Report on Remarks of AAG Tax and Practitioner Regarding Nonwillfulness and Foreign Account Enablers (3/7/16)

I recently blogged on the prepared comments for Caroline Ciraolo, Acting Assistant Attorney General, for a recent tax conference.  Acting AAG Remarks to Tax Conference - the Criminal Topics (3/4/16), here.  Tax Notes Today has an article summarizing her remarks and Bryan Skarlatos, a prominent private practitioner in the offshore account practice, at the conference.  Nathan J. Richman, International Tax Enforcement Efforts Include Civil Tools, 2016 TNT 45-7 (3/8/16) [no link available].  I will highlight the key comments, as reported, that I think may be of interest to readers of this blog.

1.  Ciraolo and Bryan Skarlatos questioned whether foreign account holders can remain nonwillful about foreign account reporting obligations at this stage.  The article quotes from her prepared comments (linked above) as follows:

After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well-received. 

JAT Comment:  Obviously, it will be getting harder and harder to claim nonwillfulness as time moves on.  Skarlatos' point, I think, was that the practitioner must perform his due diligence to question whether clients coming in this late can really certify their nonwillfulness.  See paragraph 2, below.

2.  Ciraolo called out as having a weak case for nonwillful in streamlined submissions situations involving (1) accounts moving from category 1 banks to category 2 banks and then to a new foreign country and (2) accounts with nominee entities.  JAT Note:  Those are the obvious cases.  Those cases should always have proceeded in OVDP without opt out, from the inception in 2009.  Still, I suspect that there will be situations even into the future that, with due diligence, a professional may be able to advise a client that streamlined is appropriate.

3.  There was some discussion as nonwillful certifications in streamlined that should not have been made because the conduct was willful.  Skarlatos noted that some practitioners have been aggressive in advising the clients with the certification when they should use OVDP.  There was some discussion as to how to fix those cases rather than waiting for the IRS or DOJ to question the improper certification.

4.  Skarlatos reported that a key part of enforcement initiatives going forward will be focus on foreign enablers (bank employees and related persons), referring to them as "facilitators." (I will use here enabler which is the word I normally use for this type of player.)  Ciraolo suggested that some of those enablers should obtain counsel and start discussions with DOJ, rather than waiting "locked in their jurisdiction[s], waiting for contact or indictment to be filed in the U.S."  Skarlatos said that a significant number of these people would come forward if offered a path to do so.  JAT Note, there really are far too many of foreign enablers potentially subject to prosecution to be prosecuted.  Likely, only the worst or most visible/active of them will be prosecuted.  I have not heard any indication that the IRS or DOJ will attempt some type of program that will permit some "lesser" foreign enablers to solve their problem while leaving out in the cold the "greater" foreign enablers for DOJ to meet its criminal tax enforcement priorities.  I do note, in this regard, as I have noted before, these foreign enablers have a suspended statute of limitations for criminal tax prosecutions while they are out of the U.S.  See Section 6531, here.  However, when enablers are prosecuted, DOJ usually obtains indictments for conspiracy, a title 18 offense, which does not have a suspended statute of limitations solely for absence from the U.S.  But, if the conspiracy statute has lapsed and the DOJ wanted to prosecute, it could still easily prosecute the same conduct for a tax crime such as tax obstruction or even evasion for which the statute would have been suspended