Former UBS executive helping IRS with tax fraud investigation

A former executive with Swiss bank UBS AG has agreed to plead guilty to tax fraud and cooperate with the U.S. government's investigation of wealthy individuals evading taxes with UBS help.

He is expected to provide the government with the names of his U.S. clients.

"UBS frequently teamed up with bankers in the tiny neighboring tax haven of Liechtenstein to help wealthy Americans hide assets from the Internal Revenue Service," the Wall Street Journal said.

IRS investigates Rabobank, Newell transactions

The Internal Revenue Service is investigating a whistleblower's allegations that Rabobank Group engaged in transactions with Newell Rubbermaid Inc. and other U.S. companies that were solely designed for the U.S companies to avoid taxes, the Wall Street Journal reported.

The Journal said Newell sold accounts receivable at a discount beginning in 2001 to a newly created overseas company funded by Rabobank, a Dutch bank. Newell took a tax deduction for the discount.

"As long as Newell didn't control the overseas company, any cash left over after paying Rabobank wasn't taxed in the U.S. Newell says Rabobank controlled the entity," according to the Journal.

A former Rabobank executive reported the tax fraud to the IRS last year and may be eligible for a reward under the new tax fraud whistleblower law if the IRS recovers any funds.

U.S. cracks down on tax avoidance by former citizens

Congress has passed a law that will tax the assets of those who renounce their citizenship as if they were selling those assets and will require U.S. heirs to pay taxes on any assets left to them by ex-citizens.

"The new taxes are included in legislation providing tax benefits for soldiers and military veterans and will apply only to those who renounce their citizenship after President Bush signs the bill into law, as he is widely expected to do," the Wall Street Journal reported.

The new law applies only to those whose assets are worth more than $2 million.

Abusive tax shelters mutate into other forms

Forbes.com has posted an excellent piece warning that banned tax shelters still are being promoted and so are are variations of abusive tax shelters.

The column notes that "smaller firms, independent CPAs, lawyers and insurance salesmen continue to flog new—and old—shelter mutations to business owners and the successfully self-employed."

“After all the enforcement, I’m surprised at the level of tax shelter activity that’s still out there,” says Ian Comisky, a partner at Blank Rome in Philadelphia who defends taxpayers in civil and criminal cases.

Tax-exempt status of nonprofits is challenged

A story in today's New York Times looks at the issue of whether nonprofit institutions deserve tax-exempt status when they are charging fees and selling products and services.

"In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay property taxes because, in essence, it gave nothing away," the Times reported.

This also has repercussions for hospitals as far as providing charity care and universities regarding whether they provide enough financial aid.

Offshore-account holders struggle over tough choices

Facing an intensified government crackdown on offshore bank accounts, people who use those accounts to illegally hide their income are struggling over whether and how to turn themselves in, reports The Wall Street Journal.

Lawyers advising tax dodgers are saying their clients are struggling to decide among several alternatives. They can confess and plead for mercy. They can quietly file amended tax returns, pay up, make other required disclosures and hope overworked government prosecutors won't follow up. Or they could choose to do nothing and pray their names won't turn up.

The recently adopted law that increases the reward for whistleblowers who provide specific information to the Internal Revenue Service about tax avoidance schemes is encouraging whistleblowers to come forward.

Tax court criticizes IRS attorneys for tax shelter case

The U.S. Tax Court in a recent decision rebuked the Internal Revenue Service for its handling of a large group of tax shelter cases in the late 1980s, saying the IRS had committed fraud on the court.

The tax court decision involved the so-called "Kersting tax shelter project," in which 1,300 taxpayers signed agreements to be bound the outcome of a test case regarding the tax shelter. However, the agency's attorneys made a secret settlement with the defendants, then tried the case anyway without informing the court or other participants in the agreement.

The defendants lost the trial, and the other tax violators were bound by the results. They didn't learn of the secret settlement until later, then argued that the less harsh settlement terms should apply to them, also. The tax court agreed.

"The fraud on the court committed by [IRS] attorneys in the test case proceedings constituted fraud on the court in every case bound by the outcome of the test cases and harmed the integrity of the judicial process, not only as the test case procedure was employed in the Kersting project cases, but also as it might be employed in the future," the tax court said.

The judge ordered the IRS to adjust the accounts of all the taxpayers in the Kersting project.

WebCPA.com opined, "While the government is determined to cut down on the abuse of tax shelters, it needs to be careful not to overreach by allowing its attorneys to cut secret side deals that benefit one set of defendants while punishing a much larger set."