Saturday, June 6, 2015

Tax Notes Today Report of DOJ Tax Comments at NYU Tax Controversy Forum (6/6/15)

Tax Notes Today has a summary of comments made by Government officials at NYU's Tax Controversy Forum in New York. Nathan Richman, Officials Provide Insight Into Swiss Bank Program Penalties, 2015 TNT 109-5 (6/8/15), no link available.

Key summaries of the points I think readers in this forum might be interested in are:

1.  Nanette Davis, a DOJ Tax senior litigation counsel, offered some details of the US DOJ Program for Swiss Banks were discussed.  In order to mitigate the bank's penalty, the bank must show that the accounts are "not-undeclared."  The bank's word as to U.S. compliance is checked against available sources such as OVDP submissions, etc.  This process has "led to some of the banks adjusting their interpretation of Swiss bank secrecy laws, liberalizing their definition of what they can disclose so as to mitigate the penalties."

2. Caroline Ciarolo, DOJ Tax AAAG, said that she expects the Category 2 banks to have their matters completed by the end of 2015.

3.  Davis said that enablers will be "targets."

4.  Davis said that DOJ Tax "is comparing records from the Swiss bank program with streamlined program certifications of non-willfulness and will prosecute those taxpayers it can prove were actually willful."

5.  Davis cautioned taxpayers about quiet disclosures, with the threat that additional enforcement action may follow because (i) the DOJ program is helping identify quiet disclosures and (ii) "the patterns of late returns and FBARs are clear in the data."  The data refererenced in that quote is apparently the data in the IRS records when entering the filing of delinquent or amended income tax returns and delinquent FBARs.

6.  Ciraolo advised that DOJ Tax is increasing criminal enforcement for employment tax issues related to trust fund tax.  Ciraolo singled out for comment employers who failed to pay over the withheld tax and then, on their personal returns, claim the withheld tax credit.

JAT Comment:  Because of all the publicity about Swiss banks' misbehavior, it is not clear whether similar juggernauts will be pursued against banks in other tax jurisdictions whose conduct was equally egregious.


  1. a simple introduction for readers to ``How Countries Define Their Income Tax Borders`` or CBT vs. RBT

  2. Also noteworthy (you may have to read the preceding paragraphs to fully understand )- – See page 10 of the above ruling:

    And even assuming the framers intended the Citizenship Clause to constitutionally codify
    jus soli principles, birthright citizenship does not simply follow the flag. Since its conception
    jus soli has incorporated a requirement of allegiance to the sovereign. To the extent jus soli is adopted into the Fourteenth Amendment, the concept of allegiance is manifested by the Citizenship Clause’s mandate that birthright citizens not merely be born within the territorial
    boundaries of the United States but also “subject to the jurisdiction thereof,” U.S. CONST. amend. XIV, § 1, cl. 1;
    see Wong Kim Ark, 169 U.S. at 655 (“The principle embraced all persons born within the king’s allegiance, and subject to his protection. . . .Children, born in England, of [] aliens, were [] natural-born subjects.But the children, born within the realm, of foreign ambassadors, or
    the children of alien enemies, born during and within their hostile occupation of part of the king’s dominions, were not natural-born subjects, because not born within the allegiance, the obedience, or the power, or, as would be said at this day, within the jurisdiction, of the king.”).

  3. The decision’s emphasis on collective consent of “peoples” is quite frankly disturbing.

    Washington has set up a false dilemma for the American Samoans: if you want to exercise your right to live anywhere within the boundaries of the country in which you are legally present (ICCPR Article 12 Paragraph 1) and in fact of which you are a national, you will be discriminated against in comparison with citizens in your rights, e.g. to sponsor a foreign spouse for immigration (right to family life, Article 23), and the only way to solve your dilemma is to pay for naturalisation and thus effectively give up your right to emigration (Article 12 Paragraph 2).

    So the U.S. dangles the choice in front of them: if 51% of the voters support an “organic act”. you’ll all become citizens with all the “duties” of that status imposed on the 49% who voted no and the kids who can’t vote yet. Why should American Samoans have to sell out their
    emigrants in order to get equal rights in the U.S.?
    And American emigrants don’t even have a non-voting delegates in Congress like the American Samoans do, let alone true French-style representation. (The U.S. don’t want us to have a channel to express collective consent or non-consent.) Apparently the U.S. government’s
    theory is that we all somehow individually consented to the alleged “duties of citizenship”, even if you come from a line of ancestors who have never had the right to vote in the U.S. and never expressed any intention of becoming citizens (e.g. grandparents were present in the U.S. temporarily as non-immigrants, mother was born in U.S. in one of the states that doesn’t grant voting rights to kids of ex-residents, moved away after a year, and then had a baby before getting married).

  4. I would like to point readers to a major opinion — 144 TC 15 (Whistleblower 21276-13W v. IRS), where the Tax Court brushed aside IRS arguments that tax whistleblowers must first file a Form 211 with the IRS whistleblower office to be eligible for a tax whistleblower award under Section 7623(b).
    First, the IRS initially stated to the two tax whistleblowers (husband and wife) that they were not receiving an award because the information they provided did not lead to the collection of any proceeds (see page 17 of the opinion). Thanks to discovery – this was proven to be completely and wholly inaccurate. In fact, the government agents stated that “but for” the whistleblowers the case against the taxpayer would not have happened – that the whistleblowers work was “essential.” See page 14 of the opinion.

  5. USTax,

    The Whistleblower Office processes and makes decisions on whistleblower claims. That office is not part of Chief Counsel. But, Chief Counsel does represent the office in litigation.

    Jack Townsend

  6. Has anybody gotten feedback on their streamline submissions either SDOP or SFOP? Presumably no news is good news, but are people seeing audit letters a weeks, months or even years after submitting if the IRS rejects the certification? Any idea what streamline audits are like?

  7. My comments on each of the points:
    1. "adjusting their interpretation of Swiss bank secrecy laws, liberalizing their definition of what they can disclose"
    In the same way that a bank robber adjusts his interpretation of whom the money in the bank's vault belongs to?
    If a customer has signed a document allowing disclosure to the US, he is allowed to waive his right to bank secrecy.
    However, if he has not and the bank discloses info, then they are breaking the law.

    4. It seems proving wilfulness after streamline was approved would require intentional concealment of a material fact. (For example, saying "my accounts were not in the name of an entity" when in fact they were.) Of course, though that is viewed by the IRS as a bad fact, it need tot be. On the other hand, especially if someone transitioned to streamline, and the information that entities were owned appears on the statements provided (or would have been known to the IRS if they had requested statements which are not automatically provided) and the taxpayer never lied about entities, I don't see how they could prosecute.

    5. As Jack has repeatedly pointed out, QDs are a viable option under the right circumstances. And, if the IRS is often taking 3+ years to process OVDP cases in which everything is handed over to the IRS on a silver platter, how many decades would it take them to process even a fraction of the far more numerous QDs?

  8. Direct to streamline, I haven't heard anything. But transitions have been handled pretty quickly. I would expect streamline audits to be more like the OVDP certifications, i.e. pretty quick if the amended returns have been prepared well and the IRS does not smell anything leading it to dig deeper.

  9. On #1, seems that banks had the same experience as people who joined OVDP, i.e. sometimes pushed or scared into joining the program when they should probably not have.

    On #6, under treaty requests there were certain criteria as to account size, etc.

  10. I think a better link is this:

    The page has links to all of the Bundesblatts(federal registers) which are printed each week. I took a look at many of them and most are non-US people. Lots of Europeans especially Spanish. The few Americans that I saw listed only had their initials and date of birth. All of the Americans that I saw were affiliated with Panama corporations.

    I don't think you will find any in English so you will have to use if you don't speak German, French or Italian. They are not long or complicated and they all have very similar wording so the main difference is usually just the name, nationality and dob. The only ones that people in this forum would probably be interested in have "ESTV - Eidgenössische Steuerverwaltung" in the right hand column.
    From what I have seen, it looks like there is a lot of interest in Panama. All the US people were affiliated with Panama and many who were not US citizens. I bet Panama will be one of the next major focus countries after the IRS/DOJ gets done with Switzerland. Panama has some strict secrecy laws which and is a well know tax haven.

  11. On #1, I've been say for some time that many/most of the smaller banks have no actual criminal liability. That's why some are dropping out. Many of the ones that remain are doing so out of excessive amount of caution/risk minimization because Swiss bankers are by nature very conservative and risk adverse.
    On #6, I don't think the DOJ has had much if any success with John Doe summons. Have any actually been approved by a Swiss court? So, the criteria need to strongly indicate fraud and not be considered a "fishing expedition." In my previous post, I mentioned that all the us people were associated with Panama corporations. A JD summons asking for account holders associated with a Panama corporation would have a better chance of being approved.
    A couple of questions for Jack or anybody else who knows:
    1) Has the DOJ/IRS successfully received any results from a John Doe Summons?
    2) What is the difference between a John Doe Summons and a Treaty Request? I noticed the distinction on the table that Jack posted on June 4. It is simply that a Treaty Request actually lists the person's name and a John Doe list no name but rather other identifying criteria?
    Thank you in advance for answers to these questions.

  12. Thank you Jack.
    I agree that John Doe treaty request for accounts held by a shell corporation, who refused to prove their tax compliance to the bank who has admitted they may have committed offenses(category 2) could well be sufficiently indicative of fraud to make the Swiss comply.
    I'm not sure how account size would indicate fraud. That criteria might be because the IRS/DOJ is mostly interested in the big fish.
    The announcements all seem to emphasize "hold mail" services and the fact that banks took former UBS clients. Some of them also talk about letting clients take large cash withdrawals. I wonder if they will also use those criteria claiming they are indicators of possible fraud.

  13. Thanks for the info.
    The Panama connection may be simply due to the fact that it is a cheap, easy place to incorporate, much like Delaware in the US, so a large proportion of the entities were probably Panamanian corporations. However it would seem that the Panamanian entity held its bank accounts in Switzerland.

  14. I remember seeing the UBS treaty request on the web, with description of the criteria.
    As best I remember it went something like:
    For individual accounts, ALL these criteria had to be met:

    Balance over $1m anytime beginning 2003. (Note that the amount is expressed in USD and subject to fluctuation in value of other currencies.

    Owner resident in US at least part of the 2003+ period.
    Transactions over $500K in any one year. Not sure about the amount. Unfortunately "transactions" included such things as exchanging one currency for another or even a CD purchased/matured. The "logic" seemed to be that they could "assume" that a transaction would carry the strong likelihood of a large profit.
    Ownership of US stocks at any time in the period may have been a criterion as well.

    For entity accounts the criteria were similar but the high balance threshhold was $250K.

    I seem to remember that another bank (CS, perhaps) had a similar request but that only the entities portion was approved, at least initially.

    I may have printed out the UBS criteria and will see if I can find the link.

    I do agree that the criteria are poor indicators of tax fraud. I can envision hypothetical examples such as a) meeting the criteria because CDs were being rolled over, but there was little income, or b) someone laundering money, wiring $20K in every Monday and $20K every Friday, so that the high balance stays in the low five figures.

  15. I wish I had printed this out. The link I had is no longer valid, but was
    From my notes, the criteria was CHF 1 million (much lower than USD 1 million at the time), failing to file W9 for 3 years IF US DOMICILED, "revenue" over 10oK CHF average over a 3 year period, "Revenue" defined as interest plus dividends plus half of gross sales proceeds.
    Mybe someone can find the link in
    Needless to say the criteria used for UBS may (and could very well be) different in the future.

  16. That link worked for me.

    Jack Townsend


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