TAX NEWS
IRS warns taxpayers voluntarily coming into offshore compliance to be truthful
[ABA Tax Section meeting San Diego 2/18/2012]:
The IRS is aggressively using intelligence gathered from the agency's Offshore Voluntary Compliance Program to study the movement of undisclosed funds abroad and to deter tax avoidance, an IRS official recently said at the American Bar Association Section of Taxation meeting in San Diego. "When [taxpayers] come in and tell us about their offshore account in one bank in one country, they may tell us about another account in another bank in another country and about the bankers they used," said Rebecca Sparkman, Acting Executive Director Investigations and Enforcement Operations Division of the IRS. "As you can imagine we start looking at all that intelligence and it points the way for the next criminal investigation."
Although her comments had undertones of the recent indictment of Wegelin & Co., Switzerland's oldest private bank, she declined to speak directly on any specific matter. The bank has been charged with aiding tax offenders move their undisclosed accounts from UBS. "We want to assure you that we are reviewing all the information that comes in from your clients to match up [and provide direction on] where we should look next," she said.
She cautioned practitioners to be fully truthful when bringing their clients into compliance. "Please be fully, fully truthful," she told the audience. "Because there may be those folks that are tempted to only disclose that account in that one bank that they think we know about in that one country because they think we don't know about [an account] somewhere else. But guess what? They come in, they come through the whole program, we get their name on a list for some other bank, some other country, all bets are off! Now they are facing criminal investigation because they were not fully truthful."
Sparkman stressed that the time to come forward with all offshore account information is at the time a voluntary disclosure is made, not subsequently. "When you walk in the door, that is the time to be fully truthful," she said. "Don't be hiding anything else."
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February 15, 2012
President Obama wants to boost IRS budget by $950 million
Obama's fiscal year 2013budget proposal for IRS totals $12.8 billion, approximately $950 million above the level enacted for the current year.
According to budget documents, the proposal would ensure “robust IRS tax enforcement and compliance initiatives that can return $5 for each dollar spent.” The proposal includes $403 million for new enforcement activities. Approximately $200 million would be used to bolster examination and collection programs. IRS identified specific areas where proposed funding would strengthen enforcement efforts, including: improving international compliance by individual and business taxpayers; expanding efforts to spot fraud and prevent the issuance of questionable refund.
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February 6, 2012
JK Harris Suspends All Operations and Prepares to Liquidate
Tax-resolution firm swamped by consumer complaints, lawsuits
Tax representation firm JK Harris & Co. has suspended operations, sent its employees home and is reported to be preparing to liquidate its assets.
The firm, the subject of hundreds of complaints to ConsumerAffairs.com over the years, has been in Chapter 11 bankruptcy proceedings since October but has reportedly been unable to raise enough funding to continue operations.
"This is truly the most devastating event I have been forced to deal with in my 58 years on this earth," CEO John K. Harris said in an email to employees as he apparently prepared to file for a Chapter 7 liquidation.
The firm won't be missed by many of the consumers who they failed to help.
One call does it all? "My husband began working with JK Harris over 3 years ago and we have paid them at least $3,000.00 or more. They never return your calls, they are constantly telling you they are 'still working on it', they demand more money, they always have a new rep, etc.," said Christine of Anoka, MN, in a complaint to ConsumerAffairs.com a few days ago.
"Their ad says 'one call does it all.' That's a lie. I was told by my rep that I met with that no one could take money out of my disability checks. Well, they did. I am disabled and live on my disability," said Suzan of Blytheville, AR. "Every time I called J.K Harris' office, I was directed to a new rep. I sent in paperwork every 3 months and every time, it went to a new rep. I was told to ignore notices from IRS. This went on for over 4 years."
The company has been the target of complaints for years -- and it was those complaints and the resulting lawsuits that finally pushed it over the edge.
Harris filed for bankruptcy protection last October after Texas Attorney General Greg Abbott charged the firm with misrepresenting its ability to help Texans resolve their unpaid tax obligations. Harris agreed to pay $1.2 million in penalties to settle the case.
The state charged that the firm failed to provide promised services, misrepresented its employees professional skills and experience, overstated its ability to reduce debts that customers owe to the Internal Revenue Service, and accepted large, prepaid fees from customers whose tax liabilities the firm knew or should have known it could not reduce.
Abbott's charges echoed many of the complaints voiced by consumers.
"While Harris' advertisements claimed that former IRS agents, Certified Public Accountants, lawyers, and other professionals were available to meet with consumers in 325 locations in 43 states, investigators discovered that JK Harris regional offices are staffed by sales personnel who are not trained tax experts," Abbott said.
Last July, Harris agreed to provide full refunds to West Virginia consumers who hired the firm but received no tax relief.
In 2008, the company agreed to pay $1.5 million to settle a suit filed by 18 states.
"This company took advantage of people who paid for tax assistance and, in some instances, profited by taking their money and not giving them any help at all," said Massachusetts Attorney General Martha Coakley in announcing the settlement.
Also in 2008, then-Missouri Attorney General Jay Nixon sued Harris on behalf of customers who received neither the services for which they paid as much as $4,500 each nor the refunds they requested.
"JK Harris promises it can help consumers who are having tax problems, but the Missourians who complained to my office told a different story -- one of unreturned phone calls, lost paperwork, and a worse financial situation than when they started," Nixon said.
In 2007, a class action lawsuit sought $6 million for consumers who complained that, far from solving their tax problems, JK Harris actually made their worse.
The South Carolina-based company owes its primary lender, RAI Credit, nearly $11.9 million but has assets worth only about $3.8 million.
The firm's collapse not only leaves its employees and current clients in the lurch but also raises questions about the millions of dollars in owes in court settlements. Unsecured creditors are typically at the back of the line in bankruptcy proceedings, leaving the possibility that many who are owed money will get little or nothing.
The company has a Jan. 10 court date at which the court is expected to appoint a trustee.
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February 03, 2012
Swiss Bank Wegelin Criminally Charged With Helping U.S. Clients Evade Taxes
By David Voreacos
Feb. 3 (Bloomberg) -- Wegelin & Co., the 270-year-old private bank, became the first Swiss lender to face criminal charges in a broadening U.S. crackdown on offshore firms suspected of helping Americans evade taxes.
Wegelin helped Americans hide more than $1.2 billion in assets and evade U.S. taxes, according to an indictment filed yesterday in federal court in New York. The new charges expand on earlier ones filed Jan. 3 against three bankers at Wegelin’s Zurich branch accused of conspiring to help U.S. clients cheat on their taxes.
Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin, the three Zurich bankers -- Michael Berlinka, Urs Frei and Roger Keller -- and others. The bank held more than $1.2 billion in assets not declared to the Internal Revenue Service, according to the indictment.
“Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code,” Manhattan U.S. Attorney Preet Bharara said in a statement.
The U.S. and Switzerland are in talks to resolve a U.S. probe of offshore tax evasion. Wegelin was one of at least 11 banks under criminal investigation by the Justice Department’s tax division.
Wegelin announced on Jan. 27 that it agreed to a sale to Switzerland’s Raiffeisen Group.
“The indictment shows that the U.S. government will indict a Swiss bank if they don’t get cooperation,” said Skarlatos of Kostelanetz & Fink LLP. “It’s symbolic in that the United States is saying that if a Swiss bank doesn’t cooperate, it will be indicted. It puts pressure on other Swiss banks to cooperate.”
Federal authorities yesterday also seized $16 million in Wegelin’s correspondent bank account in the U.S. at UBS AG.
Richard Strassberg, a lawyer who represents the bank in the U.S., declined to comment.
Prosecutors said that Wegelin and the three bankers wooed U.S. clients fleeing UBS, the largest Swiss bank. UBS avoided U.S. prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed information on about 4,450 more accounts.
By attracting clients leaving UBS, Wegelin “opened new undeclared accounts for at least 70 U.S. taxpayers,” according to the indictment. The effort to woo UBS clients was backed by Wegelin’s senior management, according to the indictment. Wegelin bankers emphasized that because it had no offices in the U.S., it wasn’t subject to law enforcement pressure there, prosecutors said.
Phil West, a former international tax counsel at the Treasury Department, said it was “unfortunate” that the Justice Department and Wegelin couldn’t reach an agreement short of indictment.
“The Justice Department alleged that Switzerland’s oldest bank had tried to capitalize on the misfortunes of UBS and attract the clients UBS was rejecting, and assisting them in doing just what UBS was accused of doing,” West said in an e- mail. “If true, this would have made any resolution short of indictment very difficult.”
In its Jan. 27 announcement, Wegelin, based in St. Gallen, Switzerland, said its U.S. business, and the risks and responsibilities that go with it, will remain with the current partners. Wegelin, which describes itself as the oldest Swiss bank, didn’t disclose the sale price.
Credit Suisse AG, the second-largest Swiss bank, said July 15 that it was a target of a criminal probe by the Department of Justice over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.
The IRS has said 30,000 U.S. taxpayers with offshore accounts have avoided prosecution since 2009 by entering a limited amnesty program, paying back taxes and saying who helped them hide their accounts from authorities.
Hundreds of taxpayers in the program have given information to prosecutors that has helped them build criminal cases against bankers and advisers.
The U.S. crackdown against offshore tax evasion has led to criminal charges against at least 21 foreign bankers, advisers and attorneys and at least 40 U.S. taxpayers.
The case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).
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Jan 25, 2012
Senate investigating HSBC bank for money laundering
(Reuters)- HSBC Holdings PLC is under investigation by a U.S. Senate panel in a money-laundering inquiry, the latest step in a long-running U.S. effort to halt shadowy money flows through global banks, according to people familiar with the situation and a company securities filing.
The inquiry being conducted by the Senate Permanent Subcommittee on Investigations could yield a report and congressional hearing later this spring, these people said. The subcommittee has a history of conducting high-profile hearings that have proved embarrassing for the world's biggest banks.
The intensifying scrutiny of HSBC is the latest in a series of investigations by U.S. officials into how global banks have processed -- and in some cases, intentionally hidden -- financial transactions on behalf of countries which allegedly support terrorism, corrupt foreign officials, drug gangs and criminals.
Since 2008, European and U.S. banks have signed deferred prosecution agreements and paid more than $1.2 billion in penalties for alleged violations of anti-money laundering regulations.
The specific focus of the Senate probe of HSBC isn't known. A Reuters review of legal documents and prior regulatory probes, though, points to a number of alleged breakdowns in HSBC's anti-money laundering systems.
HSBC spokesman Robert Sherman said in a statement, "We have ongoing discussions with officials" including the Senate panel "on a number of regulatory and compliance matters. The nature of these discussions is confidential; in all cases, we are cooperating."
A spokesperson for the Senate subcommittee declined comment.
Earlier this month, HSBC named former top U.S. Treasury Department official Stuart Levey as chief legal officer in a sign of how the bank is hiring outside experts in money laundering. Levey, who specialized in combating terrorism financing and left the Treasury Department last year, is based in London. An HSBC spokesman said Levey wasn't available for comment.
Stuart Gulliver, HSBC chief executive, said in a statement this month that Levey's experience "dealing with international financial and legal issues is highly relevant to a global bank such as HSBC."
EARLY WARNING SIGNS
For HSBC, which has operations in more than 80 countries and territories, the Senate probe is another sign that U.S. law enforcement officials are widening their inquiries into the London bank - one that for the past decade has repeatedly drawn scrutiny from U.S. financial regulators for weak money-laundering controls and allegedly enabling healthcare fraud and tax evasion.
In 2003 and 2010, two U.S. bank regulators raised serious concerns about the bank's anti-money laundering systems and staff and ordered the bank to improve anti-money laundering systems and personnel, according to enforcement actions by the Federal Reserve Bank of New York and the Comptroller of the Currency, a Treasury Department unit.
In securities filings, the bank has disclosed increasing inquiries. In 2010, the bank disclosed that it had received grand jury subpoenas and was being investigated by the Justice Department in money-laundering inquiries. It subsequently said the district attorney's office in Manhattan was investigating.
Then in November, HSBC said additional inquiries were being pursued by the Senate panel and the U.S. Securities and Exchange Commission, according to an SEC filing by HSBC USA Inc. The bank said the investigations focused on money laundering and the proper filing of U.S. taxes by customers. The unit is HSBC's main U.S. business, offering retail and corporate banking to some 4 million customers. HSBC's North American operations, which include HSBC Bank USA and a consumer-finance unit, account for about 5 percent of HSBC profits.
WEST VIRGINIA LINK
Investigations into how the bank allegedly was used to launder money extend to Vienna, W. Va. There, a pain-management doctor named Barton J. Adams was indicted in 2008 by the Justice Department on 169 counts of alleged healthcare fraud, tax evasion, money laundering and witness tampering. Adams allegedly moved hundreds of thousands of dollars in Medicare fraud proceeds between an HSBC Bank USA internet account and other HSBC accounts in Canada, Hong Kong and the Philippines, according to U.S. District Court filings in West Virginia. Dr. Adams has pleaded not guilty.
Stephen Herndon, an attorney for Adams, declined to comment citing the ongoing litigation. A spokesman for the U.S. attorney's office in West Virginia declined comment.
To be sure, HSBC isn't the only major bank to face scrutiny from regulators over alleged money laundering. In 2009 and 2010, Barclays PLC, Lloyds Banking Group and Credit Suisse Group agreed to forfeitures totaling $1.2 billion with U.S. regulators that found the banks evaded U.S. law in aiding sanctioned countries. In 2010, Royal Bank of Scotland Group PLC agreed to forfeit $500 million to the U.S. to cover ABN Amro Holding NV's illegal U.S. dollar transactions tied to Iran, Libya, the Sudan and Cuba. RBS and a bank consortium acquired ABN, a Dutch bank, in 2007.
Law-enforcement scrutiny is increasingly focused on narcotics proceeds moving between the U.S. and Mexico. In 2010, for example, Wachovia Bank, acquired by Wells Fargo & Co. in 2008, agreed to a $160 million settlement with the Justice Department, which alleged that failure in controls at the bank allowed drug traffickers to launder drug money tied to Mexico.
A 2011 study by the Government Accountability Office said that money from illegal drug sales in the U.S. that flows back to Mexico -- often in the form of large currency shipments called "bulk cash smuggling" -- totals between $18 billion and $39 billion a year. John Cassara, an expert on money laundering and former Treasury agent, said U.S. authorities struggle to stop the money flowing from the U.S. into Mexico.
HSBC UNDER MICROSCOPE
HSBC has faced several orders to improve its anti-money laundering policies. In 2003, HSBC Bank USA, under an agreement with the Federal Reserve Bank of New York and New York bank regulators, said a "common goal" with regulators was that the bank would "ensure that the bank fully addresses deficiencies in the bank's anti-money laundering policies and procedures."
At the time, the bank agreed to design a program to upgrade internal controls to ensure compliance with Bank Secrecy Act provisions to better monitor "suspicious or unusual activities."
In early 2010, HSBC again came under scrutiny. The Senate panel alleged in a report, titled "Keeping Foreign Corruption out of the United States," that HSBC, along with other banks, had allowed high-risk individuals, known as politically exposed persons, or PEPs, to route money through the U.S. financial system. Such persons are typically powerful foreign leaders, relatives and close associates from regimes prone to corruption.
The 2010 Senate report analyzed HSBC's ties to Angola, the oil-producing African country prone to graft and mismanaging oil revenues. The Senate report alleged that HSBC provided U.S. banking services to politically connected officials of Angola's national oil company through Banco Africano de Investimentos, or BAI, an Angolan private bank, without designating the transactions as potentially high risk. HSBC allowed those money movements "despite the presence of PEPs" in BAI's management and clientele.
At a Senate hearing, Wiecher Mandemaker, then a director of general compliance for HSBC Bank USA, said the bank believed that institutions such as BAI were important to helping move Africans "into the modern banking system." The HSBC official said the bank had thoroughly investigated BAI and that it was HSBC's policy to discourage banking relationships with PEPs unless the bank had a long-standing relationship with the client and the bank believed the client had a "legitimate source of funds."
Mandemaker has since left the bank and could not be reached for comment.
In late 2010, the bank was hit with another order from a U.S. bank regulator to clean up its anti-money laundering system after the Office of the Comptroller of the Currency, or OCC, investigated several businesses that routed cash for clients and other banks. The probe and subsequent consent order "identified deficiencies" in the HSBC's anti-money laundering practices and among other requirements, ordered the bank to hire a permanent regional compliance officer and submit full compliance plans in policing improper money flows.
HSBC subsequently exited or curtailed those businesses. It separately has announced plans to exit numerous U.S. businesses, agreeing to sell both bank branches and a credit card business amid a shift to faster-growing economies.
The OCC found the bank's "compliance program and its implementation are ineffective" and that the bank faced the "significant potential for unreported money laundering or terrorist financing."
The OCC consent order said that between 2006 and 2009, HSBC had not properly monitored bulk cash transactions. The OCC order also said the bank did not "appropriately" designate customers as "high risk" even if the customer affiliation with a politically exposed person could hurt the bank's reputation.
The report also criticized the bank for a backlog of unprocessed suspicious activity reports, known as SARs, that can tip off regulators to questionable money flows.
As part of the consent order, the bank said it had "committed to taking all necessary and appropriate steps to remedy the deficiencies."
Sherman, the HSBC spokesman, said, "We acknowledged we fell short of our own expectations and are working with our regulators to address and resolve the issues raised."
Sherman said the bank had taken steps such as investing in staff, a new anti-money laundering system, a new compliance helpline, and new training for all U.S. employees.
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January 9, 2012
IRS Reopens Offshore Voluntary Disclosure Program.
The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.
The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.
This third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.
“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman.
“We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”
The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.
“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”
The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.
In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.
The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.
For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.
Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.
Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.
The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.
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January 5, 2012
IRS Audited Record Number of Millionaires in 2011
The U.S. Internal Revenue Service said it audited 12.48 percent of individual tax returns with income exceeding $1 million during fiscal 2011. It marks the third consecutive year that the IRS increased its audit rate on returns showing income of more than $1 million. According to IRS data, the previous record was the 8.36 percent of returns in that category audited during fiscal 2010.
For taxpayers reporting over $200,000 of income, the audit rate 3.9%. That was an increase of 34% from 2010.
The overall IRS audit rate for all individuals in all income brackets remained constant at 1.11 percent in 2011 while the rate for small corporations -- those with assets less than $10 million -- rose to 1.02 percent from 0.94 percent in 2010.
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January 4, 2012
Bloomberg News
Wegelin Bankers Indicted by U.S. in Tax Crackdown, Bank Says
Switzerland’s Wegelin & Co. said three bankers were charged with conspiring to help U.S. clients hide more than $1.2 billion from American tax authorities.
Michael Berlinka, Urs Frei and Roger Keller helped Americans open dozens of accounts and hide them from the Internal Revenue Service after a U.S. crackdown on offshore tax evasion led clients to flee bigger Swiss banks in 2008 and 2009, according to an indictment filed yesterday in federal court in Manhattan.
All three employees remain at the bank, spokeswoman Albena Bjorck said in an e-mailed statement today. Wegelin, the oldest Swiss private bank, no longer has U.S. clients, and it is negotiating with U.S. authorities, Bjorck said. The indictment doesn’t name Wegelin, referring to “Swiss Bank A” and saying all three worked at its Zurich branch.
The indictment signals a broadening crackdown by U.S. prosecutors, who filed tax charges against more than three dozen U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC Holdings Plc, Europe’s biggest bank. They also have charged at least 24 bankers, advisers and attorneys, including seven Credit Suisse bankers.
“This is a further example of what the government has been saying all along -- that they are not stopping with UBS or Credit Suisse,” said Bryan Skarlatos, a tax attorney. “The criminal grand jury investigations are continuing with respect to banks in Switzerland and other countries.”
The indictment comes amid U.S.-Swiss talks to resolve a U.S. probe of offshore tax evasion. Officials are trying to conclude negotiations on a civil settlement with Swiss banks, as well as criminal probes of 11 of them, including Wegelin, which is based in St. Gallen.
U.S. prosecutors charged UBS in February 2009 with helping Americans hide assets from the Internal Revenue Service. UBS avoided prosecution by admitting it fostered tax evasion, paying $780 million and handing over data on 250 secret accounts. It later disclosed another 4,450 accounts, causing U.S. customers to seek new banks.
As those clients fled UBS and another large Swiss bank, Berlinka, Frei and Keller and “Managing Partner A” wooed them, according to the indictment. The bank, which is principally owned by eight managing partners, also solicited accounts through a third-party website, “SwissPrivateBank.com,” prosecutors said.
The men told clients their undeclared accounts would stay hidden from the IRS because the bank “had a long tradition of bank secrecy, and, unlike UBS, did not have offices outside Switzerland,” making it “less vulnerable to United States law enforcement pressure,” according to the indictment.
“In or about 2008, the managing partners affirmatively decided to take advantage of the flight of U.S. taxpayers with undeclared accounts by opening new undeclared accounts for many of them at Swiss Bank A,” according to the indictment. “Swiss Bank A opened new undeclared accounts for at least 70 U.S. taxpayers.”
Berlinka, 41, began working at Swiss Bank A in 2008; Frei, 51, started in 2006; and Keller, 47, began in 2007, according to a statement by U.S. Attorney Preet Bharara. The men, who all live in Switzerland, face as long as five years in prison if convicted.
“Wegelin & Co. has in the meantime ceased all dealings with U.S. clients and the employees concerned have taken on other tasks within the bank,” Bjorck said. The bank “has authorized its lawyers in the U.S. to negotiate with the U.S. justice authorities to the extent possible under Swiss law,” she said. Wegelin declined to comment further by phone.
At least 17 others accused in the tax crackdown live outside the U.S. and haven’t responded in U.S. court to the charges.
Since 2009, about 30,000 Americans have avoided prosecution by disclosing their offshore accounts to the IRS. Prosecutors have debriefed hundreds of those clients to learn which banks and advisers helped them cheat the IRS. The Justice Department has used those interviews to build several criminal cases.
The indictment details how Berlinka, Frei and Keller helped 23 U.S. clients open undeclared accounts at their bank. Kenneth Heller, a disbarred New York maritime attorney who pleaded guilty on June 27 to hiding more than $26.4 million in accounts at UBS and Wegelin, also is referred to in the indictment. He is scheduled to be sentenced Jan. 20.
The three bankers conspired with two other Swiss financial advisers already under indictment, Gian Gisler and Beda Singenberger, according to the charges filed yesterday.
“Some bankers are cooperating with the Justice Department and turning over the names of their customers, and it’s possible that these bankers may do the same,” Skarlatos said.
The case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).
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December 28, 2011
U.S. Deploys New Tactic in War Against Swiss Bank Tax Cheats
Reuters, New US Tactic for Suspected Swiss Bank Tax Cheats, by Lynnley Brownin
U.S. authorities hunting in Swiss banks for suspected tax cheats have a new weapon in their arsenal: an arcane but aggressive legal maneuver more commonly used against drug smugglers, money launderers and Imelda Marcos, widow of the Philippine dictator.
Backed by court judges, federal prosecutors are issuing subpoenas -- official papers which compel the recipients to provide potentially damning evidence -- to United States taxpayers suspected of holding hidden accounts at Swiss and other offshore banks, according to criminal defense lawyers whose clients have received the papers.
The grand jury subpoenas are unusual in that they ask bank clients -- not the banks themselves -- to turn over to the authorities their bank account details since 2003, including statements with the highest annual balances. Taxpayers who refuse to comply potentially face a stark choice: be found in contempt of court and thus subject to civil or criminal fines and jail time, or disclose potentially incriminating evidence against themselves.
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December 6, 2011
U.S. Indicts Client of UBS in Tax Case
U.S. authorities have indicted another U.S. client of Swiss banking giant UBS AG in a case that sheds new light on the role of a major Swiss cantonal bank in enabling tax evasion by U.S. persons. Amir Zavieh, a naturalized U.S. citizen born in Iran, was charged on December 6 with fraud and conspiracy by federal prosecutors in Fort Lauderdale, Florida. The charges against Zavieh, a San Francisco resident who also goes by the first name Allen, refer to his accounts at UBS and at "a cantonal bank wholly owned by Basel City Canton." That bank is Basler Kantonalbank, according to public records and to persons briefed on the matter.
The Zavieh indictment underscores cooperation provided to U.S. authorities by Renzo Gadola, a former senior UBS private banker. For a number of years, he handled Zavieh's account. Gadola, who worked at UBS from 1995 to 2008, last month received five months' probation from a Florida federal judge after being charged with conspiracy. Gadola has cooperated extensively with U.S. authorities conducting a wide-ranging criminal investigation of scores of Swiss banks. His role is significant because he disclosed to federal 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.
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Ex-UBS Banker Sentenced for Aiding U.S. Tax Evasion
Reuters New Service
11-18-11
A former senior UBS banker who helped the U.S. government expand its crackdown on offshore tax evasion was sentenced to five years probation for advising wealthy Americans on ways to hide their money from U.S. tax authorities. Renzo Gadola, who worked at Swiss bank UBS AG from 1995 to 2008, pleaded guilty in December to charges of conspiracy to defraud the United States. Almost immediately after his arrest on Nov. 8, 2010, Gadola started cooperating with U.S. officials, providing key insight into other bankers and Swiss financial institutions offering offshore banking services, according to prosecutors. He is currently out on bail.
U.S. authorities, who suspect tens of thousands of Americans are using Swiss banks to avoid paying billions of dollars in taxes, are conducting a widening criminal investigation into scores of Swiss banks and international banks with Swiss operations. Banks under investigation include Credit Suisse, HSBC Holdings Plc and Basler Kantonalbank, a large Swiss cantonal, or regional, bank, according to U.S. judicial sources. Cantonal banks are largely government-owned in Switzerland.
Gadola turned over the names of bankers and participated in recorded conversations with clients, according to an unsealed government document filed last week requesting leniency in his sentencing. His actions helped reveal for the first time the role that Swiss cantonal banks play holding undeclared offshore accounts. Gadola's pivotal role in the crackdown continues. He has "indicated he wishes to continue to cooperate with the government after he is sentenced, and will assist in other grand jury investigations and testify at the trials of his former customers and colleagues, if necessary," the government document said. The 45-year-old Gadola could have been sentenced to a maximum of 16 months in prison. He appeared in court for his sentencing dressed in a dark gray suit and blue striped ties.
The case against Gadola, an investment adviser based in Switzerland, highlighted how some bankers continued to help wealthy Americans conceal money from the Internal Revenue Service (IRS) even amid a U.S. probe into UBS that mushroomed into a major international judicial and diplomatic affair.
In 2009, UBS paid $780 million to settle criminal charges from the U.S. Department of Justice that it helped thousands of wealthy Americans evade taxes. UBS ultimately agreed to disclose 4,450 client names and ended its U.S. cross-border banking business. The bank was accused by federal prosecutors of helping some 17,000 American clients with $20 billion in assets hide their accounts from the IRS.
Gadola's case involved a Mississippi client who kept $445,000 in a safe deposit box before transferring it first to UBS and then to a Basler Kantonalbank account. The unidentified client said he wanted to declare the money under a voluntary disclosure program launched by the IRS, but Gadola advised against it, arguing the money would go undetected by officials.
Gadola's cooperation also led to criminal charges against two other bankers with UBS ties. In January, U.S. officials arrested Christos Bagios, a senior private banker at Credit Suisse, and accused him of helping as many as 150 U.S. clients hide as much as $500 million from the IRS when he worked at UBS.
Martin Lack, a former senior UBS banker, was indicted in August for selling offshore tax evasion services. Lack, a Swiss national, is a fugitive. Lack was Gadola's business partner after Gadola left UBS, and the two worked to help American clients hide money in Swiss cantonal banks following the crackdown on UBS, according to people briefed on the matter.
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Swiss Banks Said Ready to Pay Billions, Disclose Customers
October 24, 2011
- By David Voreacos, Klaus Wille and Giles Broom
(Bloomberg) -- Swiss banks will probably settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, according to two people familiar with the matter.
U.S. and Swiss officials are concluding negotiations on a civil settlement amid U.S. criminal probes of 11 financial institutions, including Credit Suisse Group AG, suspected of helping American clients hide money from the Internal Revenue Service, according to five people with knowledge of the talks who declined to speak publicly because they are confidential.
Switzerland, the biggest haven for offshore wealth, wants an end to new U.S. probes while preserving its decades-old tradition of bank secrecy, the people said. The U.S. seeks data on Americans who have dodged U.S. taxes and a pledge by Swiss banks to stop helping such clients, according to the people. The Swiss reached accords this year with Germany and the U.K. on untaxed assets.
“The Swiss would like to get out of this by paying money, and they’ve done that with other countries,” said tax attorney H. David Rosenbloom of Caplin & Drysdale Chartered in Washington, who isn’t involved in the talks. “For the U.S., it’s not primarily a money question. It’s a matter of making sure the laws apply fairly among taxpayers.”
The Swiss government seeks to outline a final accord for the Foreign Affairs Committee of its Parliament’s upper house on Nov. 10, according to a person familiar with the matter. The number of banks that will pay to resolve the U.S. negotiations may extend beyond the 11 under criminal investigation, the people said.
“We are aiming for an all-encompassing solution that will apply to all the banks,” Finance Minister Eveline Widmer- Schlumpf said in an Oct. 4 interview in the Swiss capital Bern. “We don’t want to be confronted with the same issues time and again.”
Under accords this year with Germany and the U.K. on untaxed assets, the identity of clients remained secret. The U.S. insists that the Swiss disclose client account data, and the banks may end up handing over data on 5,000 to 10,000 accounts, the people said. A final determination hasn’t been made, they said.
The U.S. Justice Department also may bring criminal charges or civil enforcement actions against any of the 11 financial institutions. They could avoid prosecution by separately paying fines, admitting wrongdoing and disclosing data, the people said. On Aug. 30, the Justice Department requested statistical data from the 11 about their U.S. accounts, which the U.S. has received and is analyzing, the people said.
Credit Suisse, the second-biggest Swiss bank, said July 15 that it was a target of U.S. prosecutors. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.
The group of 11 also includes HSBC Holdings Plc, the biggest European bank, Basler Kantonalbank, Wegelin & Co., Zuercher Kantonalbank, and Julius Baer Group Ltd., the people said. Three Israeli banks -- Bank Leumi Le-Israel BM, Bank Hapoalim BM, and Mizrahi-Tefahot Bank Ltd. -- are on the list, as well as Liechtensteinische Landesbank AG and an asset manager, NZB AG, according to the people.
The U.S. crackdown against offshore tax evasion has led to charges against UBS AG, the largest Swiss bank; at least 21 foreign bankers, advisers and attorneys; and at least 36 U.S. taxpayers.
UBS, which isn’t one of the 11 banks now under scrutiny, avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and handing over details on 250 secret accounts. It later disclosed another 4,450 accounts.
UBS made 10.75 billion francs ($12.1 billion) in revenue in the U.S. in 2010, or 34 percent of the group’s total. Credit Suisse made 12.84 billion francs in revenue in the Americas in 2010, or 41 percent of the total. HSBC’s Swiss private bank and Julius Baer declined to disclose information on revenue from U.S. clients. A spokesman for HSBC in Geneva declined to comment on the settlement talks.
Credit Suisse rose 3.3 percent to 24.64 Swiss francs in Zurich. Baer rose 1.3 percent to 35.14 francs. Basler Kantonalbank was unchanged and Liechtensteinische Landesbank fell 3.2 percent.
Urs Rohner, chairman of Credit Suisse, last month told newspaper NZZ am Sonntag that the bank has transferred statistical data sought by the U.S. Marc Dosch, a spokesman for the Zurich-based bank, declined to comment further.
Basler Kantonalbank spokesman Michael Buess said it also gave such data to the U.S.
Wegelin & Co. spokeswoman Albena Bjoerck said it will show “Swiss and U.S. authorities that the bank has not breached either Swiss or U.S. law.” The bank is cooperating with authorities “within the scope of Swiss law.”
After a U.S. indictment of two Julius Baer bankers this month, the bank said it “is one of a number of Swiss financial institutions supporting the ongoing tax negotiations between the U.S. and Switzerland” and is cooperating with the U.S. probe. Spokesman Martin Somogyi declined to comment further.
Youval Dichovski, Zurich-based head of internal audit at Bank Leumi Switzerland Ltd., said the bank is cooperating.
Bank Hapoalim Switzerland is complying with its legal and regulatory duties in cooperating with Swiss authorities, said Chief Executive Officer Michael Warszawski. He said the bank “has only a limited number of American clients whose holdings with the bank are very small.” The bank, he said, “is not aware of any violations of U.S. law by the bank or its employees.”
Cyrill Sele, a Vaduz, Liechtenstein-based spokesman for Liechtensteinische Landesbank AG, said it sent statistical data to the U.S. A man who answered the phone Oct. 20 at NZB said it is closing and has only a few employees.
Zuercher Kantonalbank spokesman Urs Ackermann said the bank was informed in September of the U.S. investigation. A spokesman for Mizrahi Bank had no immediate comment.
The UBS turnover of 4,450 names, in the face of Swiss laws barring most disclosures of client data, set a precedent for the current talks. The U.S. agreed to submit a request for specific accounts under a 1996 tax treaty and a follow-up agreement in 2003. Under that accord, Swiss bank secrecy doesn’t protect accounts if the owner engaged in “tax fraud or the like,” which is a narrower definition of tax evasion than U.S. law provides.
The Swiss directed UBS to turn over accounts to the Swiss Federal Tax Administration for review before handing them to the IRS. Negotiators are determining how to apply the 1996 tax treaty and one adopted in 2009 that still needs ratification by the U.S. Senate, the people said.
“Switzerland is continuing talks with the U.S. authorities on administrative assistance in cases of tax fraud and tax evasion,” said Norbert Baerlocher, spokesman for the Swiss embassy in Washington, in a statement.
“Any exchange of client data can occur only within the scope of the current legal system, in accordance with the procedures provided for in the existing or the new double-taxation agreement with the USA.”
The Swiss agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. The London-based Tax Justice Network this month ranked Switzerland at the top of its financial secrecy index.
“This is a big issue for these banks,” said C. Evan Stewart, an attorney at Zuckerman Spaeder LLP in New York, who isn’t involved in the settlement talks.
“These are no longer small institutions catering to wealthy people in a small part of central Europe,” he said. “These are multinational institutions now that have a reach that’s all over the world. This has a huge impact on the banking system in Switzerland. Another issue is the sovereignty in Switzerland and whether that will be given deference by other governments.”
The IRS has said 30,000 U.S. taxpayers with offshore accounts avoided prosecution since 2009 by entering a limited amnesty program, paying back taxes and saying who helped them hide their accounts from authorities.
Hundreds of taxpayers in the program have given information to prosecutors that have helped them build criminal cases against bankers and advisers.
“The DOJ and IRS are casting a wide net as they try to identify Americans guilty of offshore tax evasion,” said Aaron D. Schumacher, a Geneva-based wealth planning attorney, with Withers LLP.
“They obtained a lot of information about various Swiss banks from the participants in the voluntary disclosure programs and that has likely enabled the recent indictments we’ve seen,” he said. “More people than we saw previously have come to us looking to renounce their citizenship.”
Attorney Robert Katzberg, who represents clients in criminal tax cases, said U.S. taxpayers with Swiss accounts don’t understand that the IRS and Justice Department will get a trove of new data on secret accounts.
“There are thousands of Americans, who are the functional equivalent of residents of New Orleans on the eve of Hurricane Katrina, who have no idea that Katrina is about to happen,” said Katzberg, of Kaplan & Katzberg in New York.
To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Klaus Wille in Zurich at kwille@bloomberg.net; Giles Broom in Geneva at gbroom@bloomberg.net
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Forbes 10/19/2011
The New Gift Tax Audits: IRS Identifies Non-Filers Using State Property Records.
A new IRS gift tax compliance initiative responds to suspicions of widespread failure to file gift tax returns. According to Josephine Bonaffini, the Federal/State Coordinator for the IRS Estate and Gift Tax Program, between sixty percent and ninety percent of taxpayers fail to file a gift tax return despite having engaged in a transaction requiring a return. Although gift tax audits are historically rare, the IRS has examined hundreds of taxpayers in the last two years whom the IRS suspects made large gifts, yet failed to file the appropriate returns. Borrowing from techniques long employed to identify noncompliant taxpayers in the income tax context, the IRS is using records obtained from third parties—namely, land records maintained in state and county offices—to root out intra-family land transfers for little or no consideration.
Land records maintained at local state offices are publicly available. However, the suspect transfers make up a small percentage of these voluminous and decentralized records. Thus, the IRS has asked state and county agencies that compile the relevant records to provide the IRS with those records. For instance, the California constitution contains cap on property tax increases following certain intra-family transfers, which inadvertently results in the California Board of Equalization (“BOE”) segregating the records of interest to the IRS—those on intra-family transfers—from the mass of irrelevant property records.
State or county agencies in fifteen states, including New York and Texas, have voluntarily agreed to provide records similar to those maintained by the California BOE. There is no reason to believe that the IRS has not made similar requests to agencies within many more, if not all, states, and more voluntary compliance from individual states may be forthcoming.
The recent flurry of gift tax compliance activity took many in the tax community by surprise. The compliance initiative received no appreciable public attention until the recent dispute in California federal court (discussed in more detail below), and the IRS has declined to comment on the initiative beyond the information provided in documents filed in that case. This mysterious quality gives the IRS’s recent activity the aura of a “stealth” program.
As with any federal tax law violation, the government may impose severe consequences for violating the gift tax provisions. But one curious aspect of the new gift tax compliance initiative is that the majority of examinations likely result in zero assessed tax or penalties.
According to Bonaffini, in the past two years, 323 taxpayers have been audited for failure to file gift tax returns relating to gifts of real property, 217 cases were still under examination, and another 250 cases were being researched to determine whether to conduct gift tax audits. At the time, the IRS had determined that ninety-seven taxpayers had violated gift tax reporting requirements by failing to file, and just twelve cases resulted in assessment of tax and penalties.
The same statutory regime that governs sanctions for the failure to file income tax and most other returns also governs sanctions for failure to file gift tax returns. Because the Code bases the civil penalty amount on the amount of tax due, failure to file a gift tax return generally results in no penalty if the taxpayer’s gifts during the year triggered no tax. However, where a taxpayer does make gifts large enough to trigger gift tax and fails to file a gift tax return, such taxpayer cannot “wait it out,” hoping that the IRS will fail to assess the tax and penalties while the tax is still enforceable.
Code Section 6501(c)(3) specifies that, “[i]n the case of failure to file a return, the tax may be assessed . . . at any time.” In addition to the assessment of tax and civil penalties, the government can potentially pursue taxpayers criminally for failure to file a gift tax return. Code Section 7203 criminalizes the willful failure to file a return, and this section has been applied to gift tax returns, albeit infrequently.
Although several states apparently complied voluntarily with the IRS’s requests for records, California did not. Rather, when the IRS requested the California BOE produce the neatly segregated records of intra-family transfers discussed above, the BOE refused, citing a state statute which forbids disclosure of personal information absent a court order.
The Department of Justice, on behalf of the IRS, filed suit in District Court for the Eastern District of California, naming as defendants “John Does, United States taxpayers who, during any part of the period January 1, 2005, through December 21, 2010, transferred real property in the State of California for little or no consideration . . . [and for] which information is in the possession of the [BOE]. . . .” The initiation of the federal lawsuit allowed the government to petition the court for a summons to serve upon the BOE. The IRS hoped that the court would issue the summons, thereby overcoming the state law which generally prohibits the disclosure of personal information.
The Code expressly allows the IRS to petition for a summons “which does not identify the person with respect to whose liability the summons is issued.” However, the Code creates three additional hurdles where the government asks for a John Doe summons: the IRS must establish that (i) the summons relates to an investigation of an ascertainable group of people; (ii) there exists a reasonable basis for believing that the group of people may have failed to comply with the Code; and (iii) the records sought are not readily available from other sources. In its petition, the government averred that the summons requested satisfied these three requirements.
On May 23, 2011, the court issued an order whereby it disagreed with the government and refused to issue the summons. With respect to the third requirement—that the records are not otherwise readily available—the government asserted only that the BOE maintains the relevant records separate from all other property records, that the BOE stated that it could not provide the information without a summons, and that the IRS’s only other option was to search through records of all property transactions of all kinds in each of California’s fifty-eight counties. But the court noted that taxpayers first file the appropriate forms with their county assessor’s office in order to benefit from the tax increase cap following an intra-family transfer, and only later are these forms forwarded to the BOE for centralized recordkeeping. Thus, according to the court, it was unclear why the government could not obtain the requested information directly from the individual counties without having to search through all property records.
The court denied the government’s petition without prejudice, leaving the government the option to re-file its petition. However, the court offered the following cautionary note:
[T]his court has serious concerns about the fact that the United States seeks to utilize the power of a federal court to sanction the issuance of a John Doe Summons upon a state. Indeed, the Court’s own review of the case law has revealed no other circumstances on par with the United States’ current request.
Additionally, the court flagged four issues that the government should address in the event that it resubmits its petition: (i) whether a state is a “person” under the Code sections allowing the IRS to summon “persons” to produce records; (ii) whether a state’s sovereign immunity precludes issuance of the John Doe summons; (iii) whether the government must exhaust all administrative remedies before proceeding in federal court; and (iv) whether the government should be required to pursue state court remedies before proceeding in federal court.
The IRS may heed the court’s suggestion and simply attempt to seek the relevant records directly from the counties. Alternatively, the government may resubmit its petition in federal court, in which case the tax community will await another court order. In any event, the court’s denial of the government’s petition may embolden additional states to refuse the IRS’s request for records.
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October 18, 2011
Former Ohio State Bar President Charged With Tax Fraud
Leslie Jacobs, the senior partner in Thompson Hine's competition, antitrust, and white-collar crime practice group and a former president of the Ohio State Bar Association, was charged with tax fraud Thursday in federal court in Ohio.
The 66-year-old Jacobs allegedly underreported his income from the firm by more than $250,000 between 2004 and 2007, according to charges filed by the U.S. Attorney's Office for the Northern District of Ohio. ... Jacobs, a Harvard Law School graduate, told The Plain Dealer that he is cooperating with federal investigators and that the matter is "a terrible embarrassment and regrettable."
According to court filings, Jacobs filed four federal income tax returns between 2004 and 2007 that inflated his business expenses by as little as $25,000 and as much as $94,000 in an effort to lower the taxable income he collected from his Thompson Hine partnership. Prosecutors said Jacobs's income in each of those years should have ranged from $633,303 to $759,973.
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October 13, 2011
Google Faces IRS Audit Over Shifting Profits to Offshore Subs
Bloomberg, Google Tax Probe to Focus on Offshore Units, by Jesse Drucker:
The IRS is auditing how Google avoided federal income taxes by shifting profit into offshore subsidiaries, according to a person with knowledge of the matter.
The agency is bringing more than typical scrutiny to how the company valued software rights and other intellectual property it licensed abroad, said the person, who requested anonymity because the audit isn’t public. The IRS has requested information from Google about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube, the person said. The transfer overseas of these kinds of rights has enabled Google to attribute earnings to foreign units that pay lower taxes, Bloomberg News reported a year ago. ...
Google, owner of the world’s most popular search engine, has cut its worldwide tax bill by about $1 billion a year using a pair of strategies called the Double Irish and Dutch Sandwich, which move profits through units in Ireland, the Netherlands and Bermuda. Google reported an effective tax rate of 18.8% in the second quarter, less than half the average combined U.S. and state statutory rate of 39.2%.
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New IRS Program allows companies to re-classify improper independent contractors to employee status at reduced back payroll tax amounts.
September 22, 2011
WASHINGTON - The Internal Revenue Service is giving companies that have been misclassifying employees as independent contractors a chance to pay a fraction of back taxes to avoid interest, penalties, and audits for previous years.
Under the program disclosed yesterday by IRS Commissioner Douglas Shulman, US companies would have to agree to treat the workers as employees going forward and pay 10 percent of the previous year’s payroll taxes. The program is open to employers of all sizes, though Shulman said he is trying to encourage smaller businesses to participate.
“A lot of our job is to make sure that we provide clarity for the vast majority of people that are trying to get it right,’’ Shulman said on a conference call with reporters yesterday.
Worker misclassification is a complex area of the tax code without clear rules to guide businesses, Shulman said. Since 1978, Congress has prohibited the IRS from issuing general clarifying regulations.
Employers are responsible for paying part of the payroll tax and paying federal unemployment taxes for their workers. Independent contractors pay the employee and employer shares of the payroll tax.
Brian Turmail, a spokesman for the Associated General Contractors of America, a trade group, said in a phone interview yesterday that the IRS program is an acknowledgment of how complex it is to comply with employment classification requirements.
Within the construction industry, home building is particularly challenging because it can involve multiple trades and small jobs, Turmail said.
President Obama in his most recent budget plan proposed allowing the IRS to issue guidance and to require companies to reclassify some contractors as employees. That proposal was projected by the Treasury Department to raise $8.7 billion over the next decade.
Shulman said he didn’t have estimates of how many employers would join the voluntary compliance program or how much money it would generate. The program has no deadline.
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IRS Reaps Billions From Amnesty Program for Offshore Accounts
Sept. 15, 2011
The IRS continues to make strong progress in combating international tax evasion, with new details announced today showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.
The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80% of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program — a figure that will increase because it doesn’t yet include penalties.
The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009. The programs gave U.S.taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.
The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.
In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80% of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.
The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.
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August 26, 2011
Due to the potential impact of Hurricane Irene, the IRS has extended the due date for offshore voluntary disclosure initiative requests until Sept. 9, 2011. The prior deadline was August 31, 2011.
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Ex-UBS Client Ordered to Give Tax Records to Federal Grand Jury in San Diego
By Bloomberg News
August 22, 2011
U.S. prosecutors won a victory in their crackdown on offshore tax evasion when a federal appeals court said a former UBS AG client cannot assert his constitutional right against self-incrimination to avoid turning over his bank records to a U.S. grand jury.
The client, identified only as M.H., must produce records sought by a federal grand jury in San Diego, according to the U.S. Ninth Circuit Court of Appeals. A three-judge panel rejected M.H.'s argument that the Constitution protects him from being a witness against himself, saying the Fifth Amendment privilege doesn’t cover records on foreign bank accounts.
Prosecutors seek information that M.H. must keep under the Bank Secrecy Act, asking for the name and number of each account, the name and address of each bank, and the maximum values of accounts, according to the Aug. 19 opinion. Such record-keeping requirements mean M.H. must comply, the appellate panel ruled.
“Because the records sought through the subpoena fall under the Required Records Doctrine, the Fifth Amendment privilege against self-incrimination is inapplicable, and M.H. may not invoke it to resist compliance with the subpoena’s command,” according to the panel.
The grand jury issued a subpoena in June 2010 to M.H., who is the target of an investigation into whether he used secret Swiss bank accounts to evade taxes, according to the ruling. He transferred securities from his UBS account in 2002 to a different Swiss bank, UEB Geneva, according to the ruling.
M.H. asserts the information being sought might conflict with what he previously told the IRS, according to the ruling.
“Production might reveal, for instance, that he has accounts he has not reported or that the information he has reported is inaccurate,” the panel ruled. “On the other hand, if M.H. denies having the records, he risks incriminating himself because failing to keep the information when required to do so is a felony.”
M.H. attorney Pamela Naughton ofSheppard, Mullin, Richter&HamptonLLP in San Diego didn’t return calls seeking comment.
UBS, the largest Swiss bank, was charged in 2009 with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the IRS data on more than 250 accounts, including M.H.’s, according to the opinion. UBS later turned over data on another 4,450 accounts.
Since 2008, the United States has filed criminal tax charges against at least 34 former U.S. clients of Zurich-based UBS; Zurich- based Credit Suisse Group AG; and London-based HSBC Holdings Plc, Europe’s biggest bank. Most of those clients have pleaded guilty.
The United States also has charged at least 18 bankers, financial advisers and lawyers who aided clients at various Swiss banks.
The appellate panel upheld the ruling of a district court in the Southern District of California. Robbins said that he is fighting two similar cases in Fort Lauderdale, Fla., where he lost a ruling.
The case is In re: Grand Jury Investigation M.H. v. United States of America, 11-55712, U.S. Court of Appeals for the Ninth Circuit (San Francisco).
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August 3, 2011
ANOTHER UBS CLIENT PLEADS GUILTY TO FILING FALSE TAX RETURN
Agrees to Pay $6.8 Million to the U.S. Treasury
Robert E. Greeley, a resident of San Francisco, pleaded guilty today to charges of filing a false federal income tax return, the Justice Department and Internal Revenue Service (IRS) announced. Greeley appeared before U.S. District Court Judge Charles R. Breyer in San Francisco and accepted responsibility for concealing more than $13 million in two bank accounts he had with UBS in Switzerland. On June 14, 2011, Greeley was charged with one count of filing a false federal individual income tax return for the 2008 tax year. Judge Breyer scheduled sentencing for Nov. 9, 2011.
According to the plea agreement, Greeley admitted that in 2002 and 2004, with the assistance of UBS banker Renzo Gadola, he opened two bank accounts at UBS in Switzerland in the names of Meyrin Investors and Exchange Preferred Limited, both Cayman Islands nominee entities. Greeley admitted that he was the beneficial owner of Meyrin Investors and Exchange Preferred Limited, and that he directed the financial transactions concerning these bank accounts.
According to the plea agreement, Greeley admitted that between 2002 and 2008, the Meyrin Investors bank account’s highest total net asset balance was $2,855,894 and the Exchange Preferred Limited bank account’s highest total net asset balance was $12,616,881. Greeley further admitted that between 2003 and 2008, he earned more than $734,000 in interest income in the two UBS Switzerland bank accounts and that none of the interest income was reported on any tax return that he filed with the IRS.
According to the plea agreement, U.S. citizens who have a financial interest in, or signature or other authority over, a financial account or accounts in a foreign country with assets in excess of $10,000 at any time during a particular calendar year are required to file with the U.S. Department of Treasury a Report of Foreign Bank and Financial Accounts on Form TD F 90-22.1 (FBAR). Greeley admitted that between 2002 and 2008, he failed to file FBARs with the Department of Treasury and did not otherwise disclose to the IRS his interest in and control over the UBS accounts.
Greeley further admitted that between 2002 and 2008 he willfully failed to disclose on his tax returns that he had an interest in, or signature or other authority over, a financial account in a foreign country.
According to the plea agreement, Greeley also admitted that on or about April 15, 2009, he filed a false U.S. Individual Income Tax Return, Form 1040, for the 2008 tax year, which he signed under the penalties of perjury. Greeley admitted that he willfully failed to report both his financial interest in and signature authority over the two bank accounts at UBS Switzerland and interest income of more than $146,000 that he earned from these two UBS Switzerland bank accounts on his 2008 tax return.
In addition to pleading guilty, as set forth in the plea agreement, Greeley agreed to pay a civil FBAR penalty of more than $6.8 million for his failure to file FBARs as required by law.
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August 2, 2011
FORMER UBS BANKER CHARGED WITH HELPING U.S. TAXPAYERS USE SECRET SWISS BANK ACCOUNTS TO EVADE U.S. TAXES
Investment Advisor Encouraged U.S. Taxpayers Not to Disclose Accounts to Internal Revenue Service
WASHINGTON - Martin Lack, a former UBS AG banker who is currently an independent asset manager, has been charged with conspiracy to defraud the United States, the Justice Department and the Internal Revenue Service (IRS) announced today.
According to the indictment, Lack, a citizen and resident of Switzerland, founded his own investment management firm, Lack & Partner Asset Management AG in Zurich in 2002. According to the indictment, Lack assisted U.S. customers to open and maintain secret bank accounts at a Swiss cantonal bank headquartered in Basel, Switzerland, with the assistance of a private banker at the bank. The indictment alleges that Lack traveled to the U.S. to conduct banking for U.S. customers with undeclared accounts and conducted currency transactions in the U.S. in violation of federal banking and currency reporting laws.
According to the indictment, Lack encouraged his customers not to participate in the IRS voluntary disclosure program and he offered to provide his customers with falsified bank documents to conceal the source of the funds in their undeclared bank accounts. The indictment further alleges that Lack gave a U.S. customer with an undeclared bank account a cell phone and instructed the customer to only contact him using the cell phone and not to use a U.S. land line.
The indictment further alleges that Lack feared that he would be arrested by U.S. law enforcement following the investigation of UBS AG, so, in November 2010, he sent his associate, Renzo Gadola, to meet with a client at a Miami hotel to persuade that client not to disclose to the U.S. that the client owned and controlled a bank account at a regional bank headquartered in Basel. The undeclared bank account allegedly was funded when the client provided Lack with approximately $445,000 in cash during two meetings in New Orleans in 2007. According to the indictment, at the Nov. 6, 2010, meeting in Miami, Gadola encouraged the customer not to disclose the undeclared cantonal bank account to U.S. authorities, telling the customer that there was a “99.9 percent chance the client had nothing to worry about because the “likelihood . . .that they will somehow. . . find out about the account is practically zero percent.” Lack also allegedly encouraged this client not to disclose the undeclared bank account at the cantonal bank to the U.S. authorities and offered to provide the client with falsified bank documents to make the funds in the account appear as though they were the proceeds of a loan. On Dec. 22, 2010, Gadola pleaded guilty to conspiring to defraud the United States. He is scheduled to be sentenced before District Judge James King of the Southern District of Florida on Nov. 18, 2011.
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Credit Suisse “worse off” than UBS in the US
July 25, 2011
by Marie-ChristineBonzominWashington for Swissinfo.ch
Once again a Swiss bank in the United States is implicated in tax fraud. Three years ago it was UBS in the hot seat; now Credit Suisse faces a criminal inquiry.
The political and legal climate has changed considerably since 2008 and lawyers and clients of Credit Suisse see the position of Switzerland’s second largest bank as more serious than that of its competitor UBS.
Before indicting four former bank employees, the US Department of Justice sent a letter to Credit Suisse earlier this month warning that it was the target of an inquiry.
The four new indictments bring to eight the number of Credit Suisse employees accused of having helped Americans to commit tax fraud.
The spokeswoman for Credit Suisse in the US declined an interview request from swissinfo.ch. But in a communiqué Victoria Harmon emphasised the commitment of the Zurich bank “to a fully compliant cross-border business”.
"Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the US authorities in an effort to resolve these matters," she wrote.
As lawyers for UBS and Credit Suisse clients, Scott Michel and Lawrence Horn are very close to the issue. They see the situation of Credit Suisse as worse than that of UBS.
“The very serious allegations against Credit Suisse relate to a wider range of conduct extending beyond a tax conspiracy into a broader range of criminal activity,” Michel told swissinfo.ch.
“These are not just allegations that a Swiss bank opened accounts that they knew would not be reported to the IRS [Internal Revenue Service], there are also allegations that employees of the bank lied to the Federal Reserve, engaged in destruction of records, helped people try and evade DOJ [Department of Justice] investigation and provided unlicensed banking services to customers.”
Indictment?
Michel interprets the measures taken in the past week by the US authorities as pointing to the imminent indictment of the bank itself.
“Credit Suisse is on the verge of being indicted, unless the bank negotiates with DOJ and gives names of its American depositors,” Michel said.
The letter sent to Credit Suisse is known in legal jargon as a target letter, and its meaning is clear. “It means that the Department of Justice has enough evidence to indict you”.
The DOJ refuses to comment on the case but the analysis of the lawyers involved is backed up by news agency reports citing “high level government sources” who indicate that the US is planning to charge Credit Suisse.
Is the DOJ bluffing? “No. The DOJ does not issue target letters lightly, they’re definitely not bluffing,” said Horn, a former federal prosecutor. Michel agrees.
Furthermore, developments in the legal and political environment since the UBS scandal complicate the situation for Credit Suisse.
At the beginning of July, the Swiss Federal Court ruled that the transfer of confidential UBS bank details to United States tax investigators in 2009 was legal.
In Washington the political climate is marked by the federal debt crisis; not a good backdrop for Credit Suisse to be in trouble. “There’s no sympathy anywhere in the government for people who are not paying their fair share in the context of big budget problems.”
Added to this, the US government seems to want to act swiftly against Credit Suisse as it moves to tackle the problem of tax evasion not just connected to Switzerland but with inquiries looking elsewhere in Europe and in Asia.
The fact that the prosecutor submitted the new indictments to the federal court of Alexandria in Virginia reflects the government’s haste because the court is known for its rapid handling of cases.
According to Michel, “the court in Alexandria is an exceptionally good group of judges and they believe in moving cases along quickly, it’s a hallmark of that court which is often chosen as a venue when the government wants to act fast”.
Investigators also benefit from information provided by Credit Suisse clients who are cooperating in exchange for reduced penalties. “Some of them are clients of mine, it’s fairly widespread and it’s going to continue,” Michel said.
Negotiations
Reported by a Swiss newspaper, the Sonntagszeitung, and Reuters, rumours of a breakdown in negotiations between Bern and Washington over a framework accord on fiscal matters have been denied by the Swiss embassy in Washington.
“Switzerland is conducting talks with US authorities regarding current bilateral financial issues. Switzerland is striving for a solution within the framework of the Swiss judicial system and has no comment about the course of these talks,” Salome Ramseier of the Swiss embassy in Washington told swissinfo.ch.
“If reports that negotiations have stopped are true, it would have an impact on the US probe of Credit Suisse and other Swiss banks in the sense that DOJ prosecutors would feel like going full speed,” Michel said.
Faced with this unfavourable climate and at risk of losing its US licence if indicted, it is in the bank’s interest to cooperate and make amends honourably, the lawyers say.
As Horn predicts: “Credit Suisse will go the way of UBS, it will enter into a deferred prosecution agreement, it will pay millions of dollars in fines and it will turn over a number of its American depositors.”
“There’s no escape for Credit Suisse because it wants to continue to do business in the United States,” he added.
Marie-Christine Bonzom in Washington, swissinfo.ch
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HSBC alerts U.S. clients to offshore tax evasion probe
USA TODAY
July 18, 2011
A major bank at the center of an expanded federal crackdown on wealthy Americans suspected of offshore tax evasion has told Indian-American clients to "be aware" of the IRS' offer of lower penalties for those who voluntarily disclose secret overseas assets they hold.
HSBC's former head of services for Indians living outside their homeland recently wrote to the clients confirming that the London-based banking giant had received an IRS summons seeking the names of Americans who hold accounts at the bank.
In the letter, a copy of which was obtained by USA TODAY, Sanjay Nair did not address whether HSBC plans to turn over the information. But he urged Indian-American clients to consult with a U.S. tax adviser "if you have any concerns about your U.S. tax reporting relating to your HSBC India account(s)."
"You may wish to be aware of an IRS voluntary disclosure program, which encourages U.S. taxpayers to bring themselves voluntarily into compliance with the U.S. tax laws," Nair added, referring to an offer set to expire Aug. 31.
Martin Press, a Fort Lauderdale tax law expert who said he and his firm had been consulted by several HSBC Indian-American clients, predicted the letter signals "HSBC intends to fully cooperate with the U.S. government."
"It basically seems to put people on notice to either take advantage of the IRS program — or face possible legal consequences," Press said.
HSBC spokeswoman Juanita Gutierrez declined to comment on the letter or the reason it was sent. She also would not discuss negotiations "we may or may not be having with authorities" regarding the tax evasion investigation.
However, Gutierrez said HSBC "fully supports U.S. efforts to promote appropriate payment of taxes by U.S. taxpayers" and "cooperates appropriately with requests from proper authorities" while seeking to comply with national and local laws in countries where it operates.
The IRS and U.S. Justice Department have focused on Americans with offshore accounts in at least two banks — HSBC and Credit Suisse— since winning a similar legal effort against Swiss banking giant UBS. In the earlier case, UBS agreed to a $780 million settlement to defer prosecution on charges it secretly sent bankers into the U.S. to help American clients duck taxes by hiding assets offshore.
UBS last year also agreed to turn over information for 4,450 American clients as part of a separate agreement that has led to criminal tax charges against at least 30 of the bank's former account holders. Many have pleaded guilty to tax charges.
Employing legal tactics also used in the UBS case, federal officials in April won San Francisco federal court approval to serve HSBC with the IRS summons seeking account details on American clients.
An IRS declaration filed in the investigation shows HSBC told U.S. authorities roughly 9,000 Americans held "premier" accounts as of September 2010 under a special program for wealthy, non-resident Indians.
The accounts collectively held nearly $400 million, the legal declaration shows.
Yet the American owners had disclosed fewer than 2,000 of those accounts to the IRS as of 2009, the declaration shows.
Since the investigation began, at least two American-Indian clients of HSBC have pleaded guilty to tax-related charges. A third was indicted last month by a federal grand jury in Milwaukee.
Separately, Credit Suisse announced Friday that federal authorities have designated the Swiss bank itself as a target of the continuing investigation. "Subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters," Credit Suisse said.
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Credit Suisse targeted in US tax evasion probe
The Associated Press
7-15-2011
GENEVA — The U.S. Justice Department is investigating Credit Suisse Group's offshore business with wealthy American clients as part of a larger probe into suspected U.S. tax evaders, the Swiss bank said Friday.
Credit Suisse said it was informed of the investigation by letter Thursday and will cooperate with U.S. authorities within the limits set by Swiss banking secrecy laws.
"The investigation concerns historical private banking services provided on a cross-border basis to U.S. persons," the bank said in a statement. It stopped providing those services in 2008.
Credit Suisse is the most high-profile Swiss bank to be targeted by U.S. investigators since rival UBS became embroiled in a tax evasion probe three years ago. Zurich-based UBS admitted to helping U.S. clients hide money on offshore accounts. It ended up paying a fine and giving U.S. authorities details on thousands of American account holders. The case prompted Switzerland to soften its strict banking secrecy rules in response to international pressure.
Switzerland's top court on Friday upheld the Swiss government's right to order the handover of UBS customer data, a move that was challenged by some of the affected clients. The Federal Tribunal in Lausanne said the government had the right to use emergency powers to prevent "serious and virtually uncontrollable economic repercussions for Switzerland" had it failed to order the release of the files.
Observers had expected a formal investigation against Credit Suisse after three former and one current employee of the bank were indicted by U.S. authorities in February on charges of conspiring to help American tax cheats.
Analysts at Zuercher Kantonalbank noted that a new treaty currently being discussed by Bern and Washington — which would automatically tax the accounts of American bank clients in Switzerland — might ease the pressure on Credit Suisse and other Swiss banks.
A spokesman at the Swiss Finance Department, Mario Tuor, told The Associated Press last month that the aim of the talks was to reach a "comprehensive solution" that would cover all past tax infringements by U.S. clients and Swiss banks.
Tax experts say Switzerland has few trumps left to play while U.S. authorities are accumulating piles of evidence against Swiss banks from voluntary disclosures by U.S. clients seeking reduced punishment for tax evasion.
"What the Swiss are trying to do is just get this whole thing resolved," said Milan K. Patel, a Zurich-based tax lawyer. If they fail to reach an agreement, Swiss banks could lose their license to operate in the United States and senior employees could face prosecution, he said.
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Revenue Officers Now Given Only 15 Days to Contact Employers Included in Federal Fax Deposit Alert Cases
7/1/2011
The IRS Small Business/Self-Employed (SB/SE) Division has issued an internal memorandum that instructs its revenue officers to contact employers in Federal Tax Deposit (FTD) Alert cases within 15 calendar days. The FTD Alert program (the Alert program) is a proactive process that provides for early intervention by the IRS when semiweekly depositor employers do not deposit and pay taxes withheld from employees. The Alert program identifies taxpayers that appear to be behind in making deposits of withholding taxes before their quarterly employment tax returns are due to be filed. FTD Alerts are computer-generated, and taxpayers' accounts will have a specific code indicating there is an Alert. If the Alert meets a certain probability level that there will be an underpayment of FTDs, the Alert is assigned to the IRS collection field inventory. Revenue officers in the collection field work Alert cases and contact the identified taxpayers in person to discuss the deposit requirements and obtain payments. The Alert program can protect the federal government's interest by its early identification of a potential delinquent tax payment. It also serves the employer's interest by allowing IRS involvement before enforced collection action, such as a levy of a bank account, seizure of assets, or bankruptcy, becomes the sole remaining alternative for collecting the taxes owed.
In 2007, the Treasury Inspector General for Tax Administration (TIGTA) issued a report which said that revenue officers do not always promptly contact employers about federal tax deposit issues, and, therefore, more employers incur FTD penalties.
The new internal memorandum requires revenue officers to contact employers within 15 calendar days after a revenue officer receives a FTD Alert. A telephone call by the revenue officer that does not result in employer contact will not meet IRS requirements for timely contact. Leaving a message within this period is also not considered a timely contact. In these instances, revenue officers should make a field visit to the employer.
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Trust Fund Recovery Penalties May be Assessed Against Third Parties Too
July 1, 2011
IRS Memorandum SBSE-05-0711-044, Issuing Interim Guidance for Trust Fund Recovery Penalty Investigations for Third-Party Payer Cases
The IRS Small Business/Self-Employed (SB/SE) Division has issued an internal memorandum which says that the “trust fund recovery penalty” (TFRP) may be imposed against third-party payroll service providers, as well as the employer.
Trust fund recovery penalty. Code Sec. 6672 imposes the trust fund recovery penalty on any person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is imposed on a “responsible person.” A “responsible person” may be anyone in a business entity who has the duty to collect, account for, or pay over the tax.
Common law employers. The new IRS memorandum applies to “common law employers.” A “common law employer” is any person who has the status of employer under the usual common law rules applicable in determining the employer-employee relationship. Generally an employer-employee relationship exists when the person for whom the services are performed has the right to direct and control the worker who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished.
Third-party arrangements. Common law employers may designate a third party who is not the common law employer or a statutory employer under Code Sec. 3401(d)(1) to take over some or all of the employer's federal employment tax withholding, reporting, and payment responsibilities and obligations. A third party that could be subject to a TFRP includes: (1) a payroll service provider (PSP), or (2) a professional employer organization (PEO) or employee leasing company that is not the common law or statutory employer. The trust fund recovery penalty may be assessed against the payroll service provider, PEO, or responsible parties within the PSP or PEO.
A third-party payer is considered a responsible person under (1) above in Code Sec. 6672 if the person had significant control over the payment of its client's employment taxes. A third-party payer is considered to have willfully failed to perform the payroll tax responsibility (i.e., item (2) above) if failure to perform the responsibility was intentional, deliberate, voluntary, reckless, or knowing, as opposed to accidental. No evil intent or bad motive is required.
A common law employer that uses a third party to prepare its employment taxes can still be subject to the trust find recovery penalty if it meets conditions (1) and (2) above. Employees of the common law employer may also still be subject to the penalty.
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California UBS Clients Plead Guilty to Hiding Assets in Secret Swiss Bank Account
June 20, 2011
WASHINGTON - Sean Roberts and Nadia Roberts of Tehachapi, Calif., pleaded guilty before U.S. District Judge Anthony W. Ishii of the Eastern District of California to a criminal information charging them with filing a false tax return related to an undisclosed Swiss bank account that they maintained at UBS, as well as other offshore bank accounts, the Justice Department and the Internal Revenue Service (IRS) announced today.
According to court documents and statements made in court, the Robertses pleaded guilty to filing a false 2008 individual U.S. income tax return in which they failed to report that they had an interest in or a signature authority over a secret Swiss financial account at UBS, as well as several other foreign accounts, failed to report income earned on the foreign accounts, and falsely deducted transfers from their domestic business to the foreign accounts on their corporate tax returns. The false deductions allowed the Robertses to under-report their income on their individual income tax returns. The Robertses own and operate the National Test Pilot School and Flight Research Incorporated in Mojave, Calif. National Test Pilot School is a non-profit educational institute that trains test pilots from domestic and foreign aerospace industries and governments. Flight Research Inc. owns and maintains most of the aircraft used by the school.
In or about 1991, the Robertses opened a bank account at an Isle of Man branch of a United Kingdom bank, in the name of nominee entity Interline Trade Associates Limited. From at least 2002 through 2004, the Robertses transferred funds from their company, Flight Research Incorporated of Mississippi (FRI Mississippi), to the Interline account, and caused the transfers to be falsely deducted as interest payments on corporate income tax returns as a sham aircraft loan.
In or about 1995, the Robertses, with the assistance of a UBS banker, established an account in their own names at UBS in Switzerland. In 2004, the Robertses, with the assistance of an account manager at a Zurich-based financial services company, acquired a nominee Hong Kong entity called Excalibur Investments Limited and opened a new UBS account in Excalibur’s name. In July 2004, the Robertses closed the UBS account in their own names and transferred the assets to the nominee Excalibur UBS account. In February 2005, the Robertses also closed their Interline account and, with the assistance of the Zurich account manager, transferred the assets to the Excalibur UBS account. From 2004 through 2008, the Robertses transferred more than $1.2 million from FRI Mississippi to the Excalibur UBS account, and caused the transfers to be falsely deducted as interest payments on corporate income tax returns as a sham aircraft loan.
In or about May 2008, the Robertses closed their Excalibur UBS account and, with the assistance of the Zurich account manager, transferred more than $4.8 million to an account in Excalibur’s name at a Swiss branch of a Liechtenstein bank. This was done after the account manager informed the Robertses that UBS was under investigation by U.S. authorities and that they should leave UBS to ensure the continued secrecy of their account. In 2008, the Robertses transferred more than $1.4 million from FRI Mississippi to the Excalibur account at the Liechtenstein bank, and again caused the transfers to be falsely deducted on a corporate income tax return. Also in May 2008, the Robertses, again with the assistance of the Zurich account manager, opened a bank account in the name of Modest Winner, a nominee Hong Kong entity, at the Liechtenstein bank. In 2008 and 2009, the Robertses transferred funds from another of their entities, Tisours LLC, to the Modest Winner account. In 2009, with the assistance of the Zurich account manager, the Robertses transferred that account to a bank in Hong Kong. The Robertses also maintained numerous undeclared foreign bank accounts in New Zealand and South Africa held in their own names.
The Robertses admitted to filing false tax returns for tax years 2004 through 2008 that concealed their interest in these various offshore accounts, failing to report income earned from these accounts, and falsely deducting transfers from their business to these accounts. The Robertses also admitted that they never filed reports of Foreign Bank and Financial Accounts (FBARs) disclosing their interest in any offshore financial accounts. As part of their plea agreements, the Robertses agreed to pay restitution to the IRS in the amount of $709,675, and to pay a 50 percent penalty for the one year with the highest balance in their offshore accounts in order to resolve their civil liability for failing to file FBARs, Forms TD F 90-22.1.
In February 2009, UBS entered into a deferred prosecution agreement under which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of their agreement, UBS provided the United States government with the identities of, and account information for, certain U.S. customers of UBS's cross-border business, including the Robertses.
Sentencing has been set for Sept. 6, 2011, and the Robertses remain free on bail pending sentencing, where each faces a maximum sentence of three years in prison.
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Two-Time U.S. Open Champ Goosen Understated Income, U.S. Tax Court Says
Jun 9, 2011
Professional golfer Retief Goosen, the winner of the U.S. Open in 2001 and 2004, understated the share of his endorsement income generated in the U.S., the U.S. Tax Court ruled.
"On the evidence presented, we cannot accept petitioner's contention that less than 7 percent of his royalty income is U.S. source income," Judge Diane Kroupa wrote in a ruling released today in Washington.
The decision involved Goosen's endorsement deals with companies including Electronic Arts Inc. (ERTS) and Rolex Group. The Internal Revenue Service had determined that Goosen, 42, owed
$20,224 for 2002 and $144,474 for 2003. The golfer challenged the IRS findings in tax court.
On some issues, particularly on the question of how much of the earnings were related to his image as opposed to his performance, the court sided with Goosen. It was unclear from the ruling how much he would have to pay the government if the ruling stands.
"We're in the process of reviewing it," said one of his tax attorneys, Matthew Kadish of Kadish, Hinkel & Weibel in Cleveland. A voicemail message seeking comment from Guy Kinnings, Goosen's agent at IMG Worldwide Inc. in London, wasn 't immediately returned.
The IRS case against the South African native centered on Goosen's endorsement deals with six companies: Electronic Arts; Rolex; Upper Deck Co.; Izod, which is owned by Phillips-Van Heusen Corp. (PVH) ; Acushnet Co., the maker of Titleist golf equipment sold by Fortune Brands Inc. (FO); and TaylorMade, which is owned by Adidas AG. (ADS). The TaylorMade deal had an annual base payment of $400,000, and the Acushnet deal included a base payment in 2003 of $375,000, according to the ruling.
The case turned on whether Goosen's endorsement earnings were royalty income based on his image or personal services income based on his performance on the golf course. The IRS argued the latter position.
The judge took a middle position, Kadish said. She found that the golfer's off-course image and his on-course performance were both important.
Kroupa noted that TaylorMade valued Goosen less than it did Spanish golfer Sergio Garcia, who was paid "substantially more than petitioner despite his lesser record." Garcia has a case pending before the tax court on similar issues regarding endorsement income.
"TaylorMade valued Mr. Garcia's flash, looks and maverick personality more than petitioner's cool, 'Iceman' demeanor," Kroupa wrote. "We find that TaylorMade, Izod and Acushnet valued petitioner's image, and they paid substantial money for the right to use his name and likeness."
The ruling notes that Goosen, a permanent resident of the U.K., was advised by his agents to set up a bank account in Liechtenstein to receive his non-U.K. earnings.
Goosen won his last professional championships in 2009, according to his website. He tied for third at the Abu Dhabi HSBC Golf Championship in January, and his best finish on the U.S. PGA Tour this season is a tie for 12th at the Northern Trust Open in February.
Goosen is playing this week at the St. Jude Classic in Memphis, Tennessee, and scored a first-round 2-under-par 68. He is scheduled to play next week in this year's U.S. Open, which is being held at Congressional Country Club in Bethesda, Maryland, just outside Washington.
The case is Retief Goosen v. Commissioner of Internal Revenue, 023323-09.
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Supreme Court to decide if Japanese couple can be deported over tax crime.
May. 23, 2011
WASHINGTON -- The U.S. Supreme Court will decide if a Japanese couple can be deported because of criminal tax convictions resulting from their filing of a false income tax return.
The justices will hear an appeal from Akio and Fusako Kawashima, who became permanent lawful residents in 1984. But he pleaded guilty to subscribing to a false statement on a federal tax return, and she pleaded guilty to aiding and assisting in preparing a false tax return statement.
Immigration officials want to deport them because of the financial amount of the crime. Anything over $10,000 is considered an aggravated felony, and Kawashima said in his plea the government's tax loss was $245,126.
The 9th U.S. Circuit Court of Appeals upheld their deportation, but the high court will review it.
The case is Akio and Fusako Kawashima v. United States,10-577.
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Former TaxMasters Manager Says Company 'Cheats' Customers
By AVNI PATEL, ANGELA M. HILL, MARK SCHONE and BRIAN ROSS (@brianross)
April 14, 2011
A former manager at Tax Masters, a tax resolution firm now being sued by two different state Attorney Generals for alleged deceptive business practices, claims the company cared more about making money than solving its clients' tax problems, and told sales representatives it was okay to lie to potential clients to get their business.
"You make money as fast as you can and it doesn't matter how you do it," said Lloyd Lee, who was head of tax preparation at Tax Masters until he was fired in 2010. "If you have to lie to a client to get money, you do it. That's the way they operated. It was a money machine."
Houston-based Tax Masters has been sued by the state attorney generals of Texas and Minnesota for what they allege are deceptive business practices. In commercials that run regularly on Fox, CNN and other cable networks, red-bearded company founder Patrick Cox claims that TaxMasters will "stand between" its clients and the IRS, but state officials in Minnesota and Texas say that taxpayers who turn to TaxMasters – and pay thousands of dollars in upfront fees for their help -- may wind up even deeper in debt.
Lee told ABC News that when he went to work for TaxMasters in November 2008 as a tax preparation supervisor, he discovered that despite some good people at the company who wanted to "do right and do a very good job," the company's business practices made it hard to help taxpayers.
"The standard operating procedures of the company prevents that from happening," said Lee. "The main motive behind it was just to make money ... and greed."
The emphasis was on sales, not tax assistance, said Lee. Sales representatives outnumbered actual tax preparers by as much as four to one, he added, and almost none of the sales reps had any tax expertise. "Most of them had zero experience," said Lee. "In fact, I did tax returns for several salespeople and a couple of sales managers. If their title is 'Tax Specialist,' they should be able to do a simple 1040 easy. But that wasn't the case."
As a result, he claims, TaxMasters was a year-and-a-half behind in its tax preparations when he arrived, with the IRS adding interest, and often penalties, as taxpayers waited. "They were 18 months behind in the process because you had all of this work coming in and not enough people to do it," said Lee. "If you sign a contract in January of 2008 and your file doesn't get looked at until November or December of that same year, you've lost a lot of money."
According to Lee, TaxMasters would further delay payment by not forwarding claims to the IRS until clients had paid their TaxMasters bills. The company commonly charges customers up tp $8,000 to resolve tax debts. Lee also claims that some sales representatives did not disclose hidden costs to customers and would charge customer credit cards before any contract was signed. Asked if he thought that meant customers had been "cheated," Lee said, "Of course, yes."
He said at first he had a good working relationship with Patrick Cox, the company's founder, CEO and highly visible on-air spokesman. Cox, a car enthusiast who used to drive a Bentley to work, even took Lee to see the racetrack he was building in Texas.
But Lee said that people working at TaxMasters told him that Cox was unconcerned with questions about the company's business practices. He said they told him, "Pat really doesn't care about what happens, you know. If he gets all of his money, millions of dollars upfront and something happens, he's got his." And Lee said he has no doubt Cox knew how his business was run, with sales representatives making promises that, in most cases, couldn't be kept.
ABC news obtained tapes of actual TaxMasters sales calls show the deceptive practices alleged by the Texas and Minnesota state AG lawsuits, including one in which a salesman promises the IRS stops collection efforts once a customer hires TaxMasters.
"That's what the IRS, consultation does," says the salesman. "It pulls your name, it pulls your number out of the collection process."
Minnesota Attorney General Lori Swanson, whose office obtained the taped calls from TaxMasters, told ABC News that TaxMasters can't automatically stop collections from happening.
In another call, the TaxMasters sales representative claims the company can easily get back taxes reduced to pennies on a dollar. "You're owing $19,000," says the salesman. "I mean, we can get you down to basically, next to nothing, and our job, and our goal is to get you to zero. We're 97 percent successful. Attorney General Swanson calls that "another falsehood" and that the person making the claim is "a salesperson, who is trying to get you to pay thousands of dollars to the company, not somebody with tax expertise."
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"Tax lady" Roni Deutch closes down her tax resolution business and agrees to give up her law license
May 12, 2011
North Highlands, CA
"Tax lady" Roni Deutch said she is shutting down her tax resolution business immediately and that she will surrender her license to practice law in California. Deutch faces a lawsuit by the California State Attorney General's office accusing her of bilking clients out of $34 million.
Roni Deutch said her tax resolution firm is now $10 million in debt. As a result of the attorney general's lawsuit my business decreased by over 90 percent, Deutch said. A Sacramento superior court froze her assets last month for violating a Court order. Her tax resolution firm is now in receivership. California Attorney General Kamala Harris has called Deutch a "predator for profit" with the lawsuit claiming less than 10 percent of her clients have their federal tax debts settled successfully. Harris also accused Deutch of shredding millions of pages of documents, failing to pay over $400,000 in refunds to her customers that she cheated and for violating the court's order "almost before it came off the printer." Roni Deutch is also facing a hearing on contempt of court allegations that is set for July 22. Deutch could face heavy fines and time in jail for violating the court's orders.
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IRS to Ramp Up Worker Classification Audits
April 21, 2011
Shifting from full-time employees to independent contractors is a recessionary cost-cutting measure some businesses implemented. But for those who have misclassified their workforce, the glare of the IRS spotlight may soon be upon them. Over the next three years, the IRS is auditing 6,000 randomly selected businesses to determine whether they have workers who've been classified as contractors when they should be treated as employees. When appropriately done, classifying a worker as a contractor allows a business to escape unemployment, Social Security and Medicare taxes and overtime pay. However, additional taxes, penalties and interest result from worker misclassification.
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California AG Asks Judge to Jail the 'Tax Lady' Roni Lynn Deutch
April 21, 2011
Attorney General Kamala D. Harris today asked a Sacramento County Superior Court to hold "Tax Lady" Roni Deutch in contempt of court, imprison her for five days on each violation and fine her thousands of dollars for shredding millions of pages of documents and failing to pay refunds to her clients in violation of a court order.
"Deutch showed herself to be a predator for profit, preying on innocent, hard-working people who were simply hoping to settle their accounts with the IRS," Attorney General Harris said. "By defrauding these victims, and then pleading poverty, she created a real danger that her clients will never receive their advance fees back."
In August, the Attorney General filed a $34 million lawsuit against Deutch for swindling thousands of people facing serious and expensive tax collection problems with the IRS. On August 31, the court issued an order that prohibited Deutch from destroying evidence.
"Despite this order," the Attorney General said in today's action, "Deutch has been routinely shredding documents on an almost a weekly basis." The Attorney General estimates that to date Deutch has shredded some 1,643,000 to 2,708,600 pages of documents. Deutch's shredding campaign has permanently deprived the Attorney General of evidence needed to fully prosecute the action against her.
Deutch's law firm, based in Sacramento County, had revenues of at least $25 million a year. She spent $3 million a year on advertising, much of it on late-night cable TV, and frequently offered tax advice on popular TV shows. In her pitches, she promised to significantly reduce the IRS tax debts of people who signed up with her firm. Instead, she took thousands of dollars in up-front fees from clients but offered little or no help in lowering their tax bills. Hundreds of clients complained to the Attorney General and other government agencies.
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IRS Targets 9,000 Taxpayers With Offshore Accounts Linked To India
April 7, 2011
Dramatically expanding its efforts to unearth unreported offshore income, federal authorities Thursday asked a court for permission to force HSBC India to cough up the names of 9,000 U.S. taxpayers of Indian descent.
The U.S. Department of Justice, which represents the Internal Revenue Service, filled a lawsuit in San Francisco federal court to allow the serving of a so-called “John Doe” summons on HSBC India.
HSBC India is a unit of London-based HSBC Holdings, an international banking giant on the Forbes 2000. HSBC operates 470 branches in the U.S. through HSBC Bank USA. Until last year, HSBC India operated “representative offices” in Fremont, Calif., a San Francisco suburb, and New York City catering to what was called the “non-resident Indian” market, or Indians living outside India.
In a 47-page statement and attachments appended to the lawsuit, IRS agent Daniel Reeves said there were 9,000 U.S. residents who had $100,000-minimum-balance accounts at HSBC India but that fewer than 1,400 taxpayers had disclosed existence of their accounts. U.S. law require disclosure in a special annual filing of any foreign account containing $10,000 or more. “This indicates that thousands of United States taxpayers of Indian origin who maintain more than $100,000 in accounts with HSBC, may have failed to disclose,” Reeves wrote.
The IRS seeks names of account holders from 2002 to 2010.
A statement issued by the New York headquarters of HSBC Bank USA said, “HSBC does not condone tax evasion and fully supports the U.S. efforts to promote appropriate payment of taxes by U.S. taxpayers. While complying with the law in all the jurisdictions in which it operates, HSBC cooperates with requests from U.S. authorities. We have been engaged in a constructive dialogue with U.S. authorities and hope any ‘IRS summons’ issues can be resolved expeditiously. No further comment.”
The parent HSBC organization may have problems arguing the HSBC Indian operation in the U.S. was some rogue outfit. Reeves’ statement cites postings on Internet Web sites like LinkedIn in which bankers staffing those two U.S. offices said they were “employees” of HSBC USA.
A tip-off of things to come materialized on January 26 when a grand jury in Newark, N.J. indicted Vaibhav Dahake of Somerset, N.J., on charges he evaded taxes by holding undeclared accounts in the British Virgin Islands and at HSBC India. In his statement today, agent Reeves said the IRS is investigating taxpayers “who directly or indirectly hold or held interests in, or have or had signature or other authority over, financial accounts at HSBC USA’s affiliate foreign bank, HSBC India, and who are not or may not be complying with U.S. internal revenue laws requiring the reporting of foreign financial accounts, and income earned on those accounts.”
In its multi-year campaign against undeclared offshore accounts held by U.S. taxpayers, the IRS has focused primarily on accounts held by banks in Switzerland, including UBS AG. And the agency has struck pay dirt: UBS admitted two years ago it had plotted to defraud the U.S. government of huge amounts of taxes by helping well-heeled Americans hide their assets. UBS paid $780 million to avoid the crippling stain of a criminal prosecution and turned over upwards of 4,000 names. Presumably, the IRS is eagerly going through the list.
In February, four bankers who used to work for Credit Suisse Group were indicted in the U.S. on charges they plotted to help well-heeled Americans avoid taxes through offshore accounts.
Word of this latest IRS initiative might considerably increase interest in the agency’s newest amnesty for offshore cheats. They have until August 31 to fess up and avoid criminal prosecution.
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Tax convictions comparatively low in San Diego
March 28, 2011
Taxpayers convicted in San Diego federal court on criminal tax charges are less likely to be sent to prison than other taxpayers nationally, and those that are receive sentences less than half the national average, according to an analysis by California Watch.
The nonprofit news organization analyzed three years worth of Internal Revenue Service criminal enforcement data covering convictions where white-collar crimes of tax fraud and tax evasion were the leading charge.
But the data does not tell the whole story, according to federal prosecutors in San Diego. They said tax-related charges are often included in larger federal investigations into border-related drug trafficking and other crimes.
The data showed that nationally, about 70 percent of people convicted of tax crimes go to prison, with an average sentence of about 35 months. That is not the case in the southern district of California, which covers San Diego and Imperial counties.
The analysis showed that in federal court here, about 63 percent of people convicted of tax crimes go to prison. And the average sentence they receive is 15 months.
That is the shortest average sentence of any federal court in California and among the lowest in the nation. Only federal courts in New Mexico and central Tennessee averaged shorter prison stays, 3.3 months and 8.7 months, respectively.
The data also showed fewer of those tax convictions in San Diego than in any of the three other federal judicial districts in California.
In the past three years, a total of 27 cases here ended in conviction. That compared to 84 for courts in San Francisco, 91 for the eastern district in Sacramento and 144 cases in the largest district, covering Los Angeles.
The tax cases data was obtained by the Transactional Records Access Clearinghouse, a nonpartisan research organization based at Syracuse University.
Prosecutors with the U.S. attorney’s office in San Diego said that they believe the data analysis underestimates their number of tax cases. For example, cases involving mail and wire fraud may also allege a tax fraud charge, but that is not the central focus of the case.
Moreover, the office focuses the bulk of its resources combating crimes along the border, including drug trafficking and drug smuggling. Agents with the Internal Revenue Service play key investigative roles in those cases, said John B. Owens, the chief of the criminal division in the office.
“The bottom line is we have certain special characteristics in this district of being a border district that other districts in California don’t have,” Owens said. “I think our track record shows that this district is not a haven for tax evaders or cheaters.”
Prosecutors might elect to file other charges, such as money laundering, in cases that begin as investigations into tax fraud, he said. Money laundering typically carries a longer sentence, and it opens the door for the government to seize assets.
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IRS Boost Auditing of Taxpayers, Almost Doubling Rate of Last Year
March 14, 2011
IRS audit rates increased in 2010 for all income groups according to data released today in Washington for the fiscal year that ended Sept. 30.
Highest earners had the sharpest increases in audit rates. The IRS audited 11.6 percent of taxpayers reporting adjusted gross income between $5 million and $10 million, up from 7.5 percent the year before. Taxpayers making between $75,000 and $100,000 faced the least chance of an audit, with a 0.64 percent rate.
Through its voluntary offshore disclosure programs and court cases involving Swiss banks, the IRS has gotten a better understanding of how wealthy people in non-corporate businesses manage their assets. They learn things and then they roll those things out across the board.
The overall audit rate for income tax returns was 1.11 percent, up from 1 percent the year before. The IRS had previously reported some of this data without the breakdowns at the top of the income scale.
The increase in audits of people making more than $10 million is part of a concerted IRS effort to focus on the business dealings of the wealthiest individuals.
“Our goal is to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise,” IRS commissioner Douglas Shulman said in October 2009 upon discussing the formation of a group within the agency focused on “global high wealth” individuals.
“We cannot do this by continuing to approach each tax return in the enterprise as a single and separate entity,” he said. “We must understand and analyze the entire picture.”
Higher audit rates are designed in part to build public confidence in the tax system. The government has an obligation and a duty to make people believe that everybody is paying their fair share. And particularly with respect to the wealthy, there’s a view that they’re able to get out of their obligations.
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