Global Tax Enforcement

Global Tax Enforcement

Commentary on Tax Enforcement, News and Developments

U.S. Signs FATCA IGA with Luxembourg

Posted in FATCA, Offshore

On March 28, 2014, the U.S. signed a FATCA IGA with Luxembourg.  Under the IGA, banks and other financial institutions in Luxembourg will report information about eligible U.S. customers’ offshore accounts to the Luxembourg tax authorities, who will then send that information to the IRS. The IGA is reciprocal, requiring the IRS to send Luxembourg similar information about Luxembourgers with financial accounts in the United States.

Levin and McCain Urge DOJ to Seek Extradition of Fugitive Swiss Bankers

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

Bloomberg news reports that on March 18, 2014, U.S. Senators Carl Levin and John McCain wrote a letter urging the Justice Department to seek extradition of about 30 Swiss bankers and others who are charged with enabling offshore tax evasion and failed to appear in federal courts. McCain and Levin, who lead the Senate Permanent Subcommittee on Investigations, issued a report last month criticizing the Justice Department’s enforcement efforts involving Swiss banks and implored the DOJ to “at least attempt to use” powers under an extradition treaty with the Swiss.

“This certainly adds to the already intense pressure on the Department of Justice to be aggressive in offshore tax enforcement,” 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, “It remains to be seen whether fugitive Swiss bankers will be able to remain beyond the reach of the U.S. justice system by staying in Switzerland.”

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).

IRS Report Announces Major Increase in Criminal Investigations for 2013

Posted in Offshore, OVDP, Tax Evasion, Uncategorized

On February 24, 2014, IRS Criminal Investigation (“CI”) announced the release of its 2013 annual report, which reflected a significant increase in criminal investigations and prosecution recommendations in the past year.  According to the report, there was an increase of 12.5 percent in completed investigations and an increase of nearly 18 percent in prosecution recommendations in comparison to 2012.  Convictions also rose by more than 25 percent in comparison to 2012, with the IRS conviction rate, including guilty pleas, holding steady at 93 percent in 2013.  The announcement specifically highlighted that the IRS achieved these gains despite the number of Special Agents  having fallen by 5.4 percent over the past year.  IRS CI’s investigative priorities in 2013 included a broad range of issues, including stolen identity refund fraud, return preparer fraud, international tax fraud, the Fraud Referral Program, political and public corruption, organized crime, asset forfeiture, the Offshore Voluntary Disclosure Program, and terrorism finance.

The text of the IRS CI Annual Report can be found here. http://www.irs.gov/pub/foia/ig/ci/REPORT-fy2013-ci-annual-report-02-14-2014.pdf

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).

OECD Publishes Standard for International Automatic Tax Information Exchange

Posted in Uncategorized

On February 13, 2014, the OECD published a standard for the automatic exchange of tax information among governments, intended to help fight cross-border tax evasion. Under the standard, governments would collect information from their financial institutions and exchange that information automatically with other countries annually.

“While closely following FATCA, it does deviate in a number of instances, including setting a $250,000 initial threshold for due diligence requirements said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense group. “This standard is another step toward global tax transparency,” added Jay Nanavati, a former prosecutor with DOJ Tax Division.

For more information on the government’s offshore enforcement efforts, FBAR penalties, and the Offshore Voluntary Disclosure Program, 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).

IRS Fighting Hard to Avoid Tea Party Class Action Claims

Posted in Tax Controversy

The IRS recently filed a motion to dismiss class action claims brought by Tea Party groups.  In NorCal Tea Party Patriots, et. al. v. IRS, et. al., S.D. Ohio, Case No. 1:13-cv-00341, Tea Party groups asserted that the IRS singled out their organizations when those organizations sought exemption from taxation pursuant to Section 501(c)(4) of the Internal Revenue Code, which would allow those groups to avoid paying duplicative tax on contributions made for expressive activities.  The Tea Party groups assert that the IRS targeted their organizations for excessive scrutiny which caused delay and expense, violated the Privacy Act of 1974 and violated the groups’ First and Fifth Amendment rights.  The groups seek damages for the privacy violation, expense of complying with unlawful information requests, loss of donations, membership fees and grants, and increased tax burdens.

The IRS motion to dismiss argues that the case should be dismissed because organizations do not have standing to bring Privacy Act claims, which are only available to individuals.  The IRS also argues that the Tea Party groups’ claims for damages are barred by the Declaratory Judgment Act and the Anti-Injunction Act.  Lastly, the IRS argues that new claims for damages brought  pursuant to Sections 6103 and 7431 of the Internal Revenue Code, which allow damages for unauthorized disclosure or inspection of confidential tax return information, are barred because the inspections occurred as a result of the plaintiffs’ own requests for tax-exempt treatment.

This post is also posted on BakerHostetler’s Class Action Lawsuite Defense Blog, which can be accessed here:  http://www.classactionlawsuitdefense.com/

Swiss Investment Adviser to Plead Guilty to Helping Americans Evade Taxes

Posted in Offshore, OVDP, Swiss bank accounts, Tax Evasion, UBS, Voluntary Disclosure

Multiple outlets are reporting that on February 26, 2014, Martin Lack, a Swiss investment adviser and former UBS banker, will plead guilty in the Southern District of Florida to one count of conspiracy to defraud the United States by helping his U.S. customers evade their income taxes.  This comes on the heels of the February 6, 2014, announcement of the unsealing of an indictment in the Southern District of New York of Swiss asset manager Peter Amrein for similar conduct.

Lack’s indictment alleges that after leaving UBS in 2003, he began to steer his investment clients into undeclared accounts at UBS and a Swiss cantonal bank.  Lack allegedly helped his clients set up secret accounts held in the names of nominee entities, advised them not to keep bank records, and discouraged them from entering the IRS’s Offshore Voluntary Disclosure Program.  In one particularly lurid example, Lack allegedly accepted $445,000 in cash in a New Orleans hotel room from one of his U.S. clients.

“This guilty plea shows that the Department of Justice and the IRS are actively mining the voluntary disclosures of U.S. taxpayers to identify advisers who encouraged or assisted tax evasion,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense group.  “People with undeclared foreign bank accounts need to seek counsel, especially if they have tried unsuccessfully to enter the Offshore Voluntary Disclosure Program,” said Mastracchio.  Jay Nanavati, a member of the firm’s Criminal Tax Defense group and a former prosecutor at the Department of Justice Tax Division, added, “The fact that Mr. Lack and the government have reached a plea agreement suggests a strong likelihood that Mr. Lack is cooperating and providing the names of his clients and fellow bankers and advisers.”

For more information on the government’s offshore enforcement efforts, FBAR penalties, and the Offshore Voluntary Disclosure Program, 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).

U.S. Signs Four More FATCA IGA’s

Posted in FATCA, Offshore, OVDP, Tax Evasion, Voluntary Disclosure

On February 5, 2014, the Treasury Department announced that it had recently concluded FATCA IGA’s with Canada, Hungary, Italy, and Mauritius.  All four agreements were reciprocal Model 1 agreements.  In other words, FFI’s in those countries will report information on U.S. account holders to their own governments for transfer to the IRS.  The IRS will also transfer to those countries information on those countries’ account holders at U.S. banks.

“This marks another step on the path toward near-universal international banking transparency,” said Jim Mastracchio, co-chair of BakerHostetler’s Tax Controversy practice and chair of the firm’s Criminal Tax Defense group.  “People who still have undeclared foreign bank accounts need to seek counsel regarding their options.”

For more information on the government’s offshore enforcement efforts, FBAR penalties, and the Offshore Voluntary Disclosure Program, 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).

U.S. Signs FATCA IGA with Italy

Posted in Uncategorized

Tax Analysts’ Tax Notes Today reports that on January 10, 2014, the U.S. signed a FATCA IGA with Italy, which became the 13th country to sign such a deal with the U.S.  With the Italian IGA signed, Italian banks and financial institutions will report information about eligible U.S. customers’ offshore accounts to the Italian government, which will then send that information to the IRS. The IGA is reciprocal, requiring the IRS to send Italy similar information about Italians with financial accounts in the United States.

IRS Collecting More Revenue, Prosecuting More Criminal Cases

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

The IRS has released Fiscal Year 2013 Enforcement statistics.  In FY 2013, IRS Enforcement collected more revenue than FY 2012, with fewer employees and while examining fewer returns than in FY 2012.  Collection activities, such as levies, liens and seizures all dropped significantly.  However, criminal investigations and prosecutions have risen.

The IRS statistics can be found here:  http://www.irs.gov/PUP/newsroom/FY%202013%20Enforcement%20and%20Service%20Results%20–%20WEB.pdf

Beanie Babies Creator Seeks Probation for $107 Million UBS Account

Posted in Offshore, OVDP, Swiss bank accounts, Tax Evasion, UBS, Voluntary Disclosure

The Chicago Tribune reports that Beanie Babies creator Ty Warner, who pleaded guilty last year to one of the largest tax frauds in Chicago-area history, has asked the federal court to sentence him to probation. His sentencing is scheduled for January 14, 2014.  In 1996, Warner opened a Swiss bank account at UBS, which held as much as $107 million. The U.S. Sentencing Guidelines recommend a jail term of 46 to 57 months. In a memorandum filed with the federal court in Chicago on Thursday, January 2nd, Warner noted that he has already paid a $53 million FBAR penalty and at least $16 million in taxes and interest. Warner asserted that he tried to enter the IRS’s Offshore Voluntary Disclosure Program (OVDP) in 2009 but was rejected and that subsequent requests to make good on his taxes were denied.

UPDATE: On January 14, 2014, the U.S. District Court for the Northern District of Illinois sentenced Warner to two years’ probation.

U.S. taxpayers with foreign bank accounts should begin the process of coming into compliance with their reporting obligations, if they have not already done so.  The IRS’s Offshore Voluntary Disclosure Program (OVDP) is still available.  For more information on the government’s offshore enforcement efforts, FBAR penalties, and the OVDP, 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).