Even in Tough Economic Times, Investigators Are Actively Pursuing Tax Criminals in the U.S. and Abroad

FRANCE’S TAX PROBLEM WITH UNDECLARED SWISS BANK ACCOUNTS

The French government is scrambling to curtail a deepening scandal over a former budget minister’s secret foreign bank account.

Jerome Cahuzac resigned from his post in March and was placed under formal investigation for alleged tax fraud last week as he acknowledged he had been caught “in a spiral of lies” over his previous denials of holding a Swiss bank account.

Swiss RTS TV reported that Cahuzac sought to transfer 15 million euros ($20 million) from one Swiss account to another – far more than the 600,000 euros he previously said he had in an undeclared foreign account.

The affair risks upsetting current President Francois Hollande’s economic reform effort, with his opinion poll ratings already at record lows, around 22%, for his failure to tackle unemployment.

Prime Minister Jean-Marc Ayrault said that wealth declarations of all the members of government will be made public by April 15, a move which resembles requirements in the United States and elsewhere for public officials to make asset declarations.

IN THE U.S., THE IRS HAS ITS OWN TAX CRIMINALS TO WORRY ABOUT

The IRS and Department of Justice have taken significant steps in recent months to combat tax fraud and offshore tax evasion, according to Steven Miller, acting IRS commissioner.

In the past year, government prosecutors achieved a 95% success rate in all civil and criminal cases they litigated. Prosecutors from the Justice Department obtained 127 indictments, which resulted in 137 convictions. Altogether the Tax Division has authorized 938 grand jury investigations, resulting in 1,751 prosecutions, according to a news release issued Tuesday by the Justice Department. The Justice Department said it had collected $290 million through civil litigation and retained more than $1 billion in fraudulently requested refunds that officials prevented from being issued.

The federal investigators are focusing on the use of foreign tax havens, which they believe can account for $100 billion annually.

Government tax lawyers were quite happy with the guilty plea of Wegelin Bank of Switzerland in January. The oldest private bank in Switzerland was the first overseas bank to plead guilty to felony tax charges. The bank admitted it had tried to defraud the United States by helping American account holders hide assets from the IRS in undeclared accounts.

BACKSTEPPING AFTER OVDP DISQUALIFICATION LETTERS

Last month, the IRS’ Criminal Investigation Division sent letters to accountholders at Bank Leumi, Israel’s largest bank, notifying them that although they had originally been accepted into the IRS’ Offshore Voluntary Disclosure Program, they had now been disqualified “upon further review.”

In response, the DOJ Tax Division said that they review each case based on its specific facts and circumstances before authorizing prosecution, and that in any case in which an individual received a conditional acceptance letter, made substantive disclosures, but was subsequently disqualified from participation in the OVDP, the Tax Division will continue to consider the facts and circumstances under which any substantive disclosures were made, and the “fairness” of proceeding against that individual, as part of their review.

Failing to include the income generated by a foreign account on a 1040 is a criminal offense. Owners of offshore accounts are required to file an annual Report of Foreign Bank and Financial Accounts or “FBAR” annually with the Treasury, and can be fined up to half the value in a foreign account for each year they fail to disclose it if they did so willfully. Taxpayers accepted into the amnesty program are spared criminal prosecution. In return, they must cooperate fully with government investigators and, under the current terms of the four-year-old OVDP program, file revised tax returns for the past eight years; pay a 20% penalty on any extra tax due related to their offshore accounts; and pay an FBAR penalty equal to a maximum of 27.5% of the maximum held in the undisclosed accounts during that period.