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Tax Crimes as a ‘Predicate Offense' for Money Laundering?

February 22, 2012

The global body that sets standards for combating money laundering and terrorist financing said Thursday that governments should treat tax crimes as a red flag for other types of financial malfeasance, a sign that international cooperation against tax cheats is gaining momentum.

The body, the Financial Action Task Force, said it was expanding its list of “predicate offenses for money laundering” to include Serious Tax Crimes.
The changes reflect a growing movement toward international cooperation to catch tax cheats. Governments have become much less lenient on the subject since the financial crisis began four years ago, with tax havens like Switzerland coming under pressure to cooperate.
On Feb. 8, six countries, including the United States, France, Germany and Britain, announced that they would work together to fight tax evasion in the context of putting the Foreign Account Tax Compliance Act in place, a United States initiative to find hidden accounts overseas.
The focus is not on tax evasion per se, but rather on how ill-gotten gains might be put to use. Officials acknowledged that the definition of tax crimes differed from country to country and that it would be up to national officials to define and act on the information they found.

The most hotly argued topic relating to money laundering is whether laws do - or even should - relate to tax crimes.

The issues revolve around two main areas. First is whether tax offences are a predicate crime within any particular jurisdiction. Many places around the world do not raise income by income tax, for example. And so evasion of income tax cannot be a crime. The second issue that there has long been a basic principle of international law that one country does not enforce the tax laws of another.

In recent years, however, several inter-governmental bodies have sought to create a climate where tax investigations can be conducted across borders and then, by the application of laws relating to, for example, document fraud claim that the issue is not one of tax but of a simple criminal offence.

Notwithstanding the debate on international issues, within any country, the question of whether tax crimes are a predicate offence for the purposes of money laundering laws is a question of the express provision of the counter-money laundering laws, or the interpretation of those laws by the Court. In most countries that have "all crimes" counter-money laundering laws, it is almost certain that tax crimes will fall within the catch-all provisions.

Tax offences fall on the border of what is and is not laundering in that the general principle that money a person lawfully receives cannot be laundered. However, the issue is, in fact, easy to understand. If a person who is liable to pay a 40% marginal rate of income tax receives $100 for work and fails to declare it, then $40 is money "stolen" from the Treasury. Therefore, he does not launder the $100, he launders the $40. It is the tax evaded that is laundered. One complication that makes this difficult to understand is that in order to retain the $40, he actually puts the whole $100 through the laundering process. He has to try to show that he received $100 legitimately, in order to evade payment of $40.

Another complication is that the $40 is said to have been "commingled" with the remaining $60 and it has tainted the otherwise clean money. Therefore under general principles of asset seizure as applied in many countries, anything that is purchased with the $60 may be subject to freezing or forfeiture

Text of FATF's recommendations is at http://www.fatf-gafi.org/document/17/0,3746,en_32250379_32236920_49656209_1_1_1_1,00.html.

Text of a U.S. Treasury Department release on the recommendations is available at http://op.bna.com/dt.nsf/r?Open=emcy-8rjlek.

Read more at: Tax Times blog

The President’s 2012 Estate & Gift Revenue Proposals

February 21, 2012

The Treasury Department has just released the GeneralExplanations of the Administration's Fiscal Year 2013 Revenue Proposals (the "Greenbook"). Attached are the Greenbook proposals to modify the estate and gift tax provisions.

These proposals would: 

  • Reduce the unified estate, gift and Generation-Skipping Transfer (GST) exclusion amounts from the current $5,120,000 to $3,500,000 for estate and GST purposes and to $1,000,000 for gift tax purposes (effective 1/1/2013);
  • Increase the top tax rate for estate, gift and GST to 45% from the current 35% (effective 1/1/2013);
  • Impose a consistency in value requirement for transfer tax and income tax purposes (effective on date of enactment);
  • Modify the rules on valuation discounts available under current law by further restricting the use of discounts in family-controlled entities (effective generally for transfers after date of enactment);
  • Require a minimum 10 year term for Grantor Retained Annuity Trusts (GRATs) (effective for trusts created after enactment);
  • Limiting the duration of the GST exemption (effective generally for trusts created after date of enactment);
  • Require coordination of certain income and transfer tax rules applicable to grantor trusts (effective generally for trusts created after date of enactment); and
  • Extend the estate tax lien period for estate tax deferral provided under Section 6166.

There still is a 10 month window for estate, gift and GST planning under the existing 2012 rules discussed below.  The current rules can provide significantly better planning opportunities than  either the President's proposals discussed above or the sunset provision discussed below.

Generous new estate and gift tax provisions are available only through the end of this year:

  • Temporary two year provisions were enacted as part of the overall extension of the Bush tax cuts.
  • Most significant provision was to reunify the estate, gift and generation-skipping tax (GST) exemptions and increase those exemptions to $5,000,000 ($10,000,000 for a married couple) while reducing the top transfer tax rate to 35%.
  • The exemptions have been adjusted for inflation for 2012 to $5,120,000 ($10,240,000 for a married couple).
  • Previously, the gift tax exemption was only $1,000,000.

Transfer Tax Rules will "sunset" effective December 31, 2012:

  • This will happen automatically if Congress takes "no action" (a skill that they have honed into a fine art).

On January 1, 2013 the exemptions will revert to $1,000,000 and the top estate, gift and GST rate will go back up to 55%.

Please contact Ronald Marini or Robert Blumenfeld at (305) 374-4424 for further assistance.

Read more at: Tax Times blog

Filing False Returns is a Deportable Felony – Supreme Court

February 21, 2012

The U.S. Supreme Court Feb. 21 decided that lawful permanent residents who have pled guilty to charges related to the filing of false tax returns that resulted in a loss to the government of more than $10,000 have committed aggravated felonies involving fraud or deceit and are subject to deportation (Kawashima v. Holder, U.S., No. 10-577, 2/21/12).

The 6-3 ruling affirms a decision by the U.S. Court of Appeals for the Ninth Circuit that found that, under the immigration statutes, Akio and Fusako Kawashima could be removed for filing a false corporate tax return.

“The elements of willfully making and subscribing a false corporate tax return, in violation of 26 U.S.C. § 7206(1), and of aiding and assisting in the preparation of a false tax return, in violation of 26 U.S.C. §7206(2), establish that those crimes are deportable offenses because they necessarily entail deceit,” wrote Justice Clarence Thomas for the court's majority.

In her dissent, Justice Ruth Bader Ginsburg argued that aliens should not be subject to deportation under Sections 7206(1) and (2) because the Immigration and Nationality Act singles out tax evasion—and no other tax crimes—as an aggravated felony for deportation purposes.

Read more at: Tax Times blog

State of Florida aggressively targets Delinquent Taxpayers!

February 16, 2012

Traditionally delinquent taxpayers were sent a tax notice with a 60-day deadline, then they would receive a second or third notice but there is a much shorter response window today.

Penalties are also much harsher.Under the new rules, delinquent taxpayers are sent a tax notice with a 60-day deadline. If the Florida Department of Revenue does not receive payment within the 60 days, a warrant is filed and the taxpayer's bank account is frozen.  

If you  or any of your clients receive a tax notice, please contact us immediately and one of our experiance Tax Litigation Attorneys will review your options for resolving your Florida Tax Problem.

Read more at: Tax Times blog

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