More on Abusive Conservation Easements (12/28/19)

Peter Reilly has a good discussion on an abusive conservation easement.  IRS Grinch Ruining Christmas For Syndicated Conservation Easements (Forbes 12/24/19), here.  The fatal flaw in such easements is the valuations (dare I say bullshit valuations).  These are just variations of many shelters in the 1970s and early 1980s where the fatal flaw was the valuations.  They are therefore just a variation of bullshit tax shelters when the crux of the shelter is major overvaluations.

Peter points to the IRS News Release, IR-2019-213, here, Excerpts from the release:

On Dec. 13, 2019, the U.S. Tax Court entered its first decision on a syndicated conservation easement transaction. In TOT Property Holdings, LLC v. Commissioner, Docket No. 005600-17, the Tax Court sustained in its entirety the IRS's determination that all tax benefits from a syndicated conservation easement transaction should be denied and that the 40% gross valuation misstatement and negligence penalties applied. The Tax Court found that the transaction failed the legal requirements applicable to donations of land easements and, in imposing the gross valuation misstatement penalty, found that the actual value of the easement donation was less than 10 percent of what was originally reported on the tax return. 

"In denying the deductions and upholding the 40% gross valuation misstatement penalty, the Tax Court confirmed that aggressive syndicated easement transactions simply will not survive scrutiny," said IRS Commissioner Chuck Rettig. "We will not stop in our coordinated pursuit of these abusive transactions while seeking the imposition of all available civil penalties and, when appropriate, various criminal options for those involved." 

"If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options," Rettig added.

Peter's posts are usually very good, and this is not exception.

Also, in a related development, in United States v. Zak (N.D. Ga. Dkt. 18-cv-05774-AT Order dated 12/10/19, here), the Court considered a government suit against allegedly abusive shelter promoters.  The Court rejects the defendants' motions, except for one count against Zak which is dismissed without prejudice.

Key excerpts from the Order are (emphases supplied by JAT):

"The Government alleges that defendants ran a “conservation easement syndication scheme.'"

* * * * 

The Government laid out eleven discrete steps that represent the “general pattern” the defendants took in enacting their conservation easement offerings. (Doc. 1 at 18–22.) In brief, according to the Government, the defendants first formed an LLC to take ownership of a piece of land, then hired an appraiser to provide an appraisal of the land, which would be used later in tax filings. (Id. at 18–19.) The defendants then marketed ownership interests in the LLC – whose value is derived only from the possible future tax benefit of converting the land to a conservation easement – to wealthy persons who may seek to maximize their tax benefits. (Id. at 19–20.) The marketing of the LLC clearly explains how the conservation easement might benefit a person in a particular tax bracket by reducing his or her tax burden substantially. (Id.) Once all stakes are sold, the LLC designates the land as a conservation easement, finalizes the appraisal of the land’s value, and prepares its own tax return. (Id. at 20–21.) The LLC is formed as a pass-through entity, so the sizable tax benefit it incurs for designation of the land is then passed through it to the investors themselves. (Id. at 16.) The investors list the conservation easement tax burden on their personal income tax returns, reducing their own tax liability. (Id. at 21–22.)

In Willful FBAR Collection Suit, District Court Rejects Reconsideration of Finding of FBAR Willfulness As Discovery Sanction (12/28/19)

In an earlier Memorandum and Order in United States v. Toth (D. Mass. Dkt. No. 15-cv-13367-ADB 10/15/18), GS here and CL here, the district court imposed sanctions against the defendant in an FBAR collection suit for discovery deficiencies.  The sanctions were (from the Conclusions of the Memorandum and Order (emphasis supplied by JAT):

For the reasons explained above, the Government's amended motion for sanctions is GRANTED and it is hereby ORDERED that the following facts are taken as established for purposes of this litigation:
1. Defendant had legal control over, and the legal authority to direct the disposition of the funds in, the Account (and any sub-accounts), by investing the funds, withdrawing the funds, and/or transferring the funds to third-parties, between the date the Account was opened and at least December 31, 2008.
2. Should the United States establish that Defendant is liable for the penalty alleged in the complaint, for the purposes of calculating the amount of such penalty, the Account (and any sub-accounts) contained $4,347,407 as of the penalty-calculation date.
3. Defendant had a legal obligation to timely file an FBAR regarding the Account in each calendar year that the Account was open, including with regard to calendar year 2007.
4. Defendant willfully failed to file an FBAR regarding the Account with respect to calendar year 2007.
The Government may file an itemized statement of costs and attorney's fees documenting the costs and fees that it incurred in preparing the amended motion for sanctions within 30 days of this order, should it wish to recover fees and costs.
SO ORDERED.

A key fact in this debacle was that the defendant represented herself pro se up to the date of the Memorandum and Order.  After that Memorandum and Order, the defendant engaged counsel, but apparently even then the defendant’s compliance with discovery fell short.

In United States v. Toth (D. Mass. Dkt. No. 15-cv-13367-ADB 12/20/19), GS here and CL here here, the district court rejected the defendant’s motion for reconsideration (erroneously styled a motion to vacate) of the original Memorandum and Order.  What comes through from this Memorandum and Order (as well as the prior one) was that the court was frustrated with the defendant’s continuing obfuscation.

A review of the docket entries at Court Listener (CL), here, should give some sense of the court's frustrations.

Key excerpts from the current Memorandum and Order are:

Tax Perjury, § 7206(1) Is a Different Crime than Perjury, 18 USC § 1621 (12/25/19)

Yesterday, I was updating the working draft of my Federal Tax Procedure Book, here, for the 2020 editions to make a point about § 7206(1) here, which I and others call “tax perjury.”  See e.g., DOJ CTM 12.03 Generally, here (“Section 7206(1) is referred to as the “tax perjury statute,” because it makes the falsehood itself a crime.”) I added the caveat that tax perjury in § 7206(1) is not the crime of perjury, 18 USC § 1621.  The CTM thus cautions that “Although referred to as the ‘tax perjury statute,’ Section 7206(1) prosecutions are not perjury prosecutions.”  CTM 12.09[2] Law Of Perjury Does Not Apply To Section 7206(1) Prosecutions.  Thus features critical to perjury prosecutions (such as the two-witness rule and no corporate criminal liability) do not apply to § 7206(1) prosecutions.

In addressing this point, I discuss in a footnote Siravo v. United States, 377 F.2d 469 (1st Cir. 1967), here.  In Siravo , the defendant argued that § 7206(1) was not a perjury statute, because perjury requires false affirmative statements and the omission of income is not a false affirmative statement.  The Court held that the language of the jurat did cover such omissions because the jurat states that it is signed under penalty of perjury and the taxpayer attests under penalty of perjury that the return is true and correct, so that omitted income was clearly within the scope of the statement made under penalty of perjury covers omissions from the return (the Court treated the word "complete" in the jurat as superfluous to “true and correct”).  “Therefore, the government has made out a violation of the section, whether it be labelled a perjury statute or similar in nature,”  (Pp. 762-473 (cleaned up).  See also United States v. Cohen, 544 F. 2d 781, 783 (5th Cir. 1977) (cleaned up) (“The omission of a material fact [assets from the OIC] renders such a statement just as much not ‘true and correct’ within the meaning of§ 7206(1), as the inclusion of a materially false fact, Siravo v. United States, 377 F.2d 469 (1st Cir. 1967)."

On Informing the Jury of Jury Nullification and Sentencing Consequences (12/21/19; 12/22/19)

In United States v. Manzano, ___ F.3d ___ (2d Cir. 2019), here (2d Cir.) or here (Google Scholar), a nontax case, the Second Circuit addressed issues of jury nullification and instructing the jury as to the sentencing consequences of guilty verdicts.  Those are big issues that surface sometimes in nontax crimes cases but rarely in tax crimes cases.  They could surface in tax crimes cases and tax crimes practitioners should be aware of the issue so that they can “surface” the issues when they need to.

In Manzano, the Court’s unofficial summary is:

On the eve of trial, the United States District Court for the District of Connecticut (Underhill, Chief Judge) ruled that Respondent – who is charged with, [*2] inter alia, production of child pornography, an offense punishable by a mandatory minimum term of fifteen years’ imprisonment – could argue jury nullification at trial.  The district court also reserved decision on whether evidence of sentencing consequences would be admissible.  The government now petitions for a writ of mandamus directing the district court to preclude defense counsel from arguing nullification and to exclude any evidence of sentencing consequences.  We hold that the conditions for mandamus relief are satisfied with respect to the district court’s nullification ruling, but not with respect to the admissibility of evidence of sentencing consequences.  Thus, we grant in part and deny in part the petition. 

So, let’s start with the concept of jury nullification.  As I understand in broad strokes and without nuance, the concept of jury nullification is is that a jury, normally in our system serving solely the role of fact finder (did the defendant factually do the acts that the law describes as a crime), can choose not to return a verdict of guilty because it has concerns about the law or the application of the law to the case at hand.  The jury believes that the prescribed punishment for the crime does not fit the culpability of the defendant.  (Or as the more humane Mikado says (Gilbert & Sullivan, here) the punishment should fit the crime.) More nuanced discussion can be found in Clay S. Conrad, Jury Nullification: The Evolution of a Doctrine (Cato Institute 2014), here.  A reasonable summary can be found in Wikipedia’s entry on Jury Nullification here.

Moving to Manzano, the relevant facts are succinctly stated by the Court (Slip Op. 4):

Coutts & Co. Ltd. Enters an Addendum to its Swiss Bank Program Category 2 NPA (12/20/19)

I previously reported that Coutts & Co. Ltd. (“Coutts”) had entered a NonProsecution Agreement (“NPA”) with DOJ Tax under the DOJ Swiss Bank Program.  Five More Banks Obtain NPAs under DOJ Swiss Bank Program (Federal Tax Crimes Blog 12/23/15), here.  Under the original NPA, Coutts paid $74.5 million (rounded) in penalties.  DOJ Tax announced today here that Coutts has entered an addendum to the NPA after disclosing additional, previously undisclosed, accounts and agreeing to pay an additional $27.9 million, for a combined penalty amount of $102.4 million (rounded).

The key excerpts are (emphasis supplied):

The Department of Justice announced today that it has signed an Addendum to a non-prosecution agreement with Coutts & Co Ltd. (Coutts), a private Swiss bank headquartered in Zurich.  The original non-prosecution agreement was signed on Dec. 23, 2015. At that time, Coutts reported that it held and managed 1,337 U.S. related accounts, with assets under management exceeding $2 billion, and paid a penalty of $78,484,000. In reaching today’s agreement, Coutts acknowledges that it should have disclosed additional U.S.-related accounts to the Department at the time of the signing of the non-prosecution agreement. 

“This agreement reflects our commitment to ensuring that foreign banks that participated in the Swiss Bank Program fully comply with their obligations to disclose accounts in which U.S. taxpayers have direct or indirect interests,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “When any person or entity makes false, incomplete, or misleading disclosures to the Department, the Department will hold those persons or entities accountable.” 

The Swiss Bank Program, which was announced on Aug. 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States relating to offshore banking services provided to United States taxpayers. Swiss banks eligible to enter the program were required to advise the Department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. As participants in the program, they were required to make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers had a direct or indirect interest, cooperate in treaty requests for account information, and provide detailed information about the transfer of funds into and out of U.S.-related accounts, including undeclared accounts, that identifies the sending and receiving banks involved in the transactions. 

The Department executed non-prosecution agreements with 80 banks between March 2015 and January 2016. The Department imposed a total of more than $1.36 billion in Swiss Bank Program penalties.  Pursuant to today’s agreement, Coutts will pay an additional sum of $27,900,000 and will provide supplemental information regarding its U.S.-related account population, which now includes 311 additional accounts.  

Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all known U.S.-related accounts that were open at each bank between Aug. 1, 2008, and Dec. 31, 2014.  Each bank also represented that it would, during the term of the non-prosecution agreement, continue to disclose all material information relating to its U.S.-related accounts.  In reaching today’s agreement, Coutts acknowledges that there were additional U.S.-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time of the signing of the non-prosecution agreement. Coutts has fully cooperated with the Department with respect to the additional U.S.-related accounts. 

Eleventh Circuit Sustains IRS Summons Issued For French Tax Investigation (12/18/19)

[This is a cut and paste of a posting on my Federal Tax Procedure Blog]

In Redfern v. United States (11th Cir. Dkt. 19-12649 12/17/19) (unpublished), here, the Court affirmed the IRS’s issuance of summonses to various banks “at the request of the French government, pursuant to the United States–France Income Tax Treaty, to aid an ongoing investigation into Redfern’s [French] tax liability.”

For background on the process, I cut and paste this (footnotes omitted) from a version of the working draft of my Federal Tax Procedure Book (basically same as in my Federal Tax Procedure 2019 editions):

In an increasingly globalized economy, records relevant to tax administration in one country may be possessed by someone in another country. Under many U.S. bilateral tax treaties, one treaty partner is obligated to assist the other in gathering information relevant to the latter's tax administration. For example, the Canadian tax authority (referred to as the “competent authority” in treaty parlance) under the U.S./Canada Double Tax Treaty may request the U.S. tax authority (i.e., the U.S. competent authority) to obtain information in the U.S. for Canadian tax administration. (This is commonly referred to as an “exchange of information” provision.) If the request is within the scope of the treaty, the U.S. competent authority will authorize the IRS to issue an administrative summons. The ultimate taxpayer involved may then bring a motion to quash if the summons is to a third party or, if the summons is to the taxpayer, may invoke any basis for noncompliance and await the IRS's pursuit of a summons enforcement proceeding.  

In United States v. Stuart, 109 S. Ct. 1183 (1989), Canada made such a request to the U.S., the U.S. issued summonses to third parties, and the taxpayer brought a motion to quash. The issue presented was whether the Code's limitation on the use of administrative summonses when a DOJ referral is in effect (§ 7602(d)) applies in the case of a summons issued under the Canadian treaty in relation to the Canadian tax. That Code limitation had been enacted after the U.S./Canadian double tax treaty in question had been negotiated and entered into force. Arguably, even if that limitation were not in the treaty, Congress's subsequent legislation may have created a treaty override. The taxpayer argued that the status of the Canadian tax investigation was the equivalent of a DOJ referral and thus the use of an IRS administrative summons was not proper. The Court held that, notwithstanding the subsequent enactment, the treaty itself controlled and had no such limitation, so that it need not inquire into the status of the Canadian investigation.  

In subsequent cases, courts have held that the propriety of the foreign country’s tax investigation is not relevant to whether the IRS can issue and enforce the summons (or avoid a petition to quash the summons); rather, the issue is whether the IRS has met the Powell requirements for the summons focusing on its actions and not that of the foreign treaty partner requesting the IRS to use its processes to obtain the requested information.  

 Similar processes are available under the OECD Convention on Mutual Assistance in Tax Matters, which is a multilateral treaty, and possibly other treaties as well, although most of the litigated cases appear to involve the bilateral double tax treaties.

The process employed in Redfern for the summons as follows (Slip Op. p. 2):

As required by Internal Revenue Code § 7609(a)(1), the IRS provided Redfern, as the holder of the accounts, with notice of the summons and an explanation of the recipient’s right to bring a proceeding to quash the summons. Specifically, it mailed the required notice to Redfern at (1) the address that appeared on his most recently filed and processed federal tax return and (2) the address identified by France as the address he reported to the government, as well as (3) to Leslie R. Kellogg, an attorney at Hodgson Russ LLP, from whom the IRS had received a power of attorney signed by Redfern authorizing her to receive confidential tax information on Redfern’s behalf.

Court Grants Summary Judgment on FBAR NonWillful Penalty Collection Suit (12/15/19)

In United States v. Agrawal (E.D. Wisc. Dkt. 18-C-0504 Order Dtd. 12/9/19) (CL here and GS here), the Court granted summary judgment to the Government on its complaint (CL here) for judgment on 4 years of nonwillful FBAR penalty at $10,000 per penalty (plus interest and costs).  (Note:  CL is Court Listener and GS is Google Scholar.)  Since he had the account, his only defense to the nonwillful penalty was reasonable cause.  He tried to defend himself against the penalty, acting pro se without an attorney.

His deposition testimony quoted in the opinion is interesting and shows that he was lucky to have avoided the willful penalty.  (Of course, the IRS did not have his deposition testimony when it imposed the penalty.)  The following is from the opinion:

At his deposition, Agrawal testified that he prepared his own tax returns in 2006 and 2007, but relied on CPAs to prepare his tax returns in 2008 and 2009. He testified that he did not tell the CPAs of the existence of the UBS account. Regarding the 2008 tax return preparation, Agrawal testified as follows: 

Q. Did [the CPA] ask you whether you had a foreign financial account?
A. I said no.
Q. You told him no?
A. Yes.
Q. But at this time you still had the UBS account, correct?
A. Yes.
Q. Why did you tell [the CPA] no?
A. Because again, the word of [the UBS representative] that these — this account is not — non-taxable in the U.S.
. . .
Q. You didn't tell [the CPA] that you had a UBS account but were told that it was non-taxable and didn't need to be reported?
A. I didn't tell him.
Q. Okay. Why not?
A. Because when I trust somebody, like [the UBS representative], I didn't tell him.

ECF # 32-17 at 65-66. Regarding the 2009 tax return, Agrawal testified as follows: 

Q: Did you review the Form 1040 of your tax return to 2009 with [the CPA] before you filed it?
A: Yes.
. . .
Q. The Part III, the information about foreign accounts and trusts is blank?
A. Yeah.
Q. Did you ask [the CPA] why it was blank before you filed your return?
A. No.
Q. It didn't cause you any concern?
A. No.
Q. Why not?
A. Because I didn't notice. He should have said no.
Q. Did [the CPA] ask you if you had any accounts in a foreign country?
A. No. 

Id. at 68. However, with his response to plaintiff's motion for summary judgment, Agrawal submitted an affidavit reversing some of this testimony; he now claims that both CPAs asked whether he had foreign accounts; that he told them he did have a foreign account; that the CPAs did not file FBARs on his behalf or report the UBS account on his tax returns; and that he relied on the CPAs' expertise. ECF # 36 at 2-3. Along with this affidavit, Agrawal also filed an errata list amending portions of his deposition testimony, including the portions cited above. Many of these amendments simply change "yes" answers to "no" or vice versa; Agrawal's explanation for these amendments is that he "misspoke." ECF # 37-1 at 11-13.

 And, as often the case, he had other bad facts.

But, to repeat, he is lucky to have avoided the willful penalty which would have been much more.

JAT Comment:

Defendant (A Former Tax Lobbyist and DOJ Tax Attorney) Sentenced to 1 Year for Tax Perjury Conviction (12/13/19)

I previously blogged on the plea agreement for James F. Miller, a former tax lobbyist (and former DOJ Tax attorney).  Former DOJ Tax Attorney Pleads to Tax Perjury (Federal Tax Crimes Blog 6/21/19; 6/22/19), here.  DOJ Tax has a press release on his sentencing.  Virginia Tax Lobbyist Sentenced to Prison for Filing a False Tax Return (12/13/19), with a by-line: “Concealed More than $2.2 Million in Income.” 

The release is somewhat cryptic, but here are key excerpts:

An Alexandria, Virginia, tax lobbyist was sentenced to one year in prison today for willfully filing a false tax return * * * * 

According to court documents, attorney James F. Miller, 67, underreported his gross income on his 2010 through 2014 tax returns by more than $2.2 million. Miller, a tax policy lobbyist and former employee of the Justice Department’s Tax Division, filed multiple false tax returns with the Internal Revenue Service (IRS). These returns omitted partnership income he received from two law firms and the gross receipts he received from his own lobbying firm. The total tax loss resulting from Miller’s fraudulent conduct was more than $730,000. 

In addition to the term of imprisonment, U.S. District Judge T.S. Ellis, III, ordered Miller to serve one year of supervised release and to pay restitution to the United States in the amount of $735,933.

JAT Comments:

1. My rough and ready calculation of his guideline sentencing range is 24-30 months based on the following assumptions as to adjustments: (i) a base offense level of 20 based on tax loss of $730,000 with no adjustments for unreported income from criminal activity or sophisticated means; (ii) a 3-level reduction for acceptance of responsibility; and a resulting 5.A. sentencing level of 17 and indicated range of 24-30 months.

2. The press release indicates that the sentence was for one year.  Often that type of sentencing is 1 year and 1 day, in order to permit the defendant to qualify for the good time credit, which would reduce the actual incarceration time by about 15%.  A sentence of one year does not qualify for the good time credit.

DOJ Reaches DPA with HSBC Switzerland (12/11/19)

DOJ Tax has announced a deferred prosecution agreement (“DPA”) with HSBC Switzerland in which “HSBC Switzerland admitted to conspiring with U.S. taxpayers to evade taxes and, as part of the agreement, HSBC Switzerland will pay $192.35 million in penalties.”  See Press Release titled “Justice Department Announces Deferred Prosecution Agreement with HSBC Private Bank (Suisse) SA,” here.

The key excerpts of the press release are:

According to court documents, HSBC Switzerland admits that between 2000 and 2010 it conspired with its employees, third-party and wholly owned fiduciaries, and U.S. clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns. In 2002, the bank had approximately 720 undeclared U.S. client relationships, with an aggregate value of more than $800 million. When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately $1.26 billion in undeclared assets for U.S. clients.  

According to the terms of the DPA, HSBC Switzerland will cooperate fully with the Tax Division and the IRS. The DPA also requires HSBC Switzerland to affirmatively disclose information it may later uncover regarding U.S.-related accounts, as well as to disclose information consistent with the department’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009 and Dec. 31, 2017. Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow HSBC Switzerland to demonstrate good conduct. The agreement provides no protection for any individuals. 

The $192.35 million penalty against HSBC Switzerland has three parts. First, HSBC Switzerland has agreed to pay $60,600,000 in restitution to the IRS, which represents the unpaid taxes resulting from HSBC Switzerland’s participation in the conspiracy. Second, HSBC Switzerland agreed to forfeit $71,850,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2000 and 2010. Finally, HSBC Switzerland agreed to pay a penalty of $59,900,000. This penalty amount takes into consideration that HSBC Switzerland self-reported its conduct, conducted a thorough internal investigation, provided client identifying information to the Tax Division, and extensively cooperated in a series of investigations and prosecutions, as well as implemented remedial measures to protect against the use of its services for tax evasion in the future.

Interesting Retrial After Cheek Defense Based on Religious Objection to Use of Tax Collections (12/11/19)

I picked up this article: After mistrial, judge says he made mistake in allowing man to argue religious objection to filing tax returns (The Oregonian 12/10/19), here.  Basically, it reports that the defendant in a failure to file tax case, Michael Bowman, was permitted in the first trial to assert this defense: “he believed the government had to accommodate his religious objection to funding Planned Parenthood and abortions before he filed the returns.”  The jury hung, so the judge declared a mistrial.  Facing retrial, the judge determined that the defense could not be asserted.  So, it looks like the defendant may not have a viable defense, but he is still entitled to have the government prove his guilt beyond a reasonable doubt.

But, in that retrial, the parties apparently agreed to unusual procedures described in the article:

The extremely rare trial will have no witnesses and no jury and will take place before Chief U.S. District Judge Michael W. Mosman, the same judge who presided over the first trial. Mosman will make a decision based on a set of facts agreed upon ahead of time by the prosecutor and the defense lawyer. 

Bowman, 55, of Columbia City, doesn’t even plan to show up but instead will listen to the proceeding by phone, calling the latest legal twist an “abortion of justice’’ in an email to the judge. Stripped of his defense, he expects Mosman to convict him on all four counts of willful failure to file tax returns. 

Then he plans to appeal.

The trajectory in the first trial has become something of a cause celebre among tax protesters with some misleading claims about what happened.  Here is a good factcheck on those claims (Saranac Hale Spencer, Old Decision in Tax Lawsuit Gets New Spin (FactCheck.org 4/9/19), here) where the quick take is:

A website known for spreading misinformation writes that a man who cited religious reasons for not paying his income taxes “has won an historic lawsuit against the IRS.” That’s misleading. One charge was dropped, but four others have yet to be determined.

JAT Comment:

Reuters Reports EU Considers Further Tax Haven Listing (12/9/19)

Reuters has this report:  EU to consider tougher tax haven listing (12/6/19), here.  Key excerpts:

A group of European Union countries is calling for the bloc to cast a wider net when listing tax havens and to consider imposing stricter sanctions for countries facilitating tax avoidance, according to an EU document and an EU official. 

The document, prepared by the Danish government and seen by Reuters, urges a discussion on whether “current criteria provide sufficient protection against tax avoidance and evasion” and pushes for “strengthened” standards and sanctions. Germany and France were among its backers. 

It also calls for a discussion on how member states deal with the issue, asking “Do we internally have sufficient safeguards against tax avoidance and evasion?” 

This potentially sets up a dispute with EU members Luxembourg, the Netherlands and Ireland, which widely use low tax and other sweeteners to host EU headquarters of foreign firms, depriving other EU governments of tax revenues from profits that corporations make on their territory. 

At a meeting of EU finance ministers on Thursday, several EU states backed the Danish proposal, one EU official said, naming Germany, France, Spain and Austria among the explicit supporters. 

* * * * 

Luxembourg, the Netherlands and Ireland were listed in a report by International Monetary Fund researchers in September as world-leading tax havens, together with Hong Kong, the British Virgin Islands, Bermuda, Singapore, the Cayman Islands, Switzerland and Mauritius. None of them are on the [current ] EU list.

JAT Comment:  Good.

Swiss High Court Approves UBS Disclosure of French Account Holders and Outlines Requirements (12/4/19)

According to a Reuters report, Switzerland's highest court has outlined the requirements for foreign countries seeking Swiss assistance for tax related information:  Swiss court outlines rules for helping countries chase tax cheats (Reuters 12/4/2019), here.  Key excerpts:

Switzerland’s highest court spelled out the steps foreign authorities must take if they want legal assistance in chasing tax cheats as it released the written verdict on why it made UBS Group (UBSG.S) in July share client data with France. 

The Federal Court ruled that Switzerland’s biggest bank must hand over historical data on more than 40,000 client accounts to French tax authorities in a landmark case keenly watched by other countries seeking similar information. 

The ruling was also closely watched for the impact it might have on the Swiss bank’s separate 4.5 billion euro ($5 billion) legal battle with France in a criminal case over alleged tax avoidance by UBS clients. 

Revenue-hungry governments, for years thwarted by Switzerland’s strict secrecy rules, are monitoring developments to see if they can use historical evidence of their citizens’ trying to hide money from tax authorities. 

In its written ruling released on Wednesday, the court said it would not help “fishing expeditions” by foreign tax authorities seeking potential evidence of wrongdoing by groups of citizens. 

Tax authorities must give a detailed description of the group involved and specific circumstances that led to the request; explain the applicable law and reasons to assume that taxpayers did not fulfill their obligations; and demonstrate that the information requested could help make them do so. 

The court reinforced its stance that the client data UBS is providing French tax authorities cannot be used by French prosecutors in the criminal investigation of UBS, the world’s biggest wealth manager. 

The data is solely to help go after French tax dodgers.

The Missing Witness Negative Inference and the Impeachment Proceedings (12/1/19)

A couple of days ago, I wrote on the D.C. Circuit Court’s rejection of another Bullshit Tax Shelter.  D.C. Circuit Swats Down Bullshit Tax Shelter (Federal Tax Crimes Blog 11/29/19), here.  One of the issues discussed in the case (but only lightly discussed in the blog) is the negative inference that a trier of fact may draw from a missing witness.  I noted: “In its most common iteration, the missing witness negative inference is deployed when the witness is controlled by one of the party’s to the litigation.”  I use this separate blog entry to discuss the missing witness negative inference in this context because of its potential for its application where, in the impeachment proceedings or the resulting trial, President Trump has control or suasion over witnesses whom he directs or encourages not to testify.

A good statement of the missing witness rule--usually invoked in a jury instruction context to explain to the jury how to use the rule--is (United States v. St. Michael's Credit Union, 880 F.3d 579, 597 (1st Cir. 1989), here (cleaned up):

The rationale behind the missing witness instruction has been stated as follows: "the failure of a party to produce available evidence that would help decide an issue may justify an inference that the evidence would be unfavorable to the party to whom it is available or whom it would ordinarily be expected to favor." 2 C. Wright, Federal Practice and Procedure § 489 (1982). First Circuit precedent has established three circumstances that may warrant a missing witness instruction.  

The jury may draw an inference adverse to a party toward whom the missing witness is favorably disposed, because the party would normally be expected to produce such a witness. In addition, the jury may draw an adverse inference when a party fails to produce a material witness who is peculiarly available to that party. Finally, when a party having exclusive control over a witness who could provide relevant, noncumulative testimony fails to produce the witness, it is permissible to draw an adverse inference from that party's failure to do so, even in the absence of any showing of the witness's predisposition toward the party.

Readers will note that the negative inference from a missing witness is an evidentiary context for inferences that we use everyday in all sorts of contexts beyond a trial setting.  If it is important to establish the truth of a proposition and any party withholds potentially important evidence as to the truth or falsity of the proposition, then an inference can be and often is drawn that the evidence would be negative to that party.  The inference is deployed in a trial setting where it is critically important to establish the truth of facts which the trier of fact (judge or jury) is requested to find.  The party who suffers if the fact is or is not true and declines to produce evidence within that party's control can be subject to a negative inference as to the content of the withheld evidence.  Just that simple.

In the current context, President Trump has directed and clearly signaled to all persons within his control or suasion that they should not testify.  That is the classic case in which the missing witness negative inference can be made.  As I indicated, that rule is important in fact finding in every day life and in trials.