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

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.

IRS to focus on tax evasion schemes in India

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

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

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

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.

IRS announces new amnesty program for tax cheats

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

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.

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

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.

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.

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.

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.

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.”

Off-shore accountholders fear IRS tax penalties

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

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.

Offshore tax havens investigated as part of Madoff case

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."

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

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.

IRS curtails audits of tax-haven users

Congressional investigators have found that the three-year limitation on conducting a tax audit is causing the IRS to curtail prematurely audits of people who use tax havens, reports the New York Times (a story carried by the International Herald Tribune on May 3). In some cases, the time limit dissuades agents from even opening an audit because it can't be finished on time.

In a report released May 3, the Government Accountability Office found that I.R.S. agents are so hobbled by “dilatory tactics” by offshore taxpayers and other problems that it takes almost two and a half years to complete a typical audit.

The IRS reporter that almost $300 billion in investment and business income was moved out of the U.S. in 2003. Analysts with the Joint Committee on Taxation have estimated that the annual outflow has shot to more than $400 billion since then.

Underreporting income also is a problem, costing the government about $300 billion a year. Democratic lawmakers say the government could be losing tens of billions of dollars a year from offshore tax evasion.

The GAO found that offshore audits routinely become bogged down by stalling tactics by taxpayers, difficulties in getting financial information from foreign institutions and the technical complexity of many offshore transactions.

Audits can be pursued for more than three years, but agents have to meet tough requirements to do so. The Times said that IRS agents' findings can be dismissed and the agents reprimanded if the unpaid taxes turn out to be smaller than expected.