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Monthly Archives: January 2012

US moves toward legal action against Swiss bank

January 9, 2012

(Reuters) U.S. authorities are moving toward taking legal action against Wegelin & Co, which could lead to an indictment of one of Switzerland's last pure private banks, on charges that it enabled wealthy Americans to evade taxes, according to two persons with knowledge of the case.

The latest turn in the Wegelin case comes amid a broad criminal probe by the U.S. Justice Department of 11 Swiss and Swiss-style banks, including Wegelin, suspected of selling offshore tax evasion services to tens of thousands of wealthy Americans. Inquiries, growing out of scrutiny of UBS, are focused on Credit Suisse AG and Basler Kantonalbank among others.

Wegelin confirmed on Wednesday that three of its employees had been indicted by U.S. prosecutors in Manhattan for selling tax evasion services to wealthy Americans.

Wegelin is a small bank where eight partners hold unlimited liability for its operations. It has no U.S. offices or branches and it conducted its tax evasion business in part through correspondent banking accounts at UBS in Stamford, Conn.

 

Read more at: Tax Times blog

Late-Filed State Returns Are Not Returns For Purposes of Discharge in Bankruptcy

January 9, 2012

In re McCoy, No. 11-60146 (5th Cir. 1/4/12): Debtor's late-filed state income tax returns not considered returns for bankruptcy discharge purposes under plain language of statute.

 
Facts: Taxpayer (T) filed for bankruptcy in September 2007. T received a discharge in January 2008, and in December 2008 returned to commence a post-discharge adversary proceeding against a state commission (C). T sought a declaration that the debt to C resulting from pre-petition income tax obligations for 1998 and 1999 had been discharged in bankruptcy.
 
The court stated that the 2005 legislation “added a new hanging paragraph to 11 U.S.C. §523(a) which defined the term ‘return' for discharge purposes.” The court stated that it would adopt the reading of 11 USC §523(a) suggested by the commission and the bankruptcy courts.
 
The court concluded that unless a state income tax return is filed under a safe harbor provision, a state income tax return that is filed late under the applicable non-bankruptcy state law is not a return for bankruptcy purposes under 11 USC §523(a).

Remember In CC-2010-016, the Chief Counsel's Office set forth the IRS litigating position:

a Form 1040 is not disqualified as a “return” under Bankruptcy Code §523(a) solely because it is filed late, but—regardless of whether a Form 1040 filed after assessment is a “return”—the portion of a tax assessed before such a form is filed is nondischargeable under Bankruptcy Code §523(a)(1)(B)(i).

See also SBSE-05-1010-052 (providing guidance on determining dischargeability of Form 1040 tax liability when form is filed later and after assessment of substitute for return under §6020(b) or during assessment of substitute for return) (expiration date 9/29/2010) (available at http://www.irs.gov/pub/foia/ig/sbse/sbse-05-1010-052.pdf).

Read more at: Tax Times blog

Another Felony Criminal Tax Prosecution!

January 5, 2012

United States v. Quinn (D. KS 2011) is one of several recent felony tax prosecutions, not for tax evasion, but for violation of Internal Revenue Code Section 7202. IRC Section 7202 makes it a felony to willfully fail to collect, account for, or pay over any tax due. In this case Ms. Quinn failed to pay payroll taxes for 7 quarters between 2003 and 2005. She finally got around to paying them in 2010, apparently after the IRS had filed criminal tax charges against her. Ms. Quinn challenged the finding that she failed to pay employment and individual tax and argued that since she had subsequently paid the tax due the charges should be dismissed. 

The court wrote in its opinion that a person has failed to pay taxes if they have not paid the amount due as of the due date, regardless of whether the taxpayer has subsequently paid. In Ms. Quinn's case, she had recently paid the amounts due but this was not sufficient for the court to find her not guilty.
This does not mean that late payment of taxes will never prevent a criminal tax prosecution, and those who have not paid their taxes should seriously consider taking care of a tax problem before it turns into a criminal tax problem. Had Ms. Quinn gotten around to making full payment, or indeed even made good faith installment payments much earlier there is a chance that the case would never have gotten as far as it did.

Read more at: Tax Times blog

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