U.S. Officials Granted Access to Bank Records in Tax Evasion Probe

 

A federal judge granted a request made by government officials to obtain the account data and identifying information of American banking clients suspected of committing tax law violations through offshore accounts managed by the Bank of N.T. Butterfield & Son.
Butterfield currently has several offices throughout the Caribbean and Switzerland, and officials have long suspected that certain American account holders have utilized their accounts to hide income and assets from the Internal Revenue Service. The special summonses granted by U.S. District Judge Richard Berman will require five U.S. banks - Citigroup, Bank of New York Mellon, JPMorgan Chase, HSBC, and Bank of America - to provide financial information and details to federal officials about clients who may be evading their tax responsibilities through Butterfield.
As Butterfield does not operate within the U.S., tax officials will be required to obtain information through the five banks that manage correspondent accounts with the Caribbean-based financial institution. These correspondent accounts, which are common in the international banking system, enable foreign banks with no U.S. presence to work with U.S. institutions to carry out monetary transactions and perform services for their clients. Lately, however, officials have discovered that these accounts may also be abused and allow clients to shield income.
These so-called "John Doe" summonses have been a strategic tool in the U.S. Justice Department's search for Americans who are using offshore accounts to skirt their tax responsibilities. The summons was instrumental in a 2009 case against Swiss banking giant UBS, which eventually resulted in the institution agreeing to pay a $780 million settlement to avoid criminal prosecution for helping Americans evade their taxes.
"These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations," said Assistant U.S. Attorney General Kathryn Keneally.

http://taxtrustestatenews.com/

CELEBRITY TAX CASES

Willie Nelson, Wesley Snipes and Nicholas Cage are a few celebrities who come to mind who have has tax issues with the IRS.  Here are some current cases involving celebrities.

Ronald Isley-Twist and Shout-“a serial tax avoider”

An IRS appeals officer did not abuse his discretion by rejecting an offer in compromise from Ronald Isley, the frontman of the Grammy-winning and Rock and Roll Hall of Fame-inducted group, the Isley Brothers, according to a November 6 Tax Court decision. (Ronald Isley v. Commissioner, 141 T.C. No. 11; No. 5616-11L (2013)

The appeals officer accepted the OIC at first, but after consultation with an Office of Chief Counsel attorney the OIC was rejected because it covered years of a tax evasion conviction against Isley and the Justice Department would have needed to approve the OIC under section 7122, and because Isley's failure to file and pay taxes owed also violated the terms of the OIC.

Isley's petition to the Tax Court argued that the attorney had become a de facto appeals officer through the consultation and that the attorney violated impartiality requirements because of the attorney's involvement in a bankruptcy proceeding against Isley. The Tax Court rejected those arguments.

The IRS made two bankruptcy claims against Isley in seeking to collect taxes owed for all but five years of a period stretching from 1971 to 1995, and seized from him a yacht, cars, and other property in 1997. Isley was later convicted of five counts of tax evasion and one count of willful failure to file, was sentenced in 2009 to three years and one month in prison, and was ordered to pay $3.1 million. The U.S. district judge who sentenced Isley described him as a "serial tax avoider." Isley was discharged from bankruptcy in 2001 but did not file returns for 1997 through 2001, and did not sign his 2002 return or pay his taxes for that year.

IRS Says Racecar Driver Montoya Can't Outrun $2.7 Million Tax Bill

The IRS says professional racecar driver Juan Pablo Montoya owes $2.7 million in taxes and penalties, according to a November 3 report from Forbes.

The IRS argues that Montoya earned $9.5 million in taxable income in 2007 and 2008, compared with $2.4 million he and his wife reported on their returns for those years. Montoya admits he earned $800,000 more than he reported, but he is disputing the IRS's calculations.

Montoya says in 2001 he contributed his likeness and other aspects of his "driver identification" to JPM Motorsport Inc. of the Bahamas, which was owned by a trust his manager-father created. Montoya was residing in Monaco and racing in Formula One at the time, but in 2006 he agreed to become a NASCAR driver in the U.S. for the 2007 season, and he was advised to domesticate his foreign assets, which he did by creating Monty Motorsport LLC in Delaware, according to Forbes. He arranged for JPM Motorsport to sell his driver identification to Monty Motorsport for a $15 million note, which then claimed a $1.4 million deduction in 2007 and a $1 million deduction in 2008 on its investment. The IRS says the deductions are a sham.

Montoya is the latest in a string of sports figures in hot water with the IRS over intellectual property and offshore issues, including fellow Indianapolis 500 winner Helio Castroneves, who was acquitted of tax charges in 2009.

The IRS also says Montoya's driver identity sale was an installment sale by a grantor trust that resulted in $2.5 million in income for Montoya, but Montoya's attorneys contend that the grantor trust rules do not apply because he was not yet a U.S. resident at the time of the sale. The IRS also disputes Montoya's residence-related claim of operating and capital losses following his formation of a C corporation in 2006 to buy a Lear jet worth $8.7 million, the liquidation of the corporation in 2007, and the transfer of the jet to a limited liability company, Forbes reports.

Former Eagles Wide Receiver Freddie Mitchell Says Concussions Were Behind Tax Fraud

A U.S. district court judge in Orlando, Fla., on October 29 sentenced former Philadelphia Eagles wide receiver Freddie Mitchell to 37 months in prison after Mitchell argued that concussions he suffered during his playing career may have contributed to his participation in a tax fraud scheme. Mitchell pleaded guilty in March to conspiracy to file a false claim.

Mitchell told the court he uses notepads spread around his home to remind him of things because of memory issues, and said he experiences headaches and difficulty sleeping. His girlfriend, Patricia Jarmoc, praised Mitchell as "a great guy" but said he has trouble conversing. Mitchell's attorney screened for the judge a documentary on NFL players and brain damage.

The IRS began investigating Mitchell and two co-conspirators, Richard Walls and Jamie Russ-Walls, when an attorney for a professional athlete -- identified as "A.G." in court records but named as NBA player Andrew "Drew" Gooden in a civil suit by Mitchell against Walls and Russ-Walls -- informed authorities that a false, nearly $2 million tax refund had been filed in Gooden's name. The claim specified that $1 million should go to Gooden, $638,000 to Russ-Walls, and $280,000 to Mitchell. Mitchell admitted in his plea agreement his role in the conspiracy had been to recruit other professional athletes to Walls and Russ-Walls's return preparation business. Gooden paid the business to prepare a return for him but when Mitchell did not provide him a copy of the return, Gooden filed his return himself and the IRS became aware of the discrepancy.

Nelly Proposed No Taxes During Government Shutdown

Last month's government shutdown had many victims, and one of them, hip-hop performer Nelly, was vocal about not getting his money's worth from Washington.

"I'm trying to campaign, since the government ain't working, we shouldn't have to pay taxes," Nelly told VH1 on October 8. "Paying taxes is supposed to pay for the government, which in turn is not working, so if they're not working, I shouldn't have to pay taxes," Nelly said.

"And me being in the upper echelon of the tax bracket, [I] feel that the money I could be saving over these next couple of days could be very vital to my survival," Nelly quipped.

In April 2006 ABC News reported that some CPAs believe Nelly's bejeweled teeth, described in his and Paul Wall's song "Grillz" as "lookin' somethin' like a disco ball," are potentially deductible as a business expense, although it is unknown whether Nelly has ever taken that advice.

IRS Will Soon Examine Indian Bank Accounts

The IRS Small Business/Self-Employed Division's special enforcement program (SEP) will soon begin examining U.S. taxpayers suspected of holding undeclared accounts in Indian banks, according to Nicholas Connors, a supervisory revenue agent with SEP.

The SEP team is gearing up for the next wave of the IRS's offshore compliance crackdown just as its examination of accounts held with Swiss bank UBS is winding down. After receiving account information from Indian banks, the IRS has about 100 Indian bank account cases that it is sending out for examination across the country, he said.

"Looking ahead, the offshore bank investigations are just going to grow," Connors said. In addition to India, "Israel is on the list of banks that is providing information to us, and from there it just keeps going on and on," he said. "Within Examination, there's talk that this could someday become a work issue for every single revenue agent in SB/SE where everyone will be working some type of offshore case."

The SEP team continues to examine quiet disclosures as well as cases regarding taxpayers who opted out of the IRS offshore voluntary disclosure program (OVDP), said Connors. "The guidance we're getting on quiet disclosures has been extremely harsh," he said. "Essentially those taxpayers walked past compliance three times: They didn't file correctly the first time, they didn't come in under voluntary disclosure, and now they're trying to hide it by slipping it in through an amended return. Don't expect much leniency if we have a quiet disclosure case; agents are being told to be aggressive."

 

States with Death Taxes from the Wall Street Journal 1025/13

Crossword Puzzle in Honor of the 100th Anniversary of the Revenue Act of 1913

Myles Mellor presented this crossword puzzle to Tax Note Today yesterday in honor of the 100^th anniversary of the creation of the Internal Revenue Code. As you may know our federal tax code was born as a result of the 16th amendment to our constitution and it's having its 100^th birthday March 31.

The solution will be posted in my next Blog.

Let’s see how many you get correct!

Across
1 Revenue aka tariff, in 1913
3 Demographic segment not affected by the initial introduction of income tax
6 Represent (2 words)
10 Put your ___ in, add comments and opinions even when not asked for
11 Victory
13 Oft-repeated Republican demand in relation to taxes
14 Latish lunch hour
16 Dodging Uncle Sam
17 "Cogito" follower, therefore in law
19 Congressman who introduced the first modern income tax bill
21 It's taxed a lot in Vegas
23 Credit card initials
24 Mark Antony wanted it lent
26 Conditions
29 Hall-Rabushka tax type
31 Applications
32 Tough tax stand, ___ Tea Party (2 words)
33 IRS enforcement options
34 Quibble
37 Harvard deg.
40 Very rich
42 Chip or sky
44 1913 amendment
48 "Gronk" is a famous one, abbr.
49 Bar tenders?
53 His opposition to the 1913 constitutional amendment didn't fly
54 __LA, Berkeley, etc.
55 Most heavily taxed demographic
57 Wilson demanded it for tariffs
58 40 go-with
59 Those in favor
Down
1 Number cruncher
2 Added up
3 "Bull Moose" Party
4 Have back taxes
5 Smallest st.
7 Socialist's distinction but a lawyer likes to win with it
8 Oft-stated goal of taxation
9 Tax-cutting Gipper, first name for short
12 FDR program (2 words)
15 Impatient demand
18 Scold severely
20 Mistaken
22 Formerly the Bureau of Internal Revenue
25 Poet Housman's initials
27 Peyton's little brother
28 Snitch
30 Iceberg feature, figuratively in an investigation
31 Unjustified
35 10 of them are about 6.2 mi.
36 Preliminary hearing transcript, for short
38 Accepted the bait
39 Issue pink slips
40 Government collection
41 Top baseball player who had to settle tax evasion charges in the '90s
43 Like some blows
45 Tax increases
46 Bit of dirty campaigning
47 Slice some fat off the budget
50 Perfect service in court?
51 Get the facts wrong
52 Gamecocks' state
53 To taper or not to taper, first name
56 Height, for short

Tax Evasion Is Not One of the Better Crimes to Think About Committing

The Justice Department will keep working to better deter tax crimes perpetrated by small businesses, according to Kathryn Keneally, assistant attorney general for the DOJ Tax Division.

The small business owner who complies with all of his tax obligations can have a difficult time competing with business owners who do not, Keneally said September 27 during a panel on criminal tax sentencing at the Villanova Law Review Norman J. Shachoy Symposium. To level the playing field between the honest business owner and the individual who is cheating, it is important to prosecute those crimes, she said, adding that it is a priority for the Tax Division. "I felt strongly about this when I was in private practice, and I feel strongly about this now," Keneally said.

Keneally said the division is also focusing on so-called gatekeepers, the fraudulent return preparers and the promoters of abusive schemes who lead others into criminal activity. It is vitally important that the DOJ, through both its criminal enforcement and civil injunction operations, shut down those activities and communicate a consistent message that they will not be tolerated, she said. Keneally said, "We do have tools, and we are actively using those tools to go after fraudulent return preparers."

Addressing the department's budget constraints under sequestration, Keneally said the Tax Division is committed to using the money it has to find and prosecute the cases that would have a strong deterrent effect. Noting that the division's conviction rate is over 95 percent, she said, "Tax evasion is not one of the better crimes to think about committing."

The Department of Justice Considers Personal Benefit an Important Factor in Prosecuting Employment Tax Cases

Since 2008 the US economy has struggled and employers faced with the dilemma of paying employees and vendors or paying employment taxes often chose the former.  The belief is that they can always catch up.  Unfortunately I have seen many employer incur substantial tax liability for employment taxes, interst and penalties and have found themselves personally liable.

At the recent ABA meeting the Department of Justice said it will now consider whether an individual personally benefited from employment taxes that were not properly withheld or paid as a key factor in considering whether it will criminally prosecute a case.

Using the money to keep a business afloat is not a defense against criminal liability for an employer, but the DOJ is less likely to prosecute in that case than when the employer is using the funds to purchase homes, cars, and other luxury items, said Margaret Leigh Kessler, assistant chief (western criminal enforcement section), DOJ Tax Division.

Speaking during the Civil and Criminal Tax Penalties session of the American Bar Association Section of Taxation meeting in San Francisco, Kessler pointed out that no one factor is dispositive as to whether a case will become criminal. She said there are many different factors that may cause the IRS to refer a case to the DOJ for criminal prosecution, including engaging in a course of illegal conduct over a long period; taking aggressive measures to actively hide assets once the Service has determined noncompliance; and lying to the IRS agents reviewing the case.

The size of the business is not a driving factor, Kessler said. While a case involving large amounts of money may be more attractive to the DOJ, officials wouldn't be eager to prosecute it criminally if they didn't have evidence that the money was being used for personal benefit, she said. 

Those employer who use employment taxes for cars, vacation homes and the like now face not only personal liability but criminal prosecution.