Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

We knew it was coming, but Bloomberg reports today that Switzerland's Federal Tax Administration has said that it expects to deliver account data on almost 4,450 U.S. clients of UBS AG to the IRS in exchange for the IRS' withdrawal of a "John Doe" summons served on UBS and accompanying lawsuit. The IRS had sought information on approximately 52,000 UBS accounts, however the agency and UBS entered into a settlement in August 2009 in which UBS would provide information on 4,450 accounts. UBS also paid the U.S. government $780 million as part of the settlement. UBS was alleged to have aided wealthy U.S. citizens in evading taxes from 2000 to 2007.

The article notes that, since February 2009, the Justice Department has filed criminal tax charges against 17 U.S. clients of UBS clients, two UBS bankers and three others accused of aiding tax evasion.

And in Georgia tax news, the government has sued two tax preparers in Cobb County, Georgia, seeking to put them out of business, according to a press release. A complaint was filed in the U.S. District Court for the Northern District of Georgia against Christopher Musyoki, Samuel Nganga and Musyoki’s tax preparation business, Simba Consultants Inc., alleging that the defendants allegedly underreported their customers' income on tax returns and made false claims for earned income credits, child tax credits and fuel tax credits.

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On Friday, the Eleventh Circuit Court of Appeals issued an opinion in the highly-publicized tax evasion case against actor Wesley Snipes, U.S. v. Snipes, No. 08-12402, which may be read here. The odd facts in the case are as follows: around 2000, Snipes became involved with a tax resistance organization, American Rights Litigators (“ARL”), operated by Snipes’ co-defendant Eddie Ray Kahn, which made various arguments on behalf of its clients against the IRS’ collection of taxes, including that domestic earnings of individuals allegedly do not qualify as “income” under 26 U.S.C. § 861 because the earnings do not come from a listed “source.”
 

From 1999 to 2004, Snipes earned more than $37 million, however he did not file income tax returns for any of these years. During this period Snipes did, however, send the IRS correspondence, altered tax forms and demands for income which he had paid in earlier years. Snipes made wildly outlandish arguments to the IRS, including that he was a non-resident alien; that earned income must come from sources wholly outside the U.S.,; that taxpayers are legally defined as persons operating “a distilled spirit Plant;” that the Tax Code is limited to the District of Columbia and insular possessions of the United States, and excludes the other 50 states; and that Snipes was “a fiduciary of God” and a “foreign diplomat” who was not required to pay taxes. In addition, Snipes’ companies ceased deduction of income and payroll taxes for employees. Snipes invited his employees to attend an “861” seminar at his home and threatened one employee who questioned the theory, Carmen Baker, that if Baker was “not going to play along with the game plan,” she should find another job.
 

Snipes, Kahn and Douglas Rosile were indicted in 2006 in the Middle District of Florida for conspiracy to defraud the United States by impeding the IRS in its collection of income taxes, in violation of 18 U.S.C. § 371, filing a false claim for a refund, in violation of 18 U.S.C. § 287; and willfully failing to file tax returns, in violation of 26 U.S.C. § 7203. Snipes filed several motions to transfer venue to the Southern District of New York pursuant to 18 U.S.C. § 3237(b) and Federal Rule of Criminal Procedure 21(b), which were denied by the district court.
 

Snipes’ trial commenced in January 2008. Carmen Baker testified at trial that Snipes had allegedly ordered her not to talk to anyone or disclose any information when she received a grand jury subpoena, telling Baker that he had a confidentiality agreement with her signature, and that if she contacted the government, she would have to “pay the consequences.”

Snipes requested several specific jury instructions, including that the Sixth Amendment to the U.S. Constitution protects a defendant’s right to trial in the district where a crime is committed, and on good faith and good faith reliance on advice of counsel.

Defense attorney and former Deputy Independent Counsel Craig Gillen also notes regarding the case that Snipes was charged with six counts of willfully failing to file his individual tax returns for tax years 1999 through 2004, in violation of Section 7203. In May of 2002, Snipes and his lawyer had a telephone conference with an IRS agent wherein Snipes was informed that he was under investigation for tax crimes. The agent read Snipes his non-custodial rights which included the right to remain silent. Snipes replied "very interesting." At trial, Snipes requested a jury instruction based on good faith reliance on his Fifth Amendment privilege against self-incrimination. Snipes claimed that because the IRS agent advised him of his right to remain silent, he believed he had a 5th Amendment privilege not to file his tax returns. Snipes claimed that because he had a good faith belief in his right not to incriminate himself, he could not be guilty of willfully failing to file the returns. The trial court refused to give the requested instruction.
 

On February 1, 2008, the jury convicted Snipes on three--misdemeanor--counts of willful failure to file individual federal income tax returns for calendar years 1999, 2000, and 2001. The presentence investigation report calculated Snipes’s intended tax loss at $41,038,051 under U.S.S.G. §§ 2T1.1(a) and 2T4.1. It also recommended an enhancement for obstruction of justice pursuant to U.S.S.G. § 3C1.1, for Snipes’ direction to Baker to conceal evidence from the grand jury’s investigation, and recommended an overall sentence of 36 months’ imprisonment. The district court overruled Snipes’ objection to the obstruction enhancement and, discussing the sentencing considerations in 18 U.S.C. § 3553(a), imposed a sentence of 36 months. Snipes appealed.
 

In its opinion, the Eleventh Circuit panel affirmed Snipes’ conviction and sentence. On appeal, the government conceded that Snipes' proposed instruction on good faith reliance on the privilege against self-incrimination was substantially correct. The Court of Appeals, however, held that there was no error because the conduct which formed the basis for Snipes' counts of conviction occurred before  the May 2002 conversation with the IRS agent, and also held that the trial court's instruction on good faith was sufficient. Although the trial court had refused to give the Snipes instruction, in closing arguments, Snipes' counsel did argue to the jury that Snipes' reliance on the IRS agent's pre-interview advice of rights constituted a good faith basis for his failure to file the tax returns. Apparently this argument resonated with the jury--on all counts for tax years subsequent to the May 2002 interview, Snipes was acquitted.

In regard to Snipes' other arguments, the Court rejected Snipes’ argument that the district court erred in denying his motion for elective transfer under Section 3237(b) as untimely, finding that Snipes failed to properly move to extend the elective transfer deadline. The Court also held that the trial court did not abuse its discretion in not holding a pretrial evidentiary hearing on venue, concluding Snipes was not entitled such a hearing, but rather had a Sixth Amendment right to have the issue of venue decided by the jury. The Court also held that the district court did not err in sentencing Snipes pursuant to Section 2T1.1, or in enhancing his sentence by two levels for obstruction of justice under Section 3C1.1. It concluded that Snipes’ comments to Baker amounted to encouraging Baker to avoid complying with a grand jury subpoena, which may be considered obstruction of justice. Lastly, the Court held that Snipes’ 36 month sentence was reasonable.
 

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The Federal government is building criminal cases against more than 150 U.S. citizens holding overseas bank accounts with Union Bank of Switzerland (UBS), as reported by Reuters and the Banking Times. The criminal investigations are part of a Federal crackdown on tax evasion by means of overseas accounts and were facilitated by a settlement between U.S. and Swiss authorities earlier this month in which Switzerland agreed to disclose the identities of some 5,000 U.S. citizen account holders, contrary to Switzerland's longstanding tradition of banking secrecy. UBS has already settled charges that it assisted U.S. customers in evading taxes for $780 million.

As the IRS states on its website, under the agreement, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts. UBS will give account holders notice if information relating to the acocunt holders is included in the IRS treaty request. "Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations." "The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action."

Four U.S. clients of UBS, three in Florida and one in California, are already being prosecuted based on the information provided by UBS. And the number of investigations and prosecutions are expected to grow. In a press release,Tax Commissioner Doug Shulman claimed that the U.S./Swiss agreement "puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further the Swiss government is prepared to work with us regarding similar U.S. requests, if any, involving other financial institutions." U.S. and Swiss authorities are reportedly negotiating for the disclosure of thousands of additional names of U.S. account holders. Commissioner Shulman stated that international tax evasion is a "top priority."

Commissioner Shulman stated that the IRS has set a "voluntary disclosure" deadline of September 23, 2009, for UBS customers with unreported, offshore income, and advised persons to contact a tax professional. Customers receiving notification from the bank may come forward under the voluntary disclosure program--however "once the Swiss government sends [the IRS] the name, all bets are off." UBS customers with any reason for concern should strongly consider promptly contacting tax and legal professionals.

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False claims actions, or “qui tam” actions, are well known actions by a “whistleblower,” or relator, who has discovered fraud against the Government, pursuant to the False Claims Act (FCA), 31 U.S.C. § 3729. If the Government decides to intervene in their case, the whistleblower can share in any recovery by the Government.

In addition to the FCA, other government agencies have their own incentives for whistleblowers. The most notable example is the Department of Treasury and Internal Revenue Service, which have long had a whistleblower program in place. However, on December 20, 2006, President George W. Bush signed the Tax Relief and Health Care Act of 2006 into law, which dramatically increased incentives under the IRS’s whistleblower program. Section 406 of the Act, codified at Section 7623 of Title 26 of the United States Code/ Section 7623 of the Internal Revenue Code, entitled “Expenses of detection of underpayments and fraud, etc.” provides in part that:

1.  The Secretary of Treasury is authorized, in cases where such expenses are not otherwise provided for by law, to make awards for (1) the detection of underpayments of taxes, or (2) the detection and bringing to trial and punishment persons guilty of violating, or conspiring to violate, the internal revenue laws. 26 U.S.C. § 7623(a).

2.  If the Secretary proceeds with any administrative or judicial action based upon information brought to the Secretary’s attention by an individual, the individual shall receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts resulting from the action), or from any settlement in response to such action, subject to the exception in 26 U.S.C. § 7623(b)(2)(A), discussed below. The amount of the award shall be determined by the Whistleblower Office and shall depend on “upon the extent to which the individual substantially contributed to such action.” 26 U.S.C. § 7623(b). NOTE: All of Section 7623’s award provisions apply only if there is an action against a taxpayer (1) whose gross income exceeds $200,000 for any taxable year subject to the action, and (2) the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000. 26 U.S.C. § 7623(b)(5). NOTE: No awards can be made under Section 7623 unless the information submitted to the Secretary is submitted under penalty of perjury. 26 U.S.C. § 7623(c).

Gillen Withers & Lake LLC, is headed by civil and criminal defense attorneys who are among the most distinguished in the Southeast, with a national reputation and excellent track record, who vigorously represent and make every effort on behalf of their clients. Contact us today by calling or e-mailing Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com or Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com.

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