Tax Problem Attorney Blog

Swiss Banks to Turn Over Possible Tax Evaders to IRS

October 11, 2011 | by Dennis N. Brager

According to a report in the Swiss newspaper Tages-Anzeiger the Swiss are poised to send the names of thousands of potential tax evaders who have Swiss Bank accounts over to the IRS, and/or the Department of Justice. The data files are, according to the unconfirmed report, due to begin coming over later in October. The report goes on to speculate that the banks on the list include Credit Suisse, Julius Bär, Zürich Cantonal Bank, Basel Cantonal Bank and Wegelin. These names shouldn’t come as any great surprise because it appears that the IRS has been actively investigating them for some time.

Whether or not the report turns out to be true is unknown. However, if it is, it leaves very little time for U.S. persons who have offshore bank accounts at these Swiss banks to make a voluntary disclosure to avoid a criminal tax prosecution for FBAR violations, tax fraud, or other crimes.

U.S. persons who have offshore financial accounts are required to file report to the IRS on Form TD F 90-22.1, Report of Foreign Bank Account (FBAR) on an annual basis. Failure to do so can result in jail time, or ruinous civil penalties.
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IRS Touts Progress on International Tax Evasion

October 3, 2011 | by Dennis N. Brager

The IRS issued a news release on Sept. 15th headlined “IRS Shows Progress on International Tax Evasion.” IRS Commissioner Shulman was quoted as saying: “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.” Shulman noted that the IRS has increased its efforts to prosecute criminal tax cases involving international tax fraud. The release goes on to state that the IRS’ Offshore Voluntary Disclosure Program (OVDP), and its recently closed Offshore Voluntary Disclosure Initiative (OVDI) has provided the IRS with “a wealth of information on various banks and advisors assisting people with offshore tax evasion…”

The key thing here for anyone who has an unreported offshore bank account is that last quote about the information the IRS has gathered about advisors assisting people with offshore tax evasion. It is getting more and more dangerous to own an undisclosed foreign bank account. While the IRS will never be able to find more than a small percentage of the folks who have an unreported income from offshore bank accounts it is clear that for those that do get caught the stakes are very high. Jail time for criminal tax violations, or failure to file Foreign Bank Account Reports, TDF 90-22.1 (FBARs), and ruinous civil penalties including a penalty equal to the greater of $100,000 or of 50% of the balance in the offshore account per year.

While the time for making a voluntary disclosure under the OVDI program has expired it is still possible to make voluntary disclosure and avoid criminal prosecution; it may also be possible to cut a better deal with the IRS on any civil penalties, by coming forward voluntarily. Penalties for non-willful violations may cap out at $10,000 per year, and it is easier to argue that a violation is non-willful if a taxpayer comes forward voluntarily then if he is caught as the result of a foreign bank turning him in to the IRS.
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Tax Lawyer Convicted of Aiding and Abetting Tax Evasion

September 23, 2011 | by Dennis N. Brager

A “tax attorney’s” conviction for aiding and abetting tax fraud I am not sure that makes him a tax attorney). The District Court sentenced the attorney to 30 months in prison and 3 years of supervised release. While this seems like a light sentence don’t forget that the tax attorney’s license to practice will most likely be revoked as a consequence of this conviction.

The tax attorney, Barry Jewell, suggested to his client, Carl Evans, a scheme by which a fictitious company agreed to fund the client’s litigation in exchange for 100% of amounts awarded over $250,000 as a result of the litigation. No such offer existed and Evans funded the litigation himself, but Jewell provided Evans a fictitious letter making the offer, on the basis of which Evans’s accountant innocently prepared his tax return. With the aid of Jewell, Evans created a new company, forged documents to backdate its existence, and used it to hide the income exceeding $250,000 that purportedly went to the company that fictitiously funded his litigation.

As a part of his appeal, Jewell contended that there was insufficient evidence to find him guilty of aiding and abetting tax evasions. The appellate court disagreed. Evans testified at the trial that Jewell concocted the above scheme for the purpose of Evans’s tax evasion and the IRS testified that a tax underpayment of over $700,000 resulted. The appellate court ruled that these facts were sufficient for a jury to find that Jewell aided and abetted tax evasion and affirmed the lower court’s conviction.
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Lack of Funds Not a Defense to Criminal Tax Fraud Charges

September 12, 2011 | by Dennis N. Brager

Criminal tax charges were recently upheld by the Sixth Circuit Court of Appeals against an individual who withheld payroll taxes but failed to pay those amounts over to the Internal Revenue Service (“IRS”). The defendant had been convicted of fifteen counts of Failure to Account for and Pay Over Withholding and FICA Taxes, in violation of 26 U.S.C. § 7202, and three counts of Making and Causing the Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287. The lower court sentenced the defendant in the case to 22 months in prison and 36 months of supervised release and ordered him to pay the amount owed plus penalties.

The defendant in the case, Richard Blanchard, did not pay trust fund taxes for approximately 6 years despite withholding taxes from his employees. The case started out as a civil tax audit, but then it became a criminal tax case. Blanchard appealed the decision of the district court, stating that the government failed to prove that he was financially able to pay over the employment tax and that the government must do so in order to show that his failure to pay violated the relevant statute. The appellate court found not only that the government did not need to prove that Blanchard was able to pay the tax, but also that Blanchard’s inability to pay that tax would not even constitute a defense to the government’s accusations. The court cited previous cases and stated that every individual must conduct his financial affairs in such a way that he is able to pay his tax liability when it becomes due. Thus, Blanchard’s conviction and sentence of 22 months plus 36 subsequent months of supervised release were affirmed.

The case is disturbing to the extent that it brings to mind the concept of debtors prison. Business owners need to understand that failure to pay withheld tax over to the IRS may result in criminal tax fraud charges as well as civil tax penalties.
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Breaking OVDI FBAR News

August 26, 2011 | by Dennis N. Brager

The IRS has extended the deadline for filing documents under the tax attorneys , and CPAs who have been trying to crank out OVDI disclosures documents by Wednesday. The IRS has also severely limited the tasks that need to be completed by the new Sept. 9th OVDI deadline. The only two actions required by September 9th appear to be:

1. Submit identifying information to the Criminal Investigation office in Philadelphia. Specifically this means name, address, date of birth, and social security number and as much of the other information requested in the Offshore Voluntary Disclosures Letter as possible.

2. Send a request for a 90-day extension for submitting the complete voluntary disclosure package of information to the Austin campus.

The reason for the OVDI extension is ostensibly the potential impact of Hurricane Irene. One has to wonder though, whether the IRS finally got the message that the Aug. 31st deadline for submitting everything was unreasonable.
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OPR (Office of Professional Responsibility) Disbars a CPA, and an Enrolled Agent under Circular 230 for Failure to File Tax Returns

August 3, 2011 | by Dennis N. Brager

The IRS Office of Professional Responsibility (OPR) alleged that Joseph Kozelsky did not file timely tax returns for 2001 through 2007 and did not timely pay his federal tax liability. As a result of his tax problems he was disbarred from practice before the Internal Revenue Service. Mr. Kozelsky didn’t help himself very much, since he failed to respond to the IRS’s complaint within 30 days. As a result the facts alleged by the IRS were deemed admitted, and the administrative law judge (“ALJ”) issued an order that Mr. Kozelsky engaged in disreputable conduct and should be disbarred.

The IRS publishes rules for professionals practicing before the IRS, and those rules are set forth in Circular 230. We have previously published an article on the procedures involved in an OPR disciplinary matter. Circular 230 includes rules for individuals preparing tax returns, providing tax advice, and representing individuals before the IRS. Failure to timely file tax returns constitutes disreputable conduct under Circular 230 and subjects the offender to sanctions. In the case of Mr. Kozelsky, the IRS proposed disbarment from practice before the IRS and the ALJ presiding over the case agreed and ordered disbarment on November 17, 2010 since Mr. Kozelsky failed to respond to the OPR’s complaint.

If no appeal is filed within 30 days of the ALJ’s default order, the default order becomes final. Since Mr. Kozelsky appealed the ALJ decision to the IRS’s Appellate Authority on December 23, 2010, 6 days after the 30 day deadline, his appeal was not considered, and his disbarment became final.

Enrolled Agents are subject to the same Circular 230 rules as CPAs, and in a separate case, an Enrolled Agent was also disbarred from practice before the IRS. OPR filed a complaint against Susan Tomsha-Miguel alleging her failure to file timely tax returns, she failed to respond within 30 days, and the ALJ presiding over the case entered a default judgment for the IRS. The ALJ determined that the appropriate sanction was disbarment from practice before the IRS. In addition to CPAs and Enrolled Agents, Circular 230 rules and sanctions regarding failure to file tax returns also apply to tax attorneys (see post titled “Attorney Disbarred under Circular 230 Rules for Failure to File Tax Returns”).
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FBAR Offshore Voluntary Disclosure Initiative (OVDI) Tax Amnesty Countdown

July 21, 2011 | by Dennis N. Brager

The last day for disclosing unfiled foreign bank account reports (FBARs) under the Offshore Voluntary Disclosure Initiative (OVDI) is August 31, 2011.

OVDI FAQ No. 25 provides that the entire OVDI package must be submitted on or before August 31, 2011 to:

Internal Revenue Service

3651 S. I H 35 Stop 4301 AUSC

Austin, TX 78741

ATTN: 2011 Offshore Voluntary Disclosure Initiative

The FAQ doesn’t state that the OVDI package must be received by Aug. 31st, simply that it must be “submitted” by that date, so presumably if it is mailed by Aug. 31st that will be sufficient. The countdown is based upon the last Fedex drop off time near the offices of Brager Tax Law Group, A P.C. in Los Angeles, California of 6:45 PM.

The other problem is that FAQ No. 25, presupposes that a taxpayer has received a preliminary clearance pursuant to FAQ No. 24 from the IRS Criminal Investigation Division (CI). According to the IRS OVDI Hotline at (267) 941-0020, however, if an offshore account holder is in a time crunch he should obtain a pre-clearance from CI, and then send the document package to Austin, Texas once the pre-clearance has been received. Our tax attorneys have been receiving pre-clearances in 24 to 48 hours, but your mileage may vary.

Keep in mind that the oral advice from the OVDI Hotline is not binding on the IRS, and it is important to keep updated on a regular basis with the IRS’ changing directives, and whims.
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Foreign Bank Account Report (FBAR) OVDI Deadline Extended–Sort of

July 19, 2011 | by Dennis N. Brager

Some articles, but not any tax attorneys we know, have suggested that the IRS has extended the 2011 Offshore Voluntary Disclosure Initiative (OVDI) for unfiled foreign bank account reports (FBARs) by 90 days. That’s not quite the case. The IRS has published FAQ 25.1 which provides that if an offshore bank account holder is unable to submit the complete required package of documents by the August 31st they may REQUEST a 90 day extension of the OVDI deadline. To quote the IRS OVDI FAQ:

A taxpayer may request an extension of the deadline to complete his or her submission if the taxpayer can demonstrate a good faith attempt to fully comply with FAQ 25.1 on or before August 31, 2011.

Note nothing says that the IRS will GRANT the extension for requesting tax amnesty relief. In order to receive an extension the taxpayer must demonstrate that he has made a “good faith attempt” to comply. The conditions for requesting an extension requires that the foreign bank account owner include in his extension request:

1. A statement of those items that are missing,
2. The reasons why they are not included,
3. The steps taken to secure them, and
4. Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.

This leaves open the very real possibility that a faulty request for an extension may result in the OVDI deadline not be extended, and the taxpayer exposed to the full set of civil FBAR penalties.
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HSBC India Foreign Bank Account Client Indicted on FBAR (Foreign Bank Account) and False Tax Return Charges

July 7, 2011 | by Dennis N. Brager

The Department of Justice (DOJ) and Internal Revenue Service (IRS) announced last week the indictment of an HSBC India client on four counts of filing false tax returns and four counts of failure to file a Foreign Bank Account Report, form TD F 90-22.1 (FBAR). According to the press release each false tax return charge can result in a penalty of three years in prison and a $250,000 fine, and each failure to file an FBAR can result in 10 years in prison and a $500,000 fine. The press release is further evidence of the hardline positions that the IRS continues to take in FBAR cases. The maximum criminal penalty for willful failure to file an FBAR is “only” $250,000 and a five year jail term, under 31 USC 5322(a). However, under 31 USC 5322(b) if the willful failure to file an FBAR occurs “while violating another law of the United States or as part of a pattern of any illegal activity involving more than $ 100,000 in a 12-month period” that ups the ante to 10 years and $500,0000. By referencing the 10 year jail term the IRS is sending a message that it will seek maximum prison time.

The indictment alleges Dr. Arvind Ahuja, a US citizen living in Wisconsin, transferred and maintained millions of dollars in accounts in India and the Bailiwick of Jersey (Jersey) through HSBC. Jersey is considered to be a tax haven jurisdiction, meaning its laws are intended to conceal financial information from authorities in other countries. The indictment further alleges the balances of Dr. Ahuja’s accounts ranged from $5 to $9 million and generated interest income that was unreported on his US tax returns.

The FBAR reporting requirement applies to individuals with a financial interest in or signature authority over foreign bank accounts if the aggregate value of those accounts exceeded $10,000 on any one day. The failure to file an FBAR is a charge independent of the failure to report taxable income. Foreign account holders with past unreported taxable income or undisclosed foreign accounts may make a voluntary disclosure under the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) and avoid or decrease penalties. The OVDI is open until August 31, 2011 and certain individuals may be entitled to an extension.
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