Tax Problem Attorney Blog

Tax fraud penalties were recently upheld against Miguel Robleto of Oregon by the 9th circuit. These were civil tax fraud penalties pursuant to IRC Section 6663, not criminal tax evasion charges under IRC Section 7201. The difference is that although you can wind up paying a lot of money if civil tax fraud penalties are imposed at least you won't go to jail. In some cases the IRS brings criminal tax evasion charges, and then goes after you for the taxes, plus a civil tax fraud penalty. Although Mr. Robleto probably doesn't think so he may have been lucky that the IRS didn't bring criminal tax evasion charges.

The civil tax fraud penalty under IRC Section 6663 is 75% of the tax that is owed. The process of imposing the civil tax fraud penalty is a lengthy one. Generally the first step is a tax audit, sometimes followed by an appeal to the Internal Revenue Service's Appeals Division. Next the IRS will issue a notice of deficiency, after which the taxpayer may petition the United States Tax Court to decide his case. In order for the Tax Court to uphold the fraud penalty it must find clear and convincing evidence of tax fraud. That's just what happened in Mr. Robleto's case.

Mr. Robleto was a small business owner, and under the auspices of the Oregon DMV charged non-English speakers a fee for administering Oregon drivers' license exams. Although the Tax Court determined, and Mr. Robleto pretty much admitted, that he failed to report over $300,000 spread over four years his excuse was that he had never operated a business before, that he was overwhelmed by all of the customers he had, that he was totally inept in handling the financial aspects of his business, that he couldn't even pay his utility bills on time, that he had unopened envelopes of cash lying around his home, and that the filing of his incorrect income tax returns was at worst grossly negligent, but not fraudulent.

The Tax Court didn't buy it. Instead the Tax Court looked at various so-called badges of fraud including inadequate books and records, concealment of ownership of assets, cash transactions and cash hoarding. As the Tax Court so subtly put it:

Dealing in large amounts of cash and not keeping any records thereof often go hand in hand with intentional underreporting of income and taxes. Noteworthy are [Robleto's] placement of assets in nominee names and [his] lack of cooperation.

Robleto probably wasn't helped by the fact that he had a safe in his house with almost $200,000 of cash contained in it, or that he had a side business of preparing tax returns. He hired an accountant to prepare his own tax returns, but neglected to tell the accountant about the income from the preparation of the tax returns.

Continue reading "Tax Fraud Penalties Upheld First By Tax Court, Then by Ninth Circuit" »

A "tax attorney's" conviction for aiding and abetting tax evasion based on his provision of advice to the individual convicted of evading taxes and the Internal Revenue Service's ("IRS") testimony that an underpayment of $737,436 resulted. ("Tax attorney" is in quotes since although the attorney in question gave advice about how to commit 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.

Continue reading "Tax Lawyer Convicted of Aiding and Abetting Tax Evasion " »

A controversial Southern California civil rights attorney has been disbarred after being convicted on federal charges of tax evasion, bankruptcy fraud and money laundering, according to the California Bar Journal.

Stephen G. Yagman, 66, had been suspended from the practice of law since August 2007, when he was convicted of one count each of tax evasion and bankruptcy fraud and 17 counts of money laundering.

He was convicted of attempting to avoid paying more than $100,000 in federal taxes and sentenced to three years in federal prison. He also faces two years of supervised release after completing his prison sentence. Prosecutors had requested nine years behind bars. A tax attorney should be consulted as early as possible in such cases.

The government alleged that Yagman hid money and transferred his Venice Beach home into his girlfriend's name before declaring bankruptcy. He is also accused of incurring federal tax liabilities totaling more than $158,000 from 1994 to 1997, when he paid far less than what was owed, according to his own tax returns.

Prosecutors say he also failed to pay federal payroll taxes owed by his law firm, Yagman & Yagman, P.C. They say he hid more than $776,000 in various accounts and made numerous misrepresentations when he filed for both personal and corporate bankruptcy in 1999.

Yagman claimed he was targeted because of the numerous civil rights battles he had with the federal government. In 2002, he was part of a group that filed challenges to the detention of suspects at Guantanamo Bay. In the 1990s he pursued charges in connection with the case of Randy Weaver and the Ruby Ridge shooting. He often targeted the LAPD with allegations of police brutality and civil rights violations.

Continue reading "Prominent Civil Rights Lawyer Disbarred after being Convicted of Tax Evasion, Bankruptcy Fraud & Money Laundering" »

Rudolph Elmer, an ex Julius Baer executive turned over offshore bank account information to WikiLeaks today, according to Bloomberg News. According to the release, data on 2000 offshore bank accounts has been turned over, and WikiLeaks plans on making the data public; although it says it will take at least two weeks to verify the information, and release it.

We can be sure that the IRS will be reviewing that list, and seeing if Americans on it have filed timely Foreign Bank Account Reports (FBAR). Those U.S. persons who have a financial interest, or signatory authority over a foreign bank account are required to file a Foreign Bank Account Report on Form TDF 90-22.1 by June 30th of the following calendar year. Those that haven’t may find themselves the target of criminal tax fraud charges. Even if no criminal tax evasion charges are filed the IRS can impose a civil penalty which can reach 50% of the balance in the offshore account.

There may still be time for holders of Julius Baer offshore accounts to file a voluntary disclosure with the IRS in order to minimize the chances of criminal tax charges, and possible reduce the amount of the civil FBAR penalties.

If you have an offshore account at Julius Baer, or at another offshore bank feel free to contact the tax litigation attorneys at Brager Tax Law Group, A P.C. to arrange a consultation.

Since March of 2009 about 18,000 owners of offshore bank accounts have filed voluntary disclosures with the IRS. So what does FATCA mean to current holders of overseas financial accounts who have not filed FBARs (Foreign Bank Account Reports) on Form TDF 90.22-1, and who have not taken advantage of the IRS voluntary disclosure program? As pointed out previously the willful failure to file an FBAR can result in a civil penalty of 50% of the highest balance in the offshore bank account. The IRS can also bring criminal charges for failing to file an FBAR.

Many owners of Swiss bank accounts who were not at UBS decided not to take advantage of the previous tax amnesty which ended on Oct. 15, 2009 because they were afraid it would be too expensive. They hoped that the IRS wouldn’t find them, and that they would be protected by Swiss secrecy laws. Once FATCA becomes effective, however, the overseas financial institutions with agreements with the U.S. will request a waiver of the secrecy laws, and if the waiver is not forthcoming will close the account.

Why would a Swiss Bank (or for that matter a Panamanian Bank, an Israeli Bank, or Hong Kong Bank) enter into an agreement like this with the IRS? The problem may be illustrated by a hypothetical private Swiss bank which has two customers; one a U.S. taxpayer with an account of $5,000,000 and the other with a North Korean dictator which contains $500 million. If the Swiss private bank allocates 10% of the dictator’s portfolio to the U.S. stock market, and generates $5 million in dividends the U.S. companies paying the dividends will be required to withhold 30% ($1.5 million) on its payments to the Swiss bank on behalf of the Korean dictator. Guess what. Either the Swiss bank will close the account of the U.S. taxpayer, or it will enter into an agreement so that it is not subject to the withholding requirements.

Of course there will always be small foreign offshore banks which will avoid U.S. investments entirely making it possible to avoid the impact of FATCA, and maintain U.S. customers. Still it requires finding one and constantly monitoring it to make sure that its policies don’t change. It makes tax evasion much more of an active process rather than simply keeping an existing structure in place. Another problem is the continued consolidation of foreign banking institutions. Let’s assume you start out with an offshore bank account at a small foreign bank in India which makes no U.S. investments. One or two years later it gets acquired by HSBC which I am guessing will have an agreement with the IRS. Now, even if you close the account quickly you may be swept into the FATCA reporting regime.

Tax evasion is no longer for the faint of heart. It will require a whole new skill level, and constant monitoring if offshore bank accounts are to be kept a secret.

Brager Tax Law Group has consulted with hundreds of clients who have offshore bank accounts. If you have a foreign bank account, and would like to discuss your options call for an appointment with our tax litigation lawyers.

FATCA (Foreign Account Tax Compliance Act of 2009) could be one of the final nails in the coffin for offshore bank account secrecy. FATCA imposes various reporting requirements on offshore banks referred to as foreign financial institutions or FFIs. When I first heard about FATCA after it was passed in March of 2010 I didn’t pay much attention. After all the tax lawyers at Brager Tax Law Group, a P.C. don’t represent any Swiss banks or other offshore banks so who cares. FATCA, however, has the potential to seriously disrupt bank secrecy and to bring individuals who currently maintain offshore bank accounts to the attention of the IRS.

In its simplest terms FATCA requires a 30 percent withholding tax on any "withholdable payment" made either to an FFI (e.g. an offshore bank) or certain other entities if it fails to comply with new reporting, disclosure, and related requirements. "Withholdable payment" includes U.S. source interest, dividends, rents, salaries, wages, premiums, annuities, compensation, as well as any gross proceeds from the sale or other disposition of property that can produce U.S. source interest or dividends.

Under the new requirements which are effective January 1, 2013 the 30% withholding applies unless the FFI enters into an agreement with the IRS to:

• Obtain information from each account holder as is necessary to determine which accounts are "U.S. accounts";

• Comply with verification and due diligence procedures (to be prescribed by the Secretary) with respect to the identification of U.S. accounts;

• Report annually certain information related to any U.S. account maintained by such institution;

• Deduct and withhold 30 percent on certain pass thru payments5 made to the benefit of an account holder that refuses to provide the required information (a "recalcitrant account holder");

Attempt to obtain a waiver in any case in which any foreign law would (but for a waiver) prevent reporting of information under the provision related to any U.S. account maintained by such institution and, if a waiver is not obtained, to close the account.

Under the agreement the offshore financial institution will provide:

• The name, address and taxpayer identification number ("TIN") of each account holder that is a specified U.S. person;

• The name, address and TIN of each substantial U.S. owner of any account holder that is a U.S. owned foreign entity;

• The account number;

• The account balance or value (as specified by the Secretary); and

• The gross receipts and gross withdrawals or payments from the account (as specified by the Secretary).

Alternatively the offshore bank could file Forms 1099 with the IRS. In any event more U.S. holders of foreign bank accounts will become known to the IRS in the near future. For more about how and why stay tuned for FACTA Impacts Offshore Bank Accounts (Part II).

If you haven’t filed FBARs and would like to discuss your options make an appointment with one of the IRS trained tax lawyers at Brager Tax Law Group, a P.C.

In mid-October the IRS filed a summary judgment motion seeking FBAR (Foreign Bank Account Report, Form TDF 90-22.1) penalties of over $225,000 for a civil failure to file an FBAR. This is only the second civil FBAR case that I am aware of which didn’t involve an underlying non-tax crime. According to District Court documents Jon McBride held offshore accounts totaling in excess of $1,000,000. The case was filed in Utah in April of 2009, but the IRS had assessed the FBAR penalties about 18 months earlier. The facts, at least as recited by the IRS in its motion, are problematic for the defendant. Allegations include:

* Offshore Entities Set Up by a Firm which in its brochures specifically advised of the requirement to file an FBAR

* Funneling of Corporate Earnings Back to McBride and Others through the Use of Loans and Other Devices

* McBride was advised by a Financial Consultant in writing that the Use of the Offshore Entities were Problematic, and gave him an article describing offshore bank scams.

* McBride’s accountant provided a declaration that he had “discussed the FBAR filing requirement” and asked whether McBride had any offshore accounts.

* When questioned by an IRS Revenue Agent about offshore accounts McBride denied using them.

Sounds like McBride will have a tough time of it, although he hasn’t yet filed his opposition papers so we don’t know about his side of the story.

If you have offshore financial accounts, and are considering a voluntary disclosure contact the tax litigation attorneys at Brager Tax Law Group, A P.C.

Last month the IRS lost a case (United States v. J. Brian Williams) in which it tried to impose the 50% penalty for willfully failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR). This appears to be the first case that has gone to court on FBAR penalties which did not involve someone who was also being charged with drug or other serious criminal charges, other than tax charges. J. Bryan Williams had already been convicted of tax evasion, and the IRS then brought as civil law suit to collect the FBAR penalty since Williams had failed to file FBARs. The IRS relied on the tax fraud conviction, and the fact that on his federal income tax return Mr. Williams had checked the box on Schedule B stating that he did not have an interest in a foreign financial account.

The judge rejected these contentions stating that “…the Government fails to differentiate tax evasion from failing to check the box admitting the existence of a foreign bank account.” The court also noted that “a taxpayer’s signature on a return does not itself prove his knowledge of the contents, but knowledge may be inferred from the signature along with the surround facts and circumstances.”

The case is good news for those taxpayers who have entered the voluntary disclosure program, and are now believe that the FBAR penalty that the IRS seeks to impose is too high.

On the other hand it’s important to note that in the Williams case, by the due date of the FBAR Mr. Williams’ Swiss Bank accounts had been frozen by the Swiss government, the IRS knew that the accounts had been frozen, and Mr. Williams knew that the IRS knew that the Swiss bank accounts had been frozen. Thus the argument went that Williams had no motivation not to file the FBAR because the IRS already knew about the accounts. It will be the unusual case where this type of factual scenario exists, and therefore the IRS will probably argue that Williams is distinguishable.

If you haven’t filed your FBARs and don’t know what to do call the tax attorneys at Brager Tax Law Group, A P.C. for a consultation.

In February I noted that two clients with offshore bank accounts at HSBC had been indicted for FBAR (Foreign Bank Account Report) violations and related tax evasion charges. Last week Clare Baldwin reported through Reuters news service that some tax attorneys had been contacted regarding their clients’ undisclosed foreign bank accounts held at HSBC. Apparently letters had come from Department of Justice prosecutor Kevin Downing who has been taking the lead in FBAR prosecutions notifying the tax lawyers that their clients were the target of a criminal tax investigation by the IRS. HSBC moved quickly to distance itself from its clients. A spokesman for HSBC was quoted in the same Reuters article as saying that HSBC “fully supports government moves for appropriate disclosure by its citizens" and "does not condone or assist tax evasion.”

A few days ago Lynnley Browning of the New York Times quoted anonymous sources that;

At least two American clients of HSBC, which is based in London, are aiding federal prosecutors by turning over account details, names of bankers and internal memorandums and other confidential documents regarding HSBC’s offshore private bank, according to one person briefed on the matter.

If the UBS criminal tax prosecution is any guide, this means that over the course of the coming months HSBC will be handing over its clients’ names and account records to the IRS ; at which point they will face the prospect of tax evasion charges, and stiff civil penalties which can range to more than 50% of the balance in the offshore bank accounts.

Clients who have foreign bank accounts at HSBC may still be able to avoid criminal tax evasion charges by taking advantage of the IRS voluntary disclosure policy, and coming forward, but it is clear that time is running out.

If you would like to consult with an experienced tax litigation attorney regarding FBARs, voluntary disclosure, or other tax problems contact the tax lawyers at Brager Tax Law Group, A P.C.

UBS Swiss Bank account owners who did not make a voluntary disclosure to the IRS last year breathed a sigh of relief when the lower house of the Swiss Parliament voted against amending the U.S. Swiss Tax Treaty to allow the handover of the names of U.S. holders of Swiss bank accounts who are suspected of tax evasion by the IRS. The story has more twists and turns than a John Grisham novel, most of which I have previously blogged about. To summarize briefly:

• A report by a disgruntled ex-employee of UBS led to the indictment of Bradley Birkenfeld a former UBS Swiss banker. Revelations by Birkenfeld led in turn to the indictment of UBS which paid 750 million dollars to the IRS to settle the criminal case. UBS turned over the names of 250 holders of offshore bank accounts.
• 150 of these UBS Swiss bank account owners are under active investigation by the IRS Criminal Investigation Division (CI), and the tax attorneys at the Department of Justice
• Approximately 10 individuals (including some at banks other than UBS) have already pled guilty to various charges including the filing of false documents, failure to file an FBAR, and tax fraud
• The IRS filed a John Doe summons demanding from UBS the names of all its clients who were U.S. citizens or residents
• In high level diplomatic negotiations the case was settled with UBS agreeing to turnover the names of approximately 4,450 UBS Swiss bank account owners.
• A decision by a Swiss Court earlier this year ruled that certain accounts could not be turned over under Swiss law despite the agreement with the IRS
• On June 3rd the upper house of the Swiss Parliament ratified a Treaty amendment which would overturn the Swiss Court decision

Although the Swiss lower house refused to ratify the Treaty amendment things are not over yet. The Swiss lawmakers are expected to go back to the bargaining table to see if the issue can be resolved. Further developments are expected by June 18th—the end of the Swiss parliamentary session.

If you have an offshore financial account, whether it is a Swiss bank account, or an offshore account in another country call the tax litigation lawyers at Brager Tax Law Group, a P.C. to find out about your options.

A couple of weeks ago I was at the ABA Tax Section Meeting which as I mentioned previously gathered tax lawyers from around the country. Since I spent most of my time at meetings involving FBARs (Foreign Bank Account Report TD F90-22.1), I missed another meeting. It turns out that (according to published reports) Janet Johnson, the Internal Revenue Service deputy division counsel for criminal tax stated that that the IRS Criminal Investigation (CI) unit would subpoena accountants in criminal tax cases. By itself that’s hardly surprising since criminal tax attorneys have known for many years that IRS special agents routinely interview the tax preparer, and the accountant can wind up as the lead witness against his own client.

The part that was surprising was that she stated the government would issue a grand jury subpoena even to a Kovel accountant, i.e. one that was retained by a tax attorney for the purpose of assisting the tax attorney in advising the client.

In an ominous note Johnson stated , “Whether or not that accountant comes to testify can be very serious for the accountant. The grand jury may decide he is part of the problem.”

If you have a tax problem, or are a CPA who has a client with a tax problem feel free to contact the tax lawyers at Brager Tax Law Group, A P.C. for a consultation.

I just returned from an ABA meeting of tax lawyers in Washington, D.C. It seemed like all of the tax attorneys (or at least the tax litigation attorneys) could find nothing to talk about, but Foreign Bank Account Reports, i.e. TDF 90-22.1 (FBARs),voluntary disclosures, and offshore bank accounts. Over a period of two days I spend at least 8 hours in formal meetings with other tax lawyers talking about FBARs, and more hours over drinks and food talking about FBARs. The main theme was that the rules surrounding tax amnesty are being enforced more harshly than many tax attorneys had hoped would be the case. A few highlights of what I heard, the good, the bad, and the ugly:

• 225 revenue agents have been assigned to conduct civil tax audits in voluntary disclosure of offshore bank account cases
• IDRs (Information Document Requests) can be expected in most offshore bank account cases within the next few weeks
• The goal of IRS management is to close a “substantial portion” of the tax audits by the end of 2010
• IRS has started to identify taxpayers who made quiet voluntary disclosures of their offshore bank accounts, and these cases will be worked as “full blown” civil tax audits—meaning these taxpayers are potentially subject to multiple 50% FBAR penalties
• It is too soon to tell how post Oct. 15th voluntary disclosures will be treated for civil tax purposes—speculation continues to center on 25 to 35 per cent
• IRS has rolled out a “third generation” IDR which the IRS believes is more streamlined
• Basis issues will be negotiable, i.e. if basis information is unavailable revenue agents will likely accept reasonable alternatives, e.g. value security as of 1/1/2003
• Even if a timely 2008 FBAR was filed, if the highest offshore bank account value was in 2008, the 20% penalty will be calculated based upon 2008 value
• Revenue Agents do not “currently” have the authority to waive de minimus violations – there is no such thing as being half pregnant.

If you have a foreign financial account call the tax litigation lawyers at Brager Tax Law Group, A P.C. to get more information on voluntary disclosures and FBARs.

In a move designed to remind people of their duty to report offshore bank accounts and file Foreign Bank Account Reports (FBARs), federal prosecutors are beginning another wave of UBS tax evasion prosecutions just ahead of the April 15 tax-filing deadline. This newest wave reportedly includes accounts significantly larger than in previous cases. One tax lawyer has been quoted as saying that his client’s Swiss bank account held between $10 and $50 million.

In a separate announcement on Monday, April 5th, IRS Commissioner Doug Shulman said the IRS is still sifting through 15,000 records on foreign bank accounts that it received from individuals who took part in the IRS tax amnesty program. The IRS is looking for patterns in the records to identify other offshore banks and advisors that helped individuals hide funds in foreign financial accounts, and may have committed tax fraud. That area will be “the next wave” of the investigation, according to Shulman. Some tax attorneys have speculated that HSBC and Credit Suisse are the next ones on the IRS hit list.

Although the IRS tax amnesty program for unreported offshore income ended in October, it is not too late to make a voluntary disclosure of your offshore bank accounts, and possibly avoid criminal tax fraud charges. For more information contact the tax attorneys at Brager Tax Law Group, A P.C.

The Internal Revenue’s (IRS ) tax lien filing polices were in the Taxpayer Advocate’s 2009 Report to Congress listed as the second most serious tax problem facing taxpayers today. This is not a big surprise to those tax lawyers who deal with IRS tax collection problems on a regular basis. I often tell clients that the most difficult objective is to try and get the IRS to release a tax lien prior to making full payment of a delinquent tax liability.

The Taxpayer Advocate’s Report details how the IRS files tax liens without regard to whether or not the taxpayer has assets, and despite the fact that in many instances the filing of a tax lien does not protect the IRS, and only exacerbates the taxpayer’s inability to pay. The Report also points out that the Internal Revenue Manual puts obstacles in the path of their employees who decide not to file a tax lien-- requiring managerial approval, and documentation of any decision not to file a tax lien.

One would only hope that the IRS tax Collection Division takes serious note of the criticisms by the Taxpayer Advocate, and that it not continue to file tax liens as method of punishing taxpayers; however, the IRS responses to the Report make clear that Congressional action will be necessary for any significant tax lien relief.

Taxpayers with tax problems must therefore continue to explore other avenues of relief including offers in compromise, installment payment agreements, audit reconsideration, and bankruptcy to resolve their tax problems.

If you have tax problems call the tax lawyers at Brager Tax Law Group, Inc. for a consultation.

UBS has agreed to reveal the names and account information of 4,450 U.S. persons who are owners of UBS Swiss bank accounts who the Internal Revenue Service (IRS) believes have committed tax fraud. Clearly Swiss bank secrecy has more holes than Swiss cheese. The names will be revealed under the following procedure. UBS will notify its customers who are on the list that their names are to be turned over to the IRS. Those Swiss bank account owners who believe that doing so is in violation of Swiss law will be entitled to a decision from the Swiss Federal Tax Authority (SFTA) as to whether the turnover is legal. The Swiss have committed to processing any requests by the IRS so that the first 500 UBS Swiss bank accounts will be turned over within 90 days of the formal request by the IRS to the Swiss, and the last of the Swiss bank account names are to be turned over within one year.

Of course the names of who is on the list has not been disclosed, nor have the criteria for which Swiss bank accounts will be on the list been revealed. No such information is expected for 90 days. Clearly the intent is that some of the Swiss bank account owners who are not on the list, but don’t know they are not on the list will be motivated to participate in the IRS tax amnesty program which closes September 23rd.

Our tax attorneys are counseling many clients on the ins and outs of the IRS voluntary disclosure program. If you have a foreign bank account, and are interested in finding out more, please contact the tax litigation lawyers at Brager Tax Law Group, A P.C.