More thoughts on Lawyer's Behavior -- Ethics and Criminality (3/28/13)

I have recently posted two blogs on Ethics -- (1) Random thoughts on Ethics, Tax Opinions and A Tax Lawyer’s Life at a Big Law Firm (3/27/13), here, written by a guest blogger and (2) Ethicist Question About Tax Professionals Exploiting Loopholes (3/24/13), here, referring to an NYT Ethicist question.

I thought I would point readers to another blog, by Christopher Bergin of Tax Notes, The Legend of Rusty Pipes (3/7/13), here.  His blog was written in response to the recent announcements of E&Y's deferred prosecution agreement and a tax shelter lawyer's sentencing. See E&Y Admits Wrongdoing on Bullshit Tax Shelters; Will Pay $123 Million (3/1/13), here, and USA SDNY Announces Sentencing of Daugerdas Related Defendant (3/23/13), here.

Some excerpts from Mr. Bergin's article to whet your appetite to read his full blog:

Referring to the tax shelter abuses in the 1990s:

For me, the most disturbing fact of those days was the involvement of lawyers in the tax shelter scandal. Please don’t misunderstand me. It’s a good tax lawyer’s job to legally minimize what a client pays in taxes. I also believe lawyers are the stewards of the tax code and should protect it. Lawyers need to know where the line is and not to cross it. In the 90s, there were good lawyers at good law firms who forgot that. The rallying cry was “we are just taking care of our clients.” The truth was that some lawyers were simply taking care of themselves. One was actually famously quoted as saying, “It’s a question of sleeping or eating, and I’d rather eat.” 

Today, there is a whole new generation of tax lawyers. They should learn the lesson of the 90s. And not learn it the hard way.

Quoting some of his comments in an article from the early 1990s:

You may have heard this one, but I’m trying to illustrate a point. A guy walks into a crowded bar, stumbles over to the bartender, orders a drink, and turns to the crowd and shouts, “All lawyers are jerks!” (When retelling the story, “jerks” can be substituted with something stronger.) Way in the back of the room another guy stands up and says, “I resent that!” The first guy looks at him and says, “What are you, a lawyer?” The second guy says, “No, I’m a jerk.”

Fourth Circuit Finds Prosecutor Abuse for Comment on Credibility and Questioning Character Witness but Affirms Anyway (3/27/13)

In United States v. Woods, 710 F.3d 195 (4th Cir. 2013), here, Woods "was convicted of numerous charges arising from a tax fraud scheme operated through his business of preparing income tax returns for private individuals."  He "was charged in a thirty-four count superseding indictment with willfully assisting the preparation and presentation of false and fraudulent tax returns to the Internal Revenue Service (IRS), in violation of 26 U.S.C. § 7206(2) (Counts 1-12); wire fraud, in violation of 18 U.S.C. § 1343 (Counts 13-22); identity theft, in violation of 18 U.S.C. § 1028(a)(7) (Counts 23-32); and aggravated identity theft, in violation of 18 U.S.C. § 1028A (Counts 33-34). "  The gravamen of the Government's claims was that Woods:

added fraudulent information to clients' tax returns in order to qualify the clients for substantial tax refunds. For example, the evidence showed that Woods listed on the returns various educational, business, and travel expenses never incurred by his clients. Also, Woods falsely listed as dependents on several clients' tax returns the names of individuals who were patients of the VA, including their birth dates and social security numbers. The government's witnesses testified that Woods charged clients a $500 premium for each false dependent included on a tax return. The government maintained that Woods stole the names of the false dependents from the VA computer system, to which he had access through his employment as data warehouse manager.

This is a variation of a theme for abusive tax return preparers.

I address here two of the issues on appeal.  First, is the issue of whether the prosecutor improperly injected his belief as to witness -- the defendant's -- lack of credibility.  Second, is the issue of whether the Government improperly questioned a defense character witness by assuming Woods' guilt.  One problem in the case is that Woods represented himself, hence he was not meticulous at preserving objections and otherwise comporting himself with his best defense.

Random thoughts on Ethics, Tax Opinions and A Tax Lawyer’s Life at a Big Law Firm (3/27/13)

An anonymous reader of this blog offered comments on a recent blog entry, Ethicist Question About Tax Professionals Exploiting Loopholes (3/24/13), here.  The anonymous reader's comments were good, so I requested that he expand or revise them to be presented as a blog entry rather than a comment to another blog.  The reader prefers to remain anonymous, and I honor that preference.  Please note that all of the balance of this blog entry are the reader's comments (as revised).  I do not indent because it is not necessary to show the reader's authorship:

I worked on the Street for many years as a tax lawyer for a “top-10” major law firm. During that time, I worked on a number of highly tax-driven deals, which were technically not tax shelters in the sense that they were not mass-marketed and liberally replicated for different "taxpayers." No, they were much more subtle than that (tax shelters nonetheless) involving tailor-made solutions for particular “tax problems” (almost always how to evade tax payments on excess cash build-up) experienced by large corporate enterprises (see Google, Dell, Apple, Facebook, for current examples), for which legal opinions were designed to fend off an IRS investigation (I will come back to that aspect of things). Technically, our “client” for many of the transactions was a large investment bank no longer with us since 2008 (yep, that one) who had a huge "tax" servicing business, comprised of fixing its clients’ tax issues using its massive balance sheet to do.

I, and, more importantly, my direct supervising tax partner, knew that most (if not all, my memory is hazy) did not work in the sense that if any particular scheme were thoroughly and competently reviewed, it would fail that scrutiny. Typically, we dressed the structure up to resemble a complicated machine (a Rube Goldberg type contraption) that would be difficult, perhaps well-nigh impossible, to decipher. (Since then, I suspiciously view over-complicated legal structures as a badge of fraud; I have yet to be proven incorrect, though I live in vain hope).

First Circuit Decides NonTax Criminal Case With Issues Related to Issues in Tax Crimes Cases (3/27/13)

A reader, Eliot Silverman, here, brought to my attention a recent First Circuit opinion in a nontax criminal prosecution.  See United States v. Wu, 711 F.3d 1 (1st Cir. 2013), here.  In the case, the two defendants, formerly husband wife, were prosecuted for violating restrictions on the overseas shipment of weapons-grade technologies.  The criminal statute involved, like tax crimes, has a willfulness element.  I write this blog entry to address three issues in the case that may resonate with tax crimes.

Void for Vagueness

The defendants asserted that the prosecution which relied upon the defendants' violation of the law because of the inclusion of certain products on the Munitions List was void for vagueness.  Designated defense articles may not be exported without license from the State Department. The designations are made by regulations which are not subject to judicial review.  The designation is made by the Munitions List.  The Court explained the Munitions List as follows (p.12):

Pursuant to the President's authority under the AECA, the State Department has promulgated the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. pts. 120-130, which include the U.S. Munitions List, id. pt. 121. The Munitions List is not a compendium of specific controlled items; instead, it is a series of categories describing the kinds of items that qualify as "defense articles" requiring export licenses. The Munitions List contains "attributes rather than names" * * * *.

As noted, the crime involved required willfulness, which seems to be interpreted the same as the tax crimes element of willfulness -- intentional violation of a known legal duty.  The Court discussed the relationship of void for vagueness and the willfulness element as follows (pp. 13, 15):

Vagueness. At the outset, we address the defendants' argument that this carefully crafted regulatory scheme--which has remained in place for more than a quarter century--is unconstitutionally vague. The Fifth Amendment's Due Process Clause requires that "a criminal statute provide adequate notice to a person of ordinary intelligence that his contemplated conduct is illegal." Buckley v. Valeo, 424 U.S. 1, 77, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976) (per curiam); see also United States v. Anzalone, 766 F.2d 676, 678 (1st Cir. 1985). The "void for vagueness doctrine" addresses at least two discrete due process concerns: "first, . . . regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way." FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317, 183 L. Ed. 2d 234 (2012).

IRS Identifies Its Dirty Dozen Tax Scams for 2013 (3/26/13)

The IRS has released its annual Dirty Dozen of Tax Scams.  See IR-2013-33, here. [I will link here when I get the link.]  Some involve scams that I have discussed before on this blog or variations of those scams.  So, I have cut and pasted from the email to identify all of the identified scams, but will include the discussion only for the ones most relevant to this blog.  The balance of this blog is from the cut and paste.

* * * *

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

A Tax Defier Is Convicted (3/26/13)

While I have not represented so-called tax protestors or tax defiers -- persons wrapping their tax cheating in a cloak of feigned patriotic duty or constitutional right -- they are an important part of the tax landscape.  Some of the seminal cases in the criminal tax arena have involved such misguided taxpayers (or, more descriptively, nontaxpayers).  DOJ Tax announced yesterday the conviction of yet another tax defier, on James Timothy Turner, aka Tim Turner.  The press release is here.

Key Excerpts are:

Self-Proclaimed “President” of Sovereign Citizen Nation Convicted in Alabama of Federal Tax Crimes 

A federal jury in Montgomery, Ala., found James Timothy Turner, also known as Tim Turner, guilty late Friday of conspiracy to defraud the United States, attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service (IRS), failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding, the Justice Department, the IRS and the FBI announced today. 

Based on the evidence introduced at trial and court filings, Turner, the self-proclaimed “president” of the so-called sovereign citizen group “Republic for the United States of America” (RuSA), traveled the country in 2008 and 2009 conducting seminars teaching attendees how to defraud the IRS by preparing and submitting fictitious “bonds” to the United States government in payment of federal taxes. Although the evidence at trial revealed the bonds are fictitious and worthless, witnesses testified that Turner used special paper, financial terminology and elaborate borders in an effort to make them look “real” and more likely to succeed in defrauding the recipient. Turner was convicted of sending a $300 million “bond” in his own name and of aiding and abetting others in sending fifteen other “bonds” to the Treasury Department to pay taxes and other debts.

Supreme Court Will Decide Whether Bullshit Tax Shelters with Basis Overstatements Draw the 40% Penalty (3/25/13)

The Supreme Court has decided to accept cert on the split in the circuits on the issue of whether the 40% valuation / basis overstatement applies to bullshit tax shelters that fail in a number of ways other than just valuation / basis overstatement.  The Supreme Court docket page in the case, United States v. Woods, No. 12-562. is here.  The entry granting cert adds the following TEFRA partnership procedure issue:

In addition to the question presented by the petition, the parties are directed to brief and argue the following question: Whether the district court had jurisdiction in this case under 26 U. S. C. 6226 to consider the substantial valuation misstatement penalty.

I can't get excited about the TEFRA issue.  It is important, to be sure.  But, the principal issue is foisted on the Supreme Court by the Fifth and Ninth Circuits' stubborn insistence to grant relief to bullshit tax shelters with basis overstatements despite their own expressed doubts and the critical mass of circuit court opinions denying that relief. I guess, though, that the TEFRA jurisdictional issue could perhaps give the Court an opportunity to duck the merits issue, thus not resolving the conflict.  (I would think, however, that, if the Supreme Court ducked the issue, the Fifth and Ninth Circuits could still resolve the issue by moving to the majority view in the next cases presenting the issue; alternatively, the Supreme Court might resolve the split in some case that does not present a jurisdictional impediment (such as the case for which petition for certiorari was filed from a majority view case in Alpha I L.P. v. United States, No. 12-550, here.)

For good discussions of the split, see Gustashaw v. Commissioner, 696 F.3d 1124, 1136 (11th Cir. 2012), here; Crispin v. Commissioner, ___ F.3d ___, ___ n. 18 2013 U.S. App. LEXIS 3852 (3d Cir. 2013), here; ; AHG Investments LLC et al. v. Commissioner, 140 T.C. ___, No. 7 (2013), here (adopting this majority rule for the Tax Court in cases where the Circuit Court to which an appeal would be taken has not spoken); and  Jeremiah Coder, Self-Serving Concessions and Penalty Avoidance, 134 Tax Notes 1583 (Mar. 26, 2012).

U.S. Focuses on Liechtenstein (3/25/13)

Bloomberg reports that Liechtenstein, sometimes acting independently and sometimes as a  partner with Swiss enablers, is now receiving special attention previously reserved for the Swiss.  Dylan Griffiths, U.S. Seeks Answers in Liechtenstein on Tax Cheats (Bloomberg 3/24/13), here.  Key excerpts:

The U.S. has asked Liechtenstein to hand over data on foundations that may have been used to hide untaxed American money from the Internal Revenue Service, a step that may threaten Swiss banks. 

The U.S. wants to know the number of foundations set up by fiduciaries -- lawyers, accountants, financial advisers and asset managers -- for American taxpayers, according to a letter sent by the Department of Justice to authorities in the Alpine principality. A “formal request” to fiduciaries will follow, the DOJ said. 

“Seeking documents from the Liechtenstein fiduciaries is an important investigative step,” which will shed light on “the roles of banks, of bankers outside of Liechtenstein,” the Justice Department wrote in the letter, adding that it looked forward to receiving the data by March 29. 

* * * * 

“It’s a further evolution of the Department of Justice using third-party fiduciaries to gather more information on these structures and the banks involved,” said Milan Patel, a former IRS trial attorney who is now a partner at Zurich-based law firm Anaford AG. “This could be bad news for Switzerland, as the information could be used against more Swiss banks.” 

* * * * 

Unwinding Secrecy

Ethicist Question About Tax Professionals Exploiting Loopholes (3/24/13)

In this blog, I usually discuss tax crimes and matters related to tax crimes.  At least for tax professionals, there are parallel ethical issues.  The ethical issues certainly are recognized or should be recognized by tax professionals whose conduct approaches the criminal tax line -- that line where they cross over into intentionally violating a known legal duty, the mens rea standard for tax crimes.

The Ethicist, a column in the New York Times, addressed a facet of the ethical issue, in a context that does not necessarily implicate a tax crime.  Chuck Klosterman, A Tax Lawyer's Quandary (NYT Ethicists 3/22/13), here.  The question the anonymous tax lawyer asks is:

I am a tax lawyer. Is advising wealthy companies of ways to reduce their tax bills through sophisticated legal structures ethically permissible? The structures take advantage of legal loopholes in the tax legislation. 

The Ethicist answer, very short, is:

The ethics of specific professions create unique realms of responsibility. In the same way that a defense attorney is ethically obligated to give his client the best possible defense — even if he’s convinced of the individual’s guilt — your principal responsibilities lie with the company hiring you. You need to do your job to the best of your abilities, within the existing rules. You should, however, voice your moral apprehension about the use of such loopholes to the company you represent.

For a good, short general discussion, I suppose this works.

IRS has New Forms for Offshore Voluntary Disclosure Letter and Attachment (3/23/13)

These new forms apparently will replace the dog-ugly word versions.  As of this posting, the old ones -- in MS Wod format -- are still the forms linked on the master page, here.  I have not compared the content to see what might have changed.

Form 14457 (March 2013)  Offshore Voluntary Disclosure Letter, here.

Form 14454 (March 2013) Program Letter Attachment, here.

I will be back if I learn anything material.

Addendum 4/8/13: A reader has advised me -- and I have confirmed -- that the IRS has apparently taken the forms off the links, but the notice is that they will be posted soon.  In the meantime, here the forms are as they were originally posted:

• Form 14452 Foreign Account of Asset Statement, here.
• Form 14453 Penalty Computation Worksheet, here.
• Form 14454  Offshore Voluntary Disclosure Program Letter Attachment, here.
• Form 14457 Offshore Voluntary Disclosure Letter, here.

USA SDNY Announces Sentencing of Daugerdas Related Defendant (3/23/13)

USA SDNY announced, here, the sentencing of David Parse, a former broker at Deutsche Bank, caught up in the Daugerdas juggernaut.  Key excerpts are:

 DAVID PARSE, a former broker at Deutsche Bank (“DB”), was sentenced in Manhattan federal court today to 42 months in prison on tax obstruction and mail fraud charges stemming from his work in assisting lawyers from the Jenkens & Gilchrist (“J&G”) law firm and BDO Seidman (“BDO”) accounting firm in the design, marketing, and implementation of fraudulent tax shelters that allowed his clients to claim billions of dollars in fraudulent tax losses. Parse was sentenced by U.S. District Judge William H. Pauley III. 

Manhattan U.S. Attorney Preet Bharara said: “David Parse used his professional acumen to help his wealthy clients make an end-run around the IRS, depriving the treasury of billions in tax revenue. And for his role in this sprawling and massive fraud, he is now paying the price.” 

According to the Indictment previously filed in Manhattan federal court, the proof at Parse’s trial, and statements made during his sentencing proceeding: 

PARSE, who was also a certified public accountant, was a broker and investment representative at DB’s Chicago offices between 1997 and 2003. During that period, he worked with attorneys at J&G and accountants from BDO, as well as other DB brokers, on the design, marketing and implementation of high-fee tax strategies for individual clients. Those strategies, or “tax shelters,” were designed to allow high-net-worth clients to eliminate, reduce, or defer taxes on significant income or gains. 

Among the fraudulent tax shelters designed, marketed, and implemented by PARSE and his co-conspirators were “Short Sales,” “Short Options Strategy” (“SOS”), “Swaps,” and “HOMER.” The Short Sale tax shelter was marketed and sold from 1994 through 1999 to at least 290 wealthy individuals, and generated at least $2.6 billion in false and fraudulent tax losses. The SOS tax shelter was marketed and sold from 1998 through 2000 to at least 550 wealthy individuals, and generated at least $3.9 billion in false and fraudulent tax losses. The Swaps tax shelter was marketed and sold in 2001 and 2002 to at least 55 wealthy individuals, and generated more than $420 million in false and fraudulent tax losses.

Acquittal in Pflueger Involving Offshore Accounts (3/20/13)

I have previously blogged on the Government's offshore account prosecutions related to the Pflueger family in Hawaii.  See the blogs listed at the end of this blog below.  Some defendants pled.  One defendant, James (Jimmy) Pflueger, the family patriarch, decided to role the dice with a trial.  The trial was to a judge.  The judge acquitted James (Jimmy) Pflueger.  See Malia Zimmerman, Pflueger's Federal Tax Fraud Charges Vacated; Financial and Legal Woes Far From Over (Hawii Reporter 3/20/13), here.  The following are excerpts from  the article:

The 87-year-old retired automobile dealer - who founded the Pflueger dealerships – had been charged with filing false tax returns after the U.S. Justice Department said he hid nearly $15 million in a Swiss bank account without paying taxes on the $27.5 million sale of the Hacienda Corporate Plaza in California. 

 * * * * 

The defense team, headed by Steven Toscher [here], a Beverly Hills attorney from Hochman Salkin Rettig Toscher & Perez PC, and Edward M. Robbins Jr [here]., called just three witnesses including the former IRS acting chief as a summary witnesses and a handwriting expert who claimed Pflueger’s signatures were forged. Pflueger did not testify in his own defense. 

Although the judge said Leslie Osborne, chief of the Fraud and Financial Crimes division for the U.S. Attorney and Special IRS attorneys Timothy Stockwell and Dennis Kihm did not prove beyond a reasonable doubt that Pflueger knowingly conspired to defraud the United States of taxes he owed, the IRS will pursue a civil case against Pflueger to settle some $4.5 million in unpaid taxes from the sale of his California investment property, the Hacienda Corporate Plaza.

Addendum 3/25/13:  The (1) Order on Defendant’s Motions for Judgment of Acquittal and (2) Verdict in Non-jury Trial, is here.  My comments:

1. The Order denies the post-renewal of the Defense's Rule 29(a) motions at the close of the Government's case and then renewal at the close of both cases.  The Court says summarily:\

First, with respect to the original motion made at the close of the Government's case, viewing the evidence in the light most favorable to the Government, the Court concludes that a rational trier of fact could find each element of each crime beyond a reasonable doubt. Second, with respect to the renewed motion made at the close of the entire case, viewing the evidence in the light most favorable to the Government, the Court also concludes that a rational trier of fact could find each element of each crime beyond a reasonable doubt. The Court HEREBY DENIES both the original Rule 29(a) motion and the renewed motion.

In effect, the denial of the Rule 29(a) motion means essentially that the charges must be resolved by the fact-finder rather than by the court.  This division is most clearly seen where a jury is involved as the ultimate fact-finder.  In that case, the office of the Rule 29(a) is to determine whether there is enough evidence to submit the issue to the jury (sort of like a directed verdict in a civil case tried to a jury.)

HSBC India Depositor Sentenced (3/18/13)

A reader commented that Josephine Bhasin was sentenced on 3/8/11.  The docket entries from Pacer indicate that the only available document related to sentencing is a Sentencing Form, dated 3/8/13, here.  That form gives the core information related to the sentencing -- i.e., the sentence, fine, probation, etc., but not the underlying details.

My prior blog entry on the guilty plea is here.  The DOJ Tax Press Release for the original guilty plea is here.

From the limited information available:

Defendant:  Josephine Bhasin
Count of Conviction (By Plea):  Tax Perjury, Section 7206(1)
Conduct of Conviction:  Failure to report $168,000 interest and to answer foreign account question on Schedule B.
Incarceration:  0 months
Probation: 2 years
Fine: $30,000
Bank: HSBC India
High Balance (2008):  $8.3 million
Court:  USDC EDNY
Judge:  Arthur D. Spatt

Very little information is available.  I note that sentencing was delayed several times, with an indication that the defendant was cooperating.  The sentencing minute entry says:  "Transcript is sealed & is available to counsel upon request."

Principal Comments on Unclaimed Deductions and Losses in Sentencing Tax Loss Determinations (3/16/13)

The Sentencing Commission has received comments and testimony from principal constituents as to the issue of whether unclaimed deductions and credits should be permitted to reduce the tax loss in the critical tax loss calculation for sentencing purposes.  The sentencing tax loss, like the loss in other financial crimes, is the most influential determinant in the sentencing guidelines calculations in most cases.  I have previously discussed this and cited to an article by Messrs. Toscher and Perez.  See The Role of Unclaimed Deductions in Computing Tax Loss For Sentencing (3/1/13), here.

I offer the following comments principally to DOJ Tax's comments urging that unclaimed deductions and credits not be considered for the tax loss determination.  Here are some key excerpts from the DOJ Tax letter that should set the stage for persons generally familiar with the issue:

"Tax loss" under the Guidelines is distinct from a tax deficiency in a civil tax case or an order of restitution. Tax loss, by definition, should address the entirety of the harm intended by the defendant, including for example the harm caused by concealment through omitting certain deductions. It is only through civil enforcement that the government should be charged with determining the correct tax liability, and restitution serves merely as an aid in the collection of that liability. 

The Tax Division, along with the sentencing courts, has extensive experience in considering claims concerning uncharged expenses in Guidelines calculations. As demonstrated by several examples included below, any attempt to determine whether and when to allow a  deduction that the defendant did not report on an original tax return will require inappropriate speculation, and may implicate complex tax issues and result in unjust anomalies. At a minimum, it will turn routine sentencing hearings into tax mini-trials. Further, in civil tax enforcement, the taxpayer bears the burden of claiming and substantiating deductions, and the IRS's determinations are accorded a presumption of correctness - fundamental principles that are not incorporated into Options 1 or 3. Either of these proposed amendments runs the risk of giving convicted tax evaders advantages over taxpayers with honest disputes with the IRS.

Article Targeted to Jewish Readers As A Result of Israeli Bank Developments (3/16/13)

Readers already know that, now that the Government is doing, in some respects, a mop-up operation for Swiss Banks (plenty to come, but the sights are set), the Government is focusing on banks in other countries -- now particularly Israel.  See the links to Bank Leumi and Mizrahi-Tefahot Bank in the links below.  A reporter for the New Jersey Standard recently interviewed Larry Horn, here, a prominent lawyer heavily involved in the offshore account practice, regarding this initiative.  Larry Yudelson, Time to Come Clean (New Jersey Jewish Standard 3/15/13), here.  Key excerpts are:

Another indication that Bank Leumi is under investigation by U.S. authorities — and may be disclosing account holders to American tax authorities — came last week, when the bank said it set aside $90 million to cover costs for the investigation. In February, an Israeli-born Los Angeles businessman struck a plea deal concerning $4 million hidden in overseas banks — reported to be Bank Leumi and Mizrahi Tefahot Bank. 

“Once the bank gives your name to the IRS, you’re disqualified” from entering the disclosure program, Horn said. “If you’re under an audit, under examination, or the bank has disclosed your name, you can’t enter the program.” 

Another indication that Bank Leumi is under investigation by U.S. authorities — and may be disclosing account holders to American tax authorities — came last week, when the bank said it set aside $90 million to cover costs for the investigation. In February, an Israeli-born Los Angeles businessman struck a plea deal concerning $4 million hidden in overseas banks — reported to be Bank Leumi and Mizrahi Tefahot Bank.
“Once the bank gives your name to the IRS, you’re disqualified” from entering the disclosure program, Horn said. “If you’re under an audit, under examination, or the bank has disclosed your name, you can’t enter the program.” 

* * * *  

He warns that prison terms are a possibility for people who get caught up in the IRS’ dragnet — particularly if they’ve been hiding accounts worth a million dollars or more.
At that level, unreported taxes on interest earned by the accounts can equal tens or hundreds of thousands of dollars — and that rises to the level of criminal tax evasion and possibly three years in prison.

U.S. Taxpayer Pleads to FBAR and Tax Perjury Violation (3/14/13)

In a Bloomberg article that I just posted, there is a discussion of an FBAR plea agreement which I had not been aware of before.  David Voreacos & Patricia Hurtado, U.S. Tax Cheats Nailed After Swiss Adviser Mails It In (Bloomberg 3/13/13), here.  According to the Article, Michael Canale pled guity to an FBAR Violation and a Tax Perjury.  The plea occurred in December and sentencing is schedule next month.  The pertinent parts of the article are:

Both Thomann [another Swiss Banker/Enabler[ and Singenberger helped Canale, the retired Army surgeon, according to Canale’s charging document, known as a criminal information. 

Thomann had handled the account of a relative who died in 2000, leaving the money to Canale. Thomann introduced Canale to Singenberger to set up a structure that “would, to the greatest extent possible, obscure from the IRS” his ownership of his undeclared account, according to the information. 

Singenberger set up a Liechtenstein foundation for Canale, and helped him open an account at Wegelin, prosecutors said. By 2009, the account had grown to $1.5 million. 

Bronze Star 

Canale, 62, is a Bronze Star recipient who worked for the Army as a field surgeon during Desert Storm in Saudi Arabia, Iraq and Kuwait, according to one of his lawyers, Martin Press. He also was a surgeon in Macedonia and Kosovo, Press said. 

* * * * 

Canale, who was also a paratrooper, worked for the Veteran’s Administration from 2010 until retiring last year, Press said.

U.S. Using a Client List of Indicted Swiss Banker/Enabler (3/14/13)

There is an interesting story that the IRS obtained a list of a Swiss Banker's clients and is using it as a road map to identify clients, prosecute some and collect money from others.  David Voreacos & Patricia Hurtado, U.S. Tax Cheats Nailed After Swiss Adviser Mails It In (Bloomberg 3/13/13), here.  The Swiss Banker is Beda Singenberger (see blogs mentioning Singenberger here.)  According to the story, he inadvertently mailed the list and it somehow ended up with the IRS or DOJ.

The article continues:

“He was sending mail to someone in the United States, and apparently in error he included a list of U.S. taxpayers,” Assistant U.S. Attorney Dan Levy said on March 5 at the sentencing in New York of Wajsfelner. “The government has mined that list to great effect and prosecuted a number of people who were on that list.” 

* * * * 

It is not clear from court records how Singenberger’s wayward mail enclosure -- which included such client details as their residences, their Swiss banks, and the ways they hid accounts from the IRS -- found its way to prosecutors.

The article discusses some U.S. persons involved:

Now, U.S. authorities appear to be picking off the clients on that list one by one. Singenberger’s goof has already ensnared Jacques Wajsfelner, an 83-year-old exile from Nazi Germany, and Michael Canale, a retired U.S. Army surgeon, court records show. Another customer, cancer researcher Michael Reiss, pleaded guilty, though his court records don’t mention the list.

I have blogged on Wajsfelner and Reiss before.  See on Wajsfelner Credit Suisse / Wegelin Client Pleads Guilty to FBAR Violation in SDNY (8/21/12), here and on Reiss Doctor / Medical Professor / UBS Client Sentenced (1/11/12), here.  I have not previously blogged on or been aware of Canale and will post a separate blog on that containing, in part, information from this article.

Addendum 3/16:

Former IRS Large Case Auditor Pleads to Criminal Conflict of Interest & Wrongful Disclosure (3/13/13)

The USAO SDNY announced yesterday that Dennis Lerner, a former IRS employee, pled to two 5 year felony counts -- (i) criminal conflict of interest and (ii) disclosing confidential audit information (Section 7213).  See USAO Press Release, here.  According to the press release, the following is the USAO summary of the charges.

From June 2010 through August 2011, LERNER worked as an International Examiner in the New York office of the IRS. For several months leading up to his resignation from the IRS, one of his chief responsibilities involved conducting an audit of an international bank (“Bank 1”) related to approximately $1 billion in allegedly unreported income. Shortly before his resignation, LERNER led negotiations on behalf of the IRS which resulted in a proposed $210 million settlement between Bank 1 and the IRS. The settlement was still pending final approval at the time of his departure. Unbeknownst to his colleagues and supervisors, LERNER applied for, interviewed for, and accepted the position of Tax Director at Bank 1 during the time period in which he was representing the IRS in the Bank 1 settlement discussions. He also sent multiple emails to an individual in which he expressed both his dissatisfaction with his job at the IRS and his hope that he would secure the Bank 1 job. At no time did he notify the IRS of his efforts to obtain employment with Bank 1. 

LERNER also engaged in improper disclosure of IRS tax return information during the time period that he worked as an IRS International Examiner. Specifically, he revealed the identity of a bank he was auditing to an individual who was not employed by the IRS.

Bank 1 is identified in the press as Commerzbank AG.  Plea agreements usually require cooperation.  Since the type of conduct for which Lerner was charged take two to tango, so to speak, I wonder whether the shoe will now fall on Commerzbank and/or its employees.

I previously blogged the original complaint, Former IRS Agent Charged with Conflict of Interest and Disclosing Return Information Including Whistleblower Name (9/27/12), here.

Addendum: