U.S. Banks File Long-Shot Litigation to Block FATCA Reciprocal Requirements (11/13/13)

Reuters has this article on a suit filed by Texas and Florida bankers to block reciprocal implementation information gathering on foreigners holding deposits in U.S. banks.  Kevin Drawbaugh, Dena Aubin and Patrick Temple-West, Bankers' lawsuit jeopardizes U.S. tax dodger crackdown -lawyers (Reuters 11/12/13), here.  Key exceprts:

A court challenge by Texas and Florida bankers threatens to undermine a broad U.S. government crackdown on offshore tax avoidance and jeopardize a web of carefully crafted international agreements, tax lawyers said on Tuesday. 

The Texas Bankers Association and the Florida Bankers Association, both industry groups, have filed a lawsuit attempting to block a new U.S. Treasury Department rule governing accounts held by foreigners in U.S. banks. 

The rule, written last year and set to take effect in March 2014, will require U.S. banks to disclose information to the Internal Revenue Service about any account held by a non-resident alien that earns at least $10 of interest per year. 

Failure to comply would cost a bank $100 per violation, while information provided by banks to the IRS under the rule would be made available to about 70 foreign governments. 

It was written to give those governments more incentive to comply with another law, the Foreign Account Tax Compliance Act (FATCA), that requires non-U.S. banks to tell the IRS about offshore accounts held by Americans worth $50,000 or more. 

Approved by Congress in 2010, FATCA is driving the rapid worldwide expansion of a network of bilateral tax information-sharing agreements, negotiated by the U.S. Treasury and its overseas counterparts amid heightened global concern about tax dodging. FATCA is set to take effect in July 2014. 

Many of these agreements depend, at least in part, on reciprocal information sharing of the sort made possible by FATCA and the 2012 Treasury rule that supplements it. 

The Texas and Florida bankers' claims face an uphill challenge in court on procedural grounds, lawyers said. But if they are upheld and the 2012 rule voided, it would damage U.S. credibility and "irreparably harm its reputation in the international community as a reliable partner in tax cooperation," federal lawyers said in U.S. District Court for the District of Columbia filings. 

* * * * 

Congress drafted FATCA, which was signed into law in 2010 by President Barack Obama. As Treasury and the IRS moved to implement the law, many non-U.S. banks and other financial institutions and their home government resisted. Some demanded reciprocal information sharing by the United States. 

To accommodate these requests and encourage foreign banks' compliance with FATCA, the Obama administration wrote the rules last year to require U.S. banks to report to the IRS on interest-earning U.S. accounts held by non-resident aliens.

IRS Gets New John Doe Summonses for Bank of Butterfield & Son Ltd. and Affiliates (11/13/13)

The IRS has obtained John Doe Summonses to U.S. banks regarding both ZKB and The Bank of N.T. Butterfield & Son Ltd., a Bermuda bank with subsidiary offices in Cayman Islands (see Wikipedia entry here).  As previously reported in this blog, JDS were issued to  Citigroup Inc's Citibank NA and Bank of New York Mellon Corp.  New John Doe Summons to U.S. Banks for Information About Correspondent Offshore Banks (Federal Tax Crimes Blog 11/10/13), here.

The DOJ Tax press release is here (I just cut and paste for now and will link it later; bold facing in the body of the release is provided by me):

COURT AUTHORIZES IRS TO ISSUE SUMMONSES FOR RECORDS
RELATING TO U.S. TAXPAYERS WITH OFFSHORE BANK ACCOUNTS

Five Banks Directed to Produce Records for Accountsat Zurcher Kantonalbank, The Bank ofN.T. Butterfield & Son Limited and Affiliates 

TUESDAY, NOVEMBER 12, 2013 

WASHINGTON -- U.S. District Judge Kimba M. Wood of the Southern District of New York entered an order on Nov. 7, 2013, authorizing the IRS to issue summonses requiring Bank of New York Mellon (Mellon) and Citibank NA (Citibank) to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (collectively, ZKB) in Switzerland; and U.S. District Judge Richard M. Berman of the Southern District of New York entered an order today authorizing the IRS to issue summonses requiring Mellon, Citibank, JPMorgan Chase Bank NA (JPMorgan), HSBC Bank USA NA (HSBC), and Bank of America NA (Bank of America) to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively, Butterfield) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom. U.S. Attorney for the Southern District of New York Preet Bharara, Assistant Attorney General for the Justice Department's Tax Division Kathryn Keneally, and Acting Commissioner of the Internal Revenue Service (IRS) Danny Werfel made the announcement today. 

In these actions, the Court granted the IRS permission to serve what are known as "John Doe" summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses approved today direct these five banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield and their affiliates, including other foreign banks that used ZKB and Butterfield's U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients. 

"These cases once again demonstrate the department's resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes," said Assistant Attorney General Keneally. "These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations. U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it's too late." 

"Today's action show that the use of foreign banks for tax evasion remains a high investigative priority of this office and U.S. citizens should understand that loud and clear," said U.S. Attorney Bharara. "By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes." 

"International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law," said IRS Acting Commissioner Werfel. "These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on U.S. soil." 

IRS Offshore Voluntary Disclosure programs and initiatives enable U.S. taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income. To date, U.S. taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. In addition, a number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted failing to report income earned from their offshore accounts on their federal tax returns. The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have done the same in violation of federal tax law. In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers and others to hide at least $423 million from the IRS in secret Swiss bank accounts.

Daugerdas Retrial Jury Instructions - Part 01 Reasonable Doubt (11/12/13)

I have received the prepared jury instructions drafted by Judge Pauley (Wikipedia here) in the Daugerdas retrial.  The full set of jury instructions is linked here.  I did not get the transcript as they were actually read to the jury, but this should be pretty much as delivered for present purposes.  

I will use a series of posts to address various facets of the instructions that I find interesting.

This first post will deal with the reasonable doubt instruction.  The instruction as given is:

Reasonable Doubt  

I have said that the Government must prove a defendant guilty beyond a reasonable doubt. The question naturally arises: what is a reasonable doubt? The words almost define themselves. It is a doubt based in reason and arising out of the evidence in the case, or the lack of evidence. It is a doubt that a reasonable person has after carefully weighing all of the evidence in the case. 

Reasonable doubt is a doubt that appeals to your reason, your judgment, your experience and your common sense. If, after a fair and impartial consideration of all the 8 evidence, you can candidly and honestly say that you are not satisfied with the guilt of a defendant, that you do not have an abiding and firm belief of a defendant’s guilt; in other words, if you have such a doubt as would reasonably cause a prudent person to hesitate to act in a matter of importance in his or her own affairs, then you have a reasonable doubt, and in that circumstance it is your duty to acquit.  

On the other hand, if after a fair and impartial consideration of all the evidence, you can candidly and honestly say that you do have an abiding belief of a defendant’s guilt—a belief that a prudent person would not hesitate to act on in a matter of importance in his or her own affairs—then you have no reasonable doubt, and under such circumstances it is your duty to convict.  

One final word on this subject: reasonable doubt is not whim or speculation. It is not an excuse to avoid the performance of an unpleasant duty. Nor is it sympathy for one party or the other. “Beyond a reasonable doubt” does not mean a positive or mathematical certainty. The Government has met its burden if the guilt of a defendant is established beyond a reasonable doubt, not beyond all possible doubt.

I have no reason to believe that this is not as good as it gets for this genre of instruction.  Certainly Judge Pauley is one of the best and knows how to do justice with instructions.

The problem I have with the reasonable doubt standard for conviction is that it is not as certain a standard as one would hope for criminal convictions.    I do offer my thoughts on the subject from the following excerpt from my Federal Tax Crimes book (footnotes omitted; but caveat that the devil is in the footnotes which I omit so as not to devil up this blog entry; I do provide a pdf with the text and the footnotes here):

Zurcher Kantonalbank, U.S. Target, Too Big to Fail (11/12/13)

Two targets of the U.S. prosecutors' angst have already failed.  Now, there are reports that Zurcher Kantonalbank, also a target, is subject to Switzerland's too big to Fail legislation.  Matthew Allen, Zurich cantonal bank branded too big to fail (swissinfo.ch 11/11/13), here.  Excerpts:

Switzerland’s largest cantonal bank is confident it already has a big enough risk-absorbing capital buffer to match tougher regulatory demands after being named alongside UBS and Credit Suisse as a “too big to fail” financial institution. 

The Swiss National Bank (SNB) turned up the heat on the Zürcher Kantonalbank (ZKB) on Monday by upgrading it to a category one “systemically relevant” institution. In other words, ZKB’s collapse would cause more pain than the Swiss economy could bear. 

* * * * 

US tax strife 

The ambitious ZKB has been busily expanding its business in recent times, in particular its wealth management services. But the international push for growth has led to some problems, most notably a criminal investigation in the United States into allegations that the bank helped US citizens evade taxes. 

ZKB is among a handful of Swiss or Swiss-based financial institutions that are enduring a full blown probe by the Department of Justice on this issue. The cantonal bank of Basel is the other Swiss state-owned bank on this list. 

 With a capitalisation of CHF150 billion at the end of last year, ZKB is the fourth largest banking group in Switzerland – behind UBS, Credit Suisse and Raiffeisen. It realised profits of CHF744 million in 2012, employed just over 5,000 staff and managed nearly CHF200 billion of clients’ wealth. 

 A FINMA spokesman told swissinfo.ch that the regulator supported the SNB’s decision to name ZKB as too big to fail, but declined to go into detail of how stringent the new capital requirements could be.  

 Swiss too big to fail legislation, that came into force last year, also demands that these banks cover at least 4.5% of all assets - no matter how risky - with capital reserves. ZKB said its so-called leverage ratio is already comfortably above this threshold. 

 The bank must also come up with an emergency plan of how to protect its core functions, such as retail deposits, should it collapse. ZKB said on Monday that it does not anticipate having to change strategy or cut any rsikier operations.

Swiss Prosecutors Investigating Gadola, Swiss Banker, Who Cooperated with U.S. (11/12/12)

Reuters has this news article:  Swiss prosecutors probe former UBS banker turned U.S. informant (Reuters 11/12/13)., here.  Key excerpts:

Switzerland's prosecutor said it is investigating former UBS banker Renzo Gadola, who received a light sentencing in the U.S. two years ago in return for becoming a informant on wealthy American tax cheats. 

The investigation centers on industrial espionage, according to Swiss media, and it raises the spectre of more Swiss bankers who have cooperated with foreign officials being pursued by prosecutors for violating the country's strict banking secrecy laws. 

* * * * 

Gadola, who was not immediately available for comment, would be the first Swiss banker to be pursued in Switzerland on charges of industrial espionage for the United States over the tax spat, although Swiss authorities have charged other bankers for passing on confidential files to Germany. 

Almost immediately after his arrest in 2010, Gadola started cooperating with U.S. officials, providing insight into other bankers and Swiss financial institutions offering offshore banking services, according to prosecutors at the time of his sentencing in 2011. 

He turned over fellow bankers' names and participated in recorded conversations with clients, according to a document released in the run up to his sentencing. 

That cooperation entailed disclosing to U.S. prosecutors for the first time the role of Swiss cantonal banks, including Basler Kantonalbank, in helping Americans to evade U.S. taxes on at least hundreds of millions of dollars in assets. 

Gadola, who continued to cooperate as a condition of his probation, was in 2011 sentenced to five months' probation from a Florida federal judge and a fine of $100.

New IRM Provision for FBAR Appeals (11/11/13)

The IRS has published a new IRM provision -- Part 8. Appeals, Chapter 11. Penalties Worked in Appeals, Section 6. FBAR Penalties, here.  The indicated "Material Changes" are

(1) Updated references and made editorial changes throughout. 

(2) Revised IRM 8.11.6.1 to discuss new forms available for electronic filing, clarifies when Alternative Dispute Resolution rights are not available for FBAR cases, made reference to mitigation threshold conditions for FBAR penalties, joint and severable liability, accrual of interest, unagreed closings, bankruptcy relief, electronic filing requirements for FBARs, and the venue for FBAR cases. Changed the time for completing post-assessed FBAR cases from 60 days to 120 days. 

(3) Revised IRM 8.11.6.2 clarifies premature referrals, updated information on how to contact the FBAR Coordinator, added that protested years should match the case summary card, and added that IRS Counsel memo is needed for willful penalties over $10,000. 

(4) IRM 8.11.6.3.1 Clarified that an Appeals Officer has the authority to execute a Title 31 FBAR extension. 

(5) Moved Account and Processing Support (APS) procedures for establishing FBAR cases on ACDS to IRM 8.20.5.24. 

(6) IRM 8.11.6.5 Clarified the information to be verified and contained on the case summary card for FBAR cases. Changed the time for completing post-assessed FBAR cases from 60 days to 120 days. 

(7) IRM 8.11.6.6 Clarified instructions for processing a payment received for an FBAR penalty. 

(8) IRM 8.11.6.8 makes reference to APS closing procedures for all types of FBAR cases now contained in IRM 8.20.7.25, Foreign Bank and Financial Accounts (FBAR) Penalty Case Closing Procedures. 

(9) IRM 8.11.6.8.2 Clarified closing procedures for pre-assessed FBAR cases. 

(10) IRM 8.11.6.8.3 Clarified closing procedures for post-assessed FBAR cases.

I have not had time to the consider these changes yet.  When I do, I will post here anything that I feel material.

IRS Authority to Settle After Referral to DOJ Tax (11/11/13)

I point readers to an excellent blog by Peter Reilly -- An Isley Brother In Tax Court - Does Tax Crime Pay (Forbes Taxes 11/10/13), here.  Peter discusses the recent decision in Isley v. Commissioner, 141 T.C. No. 11 (2013), here.  I refer readers to Peter's excellent discussion of the issues in the case.  I address here only the issue I think most relevant to Tax Crimes enthusiasts.  However, the case does have some other tax procedure issues that I recommend to readers.

The taxpayer, Ronald Isley, was one of the famous Isley Brothers (Wikipedia entry here) whose:

musical genres included rhythm and blues, doo-wop, funk, and contemporary R&B. Various versions of the group had top 40 singles and/or top 20 albums during a period stretching from 1962 to 2006, which ultimately led to various accolades including the induction of petitioner and four of his brothers into the Rock and Roll Hall of Fame. Late in his career, petitioner focused on solo work, and as late as 2011 he was still performing with his younger brother Ernie.

Over the many years, the taxpayer made a lot of money and was a chronic tax delinquent.  I won't get into the taxpayer's skirmishes with the IRS and ultimately DOJ Tax; suffice it to say that IRS referred his case to DOJ Tax for criminal prosecution, he was prosecuted, convicted by a jury, and was sentenced on 9/1/06 "to 37 months' imprisonment and, upon release from imprisonment, placing petitioner on "supervised release for a term of three years" (three-year probationary period)."  The following are the pertinent terms of the sentencing court's judgment and probation commitment order (JPC order) which

Petitioner was indicted, tried, and convicted in the District Court for the Central District of California on five counts of tax evasion and one count of willful failure to file a tax return covering tax years 1997-2002 (conviction years). Following the guilty verdict, the court, on September 1, 2006, issued a judgment and probation commitment order (JPC order) sentencing petitioner to 37 months' imprisonment and, upon release from imprisonment, placing petitioner on "supervised release for a term of three years" (three-year probationary period). The JPC order set forth a number of terms and conditions with respect to the three-year probationary period, including the following: 

2. The defendant shall truthfully and timely file and pay taxes owed for the years of conviction; and shall truthfully and timely file and pay taxes during the period of community supervision. Further, the defendant shall show proof to the Probation Officer of compliance with this order; 

* * * * * * * 

10. The Defendant shall pay all taxes when due, and, if necessary, sell assets to satisfy his tax obligations.

The JPC order also provided for the adjustment of petitioner's restitution obligation as follows:

The defendant shall notify the Court through the Probation Office, and notify the United States Attorney of any material change in the defendant's economic circumstances that might affect the defendant's ability to pay a fine or restitution, as required by 18 U.S.C. § 3664(k). The Court may also accept such notification from the government or the victim, and may, on its own motion or that of a party or the victim, adjust the manner of payment of a fine or restitution-pursuant to 18 U.S.C. § 3664(k).

Swiss Bankers Expect to Share Data for Tax Purposes (11/10/13)

Swiss bankers are coming increasingly to the realization that bank secrecy, long a profit center for those banks, must yield to other countries' fiscal needs.  See Most Swiss bankers believe banking secrecy's days are numbered (Reuters 11/5/13), here.  Excerpts:

Nearly two-thirds of Swiss bankers believe Switzerland will share data on foreign depositors with its neighbours by 2016, according to a study released on Tuesday. 

The country is the world's biggest offshore financial centre with more than $2 trillion in assets under management, but is under huge pressure from the European Union and United States to end bank secrecy as cash-strapped countries fight tax evasion. 

The study, involving 49 private banks or independent asset managers and compiled by consultants KPMG, reflects a growing resignation among bankers in Switzerland to attacks on banking secrecy following a U.S. crackdown which has felled two private banks in the country and cost UBS $780 million in fines. 

Automatically sharing data would represent a shift away from a clean-money strategy the country has been pursuing, which aims to sweep bank accounts clean of undeclared funds with additional compliance standards for bankers. 

"In our opinion the "whiter than white" strategy of the Swiss government and parliament may be obsolete, as a majority of respondents believe automatic exchange of information could be in force within three years," the study's authors said. 

A government panel has recommended the Swiss government prepare to share data even before a global standard is established, but the issue remains deeply divisive amongst lawmakers.

What this means is less lucre -- the spread they make for helping their clients cheat on taxes -- to go around, and correspondingly more capital requirements for Swiss banks.  See Giles Broom, Swiss Private Banks Need to Double Assets, KPMG Reports (Bloomberg  11/5/13), here.

Wealth managers also said the nation with more than 300 banks is ending its tradition for financial secrecy, in response to pressure from foreign fiscal authorities. More than 60 percent of respondents expect a system of automatic exchange of information between tax collectors in different countries to be introduced within three years, meaning banks would provide data on cross-border client accounts that could be passed to customers’ home tax authorities. 

Most private bankers can expect pay to stagnate or decline as more than 40 percent of respondents forecast employee compensation to drop at least 15 percent by 2022, KPMG said. Only 9 percent of respondents expect remuneration to increase compared with today’s levels, according to the report.

That said, consider the rerport by the Tax Justice Network, Switzerland Remains No. 1 for Secrecy in Tax Justice Ranking (Bloomberg 11/7/13), here.  Excerpts (with emphasis added by JAT):

New John Doe Summons to U.S. Banks for Information About Correspondent Offshore Banks (11/10/13)

Reuters reports that John Doe Summons requests have been filed "seeking information from Citigroup Inc's Citibank NA and Bank of New York Mellon Corp to uncover the identities of U.S. citizens who may have been hiding money in Swiss bank accounts to avoid taxes."  Patrick Temple-West and Terry Baynes, Prosecutors seek clues on alleged tax dodgers from two U.S. banks (Reuters 11/6/13), here.  The Swiss banks targeted is Swiss bank Zuercher Kantonalbank (ZKB).  The U.S. banks from whom the records are sought "are not accused of any wrongdoing in the court filing."  Key excerpts:

ZKB, based in Zurich, offers private banking to clients around the world, including U.S. taxpayers, according to the filing. Some of those services are provided through correspondent accounts at Citibank and BNY Mellon, it said. 

* * * * 

ZKB used Citibank and BNY Mellon as correspondent banks to provide offshore banking services to U.S. taxpayers, "who in turn have failed to report the existence of their ZKB accounts to the IRS, as well as the income earned on those accounts," the U.S. Attorney's office said in its filing. 

* * * * 

With John Doe summonses, "what the U.S. is trying to do is figure out who accessed their undeclared Swiss bank account money, and did anyone access it in a way that flowed through U.S. banks," said Jeffrey Neiman, a former federal prosecutor involved in Swiss bank investigations who is now in private law practice in Fort Lauderdale, Florida.

ZKB is, of course, one of the 14 banks excluded from the recent Swiss bank "amnesty" initiative.  See blogs on the initiative here.

The way the article is written, it seems that the JDS request has been made but not yet approved by the court.  In the past, the filing did not usually become public until the order is granted.  Of course, the odds that a court would not grand a JDS is probably low but not unheard of.  John Doe Summonses & Statutes Of Limitations (Federal Tax Crimes Blog 5/27/11), here.

The target(s) of these summonses appear to be the U.S. taxpayers using the facilities of the correspondent banks to access their ZKB accounts, but almost certainly will also contribute materially to the ongoing investigation of ZKB.  Note in this regard that, by being excluded from the U.S. Swiss bank initiative, ZKB may be in a hunker down mode, without a strategic need to deliver up their U.S. customers.  At least for now, because there will certainly come a time when it will be in ZKB's strategic advantage to come all the way clean (or at least as clean as they think they have to).

Addendum 11/12/13 6:00 pm:

According to this article, the court granted the JDS.  David Voreacos, Citigroup, BNY Mellon Records Sought by IRS in ZKB Tax Probe (1) (Bloomberg Business 11/12/13), here.

Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes (11/7/13)

According to this DOJ Tax Press Release, here, by consent, Gary J. Stern has been "permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns."  Key Excerpts from the press release:

According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million.  Stern allegedly promoted the schemes to customers, colleagues, and business associates.  The complaint alleges that his customers included lawyers, entrepreneurs and professional football players, and some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty and professional malpractice.

Federal law allows an income tax credit with respect to certain sales of fuel from non-conventional sources (FNS), including methane produced from landfills.  According to the complaint, beginning in the early 2000’s Stern created a web of partnerships, companies and other entities to serve as a conduit for sham transactions designed to funnel false FNS credits to his customers.  Stern allegedly funneled over $11.4 million of these bogus FNS credits to customers and used a bogus trust arrangement to fraudulently distribute an additional $5.34 million in FNS credits to his customers.

Finally, according to the complaint, Stern promoted an abusive income-shifting technique to help his wealthiest customers illegally avoid taxes.  Stern and his business associates allegedly kept most of the money that customers contributed to this scheme.  The court has barred Stern from using any entity to assist others in illegally shifting income for the purpose of avoiding tax.   

The only question I have is whether his consent resolves or mitigates the criminal exposure implicated by the allegations in the complaint (as recounted in the press release).  The press release states that he consented to the injunction but did not admit the allegations.  That perhaps is a fine line.

The Justia entry is here.

The effect of this injunction is that Mr. Stern can be held in contempt and jailed if he violates the injunction by promoting fraudulent schemes or preparing fraudulent returns.  But, then that conduct would be criminal under a host of statutes.  So, it is unclear what exactly an injunction does in terms of compulsion to avoid the conduct.  The contempt proceeding on the injunction would be more summary than criminal charges, but other than that I am not sure what this does.

Readers comments will be appreciated.

I did a Google search on "Gary J.Stern" and identified a lawyer in Chicago with that name.  I am not sure it is the same lawyer, so I decided not to post a link.

Should You Opt Out of OVDI/P? (11/5/13)

I point readers to this new article:  Robert W. Wood, Should You Opt Out Of IRS Offshore Amnesty? (Bloomberg BNA 11/5/13). here.

The author is a very good lawyer.  See his bio here.  He is well respected in the tax community and I, sometimes a member of the sames community, respect him.

Still, I think an article of this nature must be taken with a grain of salt.  Opting out is a larger issue than, I think, can be presented in a article, certainly a short article, outside the context of specific facts (that comment should make readers wary of my own blogs).  That's basically it.

But I will point out one mistake he makes in the article,  He says:

Even criminal prosecution is conceivable after opting out, although that has evidently not happened to anyone. 

That is not true, as presented.  Opting out of an otherwise good OVDI/P presentation and thereafter cooperating in the opt out audit achieves the same "amnesty" from criminal prosecution as if the taxpayer had not opted out.  Let me state that strongly:  Assuming an otherwise good submission of documents and full cooperation, a taxpayer does not increase his or her risk of prosecution by opting out.  I disagree with putting unnecessary fear into this equation.

The author is correct that "once outside the program, the IRS may assess the civil fraud penalty or information return penalties."  And, the willful FBAR penalty can apply.  And, as he later notes, civil fraud can open up an otherwise closed statute of limitation.  Those considering opt out must take those factors into account.

But, I don't think and certainly have not experienced his comment that "Some say the IRS may apply rough justice by calculating FBAR penalties that approximate the 27.5% miscellaneous offshore penalty within the OVDP."  He attributes that to some unnamed others and not to himself.  I don't think the IRS is that petty.  Certainly have not experienced it.

He is, of course, correct that "[t]he OVDP is predictable."  I tell my clients that the only certainty in this offshore account universe is the OVDP penalty structure (including, under the current iteration, the 27 1/2 % penalty for noncompliant foreign assets).  But, for experienced practitioners, there is less uncertainty in the opt out than might otherwise be perceived.  Wise counsel is what is needed.  It is not for the faint hearted or those with inexperienced counsel.

Isreali Bank Depositor Pleads to Conspiracy (11/5/13)

According to a DOJ press release, here, yesterday, David Raminfard pled guilty to one count of defraud / Klein conspiracy related to his deposits, through a nominee Turks & Caicos entity, in an Israeli Bank.  

Key facts:

Defendant:  David Raminfard
Count of Conviction (By Plea):  Conpiracy
Maximum sentence: 60 months.
Tax Loss:  $145,880 (estimated based on omitted income times 28%)
High balance in account:  $3 million (app.)
FBAR Penalty: 50% of high balance.
Court: CA-CD
Judge: ________________

Key excerpts from the press release are:

According to court documents, Raminfard, a U.S. citizen, maintained undeclared bank accounts at an international bank headquartered in Tel Aviv, Israel, identified in court documents as Bank A. The accounts were held in the names of nominees in order to keep them secret from the U.S. government. One of the accounts was held in the name of Westrose Limited, a nominee entity formed in the Turks and Caicos Islands. To further ensure that his undeclared accounts remained secret, Raminfard placed a mail hold on his accounts. Rather than having his account statements mailed to him, Raminfard would receive them from an international accounts manager with Bank A in Israel, who brought the statements to Los Angeles and reviewed them with Raminfard during meetings at a hotel. 

In or about 2000, Raminfard began secretly using the funds in his undeclared accounts as collateral for back-to-back loans obtained from the Los Angeles branch of Bank A. Raminfard used one of the loans to purchase commercial real estate in Los Angeles. By using back-to-back loans, Raminfard was able to access his funds in Israel without the U.S. Government finding out about his undeclared accounts. These loans also enabled Raminfard to claim the interest paid on the loans as a business expense on his companies' business tax returns, while not reporting the interest earned in Israel as income on his individual income tax returns filed with the IRS. For tax years 2005 through 2010, Raminfard failed to report approximately $521,000 in income. The highest balance in Raminfard's undeclared accounts was approximately $3 million. 

Raminfard is the latest in a series of defendants charged in the U.S. District Court for the Central District of California with conspiring to defraud the United States in connection with using undeclared bank accounts in Israel to obtain back-to-back loans in the United States. 

* * * * 

Raminfard faces a potential maximum prison term of five years and a maximum fine of $250,000. In addition, Raminfard has agreed to pay a civil penalty to the IRS in the amount of 50 percent of the high balance of his undeclared accounts for failing to file FBARs.

India Signs OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters (11/3/13)

Nigam Nuggehalli, Artful dodges in Swiss tax pacts (Business Standard 10/30/13), here.  Excerpts of the introduction are:

The Swiss banking regime is in the news again with the announcement that Switzerland finally decided to sign, on October 16, the Organisation for Economic Co-operation and Development-sponsored Multilateral Convention on Mutual Administrative Assistance that provides for a liberal exchange of information between countries on potential money launderers and tax dodgers. 

As usual, appearances are deceptive. Switzerland will not be subject to a liberalised information exchange regime without a further discussion in and eventual ratification by the Swiss parliament. Therefore, the scope and timing of Switzerland's participation in a regime that enables transparent exchange of information remain uncertain. 

Until then, in order to access information on Indian-source money stashed by tax dodgers and money launderers in Swiss banks, India has to depend on the double taxation avoidance agreement (DTAA) that went through certain revisions in 2000 and 2010. The original and revised versions present a fascinating insight into, on the one hand, the evolution of India as a country attractive to foreign investment and, on the other hand, India's traditional obsession with untaxed money in Swiss banks.

The article then provides a nice summary of the events leading to this new agreement and the immediate effect of the new agreement.

New, Outlier Sentencing in Case Involving Export Crimes with Tax and FBAR Problems (11/3/13)

According to an FBI press release, here:

Qiang “John” Wu, 47, of Dublin, Ohio has been sentenced to six months in prison, followed by three years under court supervision, for making a materially false statement relative to the exportation of laser technology to the People’s Republic of China. Wu was also ordered to pay approximately $282,000 in fines and fees, as well as to pay back taxes due for several years. 

* * * * 

According to court documents, the investigation identified seven shipments Wu sent to China through his business, known as Adv-Tech International LLC, between October 17, 2007 and August 31, 2010. Wu knowingly failed to disclose the true end-user on the U.S. Customs and Border Protection Shippers Export Declaration (SED). The items exported, including laser equipment, are considered dual-use technologies with both military and civilian applications. 

The investigation revealed two of the true end-users in China as state-owned institutions involved in laser and optical research with military applications. Wu was found to have knowingly filed inaccurate export declarations to deter scrutiny of these shipments by U.S. authorities. Wu is a citizen of China and a legal permanent resident of the United States. 

Wu failed to report to the IRS a significant portion of the proceeds of these transactions, some of which were deposited into a U.S. bank account and some of which were diverted to accounts held by Wu in the People’s Republic of China. As a result, Wu has been ordered to file amended tax returns for the tax years 2006 through 2011 and pay any additional taxes due. A civil Foreign Bank Account Reporting (FBAR) penalty of $100,000 was also ordered for failing to report money Wu held in foreign bank accounts.

This appears to be an outlier case driven by crimes other than the tax and FBAR crimes.  I will incorporate the information in the spreadsheet tomorrow.

It is not clear from the press release that he was actually convicted of income tax or FBAR crimes.  An earlier report of his guilty plea mentions the income tax and FBAR problems and states that they are discussed in the plea agreement, but also is inconclusive as to whether there was a plea for these tax related crimes.  I infer from the combination of the statements that he did not plea to tax or FBAR crimes, but did agree that the Court could order him to cooperate with the IRS and file the required amended and delinquent FBARs.

U.K., Austria Exact Their Pound of Flesh from Switzerland for Enabling Tax Cheating (11/3/13)

As reported in Swiss Pay $1.6 Billion to U.K., Austria in Tax Agreements (NASDAQ Dow Jones 11/1/13), here.

Switzerland's tax authority Friday said it has transferred around 1.5 billion Swiss francs ($1.6 billion) to the U.K. and Austria this year as part of deal to settle untaxed assets held in Swiss banks. 

The payments are part of the Swiss government's goal of settling long-standing tax disputes over funds held in Swiss bank accounts, with the U.K. and Austrian governments agreeing deals last year, taxing undeclared assets in return for ongoing anonymity.

Sentencing Leniency for Offshore Tax Cheats (11/3/13)

In an earlier blog (Ty Warner, Beanie Babies Creator, Pleads Guilty (Federal Tax Crimes Blog 10/2/13; Updated 10/5/13), here, I noted:

Observers of the tax sentencing scene have noted for some time now that offshore account tax cheats fare better in sentencing than do ordinary tax cheats with similar sentencing characteristics.  See e.g., Lower Sentences For Offshore Tax Cheats - Role of 5K1 Departures (Federal Tax Crimes Blog 9/28/13), here.  (I am currently updating the master spreadsheet that will contain some nonoffshore sentencing data to compare to the offshore sentencing data.)  As noted in my blog, the apologists for this phenomenon assert that it is perhaps related to the 5K1 substantial assistance downward departure.  Note that there is no such down departure provided in the Warner plea agreement.  Hence, this case will test whether these offshore cheats really get treated better.  Warner is the poster child for the big fish that got caught.

On that theme is a recent article, David Voreacos, Beanie Baby Billionaire Sentence Comes Amid Tax Leniency (BloombergBusinessweek 11/1/13), here.  Key excerpts are:

The U.S. has prosecuted 103 people, securing 62 guilty pleas and five trial convictions. Of 49 sentenced, most received probation or home confinement, according to a Bloomberg analysis of the cases, which included criminal filings and transcripts of sentencings. 

Only 18 got prison time. Four of those were sentenced to a year and a day, and just two got longer terms. In almost every case examined, the defendants received sentences that were below the guideline range set at sentencing. 

JAT Comment:  I think this is consistent with the data I have compiled and analyzed in my spreadsheet.  I will check the numbers tomorrow and bring my spreadsheet up to date for posting, hopefully by tomorrow afternoon.   Then, from another part of the article is the following:

“The wide variety of sentences in offshore tax evasion cases -- ranging from probation to home confinement to substantial prison terms -- reflects the general difficulty of predicting how any one particular district judge might sentence a specific defendant in any case,” said Daniel W. Levy, who prosecuted federal tax cases before joining McKool Smith LLP.

Daniel Levy (bio here) was one of the chief prosecutors of these cases in USAO SDNY, so he knows of what he speaks.  Nevertheless, it is important to note that the heaviest sentences were in cases that went to trial and some of those few, those very few, cases going to trial were atypical cases.  So, the proper universe to compare is the cases that pled rather than going to trial.  It is difficult to predict what a judge might do, particularly if he or a fellow judge in the district have not sentenced in this context before.

NYT Op-Ed on Delaware, Wyoming & Nevada as Haven for Criminal Activity (11/2/13)

John A. Cassara, a former IRS CI agent, wrote this op-ed in the New York Times:  Delaware, Den of Thieves? (NYT 11/1/13), here.  He opens the piece with:

As a special agent for the Treasury Department, I investigated financial crimes like money laundering and terrorism financing. I trained foreign police forces to “follow the money” and track the flow of capital across borders. 

During these training sessions, I’d often hear this: “My agency has a financial crimes investigation. The money trail leads to the American state of Delaware. We can’t get any information and don’t know what to do. We are going to have to close our investigation. Can you help?" 

The question embarrassed me. There was nothing I could do. 

In the years I was assigned to Treasury’s Financial Crimes Enforcement Network, or Fincen, I observed many formal requests for assistance having to do with companies associated with Delaware, Nevada or Wyoming. These states have a tawdry image: they have become nearly synonymous with underground financing, tax evasion and other bad deeds facilitated by anonymous shell companies — or by companies lacking information on their “beneficial owners,” the person or entity that actually controls the company, not the (often meaningless) name under which the company is registered. 

Our State and Treasury Departments routinely identify countries that are havens for financial crimes. But, whether because of shortsightedness or hypocrisy, we overlook the financial crimes that are abetted in our own country by lax state laws. While the problem is concentrated in Delaware, there has been a “race to the bottom” by other states that have enacted corporate secrecy laws to try to attract incorporation fees.

And he concludes the piece:

While officials in Delaware, Wyoming and Nevada talk about their corporate “traditions,” I am unimpressed. Business incorporation fees have accounted for as much as a quarter of Delaware’s general revenues. It’s no surprise that officials in Dover and Wilmington want to protect their state’s status as a corporate registry, but if that means facilitating criminal activity, their stance is a form of willful blindness. America must require uniform corporate-registration practices if it is to persuade other nations to cooperate in the fight against financial crimes.

I hope readers will offer their comments.

On Retrial, Daugerdas Convicted and Field Acquitted (11/1/13)

On retrial, Paul Daugerdas has been convicted of tax crimes related to his tax shelter activities.  In the same triial, Denis Field, former CEO of Seidman was acquitted.  See Nate Raymond, CORRECTED-Lawyer guilty, accounting firm CEO cleared in tax shelter case (Reuters 10/31/13), here.  Excerpts:

A federal jury in Manhattan convicted Paul Daugerdas, the lawyer, on seven of 16 counts including conspiracy, tax evasion and mail fraud following an eight week re-trial in his criminal case. 

But the jury acquitted Denis Field, the one-time accounting firm head, on all seven counts against him including conspiracy and tax evasion.

The USAO SDNY press release, titiled Jenkens & Gilchrist Attorney Found Guilty In Manhattan Federal Court Of Multibillion-Dollar Criminal Tax Fraud Scheme, is here.  Key excerpts from the press release are:

Preet Bharara, the United States Attorney for the Southern District of New York, Ronald A. Cimino, Deputy Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that PAUL M. DAUGERDAS was convicted in Manhattan federal court for his role in a tax shelter scheme in which he and his co-conspirators designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the IRS. The 10-year scheme generated over $7 billion of fraudulent tax losses and netted DAUGERDAS approximately $95 million in profits. DAUGERDAS was convicted following a seven-week jury trial, presided over by U.S. District Judge William H. Pauley III. 

* * * * 

From 1994 through 2004, DAUGERDAS, a lawyer, certified public accountant, and the former head of the Chicago office of the Jenkens & Gilchrist law firm (“J&G”) and its tax practice, participated in a scheme to defraud the IRS by designing, marketing, implementing, and defending fraudulent tax shelters. 

As part of the scheme, DAUGERDAS and others undertook to prevent the IRS from: (i) detecting their clients’ use of these shelters; (ii) understanding how the transactions operated to produce the tax results reported by the clients; (iii) learning that the shelters were marketed as cookie-cutter products designed to eliminate or reduce large tax liabilities; (iv) learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and (v) learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits sought by the clients. DAUGERDAS and others created, and assisted in creating, transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits. 

As a result of the scheme, the defendant and his co-conspirators made millions of dollars in fees and bonuses. Specifically, DAUGERDAS made $95 million in profits but used tax shelters to reduce the taxes he paid to less than $8,000; without the shelters, he would have owed over $32 million in taxes.