Paul L. Caron

Wednesday, May 5, 2010

WSJ: Criminal Tax Lawyers Accuse IRS of 'Double-Cross' in Prosecuting Taxpayers Who Voluntarily Disclosed Overseas Accounts

Wall Street Journal, IRS Faulted for Prosecuting Confessed Evaders of Taxes, by Laura Saunders & Arden Dale:

An influential group of criminal tax lawyers is sharply criticizing the IRS for its decision to prosecute some people who came forward to confess that they had used foreign bank accounts to evade taxes, saying it goes against longstanding practice of encouraging taxpayers to come forward to report their tax violations.

In 2008 and early 2009, shortly before the agency announced a special six-month limited amnesty program, some taxpayers with undeclared accounts from Swiss bank UBS confessed to the IRS that they had avoided taxes.

A letter dated March 30 and signed by 32 lawyers, many of them former high-ranking tax officials now in private practice, said the IRS actions "smack of trickery." They said that because the taxpayers had turned themselves in, they shouldn't be prosecuted. The letter said heavy-handed treatment of some account holders could cause taxpayer confessions to "grind to a halt."

The IRS and Justice Department nevertheless proceeded with a handful of prosecutions, according to signers with knowledge of the events.

The letter's signers included former top Justice Department officials Gerald Feffer, Paula Junghans, and Cono Namorato, and former IRS Criminal Investigation Chief Mark Matthews.

The letter acknowledged the government's long-held right to reject confessors if it already has their names or has opened an audit. But it argued that subjecting these taxpayers to rare public prosecutions would look like a double-cross. The writers also warned that if the government went ahead with prosecutions, it would radically change the "risk assessment" they offer their clients and lead to fewer voluntary disclosures.

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The Department of Justice probably believes the voluntary disclosures were "triggered" by the announced battle with UBS over undisclosed foreign accounts. Under these circumstances, the Department of Justice would not give immunity from prosecution. The reason for the policy is to encourage tax cheats to come forward and pay their tax before they are just about to be caught. This saves the government the time and expense of making a criminal case against them in exchange for an easy path to collection of the due liabilities, penalties and interest. I think the criminal defense lawyers (like so much of the media) are leaving something out of the story and do so because they know DJ can not discuss this publicly.

A bigger question is why the government later gave a 6 month amnesty period to those who were about to be caught. The government will say it was the most cost efficient way to deal with thousands of cases. However, it would be interesting to know how many of the thousands of rich scofflaws had political connections that now will be hidden as nondisclosable tax return information per IRC Sec. 6103

Posted by: Dale Newland | May 6, 2010 1:37:02 PM

This looks to me like a lot of nothing. You don't get to claim amnesty and "confess" when the IRS already has you under a microscope and is ready to indict you.

There's no appearance of double-crossing here, except in the minds of people who don't examine the situation clearly.

Posted by: Ray | May 6, 2010 10:49:55 AM

If the tax code weren't so byzantine and onerous, there would be far less incentive to try and skirt it with overseas accounts and other trickery.

That's not the fault of the IRS, of course (it doesn't write the law), and doesn't excuse overt tax fraud, but unlike the first poster, I do have some sympathy for individuals who are subject to nearly 50% marginal tax rates on earnings.

And no, the IRS shouldn't be criminally prosecuting individuals who voluntarily turn themselves in. Yes, those individuals should be required to pay all their back taxes, plus interest and penalties, but that's about it.

Posted by: tax cheater | May 6, 2010 10:49:29 AM

"I have zero sympathy for these tax cheats."

I have zero sympathy for people can't tell the difference between fudging a zero here or there with money one earned, and with being promised an amnesty and instead ending up locked in a cell.

Have you ever been hauled off by someone, shoved in a hole, and locked up for any length of time? If you think those two activities are anywhere near equivalent, then you obviously have not.

If you want to fine them for not following the letter of the law, fine. Otherwise, think long and hard about what you're doing.

Posted by: wtf | May 6, 2010 10:06:39 AM

Wow , never trust the government ever!

Posted by: rft | May 6, 2010 9:42:26 AM

I'll be waiting for Charlie Rangel's criminal indictment.....

Posted by: Jeff | May 6, 2010 8:52:27 AM

Until they prosecute Geithner, no one else should be. Equal justice? that's for you proles.

Posted by: SDN | May 6, 2010 8:32:20 AM

Suprise! Suprise!

Make a deal with the devil and NOT expect to get burnt...

Seriously, just how smart were these supposed tax evaders?

Posted by: juandos | May 6, 2010 8:18:07 AM

The arguments seem to be based more on public relations than on the law, as in, "If you do this you might sully your brand."

Posted by: Perry Fisher | May 6, 2010 8:01:02 AM

I have zero sympathy for these tax cheats. The hubris of them making claims of "trickery" when, in fact, that's exactly what they had engaged in when hiding their overseas accounts in the first place is itself worth another $1M fine tacked on, imo.

Posted by: Sailfish | May 6, 2010 7:50:52 AM