January 2012 Archives

Swiss Bank Clariden Leu to Turn in Its U.S. Clients

January 26, 2012,

In a little noticed development, Switzerland's oldest private bank Clariden Leu has informed some of its U.S. clients that it has been ordered to turn over their names, and offshore bank account information to the IRS. Clariden Leu posted a notice on its website dated Nov. 29, 2011 to that effect. This is bad news for U.S. offshore account owners who have not previously made a voluntary disclosure to the IRS. Such individuals run the risk of the IRS filing criminal tax fraud charges against them, or criminal charges related to willful FBAR violations. Alternatively, only civil tax fraud or other penalties may be involved, but the FBAR penalties alone could far exceed the balances in the offshore accounts.Thumbnail image for hourglass.jpg

The notice refers to a U.S. treaty request apparently covering U.S. beneficial owners of beneficial accounts at Credit Suisse AG, Neue Aargauer Bank AG, and Clariden Leu. Also in November Credit Suisse announced that it is in the process of integrating Clariden Leu's operations into Credit Suisse. The treaty request appears to be limited to U.S. account holders who hold their accounts through "domiciliary companies."

The notice also points out that although the account holders have appeal rights to the SFTA (Swiss Federal Tax Authority) attempts to block the turnover of information to the IRS may require compliance with 18 USC Section 3506. That section provides that:

"...any national or resident of the United States who submits, or causes to be submitted, a pleading or other document to a court or other authority in a foreign country in opposition to an official request for evidence of an offense shall serve such pleading or other document on the Attorney General at the time such pleading or other document is submitted."

The notice correctly observes that anyone in this situation should consult with a qualified attorney concerning any obligations under Section 3506.

Obviously serving the Attorney General would defeat the whole purpose of filing an appeal with the SFTA since the owner of the account would then become known to the IRS. Interestingly 18 USC section 3506 does not on its face appear to provide any sanctions for failure to obey its terms. However, at least one federal prosecutor has publicly stated that he would seek to charge anyone violating 18 USC section 3506 with obstruction of justice.

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California State Board of Equalization (BOE) Continues Offensive Against Medical Marijuana Dispensaries

January 20, 2012,

The California State Board of Equalization (BOE or SBE) announced almost one year ago that medical marijuana dispensaries are not exempt from collecting and paying California sales tax. The announcement resulted from a hearing before the BOE involving Berkeley Patients Group. In that case the BOE decided that medical marijuana was not exempt from sales tax as a medicine. The decision was not surprising in light of a previous notice issued by the BOE that medical marijuana dispensaries were not exempt from collecting and paying sales tax.

Fast forward one year later. Our tax attorneys are fielding inquiries from a number of medical marijuana dispensaries who are undergoing sales tax audits by the BOE. The M.O. of the BOE seems to be to stand at a discrete location outside of the clinic, and count the number of people coming in the door per hour. The Board then compares that to the clinic's records of the number of patients, and if there is any discrepancy it calculates the value of an average "sale," multiplies that by the number of alleged unrecorded patients per day, and projects that amount over a (generally) three year audit period.

Of course this projection by the SBE is rarely accurate, and fails to take into account a number of reasons that the dispensary's records don't match. For example, discrepancies can exist because:
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1. Not everyone who comes into the clinic is a member, or actually fills his prescription
2. The number of patients entering the clinic on the particular day that the BOE is counting may be higher than average because the clinic was having a good day
3. The BOE may be using an inaccurate sale price which results in an overstatement of receipts.


There are many other reasons why the BOE estimates can be inaccurate. Luckily there are many avenues for appeal of a BOE determination. However, an ounce of prevention is worth a pound of cure, and proper tax representation during the initial sales tax audit may prevent problems from arising. Information on sales tax audits and sales tax appeals in general is available on our website, click here to view. Managers of medical marijuana cooperatives and collectives should also be aware that if the BOE determines that sales tax is due and the dispensary fails to pay they could be personally liable pursuant to California Revenue and Taxation Code Section 6829.

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Innocent Spouse Relief Gets A Bit Easier in IRS Notice IR 2012-8

January 13, 2012,

In IRS Notice IR 2012-3 the IRS announced that innocent spouse defenses pursuant to IRC Section 6015(f) will become a little easier. Generally there are three different kinds of innocent spouse defenses, each with its own rules and exceptions. IRS Notice 2012-8, which somewhat confusingly was announced in IRS Notice IR 2012-3, sets out a proposed new Revenue Procedure which will supersede Revenue Procedure (Rev. Proc.) 2003-61. IRS Notice 20012-8 addresses the criteria used in making innocent spouse relief determinations under the equitable relief criteria of Internal Revenue Code Section 6015(f). The IRS Notice covers several topics. It provides for certain streamlined determinations; it creates new guidance on the potential impact of economic hardship, and the weight to be accorded to certain facts in determining equitable innocent spouse relief. Importantly it also expands how the IRS takes into account abuse and financial control by the nonrequesting spouse in deciding whether to grant equitable relief.

The IRS is inviting comments on the forthcoming proposed Revenue Procedure. The comments must be submitted by February 21, 2012.

One important change is that under Rev. Procedure 2003-61, which previously provided guidelines for equitable innocent spouse determinations, lack of economic hardship was treated as a factor which weighed against granting equitable innocent spouse relief. Now if economic hardship exists that is still a factor which weighs in favor of granting innocent spouse relief. However, the lack of economic hardship will no longer be counted against a requesting spouse. Instead it will be treated as neutral.

Another significant change is that the proposed revenue procedure provides that abuse or lack of financial control may mitigate other factors that might weigh against granting equitable relief under IRC Section 6015(f). For example, even though a requesting innocent spouse has knowledge or reason to know of omitted income on a tax return if the nonrequesting spouse abused the requesting spouse or maintained control over the household finances by restricting the requesting spouse's access to financial information, and, therefore, because of the abuse or financial control the requesting spouse was not able to challenge the treatment of any items on the joint return for fear of the nonrequesting spouse's retaliation, then that abuse or financial control will result in this factor weighing in favor of relief even if the requesting spouse had knowledge or reason to know of the items giving rise to the understatement or deficiency.

In the end, however, the granting of innocent spouse relief is based upon all of the facts and circumstances. Only by discussing your case with a knowledgeable tax litigation attorney can you determine if you are likely to prevail.

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