IRS needs to do its job and revoke tax-exempt status of lobbying groups

A recent effort in Congress to require more accountability of independent political groups that have non-profit, tax-exempt status recently failed. But the Internal Revenue Service (IRS) has all the tools needed, including a strong whistleblower program, to crack down on the flaunting of tax rules by political lobbying organizations that claim nonprofit, tax-exempt status.

The reason legislative solutions are being proposed is that the IRS has failed to do its job, allowing thinly veiled fronts to raise funds using their tax-exempt status, then use those funds to engage in political lobbying.

In what is apparently the first action of its kind against a political, tax-exempt organization, Phillips & Cohen LLP filed on behalf of Common Cause a whistleblower claim with the IRS against the American Legislative Exchange Council (ALEC) asserting that it is a lobbying organization masquerading as a “public charity.” If the IRS were to enforce its rules, perhaps more whistleblowers would come forward and provide key information to stop such violations. 

Swiss bankers sought tax-evading U.S. clients, government alleges

The U.S. Attorney’s Office in Manhattan has charged three Swiss bankers -- who sought to scoop up former UBS clients -- with conspiring to hide more than $1.2 billion in assets for U.S. clients from the Internal Revenue Service (IRS).

The indictment of the Swiss bankers lays out a simple business plan: The three bankers – Michael Berlinka, Urs Frei and Roger Keller – wanted to capitalize on the IRS investigation of Swiss bank UBS and another large international Swiss bank. To capture the business of those fleeing UBS and the other bank, they allegedly told U.S. clients that their bank wouldn’t disclose its clients’ identities to the U.S. because it had a long tradition of bank secrecy and “was less vulnerable to United States law enforcement pressure because, unlike UBS, the bank did not have offices outside Switzerland,” the indictment says.

The indictment doesn’t identify the bank Berlinka, Frei and Keller worked for, but Reuters reported they worked for Wegelin & Co., one of Switzerland’s oldest private banks.

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.