Lawsuits test UBS advice on offshore bank accounts

* US clients allege Swiss bank failed to advise properly

* Lawsuits charge asset bankers have legal obligation to clients

The case of a wealthy U.S. businessman who pleaded guilty to evading taxes but then sued the Swiss bank where he hid his money is scheduled to go to trial on May 8, the first major test of civil legal challenges to Swiss banks that sold offshore private banking services to help Americans evade taxes.

The civil suit, filed against UBS AG in federal court in Santa Ana, California - and another filed against UBS in federal court in Chicago - will probe whether clients can legally rely on their private bankers' assertions there is no need to disclose the accounts on their tax returns or sign required disclosures.

Lawsuits test UBS advice on offshore bank accountsreuters.com

Sixth Circuit Affirms Conviction for Failure to File

U.S. v. MAGA

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,

v.

DOMINIC JOSEPH MAGA, DEFENDANT-APPELLANT.

No. 10-4008.

United States Court of Appeals, Sixth Circuit.

Filed April 4, 2012.

Before: COOK, WHITE, and DONALD, Circuit Judges

Defendant-appellant Dominic Joseph Maga appeals a jury verdict finding him guilty of failing to file income tax returns. He contends that the trial proceedings violated his Sixth Amendment right to confrontation, that the district court erroneously denied his motion for acquittal, and that the district court abused its discretion in denying his motion for a new trial. For the reasons that follow, we affirm.

I. Background

Several years ago, Maga obtained copies of his "individual master file" transcript (also known as an "IMF transcript" or a "specific transcript"), a technical record that the IRS uses to keep a running account of all of a person's tax events—e.g., penalties assessed, refunds owed, refunds issued, and interest. He noticed that the code "MFR-01" appeared on each of his IMF transcripts. Unsure of the meaning of this code, he wrote to the IRS about it. An IRS disclosure officer replied via letter that the code meant "1040 not required." Based on this letter and his reading of IRS manuals on the Internet, Maga claims he interpreted the code to mean that he was "not required" to file any returns.

The IRS's records revealed that Maga stopped filing tax returns in 1996, years before he received the letter from the disclosure officer. When the IRS sent a levy notice, Maga requested a collection due-process hearing, purporting that he did not need to file tax returns.

A grand jury indicted Maga for failure to file a federal income tax returns between 2002 and 2006—five counts in all. It also indicted Maga for four counts of tax evasion.

Central to Maga's arguments on appeal is the government's preparation of his official tax transcripts for use at trial. These transcripts, also known as Form 4340s, document in lay terms the same information contained in an IMF transcript.

At trial, the prosecution called IRS employee John DePowell to explain how he generated and certified Maga's official tax transcripts. DePowell testified that he became involved in Maga's case when a special agent from the IRS Criminal Investigative Division asked him to obtain Maga's Form 4340s. According to DePowell, he first cross-referenced the social security number that the agent gave to him with the Social Security Administration to confirm that it belonged to Maga, then generated the Form 4340s by accessing the IRS master file remotely and printing them out at his desk. After verifying the accuracy of the Form 4340s against the data on the computer, he presented his findings to Resident Agent-in-Charge Martha Williams for further verification. Williams signed the certification at the end of each of the transcripts and DePowell affixed the seal. On the witness stand, DePowell identified the Form 4340s he generated and their accompanying "certificates of official record," observing that the Form 4340s revealed no record of Maga filing a tax return for the years 2002, 2003, 2004, 2005, and 2006.

After the prosecution rested, Maga objected to the admission of the Form 4340s and their certificates and moved for acquittal. The trial court denied the motion without comment. In his closing argument, Maga maintained that he did not willfully fail to file the tax returns because he could not have known from publicly available information that the IRS letter's explanation, "1040 not required," referred to the IRS's obligation to mail tax return forms, rather than his obligation to file tax returns. See 26 U.S.C. § 7203 (requiring proof of willfulness as element of "failure to file tax return" offense).

The jury returned a guilty verdict for the five counts of failure to file a tax return and acquitted Maga of the four counts of tax evasion.

V. Conclusion

In short, Maga drew from public sources to create an interpretation that no one shares—or in the prosecution's words, a "secret" interpretation. The mere fact that Maga used public sources in this interpretive process does not shield the resulting misinterpretation from skepticism. The district court did not plainly err in refusing to grant a new trial on this ground.

IRS Launching Second Wave of Investigations of Banks and Intermediaries

The Internal Revenue Service is launching a second wave of investigations on banks, bankers, intermediaries, and taxpayers as it continues to mine information it receives on offshore assets through its voluntary disclosure program, IRS Commissioner Douglas Shulman said April 5.


“We have fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes,” Shulman said in his speech at the National Press Club.


The agency already has collected more than $4.4 billion through its Offshore Voluntary Disclosure Initiative (OVDI), which allows taxpayers to come in and report their overseas assets to IRS in exchange for penalties and the chance to avoid criminal prosecution, Shulman said.


Shulman said IRS also is upping its game in the large business arena, with a particular focus on international tax issues. “We are shifting our international approach to be more strategic, and to view taxpayers through the prism of their business objectives and tax planning strategies,” he said. The commissioner added that the agency's compliance strategy “is starting to mirror the corporation's tax planning strategy.”

Shulman Leaving IRS at End of Term in September.

Internal Revenue Service Commissioner Douglas Shulman said April 5 that he will leave his post as the agency's top official when his five-year term of office ends in September 2012.

In a speech at the National Press Club, Shulman said IRS has made major progress on priorities such as creating new capabilities and efficiencies through technology, rethinking IRS's relationship with paid tax preparers, enhancing taxpayer service, confronting the challenges of a global economy, and positioning the IRS workforce to make sure the agency is prepared for the future.

“My plan is to leave at the end of this term,” Shulman said. He called his agency “a great institution” that will continue to serve millions of American taxpayers well.

IRS Preparing for the Future - Remarks From the Commissioner of Internal Revenue Douglas H. Shulman

IR-2012-42, April 5, 2012

WASHINGTON ― As IRS Commissioner, I am the head of a 100,000 employee financial services institution that processes over $2.5 trillion annually for over 200 million individuals, businesses, and non-profits.

So today, I wanted to share with you some of the results of four years of relentless focus on a handful of strategic priorities we set for the IRS. The priorities are:

• Creating new capabilities and efficiencies through technology • Rethinking and reimagining the IRS’s relationship with paid tax return preparers
• Leveraging data analytics for continuous improvement • Enhancing our taxpayer service capabilities
• Transforming the agency to confront the challenges of a global economy, and
• Positioning the IRS workforce to make sure that we are prepared for tomorrow’s challenges.

Let me begin with our efforts to modernize our technology, and one critical program in particular that’s called the Customer Account Data Engine – or CADE2.

I am pleased to report that this year the IRS successfully migrated from a weekly processing cycle to daily processing. This was a multi-year, incredibly complex undertaking that went to the heart of systems that process trillions of dollars in tax revenue. This is an incredibly important milestone for the IRS, one which we first set our sights on in the late 1980s. Our next major priority is leveraging data analytics in order to continually improve our operations.

Let me now talk about how the IRS is managing its responsibilities in an increasingly global environment. Both corporations and individuals operate in the global economy. For example, many individuals have global exposure through their investments and 401Ks. Yet, this fundamental shift to a more global economy has created a real set of challenges for the IRS. On the individual front, we have made putting a big dent in offshore tax evasion a major priority.

We view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.

So, we are very pleased that through the end of 2011, we’ve had approximately 33,000 voluntary disclosures from individuals who came in under several special programs we started in 2009. To date, these individuals have paid back taxes and stiff penalties amounting to more than $4.4 billion, and the number continues to grow. We are now mining the information we have received to date and have launched our next wave of investigations on banks, bankers, intermediaries and taxpayers.

We have fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.

We are also moving from information sharing to more coordinated action among government tax authorities on a global basis. I’m the chairman of the main global body of tax authorities, which is comprised of my counterparts from 43 nations, including those from all G20 nations.

We have stepped up our coordinated efforts on offshore tax evasion by individuals, and have embarked on a project to conduct joint audits of certain multinational companies – which should reduce administrative burden on a company and help increase compliance.

IRS Extends Time for Manager Meetings on Audits

The time for examiners to conduct a Group Manager Concurrence Meeting as part of a tax audit has been extended from 14 days to 30 days, the Internal Revenue Service said in a memorandum (SBSE-04-0312-023 ) to agents.

This interim guidance memorandum is being issued to Examination personnel to advise the requirement to conduct a GMCM has changed from no later than 14 business days to no later than 30 business days after completion of the initial appointment. This change is effective immediately. Please ensure this information is distributed to all affected employees within your organization.

The GMCM provides the examiner and the manager an opportunity to discuss the scope and depth of the examination, as well as the mutual commitment date, resulting in fewer delays, increased efficiency, and higher quality of examinations.

This guidance will be incorporated into IRM 4.10.3, Examination Techniques, and IRM 1.4.40, SB/SE Field and Office Examination Group Manager, by March 16, 2013.

Colorado Sales and Use Tax Reporting Requirement for Out-of-State Retailers Struck Down By Colorado Judge

A federal judge in Colorado struck down March 30 as unconstitutional a reporting requirement imposed on out-of-state vendors that do not collect and remit state sales and use taxes (Direct Marketing Association v. Huber, D. Colo., No.1:10-CV-01546-REB-CBS, order 3/30/12).

Judge Robert E. Blackburn of the U.S. District Court for the District of Colorado said that Colorado's 2010 “Amazon” law, so called for one of the online retailers it ostensibly targets, violated the Commerce Clause of the U.S. Constitution.

The law, approved by the 2010 Colorado General Assembly (H.B. 1193), requires out-of-state vendors that do not collect state sales and use taxes to notify consumers they may have an obligation to pay taxes on remote purchases. The law also requires the vendors to report certain information about such transactions to the Colorado Department of Revenue.

Blackburn's ruling enjoins the enforcement of the act and related regulations against retailers that sell to Colorado customers but do not have a physical presence in the state.

His ruling came on cross motions for summary judgment filed by the Direct Marketing Association, the plaintiff in the case, and the Colorado Department of Revenue, the defendant.