TRAC Report on “Equal Justice and Sentencing Practices Among Federal District Court Judges” (9/30/21)

Transactional Records Access Clearinghouse (“TRAC”) has a new report titled Equal Justice and Sentencing Practices Among Federal District Court Judges, here.  The email I received with a summary of the report was titled:  “The Impact of the Identity of the Judge on Sentencing.”

TRAC gathers and maintains a lot of data and ways to access and analyze data at its web site, here.  For example, TRAC provides reports and bulletins on the IRS .  Scholars, practitioners, and students should familiarize themselves generally with the TRAC offerings and studies.

The particular TRAC offering discussed here on sentencing practices should be interesting for scholars, practitioners and students of federal tax crimes.  Sentencing, after all, is where the rubber hits the road so to speak.  So, I offer some excerpts first from the email summary and then the report (with some redundancy):

Excerpts from the Email Summary

            While judges need sufficient discretion to consider the totality of circumstances in assigning a sentence in a specific case to ensure it is "just," a fair court system always seeks to provide equal justice under the law, working to ensure that sentencing patterns of judges are not widely different for similar kinds of cases.

            While special circumstances might account for some of these differences, half of the courthouses in the country had median differences in prison sentences of 16 months or more, and average differences of 21 months or more. Five courthouses showed more than 60 months difference in the median prison sentence handed out across judges serving on the same bench.

Indictments of Swiss Enablers for U.S. Tax Evasion through a "Singapore Solution;" One U.S. Taxpayer Guilty Plea (9/28/21)

DOJ Tax issued this press release today: Indictment Unsealed Against Six Individuals and Foreign Financial Service Firm for Tax Evasion Conspiracy: Defendants Allegedly Used ‘Singapore Solution’ to Enable U.S. Clients to Evade Taxes on Over $60 Million Hidden Offshore, here.  In a related action, the press release states that another person pled guilty to one count of tax evasion.  I copy and paste the relevant information:

An indictment was unsealed today in New York, New York, that charges  offshore financial service executives and a Swiss financial services company with conspiracy to defraud the IRS by helping three large-value U.S. taxpayer-clients conceal more than $60 million in income and assets held in undeclared, offshore bank accounts and to evade U.S. income taxes.

 According to the indictment, from 2009 to 2014, Ivo Bechtiger, Bernhard Lampert, Peter Rüegg, Roderic Sage, Rolf Schnellmann, Daniel Wälchli and Zurich, Switzerland-based Allied Finance Trust AG allegedly defrauded the IRS by concealing income and assets of certain U.S. taxpayer clients with undeclared bank accounts located at Privatbank IHAG (IHAG), a Swiss private bank in Zurich, Switzerland, and elsewhere. In order to assist those clients, the defendants and others allegedly devised and used a scheme called the “Singapore Solution” to conceal the bank accounts of the U.S.-based clients, their assets, and their income from U.S. authorities. In furtherance of the scheme, the defendants and others allegedly conspired to transfer more than $60 million from undeclared IHAG bank accounts of the three U.S. clients through a series of nominee bank accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG, ostensibly held in the name of a Singapore-based asset manager. The U.S. clients allegedly paid large fees to IHAG and others to help them conceal their funds and assets. 

        * * *

“As alleged, the individual defendants and the Swiss firm Allied Finance conspired to defraud the IRS by assisting U.S. taxpayers in avoiding their tax obligations,” said U.S. Attorney Audrey Strauss for the Southern District of New York. “They allegedly did this through an elaborate scheme that involved concealing customer assets at a Swiss private bank through nominee bank accounts in Hong Kong and elsewhere, with funds returning to the private bank in the name of a Singapore firm. One such U.S. customer, Wayne Chinn, pleaded guilty to his participation in the so-called ‘Singapore Solution,’ forfeited more than $2 million to the United States, and awaits sentencing for his admitted crime.”

        * * *

Also unsealed today was the guilty plea of Wayne Franklyn Chinn, of Vietnam and San Francisco, California, one of the U.S. taxpayer-clients, who participated in the Singapore Solution scheme.

 According to court documents filed in relation to his guilty plea, from 2001 through 2018, Chinn concealed approximately $5 million in undisclosed and untaxed income. During this period, Chinn held accounts in nominee names at Privatbank IHAG. Beginning in 2010, Chinn wired funds from these offshore accounts through nominee accounts in Hong Kong before returning them to newly opened accounts at IHAG held in the name of a Singapore based trust company acting on behalf of two foundations created to conceal Chinn’s ownership of the accounts. Chinn subsequently transferred the funds out of Switzerland to undeclared accounts in Singapore. Chinn did not file any tax returns or disclose his foreign bank accounts during the years at issue.

 Chinn pleaded guilty to one count of tax evasion which carries a maximum penalty of five years in prison. Chinn also consented to the civil forfeiture of 83% of the funds held in five accounts at two Singapore banks, which resulted in the successful forfeiture and repatriation to the United States of approximately $2.2 million. The civil forfeiture proceeding is United States of America v. Certain Funds on Deposit in Various Accounts, 20 Civ. 3397 (LJL).

 Chinn is scheduled to be sentenced on Nov. 19, and faces a maximum penalty of five years in prison. He also faces a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

ABA Tax Section Comments on Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures (9/28/21)

The ABA Section of Taxation has submitted, here, comments on the Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures.  I have not had time to review them.  I post them now to get them out there for those who may not have received or may have overlooked the email notice.

I may comment later.

JAT Comments (added 10/29/21 at 4:00 pm):

On reading through the ABA Tax Section Comments, two items caught my attention:

1.  The problem of requiring disclosure for preclearance in Form 14457, Part I, of the foreign accounts gives the IRS (and DOJ) potentially incriminating information and thus creates the risk that that information may be used against the taxpayer if the IRS denies preclearance.  The recommended solution to the problem is (p. 6 footnote omitted):

• We recommend that the Service remove item #10 from Part I (requiring the disclosure of noncompliant accounts) and move it to Part II of Form 14457, so that the disclosure of the noncompliant accounts is made after (1) the taxpayer is precleared to make a voluntary disclosure and (2) the practitioner has time to conduct due diligence with respect to items that may constitute noncompliant accounts. The goal of preclearance is for the Service to determine that a taxpayer is “eligible for making a voluntary disclosure, including establishing unreported income is from legal sources and that the timeliness requirements are met.” We do not believe the bank account information is required to make such a preclearance determination. Requesting identification of, and information on, noncompliant accounts in advance of the preclearance determination requires the taxpayer to disclose incriminating information before he or she is cleared to proceed with disclosure. This deters taxpayers from using, and practitioners from recommending, the VDP.

Article on German Wealthy Renewed Interest in Swiss Financial Institutions Because of Potential Tax Increase (9/26/21)

This is an interesting phenomenon about German wealthy fearing higher taxes to try to move and hide assets (and related taxable income).  See Oliver Hurt, German millionaires rush assets to Switzerland ahead of election (Reuters 9/24/21), here. 

Some excerpts:

ZURICH, Sept 24 (Reuters) - A potential lurch to the left in Germany's election on Sunday is scaring millionaires into moving assets into Switzerland, bankers and tax lawyers say.

If the centre-left Social Democrats (SPD), hard-left Linke and environmentalist Greens come to power, the reintroduction of a wealth tax and a tightening of inheritance tax could be on the political agenda.

"For the super-rich, this is red hot," said a German-based tax lawyer with extensive Swiss operations. "Entrepreneurial families are highly alarmed."

The move shows how many rich people still see Switzerland as an attractive place to park ealth, despite its efforts to abolish its image as a billionaires' safe haven.

    * * *

Grand Jury Indicts Alleged Offshore Willful Actor Who Should Have Entered OVDP But Attempted SFCP (9/24/21; 9/27/21)

DOJ Tax announced here the indictment of Mark Anthony Gyetvay.  Basically, as  I  understand  it on  quick review, Gytevay made  mega million in Russian related adventures and failed to (i)  pay tax and (ii) file appropriate FBARs.  A fair inference on the facts claimed in the  Press Release (and presumably the indictment) is that those failures were willful.  Then, Gyetvay tried to enter “Streamlined Filing Compliance Procedures in which he attested that his prior failure to file FBARs and tax returns was non-willful.”  Bad moves.

The opening  paragraph says:

A federal grand jury in Fort Myers, Florida, returned an indictment on Sept. 22 charging a Florida businessman with defrauding the United States by not disclosing his substantial offshore assets, failing to report substantial income on his tax returns, failing to pay millions of dollars of taxes and submitting a false offshore compliance filing with the IRS in an attempt to avoid substantial penalties and criminal prosecution.’ 

There is no mention in the opening paragraph of wire fraud.  But  later, the press release  says (emphasis supplied):

If convicted, he faces a maximum penalty of 20 years in prison for each wire fraud count, five years in prison for each failure to file FBAR count, five years in prison for tax evasion, five years in prison for making a false statement, three years in prison for each count of assisting in the preparation of a false tax return and one year in prison for each willful failure to file a tax return count.

I am in travel status now and so only post this for information purposes now.  I  probably will add some detail later after reviewing the indictment and thinking more about it.  In short, though,  for now, this guy has to be incredibly stupid and greedy (or some combination thereof) to forego the regular OVDP  and attempt the  SFCP.

JAT Comments (added 9/27/21):

Appeals Arguments Over Whether Government Brought Evasion and Tax Conspiracy Charges Within Statute of Limitations With No Mention of WSLA (9/19/21)

In United States v. Pursley (on appeal to CA 5, Dkt. No. 20-20454), Pursley was convicted of 1 count of conspiracy related to tax and three counts of tax evasion, two for Pursley’s taxes and one for the taxes of another.  See the judgment here.  Pursley was a lawyer in Houston who enabled tax evasion by a client by moving untaxed monies from foreign accounts into the U.S. without accounting to the IRS for the unpaid tax.  Pursley’s client ultimately joined the OVDP, thus avoiding his own criminal exposure.  As required under the OVDP, the client had to disclose the enabler of the tax evasion scheme.

At the conclusion of trial after the guilty verdicts were returned, the judge sentenced Pursley to 24 months incarceration, ordered restitution of $2.5 million and imposed standard conditions.  I think the restitution was for Pursley’s taxes rather than the client’s taxes, because the client’s taxes had been paid in the OVDP.  So just from the restitution of Pursley’s taxes for two years, one can infer that he made a lot of money for his conduct.  But that need not detain us here.

On the appeal, Pursley raises only statute of limitations issues.  The parties’ briefs on appeal are:  Pursley’s opening brief, here; United States’ answering brief, here; and Pursley’s reply brief here. Pursley’s arguments are:

1.     As to all counts, the indictment was brought outside the statute  of limitations.

2.     As to the conspiracy count, the trial court erred by failing to give a requested instruction that it must find one overt act within the statute of limitations.

3.     As to the tax evasion counts, the trial court erred by failing to give a requested instruction that it must find one affirmative act within the statute of limitations.

The first argument, if successful, would require complete reversal and expungement of the conviction.  The second two would require retrial where, if there is enough evidence to get to the jury, the jury will almost certainly find at least one affirmative act within the statute of limitations.

Pursley makes no argument that the jury verdict of guilt should be overturned, except as required by the statute of limitations arguments.

The key statute of limitations argument (in # 1 above) is that the indictment was not brought within the applicable statute of limitations.  The judgment here provides in relevant part:  

Title & Section	Nature of the Offense	Offense Ended	Count
18 U.S.C. § 371	Conspiracy to defraud the U.S.	05/31/2013	1
26 U.S.C. § 7201	Tax evasion	09/20/2018	2
26 U.S.C. § 7201	Tax evasion	12/31/2012	3
26 U.S.C. § 7201	Tax evasion	10/31/2011	4

The indictment, here, was filed on September 20, 2018.  Just on the face of the judgment, it would appear that, without more, the six-year criminal statute of limitations would have expired on Count 4 on 10/31/2017, but the other counts would have been timely under the six-year statute.

Ninth Circuit Adopts Primary Purpose Test for Attorney-Client Privilege (9/14/21; 1/28/22)

Caveats: 

1. The Supreme Court granted the taxpayer's petition for writ of certiorari in this case.  See Supreme Court Grants Cert to Determine Whether Dual-Purpose Communications Involving Legal and Non-Legal Advice (in Tax Return Preparation Setting) is Protected by Attorney-Client Privilege (10/3/22), here; and On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

2. The original discussed in this blog entry was revised and republished (as revised) by Order and Amended Opinion dated 1/27/22, here.  The Order and Amended Opinion changed the term "tax advice" in footnote 5 to "tax return preparation assistance" (see Slip Op. 14 n. 5 of the Amended Opinion).  As revised the footnote is (with revised text in red):

   n5 We are aware, for example, that normal tax return preparation assistance—even coming from lawyers—is generally not privileged, and courts should be careful to not accidentally create an accountant’s privilege where none is supposed to exist. See Frederick, 182 F.3d at 500 (“There is no common law accountant’s or tax preparer’s privilege, and a taxpayer must not be allowed, by hiring a lawyer to do the work that an accountant, or other tax preparer, or the taxpayer himself or herself, normally would do, to obtain greater protection from government investigators than a taxpayer who did not use a lawyer as his tax preparer would be entitled to.” (cleaned up)). Thus, it is not clear whether a more protective version of the primary-purpose test is appropriate in this context.

The original blog entry is below.  The revision and Amended Opinion do not affect the issues discussed in the original blog entry.

In In re Grand Jury, 13 F.4th 710 (9th Cir. Sep. 13, 2021), CA 9 here, the Court held that the “because of” test imported from the work-product context did not apply to the attorney-client privilege and instead applied a predominant purpose test for dual-purpose communications.  The opinion is short (14 pages) and the summary offered by the Court is good, so I just copy and paste the summary here.

Grand Jury Subpoenas

            The panel affirmed the district court’s orders holding appellants, a company and a law firm, in contempt for failure to comply with grand jury subpoenas related to a criminal investigation, in a case in which the district court ruled that certain dual-purpose communications were not privileged because the “primary purpose” of the documents was to obtain tax advice, not legal advice.

            Appellants argued that the district court erred in relying on the “primary purpose” test and should have instead relied on a broader “because of” test. Under the “primary purpose” test, courts look at whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice. The “because of” test—which typically applies in the work-product context—considers the totality of the circumstances and affords protection when it  can fairly be said that the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation. The panel rejected appellants’ invitation to extend the “because of” test to the attorney-client privilege context, and held that the “primary purpose” test applies to dual-purpose communications.

            The panel left open whether this court should adopt “a primary purpose” instead of “the primary purpose” as the [*3] test, as the D.C. Circuit did in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). The panel wrote that Kellogg’s reasoning in the very specific context of corporate internal investigations does not apply with equal force in the tax context, and that the disputed communications in this case do not fall within the narrow universe where the Kellogg test would change the outcome of the privilege analysis.

            The panel addressed remaining issues in a concurrently filed, sealed memorandum disposition.

 JAT Comments:

Prosecution IRS Agent’s Contact with Defense Expert Without Defense Counsel (9/8/21)

In United States v. Shun, 2021 U.S. Dist. LEXIS 161023 (W.D.N.Y. Aug. 25, 2021), Cl here, in a tax crimes prosecution (conspiracy and tax perjury), one of the questions discussed in the opinion is whether an attempt by IRS CI agents assisting the prosecutor in the case to interview an expert designated by the defense was a violation of the defendant’s Sixth Amendment right to counsel.  The discussion is short but instructive, so I just cut and paste (Slip Op. pp. 4-7): 

Shun's Motion for Relief Based on Violations of her Sixth Amendment Rights

            On July 22, 2021, IRS Criminal Investigation Division Special Agent Scott Simmons, together with another IRS special agent, visited the offices of Freed Maxick CPAs, P.C. and attempted to interview Certified Public Accountant Richard Wright, who had previously been identified by Shun as a potential expert witness for the defense in this case. (Dkt. No. 186) Wright was not present at the Freed Maxick office when Simmons and the other agent arrived. (Id.) The agents spoke with another employee of the accounting firm and requested that the employee instruct Wright to call the agents when he returned. (Id.) Wright called later that same day and spoke with Simmons and the other agent briefly on speaker phone. (Id.) Agent Simmons asked Wright some questions and inquired about documents pertaining to the case. (Id.) Wright informed Simmons that he believed defense counsel should be present for their communications and terminated the call. (Id.)

            Defendant Shun contends that Agent Simmons' contact with Wright was a "willful and deliberate attempt to interfere with the effectiveness of her defense" in violation of her Sixth Amendment right to counsel. (Dkt. No. 186) Defendant requests various remedies because of this alleged violation, including that the Court: (1) order the Government to produce information about the nature and purpose of Agent Simmons' visit to Freed Maxick and telephone conversation with Wright; (2) deem the income tax principles to which Wright is anticipated to testify about at trial as "accepted" for purposes of the trial and prohibit the Government from offering contradictory testimony; and (3) grant additional sanctions in the form of fees and reimbursements to defendant. (Id.)