Entries Tagged 'Tax evasion' ↓

From the TaxProf blog, a quick post noting that UBS is not the only target anymore — Credit Suisse and HSBC are getting scrutiny from the IRS as well.

I have worked with all of these banks.  I guess I must have missed the pirates at each of these places, because my experience has been that we did things right and turned square corners. Their internal auditors were active, asking for backup information on various items.  So again, if evil lurks at these institutions I haven’t seen it.

My theory is that secrecy doesn’t exist.  For instance, only a mug would rely on bearer shares or nominee shareholders and directors.

Do you think you can really rely on a stranger — on another continent — who is getting paid $250/year (or $2,500/year or whatever amount of money you care to pay) will keep a secret?  A secret that might put you in jail if revealed?  Goodluckwiththat.

Do your planning with the expectation that everything will be on the table in front of a skeptical and unfriendly bureacrat at some point.

Keep it clean.  Great wonders can be done within the four walls of the Internal Revenue Code.

The IRS published the latest in its missives assailing the infernal international tax gap, this one about reporting gifts received from foreign sources.

Translation: file that Form 3520 (PDF).

Minimums? Receiving $100,000 or more from an individual, or $13,528 or more via an entity (like a corporation or partnership).

Instructions to Form 3520 (PDF).

There are two messages here. The immediate message is to remind you of what has to be done for calendar year 2008.

The meta-message is to treat this as a sign. It foreshadows an inevitable enforcement campaign by the U.S. tax authorities. So take care of things now while you can.

Got off the phone with an unnamed Swiss gentleman who is in the banking and trust company business. Flat out refuses to touch any business involving a U.S. citizen. Reports he gets several calls a week about this.

Current political and tax trends in the United States can only be described as isolationist and protectionist in result. I am not speaking of anything overtly political. I’m just saying that capital flows are being and will continue to be hindered, to the detriment of the U.S. economy.

Undeclared foreign bank accounts.

It’s a common question.  “I have this foreign bank account, but I haven’t been declaring it by filing Form TD F 90-22.1.  [PDF] What should I do?”

The short answer is clean it up.  All of it.

First things first.  Form TD F 90-22.1 is commonly known as an FBAR, for Foreign Bank Account Report.

The Treasury Department [warning: video] is announcing that it is ready to pounce.  You’d be a damned fool to delay cleaning up your wreckage.

The next question is “But what about the penalties?”

Yep, the penalties are massive.  And for extra spice and excitement, they can throw you in jail, too.

Up to now my experience has been that people who voluntarily file the required forms–even if they are years late–haven’t had penalties imposed.

Tax Notes Today (Lexis cite is 2008 TNT 219-3) has another report from last weekend’s California Tax Bar and California Tax Policy Conference session in San Francisco.   Luis Tejeda, an IRS fraud technical supervisor, spoke and confirmed what many of us have suspected.  The article says:

FBAR filings have surged to nearly 400,000 a year, Tejeda said, in part because of increased voluntary compliance with publicity about the government’s interest in the UBS and Lichtenstein cases. “We want taxpayers to come forward voluntarily, first of all,” he said. In most cases, IRS review in Detroit of filed FBARs does not lead to further investigation by compliance employees, he said. “What we’re really concentrating on is those that do not come forward,” Tejeda said. An increasing number of taxpayers are coming forward with information as a result of the IRS’s efforts at “turning the tide around” in international enforcement, he said, because U.S. taxpayers realize the IRS can get that information from many more sources now.  [Emphasis added].

No guarantees.  But coming forward and cleaning things up is the best indicated strategy and gives you the best chance at no penalties or at least reduced penalties.  It’s either that or live with stress.  Or, I guess, you can run away to Panama.

Life’s too short.  (That is secret code for “You are going to die someday so don’t be dumb.  It’s just money.”)

In the classic and time-honored game of “Big guy beats up little guy” the United States looks likely to start squeezing small tax haven countries next year.  President-elect Obama is promising blacklists and other devices against countries that we use to set up foreign trusts and corporations.

The Guardian reports that a new bill will be introduced within weeks of Mr. Obama taking office.

Key measures are likely to include: revealing the beneficial owners of secretive trusts; prohibiting accountants from charging fees on specific tax services; and identifying ‘offshore secrecy jurisdictions’ that ‘unreasonably restrict US tax authorities from obtaining needed information’. The measures could end years of financial secrecy that have protected the super-rich and international businesses as they move money from one jurisdiction to another.

If you do your tax planning with an eye on transparency, you’ll be fine.  Everything we set up is something you could plop down in front of a grumpy career governmento.  Secrecy simply doesn’t work.  Confidentiality is fine, but be prepared to reveal and report as appropriate.

The small countries are notably (and correctly) worried about the economic impact.  Isle of Man.  Cayman Islands.  Bermuda.  I’m sure there are more I could find.   But you get the drift.

I’m troubled by this trend.  I am seeing a consistent pattern of big countries abusing smaller countries (see Germany and Liechtenstein as a particularly egregious recent example).  This has happened since national borders were invented, and is just playground bully behavior on a grand scale.  It’s not going to change.  Ever.  Tax policies.  Tariffs.  Soldiers.  U.S. history is full of this behavior.  Let’s just stipulate to the sad fact that this will continue long after you and I die.

What’s troubling is the trend of persistent invasive governmental behavior.  I fear over the long run this will mean collateral damage to other individual liberties.

Memo to all personnel:  re-acquaint yourselves with the Law of Unintended Consequences.

Here’s the Intended Consequence stuff that’s easy to see:  for those of you with complex financial situations, expect more tax forms to file, more revelations to give to the U.S. government, more expense for lawyers and accountants, and more tax to support the U.S. government.  Expect more prosecutions, Government Careers Advanced, etc.

Yet another indication that people with undisclosed foreign bank accounts should expect a trip to the pain factory.

Last weekend’s annual meeting of the California tax bars (I have spoken at this conference several times) had a visit from Nathan Hochman, Assistant Attorney General, and head of the Tax Division at the Justice Department.  I don’t know him, but I know a number of the people at the Beverly Hills law firm he left in order to join the Justice Department.  Good people, all of them.  I’m sure he is, too.

Mr. Hochman’s comments were reported in today’s Tax Notes Today. He noted that exempt organizations with undisclosed foreign bank accounts should see prosecutions starting in 2009.

From Tax Notes Today:

In building a criminal case, the government looks for a pattern and “simple, provable lies,” Hochman told a meeting of the California Tax Bar and California Tax Policy Conference in San Francisco on November 7. For that reason, failure to acknowledge interest in or a signature or other authority over a financial account in a foreign country on Schedule B of Form 1040 or on Form 990 will be “a wealth of bases for criminal prosecutions,” he said.

E-mail is another rich source of material for prosecutors. Electronic communications are difficult to track, Hochman said, but “every time you push ‘delete’ is another act of concealment” subject to criminal prosecution.

In selecting cases to prosecute, the Justice Department is “going to be looking for cases to make a large deterrent statement,” Hochman said. The department will “look to leverage every case to ensure honest people understand there are consequences when you don’t do it properly and don’t feel like schnooks for doing it properly.”

FBAR case selections may seem unfair or arbitrary, but “‘Why me?’ has never been a constitutional argument,” Hochman said.

Juries do not struggle with convictions on tax violations, Hochman warned. He speculated that because they embrace the logic that the government uses their tax dollars to subsidize exempt activities, many jurors become angry with noncompliant organizations.

It’s not too hard to see where all of this is going.  The government hands out money like a drunk hands out candy on Halloween.  The government needs more money.  Money comes from people.

It’s easy to tax people who are not like you.  It’s easy to beat people up who you think must be up to no good.  “If you’re not guilty, why were you arrested?” == “If you are using a foreign bank, you must be a tax evader”.  Both are easy sales to the average voter.

Slashdotters will see the formula clearly:

1. Identify a group of people sufficiently different from the general voter populace — people we can tax into oblivion.
2. Make the rules they have to follow complex and hidden, with giant penalties for noncompliance.
3. ????
4. Profit.

I think we all know what Step 3 is.  Careers Must Be Advanced, etc.

Recommendation: clean up your act.  File the forms.  Repent.  Empty your wallet.

It’s Form TD F 90-22.1 (PDF) you’ll need, bucko.  Start there.  Maybe other stuff applies to you too, depending on what you’ve got, where, and how much.