Monthly Archives: March 2012

Recently the Supreme Court held in Kawashima v. Holder (Feb. 21, 2012) that filing a false tax return in violation of IRC Section 7206(1) as well as other criminal tax offenses are aggravated felonies which can result in deportation of a resident alien.

Background, Mr. and Mrs. Kawashima were legal residents of the United States having moved to Los Angeles from Japan in 1984. According to an article in the Los Angeles Times they opened several sushi restaurants in the West San Fernando Valley area of Southern California. They were accused of violating various criminal tax laws, and in 1997 Mr. Kawashima pled guilty to a single count of violating Internal Revenue Code (IRC) Section 7206(1) (filing a false tax return). Mrs. Kawashima pled guilty to IRC Section 7206(2) (aiding and assisting in the filing of a false tax return). The tax loss was around $245,000. This would have included interest and penalties so the actual tax would have been much lower. It is possible that the Kawashimas pled guilty to charges under IRC Section 7206 to avoid the IRS bringing tax evasion charges under IRC Section 7201. Tax evasion carries a maximum penalty of 5 years, and a $250,000 fine; whereas filing a false tax return "only" has a penalty of $100,000 and 3 years in prison.

Neither the 9th Circuit opinion, nor the Supreme Court opinion stated whether they served any jail time, but according to the Los Angeles Times they repaid the full amount due to the IRS. The Kawashimas probably assumed that their tax problems ended there, but in 2001 the Immigration and Naturalization Service (INS), as it was then known, brought removal proceedings, against the Kawashimas seeking their deportation alleging that they had committed an "aggravated felony." These proceedings were brought pursuant to 8 USC § 1227(a)(2)(A)(iii) (stating that "[a]ny alien who is convicted of an aggravated felony at any time after admission is deportable"). An aggravated felony is defined in 8 USC Section 1101(a)(43)M)(i) as any offense that "involves fraud or deceit in which the loss to the victim or victims exceeds $10,000."

The Kawashimas argued that filing a false tax return was not an aggravated felony. They relied on a related section of the law which specifically states that the commission of tax fraud pursuant to IRC Section 7201 is an offense which may lead to deportation. From that the Kawashimas criminal tax lawyers concluded that Congress intended that the only tax crime which would qualify for deportation is tax fraud, and not any other lesser tax crime.

Unfortunately for the Kawashimas in a divided 6-3 opinion the Supreme Court disagreed, clearing the way for the Kawashimas deportation. In her dissent, Justice Ginsburg pointed out that as a policy matter the majority made a bad choice because it would discourage immigrants from pleading guilty to tax crimes since in addition to any jail time they would be exposed to being deported.

Criminal tax lawyers will need to advise their alien clients of this distinct possibility as one of the many factors to take into account when deciding whether or not to plead guilty to any tax crime. The concern for FBAR (foreign bank account report) non-filers is that without regard to whether or not failure to file an FBAR is a deportable offense individuals who do not file FBARs generally have filed false tax returns by checking the "no box" on Schedule B signifying they don't have a foreign bank account when in fact they do.

If you have been contacted by the IRS Criminal Investigation unit, or have any criminal or civil tax problems contact the tax litigation attorneys at Marini & Associates, P.A. for a confidential consultation.

A new IRS Webpage on how to file tax forms related to foreign interests using a unique reference identification number (URI) is designed to allow the Internal Revenue Service to more easily identify a taxpayer's foreign entities and compare their activities, or lack of activities, from year to year.

Beginning with U.S. federal tax returns filed for the 2012 tax year, taxpayers who file a Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), a Form 8858 (Information Return of U.S. Persons With Respect to Foreign Disregarded Entities), or Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships), must provide the URI or employer identification number for all foreign entities reported on the forms.

Implementation of URIs could pose varied obstacles for taxpayers who are unprepared.

The IRS does not permit electronic filing of US income tax returns for preparers living outside the US. It remains to be seen if they will apply the same rule to FBAR forms. For 2011 FBAR forms should be manually filed as in the past. Failure to file FBAR forms on time may result in substantial penalties.

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According to Rick Raven, deputy chief of IRS investigations, the cases that IRS's criminal investigations unit sends to the tax division have ended up in a 94 percent conviction rate, making it the highest rate of conviction in law enforcement.