Tax Fraud Blog

Swiss bankers sought tax-evading U.S. clients, government alleges

2012-01-04T09:16:00.000-08:00

The U.S. Attorney’s Office in Manhattan has charged three Swiss bankers -- who sought to scoop up former UBS clients -- with conspiring to hide more than $1.2 billion in assets for U.S. clients from the Internal Revenue Service (IRS).

The indictment of the Swiss bankers lays out a simple business plan: The three bankers – Michael Berlinka, Urs Frei and Roger Keller – wanted to capitalize on the IRS investigation of Swiss bank UBS and another large international Swiss bank. To capture the business of those fleeing UBS and the other bank, they allegedly told U.S. clients that their bank wouldn’t disclose its clients’ identities to the U.S. because it had a long tradition of bank secrecy and “was less vulnerable to United States law enforcement pressure because, unlike UBS, the bank did not have offices outside Switzerland,” the indictment says.

The indictment doesn’t identify the bank Berlinka, Frei and Keller worked for, but Reuters reported they worked for Wegelin & Co., one of Switzerland’s oldest private banks.

Billionaires avoid more than just income tax

2011-11-21T12:13:00.000-08:00

Billionaires can pull millions out of appreciated assets in ways that allow them to avoid taxes on that cash without violating any IRS rules, reports Jesse Drucker of Bloomberg News.

The ability to avoid those taxes is an overlooked aspect of the debate over whether to increase the income tax that the wealthiest people in the U.S. should pay, the story notes.

“The problem is not that people like Warren Buffett pay tax at a 17 percent rate, it’s that they can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all,” said David S. Miller, a tax attorney and former chair of the tax section of the New York State Bar Association.

G-20 countries should consider whistleblowers to help stop tax evasion

2011-11-02T12:19:00.000-07:00

Many countries are trying to crack down on tax evasion as a way to increase revenues. But they are overlooking a powerful weapon: whistleblowers.

Tax evasion and compliance is on the agenda of the group of 20 countries this week. Only the U.S. has a program to reward whistleblowers for reporting tax evasion or other tax law violations. The Internal Revenue Service will reward whistleblowers 15 percent to 30 percent of funds recovered as a result of the whistleblower's information and help if the amount exceeds $2 million, including tax, penalties and interest.

The U.K. took a major step this week to encourage whistleblowers with information about financial crime. The Serious Fraud Office set up a whistleblower hotline and said it protect the whistleblower's identity.

California offers amnesty for investors in abusive tax shelters

2011-08-04T14:39:00.000-07:00

California has launched a tax amnesty program for people who used abusive tax shelters or offshore financial arrangements to evade or avoid state taxes.

The California Franchise Tax Board announced the initiative, called “Voluntary Compliance Initiative 2,” earlier this week. Participants in the program can avoid most penalties and criminal prosecution, the tax board says. The filing period for the amnesty program ends Oct. 31.

The San Francisco Chronicle reports that the tax board has contacted 47,000 taxpayers who might be eligible.

Former UBS banker indicted in tax evasion conspiracy case

2011-08-02T14:40:00.000-07:00

A former UBS banker was indicted today on a charge that he helped U.S. clients evade taxes through accounts at UBS and a regional Swiss bank.

The indictment says the banker, Martin Lack, discouraged at least nine U.S. customer from joining an Internal Revenue Service amnesty program offered to those who were hiding assets overseas. He also offered to provide his customers with falsified bank documents to conceal the source of the funds in their undeclared bank accounts, according to the indictment.

Lack, a Swiss resident, is accused of conspiring with another UBS banker to encourage U.S. clients to move their undeclared UBS accounts to the smaller regional bank, which news reports identify as Basler Kantonalbank. The other UBS banker, Renzo Gadola, pleaded guilty last year to similar charges in federal court in Miami.

Switzerland’s Credit Suisse bank targeted for criminal investigation by DOJ

2011-07-18T08:27:00.000-07:00

Switzerland’s second largest bank, Credit Suisse Group AG, announced last week that it is the target of a criminal investigation by the Department of Justice, pertaining to former cross-border banking services provided to US clients.

According to Justice Department guidelines, there must be “significant evidence” of illegal activity for the DOJ to target an entity for investigation. In February, four Credit Suisse employees were indicted for allegedly helping US clients evade taxes through secret bank accounts.

Following the agreement reached in 2008 with UBS, Switzerland’s largest bank, some experts have speculated that this investigation could follow a similar trajectory. As a result of that action, UBS signed a differed prosecution deal which required the bank to pay $780 million and turn over data on 250 US clients – it has since provided data on an additional 4,450 accounts.

Credit Suisse is also under investigation in Germany for allegedly helping German clients evade taxes.

New rules for Swiss banks mark shift away from undeclared assets

2011-04-22T10:35:00.000-07:00

Switzerland is expected to make changes to its banking laws that will make it more difficult for European neighbors to hide their assets from tax collectors. The proposed agreement with Germany and Britain, expected to be reached by the summer of this year, is intended to preserve banking secrecy, but marks a shift away from undeclared assets. France and Italy are expected to reach similar deals with Switzerland thereafter.

Switzerland is seeking to avoid recurrences of some of the more contentious responses to the problem of banking secrecy for foreign tax collectors, such as the lawsuit between the IRS and UBS that resulted in a payment of $780 million, Swiss bankers being arrested abroad, and the theft and sale of Swizz bank client lists to foreign governments that wish to collect taxes legally owed to them.

The shift in Switzerland’s banking will likely result in the downsizing or consolidation of some firms that rely solely on undeclared assets. Although client confidentiality will be retained under the proposed agreement, Swiss banks will likely be forced to compete in a more transparent environment, the results of which are only beginning to unfold.

IRS to focus on tax evasion schemes in India

2011-04-11T14:45:00.000-07:00

The IRS is now considering India among the countries believed to be facilitating major off-shore tax evasion for wealthy Americans, as indicated by the Justice Department’s efforts to acquire the names Indian-American HSBC clients suspected of evading taxes through offshore banking in India.

The request for permission from a federal Judge by the Justice Department to demand those names comes on the heels of a protracted legal engagement with UBS in Switzerland. That action began in 2008 and ended last August with the agreement by UBS to provide information on 4,500 American clients. The IRS is now expanding its anti-fraud efforts to India, a region not previously considered a hotbed for offshore evasion.

According to the New York Times, sources close to the matter indicate that HSBC’s N.R.I. program (Non-Resident Indian), which sought out Indian-Americans for banking in India, may be related to the current legal effort. HSBC has indicated that it does not condone tax evasion, and will cooperate with US requests “while complying with the law in all jurisdictions in which it operates, including India.”

IRS releases “Dirty Dozen” list of worst tax scams for 2011

2011-04-11T13:20:00.000-07:00

The IRS has produced a “Dirty Dozen” list of 12 fraudulent and illegal tax schemes, representing “the worst of the worst” in tax scams, according to IRS Commissioner Doug Schulman.

Among the scams included in the list are: hiding income offshore, identity theft and phishing, return preparer fraud, filing false of misleading forms, frivolous arguments, nontaxable social security benefits with exaggerated withholding credit, abuse of charitable organizations and deductions, and abusive retirement plans.

The IRS warns that while such activities may appear to present opportunities to retain wealth illegally by defrauding the government, these scams frequently result in heavy fines, full repayment of taxes (plus interest), and often jail time.

Former UBS client pleads guilty to offshore tax evasion

2011-03-18T08:05:00.000-07:00

Richard Werdiger, a former client of Zurich-based UBS AG, has pleaded guilty to concealing assets from the IRS in offshore bank accounts.

The 63-year-old is one of 7 former UBS clients believed to have concealed over $100 million from the IRS. Werdiger was accused of hiding $7 million in 3 accounts in Panama and Lichtenstein.

The former UBS client has agreed to pay $3.5 million in civil penalties and faces up to 20 years in prison when he is sentenced on June 14. The accusations form part of a larger IRS crackdown on offshore tax evasion, which has previously made UBS a focus of interest.

IRS offers information on offshore tax amnesty program in eight new languages

2011-03-11T13:29:00.000-08:00

The IRS has released information on its 2011 Offshore Voluntary Disclosure Initiative in several languages, following requests from taxpayers and tax professionals to make the program more accessible to persons who primarily speak non-English languages.

Information on the new amnesty program is now available in Chinese (traditional and simplified), Farsi, German, Hindi, Korean, Russian, Spanish, and Vietnamese. The program creates an incentive for persons owing taxes to the IRS on hidden offshore accounts to come forward and pay their fines, by offering amnesty from some of the harsher penalties that could be applied.

A similar version of this program was offered last year and resulted in thousands of self-disclosures. This current program is less forgiving of tax cheats than the first iteration, but still offers ample motivation for persons guilty of offshore tax fraud to pay their fines and forgo potentially harsher punishment.

Government crackdown on tax attorney fraud continues

2011-03-04T13:25:00.000-08:00

The US Justice Department has accused Scott Waage, a tax lawyer in San Diego, of using illegal tax schemes to withhold $10.8 million in clients’ assets that should have been paid to the IRS.

The complaint alleging Waage’s use of fraudulent tax shelters comes on the heels of another complaint filed against attorneys Charles Klink and Caleb Grodsky, who allegedly used an illegal tax scheme designed to help them avoid paying corporate taxes on income generated from the sale of their clients' business assets, according to the National Law Journal (subscription required).

According to the complaint, Waage advertised himself as a “visionary tax attorney.” He started his own law firm, now titled Strategic Law Group, which allegedly promoted illegal tax schemes that Waage used (for his own assets as well as those of his clients) to defraud the government of millions of dollars.

US pursuit of tax fraud scheme providers continues in Switzerland

2011-02-25T14:08:00.000-08:00

Arrest warrants were issued following the Wednesday indictment of four bankers believed to have been hiding as much as $3 billion from the IRS.

Although all four bankers are employed by the Zurich-based Credit Suisse Group, the bank itself was not charged in the indictment. However, the indictment states that bank officials "knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes."

The US government alleges that the fraud goes back to as far as 1953, and that in 2008, Credit Suisse was maintaining thousands of hidden accounts for US customers. Additionally, the indictment claims that that the fours bankers encouraged clients not to participate in President Obama’s tax amnesty program last year.

The AP notes that this is the first major criminal prosecution not involving Swiss-based UBS AG. In that landmark case, the UBS turned over thousands of names and paid a $780 million fine for helping US citizens conceal assets from the IRS.

Hunting down tax cheats in Switzerland gets easier

2011-02-23T10:08:00.000-08:00

Switzerland has taken steps towards improving cooperation with countries seeking to pursue tax evaders hiding funds in the country.

Before the change in policy, which will take effect following Parliament’s approval, countries seeking information on tax evaders could receive administrative assistance from the Swiss government only with the full name and address of the parties of interest; the new policy will allow governments to use more varied search methods and provide less complete information.

However, the Swiss Ministry has said that it will not allow for “fishing expeditions,” whereby a government might attempt to gain information on parties that are not reasonably suspected of any wrongdoing.

The policy change comes on the heels of increased pressure from the US government to pursue tax evaders in Switzerland and other countries, including a sustained inquiry into UBS, Switzerland's biggest bank, which was recently completed.

IRS announces new amnesty program for tax cheats

2011-02-10T11:56:00.000-08:00

As previously indicated, the IRS has announced a new amnesty program for tax cheats who have concealed money in foreign bank accounts. The program comes on the heels of increased IRS scrutiny of foreign banking, notably UBS and Deutsch Bank AG.

The new program bears many similarities to a prior tax amnesty program which ran from March through October of 2009, and resulted in 15,000 Americans’ confession of illegal tax avoidance. The current program is less lenient, so as not to reward those who have waited, but also offers a few specific caveats for smaller accounts held by persons who can prove minimal knowledge or involvement in the offshore account. Persons to whom those specifications would have applied in the first amnesty program are invited to return now and have their fines reassessed.

According to the Wall Street Journal, the primary incentive for Americans to come forward is to avoid jail time or harsher fines. IRS Commissioner Doug Shulman stated that the program “gives people a chance to come in before we find them.” The new program is “the last, best chance for people to get back into the system,” he said. The deadline has been set for August 31, 2011.

Federal indictment of tax cheat suggests possible implications for HSBC and IRS amnesty program

2011-01-27T14:48:00.000-08:00

A recent federal indictment of a wealthy American accused of concealing money from the IRS in foreign tax shelters may signal a large-scale legal action against HSCB. Persons familiar with the indictment of Vaibhav Dahake told the New York Times that HSBC was the unidentified international bank that advised the illegal use of tax shelters.

Federal authorities are said to be considering a legal summons intended to ascertain the degree to which HSBC was actively marketing these illegal services to clients. A similar recent summons served on UBS resulted in the disclosure of several thousand client names.

The indictment of Dahake cited a number of unidentified bankers who advised him, among other things, not to file forms with the IRS and that money transferred between British Virgin Islands accounts and Indian accounts would not be monitored or noticed by US authorities.

A lawyer for Dahake said that he perceived a connection between the indictment and the impending IRS amnesty program for tax cheats. He called the indictment a “clubbed invitation” for wealthy Americans concealing money in foreign accounts to come forward, declare their money, pay their taxes, and suffer reduced fines and penalties as part of the amnesty program.

IRS to announce second amnesty program for self-disclosing tax cheats

2011-01-26T13:33:00.000-08:00

The IRS will soon be announcing a second amnesty program for Americans concealing accounts in foreign tax shelters; it will not be “as generous” as the last program, which 15,000 Americans opted to participate in (as well as an additional 3,000 after the October 15 deadline).

A white collar criminal defense lawyer told The New York Times that some Americans may have cheated the IRS by paying taxes on a smaller UBS account while concealing larger accounts in a smaller Swiss bank. A current focus of US prosecution is the use of regional Swiss banks, known as cantonal banks, which have been utilized successfully by tax evaders.

While the terms of the impending amnesty program have not yet been outlined in detail, they are expected to be similar to those of the previous program. However, one authority suggested to the Times that guilty parties might be better served by coming forward even prior to the program’s announcement, as ongoing investigations could reveal the offender’s identity before a voluntary disclosure, potentially voiding the possibility of amnesty.

Guilty plea from Swiss banker could indicate new direction in US fight against illegal tax havens

2011-01-04T09:05:00.000-08:00

A Swiss banker and former UBS employee’s recent guilty plea in a US tax case suggests a possible new direction and commitment for the US in its fight against illegal tax havens abroad.

Renzo Gadola was accused of recently travelling to Miami to advise a wealthy American to illegally conceal her money in a regional Swiss bank. The type of bank into which Gadola had intended to conceal the funds is known as a cantonal bank.

Attorney Brian Skarlatos, whose firm represents numerous former UBS account holders, told The Wall Street Journal that the regional cantonal banks were thought, until now, to be places where it was “safe to hide [US] money because those banks do not do business in the United States.”

Gadola’s guilty plea and cooperation with US officials could mark the beginning of further US efforts to root out illegally hidden, taxable US money in cantonal Swiss banks.

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

2010-12-22T14:56:00.000-08:00

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

2010-12-22T14:52:00.000-08:00

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.”

New accusation suggests that tax fraud continues in Switzerland

2010-12-17T12:57:00.000-08:00

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.

Obama looks to cut budget deficit, considers tax overhaul

2010-12-13T14:14:00.000-08:00

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.

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

2010-12-06T13:13:00.000-08:00

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.

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

2010-11-18T12:54:00.000-08:00

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.”

Florida father and son convicted of tax fraud

2010-10-06T22:33:00.000-07:00

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.

Judge sends to prison four involved in aiding tax evasion

2010-08-30T20:06:00.000-07:00

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.”

Court of Appeals upholds conviction in tax shelter case

2010-08-27T18:14:00.000-07:00

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.

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

2010-08-26T22:12:00.000-07:00

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.

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

2010-08-25T20:26:00.000-07:00

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.

Small businesses join forces in opposition to tax evasion

2010-07-19T16:42:00.000-07:00

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.

France aims to use leaked data to prosecute tax evaders

2010-07-08T13:26:00.000-07:00

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.

I.R.S. achieves victory over tax havens

2010-06-27T17:06:00.000-07:00

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.

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

2010-06-17T15:00:00.000-07:00

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.

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

2010-06-07T15:47:00.000-07:00

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.

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

2010-06-03T10:32:00.000-07:00

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.”

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

2010-06-01T15:15:00.000-07:00

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.

IRS audits of major corporations decrease

2010-04-11T07:29:00.000-07:00

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.

Tax-exempt status of Illinois hospital is revoked

2010-03-18T07:25:00.000-07:00

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.

IRS Issues Dirty Dozen List of Tax Scams for 2010

2010-03-16T07:17:00.000-07:00

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.”

Off-shore accountholders fear IRS tax penalties

2009-12-02T07:07:00.000-08:00

Lawyers who handle tax disputes with the Internal Revenue Service have been inundated with calls from people who have off-shore accounts and are concerned their foreign banks will hand over information about their accounts to the IRS.

The Daily Record, a legal trade newspaper in California, reports that “Stoking the panic are two deals that UBS has reached with the U.S. government this year — the first in February — to hand over the account information of U.S. customers suspected of offshore tax evasion.”

The Record interviewed several lawyers who said the number of clients they are representing in voluntary tax disclosures as increased tremendously. One lawyer in California said he normally handles one or two voluntary tax disclosures cases a year; right now he has cases involving 140 clients on the West Coast alone.

IRS extends deadline for disclosing off-shore accounts

2009-09-21T07:00:00.000-07:00

The Internal Revenue Service is extending the deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts from Sept. 23 to Oct. 15.

Under special provisions issued in March, taxpayers who voluntarily disclose their hidden accounts possibly could receive less harsh civil penalties and avoid criminal prosecution. The IRS extended the deadline in response to requests from lawyers representing some of those who are willing to disclose offshore accounts. The IRS said it wouldn't allow any further extensions.

UBS, U.S. and Swiss reach deal on releasing names of possible tax evaders

2009-08-12T10:42:00.000-07:00

UBS AG and the U.S. and Swiss governments have worked out agreements to settle a dispute over whether the Swiss bank should be forced to disclose the names of 52,000 wealthy American clients suspected of tax evasion, media outlets reported today.

UBS and the two governments have initialed agreements that will "take a little time to be signed in final form," Department of Justice lawyer Stuart Gibson told U.S. District Court Judge Alan Gold during a brief conference call on Wednesday, according to Reuters.

"For U.S. taxpayers it is going to be impossible to hide money in Switzerland and it is just a matter of time that this is the case also for Germans and Britons," Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, said in a separate story by Reuters.

Guernsey: low-tax jurisdiction or tax haven?

2009-08-07T13:58:00.000-07:00

The New York Times ran an article today about Guernsey's popularity with rich Britons who take advantage of a loophole in British law that allows individuals to become nonresidents for tax purposes but remain citizens as long as they do not spend more than 90 days a year on British soil.

But British authorities are beginning to challenge the application of that loophole, the Times says.

The Times story cites an estimate by the Organization for Economic Cooperation and Development that "wealthy individuals hold about $6 trillion offshore, resulting in billions of dollars in lost tax revenue for their home countries annually."

Op-ed advocates maintaining strict Swiss financial privacy laws

2009-08-03T10:03:00.000-07:00

The president of a Swiss research institution argues today in a New York Times op-ed that Switzerland should maintain its strict banking privacy laws despite pressure from other countries to change them.

". . . Our financial privacy laws are a foundation for individual dignity and basic property rights," says Pierre Bessard, president of the Liberales Institut. "We will not solve the global problem of tax evasion by punishing honest depositors and destroying Swiss traditions."

UBS, Swiss and U.S. reach agreement on info about U.S. clients

2009-08-03T09:26:00.000-07:00

UBS and the Swiss government have reached an agreement in principle with the U.S. to give the U.S. information about some American UBS clients who the U.S. maintains are evading taxes through accounts with the Swiss bank, according to media reports.

Reuters reported that, "A U.S. government source told Reuters on Friday he expected UBS not to pay a fine as part of the deal and Swiss newspapers reported the settlement would include the bank handing over 5,000 names of U.S. clients holding secret Swiss accounts -- about 10 percent of the names Washington was after."

The Wall Street Journal reported that UBS and the Swiss government had resolved their concerns about violating Swiss bank-privacy laws by combing through UBS client files and identifying "enough potential fraud to make them willing to hand over information about certain accounts.

"Swiss laws don't provide confidentiality if people engage in fraudulent activities such as setting up accounts with shell companies that lack any real business substance," The Wall Street Journal said.

For-profit operations require not-for-profit hospital system to pay taxes

2009-07-23T13:15:00.000-07:00

A state judge has ruled a healthcare provider system in Minnesota has to pay personal property taxes on office equipment in its corporate headquarters because it runs for-profit operations as well as not-for-profit hospitals, Modern Healthcare reports.

Details about the case involving ProHealth Care are found at Modern Healthcare. (Registration required.)

UBS fight with IRS convinces Swiss banks to drop U.S. clients

2009-07-22T14:02:00.000-07:00

More ripples from the UBS-IRS standoff: Some Swiss banks reportedly aren't accepting or are cutting off U.S. clients out of concern the Internal Revenue Service might get into a similar fight with them over client account information as it has with UBS AG.

DowJones Newswires says it's "a sign that UBS AG's high-profile spat with the Internal Revenue Service is chipping away at Switzerland's private banking industry."

The IRS is after information about the UBS accounts of 52,000 U.S. citizens in a major tax-evasion probe, challenging not just UBS but Swiss bank-secrecy laws.

UBS fight with IRS convinces Swiss banks to drop U.S. clients

2009-07-21T06:57:00.000-07:00

Legal tactic helps uncover offshore bank accounts

2009-06-29T08:55:00.000-07:00

The Washington Post features an article today about a special trial attorney at the Internal Revenue Service who is credited with devising a legal tactic for uncovering the identities of offshore account holders.

John McDougal and his team at the IRS began in 2002 to use "John Doe" summonses on U.S. companies that process financial transactions for Americans holding questionable foreign accounts.

"The summonses were instrumental in helping the Justice department secure a settlement under which UBS admitted engaging in a scheme aiding U.S. clients hiding income from the IRS," the article says.

U.S. says it will continue case against UBS; plea agreement reached with UBS client

2009-06-25T06:12:00.000-07:00

The Justice Department issued a statement denying it was considering dropping a high-profile case against UBS AG as reported in The New York Times.

The Justice Department is trying to force the Swiss bank to provide the names of 52,000 U.S. clients suspected of offshore tax evasion.

“While the department is always willing to consider settlement in any case, the suggestion that the department is planning to drop this suit is simply untrue," Justice Department spokesman Charles Miller said in an emailed statement, according to various media reports. "The department is continuing with the case against UBS and will file its brief asking the court to enforce the summons on June 30.”

At the same time, news agencies reported that Swiss Finance Minister Hans-Rudolf Merz said a deal was being discussed.

"I can confirm that efforts are underway," Merz told Swiss radio while in Berlin for a meeting of the Organisation for Co-operation and Economic Development.

In a separate development, a UBS client pleaded guilty to one count of filing a false tax return for tax year 2004. He also admitted that he had failed to file Reports of Foreign Bank and Financial Accounts (FBARs) disclosing his UBS bank account for years 2001 through 2007. Sentencing is set for Sept. 30.

Justice Department and UBS settlement reported likely

2009-06-23T09:00:00.000-07:00

The New York Times reported today that the U.S. and UBS AG are likely to reach a settlement possibly as soon as mid-July over the Justice Department's efforts to get the names of 52,000 UBS clients who the U.S. says evaded taxes.

The Times said that Swiss government officials are considering giving the Justice Department filings made in Swiss court by extremely wealthy UBS clients, which would provide the names of some of the 52,000 UBS clients the Justice Department is investigating for tax evasion. The U.S. then would drop the case.

The agreement "would allow Switzerland to say that it has not breached its own secrecy laws," the Times said.

Hong Kong warns banks about tax evasion

2009-06-23T08:43:00.000-07:00

The Hong Kong government has sent a letter to the top executives of all banks in the city warning them not to assist any clients in evading taxes, whether domestic or foreign taxes.

Karen Kemp, executive director of banking policy for Hong Kong, said in the letter that any banks that facilitate tax evasion could be prosecuted for money laundering.

"Further, it goes without saying that [banks] should not market themselves or schemes operated by them as being available for this purpose or incentivise their staff (whether through payments or bonuses or otherwise) to engage in such conduct," Kemp said.

The letter comes in advance of tax-information exchange treaties that Hong Kong expects to work out with the U.S. and other countries.

U.S, Switzerland agree to increase the exchange of tax information

2009-06-19T09:20:00.000-07:00

The U.S. and Switzerland have reached an agreement to increase the exchange of tax information between the two countries, the U.S. Department of Treasury announced today.

The announcement comes as the IRS continues to pursue its investigation into tax evasion by wealthy U.S. citizens who are clients of Swiss banking giant UBS.

"This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion," Treasury Secretary Timothy Geithner said in a statement.

Official signing of the protocol is expected within a few months.

Prosecutors indict web of players involved in tax shelters

2009-06-10T09:39:00.000-07:00

Seven people involved in setting up tax shelters sold to wealthy individuals were indicted by federal authorities, including the chairman and chief executive of BDO Seidman and a well-known tax attorney.

Those indicted include BDO Seidman executive Denis Field and tax attorney Paul M. Daugerdas, according to The New York Times.

The indictment said one shelter, known as SOS, was sold to 550 wealthy clients and generated $3.9 billion in bogus tax losses in two years, the Times reported.

The Times said the indictments are the largest crackdown on tax shelter promoters since mid-2005. At that time, the accounting firm KPMG admitted to wrongdoing over its work with questionable shelters and paid $456 million to the government to settle the case.

Congress considers bill to stop use of offshore tax havens

2009-06-08T10:24:00.000-07:00

Congress is considering bills to curb use of offshore tax havens to evade U.S. taxes through a variety of measures.

Similar bills were introduced by Sen. Carl Levin (D-MI) and others in the Senate and U.S. Rep. Lloyd Doggett (D-Texas) and Rep. Rosa DeLauro (D-CT) in the House. Sen. Carl Levin (D-MI) filed an earlier version of the Stop Tax Haven Abuse Act in 2007, which then Sen. Barrack Obama supported. But the bill didn't pass.

"With White House leadership, we can finally win approval of our legislation to shut down offshore tax cheats," Doggett said in a statement. The steps proposed include treating foreign corporations managed and controlled in the United States as domestic corporations for income tax purposes

See Levin's statement about the legislation and The National Law Journal's report on the lobbying efforts. (Subscription required.)

Ouster of UBS executive may indicate cooperation with IRS

2009-03-30T10:02:00.000-07:00

Swiss bank UBS has removed the top executive who was in charge of secret offshore accounts for wealthy Americans, The New York Times reported.

UBS's decision to place banker Martin Liechti on paid leave "raises questions about what kind of client information UBS may be preparing to provide to federal authorities, who are widening their scrutiny of American clients suspected of tax evasion and seeking to force the bank to turn over the names of 52,000 clients," the Times said.

IRS will trade leniency for information

2009-03-27T10:14:00.000-07:00

Citizens who voluntarily pay taxes owed on offshore assets could escape criminal prosecution if they provide the Internal Revenue Service with information about the bankers who helped them hide their assets, according to The Wall Street Journal.

"A key part of the program, IRS officials said, is 'developing intelligence' on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities," the Journal reported.

The Journal has posted the IRS guidelines on its website.

IRS tightens reporting requirements on offshore accounts

2009-03-25T11:15:00.000-07:00

In another effort to hinder efforts to evade taxes on offshore accounts, the Internal Revenue Service is tightening certain reporting requirements.

The changes include requiring taxpayers to specify on the Foreign Bank Account Report the exact amount in offshore accounts. The Wall Street Journal reports that the IRS also is considering whether to implement changes to its "qualified intermediary" program with foreign banks that would better enable the IRS to ferret out accounts held by U.S. tax evaders.

White House task force formed to examine tax system

2009-03-25T10:53:00.000-07:00

The Obama administration is looking for ways to reform the U.S. tax system and to aggressively reduce the tax gap, such as by attacking tax evasion.

Administration officials announced March 25 that a task force headed by former Federal Reserve Chairman Paul Volcker will study options and make recommendations to the President by Dec. 4. Volcker is now head of Obama's new Economic Recovery Advisory Board.

For comments by Office of Management and Budget Director Peter Orszag about the tax reform task force, see Reuters' story, Volcker panel to study tax reform, report to Obama.

Treasury report skeptical of "Son of Boss" settlement impact

2009-02-03T12:11:00.000-08:00

Nearly one-fourth of the investors in the "Son of Boss" abusive tax shelter who participated in a settlement with the Internal Revenue Service failed to file their returns on time, paid their taxes late or failed to file returns at all, according to a report by the U.S. Treasury Inspector General for Tax Administration.

Investors in the tax shelter paid $3.8 billion in the settlement to avoid prosecution by the IRS. "Despite the success achieved, the Son of Boss settlement had little effect on investor filing and payment compliance," the report said.

The report, including the IRS response, is available on the U.S. Treasury website.

No federal contracts for delinquent taxpayers under U.S. bill

2009-01-17T11:44:00.000-08:00

A bill has been introduced in Congress that would prohibit companies from getting federal contracts if they were delinquent in paying taxes.

"Studies by the Government Accountability Office have repeatedly shown that thousands of federal contractors owe over a billion dollars in unpaid taxes," says a press release issued by one of the bill's sponsors, Rep. Brad Ellsworth (D-IN). Under current law, applications for government contracts aren't affected by whether the applicant has failed to pay taxes.

The other sponsor of the bill is Sen. Claire McCaskill (D-MO). President Barack Obama c0-sponsored a similar bill last year in the Senate.

See Ellsworth's press release and the text of H.R. 572, the Contracting and Tax Accountability Act of 2009.

IRS willing to bend with hard economic times

2009-01-08T07:58:00.000-08:00

The IRS announced this week that it is willing to allow some leniency for people who are facing major economic problems and are unable to pay taxes they owe.

For instance, the IRS said in its announcement:

"IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills."

"The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship."

For more information, see the IRS press release: "IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options."

Ponzi scheme victims have tax options

2009-01-07T08:21:00.000-08:00

The New York Times today explores tax options for those who lost money in Bernard Madoff's investment fund that is suspected to have been a Ponzi scheme:

File amended returns and seek tax refunds. However, taxpayers generally can amend tax returns only for the three years prior to discovering a fraud, so this wouldn't do help long-term investors very much.
Claim a theft-loss deduction equal to the amount of their original investment, plus any phantom interest or income obtained over all the years. This deduction can be used to offset ordinary income in the current year, or carried back three years or forward 20 years.
If they do not have enough ordinary income to offset the deduction, they might be able to claim a refund, without interest, of the taxes paid on phantom income. But the IRS often contests those claims, The Wall Street Journal said.

See "For Victims of Schemes, the I.R.S. Can Be Flexible."

Offshore tax havens investigated as part of Madoff case

2008-12-31T08:57:00.000-08:00

Government investigators are looking into the role that offshore tax havens may have played in the Ponzi scheme that Bernard L. Madoff is suspected of orchestrating, the New York Times reported today.

"Of particular interest is whether Mr. Madoff and some of his investors used funds based in offshore tax havens to evade American taxes, according to a person briefed on the investigation," the Times said.

"Also under scrutiny is whether certain charities invested with Mr. Madoff had improperly allowed their donors to shift money offshore, and whether foreign banks had withheld American taxes on Madoff accounts, as required by the Internal Revenue Service, according to this person, who was given anonymity because of the delicate nature of the investigation."

See "Madoff Spotlight Turns to Role of Offshore Funds."

Former Bechtel tax manager acquitted

2008-12-22T14:16:00.000-08:00

A federal jury acquitted a former global tax manager for Bechtel of charges that he had caused the company to file a false tax return, The Recorder reports.

Prosecutors said the tax manager, Mark Muntean, knew the tax credit was improper, but Muntean's lawyer said his client relied on subordinates, who failed to give him all necessary information.

See "Ex-Bechtel lawyer acquitted in tax-credit prosecution."

IRS enforcement shift seen after KPMG case

2008-12-22T14:06:00.000-08:00

CFO.com says the outcome of the KPMG tax shelter case could mean "the direction of government tax-shelter enforcement in both personal and corporate cases may change."

One tax attorney said, "We've been dealing with these personal shelters for a decade now, and the new wave appears to be through foreign bank accounts, where major financial institutions have potentially facilitated the sheltering."

See "KPMG tax-shelter case is mixed-win for U.S."

Jury finds three guilty in KPMG tax shelter case

2008-12-18T12:01:00.000-08:00

A federal jury has found two former KPMG executives and a tax lawyer guilty of multiple accounts of tax evasion and acquitted a former KPMG partner in a case involving the creation and sale of tax shelters to wealthy Americans.

The government's high-profile case suffered many setbacks, including the judge's decision in 2006 to throw out charges against 13 other defendants because the government had applied pressure to KPMG to stop paying their legal bills.

KPMG settled with the government for $456 million in 2005.

See "Former KPMG executives convicted of tax evasion."

IRS commissioner highlights agency enforcement priorities

2008-12-09T12:32:00.000-08:00

Excerpts from remarks by IRS Commissioner Douglas Schulman at the George Washington University International Tax Conference, Dec. 8, 2008:

"U.S.-based corporations more than tripled their foreign profits between 1994 and 2004, rising from $89 billion to $298 billion – with 58 percent of that profit earned in low tax or no tax jurisdiction.

And this gives pause to some U.S. taxpayers and policymakers who want to be sure that that these corporations are paying their fair share at home."

"In the corporate arena, we’re starting to make progress in our international efforts by focusing on three specific areas which are most on our minds these days and which I believe will best assist our efforts to reign in those corporations who are pushing the envelope and also to help those corporations who play by the rules. First is Transfer Pricing"

"The second big area is hybrid structures."

"Third and lastly are withholding taxes."

"Let me also point out that this past September, the Senate Permanent Subcommittee on Investigations held a hearing looking into how the IRS has been investigating certain investment banks who have been trying to help their clients – mostly hedge funds – avoid dividend withholding tax. During the hearing, there was also extensive discussion about securities lending transactions and Notice 97-66. Let me bring you up to date on the issue.

IRS is reviewing the notice. However, in the interim, we’re examining very carefully those transactions whose primary purpose is to avoid dividend withholding tax and will propose adjustments as needed."

UBS clients consider admitting tax evasion to avoid criminal prosecution

2008-11-24T10:04:00.000-08:00

Wealthy clients of Swiss bank UBS AG are seeking amnesty through an Internal Revenue Service voluntary disclosure program that allows U.S. citizens to avoid criminal prosecution if they acknowledge tax evasion and agree to pay taxes and penalties, according to The Wall Street Journal.

"The developments amount to a coup for U.S. authorities, who have spent the past two decades trying to crack offshore banking markets with only incremental progress," the newspaper said.

At the same time, the Journal said, the IRS is considering a national settlement for the estimated 20,000 taxpayers that worked with UBS to avoid taxes. The settlement reportedly would be based on a 2003 landmark offshore credit-card and tax-fraud deal but with stiffer penalties.

See "UBS clients seek amnesty on U.S. taxes."

AIG challenges IRS on tax credit for cross-border financing transactions

2008-11-14T10:45:00.000-08:00

American International Group Inc. reported in a securities filing this week that it is pursuing a tax refund from the IRS in a case involving $329 million for "the disallowance of foreign tax credits associated with cross-border financing transactions," The Wall Street Journal said.

Cross-border financing transactions allow companies with overseas subsidiaries to pay foreign taxes, receive a U.S. credit for paying those taxes and then effectively split the credit with foreign lenders which in turn lower their interest costs.

The IRS position is that foreign tax credits shouldn't be allowed for those transactions because the U.S. would effectively be subsidizing the lending of foreign banks since the U.S. company and the foreign bank share the tax break.

In addition, AIG said it had settled a tax dispute related to "lease-in lease-out" tax shelters and anticipated recording an after-tax charge of between $34 million and $100 million in the fourth quarter of this year.

See "AIG's tax dispute with U.S. has a twist of irony."

IRS study finds big gap between corporate tax returns and book income

2008-11-13T11:06:00.000-08:00

The Internal Revenue Service found in a recent study that U.S. companies paid federal income taxes on their reported U.S. profits at a rate of 25.3% during 2005 -- far less than the 35% statutory rate, The Wall Street Journal reported today.

The information about tax rates was included in a broader IRS study that examines the gap between income reported to shareholders and the consistently lower income reported to tax authorities, which was published by IRS researchers in the trade journal, Tax Notes.

Senior UBS official indicted in tax-dodge case

2008-11-13T10:18:00.000-08:00

U.S. prosecutors have charged one of the highest ranking officials at international banking giant UBS with setting up a system to help about 20,000 wealthy clients hide about $20 billion in assets from U.S. tax authorities.

The indictment against Raoul Weil was filed in U.S. District Court in Fort Lauderdale, Fla. The Wall Street Journal called it "the latest U.S. move aimed at pressuring Swiss banking officials to reveal the names of their American account holders." See "Top banker cited in tax-dodge case."

For more information see:
- "Swiss bank executive charged with aiding U.S. taxpayers evade income tax" (U.S. Department of Justice press release)
- "UBS executive indicted in U.S. inquiry" (The New York Times)
- "Top UBS executive indicted in Florida," (The Washington Post)
- "UBS shares drop after U.S. indicts top banker" (Reuters)

Indy 500 champion Castroneves indicted on income tax fraud

2008-10-02T13:08:00.000-07:00

Helio Castroneves, a two-time winner of the Indianapolis 500, was indicted by a grand jury today on charges of income tax fraud conspiracy and with six separate counts of income tax evasion for tax years 1999 through 2004, the Justice Department announced today.

The indictment said one way Castroneves-- a U.S. resident who achieved additional celebrity by winning the champion title in the 2007 season of the TV show, "Dancing with the Stars" -- had hidden income was by creating an offshore Panamanian shell corporation.

For details about the alleged income tax fraud scheme, see the Justice Department press release.

Lead defendant in $60 million tax fraud case sentenced to 18 years

2008-10-02T09:09:00.000-07:00

A founder and executive director of the now-defunct Aegis Co., which marketed and sold sham domestic and foreign trust packages to hundreds of wealthy U.S. clients, was sentenced to 18 years in prison.

The company official, Michael A. Vallone, and five co-defendants were convicted in May of participating in a nearly decade-long scheme to divert income from businesses into sham trusts for clients, hiding hundreds of millions of dollars in income for those clients and resulting in a $60 million tax loss to the United States. The government said the case is one of the largest of its kind.

Lawyer pleads guilty to charges related to setting up tax shelters

2008-09-11T14:41:00.000-07:00

An attorney with the law firm Arnold & Porter pleaded guilty today to criminal tax fraud charges related to the design, marketing and implementing of tax shelters as a way for rich clients to avoid taxes, the Justice Department said.

The lawyer, Peter Cinquegrani, admitted in court that he had helped submit to the Internal Revenue Service false documentation about the tax shelters and taken other steps to support the tax evasion scheme.

At the same time, the IRS announced it had reached a settlement with Arnold & Porter related to charges that the law firm had failed to comply with tax shelter organization requirements and that it had marketed fraudulent tax shelters to clients.

IRS Whistleblower Office inundated with claims

2008-09-08T10:58:00.000-07:00

The Internal Revenue Service has received more than 600 reports of tax violations from whistleblowers since the Whistleblower Office was established last year, Tax Notes Today reported Sept. 2.

The Whistleblower Office so far has pursued 80 "high-value" cases out of those whistleblower claims, the trade publication says.

The Tax Notes Today article (subscription required) explores the reason for the skyrocketing number of whistleblower reports. It also examines the tax evasion and tax fraud case against Joseph Francis, whose company was behind the "Girls Gone Wild" videos. His former accountant blew the whistle on him with the IRS.

Many corporations don't pay taxes, government report finds

2008-08-13T11:29:00.000-07:00

Almost one-fourth of large corporations don't pay federal income taxes in a given year and roughly 60 percent of all corporations studied reported no federal income-tax liability, according to a study by the U.S. General Accounting Office.

The report, requested by the U.S. Senate Finance Committee, is entitled, "U.S. Multinational Corporations: Effective Tax Rates Are Correlated with Where Income Is Reported."

"The average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2 percent," according to the GAO.

"This is a reminder that the reporting is a broken system as far as corporations are reporting one set to the tax authorities and another to the capital markets," Mihir Desai, a Harvard Business School professor, told The Wall Street Journal.

IHT op-ed advocates whistleblower programs overseas

2008-08-08T12:15:00.000-07:00

Phillips & Cohen attorney Erika A. Kelton argues in today's International Herald Tribune that other countries would be wise to follow the example of the U.S. and offer whistleblowers a reward for information that results in the recovery of tax revenues.

"Other governments elsewhere are beginning to recognize the value of paying an insider for information about tax evasion," she says. She noted that Germany and Great Britain both paid a former employee of a Liechtenstein bank for information about their citizens who held secret accounts at the bank to avoid taxes.

"Such payments make sound business sense when considering that already more than €110 million has been recovered as a result of this inside information," said Kelton, who represents whistleblowers with information about federal tax violations under the new IRS whistleblower program.

World's richest tax cheats

2008-07-18T10:04:00.000-07:00

With attention focused on European and U.S. investigations of individuals suspected of dodging taxes by hiding assets in Liechtenstein, Forbes magazine has compiled a list of the the world's richest tax cheats.

"To be included, an individual had to be convicted of tax evasion, or had to accept responsibility for the charges levied against him (as former Samsung Group Chairman Lee Kun-Hee did in April when he was indicted on charges of tax evasion and breach of trust)," says the article.

UBS apologizes, promises not to help U.S. residents with off-shore banking services

2008-07-18T08:55:00.000-07:00

In an effort to repair UBS's damaged reputation, a senior executive of the Swiss bank apologized for any misconduct by the bank that might have occurred in helping wealthy Americans avoid taxes through off-shore accounts and said the bank would no longer offer off-shore banking services to U.S. residents.

At a hearing before the Senate permanent subcommittee on investigations, subcommittee members said they probably would consider legislation to deal with the problem of tax evasion through off-shore tax havens.

To read published accounts of the hearing, see Reuters, The New York Times or The Wall Street Journal.

Senate investigation finds offshore tax evasion costs U.S. $100 billion annually

2008-07-17T11:24:00.000-07:00

A Senate subcommittee investigation released yesterday reports that the U.S. is losing $100 billion annually due to offshore tax evasion.

The report, by the Senate Permanent Subcommittee on Investigation, describes how Swiss bank UBS and LGT, owned by the royal family of Liechtenstein, helped wealthy individuals avoid U.S. taxes. It examines the practices of eight rich individuals in particular.

For news accounts about the report, see The Wall Street Journal and The New York Times.

IRS to tighten rules on foreign banks and U.S. investors

2008-07-15T12:13:00.000-07:00

The Internal Revenue Service soon will require foreign banks in its "Qualified Intermediary" program to determine whether their clients are U.S. investors hiding behind foreign shell companies to improperly reduce tax rates or to avoid paying taxes, The New York Times reported today.

If they are, the newspaper said, the new rules will require banks to notify the IRS and withhold taxes on dividends in that account.

"These new rules, which are aimed at United States, not foreign, clients of the banks, would help to peel back some of the layers of banking secrecy that permeate tax havens from Switzerland to the Caribbean, where vast sums of money are hidden from the I.R.S.," according to the Times.

Former IRS informant now subject of complaint by another tax informant

2008-07-08T10:25:00.000-07:00

A Miami-based newsletter is reporting that the Internal Revenue Service has opened up a new investigation into a former Cayman Islands-based banker-turned-informant after a one-time partner filed a claim under the IRS's informant reward program alleging tax fraud.

"Offshore Alert" says that the former partner also is suing the banker, John Mathewson, over a business disagreement.

A government case against Mathewson in 1999 resulted in the banker providing the IRS with extensive information about off-shore tax havens in the Caribbean. A federal prosecutor at the time called him "the most singularly important government co-operator in tax haven prosecutions in the history of the Internal Revenue Service.”

Amazon's decision on sales tax brings scrutiny

2008-06-25T09:52:00.000-07:00

A Wall Street Journal columnist today examines Amazon's strategy to avoid collecting sales tax in eight states, reporting that several tax experts say the bookseller's legal case appears to be weak.

"Despite operating hundreds of thousands of square feet of distribution facilities in the eight states, Amazon says it doesn't have any presence in them," the column says. "The company argues that it doesn't operate the plants, its wholly owned subsidiaries do."

Online retailers don't have to collect sales tax except where they have a physical presence. Texas is reviewing Amazon's position, the Journal says.

Court decision favoring tax shelter is an aberration, IRS official says

2008-06-04T11:47:00.000-07:00

A recent court decision rejected an argument by the Internal Revenue Service that the defendant had invested in an improper tax shelter, but as a Wall Street Journal columnist says, "Don't rush into that tax shelter just yet."

The Journal's Tax Report surmises that:

Many investors battling the Internal Revenue Service in high-stakes tax-shelter cases may take some hope from the government's defeat . . . . But IRS lawyers view the decision as merely a temporary setback on the road to annihilating the badly battered shelter business. Indeed, the government has won most recent cases involving shelters.

One lawyer predicted the court decision in the tax shelter case would be reversed on appeal.

Former UBS executive helping IRS with tax fraud investigation

2008-05-30T11:18:00.000-07:00

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

2008-05-30T10:50:00.000-07:00

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

2008-05-28T11:35:00.000-07:00

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

2008-05-28T07:13:00.000-07:00

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

2008-05-26T07:37:00.000-07:00

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

2008-05-21T09:22:00.000-07:00

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

2008-05-09T07:26:00.000-07:00

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."

Wesley Snipes sentenced to three years for not filing tax returns

2008-04-25T10:18:00.000-07:00

A federal judge in Florida today sentenced actor Wesley Snipes to three years in prison for failing to file tax returns.

A jury found Snipes guilty earlier this year of three misdemeanor counts of willfully failing to file tax returns, but acquitted him of tax fraud and other charges. Two co-defendants, Eddie Ray Kahn and Douglas Rosile, were convicted on felony charges.

Judge Hodges sentenced Kahn to 10 years and Rosile to four and a half years.

Mr. Snipes was a member of American Rights Litigators, an organization founded by Kahn. Prosecutors have described that organization and its successor company, Guiding Light of God Ministries, as illegal tax-evasion schemes.

Before he was sentenced, Snipes offered the court checks totaling $5 million. The judge and the prosecutors declined to accept them, but an Internal Revenue Service employee eventually accepted them.

Fuel tax credits, offshore accounts at top of IRS "dirty dozen" list

2008-03-25T10:08:00.000-07:00

The Internal Revenue Service recently released its annual list of "Dirty Dozen" tax scams that included improperly claiming fuel tax credits, using offshore accounts to hide income and disguising ownership of a business through shell companies.

The list also noted other areas of IRS concern, such as the mis-use of tax-exempt organizations to shield income or assets from taxation and the misuse of trusts to reduce taxes.

“There is no secret formula that can eliminate a person’s tax obligations, " said Acting IRS Commissioner Linda Stiff in a statement. "People should be wary of anyone peddling any of these scams.”

Men charged with setting up fake companies for clients to avoid millions in taxes

2008-03-13T10:43:00.000-07:00

Federal prosecutors have accused two Kansas City-area men of setting up bogus corporations to help their clients evade millions of dollars in federal taxes.

The men are thought to have acted independently of each other and were charged in separate complaints, but the tax evasion schemes are similar, according to the Kansas City Business Journal.

The government said the stock in the fake corporations was illegally owned by the clients' Roth Individual Retirement Accounts. "These corporations allegedly took payments from the customers' businesses for so-called management services, which were then distributed to the customers' IRAs to enable them to get out of reporting and paying income tax on business income," the Journal said.

Tobacco stores owners sentenced for tax fraud

2008-03-13T08:43:00.000-07:00

A federal tax-fraud scheme involving 14 owners of tobacco stores in the Minneapolis-St. Paul area essentially was wrapped up last week with the sentencing of two defendants.

Most of the defendants belonged to four groups of brothers with the last name Wazwaz who owned 52 tobacco stores, the Star Tribune said. The Minneapolis newspaper reported that the owners "made numerous attempts to conceal earnings and wealth through fraudulent bookkeeping and tax returns, as well as property transfers and large cash transactions."

As a result of the scheme, Minnesota lost $2.5 million in cigarette tax revenues. The stiffest sentence was meted out to Sabry Mohamed Wazwaz, who was ordered to serve 42 months in prison followed by three years of supervised release plus pay $1.2 million in restitution.

Nursing home executive found guilty of tax evasion

2008-03-09T08:11:00.000-07:00

A former nursing home executive was found guilty of conspiring to evade $34 million in taxes and other crimes, the Ft. Worth Star-Telegram reported March 8.

For some of the crimes involved in the tax evasion scheme, Stephen Michael Ewing could be sentenced to up to 20 years in prison per charge and ordered to pay fines of up to $250,000 per charge. Ewing and two associates at one time controlled 70 nursing homes in Texas, Iowa, Kansas, Virginia and Oklahoma. To cover their tracks and their ownership of the nursing homes, the men created about 150 sham payroll companies.

The other two men involved in the scheme, Larry May and attorney Gary R. Trebert, pleaded guilty to two charges and are awaiting sentencing.

IRS pursues U.S. citizens with Liechtenstein accounts for tax avoidance

2008-02-27T12:46:00.000-08:00

The Internal Revenue Service announced that it has begun enforcement actions against more than 100 taxpayers who are avoiding taxes through accounts in Liechtenstein.

Australia, Canada, France, Italy, New Zealand, Sweden, the United Kingdom and the U.S. are working together to investigate their citizens using accounts in Liechtenstein for tax evasion and avoidance, the IRS said.

Stolen Liechtenstein data used in tax-evasion investigations

2008-02-25T09:35:00.000-08:00

Data stolen from a unit of Liechtenstein's largest financial group, LGT Group Inc., apparently is being used for a tax-evasion probe by Germany, the Wall Street Journal reported today.

The Journal said that tax authorities in at least five other countries -- the U.S., U.K., France, Canada and Australia -- also are investigating client data tied to LGT. The newspaper quoted U.S. Sen. Carl Levin as saying the bank "apparently harbored numerous secret accounts which hid the taxable assets of thousands" of people around the globe.

Germany paid a former LGT employee about $6.2 million for the data, the Journal said, and hopes to use the data to recover hundreds of millions of dollars in back taxes.

IRS reviews common tax strategy

2008-02-11T12:18:00.000-08:00

The Internal Revenue Service has asked agency staff to scrutinize the tax returns of wealthy people who use a strategy known as a variable prepaid forward contract, The New York Times reported.

The IRS published on its website a technical paper about the use of variable prepaid forward contracts, which corporate executives use to turn their stock holdings into cash and defer tax payments on them for several years.

The IRS concludes that the transactions are true sales and thus taxable to the executive. A corporate tax consultant told the Times that the unpaid taxes associated with variable prepaid forward contracts probably total billions of dollars annually.