France aims to use leaked data to prosecute tax evaders

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

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

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

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.

IRS audits of major corporations decrease

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

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

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