Voluntary Disclosures of Foreign Financial Account and Related Matters After OVDI 2011 (9/20/11)

The IRS has posted contact information for persons desiring to make noisy voluntary disclosures. See Voluntary Disclosure Contacts in IRS Criminal Investigation, here. The notice states:

Tax professionals or individuals who want to make a voluntary disclosure not covered by the 2011 Offshore Voluntary Disclosure Initiative, may contact an IRS criminal investigator at the numbers below.

I speculate that

1. As in the two programs (OVDP 2009 and OVDI 2011) the IRS will discourage quiet disclosures of foreign financial institution accounts.  Will the IRS and DOJ Tax will pick off one or two or more where the quiet is not quite up to snuff and prosecute?  (I can't define the up to snuff standard; it is like pornography -- you will know it when you see it and good practitioners will prevent their clients from submitting not up to snuff quiet disclosures.)
Read more »

IRS Continues Mining the Gold from Voluntary Disclosures, and Picks Off a Liechtenstein Bank (9/10/11)

Lynnley Browning for Reuters reports today that USAO SDNY "are building a criminal-fraud case against Liechtenstein's oldest bank, Liechtensteinische Landesbank,"  Lynnley Browning, U.S. Probing Liechtenstein Bank Over Allegedly Helping Wealthy Tax Dodgers, (Huffington Post Reuters Report 9/9/11), here.

According to the article:

American officials learned of Liechtensteinische Landesbank's identity and alleged role through scores of voluntary disclosures made by `wealthy Americans in recent years to the U.S. Internal Revenue Service. The disclosures, which offer reduced fines and penalties in exchange for coming forward with secret offshore accounts, require U.S. taxpayers to provide detailed information about the network of banks, trusts, shell corporations and intermediaries they have used.

It has been clear for some time that the Government was picking up egregious enablers through the disclosures made in the special offshore voluntary disclosure programs.  The same database of information will produce the names and skullduggery of the egregrious financial institutions in this game as well.

In a similar vein, the Wall Street Journal reports today the the "golden age of offshore tax havens may be fading out." Robert Frank, 'Gold Mine' of Data Helps Officials Clamp Down on Offshore Tax Havens (WSJ 9/10/11), here. The Gold Mine is, of course, the data mentioned in the Browning article. Here are some excerpts:

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New York State Bar Comments to IRS to Make OVDI Fairer (8/10/11)

By letter dated August 5, 2011, the New York State Bar Tax Section submitted comments to the Commissioner, Chief Counsel and Acting Assistant Treasury Secretary on how to make the OVDI 2011 fairer and more administrable. I encourage readers to review or download the letter here.

The format is to comment on specific FAQs and we encourage readers to review the letter for those specific comments.. Preceding the specific comments is the following:

We recognize that the Service cannot evaluate the willfulness of every taxpayer who wishes to participate in the 2009 OVDP or the 2011 OVDI and that is why the Services has created a mechanism for taxpayers to opt out of the programs and undergo an audit. We agree that, given the large number of voluntary disclosures, this is an appropriate way to evaluate the culpability of particular taxpayers who believe that they did not act willfully. However, we are concerned that certain statements have been made by Service personnel that strongly encourage taxpayers to participate in the voluntary disclosure programs or face maximum criminal and civil penalties under the law. n5 In addition, FAQ 15 states that "[taxpayers are strongly encouraged to come forward under the 2011 OVDI . . . Those taxpayers making 'quiet' disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years." While these statements and procedures refer to taxpayers who have not made voluntary disclosures, taxpayers and practitioners have expressed concern that taxpayers who opt out of a voluntary disclosure program will face the same level of scrutiny and skepticism by the Service as if they had never participated in the program in the first place. Indeed, many revenue agents in the field have indicated that taxpayers who opt out of the voluntary disclosure programs will have a very difficult time convincing the Service not to impose maximum civil penalties.

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Class Action Suit by U.S. Depositors in UBS (8/4/11)

A class action suit has been filed against UBS in the North District of Illinois. The complaint is here. The class of plaintiffs includes certain U.S. depositors in UBS who held account(s) from 2002 - 2008 and who attempted to join an IRS voluntary disclosure program. The complaint contains the expected allegations of skullduggery. I have cut and paste below certain allegations regarding the class of plaintiffs and the plaintiff's lawyers (some of the formatting is not perfect).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

MATTHEW THOMAS and HIMANSHU                                NO. 1 :11-cv-4798
PATEL, on their own behalf and on behalf
of all others similarly situated,
                                                                                                 PLAINTIFFS' ORIGINAL
                                                                                                 CLASS ACTION COMPLAINT
       PLAINTIFFS,

v.                                                                                              JURY TRIAL DEMANDED

UBS AG,

        DEFENDANT.

PLAINTIFFS' ORIGINAL CLASS ACTION COMPLAINT

* * * *

III.
CLASS ALLEGATIONS

9. Plaintiffs bring this action on their own behalf and, pursuant to Rule 23(b)(l)(A), (b )(2), and/or (b )(3) of the Federal Rules of Civil Procedure, as a class action on behalf of themselves and the nationwide class of all persons (the "Class Members," the "alleged class" or the "Class") defined below against Defendant:

[*3]

All United States citizens who held an account in Switzerland with UBS at any time from 2002 through 2008 and who have paid or offered to pay the United States Internal Revenue Service ("IRS") back-taxes and penalties and/or interest under the 2009 IRS Voluntary Disclosure Initiative or similar program as a result of not disclosing or declaring such Swiss account to the IRS or not paying income tax to the IRS derived from such Swiss Account. This Class is intended to include all persons who went to Switzerland to open the Swiss Account; opened the Swiss Account from the United States or any other place outside of Switzerland; inherited the Swiss Account; or came into ownership of possession of the Swiss Account through any other means or circumstances.

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OVDP 2009 FAQ 35 (5/30/11)

This blog will open a discussion of the IRS application of FAQ 35 of OVDP 2009. I received comments on this subject with respect to the other blog entries and thought it was time to devote a blog entry to the subject so that comments can be more easily located. The issue is nicely addressed in Charles P. Rettig and Kathryn Keneally, The Last, Best Chance to Disclose Foreign Financial Accounts and Assets—The 2011 Offshore Voluntary Disclosure Program and Beyond!, Journal of Tax Practice and Procedure 33, 43-44 (Feb.-March 2011)

In practice, FAQ 35 of the 2009 OVDP provided an opportunity to explain unique circumstances supporting an offshore penalty resolution different that as specified in the 2009 OVDP. Specifically,

Voluntary disclosure examiners do not have discretion to settle cases for amounts less than what is properly due and owing. These examiners will compare the 20 percent offshore penalty to the total penalties that would otherwise apply to a particular taxpayer. Under no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes. If the taxpayer disagrees with the IRS’s determination, as set forth in the closing agreement, the taxpayer may request that the case be referred for a standard examination of all relevant years and issues. At the conclusion of this examination, all applicable penalties, including information return penalties and FBAR penalties, will be imposed. If, after the standard examination is concluded the case is closed unagreed, the taxpayer will have recourse to Appeals.

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A Q&A with Jeff Neiman

Readers of this blog will recognize Jeff Neiman's name. Jeff was formerly the AUSA in SD FL who took a lead role in the Government's initiatives against UBS and some of its depositors. Jeff recently left his position to enter the private practice of law. Jeff's experience on the other side will offer his clients and other lawyers unique insights into the Government's continuing initiatives and how best to maneuver around the traps in the initiatives. I offer here a Q&A with Jeff:

Q: Why did you decide to leave for private practice?
A: After nine years as a federal prosecutor, I figured if there ever was a time to give defense a shot, this was it. I am grateful for the experience and the relationships that I developed while working for the government, but personally I was ready for a new challenge.
Read more »

IRS Memo re Processing OVDI Cases (3/8/11)

On 3/3/11, the IRS Deputy Commissioner for Services and Enforcement issued a memo to guide LB&I and SBSE personnel regarding the application of the penalty framework for the OVDI.  The memo is here.  The guts of the memo is this:

Effective as of the date of this memorandum for all offshore voluntary disclosures received after the close of the 2009 Offshore Voluntary Disclosure Program (2009 OVDP), you are authorized until further notice to execute agreements to resolve the tax liabilities related to offshore issues of taxpayers who make voluntary disclosure requests in the following manner:

Read more »

IRS Announces Second Special Voluntary Dislcosure Initiative for Offshore Accounts

The IRS announced today a special voluntary disclosure program. For now, I will just link to the announcement here. and provide only the bullet points I see with no (or very limited) editorial comment:

1.  The deal is available through 8/31/11.  (Note, however, taxpayers must "file" the required amended income tax returns discussed in paragraph 3 below by 8/31/11, so last minute decisions to join the program apparently will not work, particularly in light of the lead time required to obtain documents from foreign banks.)

2.  The in lieu of FBAR penalty is 25% of the highest aggregate balance in the foreign account(s) from 2003 to 2010.  Some taxpayers will be eligible for lower penalties. 

3.  Taxpayers must amend all affected income tax returns during the years 2003 - 2011 and pay the resulting taxes, pay either a 20% accuracy related penalty in the case of filed returns or the up to 25% failure to file penalty in the case of unfiled returns, and pay interest on both.  These returns must be filed by 8/31/11.  Some taxpayers will be eligible for lower penalties.

4.  A 12.5% penalty rate will apply if the aggregate balance did not exceed $75,000 in any of the years from 2003-2010.  Presumably this lower rate will be both for the in lieu of FBAR penalty and the income tax penalty.  There is also mention of a 5% rate in "limited situations."

Additional Information from IRS:
IRS / Shulman Announcement of OVDI Program
2011 OVDI Frequently Asked Questions (pdf)
2011 OVDI Frequently Asked Questions (link to IRS site)
How to Make a Voluntary Disclosure
Voluntary Disclosure Contacts

As Corrected 2/9/11

IRS Considering Another Round of Voluntary Disclosure for Offshore Accounts

The IRS first round of voluntary disclosures for offshore financial accounts ended October 15, 2009  The IRS touts the results of that round as very successful.  Since the end of the program, additional taxpayers have made voluntary disclosures, basically under the same process but without any assurance of what the penalty regime would be.  Practitioners have been concerned that, without some certainty as to the penalty costs, many taxpayers with undisclosed foreign financial accounts will stay underground. 

According to this WSJ Article, Commissioner Shulman has indicated that the IRS is "seriously considering another special Voluntary Disclosure Program.  As expected, he said that the penalties would likely increase over the penalties available under the first program ending October 15, 2009.

There was no indication of what the treatment might be for those making a voluntary disclosure after October 15, 2009.  It seems to me that those coming in before the new program is announced should get a break as well -- perhaps the mid point between the penalties available under the first program and those available under the second.

State of the Offshore Voluntary Disclosure Initiative

Readers interested in the state of the IRS's Offshore Voluntary Disclosure Initiative (OVDI) may be interested in the following publication: Mark E. Matthews and Scott D. Michel, IRS’s Voluntary Disclosure Program for Offshore Accounts: A Critical Assessment After One Year, 181 DTR J-1 (9/21/10).   The article may be reviewed or downloaded here. The authors, both prominent practitioners in this area of the law, provide a good summary of the history of voluntary disclosure and the implementation of the current OVDI, with emphasis on the program through the first stage cutoff for taxpayers entering the program by 10/15/09.

Leak From HSBC Suggests U.S. Taxpayers Continuing to Hide Offshore Assets Should Re-Think Their Model

The Wall Street Journal has an interesting article this morning on the leak of information from HSBC to at least some tax authorities. The article is titled "Mass Leak of Client Data Rattles Swiss Banking."

Those U.S. taxpayers who thought they had a beneficial risk / reward ratio in staying out of the IRS voluntary disclosure program need to re-consider their model. The community of persons having potential inside access to tax haven bank data have to know by now that others may be interested in this data and may even pay handsomely for it. Indeed, simply because the IRS (or DOJ Tax, depending upon who is conducting the investigation) might get swamped and unable to process the information for tax collections (and hence rewards), such persons would probably want to get in line early.

I had a saying when I first began posting on offshore accounts and the voluntary disclosure policy - "Get in Line Brother." Those with undisclosed offshore accounts might want to take -- or at least reconsider -- that advice.

Tax Practitioners Complain About Too Rigid Application of Voluntary Disclosure Program for Offshore Accounts

The tax news media is abuzz yesterday and today about a letter from a group of tax attorneys significantly involved in advising and representing clients with offshore accounts (i) who made what they thought were voluntary disclosures under the pre-10/15/09 special program and (ii) are considering a voluntary disclosure after 10/15/09 under the general voluntary disclosure program. The attorneys' concern is that the IRS is interpreting the conditions for voluntary disclosure too rigidly so as to disqualify persons who were truly voluntary in their disclosures in every meaningful sense of the word voluntary but who had the misfortune to have turned up on the IRS's radar screen (perhaps through UBS disclosures) before they could implement the voluntary disclosure. The following is a good sound bite from the letter:

Our immediate concern is the prospect that the government may bring criminal tax charges against persons who attempted voluntary disclosures but were later advised that pursuant to the VDP they were not timely. Such action would effectively destroy the VDP.

A copy of the letter is here. Articles appear in this morning's Tax Notes and in the popular press (WSJ article is here and the Tax Prof Blog article is here).

Update on IRS FAQs for Voluntary Disclosure

I have been remiss in advising my readers that the IRS has updated its FAQs effective 1/8/10.  (I do maintain a link to the FAQs in the link section at the right., and this link should get to the updates and amendments as they are made from time to time.)  The 1/8/10 updates add two FAQs at the end as follows:

Q 53. I am an actual or former UBS AG client who submitted a voluntary disclosure application to the IRS. I would like to expedite submission of my UBS AG account information to the IRS by providing a waiver directly to UBS AG. How does this work?

A53. THE UNITED STATES OF AMERICA AND THE SWISS CONFEDERATION ENTERED INTO AN AGREEMENT ON AUGUST 19, 2009, CONCERNING THE REQUEST FOR INFORMATION FROM THE INTERNAL REVENUE SERVICE OF THE UNITED STATES (“IRS”) REGARDING UBS AG, A CORPORATION ESTABLISHED UNDER THE LAWS OF THE SWISS CONFEDERATION (“UBS AG”). SECTION 1.4 OF THAT AGREEMENT PROVIDES THAT THE IRS WILL PROMPTLY REQUEST ALL UBS AG CLIENTS WHO ENTER INTO THE VOLUNTARY DISCLOSURE PROGRAM ON OR AFTER AUGUST 19, 2009, TO GIVE A WAIVER TO UBS AG TO PROVIDE ACCOUNT DOCUMENTATION TO THE IRS. SUCH A WAIVER WILL EXPEDITE THE DELIVERY OF RELEVANT ACCOUNT INFORMATION TO THE IRS.

If you are an actual or former UBS AG client, we are requesting that you give a waiver to UBS AG to provide your UBS AG account information to the IRS.

Should you have any questions regarding how to provide a waiver to UBS AG, you may consult the UBS AG website at www.ubs.com, or call UBS AG at +41 44 237 56 10.

Q 54. I have applied to the offshore voluntary disclosure program and would like to make a payment to stop the running of interest. Where should I send my payment to make sure it is processed properly?
A54. You can make an advance payment on the amount you expect to owe as a result of a voluntary disclosure by sending your check annotated in the note section of your check with your social security number and “advance payment on deficiency-VDP” to the following address:

Internal Revenue Service
Voluntary Disclosure Program
PO Box 934
Austin, TX 78767-0934.

Later, when you and the IRS enter into a closing agreement, the IRS will apply the payment to the appropriate taxes and periods.

Good Summary of IRS Offshore Account Initiative

Some readers may be interested in this post here by Duane Morris, a national law firm, on the status of the IRS' offshore account initiative. I think the material in the post is quite good and recommend it to my readers.

Those of us who practice in this area are currently facing a number of inquiries by UBS account holders (as well as other foreign account holders) who did not get into the program. The iniquiries are most acute for those UBS account holders who have been notified that their account information will be turned over to the IRS. The Duane Morris post discusses this circumstance at the end of the linked page, but I quote the relevant part below. I note that the context is the traditional IRS voluntary disclosure and the requirement that the voluntary disclosure be timely.

How can these restrictions on "timeliness" of a disclosure impact taxpayers with offshore accounts in the current environment? This question may present concerns in the context of the U.S.-Swiss Treaty Request. The request is directed at U.S. account holders, and in some cases account records have already been produced to the SFTA for a determination on whether the account information should be roduced in response to the Treaty Request. Some customers have been notified that their accounts appear to be within the scope of the Treaty Request. If a taxpayer receives this notification, is it too late to make a voluntary disclosure?

The IRS has provided no formal guidance on this issue. However, it appears that a disclosure after the receipt of the notice would be timely. The taxpayer recipient of the notice is not under examination or investigation; the IRS has not yet received any information on the taxpayer from the SFTA, the bank or any criminal enforcement agency; and there is no examination or investigation directly related to the specific taxpayer's noncompliance.8 Voluntary-disclosure coordinators have advised some practitioners that receipt of the notice does not make the disclosure untimely.

Therefore, voluntary disclosure is still available, but not under the same conditions as the OVDP. The primary benefit of "no referral for criminal prosecution" is still present. However, differences exist in the "traditional" disclosure and the now-expired OVDP disclosure:

• The days of "silent" or "stealth" voluntary disclosure appear to be over. Given the protocol for making a disclosure under the OVDP (i.e., direct contact with and disclosure to the IRS) taxpayers will be unable to find comfort in simply filing an amended return and paying the bill—as was frequently the practice before the OVDP was announced.

• The scope of the civil penalties that will be imposed under traditional voluntary disclosure are stiffer than those imposed by the OVDP. Traditional-disclosure taxpayers face civil-fraud penalties of as much as 75 percent of the additional tax liability versus 20 percent under the OVDP. FBAR penalties can also amount to as much as 50 percent of the account value for multiple years, as opposed to 20 percent of the highest value of the account for a single year. Experience shows however that negotiation of these penalties may still be possible.

JAT Comments.
1. I agree that the traditional voluntary disclosure program should still be available generally for foreign account holders.
2. I think also that, provided that there is prompt voluntary disclosure before the SFTA delivers up the names and provided that there are no most unusual wrinkles, the IRS will provide the benefit of the voluntary disclosure program - no criminal prosecution. As noted, of course, the expectation is that the civil penalties imposed (an income tax penalty and an FBAR or in lieu of FBAR) will be higher than available under the special program ending 10/15/09.
3. I speculate that the range of the FBAR or in lieu of FBAR penalty will be from 20% for the highest year (the amount available under the program) and 50% for the highest year (the amount that has been imposed in the criminal cases that have pled to date). In this regard, I wonder whether an IRS attempt to impose a larger penalty, particularly where the income is legal income, not subject to forfeiture, and the amount of income tax evaded is relatively low may have some potential for violating the Constitution's prohibition against excessive fines. See United States v. Bajakajian, 524 U.S. 321 (1998).
4. I wonder whether, unless the IRS makes some public announcement, the days of the quiet disclosure are over. See my earlier discussions of quiet disclosure here. I doubt that it is in the IRS or the country's interests (hopefully they are the same) to shut off (or discourage) quiet disclosures even with respect to foreign bank accounts. Of course, when the CI agent at the service center reviews the amended return reporting foreign bank account income or the delinquent or amended FBAR reporting or correcting reporting for foreign accounts, the process might turn noisy, but I would hope that the IRS would not start criminal prosecutions against those taxpayers who in good faith opened the kimono via amended returns and delinquent or amended FBARs. I just think the IRS (and the country) has more to lose than gain from that tactic. Of course, where the taxpayer has not been totally forthcoming on the amended 1040s or delinquent or amended FBARs or doesn't participate cooperatively in any investigation that may follow, the IRS may decide to launch a full bore criminal investigation and prosecution, but where squeaky clean full and fair quiet disclosures occur, I think it would be counterproductive to do that. But, hay, that's not my call and my skin is not in that game, so these are nothing more than speculations and perhaps idle ones at that.

Reports and Rumors on Offshore Accounts After 10/15

Jeremiah Coder of Tax Notes reports today on statements made at the UCLA Tax Controversy Institute in Beverly Hills, CA. Jeremiah Coder, Offshore Disclosure Process Will Continue to Produce Benefits, IRS Officials Say, 2009 TNT 207-1 (10/29/09). The key points from Mr. Coder's report for my readers are:

1. For foreign account holders who did not make it under the 10/15 wire, the IRS Deputy Chief Victor Song says "It's never too late to say you're sorry." Song sang the praises of the regular voluntary disclosure program which is still open. JAT Note: There was no reported discussion about using the quiet voluntary disclosure for these individuals. My gut tells me he was talking about the noisy disclosure.

2. A leading tax litigator, Ed Robbins of Hochman, Salkin et al, is reported to have said that the passing of the 10/15 deadline will mean severe civil penalties for those who disclose. It is not clear from the article that he was responding to Mr. Song's comment. Nor is it clear exactly what he meant by severe (many thought 20% was severe). Whatever it is exactly he certainly meant that, relative to 20%, it would be more severe. JAT Note: It is interesting to note that, even in the criminal cases to date, the Government is just going for 50%, so one could infer that the playing field is the 30% between 20% and 50%. That is, one could infer that if that is what one is inclined to do.

3. Stating the attitude of the prosecutor and apparently responding to the report of 7,500 persons joining the 10/15 voluntary disclosure initiative, Sandra Brown, a tax prosecutor, is reported to have said that securing the admissions of "7,500 felons" was "a great success." JAT Note: I wish she would have subtracted from this number my clients, none of whom were or are felons. I hope my clients will indulge me some advocate's wiggle room in that statement. Beyond that, I don't know that it serves the Government well for a Government official to refer to these persons as felons, even if that some of them may be. Certainly not all of them are. The Government well knows that it could not have obtained convictions of anything near this number even if it knew everything and had the resources to try them all. And, at the margins, such posturing might serve to limit future disclosures. Sure the IRS wants the mea culpa, but will often accept a shrouded mea culpa that gives the taxpayer some room to say to himself or herself that he or she is not a felon. I just think use of that word is counterproductive. Thus, I think the IRS would have gotten significantly fewer voluntary disclosures in this program if the it had required in its template letter an admission as follows: "I admit that I am a tax felon."

4. The same prosecutor said that the Government now will be able to take its Swiss success and move country by country. JAT Note: That sounds nice, but leaves some questions open. After the Government wraps up UBS, is it done with Switzerland. I would think not, and the next easy pickings for the Government might be the other Swiss banks. The treaty interpretation that permitted the UBS disclosures should equally apply to other Swiss banks, unless there were some understanding with the Swiss Government that the treaty interpretation would apply for now only to UBS. Moreover, which other tax haven country banks had sufficient U.S. presence to permit them to be susceptible to the type of pressure the U.S. could bring against UBS via the deferred prosecution agreement and John Doe summons?

Tax Crimes Developments at NYU Federal Tax Institute

Lee Sheppard reports today in Tax Notes on developments at a New York University Institute on Federal Taxation. Lee A. Sheppard, Tax Schemes are Proliferating, Official Tells NYU Conference, 2009 TNT 200-1. The key points I note for tax crimes are:

1. As the title suggests, tax schemes are proliferating. Some of the tax schemes are variations on historic scams. In any event, there should be continuing business for persons practicing in the tax crimes area.

2. On the IRS Voluntary Disclosure front, the following is, in my mind, the key observation:

On average, those who took advantage of the amnesty will lose roughly 50 to 60 percent of the amount in an ordinary deposit account, that is, one without significant earnings, and a higher percentage if the account was an investment account. The amnesty offered a great deal to the traditional tax cheat, said Charles Rettig of Hochman, Salkin, Rettig, Toscher & Perez, but those who missed the October 15 deadline might still want to use the regular voluntary disclosure program to avoid potential criminal prosecution. (For the IRS amnesty instruction, see Doc 2009-14388 [PDF] or 2009 TNT 120-8 .)

3. And, on Voluntary Disclosure:

Matthews marveled at the vast sums that people were willing to park in bank accounts with no paper evidence that they owned the money, and often paper saying that some nominee owned it. He wondered whether these people would be as trusting of other tax havens now that they had been chased out of Switzerland.

I could say more on this, but my readers would think I am just piling on the Swiss banks (not that any thing I would say would materially increase the pile).

4. More important for tax procedure than tax crimes, the historic division of representation in the various forums for civil litigation is blurring. Ms. Sheppard report: "And taxpayer selection of forum does not mean one set of lawyers: IRS lawyers and Justice lawyers are working together in all courts."

DOJ Tax's Further Attempts to Drum Up Business / Revenue

Notice: This Blog will be supplemented from time to time as I receive reports of the occurrences at the ABA Tax Section that I feel worthy of passing on.

DOJ Tax is on a public relations blitz to drum up business / revenue by incentivizing taxpayers with unreported offshore bank accounts to join the IRS voluntary disclosure initiative ending 10/15. A key facet of the blitz is the high profile indictments recently obtained. At last week's ABA Tax Section meeting, DOJ Tax rolled out its mouthpiece, Kevin Downing himself at the forefront of the prosecution side of this juggernaut, to remind practitioners and, through them and the press attendin, the public that they should pony up in the voluntary disclosure program. Here are a few highlights from the ABA Tax Section meeting (which I will supplement as more come to my attention):

1. Announcements of new prosecutions -- probably coupled with guilty pleas -- will be "a few every couple of weeks," according to Downing. Obviously, DOJ Tax wants to keep the matter in the public eye to encourage the mass of offshore account holders to open their pocketbooks and come into the fold of the voluntary disclosure initiative which expires October 15.

2. DOJ Tax and the IRS will target U.S. enablers such as banks and financial advisors. Reuters reports that, "on the sidelines," Downing advised Reuters specifically "that U.S. banks that helped U.S. clients hide money off-shore are a target."

3. The U.S. is making headway with a lot of foreign banks other than UBS. He is reported to have said: "Let your clients know if they think it's just UBS they are mistaken."

Items beginning at par. 4 were added on 9/29/09

4. Another good snippet reputedly from Downing consistent with his man on a righteous mission persona is: "I want to go after the privileged people who've had the benefits of this country and are cheating their taxes, get them in front of local juries and convict them." Lee A. Sheppard, The UBS Endgame, 2009 TNT 186-1 (9/29/2009). Even the crusty Lee Sheppard is enthralled by Himself, following up with: "It is reasonable to assume that the blasé Swiss and the complacent rich American tax cheats never counted on meeting up with a guy like Kevin Downing, senior trial counsel in the Justice Department's Tax Division, who has been leading the prosecutions against Swiss bank UBS AG. Downing, a former Marine."

5. Jeff Neiman, an AUSA for SD Florida who is prominently involved in these prosecutions, said that he wanted to "avoid technical tax issues." Sheppard paraphrased: "Whether the defendant is lying, cheating, and stealing is what the argument to the jury boils down to for Neiman." See my earlier blogs on The Lie. This statement echoes the theme of the Enron prosecutions: "This is a simple case. It is not about accounting. It is about lies and choices." John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007). See also Stuart P. Green, Lying, Cheating, and Stealing: A Moral Theory of White Collar Crime 246-48 (2006).

6. DOJ "has 150 UBS customer cases headed to grand juries." Sheppard, supra. JAT Comment: I guess non-UBS customers should get some comfort from this -- at least UBS customers are keeping them busy. And perhaps all of the other regular tax cheats should be happy that the Government is devoting a major portion of its criminal tax enforcement efforts elsewhere.

7. Banks other than UBS will be targeted. This includes both Swiss banks and non-Swiss banks such as Hong Kong, Panama and Singapore (mentioned specifically). Sheppard, supra. See my point above; is this just a token threat designed to incentivize those non-UBS tax cheats to get into the program? How many cases like this can the Government really prosecute?

8. Downing countered the rumor that some non-UBS Swiss banks are actively seeking the tax cheat business by touting their lack of U.S. presence which brought UBS down. "Downing reported the opposite -- that some Swiss banks are coming forward proactively, offering to push American account holders to disclose in order to protect their qualified intermediary status." Sheppard, supra.

9. Further, Downing reported: "The Swiss government is now willing to be much more cooperative. They really appear to be committed, at least at this point in time." Sheppard, supra. As I have reported previously, the key is whether the Swiss Government will use the UBS template for disclosures under the treaty by the other Swiss banks.

10. Downing announced that DOJ honors voluntary disclosures, although it does not have to do so. Sheppard, supra. Now, isn't that nice. But, I wonder whether DOJ can really prosecute a tax crime if the IRS does not approve? Maybe the man on the mission will test that notion some time.

11. On the subject of quiet disclosures, Sheppard reports:

Practitioners and government speakers agreed that choosing quiet disclosure is risky. The IRS is mining returns to look for quiet disclosures to pursue for civil violations. And quiet disclosure does not protect the filer from criminal prosecution -- that is the promise of the IRS amnesty program. "You might as well go noisy," said [Mark] Matthews.

One of the key points to note is that the quiet disclosures are being mined "for civil violations." Does that mean the quiet disclosure is still effective for avoiding criminal prosecution, with the only risk of the quiet disclosure in the current context being no certainty as to the quantum of civil penalties? See my prior blog here. And, of course, the IRS's panoply of civil violations alternatives may be limited. At least as to the returns, aren't these qualified amended returns subject to penalty only if the IRS establishes fraud (a very difficult burden that would require even greater use of limited IRS resources)? And to get the more onerous FBAR penalties, the IRS would have to prove the equivalent of civil fraud -- willfulness (same standard) -- although resource intensive.
12. Downing also warned that U.S. UBS clients who invoke Swiss legal procedures to try to stave off disclosure of their names to the U.S. should not be tempted to forego notifying the U.S. of that action (which, of course, would defeat the major purpose of taking the Swiss action). He is reported to have announced: "We'll prosecute that as an overt act of conspiracy or an affirmative act of evasion." Id. Ah, the ubiquitous conspiracy charge. Permit me one final quote: In United States v . Reynolds, 919 F.2d 435, 439 (7th Cir. 1990), Judge Easterbrook lamented that the conspiracy add-ons are “inevitable because prosecutors seem to have conspiracy on their word processors as Count I; rare is the case omitting such a charge.”

IRS Extends FBAR / Foreign Entity Relief Deadline to 10/15/09

The IRS has extended to 10/15/09 the deadline for joining its special initiative voluntary disclosure practice with respect to foreign bank accounts and entities. The announcement is here. The IRS updated its FAQs here with this extension (see opening unnumbered paragraphs).

I think this will be win-win for the IRS. There will still be plenty of taxpayers who choose not to try to enter the program or, if they try, will be disqualified. The initiative and this extension will thus flush out a lot of tax dollars with relatively little IRS audit / criminal investigatiove costs, and much of the dollars might have otherwise escaped the IRS's radar screen or willingness to pursue.

I think it will also be win-win for the taxpayers involved. The taxpayers entering the practice and not disqualified will receive a pass on criminal prosecution and will pay taxes, penalties and interest that are far less than might otherwise be the case.

Get In Line Brother #22 - New IRS FAQ on UBS Accounts

On August 25, 2009, the IRS added a new FAQ to its FAQs on the voluntary disclosure initiative for foreign bank accounts. The FAQs as thus supplemented are here. The new FAQ is short, so I will just quote it verbatim:

Q52. Are UBS account holders eligible to make a voluntary disclosure under the IRS’s offshore Voluntary Disclosure Practice (VDP) announced on March 23, 2009, and set to expire September 23, 2009?
Yes, provided that the UBS account holder is otherwise eligible under the VDP. However, a UBS account holder becomes ineligible to make a voluntary disclosure under the offshore VDP at the time the IRS receives information from any source, including from the Swiss Federal Tax Administration (“SFTA”), UBS, an informant, or otherwise, relating specifically to the account holder's undisclosed foreign accounts or undisclosed foreign entities.
As part of the agreement with Switzerland and UBS announced by the IRS and the Department of Justice on August 19, 2009, UBS will be sending notices to account holders indicating that their information may be provided to the IRS under the agreement. If a UBS account holder gets this notification from UBS before September 23rd, this notification will not by itself disqualify the account holder from making a voluntary disclosure under the offshore VDP by the September 23rd deadline. Although many of these notices will not be sent by UBS to account holders until after September 23rd, the September 23rd offshore VDP deadline applies to all UBS account holders even if they have not received a notice by that date.

UBS account holders are thus well advised to Get In Line Brother.

Persons with foreign bank accounts, particularly Swiss bank accounts in banks other than UBS, should also seriously consider the offer, given the uncertainties of the effects of Switzerland's reinterpretation of its exchange of information obligations under the double tax treaty.