Billionaires avoid more than just income tax

Billionaires can pull millions out of appreciated assets in ways that allow them to avoid taxes on that cash without violating any IRS rules, reports Jesse Drucker of Bloomberg News.

The ability to avoid those taxes is an overlooked aspect of the debate over whether to increase the income tax that the wealthiest people in the U.S. should pay, the story notes.

“The problem is not that people like Warren Buffett pay tax at a 17 percent rate, it’s that they can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all,” said David S. Miller, a tax attorney and former chair of the tax section of the New York State Bar Association.

G-20 countries should consider whistleblowers to help stop tax evasion

Many countries are trying to crack down on tax evasion as a way to increase revenues. But they are overlooking a powerful weapon: whistleblowers.

Tax evasion and compliance is on the agenda of the group of 20 countries this week. Only the U.S. has a program to reward whistleblowers for reporting tax evasion or other tax law violations. The Internal Revenue Service will reward whistleblowers 15 percent to 30 percent of funds recovered as a result of the whistleblower's information and help if the amount exceeds $2 million, including tax, penalties and interest.

The U.K. took a major step this week to encourage whistleblowers with information about financial crime. The Serious Fraud Office set up a whistleblower hotline and said it protect the whistleblower's identity.

California offers amnesty for investors in abusive tax shelters

California has launched a tax amnesty program for people who used abusive tax shelters or offshore financial arrangements to evade or avoid state taxes.

The California Franchise Tax Board announced the initiative, called “Voluntary Compliance Initiative 2,” earlier this week. Participants in the program can avoid most penalties and criminal prosecution, the tax board says. The filing period for the amnesty program ends Oct. 31.

The San Francisco Chronicle reports that the tax board has contacted 47,000 taxpayers who might be eligible.

Former UBS banker indicted in tax evasion conspiracy case

A former UBS banker was indicted today on a charge that he helped U.S. clients evade taxes through accounts at UBS and a regional Swiss bank.

The indictment says the banker, Martin Lack, discouraged at least nine U.S. customer from joining an Internal Revenue Service amnesty program offered to those who were hiding assets overseas. He also offered to provide his customers with falsified bank documents to conceal the source of the funds in their undeclared bank accounts, according to the indictment.

Lack, a Swiss resident, is accused of conspiring with another UBS banker to encourage U.S. clients to move their undeclared UBS accounts to the smaller regional bank, which news reports identify as Basler Kantonalbank. The other UBS banker, Renzo Gadola, pleaded guilty last year to similar charges in federal court in Miami.

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.

New rules for Swiss banks mark shift away from undeclared assets

Switzerland is expected to make changes to its banking laws that will make it more difficult for European neighbors to hide their assets from tax collectors. The proposed agreement with Germany and Britain, expected to be reached by the summer of this year, is intended to preserve banking secrecy, but marks a shift away from undeclared assets. France and Italy are expected to reach similar deals with Switzerland thereafter.

Switzerland is seeking to avoid recurrences of some of the more contentious responses to the problem of banking secrecy for foreign tax collectors, such as the lawsuit between the IRS and UBS that resulted in a payment of $780 million, Swiss bankers being arrested abroad, and the theft and sale of Swizz bank client lists to foreign governments that wish to collect taxes legally owed to them.

The shift in Switzerland’s banking will likely result in the downsizing or consolidation of some firms that rely solely on undeclared assets. Although client confidentiality will be retained under the proposed agreement, Swiss banks will likely be forced to compete in a more transparent environment, the results of which are only beginning to unfold.

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.”