US Justice Department tax attorney Stuart Gibson told a federal judge that the parties have reached an agreement on the major issues in the US litigation against Swiss banking corporation, UBS. The Swiss Justice Ministry and UBS also issued statements confirming the deal. All sides are keeping the details confidential until the settlement is finalized, which is expected to occur by August 7.
In a criminal prosecution in February, UBS admitted that it helped US citizens avoid paying taxes. As part of a deferred prosecution agreement, UBS said it would pay a $780 million penalty and disclose the identities of 250-300 US clients. Since then, 3 of those UBS clients have pled guilty to tax charges regarding secret bank accounts.
The US government filed the current litigation to force UBS to disclose 52,000 additional client names. How many names UBS will actually disclose as a result of the settlement agreement is not yet known.
Friday, July 31, 2009
Thursday, July 30, 2009
Dodging the UBS Bullet?
The IRS received 400 applications last week from United States citizens seeking to voluntarily disclose that they have money in offshore bank accounts. Four hundred applicants in one week is four times the amount of applicants who disclosed off shore account for all of last year.
The unprecedented increase in voluntary disclosure activity comes just a few weeks before a federal judge's hearing on the lawsuit filed by the United States against UBS, a Swiss company, to force UBS to reveal the identities of 52,000 Americans suspected of tax fraud. The hearing is set for August 3rd; the two governments requested a delay to allow time for settlement negotiations.
Secretary of State Hillary Clinton will meet with Swiss foreign minister Micheline Calmy-Rey tomorrow. Predictions are that UBS will agree to reveal a significant number of taxpayers, but the numbers range from 2,500 to 10,000 of UBS's targeted clients. Why so low? The United States government is likely only focused on those owing the greatest amount of taxes. Former US federal prosecutor Peter Hardy is quoted as saying that the IRS will see the effort as a failure if it receives less than 10,000 taxpayers' names. No one predicts all 52,000 taxpayers' identities will be revealed.
Switzerland has threatened to take control of the UBS client data if necessary to avert a breach in the country's bank secrecy laws. The Swiss government views the lawsuit as a challenge to Switzerland's sovereignty. Calmy-Rey states that the solution to the UBS matter must fall within Swiss law. She believes the US should respect the two governments' common interest in maintaining UBS's role as an employer within both countries.
The IRS, in the meantime, is making it as easy as possible for taxpayers with undeclared off shore assets to disclose them to the Service. The IRS has streamlined forms for application and extended the deadline for the leniency program until September 23rd. Most important, those who voluntarily disclose may qualify for a lower assessment.
Whistleblowers who know of taxpayers with undisclosed off shore accounts should contact KEMY to determine if they could qualify for a reward by reporting the undisclosed assets. Taxpayers who have been found to have hidden their assets can be forced to pay back taxes, penalties, and interest for up to six years.
The unprecedented increase in voluntary disclosure activity comes just a few weeks before a federal judge's hearing on the lawsuit filed by the United States against UBS, a Swiss company, to force UBS to reveal the identities of 52,000 Americans suspected of tax fraud. The hearing is set for August 3rd; the two governments requested a delay to allow time for settlement negotiations.
Secretary of State Hillary Clinton will meet with Swiss foreign minister Micheline Calmy-Rey tomorrow. Predictions are that UBS will agree to reveal a significant number of taxpayers, but the numbers range from 2,500 to 10,000 of UBS's targeted clients. Why so low? The United States government is likely only focused on those owing the greatest amount of taxes. Former US federal prosecutor Peter Hardy is quoted as saying that the IRS will see the effort as a failure if it receives less than 10,000 taxpayers' names. No one predicts all 52,000 taxpayers' identities will be revealed.
Switzerland has threatened to take control of the UBS client data if necessary to avert a breach in the country's bank secrecy laws. The Swiss government views the lawsuit as a challenge to Switzerland's sovereignty. Calmy-Rey states that the solution to the UBS matter must fall within Swiss law. She believes the US should respect the two governments' common interest in maintaining UBS's role as an employer within both countries.
The IRS, in the meantime, is making it as easy as possible for taxpayers with undeclared off shore assets to disclose them to the Service. The IRS has streamlined forms for application and extended the deadline for the leniency program until September 23rd. Most important, those who voluntarily disclose may qualify for a lower assessment.
Whistleblowers who know of taxpayers with undisclosed off shore accounts should contact KEMY to determine if they could qualify for a reward by reporting the undisclosed assets. Taxpayers who have been found to have hidden their assets can be forced to pay back taxes, penalties, and interest for up to six years.
Tuesday, July 28, 2009
$13 Trillion Untaxed in Offshore Accounts
Corporations, federal contractors, and well to do individuals keep approximately $13 trillion in offshore accounts according to the US Government Accountability Office. Uncle Sam wants to collect taxes on those accounts.
The federal government found that 83 of the United States's top 100 publicly traded corporations held subsidiaries in tax havens, as did 63 of the top 100 federal contractors. Recipients of federal bail out money, like Bank of America, Morgan Stanley, and Citigroup, have several offshore subsidiaries too.
Rep. Lloyd Doggett introduced the Stop Tax Haven Abuse Act in May 2009. At Doggett's side, President Obama stated that companies are taking advantage of legal loopholes by shifting profits to tax havens. The president continued, "[T]hese tax havens make our system less fair and harm the U.S. economy."
The bill targets specific countries, including Switzerland, Panama, Samoa, the Isle of Man, and the Cayman Islands, among others. The Cayman Islands Stock Exchange chairman Anthony Travers takes issue with the President's terminology. Travers states that most of the rhetoric is not about "tax loopholes" but "perfectly clear provisions of U.S. tax law."
The Cayman Islands is a British territory of about 100 square miles. Claiming the territory as home are 80,000 companies, 7,000 mutual funds, 270 banks, and 1,000 insurance companies.
Travers describes the Cayman's residents' response to the President's comments as "outrage tinged with concern" but predicts that proposed tax law changes will have "marginal to no effect" on the Islands.
The federal government found that 83 of the United States's top 100 publicly traded corporations held subsidiaries in tax havens, as did 63 of the top 100 federal contractors. Recipients of federal bail out money, like Bank of America, Morgan Stanley, and Citigroup, have several offshore subsidiaries too.
Rep. Lloyd Doggett introduced the Stop Tax Haven Abuse Act in May 2009. At Doggett's side, President Obama stated that companies are taking advantage of legal loopholes by shifting profits to tax havens. The president continued, "[T]hese tax havens make our system less fair and harm the U.S. economy."
The bill targets specific countries, including Switzerland, Panama, Samoa, the Isle of Man, and the Cayman Islands, among others. The Cayman Islands Stock Exchange chairman Anthony Travers takes issue with the President's terminology. Travers states that most of the rhetoric is not about "tax loopholes" but "perfectly clear provisions of U.S. tax law."
The Cayman Islands is a British territory of about 100 square miles. Claiming the territory as home are 80,000 companies, 7,000 mutual funds, 270 banks, and 1,000 insurance companies.
Travers describes the Cayman's residents' response to the President's comments as "outrage tinged with concern" but predicts that proposed tax law changes will have "marginal to no effect" on the Islands.
Tuesday, July 21, 2009
The IRS Can't Keep Track - Another Reason We Need Whistleblowers
The Treasury Inspector of Tax Administration recently released a report that stated the Internal Revenue Service had difficulty keeping track of tax preparers and their compliance with tax laws. The Inspector recommended new, unique identification numbers for tax preparers to use when filing their clients' returns.
The problem highlights the Service's difficulties in managing its own management systems. Information about tax preparers is stored on 22 different computer systems, and those computer systems don't integrate with each other. The IRS can't even determine the number of tax preparers, let alone assure that they are adhering to professional standards or comply with their own federal tax filing requirements.
Whistleblowers with personal knowledge of tax fraud greatly assist the Service in situations like this. The government cannot rely on its own internal systems to ensure compliance with tax laws; whistleblowers who see tax preparers engaging in fraud need to step forward. Depending on the circumstances, the whistleblower could qualify for a percentage of the government's recovery.
The Tax Inspector sampled records for 139 tax preparers and found that 67% used multiple identifying numbers. 45% of the time, their names were inconsistent. Only ten of the 139 were attorneys; two of those were members of their state bar associations. Seven of the 139 listed themselves as both CPAs and lawyers, but the Inspector could only verify that one of the 139 held both designations.
Tax preparers have been the focus of tax fraud investigations over the last several years. In the last three years, the IRS launched more than 600 investigations of tax preparers for fraud. From 2006 through 2008, 356 tax preparers were criminally convicted.
Whistleblowers who have information about tax prepares engaging in tax fraud should call KEMY for a free consultation today.
The problem highlights the Service's difficulties in managing its own management systems. Information about tax preparers is stored on 22 different computer systems, and those computer systems don't integrate with each other. The IRS can't even determine the number of tax preparers, let alone assure that they are adhering to professional standards or comply with their own federal tax filing requirements.
Whistleblowers with personal knowledge of tax fraud greatly assist the Service in situations like this. The government cannot rely on its own internal systems to ensure compliance with tax laws; whistleblowers who see tax preparers engaging in fraud need to step forward. Depending on the circumstances, the whistleblower could qualify for a percentage of the government's recovery.
The Tax Inspector sampled records for 139 tax preparers and found that 67% used multiple identifying numbers. 45% of the time, their names were inconsistent. Only ten of the 139 were attorneys; two of those were members of their state bar associations. Seven of the 139 listed themselves as both CPAs and lawyers, but the Inspector could only verify that one of the 139 held both designations.
Tax preparers have been the focus of tax fraud investigations over the last several years. In the last three years, the IRS launched more than 600 investigations of tax preparers for fraud. From 2006 through 2008, 356 tax preparers were criminally convicted.
Whistleblowers who have information about tax prepares engaging in tax fraud should call KEMY for a free consultation today.
Tuesday, July 14, 2009
Foreign Income Must Be Reported
US citizens who generate income from overseas entities must report that income and pay US taxes on it. Tax treaties between the US and foreign countries may reduce tax liability, but failure to fully report foreign income to the US government is fraud.
The IRS Whistleblower Reward program not only rewards those who report criminal tax activity; it also pays whistleblowers who report underpayment. For example, a US citizen who gains income from a business in Liechtenstein must report that income on his or her tax return and pay the proper amount of taxes. Even though the money came from another country, US citizens must still pay taxes on it. A whistleblower can report the taxpayer for failing to report the income from Liechtenstein without having to ascertain whether or not the taxpayer had criminal intent to hide the income. Underpayment reports of a particular minimum size qualify for a possible whistleblower program reward.
Those with foreign bank or investment accounts must file a Report of Foreign Bank and Financial Accounts (FBAR) with the Service in addition to reporting worldwide income. Failure to issue a correct FBAR can result in serious consequences.
The IRS defines "US citizen" as any of the following: a citizen or resident of the United States, a partnership created in or organized in the United States or under the law of the United States or of any state, a corporation created in or organized in the United States or under the law of the United States or of any state, any estate or trust other than a foreign estate or trust, or any other person that is not a foreign person.
Tax treaties may reduce federal tax liablity on certain kinds of income generated overseas. States may or may not honor US tax treaties with foreign countries, so residency in a particular state may mean that full state taxes are owed for a particular overseas income stream. Taxpayers who want to claim a reduction in tax liability must check the tax treaty for the particular country involved to see if it allows for a reduction.
The IRS encourages whistleblowers to report those who either hide foreign income or fail to report foreign investment accounts. Tax underpayments, providing the amount in dispute exceeds $2 million, can result in a reward for a successful whistleblower.
The IRS Whistleblower Reward program not only rewards those who report criminal tax activity; it also pays whistleblowers who report underpayment. For example, a US citizen who gains income from a business in Liechtenstein must report that income on his or her tax return and pay the proper amount of taxes. Even though the money came from another country, US citizens must still pay taxes on it. A whistleblower can report the taxpayer for failing to report the income from Liechtenstein without having to ascertain whether or not the taxpayer had criminal intent to hide the income. Underpayment reports of a particular minimum size qualify for a possible whistleblower program reward.
Those with foreign bank or investment accounts must file a Report of Foreign Bank and Financial Accounts (FBAR) with the Service in addition to reporting worldwide income. Failure to issue a correct FBAR can result in serious consequences.
The IRS defines "US citizen" as any of the following: a citizen or resident of the United States, a partnership created in or organized in the United States or under the law of the United States or of any state, a corporation created in or organized in the United States or under the law of the United States or of any state, any estate or trust other than a foreign estate or trust, or any other person that is not a foreign person.
Tax treaties may reduce federal tax liablity on certain kinds of income generated overseas. States may or may not honor US tax treaties with foreign countries, so residency in a particular state may mean that full state taxes are owed for a particular overseas income stream. Taxpayers who want to claim a reduction in tax liability must check the tax treaty for the particular country involved to see if it allows for a reduction.
The IRS encourages whistleblowers to report those who either hide foreign income or fail to report foreign investment accounts. Tax underpayments, providing the amount in dispute exceeds $2 million, can result in a reward for a successful whistleblower.
Monday, July 13, 2009
Government Contracts, Bid Rigging, and Whistleblower Rewards
Earlier this month, the Department of Justice announced that it was intervening in a False Claims Act lawsuit filed against SAIC, Science Applications International Corp. The whistleblower suit alleges that SAIC and three government officials colluded to award a $3.2 billion contract to SAIC to form the National Center for Critical Information Processing and Storage. Former computer scientist David Magee filed the whistleblower suit on behalf of the United States and himself.
The United States only intervenes in one out of every 3.5 False Claims Actions filed. If the action succeeds, the US Treasury will recoup lost payments and treble damages. The whistleblower could win up to 25% of what the United States recovers.
The suit alleges that David Galloway, among others, worked with government officials to narrowly construct Requests for Proposals so that only SAIC could meet the bidding requirements. The narrow construction of the RFPs made it impossible for other organizations to compete for the lucrative defense contracts.
POGO, the Project on Government Oversight, follows SAIC activity and reports that the government conducted a five year investigation of SAIC for similar activity before. Though the 2006 report found that SAIC engaged in questionable activities designed to give SAIC an unfair advantage in supposedly competitive bidding processes, no action was taken against SAIC. POGO states that the only punishment meted out by SAIC was the administrative punishment of a program manager.
SAIC responded to a Washington Post inquiry on the allegations by saying that SAIC looked into the complaints and found them without merit. The corporation says it will defend itself vigorously in court.
The government elects against pursuit of defrauders for several reasons - inability to pay, little yield when compared against investigatory expense, politics, etc. Sometimes, an FCA suit can prod the government to prioritize a fraud investigation when it would otherwise allow the complaint to gather dust on a credenza somewhere. If nothing else, the SAIC situation seems to be on its way to some much needed scrutiny.
The United States only intervenes in one out of every 3.5 False Claims Actions filed. If the action succeeds, the US Treasury will recoup lost payments and treble damages. The whistleblower could win up to 25% of what the United States recovers.
The suit alleges that David Galloway, among others, worked with government officials to narrowly construct Requests for Proposals so that only SAIC could meet the bidding requirements. The narrow construction of the RFPs made it impossible for other organizations to compete for the lucrative defense contracts.
POGO, the Project on Government Oversight, follows SAIC activity and reports that the government conducted a five year investigation of SAIC for similar activity before. Though the 2006 report found that SAIC engaged in questionable activities designed to give SAIC an unfair advantage in supposedly competitive bidding processes, no action was taken against SAIC. POGO states that the only punishment meted out by SAIC was the administrative punishment of a program manager.
SAIC responded to a Washington Post inquiry on the allegations by saying that SAIC looked into the complaints and found them without merit. The corporation says it will defend itself vigorously in court.
The government elects against pursuit of defrauders for several reasons - inability to pay, little yield when compared against investigatory expense, politics, etc. Sometimes, an FCA suit can prod the government to prioritize a fraud investigation when it would otherwise allow the complaint to gather dust on a credenza somewhere. If nothing else, the SAIC situation seems to be on its way to some much needed scrutiny.
Wednesday, July 1, 2009
IRS Modifies Anti Inversion Rules
After complaints of over-reaching in response to the anti inversion provisions of the American Jobs Creation Act of 2004, the IRS has been tweaking its approach to addressing the problem of those corporations that seek to reduce their US tax liability by inverting into a foreign corporation. The Service issued its latest set of rules under IRC Section 7874 on June 9, 2009.
What's an Inversion?
Corporate inversions occur when the US corporation decides to avoid US taxes by shifting the corporate structure to an offshore jurisdiction. First, the US corporation forms an offshore corporation; past favorite locales included Bermuda, for example. Next, the Bermuda corporation forms a domestic merger subsidiary. The domestic merger subsidiary merges with the US corporation, with the US corporation surviving. The Bermuda corporation becomes the parent corporation, and the US corporation becomes the Bermuda corporation's subsidiary. The US corporation's shareholders exchange their shares in the US corporation for shares in the Bermuda corporation. Effectively, the US corporation has swapped its parent corporation status with an offshore shell corporation to avoid US tax consequences.
Why does the Internal Revenue Service care?
The IRS cares because Congress cares. Congress has been concerned about various off shore abusive tax shelter schemes and believes that inversion transactions involving foreign "shell" or "dummy" corporations needed to be addressed. Congress is seeking ways of adjusting the US tax system so that it can keep up with US-based global companies. It's aware of the need to restructure the US tax code so that the IRS can work to overcome internally existing jurisdictional problems, and, hopefully, the path will be cleared to deal with the collection problems inherent in dealing with other countries.
What are the New Rules?
Basically, Section 7874 outlines criteria the Service would use to determine if a foreign corporation should be treated as a "surrogate foreign corporation," meaning the foreign corporation status would be ignored for tax purposes. Among other indicators, if the foreign corporation does not, post-acquisition, conduct substantial business activity in the foreign country, the parent corporation could labeled a surrogate. The Service makes its determination via a facts and circumstance test, and formerly, Section 7874 included a safe harbor to reduce some of the uncertainty surrounding that test. In the latest revision, the Treasury explicitly states that taxpayers can no longer rely on that former safe harbor provision.
Why does KEMY care?
KEMY clients blow the whistle on all types of tax fraud, including inversion schemes. With tax revenue down, the government's interest in fraud detection increases. Anyone who believes he or she has knowledge of an improper inversion scheme should contact KEMY today.
What's an Inversion?
Corporate inversions occur when the US corporation decides to avoid US taxes by shifting the corporate structure to an offshore jurisdiction. First, the US corporation forms an offshore corporation; past favorite locales included Bermuda, for example. Next, the Bermuda corporation forms a domestic merger subsidiary. The domestic merger subsidiary merges with the US corporation, with the US corporation surviving. The Bermuda corporation becomes the parent corporation, and the US corporation becomes the Bermuda corporation's subsidiary. The US corporation's shareholders exchange their shares in the US corporation for shares in the Bermuda corporation. Effectively, the US corporation has swapped its parent corporation status with an offshore shell corporation to avoid US tax consequences.
Why does the Internal Revenue Service care?
The IRS cares because Congress cares. Congress has been concerned about various off shore abusive tax shelter schemes and believes that inversion transactions involving foreign "shell" or "dummy" corporations needed to be addressed. Congress is seeking ways of adjusting the US tax system so that it can keep up with US-based global companies. It's aware of the need to restructure the US tax code so that the IRS can work to overcome internally existing jurisdictional problems, and, hopefully, the path will be cleared to deal with the collection problems inherent in dealing with other countries.
What are the New Rules?
Basically, Section 7874 outlines criteria the Service would use to determine if a foreign corporation should be treated as a "surrogate foreign corporation," meaning the foreign corporation status would be ignored for tax purposes. Among other indicators, if the foreign corporation does not, post-acquisition, conduct substantial business activity in the foreign country, the parent corporation could labeled a surrogate. The Service makes its determination via a facts and circumstance test, and formerly, Section 7874 included a safe harbor to reduce some of the uncertainty surrounding that test. In the latest revision, the Treasury explicitly states that taxpayers can no longer rely on that former safe harbor provision.
Why does KEMY care?
KEMY clients blow the whistle on all types of tax fraud, including inversion schemes. With tax revenue down, the government's interest in fraud detection increases. Anyone who believes he or she has knowledge of an improper inversion scheme should contact KEMY today.
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