DOJ Tax Principal DAAG Recent Review of Activities Related to Federal Tax Crimes (11/13/16)

DOJ Tax issued this press release:  Principal Deputy Assistant Attorney General Caroline D. Ciraolo Delivers Keynote Address at the American Bar Association’s 27th Annual Philadelphia Tax Conference (11/2/16), here.  The following are excerpts related to the topics discussed on this blog (with JAT bold-face to draw readers' attention):

Tax Division prosecutors authorized, investigated and prosecuted traditional tax crimes, such as tax evasion, false returns, obstructing and impeding the due administration of the internal revenue laws, employment tax violations and the concealment of assets and income offshore, as well as aggravated identity theft and fraudulent return preparation.  Since 2014, our division prosecutors obtained more than 200 indictments, negotiated more than 100 guilty pleas and achieved a conviction rate in more than 30 trials of over 95 percent.  This does not include the additional criminal tax prosecutions authorized by the Tax Division and assigned to the U.S. Attorneys’ Offices.  

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We are also prioritizing criminal investigations and prosecutions of willful employment tax violations.  For example, in September, the former owner of a trucking company in Kansas was sentenced to three years in prison for evading the payment of more than $900,000 in employment taxes and for filing a false statement with the IRS concealing his ownership interest in assets when the IRS began collection efforts. 

On the offshore front, we completed 78 non-prosecution agreements with 80 Swiss banks that admitted assisting in the concealment of U.S. related accounts and facilitating the evasion of U.S. tax, and that completed the requirements of Category 2 of the Swiss Bank Program.  We collected more than $1.3 billion in penalties and received substantial, detailed information regarding U.S. related accounts, U.S. accountholders and foreign and domestic individuals and entities that assisted the U.S. accountholders to evade U.S. tax and reporting requirements. 

In addition, since 2008, the department, working with our colleagues in IRS Criminal Investigation (IRS-CI), charged more than 160 U.S. accountholders with tax evasion and willful failure to report foreign accounts and more than 50 individuals who assisted in this criminal conduct. We also reached resolutions with nine foreign financial institutions outside of the Swiss Bank Program and continue to pursue investigations of entities located within and outside Switzerland. 

Our criminal offshore enforcement efforts have encouraged participation in the IRS offshore voluntary disclosure programs, through which more than 55,000 taxpayers have come into compliance and paid nearly $10 billion in tax, interest and penalties since 2009.  In addition, filing of Reports of Foreign Bank and Financial Accounts (FBARs) has increased from 332,000 reports for calendar year 2007, to over a million reports for 2015. 

Our civil trial attorneys also furthered our offshore tax enforcement efforts, seeking the issuance of John Doe summonses to identify U.S. taxpayers whose identities are unknown and who are engaged in violations of the internal revenue laws and initiating summons enforcement proceedings to assist the IRS in conducting its examinations and determining the accurate tax due. The information we seek is often located in the United States; however, as we recently demonstrated in a district court in Miami, we will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers. 

Our civil trial attorneys also are actively engaged in suits involving penalties assessed for failing to file FBARs. These suits include affirmative litigation to collect unpaid penalties, and defensive litigation raising a variety of issues.  We have approximately three dozen cases involving FBAR issues pending, the vast majority of which include a willfulness penalty for at least one of the years at issue.  These suits have raised issues related to the computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act. 

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* * * * Let me take a moment to share my forecast of what I think you will see in 2017. 

First, the Tax Division is now well into the legacy phase of the Swiss Bank Program, reviewing the substantial data provided by the banks and obtained from other sources.  We are working closely with our colleagues in the IRS and using information gathered in pending investigations and to identify new individuals, entities and areas of interest for both civil tax enforcement and criminal tax investigations and prosecutions.  We are following the money outside Switzerland and into jurisdictions around the world and investigating activities by asset management companies, corporate service providers, financial advisers, insurance companies and other financial entities.  As a result of our enforcement efforts, entities are contacting us to acknowledge their role in facilitating U.S. tax evasion, disclose the individuals engaged in this conduct, and cooperate with the department in an effort to address and resolve criminal exposure. 

In addition, the IRS recently announced that 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and paid approximately $450 million in taxes, interest and penalties.  While we certainly encourage taxpayers to come into compliance, Tax Division prosecutors are reviewing certain streamlined filings and will investigate and prosecute taxpayers who willfully submit false statements in an effort to obstruct and impede the IRS and evade the payment of tax due. 

When requested by the IRS, the Tax Division will ask courts to authorize John Doe summonses, pursue summons enforcement proceedings, and when appropriate, will seek to enforce Bank of Nova Scotia summonses and issue and enforce Bank of Nova Scotia subpoenas to obtain information located outside the United States. 

In conducting civil and criminal investigations, the Tax Division will also continue to seek and review information pursuant to our bilateral and multilateral international treaties and agreements, respond to requests from treaty partners, and work closely with foreign counterparts to promote financial transparency and combat global tax evasion. 

In addition, the Tax Division is working closely with IRS-CI to prioritize traditional legal source tax prosecutions.  Our voluntary tax system only works when the honest taxpayer has faith in the process and believes that those who break the law will be held accountable.  When a local business owner, the neighborhood doctor or dentist, the mechanic down the street, or an investment banker is prosecuted for skimming from their business, using nominee accounts and shell companies to conceal assets and evade tax, filing false returns, conspiring to defraud the IRS, or obstructing the due administration of the internal revenue laws, there is an immediate and substantial impact among the defendant’s family, friends and neighbors, in the local and regional community and throughout the applicable industry.  These high-impact cases send a clear message that no one is above the law and that those who engage in this criminal conduct will pay a heavy price, including incarceration, fines, restitution and collateral consequences.

In corporate civil and criminal investigations, you will continue to see an emphasis on individual accountability.  Corporate crimes damage not only a company, but its employees and shareholders.  Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals and imposition of individual criminal liability may provide the strongest deterrence against future corporate wrongdoing. 

To comply with this requirement, an entity must conduct a fulsome internal investigation and provide all non-privileged evidence to the United States.  Failure to come forward and identify individual actors will render an entity ineligible for cooperation credit. 

Tax Division prosecutors will continue to seek to resolve cases with individuals before or at the same time that we resolve a matter with the related entity.  After a corporate resolution is reached, the entity must continue to provide relevant information about individuals implicated in the wrongdoing.  If simultaneous individual and corporate resolutions are not feasible based on the particular facts and circumstances of a case, the department looks for a clear plan that addresses individual accountability prior to the entity resolution.  We recognize that holding individuals accountable may not be feasible or appropriate in every case, but these efforts will force entities to view serious misconduct as a substantial risk to the company and a threat to the liberty of those involved, rather than simply a cost of doing business. 

A good example of corporate cooperation is the resolution reached with Bank Julius Baer, which signed a deferred prosecution agreement in February, admitting that it conspired with and assisted U.S. accountholders to hide offshore accounts and evade U.S. taxes.  Julius Baer paid $547 million, including restitution for tax loss arising from the undeclared U.S. related accounts, disgorgement of gross fees paid with respect to these accounts and a fine for its illegal conduct.  In addition, two Julius Baer bankers, both of whom had been fugitives since 2011, pleaded guilty to their role in the conspiracy.  Julius Baer’s early, extensive and continuing cooperation resulted in a substantial reduction in the monetary penalties imposed. 

Finally, we are encouraging individuals with information regarding material violations of the internal revenue laws to submit that information to the IRS Whistleblower Office.  When those individuals have specific, credible and substantiated information of material domestic or international criminal tax violations, we encourage them, through counsel, to share that information and a copy of their Form 211 with the Tax Division.  We are interested in claims involving criminal tax violations and filed pursuant to subsection (b) of the IRS whistleblower statute, in which the amount in dispute exceeds $2 million. 

Please note that we are not announcing the opening of a Tax Division whistleblower office.  The IRS operates the whistleblower program pursuant to its statutory authority.  However, if a whistleblower is truly interested in bringing attention to illegal conduct and schemes that undermine our nation’s tax system, the Tax Division welcomes and is prepared to receive such information.