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to have advised an American citizen not to participate in the IRS’s voluntary disclosure program and to have later withdrawn the client’s money to conceal any paper trail.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.

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

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

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

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

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

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

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

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

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.

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.”

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.”

Amazon's decision on sales tax brings scrutiny

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.

Offshore-account holders struggle over tough choices

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

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

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

Legality of derivatives for tax avoidance questioned

The Wall Street Journal provides an inside look in today' s paper at the evolution of derivatives as a way for hedge funds with off-shore operations to cut taxes, using the work of Lehman Brothers Holdings as a case study.

"Internal Lehman emails reviewed by the Journal reveal bankers searching for the line between smart tax planning and improper tax avoidance. In the end, according to the emails and to people familiar with Lehman's business, the bankers and their lawyers concluded that it was a business worth pursuing," the Wall Street Journal says.

The Journal reported in July that the Internal Revenue Service is seeking information from Lehman and Citigroup Inc. about certain trades. Other firms expect to receive similar inquiries.