Saturday, January 31, 2015

Ninth Circuit Affirms False Statement Conviction Without Instruction that Willfulness Requires Knowledge of Illegality of the False Statement (1/31/15)

I previously reported on the DOJ's adoption of a stricter interpretation of willfulness for conviction of false statement under 18 USC § 1001, here.  See False Statements Crime Element of "Knowingly and Willfully" Requires Proving Knowledge that Making False Statement Is Illegal (Federal Tax Crimes Blog 6/26/14), here.  The new interpretation of willfulness for the crime requires that the defendant know that the making the false statement was illegal. Many cases before that new interpretation had required merely that the defendant know that he or she made a false statement.  Knowledge of illegality was not required.  In United States v. Ajoku, 584 Fed.Appx. 824 (9th Cir. 2014), the Department of Justice confessed error in the Supreme Court because the stricter interpretation of willfulness in an 18 USC § 1035, here, prosecution had not been used.  At the same time, in its papers, DOJ contemporaneously indicated that the willfulness element of § 1001 should be interpreted the same as for § 1035.

In United States v. Mazzeo, 2015 U.S. App. LEXIS 1040 (9th Cir. 2015) (unpublished), here, the Court was presented with the issue of whether a guilty verdict before the adoption of the new interpretation based on an instruction omitting the stricter willfulness interpretation was error and, if so, reversible error.  That issue alone made Mazzeo worthy of comment here.  Mazzeo also involved another issue that I think is worthy of discussion -- whether it was error for the district court to exclude the IRS agents' notes of the conversation giving rise to the false statement conviction.

Before addressing the issues separate, I think it will be helpful to quote the full opinion because it is short and the issues are certainly related.  I omit the caption:
  n* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. 
Defendant-Appellant Tara Mazzeo appeals her conviction on two counts of making false statements to a government official in violation of 18 U.S.C. § 1001, for which she was sentenced to five years of probation without conditions of confinement. Mazzeo contends that the district judge committed reversible error in excluding the government agent's handwritten notes from evidence and that there was insufficient evidence to support the jury's verdict. Mazzeo additionally argues that the district court plainly erred in failing to instruct the jury that the element of willfulness for a § 1001 crime requires knowledge of unlawfulness. We have jurisdiction under 28 U.S.C. § 1291. We ordered supplemental briefing regarding Mazzeo's challenge to the district court's jury instruction related to willfulness and affirm as to all issues raised in the case. 
The district court's exclusion of evidence during trial is reviewed for abuse of discretion. United States v. Evans, 728 F.3d 953, 959 (9th Cir. 2013). Under this deferential standard, we consider whether the district court's evidentiary decision was based on "consideration of the relevant factors" and whether there was a "clear error of judgment." United States v. Soulard, 730 F.2d 1292, 1296 (9th Cir. 1984). The district judge did not abuse his discretion in determining that the notes had little, if any, probative value on the basis of Mazzeo's proffers at trial. Even if in error, the exclusion neither rose to the level of a deprivation of Mazzeo's constitutional rights, cf. United States v. Pineda-Doval, 614 F.3d 1019, 1032-33 (9th Cir. 2010), nor undermined the weighty evidence offered against Mazzeo so as to more probably than not affect the jury's verdict, see United States v. Gwaltney, 790 F.2d 1378, 1384-85 (9th Cir. 1986). 
Mazzeo's argument, presented for the first time upon appeal, that the excluded notes were inconsistent with evidence produced at trial is reviewed for plain error. See Hudspeth v. Commissioner, 914 F.2d 1207, 1215 (9th Cir. 1990). This argument fails because the distinctions that Mazzeo points to are ones without a difference. Considering the ample evidence supporting the jury's verdict and the jury's opportunity to fully consider the defense's theory that Mazzeo understood the questions differently from the agents even absent the notes, we cannot say that any possible error seriously affected the fairness and integrity of the proceedings so as to warrant reversal. See United States v. Romero-Avila, 210 F.3d 1017, 1022-23 (9th Cir. 2000) (declining to reverse for plain error where prosecutor presented independent evidence of defendant's guilt). 
Mazzeo's challenge to the sufficiency of the evidence, preserved by motion for acquittal, is reviewed de novo. United States v. Carranza, 289 F.3d 634, 641 (9th Cir. 2002). Mazzeo argues that her conviction for false statements cannot be sustained where the interview on which it was based was not recorded and where the government failed to otherwise prove the precise language of the questions to which the jury found her answers false. These arguments fail on several grounds. 
This is not an instance where a single, ambiguous question could have lent itself to separate interpretations, with respect to one of which the defendant's  answer was literally true. Cf. United States v. Cook, 489 F.2d 286, 286 (9th Cir. 1973). Rather, the jury was presented with starkly contrasting versions of questions asked and answers given by Mazzeo. We decline to invade the jury's exclusive province to evaluate the credibility of witnesses in order to resolve such evidentiary conflicts. See United States v. Young, 573 F.2d 1137, 1139 (9th Cir. 1978) ("[I]t is the jury's exclusive function to weigh the credibility of witnesses, resolve evidentiary conflicts and draw reasonable inferences from proven facts."). 
We also decline to adopt a new, bright-line rule barring § 1001 prosecutions absent a recording of the incriminating interview. In false statements cases, the full context in which the statements were uttered is to be evaluated in determining the sufficiency of the evidence. See United States v. Sainz, 772 F.2d 559, 562 (9th Cir. 1985). Drawing all reasonable inferences in favor of the government, see United States v. Corona-Verbera, 509 F.3d 1105, 1117 (9th Cir. 2007), we conclude that a "rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." United States v. Mincoff, 574 F.3d 1186, 1192 (9th Cir. 2009) (quoting United States v. Dearing, 504 F.3d 897, 900 (9th Cir. 2007)). 
Mazzeo's challenge to the jury instruction on willfulness is reviewed for plain error, as there was no objection at trial. United States v. Garrido, 713 F.3d 985, 994 (9th Cir. 2013). "A plain error that affects substantial rights may be considered even though it was not brought to the court's attention." Fed.R.Crim.P. 52(b). Nonetheless, we cannot correct an error pursuant to Rule 52(b) "unless the error is clear under current law." United States v. Olano, 507 U.S. 725, 734, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993). That is, for an error to be "plain," it must be "contrary to the law at the time of appeal." Johnson v. United States, 520 U.S. 461, 468, 117 S. Ct. 1544, 137 L. Ed. 2d 718 (1997). Mazzeo argues that the district court's error in failing to instruct the jury that knowledge of unlawfulness is required for a § 1001 crime is plain in light of the government's concession of error and our unpublished decision in United States v. Ajoku, 584 Fed.Appx. 824 (9th Cir. 2014). We disagree. 
As Ajoku addressed a conviction under 18 U.S.C. § 1035, it did not disturb the longstanding precedent in this circuit that, under 18 U.S.C. § 1001, "willfully" means only "deliberately and with knowledge." United States v. Tatoyan, 474 F.3d 1174, 1182 (9th Cir. 2007) (citing Browder v. United States, 312 U.S. 335, 341, 61 S. Ct. 599, 85 L. Ed. 862 (1941)); United States v. Heuer, 4 F.3d 723, 732 (9th Cir. 1993). Mazzeo points to no intervening authority displacing this holding. Whether or not the "willfulness" element for a § 1001 crime should be altered is a question for another day. As the district court's error, if any, is not obvious under current law, Mazzeo's conviction must stand. 

Thursday, January 29, 2015

Unreported Offshore Accounts Remains on IRS Dirty Dozen" List (1/29/15)

The IRS released IR-2015-09 (1/28/15), here, which I quote in full:
Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season 
IR-2015-09, Jan. 28, 2015 
WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season. 
"The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone.  The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions. 
The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. 
Through the years, offshore accounts have been used to lure taxpayers into scams and schemes. 
Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes. 
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them. 
Hiding Income Offshore 
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose. 
The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases. 
While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution. 
Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult. 
At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Monday, January 26, 2015

Why the Lenient Sentencing for Offshore Account Tax Crimes (1/16/15)

I have previously noted the phenomenon that sentencings for tax crimes committed through offshore accounts draw more lenient sentences than tax crimes crimes committed in other contexts.  The term tax crimes here includes tax related crimes, including FBAR crimes where legal source income and assets are involved.  The question is why tax crimes draw more lenient sentences.  The inference one might draw is that tax crimes through offshore accounts are societally more acceptable.  But there is nothing in the statutes or their interpretation that would suggest that any tax crimes should be treated more leniently.  Certainly, the Sentencing Guidelines, here, and the Section 3553(a), here, factors do not hint at any such leniency

I quipped earlier that perhaps judges had more empathy for the type of taxpayer who would commit tax crimes through offshore accounts than the type of taxpayer who commits tax crimes in  other ways.  My notion was that the former was more likely the type of person the judge -- who is generally high middle to upper income person and moves in circles with such people, whether at Church or Synagogue, the country club and other venues. My specific example was that these defendants were often the type of person the judge would see at the country club.

I have just read a very interesting article in the New  York Times that brushes on this very general topic.  The article is titled "Is the Defendant White or Not?" by Nour Kteily, an assistant professor of management and organizations at the Kellogg School of Management at Northwestern University, and Sarah Cotterill, a doctoral student in the department of psychology at Harvard.  The article may be viewed here.

The general thesis of the article,  presented in the context of the Tsarnaev terrorist trial, is that
We also found that such whiteness perceptions had the potential to play an important role in the outcome of Mr. Tsarnaev’s trial. The lower that individuals rated Mr. Tsarnaev as looking white, the more willing they were to punish him severely. In a case like Mr. Tsarnaev’s, where guilt is widely presumed and where the outcome will most likely fall on one side of the line between life imprisonment and death, this finding seems especially relevant.
This is a similar phenomenon in the offshore account tax crimes prosecutions -- by the time the Government brings charges, guilt is presumed and, in fact, admitted by the defendant in his or her guilty plea.  The only issue is punishment.  In that context, the whiteness phenomenon may help explain in part the lenient sentencing.  By whiteness, I don't mean literally whiteness.  I mean the ability of the judge to relate to the defendant better than the typical defendant charged with a tax crime.

As I employ the concept, it is necessarily a loose and fuzzy notion, without the type of research the authors present in the article.  Certainly, I do not have type of research performed by those authors in the specific context they discuss.

But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy -- i.e., punishable -- than commission of tax crimes in other contexts.  (Merely saying that will probably exclude me from representing persons charged with offshore tax crimes.)  So what explains the difference?

I would appreciate readers views on this subject.

Saturday, January 24, 2015

Fifth Circuit Rejects Attempt on Direct Appeal to Withdraw Guilty Plea in False Claims Conspiracy Case (1/24/15)

In United States v. Harrison, ___ F.3d ___, 2015 U.S. App. LEXIS 966 (5th Cir. 2015), here, the court provided the following introduction which sets up what I want to discuss in this blog (footnotes omitted):
A grand jury charged Harrison in a multi-count, multi-defendantn1 indictment with conspiracy to defraud the Internal Revenue Service ("IRS") by filing false claims and with two counts of filing a false claim. Three days before his trial was set to begin, Harrison signed a plea agreement in which he agreed to plead guilty to the conspiracy charge. In exchange, the government agreed to dismiss the remaining charges. Pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C), the parties agreed to a sentence of eighty-four months, which was twenty-four months below the statutory minimum as calculated based on Harrison's offense level and criminal history category. Harrison also agreed to waive his right to appeal his conviction and sentence, but he expressly reserved the right to challenge the voluntariness of his guilty plea or waiver of appeal and the right to bring a claim of ineffective assistance of counsel.
The conspiracy count was under 18 USC 286, here, which provides a 10 year maximum sentence; as stated, the sentence shall be "not more than ten years.".  By contrast, the general conspiracy charge under 18 USC 371, here, employed in many tax cases has a 5 year maximum  sentence.  The defendant pled to the conspiracy count, with the Government dismissing the remaining courts.  The court states that the agreed upon sentence was "below the statutory minimum."  There is no statutory minimum.  The court apparently refers to the lower end of the Guidelines range calculated for the defendant.  The purpose of the FRCrP 11(c)(1)(C), here, was to lock in that lower than Guidelines sentence.

As usual with such guilty pleas, the defendant agreed to the key facts, including his participation in a conspiracy to file false claims.  After a proper colloquy and presentation of agreed facts supporting the plea, the Court accepted the plea and sentenced Harrison to the agreed eighty-four months.  After the plea, but before the PSR was prepared, Harrison moved to withdraw his plea, claiming that it was not voluntary.  Harrison's attorneys moved to withdraw based on irreconcilable differences.

The district court denied the motion to withdraw the plea.  Harrison moved to reconsider.  The district court denied that motion.  At sentencing, Harrison again asked to withdraw the plea. He requested an evidentiary hearing (footnotes omitted):
so that he could present evidence supporting his actual innocence, "to include but not limited to codefendant statements affirming that [he] did not conspire nor participate in the [scheme]." He claimed that he pled guilty under duress and coercion because the prosecutor would agree to favorable eighty-four-month sentences for each defendant only if "all siblings [pled] guilty," and he felt pressured to accept the plea because his brothers otherwise faced up to forty years of imprisonment. Finally, he argued that he received ineffective assistance of counsel when counsel advised him to enter the plea agreement despite his assertion of innocence because counsel erroneously suggested that he would be prejudiced by a prior sexual assault conviction and because counsel did not investigate or discover exonerating evidence, "for example, the true identi[ty] of Chris Smith ."
The district court again denied the request to withdraw and denied the request for a hearing.  The district court was obviously peeved that Harrison would admit guilt in the plea colloquy and the agreed facts supporting the plea and now reverse, in effect saying that he lied in making the original guilty plea. (That is a phenomenon present in all guilty pleas with a proper colloquy.)  As to the argument of ineffective assistance of counsel, the Court declined to address the issue (it is normally handled in a post-sentencing 28 USC 2255, here, proceeding), but did give the following signal:
 . . [Y]ou will be entitled to raise an ineffective assistance of counsel claim. I do not know what happened here. I know [your attorney]. He comes into this court regularly. He is one of the best lawyers in town, and you just have to understand and face that.
The Fifth Circuit first addressed the issue of whether the appeal waiver in the plea precluded consideration of Harrison's appeal of the denial of his right to withdraw the guilty plea and hold an evidentiary hearing.  Applying contract principles, the Court said that the appeal waiver permitted the appeal.

Wednesday, January 21, 2015

USAO SDNY Announces Another Offshore Account Client Plea (1/21/15)

The USAO SDNY issued a press release, here, on the plea of George Landegger, he Chairman and CEO of an international pulp mill company, to one count of FBAR violation.  Key excerpts:
From at least the early 2000s, up until 2010, LANDEGGER maintained undeclared bank accounts on his own behalf at the Swiss Bank. In 2005, a representative of the Swiss Bank (“Swiss Bank Representative-1”) recommended to LANDEGGER that for the protection of LANDEGGER and the Swiss Bank, LANDEGGER utilize the services of an attorney based in Zurich, Switzerland, to form a sham entity to hold LANDEGGER’s undeclared accounts at the Swiss Bank. Thereafter, a sham trust was formed to hold LANDEGGER’s undeclared accounts at the Swiss Bank and further conceal LANDEGGER’s ownership of those accounts from the IRS. The sham trust, which was organized under the laws of Lichtenstein, was named “Onicuppac,” which is the word “Cappucino” in reverse. 
In April 2009, LANDEGGER, Swiss Bank Representative-1, and another individual had a meeting in Switzerland, the purpose of which was to discuss the future of LANDEGGER’s undeclared accounts at the Swiss Bank, in light of the public news that another Swiss bank, UBS AG, had been investigated by United States law enforcement authorities for helping U.S. taxpayers maintain undeclared accounts. During that meeting, LANDEGGER and Swiss Bank Representative-1 discussed the possibility of LANDEGGER disclosing his undeclared accounts to the IRS, including by entering the IRS’s offshore voluntary disclosure program (the “OVDP”). LANDEGGER affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS, whether by entering the OVDP or by any other method. Instead, LANDEGGER and Swiss Bank Representative-1 determined to empty the accounts of their assets by slowly moving the undeclared assets out of Switzerland. Thereafter, between May 2009 and July 2010, LANDEGGER, with the assistance of Swiss Bank Representative-1 and others at the Swiss Bank, emptied the assets from his undeclared accounts at the Swiss Bank by transferring a portion of those undeclared assets to a new, declared account in Canada, and by transferring the remainder of the undeclared assets to an account maintained by another individual in Hong Kong. 
During the time LANDEGGER maintained his undeclared accounts at the Swiss Bank, capital gains and losses were generated in the account from LANDEGGER’s investments in foreign securities. Between 2007 and 2010, the high value of LANDEGGER’s undeclared assets was over $8.4 million. For each of the calendar years from at least the early 2000s through 2010, LANDEGGER failed to file FBARs with the IRS, as he was required to, disclosing his signatory or other authority over his undeclared accounts at the Swiss Bank. 
* * * * 
As part of his plea, LANDEGGER has agreed to pay a civil penalty of over $4.2 million and back taxes of over $71,000.
JAT Comments:

  1. Greed can make some very smart / successful people do very stupid things.
  2. I don't know the bank or the bank representative, but will update the blog when I do.
  3. The wording for the FBAR failure to file is odd -- indicating that he failed to disclose his signatory or other authority.  I thought he had the ultimate beneficial ownership which is not mere signatory of other authority.
  4. The wording of the high amount is odd because it does not give the relevant period in which the high balance was over 8.4 million.  Presumably, only six years could be included.
  5. Given the multi-year nature, the back taxes of "over $71,000" seems a little low.
  6. The press release states at the beginning that he pled to failure to file FBAR reports (plural), but the sentencing exposure of 5 years indicates that he pled as to only one failure to file.

Friday, January 16, 2015

Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (1/16/15)

USAO MA has announced, here, that a Chiropractor, Stephen Jacobs, has been sentenced to 9 months in  prison for bribing an IRS agent.
In August 2013, an IRS auditor met with Jacobs, a chiropractor, to examine numerous issues with his federal income tax forms for 2011.  During the initial interview, the auditor advised Jacobs that two $5,000 payments were not allowable deductions after Jacobs admitted that each was a payment to two different women after they accused him of touching them inappropriately during medical treatments.  Jacobs told the auditor that he paid the women because he was concerned that they would report him to the police or to the chiropractic board.  Jacobs admitted that he had begun kissing one woman’s feet while he was treating her.  He also admitted to other inappropriate contact when he was giving the second woman a massage. 
Jacobs asked the IRS auditor if there was anything he could do to “just deal with this…”  When the agent said he could not “just deal with this,” Jacobs became agitated and combative, ultimately threatening the agent that he would “ruin [his] career.” 
The following month, after several electronically monitored discussions regarding his non-deductible expenses, Jacobs offered to bribe the auditor in exchange for terminating the examination, saying, “. . . you want a bribe? You want me to pay you?...”  The auditor, acting under the direction of law enforcement, then accepted Jacobs’s offer of $5,000 to give Jacobs a favorable audit letter showing no additional tax for one year and a small refund for the next year.  Jacobs paid the auditor $5,000 in cash for the favorable treatment.  
According to another reports, the electronically monitored discussions included an email in which he opened the opportunity for a bribe:  "You want a bribe? You want me to pay you?" Andy Sheets, Off the Beaten Tax: Girls Gone Wild Lawyers Sue IRS, 2015 TNT 11-5 (1/16/15).  Well, even attempting a bribe is bad.  Starting the discussion by email is not just bad it is dumb.  Even dumber than kissing a patient's feet.  And this is not to mention the stupidity in threatening an IRS agent.

Thursday, January 15, 2015

Miscellaneous Offshore Account Articles (1/15/15)

This blog entry will be a catchall for various web articles on matters related to offshore accounts.  I have been heavily involved in client matters and preparing for an office move, so will only be able to post the article and links and perhaps some excerpts:

Irit Avissar,  Swiss banks target Israeli tax evaders (Globes 12/31/14), here.
Swiss banks are training their crosshairs on Israeli customers. Legal sources said that in the past two weeks, the large banks in Switzerland have begun sending many queries to their Israeli customers demanding confirmation either that the assets deposited with the banks were reported to the Israeli tax authorities, or that the customers have begun a process of voluntary disclosure to the authorities in Israel. 
"After dealing with their US and European customers, the banks in Switzerland have moved on to their Israeli customers. They have decided to verify that all the assets in their accounts are reported and are in compliance with the rules," said Adv. Leor Nouman, who heads the Tax group at the S. Horowitz & Co. law firm. 
The Israel Tax Authority is currently conducting an investigation against dozens of Israelis suspected of concealing assets through accounts at Swiss bank UBS. "Globes" revealed yesterday that Haifa District Court Judge Moshe Gilad is one of those being investigated. This investigation may also have been the catalyst for a decision by the Swiss banks to make requirements of all their Israeli customers. Last September, the Israel Tax Authority announced a new anonymous voluntary disclosure program giving Israeli citizens an opportunity to legalize their unreported assets. According to Nouman, the banks in Switzerland are aware of the Tax Authority's new program, and are encouraging their customers to join it.
Katherina Bart, Swiss citizens come clean on undeclared funds following probes (Reuters 1/7/15), here.
A U.S. criminal investigation into how Swiss banks helped wealthy Americans hide their money has had an unexpected side effect: shaking out scores of tax cheats among the Swiss themselves. 
Secrecy laws in Switzerland, the world's largest offshore financial center with trillions in assets, have been under siege in recent years from massive international pressure, including long-running investigations by U.S., German and French prosecutors. 
Despite widespread indignation in Switzerland over the campaign, and efforts to enshrine data privacy for residents into the constitution, data shows the Swiss have been coming clean in record numbers on their own undeclared funds. 
A total of 15,039 Swiss residents have filed voluntary disclosures since the government introduced an amnesty for its own citizens five years ago, according to Swiss tax data.
Officials say that number is set to rise as voluntary disclosures from 2013 and last year are processed by cantonal authorities and included in the overall federal tally.
Katharina Bart, Hacker posts client emails from Swiss bank BCGE (Reuters 1/9/15), here.
A hacker claiming to be behind a cyber attack on Banque Cantonale de Geneve on Friday divulged confidential client information after the Swiss bank failed to meet demands for payment. 
In the latest case of a breach of customer information at a financial firm, an anonymous person or group using the Twitter moniker Rex Mundi said it had hacked the Genevan cantonal (state) bank's servers and downloaded more than 30,000 emails by Swiss and foreign clients. 
Hours after the hacker's 1700 GMT (12 noon EST) ultimatum expired, the bank issued a statement saying that the intercepted material had been published, but added that it represented "no particular financial risk for clients or the bank".

Taxpayer Advocate Annual Report Is Out; the Executive Summary on Offshore Matters (1/15/15)

The Taxpayer Advocate has issued the 2014 Annual Report.  The main page with links for downloading and viewing is here.

The portion of the Report most relevant for the subject of this blog are under a couple of headings:

Under the section on Most Serious Problems Encountered by Taxpayers:
The Right to a Fair and Just Tax System: Complexity
7. OFFSHORE VOLUNTARY DISCLOSURE (OVD): The OVD Programs Initially Undermined the Law and Still Violate Taxpayer Rights
Under the section on Legislative Recommendations:
The Right to a Fair and Just Tax System: Complexity
6.  FOREIGN ACCOUNT REPORTING: Legislative Recommendations to Reduce the Burden of Filing a Report of Foreign Bank and Financial Accounts (FBAR) and Improve the Civil Penalty Structure
PENALTIES: Improve the Proportionality of the Civil FBAR Penalty
PENALTIES: Require the Government to Prove Actual Willfulness Before Imposing the Penalty for Willful FBAR Violations
FBAR FORMS: Reduce the Burden of Foreign Account Reporting
In this blog entry, I will first quote in the entirety the Executive Summary discussion  of the above topics.  The executive summary may be viewed in its entirety here.  I may add comments below the excerpts as I have time and may have subsequent individual blogs related to portions of the detailed Report.  (For example, I plan -- subject to time constraints -- to discuss the IRS resource issues which are addressed in the Report.)

The portions of the Executive Summary relevant to offshore and related matters is (the initialisms MSP and LR are for Most Serious Problems and Legislative Recommendations, respectively):
MSP #7 OFFSHORE VOLUNTARY DISCLOSURE (OVD): The OVD Programs Initially Undermined the Law and Still Violate Taxpayer Rights Problem 
Before it updated the “streamlined” program in 2014, the IRS generally required those who failed to report offshore income and file a related information return (e.g., a Report of Foreign Bank and Financial Accounts (FBAR)) to enter into an offshore voluntary disclosure (OVD) settlement program and pay an “offshore penalty” designed for bad actors. “Benign actors” with inadvertent violations generally had to “opt out” and be audited to obtain a lesser penalty.  Uncertainty about what penalty might apply in the audit, the IRS’s one-sided interpretation of the program terms, processing delays, and the cost of representation in an audit prompted some to pay a disproportionate offshore penalty. Inside the 2011 OVD programs, taxpayers with small accounts paid over eight times the unreported tax—over ten times the 75 percent penalty for civil tax fraud—and those who were unrepresented generally paid even more.  
Because violations by taxpayers who have small accounts or are unrepresented are more likely to have been inadvertent, the OVD programs undermined the statutory scheme, which applies a higher penalty to “willful” than non-willful violations or those due to “reasonable cause.” The IRS’s one-sided interpretations of its OVD FAQs, which were not explained, appealable, or published, eroded confidence that the IRS would be reasonable in a post-opt-out examination. The IRS now allows benign actors to pay a smaller penalty under the 2014 streamlined program. However, unlike the last time it made taxpayer-favorable changes to an OVD program, the IRS will not allow those with signed closing agreements to benefit from the most recent changes, thereby punishing taxpayers who came in early. Thus, the IRS’s OVD programs eroded taxpayer rights, such as the rights to pay no more than the correct amount of tax, challenge the IRS’s position and be heard, appeal an IRS decision in an independent forum, to be informed, and to a fair and just tax system.

Thursday, January 8, 2015

Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation (1/8/15)

I write today on a recent sentencing for Gabriel Gabella.  Judge Jack Weinstein, U.S. district judge for ED NY, a giant among great judges, imposed the sentence.  (Weinstein's Wikipedia entry is here.)  The sentencing decision is quoted in full below.  See United States v. Gabella, 2014 U.S. Dist. LEXIS 176367 (ED NY 2014).  The USAO EDNY's press release on the  plea of guilty is here.  The guilty plea announcement succinctly sets forth the key background:
Gabriel Gabella, a former client of the Swiss bank UBS AG, pleaded guilty today at the federal courthouse in Brooklyn, New York, to a felony information charging him with concealing ownership of his Swiss UBS AG bank account from the United States by willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR). When sentenced, Gabella faces a statutory maximum of five years’ incarceration for his crime. In the plea agreement he entered today, Gabella agreed to pay a civil penalty of $3,140,346, which is half the value of his unreported Swiss bank account in 2007, for the willful failure to file the FBAR. Gabella also agreed to make restitution of $239,012 to the Internal Revenue Service for federal income taxes he failed to pay for 2005, 2006 and 2007 by hiding his ownership of his UBS account. 
Judge Weinstein imposed a sentence of three years of probation, with a fine $50,000.   Here is the opinion in full (caption omitted):
I. Introduction 
On June 18, 2014, Gabriel Gabella pled guilty to one count of willful failure to file a report of foreign bank and financial accounts. 31 U.S.C. §§ 5314, 5322(a). 
On December 9, 2014, Gabella was sentenced to a term of three years of probation and fined $50,000. The proceeding was videotaped in order to develop an accurate record of the courtroom atmosphere, as well as the factors and considerations that a district court must evaluate in imposing a sentence in accordance with section 3553(a) of Title 18. See In re Sentencing, 219 F.R.D. 262, 264-65 (E.D.N.Y. 2004) (describing the value of video recording for the review of sentences on appeal). 
II. Offense Level and Category 
The total offense level is 17. The criminal history category is I, yielding a guidelines imprisonment range of 24-30 months. U.S.S.G. Ch. 5 Pt. A. 
III. Law

Wednesday, January 7, 2015

China's Worldwide Tax System (1/7/14; 1/9/14)

Given the discussion on this blog of how the U.S. is abusive to U.S. citizens abroad because of the U.S. system of worldwide taxation, I thought this was an interesting and might draw some comments from readers.  Keith Bradsher, China Wants Taxes Paid by Citizens Living Afar (NYT 1/7/15), here.

Here are the opening paragraphs:
 As Chinese individuals and companies head overseas in greater numbers, the country’s tax authorities are starting to follow. 
The Beijing billionaires who set up cryptically named companies in the British Virgin Islands to hold their fortunes are in the cross hairs. So are the Guangdong salesmen living and working in Africa and Latin America. China’s tax officials are now demanding that citizens start reporting exactly how much money they earn overseas. 
In asking for this information, national and municipal tax agencies in China are quietly beginning to enforce a little-known and widely ignored regulation: Citizens and companies must pay domestic taxes on their entire worldwide incomes, not just on what they earn in China.
I am not sure that the U.S. Congress (which determines our tax regime (I know some tea parties think it is the IRS; they are wrong)) can take great comfort in the fact that China has a similar system.  Indeed, many of us have lived our lives listening to U.S. politicians (Congressmen included) vilify China (think McCarthy and his ilk and then segueing into Vietnam where the domino theory was based on China and Russia toppling the dominoes and bringing great woe to all of humanity).

But the broader issue is whether, given a global economy, a single country worldwide (sometimes called citizen based taxation) system is a good thing.  There are people paid a lot more than I am to struggle with that issue, but I am sure that readers will have some feelings.  Let's here them.

My thought is that, eventually, in a broader sense, we are all in this together.  By we, I mean our progeny who, in my view, are we.  We all sink or swim on a globe that must sustain us.  In my mind, we need to pull together a global government or at least a global organization that will coordinate the effort to, in William Faulkner's words, insure that "man will not merely endure: he will prevail."  There must be some system that, in the final analysis, make sure that we all contribute to enduring and prevailing.  That requires a compulsory tax because we are too selfish to make voluntary contributions to a system that allows us to endure or prevail.  And that is why government or quasi-government is so important.

Addendum 1/9/15 1:30am:

A commenter pointed out a rebuttal to the New York Times article.  See No, China does not have citizenship-based taxation (Isaac Brock Society 1/8/15), here, written by someone identified only as Eric in the blog.  The rebuttal is quite detailed and, taken at face -- I can't speak as to whether it is more accurate than the NYT article on the point of contention -- seems to be a detailed rebuttal of the notion in the article that the Chinese taxation system parallels in some respect the U.S. CBT system.  So, I invite readers to consider the Eric blog entry, and thank the commenter for calling it to our attention.  I do note that, as of 1/9/15 at 1:31am, the NYT has not acknowledged that the article errs in this respect.  (The article does provide two unrelated corrections; I presume that someone has called it to the attention of the NYT and the authors of the NYT article.)