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."

Former Bechtel tax manager acquitted

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

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

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

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

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

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."