore Accounts (6/15/13)

DOJ Tax has announced, here, the indictment of a Wyoming couple, Robert and Judy Sathre, for filing a false tax return for 2007.  The indictment (with attached penalty summary) is here.  He had a substantial amount of income in the mid-1990s which he concealed from the IRS and failed to pay tax.  Those years are, of course, beyond the criminal statute of limitations.  But, for years within the statute he further concealed income in an offshore bank and thus filed a false tax return.  The following is the description of the allegations from the DOJ Tax Press release:

According to the indictment, the Sathres concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts. In a ten-month period spanning 2005-2006, Mr. Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS. When Robert Sathre sold the Rock Stop in 2007, he had over $1,250,000 from the sale proceeds wired to the trust account of a Wyoming law firm. Later the Sathres directed the law firm to wire $900,000 from the trust account to their account at the Bank of Nevis. They also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer. Robert Sathre obtained a debit card linked to the foreign account to access funds locally. He also provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States. 

The indictment also alleges that the Sathres tried to conceal their ownership of real estate. They used a purported trust to encumber their residence at Troon Place in Sheridan and to conceal their ownership of property in Hennepin County in Minnesota. To conceal ownership of the Rock Stop, they similarly used a second purported trust, at one point resigning as trustees and appointing their teenage daughter as the trustee. 

The indictment also charges Judy Sathre with one count of filing a false tax return for 2007. The indictment alleges that the return was false both for reporting only $42 in interest income and for failing to disclose that she had a financial interest and signatory authority over the bank account at the Bank of Nevis.

It is unclear why, with this fact pattern, the indictment would charge a single count.  Of course, these offshore cases often ultimately plead to a single count.  But, why would there not be additional tax perjury counts and/or FBAR counts pending the plea?  Perhaps the plea bargain is wired into the original indictment, but that can usually be handled a different way.

U.S. Civil Suit for 4 Years of Willful Penalty of 50% Per Year (6/14/13)

In United States v. Zwerner (SD FL No. 13-cv-22082-CMA), the IRS is suing to obtain judgment on an FBAR willful penalty assessment for 4 years.  The civil Complaint is here.  Here is a cut and paste of paragraph 18:

18. Due to Zwerner’s willful failure to file FBARs reporting his financial interest in the Swiss bank account during 2004-2007, a delegate of the Secretary of the Treasury of the United States assessed penalties against him under 31 U.S.C. § 5321(a)(5) in the amount of 50% of the balance of his account at the time of the violations for each year, as follows:
(a) 2004 – $723,762, assessed on June 21, 2011.
(b) 2005 – $745,209, assessed on August 10, 2011.
(c) 2006 – $772,838, assessed on August 10, 2011.
(d) 2007 – $845,527 assessed on August 10, 2011.

Many practitioners, myself included, have operated on the assumption that the worst FBAR violation cases would draw a civil penalty not exceeding the 50% high year, which is the penalty required in the criminal cases that have been prosecuted and convicted.  Indeed, I have heard even one prominent Government official say that the delta between the then 25% OVDI in lieu of penalty and the "worst case" FBAR penalty was 25% (on similar reason would be 22 1/2% based on the 27 1/2% in lieu of penalty).

And, my mea culpa, I was just this week ragging on an IRS manager about the worst case scenario the agent provided upon our request incident to considering opt out.  The computation sent by the agent was the 50% per year for six years (the civil statute of limitations).  While speaking with the manager on another issue, I kicked in on this issue by noting that providing that information of a risk of a 6-year 50% penalty was absolutely useless information since there was no possibility that the IRS would assert that multi-year penalty and indeed, from a practical perspective, the max would be 50% high year.  I argued that she should pass on to the powers that be that the IRS should not be promulgating useless, theoretical only information and that, if they provided any information, perhaps it could be something like that, in practice, they have not asserted more than 50%.  Even the latter limited information -- if true -- would be useful to taxpayers considering opt out because they could then bracket their situations with known cases of the 50% penalty -- i.e., in simplified analysis, I am only 50% as bad (no entities, etc.) as that 50% penalized case, so my worst willful case would be 25% (the same as the OVDI in  lieu of penalty), with a possibility of less on opt out.  (This is rough and ready and needs to be fine-tuned, but that type of analysis should be taken on opt out if we can determine the high end of the spectrum.)

At any rate, here is the civil suit that the IRS may exceed a single year willful penalty -- and not just exceed but substantially exceed -- ratcheting up to 4 years.  On a static amount that should be reported on the FBAR (say $1,000,000 per year for six years), the maximum theoretical penalty would be $3,000,000, or 300%.

Supreme Court Reminds that Judges Should Not Participate in Plea Negotiations (6/14/13)

In United States v. Davila, ___ U.S. ___, 2013 U.S. LEXIS 4541 (2013), a criminal tax case, here, decided yesterday, the defendant was charged with multiple counts of tax fraud and conspiracy.  As is typical, the Government indicated a willingness to accept a plea for one count of conspiracy (referred to by the DOJ CTM as the major count) and dismiss the remaining counts.  As I have noted before, achieving a dismissal of such remaining counts upon plea often achieves nothing practical for the defendant because of the operating of the Sentencing Guidelines, but the plea agreement itself can be rewarded under the Sentencing Guidelines by downward adjustment for Acceptance of Responsibility.  The defendant finally did accept a plea, but not before he initially resisted and received some inappropriate advice to plead from the Magistrate Judge.

By way of background, most criminal tax cases, as most criminal cases generally, are resolved by plea agreement.  (See the addendum below on a recent article on statistics dealing with the role of pleas in the federal criminal system.)  For example, assume that potential client A comes into your office the day after he was indicted for several tax crimes.  A announces that he came to you because you had the reputation of being the best criminal tax lawyer in the universe (you modestly but not totally candidly disavow that reputation).  A then outlines his cryptic view of why he is innocent.  He then asks what are the chances of you obtaining an acquittal for him.  All you know is his cryptic account which or may not  be a fair representation or summary of the facts, but that cryptic account proclaims his complete innocence, at least on the willfulness element of the tax crimes charged because he says he is innocent.  So, you remind him that he is asking you to state conclusions based on cryptic facts which may or may not be true and which you have not investigated.  On that basis, you advise first that, if the cryptic statement is a fair representation of the case that will be presented at trial, then he has a very good chance of being acquitted.  You then state that your experience is that such cryptic initial accounts generally are too cryptic for anyone to feel comfortable that that is the way it will play out at trial.  You then state that, given the highly selective systemic selection of criminal tax cases, culminating in DOJ Tax and AUSA review before indictment, the facts may well not play out that nicely at trial.  You then tell him, that given that selectivity, the posted rates of conviction in tax cases are very high -- exceeding 90% (maybe, see my several other postings on the conviction rates in tax cases).  You then tell him, based on that statistic alone, and discounting his cryptic proclamation of innocence, there is a 90+% chance he will be convicted.  You finally tell him there is a systemic preference in the federal criminal system generally and in the tax crimes subset of that system to resolve cases by plea -- indeed a defendant is given a substantial benefit in the Sentencing Guidelines by resolving the case by plea.  The combination of likely conviction and the benefit of pleading for a reduced sentence is a powerful incentive to plead. (Indeed as others have noted, it may be so powerful in some cases that the innocent plead, provided that they can clear the hurdle of allocution of guilt.)

Now, with that background, the defendant in Davila was unhappy with his attorney who, apparently with more facts in hand as to how the trial would play out, advised the Davila to accept  the plea proffered by the prosecutor.  Davila interpreted that recommendation as being a reflection of the fact that the attorney had no defensive strategy.  That is probably a fair lay interpretation, but criminal defense lawyer would characterize the recommendation as a conclusion that the defendant almost certainly would be convicted.  Davila's strategy then was to request new counsel.  An ex parte hearing or meeting on that request was held with the U.S. Magistrate Judge.  The prosecutor was not present (not clear why, but that was a no-no.).  During the course of the hearing or meeting, the Magistrate Judge advised that defendant that he would not get another court-appointed attorney and that his best course, given the strength of the Government's case, was to accept the plea.  Davila was not convinced.  Time passed.  Finally, he became convinced and pled with a full allocution saying that he was guilty of the crime to which he pled and that nothing had been promised him in return, etc., etc.

Jury Instructions -- the Process, Including Waiver and Forfeiture of Objections (6/14/13)

Today I write on a nontax case because I focus on an issue that is presented in all criminal jury trials, tax criminal trials as well.  I focus on the process and how objections can be preserved or lost intentionally or unintentionally.

In United States v. Natale, 719 F.3d 719 (7th Cir. 2013), here, The defendant, a surgeon, was convicted of making false statements to Medicare.  On appeal, the defendant objected to the jury instructions on the false statements counts.  The counts involved in the instructions was for violation of 18 USC 1035, False statements relating to health care matters, here.   That crime requires several elements that the Court of Appeals ultimately found not to have been adequately presented in the jury instructions.  The Court of Appeals, however, affirmed the conviction because the error, in layman's terms, was not sufficient prejudicial to warrant reversal.  I won't say anything more about the substance of the jury instructions and their deficiencies.  Rather, I want to present here the Court of Appeals' discussion about the process courts undertake -- or should undertake -- to determine the jury instructions that will be given, counsel's role in that process and then a defendant's right to challenge, after conviction, the instructions that were given.  This process applies in all criminal cases including tax cases.  Accordingly, this information from the case will be useful to students and new practitioners.

Natale's primary challenge to his conviction focuses on the jury instructions that the trial judge issued on the false statement counts. The government responds that Natale has waived any challenge to these instructions because he affirmatively approved of them at the jury instruction conference. Moving through the proposed instructions one by one, the district court asked, "[Proposed Instruction] No. 29 is making false statements instruction out of 18 United States Code, Section 1001, and 18 United States Code, Section 1035. Any problem with that?" Defense counsel's response: "No." Counsel engaged in a similar question-and-answer colloquy regarding the remainder of the instructions on the false statements counts, with the trial court asking counsel if he "had any problem with" each proposed instruction. Each time, counsel affirmatively expressed having no problem with the proposed instruction. The government now suggests that the defense attorney's comments during this exchange affirmatively approved the jury instruction, resulting in waiver. 

Ordinarily, when a defendant does not object to a jury instruction before the jury retires to deliberate, the defendant may later attack that instruction only for plain error. Fed. R. Crim. P. 30(d); Johnson v. United States, 520 U.S. 461, 465-66, 117 S. Ct. 1544, 137 L. Ed. 2d 718 (1997). However, a defendant who waives—rather than forfeits—his objection cannot avail himself of even the demanding plain error standard of review. See United States v. Olano, 507 U.S. 725, 732-33, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993) ("Deviation from a legal is 'error' unless the has been waived."); United States v. DiSantis, 565 F.3d 354, 361 (7th Cir. 2009) ("Waiver 'extinguishes any error' and 'precludes appellate review.'" (citing United States v. Pree, 408 F.3d 855, 872 (7th Cir. 2005)). He has no recourse and generally must live with his earlier decision not to press the error. Such waiver occurs only when a defendant makes a "knowing and intentional decision" to forgo a challenge before the district court. United States v. Jaimes-Jaimes, 406 F.3d 845, 848 (7th Cir. 2005). In contrast, when the "defendant negligently bypasses a valid argument," he has merely forfeited the claim and can raise it on appeal, subject to plain error review. United States v. Vasquez, 673 F.3d 680, 684 (7th Cir. 2012) (citing United States v. Anderson, 604 F.3d 997, 1001 (7th Cir. 2010)). We generally construe waiver "liberally in favor of the defendant." Jaimes-Jaimes, 406 F.3d at 848.

Quiet Disclosures That Don't Stay Quiet - Civil Examinations (6/13/13)

Chuck Rettig, a major player in representing taxpayers through the thicket of correcting offshore account noncompliance, has written a very good summary article of the quiet disclosure that is discovered and examined by the IRS.  Charles Rettig, IRS FBAR Voluntary Disclosure Program: Taxpayer Interviews (Forbes 6/12/13), here.

The problem, he notes, is that "Many taxpayers continue to enter the OVDP. Others have bypassed the OVDP and simply amended returns or begun filing accurate returns on a prospective basis."

After discussing, the GAO report (previously blogged here), Chuck says that for persons filing amended returns -- quiet disclosures -- in lieu of joining OVDP:: " It should be anticipated that the IRS will pursue examinations of these amended returns in some manner."

With respect to the interviews in those examinations, Chuck says

When discovered, U.S. taxpayers who have bypassed the OVDP by filing amended or delinquent returns and FBARs should anticipate detailed IRS examinations likely to include interviews of the taxpayer, their return preparer and pehaps others. Numerous taxpayers having previously undisclosed interests in foreign financial accounts have recently been interviewed by representatives of the IRS as well as many having been interviewed by prosecutors associated with the Tax Division of the Department of Justice.

He then describes the types of questions and inquiries made.  He concludes:

Taxpayers continuing to have undisclosed interests in foreign financial accounts must consult competent tax professionals before deciding to participate in the OVDP.  Some may decide to risk detection by the IRS and the imposition of substantial penalties, including the civil fraud penalty, numerous foreign information return penalties, and the potential risk of criminal prosecution. If discovered before any voluntary disclosure submission, the results can be devastating. 

I recommend Chuck's article to those contemplating or having made a quiet disclosure.

JAT comments:

Of course, the big uncertainty with the quiet disclosures for those taxpayers with material criminal investigation and prosecution risk is that, according to the IRS's rhetoric, quiet disclosures for offshore accounts are not "voluntary disclosures" subject to the voluntary disclosure program to mitigate or eliminate such risk.  The message -- or risk -- that the IRS intends to convey is, dammit, join the program or take the risk.

Despite the IRS's rhetoric, one has to ask the question whether a taxpayer otherwise have criminal investigation and prosecution risk can eliminate or mitigate the risk with a good quiet disclosure (whatever that is, but I know it when I see or do it)?  I think many practitioners think that the taxpayer can do that; that there are good reasons that the IRS and DOJ Tax would make the call at least not to criminally prosecute a good quiet disclosure.  Of course, I approach it a different way.  If the taxpayer has material criminal investigation and prosecution risk, joining the program is the way to go and the taxpayer should not be doing a quiet disclosure upon the uncertain hope that it will not be discovered and, if discovered, it will mitigate or eliminate the criminal investigation and prosecution risk.  Having said that, however, I suspect that, in the final analysis, for good quiet disclosures, the IRS will exercise discretion to conduct just a civil examination.  I suspect that the real risk is in the amount of the civil penalties that will be asserted and the number of income tax years that will be put in play.  And for those taxpayers will real criminal prosecution risk, there is a major risk of severe penalties and thus should join without quiet disclosure to get better penalties or, if the quiet disclosure was made and not yet discovered by the IRS, join the program.

The Swiss Offshore Bank Solution Drags On - the Swiss Way (6/13/13)

According to reports, Switzerland continues to drag its feet on a solution with the U.S.  The reports come fast and furious, although, from my perspective, mostly cumulative information, some incremental information, but no break-throughs.  Switzerland has been stymying the process for some time now, so I guess we should not be surprised.  I have seen little use posting daily information about the foot-dragging, but every now and then I will, as I do today, just as a reminder, that should it continue, we might expect some action from the U.S.   

Reuters has this posting.  Katharina Bart, Swiss upper house backs U.S. tax deal to protect banks (Reuters 1/12/13), here.  Excerpts are :

The protection of client information has helped to make Switzerland the world's biggest offshore financial center, with $2 trillion in assets. But that haven has come under fire as other countries have sought to plug budget deficits by clamping down on tax evasion, with authorities probing Swiss banks in Germany and France as well as the United States. 

* * * * 

The bill would allow banks to hand over information and strike settlement deals with U.S. prosecutors, which one lawmaker called a "choice between the plague and cholera." Such deals would avert the threat of criminal prosecution, but are still expected to include heavy fines that could cost the industry as much as $10 billion. 

* * * * 

The legislation approved by the upper house would pave the way for Swiss banks to disclose their U.S. dealings, including names of bank staff and third parties such as accountants and tax lawyers who helped Americans to evade taxes. 

Banks will still not be allowed to hand over client names - protected by the Swiss secrecy law of 1934 - but the proposal, valid for a year only, would allow banks to hand over so much information on customers' behavior that U.S. officials should be able to identify American tax dodgers. 

The Swiss government has warned that the United States could indict another bank, a move seen as the death knell for virtually any business. Lawmakers were swayed by concern U.S. prosecutors could indict one of the state-backed cantonal banks in their constituency.

Rubinstein on the State of Offshore Bank Account Compliance (6/12/13)

Asher Rubinstein, here, has posted an article titled, Offshore Update: The Door to Foreign Account Amnesty Can Close At Any Time, here.  Key points that interested me are:

1.  After naming certain Swiss banks in the IRS and DOJ cross-hairs, he says:(par. 3) that IRS may and presumably will "close the door" on U.S. depositors in those banks qualifying for OVDP.

2.  He says the following about Singapore banks becoming targets:

The inclusion of Singapore is significant because of the rise of Singapore as a major international financial center.  The flow of        funds from Switzerland to Singapore when Swiss banking secrecy evaporated was substantial.  According to one report, the amount on deposit in Singapore has grown more than fifty percent over the last five years, which is precisely the period of time since UBS was sued by the DOJ.  Although there have been suggestions that Singapore might be “the next Switzerland”, this is unlikely.  Singapore would not risk its financial reputation (depending on the report, either the fourth or fifth largest world financial center, after New York, London, Tokyo and Hong Kong) to be a harbor for non-compliant accounts.  Singapore makes a significant amount of money from legitimate international banking and would not jeopardize this by being “blacklisted” as an uncooperative tax haven, as it was a decade ago.  To this end, Singapore has recently announced that it is in talks with the US on a FATCA-type of agreement.  In addition, a new regulation requires Singapore banks to identify all accounts that may harbor the proceeds of tax evasion, and close them.  Failure to abide by this new law will result in criminal charges for the Singaporean bankers under Singapore law.

He later says:

Recently, the IRS and tax authorities in the UK and Australia agreed to exchange information regarding offshore trusts and corporations.  In its press release announcing this agreement, the IRS specifically noted that the three countries have already “acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.  The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.”

Offshore Items from Report on NYU Tax Controversy Forum (6/11/'13)

Jeremiah Coder of Tax Analysts reported on NYU's annual Tax Controversy Forum in Jeremiah Coder, U.S. Able to Find Jurisdiction for Foreign Bank Prosecutions, 2013 TNT 111-7 (6/10/13).  Here are some key points and excerpts:

1.  Daniel Levy, AUSA SDNY, prominently involved on offshore bank and related prosecutions, said that the prosecutions of foreign bankers and banks is intended to send a message even if there is no ability to arrest and try the defendants because they will not be extradited to the U.S..  In my view, this sends a relatively cheap message when only an indictment is involved because large and costly systemic resources never have to be deployed (trial, sentencing and incarceration).  In addition, as Levy noted, the charges " produce strong sanctions such as preventing individuals from traveling internationally."

2.  Levy noted the following with respect to Wegelin & Co."

For example, the Justice Department indicted Swiss bank Wegelin & Co. despite its having only a correspondent account in the U.S., because there was clear proof that the bank had marketed and assisted taxpayers in hiding money offshore, Levy said. Indictments create stiff sanctions that will help deter financial institutions from helping tax evaders, he said.
Levy added that in Wegelin's case, the U.S. government took control of the entire amount in the correspondent account, not just what could be traced to tax evasion. He explained that the DOJ believed that the entire Wegelin correspondent account was "facilitating" tax evasion. That was "a very creative theory" that "sent a message," according to Levy.

3.  John McDougal, an IRS attorney prominently involved in the offshore juggernaut, said that "the IRS has more summonses in the pipeline seeking taxpayer data from financial institutions."

4.  On a complaint "that many nonresident taxpayers may find they owe a lot of tax but otherwise lack fraud indicia," "McDougal responded that taxpayers with deficiencies larger than $1,500 might as well try the streamlined disclosure program provided they have no other risk factors."

5.  On the notion that Singapore is  "the next Switzerland," McDougal noted that Singapore "will sign the Convention on Mutual Administrative Assistance in Tax Matters, will sign an intergovernmental agreement with the United States, and is making tax evasion a predicate offense to money laundering."

Ex Post Facto "Correction" by Delinquent or Amended Returns After the CI Agent Shows Up (6/10/13)

One of the tough issues practitioners face when a criminal investigation starts is whether to attempt to "correct" the issue ex post facto by filing delinquent original returns (if failure to file is the potential crime being investigated) or amended returns (if evasion or tax perjury are the crimes being investigated).  Conceptually, such ex post facto gambits are generally suspect; otherwise, the IRS criminal tax enforcement efforts would be in shambles.  And, of course, the filing of such returns ex post facto does prove several elements other than willfulness that the Government must prove to make a case.  For example, in the case of failure to file, the filing of delinquent returns will admit that the taxpayer was required to file a return and the income admitted on the returns can be compelling to a jury.  Likewise, in the case of evasion or tax perjury, the filing of amended returns showing a tax due -- substantial tax due in virtually all cases that would be criminally prosecuted -- the taxpayer is admitting that element of the crime (either the tax due for evasion or the tax or components leading to tax, such as the omitted income, for tax perjury).

In United States v. Sperrazza, 2013 U.S. Dist. LEXIS 77901 (MD GA 2013), here, the defendant made tax payments after he learned of the IRS criminal investigation.  The defendant was subsequently charged with structuring financial crimes and evasion.  As to the evasion charges, the defendant intended to rely upon his tax payments when he "learned" that they were underpaid (i.e., after he learned of the criminal investigation).  Obviously, he wanted the jury to infer that he acted in good faith from the beginning by showing that he corrected the problem when he learned of it.  That is one inference the jury could make; the competing inference is that the defendant was just trying to create an improper inference. The Government moved in limine to prevent him from introducing evidence of payment.  The Court denied the motion, thus allowing the defendant to introduce that evidence and get that inference before the jury.  The Court's reasoning is short and sweet, so I included it in whole here:

Presently pending before the Court is the Government's Motion in Limine to Exclude Irrelevant Evidence (Doc. 51). The Government seeks to preclude Defendant from arguing or introducing documents or testimony related to tax payments he made to the IRS after he became aware of the criminal investigation. (Doc. 51 at 1.) The Government argues that Defendant filed his tax payments for a self-serving purpose after being informed of the criminal investigation, rendering Defendant's late payment of taxes irrelevant to the issue of whether Defendant had the requisite criminal intent to commit the crime. The Government also argues that admission of evidence of the payments is greatly prejudicial as it will confuse the jury and distract from the charged crimes. Defendant asserts that he never received an audit notice for the years in question, was presumably unaware of the criminal investigation until notified, and filed his amended returns and payments in 2009 upon notification, well before the Indictment was returned on March 15, 2012.

Supreme Court Opinion of Ex Post Facto Issue in Using Guidelilnes after Acts of Crime(s) of Conviction (6/10/13)

The Supreme Court just decided Peugh v. United States, 569 U. S. ____ (2013), here, holding that, in sentencing, the Constitution's Ex Post Facto Clause requires use of the latest Guidelines in effect at the time of the commission of the offense if later Guidelines increased the punishment.  Some courts and practitioners had thought that Booker had solved that problem.

Here is the syllabus which captures the Supreme Court equivalent of a sound bite of its reasoning -- OK more than a sound bite, but no substitute for reading the entire opinions.  I will read the entire opinions later and offer any comments that i think would be helpful.  In the meantime, here is the syllabus:

Petitioner Peugh was convicted of five counts of bank fraud for conduct that occurred in 1999 and 2000. At sentencing, he argued that the Ex Post Facto Clause required that he be sentenced under the 1998 version of the Federal Sentencing Guidelines in effect at the time of his offenses rather than under the 2009 version in effect at the time of sentencing. Under the 1998 Guidelines, Peugh’s sentencing range was 30 to 37 months, but the 2009 Guidelines assigned more severe consequences to his acts, yielding a range of 70 to 87 months. The District Court rejected Peugh’s ex post facto claim and sentenced him to 70 months’ imprisonment. The Seventh Circuit affirmed 

Held: The judgment is reversed, and the case is remanded. 

675 F. 3d 736, reversed and remanded.  

JUSTICE SOTOMAYOR delivered the opinion of the Court, except as to Part III–C, concluding that the Ex Post Facto Clause is violated when a defendant is sentenced under Guidelines promulgated after he committed his criminal acts and the new version provides a higher sentencing range than the version in place at the time of the offense. Pp. 4–13, 15–20. 

(a) Though no longer mandatory, see United States v. Booker, 543 U. S. 220, the Guidelines still play an important role in sentencing procedures. A district court must begin “by correctly calculating the applicable Guidelines range,” Gall v. United States, 552 U. S. 38, 49, and then consider the parties’ arguments and factors specified in 18 U. S. C. §3553(a). 552 U. S., at 49–50. The court “may not presume that the Guidelines range is reasonable,” id., at 50, and must explain the basis for its sentence on the record, ibid. On appeal, a sentence is reviewed for reasonableness under an abuse-of-discretion standard. Id., at 51. A district court is to apply the Guidelines “in effect on the date the defendant is sentenced,” §3553(a)(4)(A)(ii), but, per the Guidelines, is to use the Guidelines in effect on the date the offense was committed should the Guidelines in effect on the sentencing date be found to violate the Ex Post Facto Clause. Pp. 4–7

A Roadmap for Swiss Banks to Move Forward? (6/10/13)

Readers might be interested in this Financial Times editorial written by a former chairman of the governing board of Swiss National Bank.  Philipp Hildebrand, The sheriff has spoken – and the Swiss must submit (Financial Times 6/9/10), here.  Mr. Hildebrand concludes:

First, Swiss banks must quickly settle with the US. Ideally, the government will find a way to avoid drawing in parliament again, after it refused last week to vote on the government’s bill; and the banks can proceed in line with the framework set by the UBS settlement. After all, equal treatment in equal circumstances is a fundamental Swiss constitutional principle. 

Second, the government and the banks must quickly recognise that client anonymity for tax purposes is a thing of the past. The specific contours of how information will be exchanged across sovereign borders will have to be worked out. Ideally, this will occur under the auspices of the OECD, a Paris-based think-tank, where Switzerland should demand a robust voice at the table. 

Third, and crucially, Bern must settle the problem of undeclared legacy assets, largely of European origin, residing in its private banks. A significant share was deposited a long time ago in a different era with different norms. A pragmatic and morally defensible solution is for clients to pay a one-off tax on them to their respective countries of residence. In return, they would be allowed to preserve their anonymity. The level of tax could be broadly linked to the relevant rates in the European countries in question. 

Finally, Bern must be steadfast in demanding access to the EU market for its banking services, enabling it to refocus the sector on its excellence in cross-border wealth management. This is equally in the interest of the EU: any other outcome will drive significant assets out of Switzerland and probably out of Europe.

Joe Thibodeau Receives Jules Ritholz Award (6/9/13)

Joe Thibodeau, received the Jules Ritholz award, here, at the Civil and Criminal Penalties Section Luncheon on May 10, 2013.  As noted on the web site, "The Jules Ritholz Memorial Merit Award is given in recognition of outstanding dedication, achievement, and integrity in the field of civil and criminal tax controversies."  I attended that luncheon and asked Joe to write up his remarks because, well, I thought they were remarkable.  I have just posted excerpted those remarks on the DOJ Tax Division Alumni Blog, here, but do recommend that readers read the complete remarks here.

In his remarks, Joe gives a lot of credit to those who have influenced his career and character.  They include, of course, Jules Ritholz and the late Jerry Feffer, both major players in the tax crimes arena.  Thanks, Joe, for reminding us and others about the best our profession has to offer.

Tax Fraud and Money Laundering Examination (6/9/13)

Larry Campagna, here, and I recently concluded our Tax Fraud and Money Laundering Class at the University of Houston School of Law.  (See our course web site, here.)  I thought that some readers of this blog might be interested in the examination we gave.  The examination in pdf format (with all attachments) is here'.  For those desiring to take the examination, please do so and send your answers to me so that I can grade them.  (Be sure and read the pdf with the instructions and attachments if you do desire to take the examination.)

The following is a cut and paste of the examination :

1. (50% of total exam grade)  

You have entered private practice in Houston, specializing in tax controversy matters.  A new client, Chris Cash, comes to your office for an initial visit.  He asks whether the information that he will tell you is subject to the attorney/client privilege, and you assure him that it is.  Chris then advises you that for the past few years, he failed to include interest income from a Swiss bank account on his individual income tax returns.  The first year of the Swiss account income was 2007, and the income was at least $200,000 per year in every year since then.  His income tax returns were filed as joint returns, signed by both Chris and his wife.  Each return was timely filed on or before October 15 of the following year, pursuant to a timely filed extension.  The certified public accountant who prepared the returns also prepared the joint returns that were filed by Chris and his wife for the ten years prior to the six years during which Chris has had the Swiss account income.  The CPA/preparer also happened to be Chris’ son, who knew that Chris had invested a significant sum of money in a Swiss account, but did not know how much money or the amount of the income that was left off of the income tax returns.  Yesterday, however, Chris visited a new CPA and confessed to having a foreign account, having left the $200,000+ of Swiss interest income off of each year's return, and asked the CPA what to do.  The CPA immediately stopped the conversation and advised Chris to make an appointment with you.  Chris provides you with a copy of his joint returns for 2007 through 2011, each of which shows income of his salary of $300,000 and his wife's salary of $500,000.  Chris tells you that his wife knew that he had made a significant amount of money offshore in 2007, and that he had left the money in an offshore bank account, and she signed some of the account opening documents for the Swiss bank account.  But his wife had no idea of the amount of the money he had made and hidden offshore that produced the interest in the foreign account.  Chris asks you the following specific questions:

a. (15% of total exam grade)  What potential crimes could be charged against Chris?  You may limit your answer to the Title 26 crimes, financial reporting crimes, and the conspiracy statute identified in our class materials.  No explanation of the crime is necessary.  Just identify each potentially applicable crime by Code section; state the elements of the crime; and the prescribed punishment for the crime as set forth in the United States Code (without regard to the punishment that would be determined under the sentencing guidelines).  Then state which crimes are most likely to be charged.

Obtaining Tax Return Information in Non-Tax Criminal Cases (6/7/13)

One of the core concepts of our internal revenue law is that the information that IRS gathers from and about taxpayers will not be freely disseminated outside the IRS.  IRC Section 6103, here, insures that such information can be viewed and used both within the IRS and outside the IRS only in certain narrow and specific circumstances, and then subject to some controls.

Obviously, in tax cases -- civil and criminal -- that reach a court and tax grand jury investigations that reach the grand jury, the tax information can be shared with DOJ Tax CES personnel and then used by them in presenting cases to the court or grand jury.  But, what about cases which are not tax cases.  Is the information available to the Government prosecutors or attorneys?

In United States v. Ajudua, 2013 U.S. Dist. LEXIS 73003 (D NM 2013), here, the Court dealt with that issue and discusses a method by which tax return information may be obtained by prosecutors for use in criminal cases (both at the grand jury and at the criminal trial).  The defendant was "indicted and charged with a violation of the following: (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349; (ii) aiding and abetting bank fraud in violation of 18 U.S.C. § 1344; and (iii) aiding and abetting aggravated identity theft in violation of 18 U.S.C. § 1028(A)."  The charges related to the defendant's "involvement in a conspiracy to steal the identities of unwitting victims and to use those stolen identities to fraudulently obtain access to bank accounts and lines of credit."  The United States filed a sealed motion under Section 6103(i) to obtain the defendant's tax return information "in order to establish that the income and return information provided is inconsistent with a legitimate business."

I link to Section 6103 above, but since it is a sprawling provision, I will Court's discussion of the legal background as well as its holding.  As summarized by the Court in Ajuda, Section 6103(i) provides:

Subsection (i)(1) authorizes federal officers and employees to obtain a court order to obtain returns and return information from the IRS. Subsection (i)(1) authorizes disclosure by the IRS only to federal officers and employees for their limited use in preparation for specified non-tax criminal proceedings,  any investigation which may result in such proceeding, or any federal grand jury proceeding pertaining to such a statute. See 26 U.S.C. § 6103(i)(1)(A). Subsection (i)(1) specifically provides that the information shall be disclosed upon the grant of an ex parte order by a federal district court judge or magistrate judge. See 26 U.S.C. § 6103(i)(1)(A). 26 U.S.C. § 6103(i)(4) governs such disclosure beyond those working on an investigation, and relates to the use of returns and return information in judicial or administrative proceedings. Subsection (i)(4) provides that returns and taxpayer return information may be disclosed in a judicial or administrative proceeding if: (i) the court makes certain findings regarding their probative value; or (ii) disclosure is required by court order pursuant to 18 U.S.C. § 3500 or by rule 16 of the Federal Rules of Criminal Procedure. See 26 U.S.C. § 6103(i)(4)(A). Thus, when the records need to be disclosed to people other than those tasked with the investigation, a specific court finding regarding their probative value, or 18 U.S.C. § 3500,2 or rule 16, governs the disclosure.

Swiss Enablers Are Worried, As Well They Should Be (6/4/13)

Swiss enablers are -- or at least perceive that they are -- being thrown under the bus by the Swiss banks.  See Matthew Allen, Lawyers cry foul over bank data transfer (Swissinfo.ch 6/4/13), here.  The article  describes the phenomenon sometimes observed in U.S. corporate criminal investigations.  The employees and other agents are thrown under the bus by the corporation who has an incentive to serve them up to prosecutors.   The corporations and senior management then are protected by an agreement requiring the corporation to pay a huge fine, variously labeled.

Here are some excerpts.

While Swiss banks are in favour of the deal - at the cost of potentially huge fines - lawyers, tax experts and independent wealth advisors oppose the names of alleged third parties to tax evasion business tied to the banks being handed over to the US authorities. Under the terms of the agreement pitched by the cabinet last week, they would not enjoy the same immunity from US prosecution. 

The Chamber of Swiss Tax Advisors immediately condemned the political deal, rushed through by the Swiss government last week to assuage growing US impatience, as “unacceptable” and “disproportionate”. 

 * * * * 

The Swiss Association of Asset Managers said its members would be treated like “second-class citizens” compared to bank executives, who will escape penalty, and lower bank employees who will receive at least some legal protection from the Swiss authorities. 

 The only consolation for the Association was that the mass release of bank information would probably not lead directly to a “great wave of lawsuits”. But only because the US authorities already have names from an earlier, more limited, handover of Swiss bank business correspondence and a host of self-declarations prompted by tax amnesties. 

 The Swiss Association of Trust Companies  continued the theme of ill-will towards the all-powerful large banks. “The upper echelons of bank managers who made all the decisions will not be liable because they are unlikely to have dealt with clients personally,” Association chairman Alexandre von Heeren told swissinfo.ch. “It is others who will pay the price.” 

 Von Heeren is confident that most members of the association have steered well clear of business involving untaxed assets. But he added that some rogue trustees that operate in the shadows may have cause to be concerned.

The article also gives an anecdotal example from an indicted Swiss enabler as follows:

The lawyer worked hand-in-hand with a series of Swiss bankers to hide the assets of wealthy US tax dodgers. He set up trusts and sham companies in Liechtenstein, Panama and the British Virgin Islands to conceal the identity of his client, according to the indictment. 

 The court papers also accused the lawyer of using secretive constructs to move assets from banks under US investigation to other Swiss banks that were thought to be safer.

The Swiss Putting the Best Spin On Coming Out of the Shadows (6/4/13)

The Swiss claim that the wealthy will continue to harbor their money in Swiss financial institutions even after Swiss bank secrecy fades into history.  Emma Thomasson, Swiss stability anchors banks in choppy tax waters (Reuters 6/4/13), here.  Maybe.  Maybe not.  But, in my view, the Swiss bankers will have to compete like other global businesses because the competitive advantage Switzerland had was secrecy for those perceiving the need for secrecy (not just tax cheats).  With secrecy going away, they have nothing to offer than other stable countries can't offer; hence, even if they can compete, they won't get the Swiss bank secrecy premium..  And, of course, the stability of Switzerland will not make Swiss Bank guided investments in a global economy subject to the instabilities beyond the Swiss borders.

1.  Consider this wishful thinking from  the article:

"The worn-out cliche has it that the sector was built on banks offering shelter to tax frauds and illicit money. This is a gross distortion," former Deutsche Bank head Josef Ackermann told the Reuters Global Wealth Management Summit in Geneva. 

Ackermann, now chairman of Zurich Insurance, said the success of the Swiss financial industry was a result of enduring political, economic and social stability, as well as factors such as low taxes and a multi-talented workforce. 

"That is why the scope and quality of Switzerland's financial sector has been, and continues to be, difficult to replicate abroad," he said. 

"The unique blend of factors, much more than tax-related motives, have defined the competitive edge of Swiss private wealth management."

2.  Quickly followed by this:

Reminder on FBAR Filing for 2012 Year - Must be Received by June 28, 2013 (6/2/13)

This is a reminder that 2012 FBARs must be actually filed by June 28.  This is because there is no timely-mailinig, timely-filing requirement for FBARs and the 30th faills on a Sunday.  This means that, if they are delivered by mail, the mailing should occur perhaps three days earlier -- June 25. 2013.

Probably the best way to file is electronically, here.  Other filing information (including nonelectronic filing) is here.  Key excerpts are

Reporting and Filing Information 

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation. 

The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported. While FinCEN strongly encourages individuals to electronically file FBARs, the form can be mailed to one of the two addresses below, provided that the mailing is received by June 30, 2013:

More Developments on Offshore Banks in Switzerland (6/2/13)

Swiss banks have 120 days to reach U.S. tax deal (WSJ MarketWatch 6/2/13), here.

Excerpts (emphasis supplied by JAT):

The Swiss cabinet last week said the Alpine country's banks will be allowed to deal directly with the U.S. legal authorities to settle past legal issues over suspected tax evasion by wealthy Americans.

Details of the plan, which is expected to be discussed by the Swiss parliament next week, have thus far been withheld at the request of the U.S. justice authorities, it reports. 

The deal with the U.S., however, will only give Swiss banks trying to settle legacy tax evasion issues 120 days in which to deliver bank data and negotiate fines, the paper reports, without specifying when the 120-day period begins.

UBS in the News Again -- Allegedly Doing What It knows Best (Tax Sheltering) (6/2/13)

Susanne Craig, France Puts UBS Under Investigation for Aiding Tax Evasion (NYT 6/2/13), here.

Excerpts:

A unit of the Swiss bank UBS has been placed under formal investigation in France following allegations that it designed investments to help its clients evade taxes. 

The move comes more than a year after an inquiry was opened regarding the bank’s operations in France, a UBS executive briefed on the matter said Sunday. A handful of UBS executives have been put under investigation since the inquiry began in 2012. 

UBS has been dogged for years by regulators who allege that it has helped wealthy individuals dodge taxes, and has successfully settled some of these charges. For instance, the bank agreed to a $780 million fine in 2009 with the U.S. authorities to settle charges that it had helped its American clients to hide funds. 

But other countries continue to pursue their own cases against UBS. The executive, who was not authorized to speak on the record, said that while the decision was disappointing for the bank, it was not unexpected.

These excerpts are cryptic, but, as described, they echo the types of sophisticated shelters in our recent past where the sheltering was done through complex financial arrangements orchestrated by financial services firms and tax professionals.

Creativity in the Search for Traditionally Hidden Tax Sources (6/2/13)

Interesting article on cash-strapped taxing jurisdiction using Google's street map features to find otherwise hidden sources of revenue in their own areas.  Marcin Sobcyk, Taxes and Google - Hiding from the Tax Man (6/2/13), here.

Some European countries have been going after Google, complaining that the search giant is invading the privacy of their citizens. But tax inspectors here have turned to the prying eyes of Street View for their own purposes. 

After Google's car-borne cameras were driven through the Vilnius [Lithuania] area last year, the tax men in this small Baltic nation got busy. They have spent months combing through footage looking for unreported taxable wealth. 

"We were very impressed," said Modestas Kaseliauskas, head of the State Tax Authority. "We realized that we could do more with less and in shorter time." 

More than 100 people have been identified so far after investigators compared Street View images of about 500 properties with state property registries looking for undeclared construction. 

Two recent cases netted $130,000 in taxes and penalties after investigators found houses photographed by Google that weren't on official maps. 

From aerial surveillance to dedicated iPhone apps, cash-strapped governments across Europe are employing increasingly unconventional measures against tax cheats to raise revenue. In some countries, authorities have tried to enlist citizens to help keep watch. Customers in Greece, for instance, are insisting on getting receipts for what they buy.

This is only the teaser for a longer article.

Enjoy!

The phenomenon of cash-strapped taxing jurisdictions will lead to all sorts of creativity in this brave world of high tech and, its component, the internet.  It brings to mind the aphorism, variously stated, that you can run but you can't hide (see Wikipedia, here).