Wednesday, December 22, 2010

Transfer pricing disagreement with IRS could result in large fines for Massachusetts company

In a statement released Tuesday, Boston Scientific Corp. said that the IRS is seeking $525.1 million, plus interest, for deficient tax payments relating to the company’s Guidant Corp. and subsidiary businesses.

The deficiency in payments from the Massachusetts company occurred in the 2001 through 2003 tax years. The company, which disagrees with the IRS’s assessment of deficiency, has said that the primary issue under dispute is “transfer pricing” involving technology licensing agreements between domestic and foreign subsidiaries of Guidant.

Boston Scientific Corp. disagrees with the “significant proposed adjustment” and with the “transfer pricing methodologies” used to calculate the deficiency.

Deutsche Bank pays for selling tax fraud schemes

Deutsche Bank AG has agreed to pay $553.6 million and admit to criminal wrongdoing to settle allegations that it helped U.S. clients avoid paying taxes by using fraudulent tax shelters.

The German bank will not be further prosecuted for its use of about 15 tax shelters, involving over 2,100 clients from 1996 through 2002, following a nonprosecution agreement with the IRS. The Wall Street Journal notes that some of the relevant tax shelters were marketed by KPMG LLP and Jenkins & Gilchrist PC, both of which have agreed to separate payments and penalties.

In the signed agreement, Deutsche Bank admitted that the transactions pertaining to the tax shelters were “intended to create the appearance of investment activity, but taxpayers were entering into these transactions for the primary purpose of avoiding taxes, as opposed to making profits on the transactions.”

Friday, December 17, 2010

New accusation suggests that tax fraud continues in Switzerland

A former UBS employee and Swiss citizen has been accused of advising wealthy Americans to conceal their offshore accounts so as to avoid paying taxes to the US government. The allegations of tax fraud date from 2000 up through this month.

Renzo Gadola, head of RG Investment Partners, was named in a criminal information filed by the United States attorney’s office in Miami. Mr. Gadola and another unnamed co-conspirator (also a Swiss citizen and former UBS employee) are alleged to have advised an American citizen not to participate in the IRS’s voluntary disclosure program and to have later withdrawn the client’s money to conceal any paper trail.

This accusation comes shortly after the end of an over-four-year investigation of UBS banking in Switzerland. Even as American authorities have continued to crack down on tax evasion in overseas accounts, some bankers reportedly have persisted in recommending and providing illegal tax havens for wealthy Americans.

Monday, December 13, 2010

Obama looks to cut budget deficit, considers tax overhaul

If President Obama is serious about finding ways to cut the budget deficit, he should start with the Internal Revenue Service. With its entrenched bureaucracy, the IRS is thwarting whistleblower cases that if pursued would allow the government to recover billions in unpaid taxes from Wall Street banks, hedge funds and corporations.

As a possible means of cutting the budget deficit, Obama has indicated that he would like to begin a conversation about overhauling the U.S. tax code, by directing his economic team to begin considering options for tax code reform.

As Obama is considering a report by his commission on reducing the federal deficit, Congress is preparing to vote on extending Bush-era tax cuts.

Monday, December 6, 2010

U.S. now more able to enforce tax law in Panama

The United States and Panama have entered into an agreement to share information about national taxes in both countries for both civil and criminal matters in any tax year after November 2007.

The new tax information exchange agreement (TIEA) was signed by Treasury Secretary Tim Geithner and Panamanian Vice President and Minister of Foreign Affairs Juan Carlos Varela in a ceremony at the U.S. Department of the Treasury. “This bilateral agreement to provide for the exchange of tax information between our two countries reflects the commitment of the United States and Panama to the importance of transparency of tax information,” Secretary Geithner said of the TIEA.

Pursuant to the new TIEA, the United States will have access to information that will help it to enforce U.S. tax laws with respect to accounts held in Panama.

Thursday, November 18, 2010

IRS ends civil action against UBS, ending chapter in continued crack-down on tax cheats

The Internal Revenue Service has ended a long-lasting civil action against UBS AG, marking the end of a significant phase of efforts to crack down on tax fraud through hidden foreign accounts. Although the legal action against UBS has been concluded, the IRS plans to use information gathered to pursue U.S. clients of other banks, such as HSBC Holdings PLC, based in London.

The UBS case was brought to a close following the agreement by the Swiss government to provide the names of U.S. customers of UBS in Switzerland. Four thousand such names were given to the IRS following an August 2009 deal, and ultimately 7,500 names are expected to be provided.

In addition to the names procured through the course of the civil action against UBS, the IRS received an additional 18,000 names of U.S. taxpayers with secret accounts abroad since the implementation of a program offering unspecified leniency. While that program has ended, The Wall Street Journal reports that IRS Commissioner Doug Shulman has signaled the possibility of another such program, “although with higher penalties than for the first group.”

Wednesday, October 6, 2010

Florida father and son convicted of tax fraud

A federal jury in Florida has convicted a father and son of tax fraud and evasion, citing $33 million in proceeds from the sale of their hotel brand hidden in a Swiss account and other proof of a lifestyle that didn't match their modest stated income.

Prosecutors accused Mauricio Cohen Assor, 77, and his son, Leon Cohen Levy, 46, of concealing vast wealth “through a web of lies, forged documents, and false statements.” Attorneys for the defendants denied that the men hid ownership of $46 million in Miami beach homes, $45 million in investments, and $55 million in cars. He claimed that the men never knowingly broke the law, and said prosecutors presented an “Alice in Wonderland” case that broke from reality.

Both men now face up to 11 years in prison. Tax lawyers have been following this case closely as it is the first trial for offshore tax evasion since the Justice Department began a crackdown in March 2009, the New York Times reports.

Monday, August 30, 2010

Judge sends to prison four involved in aiding tax evasion

A federal judge sentenced to prison today four men found guilty of helping dozens of clients, including actor Wesley Snipes, evade over $1 billion in taxes. All four of the company’s promoters were found guilty of both conspiracy to defraud the government and mail fraud.

One of the four, Eddie Ray Kahn, was sentenced to 20 years in prison on top of the 10-year sentence he is currently serving following his conviction in the 2008 Snipes case. Prosecutors said Kahn founded and ran a group called the American Rights Litigators/Guiding Light of God Ministries that worked to sell “tax defiance schemes” and misrepresented the legality of its efforts.

The Washington Post article on today’s sentencing quotes John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division, who said that “those who promote illegal tax defiance face prosecution and lengthy prison terms.”

Friday, August 27, 2010

Court of Appeals upholds conviction in tax shelter case

The conviction of ex-KPMG LLP senior manager John Larson was upheld by a U.S. appeals court, which confirmed that the prosecution’s evidence supported the finding that tax shelters sold by Larson were “marketed solely as tax evasion schemes.”

This ruling follows from the U.S.’s initial accusation of 17 ex-KPMG executives and two others of selling shelters that cost the treasury $2 billion in lost revenue. The judge in that 2007 case dismissed charges against all but four defendants and assigned Larson a $6 million-dollar fine. The most recent decision of the appeals court has ordered that this fine be recalculated as $3 million, the legal limit given that Larson’s calculation of harm and loss was made without a jury finding.

Larson has been sentenced to 10 years in prison. In 2007, KPMG paid a $456 million fine for its sale of illegal tax shelters, and charges against it were dismissed.

Thursday, August 26, 2010

IRS to drop suit following Swiss assurance to disclosure names of suspected tax evaders

The Internal Revenue Services has said that it will drop a lawsuit against UBS, the world’s largest private bank, following confirmation from Switzerland that it is on track to produce details for the remaining 2,450 of 4,450 American clients suspected of using UBS accounts for tax evasion. The IRS has received 2,000 thus far.

Although this provides some respite for UBS and the Swiss banking system, the impending disclosures themselves could bring more litigation against those professionals that may have facilitated tax evasion.

William M. Sharp, a tax lawyer who represents a number of former UBS clients, told the New York Times that some Americans among the 4,450 names had hidden accounts of more than $100 million. While it has not happened yet, the IRS has indicated that if all 4,450 names are received by this fall, it may withdraw the John Doe summons, a separate request for 52,000 UBS client names.

Wednesday, August 25, 2010

Two reports indicate possible redirection of IRS efforts to prevent fraud in the tax-exempt sector

A report released today by the Treasury Department’s Inspector General for Tax Administration outlines some of the difficulties that the IRS has had in prosecuting criminal tax fraud in the tax-exempt sector and provides statistics supporting an overall decline in such cases in the last 3 years.

The findings of the report also suggest that investigations into tax-exempt organizations have been less successful than other investigations, yielding only 35% convictions or guilty pleas (the average for all investigations is 53%). Victor Song, chief of the Criminal Investigation Division, took issue with that statistic and responded saying that 81.8% is the conviction rate for tax-exempt cases if measured only by those that see trial.

Another report released separately today urges the IRS to act more aggressively with section 527 tax-exempt political organizations that file late or incomplete forms. The report estimates that $5.3 million could be collected by pursuing those applicable penalties.

Monday, July 19, 2010

Small businesses join forces in opposition to tax evasion

A new grass-roots campaign against tax avoidance will be announced Tuesday; it will boast the support of hundreds of representatives and investors in small businesses and will be formed of a coalition of non-profit groups that believe tax avoidance is bad for U.S. business.

“The campaign is unusual because it is the first time that small businesses have organized to combat offshore tax avoidance and evasion in a significant way,” reports Lynnley Browning of The New York Times. The campaign is backed by Democratic senator Carl Levin, who has investigated offshore tax havens and their wealthy patrons.

The report to be released argues that American multinational corporations avoid at least $37 billion in federal taxes annually, and calls for new laws to prevent offshore finagling of taxable earnings as well as the repeal of certain rules that currently facilitate such tax evasion.

Thursday, July 8, 2010

France aims to use leaked data to prosecute tax evaders

Details surrounding the acquisition and transfer of client information from HSBC’s Swiss private-banking arm have placed a Franco-Italian computer engineer and colleague at the center of a dispute between Switzerland and France. While Switzerland objects to the use of data that it claims was stolen, France intends to use the data to prosecute potential tax cheats and has even shared the information with other countries.

Although some evidence indicates that the computer engineer and colleague were attempting to sell the client banking information, France insists that it did not pay for the data and rather attained it lawfully. The data was in fact acquired by French authorities acting at the request of a Swiss prosecutor to conduct a search.

Regardless of the details of the data’s acquisition, the release of client information and the ensuing international dispute over legitimacy has, as The Wall Street Journal writes, “rocked the banking world.” Tax evaders in Italy, Spain, and the U.K. may soon face prosecution as a result of this data leak.

Sunday, June 27, 2010

I.R.S. achieves victory over tax havens

Recent advances in the I.R.S.’s efforts to prevent tax-evasion among Americans illegally concealing taxable assets in offshore holdings may signal an end to the acceptability of these practices in popular tax havens.

“The Swiss Parliament’s approval of a deal to give the I.R.S. the names on 4,450 American accounts at the Swiss bank UBS is an important victory,” states a New York Times editorial today. Additionally, bilateral tax treaties entered into by the United States, Switzerland, Singapore, Luxembourg and other countries require that certain tax information be disclosed to treaty partners, overriding individual bank secrecy laws.

Further, Congress’s March passage of the Foreign Account Tax Compliance Act will require, beginning in 2013, foreign financial entities to disclose information about American account holders and business owners on penalty of a substantial withholding tax on income from U.S. securities.

Thursday, June 17, 2010

Swiss Parliament sides with I.R.S. in deal to expose potential tax evaders

The Swiss Parliament agreed today to uphold an August 2009 arrangement with the United States, whereby UBS, Switzerland’s largest bank, would disclose information on 4,500 accounts held by Americans suspected of tax evasion.

Lynnley Browning of The New York Times reports that “The parliamentary approval was a watershed moment in the history of Swiss private banking, whose tradition of client confidentiality goes back centuries.”

The decision, which represents months of legal and diplomatic efforts, will likely be used as a template to pursue tax fraud and tax evasion perpetrated in conjunction with other banks in Switzerland, such as Credit Suisse and HSBC, as well as operations in such burgeoning tax havens as Hong Kong and Singapore.

Monday, June 7, 2010

I.R.S. statements cast pall over BAB market

Concerns have risen following a series of statements from the I.R.S. suggesting that federal interest-rate subsidies could be lost or diminished on more than $100 billion worth of Build America Bonds, or BABs, that certain states and cities have already sold.

Although BABs have been extremely popular in the municipal bond market since their introduction in April 2009, concerns over I.R.S. audits and subsequent reductions of federal subsidies are expected to cause considerable concern over the continued issuance of such bonds.

Issuers of BABs will likely consider the risk to their credit that the uncertainty of federal subsidies carries. The I.R.S., which at one point claimed would audit up to half of all issued bonds, is currently in a research phase, preparing to determine the extent of future audits.

Thursday, June 3, 2010

I.R.S. disputes with retirement communities over unpaid taxes

Classic Residences by Hyatt, a set of businesses that run high-end retirement communities, is enmeshed in a dispute with the I.R.S. over unpaid taxes that the I.R.S. claims total over $107 million. Classic Residences claims that the money is not owed, and that their tax payments are compliant with U.S. tax law.

The clash is centered around the tax law interpretation of entrance fees paid by the retirement communities’ new residents, who spend upwards of $2 million to begin renting a living unit. Hyatt maintains that these fees, which are almost entirely returned after a client moves out or dies, are correctly interpreted as interest-free loans and not taxable income.

However, with such fiscal shortcomings, the government may be adopting a more aggressive stance toward such loosely interpreted and ambiguous income. As a Wall Street Journal article indicates, “some aspects of the Classic Residence entrance fees might lead the U.S. Tax Court to agree with the IRS.”

Tuesday, June 1, 2010

U.S. tobacco giant to pay I.R.S. $971 million

The nation’s largest tobacco company and parent company of Phillip Morris, Altria Group, will pay $971 million to resolve a dispute with the I.R.S. over leasing transactions from 2000 to 2003.

Duff Wilson for The New York Times reports that “in recent years, the I.R.S. has challenged the decisions of some companies to accelerate tax deductions on certain leasing transactions between nonprofit and profit-making entities.” This particular payment concerns the depreciation of leveraged leases.

A tobacco industry analyst at Morgan Stanley told the Times that Altria previously paid about $150 million to resolve a similar tax issue pertaining to 1996-1999, and also expects to pay around $900 million for a 2004-2009 tax liability.

Sunday, April 11, 2010

IRS audits of major corporations decrease

The number of Internal Revenue Service audits of large corporations has decreased, according to an analysis by the Transactional Records Access Clearinghouse—which shows how important whistleblowers can be for uncovering tax fraud and other tax violations.

The research group, based at Syracuse University, says, “Among corporations reporting assets of $250 million or more, the IRS since FY 2005 has cut back by a third (33 percent) the hours it spends examining their books. IRS has also sharply reduced the number of large corporate returns it examines — these audits have fallen by 22 percent since 2005.”

The IRS disputes TRAC’s conclusions, Reuters reports. Steven Miller, deputy commissioner of services and enforcement, said the IRS audits about half of the corporations with assets of between $5 and $20 billion and all corporations with assets greater than $20 billion.

Thursday, March 18, 2010

Tax-exempt status of Illinois hospital is revoked

The Illinois Supreme Court has upheld the state’s decision to take away the tax-exempt status of Provena Covenant Medical Center, agreeing that the Catholic hospital hadn’t provided enough charity care.

The state argued that Provena had provided free or discounted care to only 302 patients out of 10,000, spending only 0.7 percent of its $113 million in revenues, according to the National Law Journal. (Subscription required.)

Meanwhile, U.S. Sen. Chuck Grassley (R-IA) and Rep. Bobby Rush (D-IL) have joined together to crack down on tax-exempt hospitals that fail to treat patients without insurance, according to The Hill newspaper. Grassley has been a strong proponent of ensuring tax-exempt hospitals provide enough care to low-income and uninsured patients to merit the tax breaks the hospitals get.

Tuesday, March 16, 2010

IRS Issues Dirty Dozen List of Tax Scams for 2010

The Internal Revenue Service (IRS) has issued its “Dirty Dozen” tax scams list for 2010, which includes hiding income offshore and disguising corporate ownership—schemes that whistleblowers often expose.

“IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year,” the IRS said in a statement.

The IRS said it is concerned about disguised corporate ownership because “such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing.”