Global Tax Enforcement

Global Tax Enforcement

Commentary on Tax Enforcement, News and Developments

American Pleads Guilty to Hiding Money in Swiss Bank, Moving Money to Israeli Bank after UBS Scandal

Posted in Offshore, Swiss bank accounts, Tax Controversy

On August 19, 2014, Bernard Kramer pleaded guilty in the Southern District of New York to conspiracy to defraud the United States and filing a false income tax return relating to his concealment of “at least $1.1 million” in bank accounts in Switzerland and Israel. The criminal information did not identify the banks.  For 23 years, Kramer had an undeclared account at a Swiss private bank and repatriated some of the money to the United States in the form of checks drawn for just under $10,000 each. In 2010, after the U.S. government’s investigation of UBS was well known, Kramer moved his money out of the Swiss private bank and into a bank in Israel.

“The alleged acts here likely drew the government’s ire for three reasons,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense team. “The defendant allegedly concealed a Swiss bank account, became a so-called ‘leaver’ when he moved his money out of Switzerland, and attempted to structure his financial transactions by keeping them under $10,000 to avoid the bank issuing Currency Transaction Reports (CTR’s) to the U.S. Treasury.” “The odd thing about the allegedly structured transactions is that they accomplished nothing,” added Jay Nanavati, a member of the firm’s Criminal Tax Defense team and a former prosecutor at the Department of Justice Tax Division. “Banks only issue CTR’s for transactions that involve actual currency, and checks are not currency.”

Kramer agreed to cooperate with the government and to pay a civil penalty of $588,042. He faces a maximum of eight years in prison when he is sentenced on February 6, 2015.

Treasury’s FinCEN Proposes Rules Forcing U.S. Financial Institutions to Collect Data for FATCA Reciprocity

Posted in FATCA

On July 30, 2014, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) proposed rules requiring U.S. financial institutions to collect “Customer Due Diligence” information, including identifying the true beneficial owners of accounts.  The Treasury’s announcement can be located here.  One of the primary uses of the information will be to comply with the U.S. government’s obligations to partner countries under reciprocal Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement (IGA’s).  Currently, U.S. financial institutions do not collect as much information about their customers as FATCA requires foreign financial institutions to collect and report to the U.S. government on U.S. customers.

“These proposed rules are aimed at foreigners who have not properly reported their U.S. financial accounts to their home governments,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense group.  Jay Nanavati, a member of the firm’s Criminal Tax Defense group and a former prosecutor at the Department of Justice Tax Division added, “Customers at U.S. financial institutions who are taxpayers  in IGA partner countries that have not yet signed an IGA, for example India and China, will want to pay close attention to whether their governments enter into reciprocal IGA’s.”

For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com).

Former Head of DOJ Tax Division Warns Taxpayers to Think Twice Before Choosing New Streamlined Procedures

Posted in IRS

Former DOJ Tax Division AAG Kathy Keneally warned on June 24, 2014, that taxpayers should think carefully before signing a certification of non-willfulness and entering the IRS’s new Streamlined Filing Compliance Procedures.  The certification is under penalties of perjury.  Importantly, the streamlined procedures provide no protection from criminal prosecution if the IRS decides that a taxpayer willfully failed to disclose a foreign account.  Such a prosecution could be for submitting a false sworn statement of non-willfulness or for the underlying failure to disclose a foreign account. Former AAG Keneally said that signing the certification without thoroughly analyzing one’s willfulness was “a very dangerous approach.” A senior IRS official added that the IRS’s review of the certifications will include a cross-check of data that it receives from taxpayers who are in the OVDP, whistle-blowers, cooperating banks, and other sources.

Recent cases in federal courts around the country show that the government is taking an aggressive view of the legal definition of willfulness.  Anyone considering the streamlined procedures should consult an attorney who can thoroughly analyze his or her facts and circumstances in light of recent court precedent.

For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com), Baker & Hostetler LLP, 1050 Connecticut Ave. NW, Washington, D.C. 20036 (www.bakerlaw.com).

IRS Announces Major Changes to OVDP

Posted in OVDP

On June 18, 2014, the IRS announced major changes to the OVDP, including a major expansion of the so-called Streamlined Program and an increased penalties for taxpayers who held accounts at banks that are under criminal investigation.  Taxpayers who are willing to certify that their past non-compliance was not willful can avoid the offshore penalty altogether if they live overseas.  Residents of the U.S. face a 5% penalty.  Taxpayers who are not willing to certify that they were not willful can still enter the OVDP under the 27.5% penalty regime unless they are declaring accounts at one of the banks that the U.S. government has publicly identified as being under criminal investigation.  Such taxpayers face a 50% FBAR penalty.  The IRS has dubbed the modified program the 2014 OVDP and has released guidance, here.

For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com), Baker & Hostetler LLP, 1050 Connecticut Ave., Washington, DC 20036 (www.bakerlaw.com).

Swiss Financial Institution Pays $4.4 Million and Turns Over 110 Americans

Posted in Offshore, Swiss bank accounts, Tax Evasion

Bloomberg BNA reported on May 9, 2014, that Swisspartners Group resolved a U.S. criminal tax probe by forfeiting $3.5 million and paying $900,000 in restitution for helping U.S. clients evade taxes with secret accounts.  The bank also produced about 110 U.S. taxpayer client files to the U.S. authorities.  The agreement covers four Swisspartners entities: Swisspartners Investment Network AG, Swisspartners Wealth Management AG, Swisspartners Insurance Company SPC Ltd., and Swisspartners Versicherung AG.

Hong Kong Agrees in Substance to FATCA IGA

Posted in FATCA, Offshore, Tax Evasion

On May 9, 2014, the U.S. Treasury announced that Hong Kong had agreed in substance on a Model 2 FATCA IGA.  Under the  IGA, Hong Kong financial institutions will report information on financial accounts held by U.S. persons directly to the Internal Revenue Service.  Hong Kong is only the seventh country to have chosen a Model 2 IGA.

For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com), Baker & Hostetler LLP, 1050 Connecticut Ave., Washington, DC 20036 (www.bakerlaw.com).

Singapore Agrees in Substance to FATCA IGA

Posted in FATCA, Offshore, Swiss bank accounts, Tax Evasion, UBS

On May 6, 2014, the Ministry of Finance of Singapore announced that Singapore had agreed in substance on a Model 1 FATCA IGA.  Under the  IGA, Singapore-based financial institutions will report information on financial accounts held by U.S. persons to the Inland Revenue Authority of Singapore (IRAS), which will in turn provide the information to the IRS.  The announcement provided no indication of whether the IGA would be reciprocal.

The announcement comes just under two months before 30% withholding begins on July 1, 2014.  The announcement also comes against a backdrop of widespread speculation that many Americans fled Swiss banks for the presumed safety of Singaporean banks in the wake of the 2009 UBS deferred prosecution agreement.

For more information on IRS criminal tax investigations and issues relating to criminal tax defense, please contact Jim Mastracchio at (202) 861-1650 (jmastracchio@bakerlaw.com) or Jay Nanavati, (202) 861-1747 (jnanavati@bakerlaw.com), Baker & Hostetler LLP, 1050 Connecticut Ave., Washington, DC 20036 (www.bakerlaw.com).

Court of Appeals Rules 23-Day Notice Requirement for Third Party Summonses is Mandatory in Tenth Circuit

Posted in Tax Controversy, Tax Evasion, Tax Fraud, Uncategorized

In Jewell v. U.S., Taxpayer Sam Jewell was the subject of an IRS investigation which resulted in
third party summonses being issued to banks located in both the Eastern and
Western Districts of Oklahoma.  Mr. Jewell challenged both summonses
because the IRS failed to provide him with notice of the summonses at least 23
days before the records were to be examined, in violation of Section 7609(a)(1)
notice requirements.  The Eastern District of Oklahoma granted Jewell’s
request to quash the summonses while the Western District of Oklahoma granted
the Government’s motion to dismiss Jewell’s petition to quash.  Both
parties appealed to the Tenth Circuit, where the cases were combined.

Section 7609(a)(1) contains the administrative steps the IRS must follow when
issuing third party summonses and states that “notice of the summons shall
be given to any person so identified within 3 days of the day on which such
service is made, but no later than the 23rd day before the day fixed in the
summons as the day upon which such records are to be examined.”  The
Tenth Circuit ruled that the use of “shall” in the statute results in
a mandatory requirement and that the 23-day notice requirement is an
administrative step for purposes of applying the Powell factors to make
a prima facie case for enforcement of an administrative summons.

This case is significant because four other circuits (First, Second, Sixth and
Eleventh) have declined to hold that the 23-day requirement is mandatory.
The First Circuit simply denied that the 23-day notice requirement
is one of the administrative steps required in the Code.  The remaining
circuits granted equitable relief to the government on the basis that the
taxpayer had not been prejudiced.  The Eighth and Ninth Circuits have held
that, considering the totality of the circumstances, courts may overlook
technical missteps by the IRS if under the totality of the circumstances, the
IRS is acting in good faith, which was the underlying goal of the Supreme Court
in Powell.

As a result, taxpayers in the Tenth Circuit can successfully challenge third
party summonses where the IRS fails to comply with the 23-day notice
requirement.  Furthermore, this case may tee up the issue for Supreme
Court review.

NPR Cites BakerHostetler Analysis of Tea Party Class Action Claims v. IRS

Posted in Tax Controversy

In an article discussing social media and the law, NPR refers to a recent Law360 Article written by Jennifer Benda and Casie Collignon of BakerHostetler discussing Tea Party Group’s lawsuit against the IRS, claiming that the IRS committed Privacy Act and constitutional rights violations by unfairly delaying and scrutinizing their and similar organizations’ filing for tax-exempt status pursuant to Section 501(c)(4) of the Internal Revenue Code.

The NPR article is available here:  http://www.npr.org/blogs/theprotojournalist/2014/04/24/306419892/tweet-suits-social-media-and-the-law

The Law360 article is available here:  http://www.law360.com/articles/519472/tea-party-v-irs-tax-trouble-or-class-action-nightmare