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.

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.

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.

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.”

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.