Interview of Acting Assistant Attorney General Ciraolo on Tax Enforcement (3/23/16)

The New York Law Journal has published this article of an interview of Acting AAG Caroline Ciraolo.  Jeremy H. Temkin, DOJ Tax Division Today: Interview With Acting Assistant Attorney General, 255 NYLJ No. 55 (3/23/16), here.  The interview is a general overview of the Tax Division's work, with particular focus on offshore accounts that have been perhaps its most visible effort over the past few years.  Of course, there is the expected claims of great success on the offshore efforts starting in 2009, with many prosecutions of individuals and financial institutions and much revenue gathered.

I focus in the balance of this blog only on matters that I found particularly interesting.

1.  Regarding follow-through, Ciarolo says that DOJ  and the IRS are following leads they have obtained in the various efforts and are continuing to obtain from various sources "to identify and investigate U.S. accountholders who willfully concealed their foreign accounts and evaded U.S. tax, as well as those entities and individuals, foreign and domestic, that facilitated this criminal conduct."

2.  Category 3 and 4 information:

Finally, Tax Division attorneys and IRS personnel are reviewing the information received from Swiss banks that fall under Category 3 and Category 4 of the program. Category 3 and 4 banks maintain that they did not commit any violations of U.S. law, and seek a non-target letter after providing information required by the program.

I have written before that I am baffled that any Swiss Financial Institution would have proceeded under Category 3 or 4.  See US DOJ Swiss Bank Program Categories 3 and 4 Comments (Federal Tax Crimes Blog 2/4/16; 2/7/16), here.  Certainly, though, the Financial Institutions that did join under Categories 3 or 4 would have expected to have been closely scrutinized.

3.  Countries Other than Switzerland:

We are looking well beyond Switzerland, into jurisdictions around the world, including those referenced in the statements of facts admitted to by the Category 2 banks in connection with the tax evasion efforts of U.S. taxpayers. These jurisdictions include, but are not limited to, the British Virgin Islands, the Cayman Islands, the Channel Islands, Guernsey, Hong Kong, Israel, Liechtenstein, Luxembourg, Panama and Singapore. 

4.  She did not indicate that a program similar to the Swiss Bank Program would be adopted for these countries, but did state:

Individuals or entities that assisted U.S. accountholders to conceal foreign accounts and evade U.S. tax will not improve their situation by sitting back and delaying disclosure in the hope of an announcement of another program, particularly while we are actively reviewing information received and opening up additional investigations. Timeliness in coming forward and cooperating remains a critical factor in any criminal resolution. 

JAT Speculation:  I wonder whether DOJ is now trying to identify the worst offenders in the countries listed above so that it will have a representative number of Category 1-type financial institutions that it can prosecute and will then announce some type of program for other financial institutions (perhaps patterned on the Swiss Bank Program).  If that were the case, those financial institutions that can self-identify as being at high risk of being Category 1-like would be well-advised to move fast to open the kimono with DOJ Tax and strike a deal quickly that might be better than if they waited.

5.  On the issue of whether, given the mass publicity about foreign bank accounts and the offshore disclosure programs, it was realistic to think that significant additional voluntary disclosures will be made and the impact on DOJ Tax's work.  She answered (bold-face supplied by JAT):

 After seven years of voluntary disclosure programs, nearly 200 criminal prosecutions, and the increased assessment and suits to collect FBAR penalties, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are not well-received. Similarly, we are very interested in taxpayers who filed tax returns and FBARs pursuant to the Streamlined filing procedures, or the Delinquent International  Information Return or FBAR submission procedures, who falsely claimed either to have engaged in non-willful conduct or to have acted with reasonable cause.

I have bold-faced this because, I suspect, many have not adequately assessed the risk of improper certifications in the Streamlined Programs.

6.  She also addressed the effect of budget cuts on DOJ Tax's mission, saying DOJ Tax is back to full strength and works with IRS and US Attorneys to better focus its resources for maximum effect.

Revised Streamlined Certification Forms 14653 SFOP and 14654 (SDOP) (3/11/6)

In February, the IRS revised the Foreign and Domestic certifications (Forms 14653, here, and 14654, here, respectively) in February 2016.  I set forth the principal revisions below:  (In my browser, the links doe not permit actually viewing the form, but it can be downloaded or saved and should work fine with a pdf program.)

The Non-Resident Certification form 14653 (Feb 2016) now includes:

1. A chart asking the filer to declare for each year whether they were out of the country for at least 330 days
2. If the  person is not a citizen or lawful permanent resident, the calculations for the application of the substantial presence test under section 7701(b)(3) for 5 years (the 3 years in return covered period and the two previous years).
3. An enlarged explanation of the facts that the IRS deems important to include in the Streamline statement, emphasizing that the taxpayer should provide specific reasons for noncompliance and tell the complete story.  
4. A Paid Preparer Section for the preparer of the Certification and box to indicate whether the filer allows the IRS to speak with that person.

The Resident Certification Form 14654 (Feb 2016) now includes:

1. An enlarged explanation of the facts that the IRS deems important to include in the Streamline statement, emphasizing that the taxpayer should provide specific reasons for noncompliance and tell the complete story. 
2. A Paid Preparer Section for the preparer of the Certification and box to indicate whether the filer allows the IRS to speak with that person.

If I missed any key differences, please let me know either by comment or email.

Updated FAQs for SFOP and SDOP Streamlined Processes (1/13/16)

The IRS has updated the FAQs for the Streamlined Domestic and Streamlined Foreign Offshore Procedures.  The are here:  SFOP FAQs, here, and SDOP FAQs, here.  Both were last reviewed and updated on 1/7/16.

My review indicates that the important items are:

1.  More detail on what the IRS expects from the narrative supporting the certification of nonwillfulness.  (SFOP FAQ 6; SDOP FAQ 13.)  In some cases, the IRS was getting narratives that did not contain enough detail to support the taxpayers' certifcations of nonwillfulness.  Most practitioners regularly working in this area already knew that the narrative had to have sufficient details -- not just conclusory allegations -- to support the certification.  So, for those practitioners, I am not sure that the new FAQs add to what they already knew and implemented in making submissions.  But other practitioners may find the new FAQs helpful, and certainly taxpayers going through the process without representation will get a sense of what the IRS will need to process the certifications.  In sum, the narrative must include "the whole story including favorable and unfavorable facts."  (Bold face supplied by JAT.)  The process is one of persuasion from the facts -- favorable and unfavorable -- and that's where a practitioner regularly engaged in the art of persuasion may be able to add value in the submission.  Also, a tip given to me by an IRS person working in the area -- larger or multiple foreign accounts usually require more explanation than smaller or fewer accounts.  Thus, for example, a single $200,000 account owned directly rather than through an entity would likely not require as much detail supporting the certification as would accounts aggregating $10,000,000 owned by foreign entities.

2.  Process for handling joint returns requiring amendment where the other spouse may not participate by signing the amended returns or joint certification.  (SFOP FAQ 7; SDOP FAQ 14.)  The spouse participating in SFOP and SDOP may submit amended returns with only his or her signature (and not the nonparticipating spouse's signature) if the amended return reports additional tax due.  The submission should explain the inability to obtain the other spouse's signature with a prominent reference to the FAQ in issue.  The IRS will routinely request that the other spouse's signature be obtained, but if the other spouse still will not sign, the participating taxpayer notifies the IRS of this.  However, if the amended return indicates a refund for the year, this procedure is not available.