Last month, the U.S. Food and Drug Administration (FDA) issued a draft guidance on the issue of responding to unsolicited requests for information about off-label use of prescription drugs and medical devices. (For the full text of the draft guidance, click here.) As we previously reported here, manufacturers and distributors of medical drugs and devices have pushed the FDA to release more concrete guidance on communications pertaining to off-label use, especially in light of the rapid growth of the internet and other social media tools and technologies. Off-label use occurs when a healthcare professional prescribes a product for a use or treatment indication not included in the product’s approved labeling. This draft guidance is aimed to specifically address solicitations for information received by product manufacturers regarding off-label indications or conditions of use.

The draft guidance clarifies the difference between unsolicited and solicited requests, and also differentiates between requests that are public and non-public. Solicited requests are requests for information that are “prompted in any way by a manufacturer or its representatives.” According to the draft guidance, the FDA may consider a solicited request as evidence of a firm’s intent to support or market a drug or medical device for a condition or use that has not been approved by the FDA.

Unsolicited requests, on the other hand, are “initiated by persons or entities that are completely independent of the relevant firm.” A public unsolicited request is made in a public forum. A question about off-label use of a specific product during a live presentation is one example of a public unsolicited request. A non-public unsolicited request is directed privately to a firm using a one-on-one communication approach. An example of a non-public unsolicited request is a call or e-mail for off-label use to medical information staff at a firm.

The FDA remains committed to its long-standing position that “firms can respond to unsolicited requests for information about FDA-regulated medical products by providing truthful, balanced, non-misleading, and non-promotional scientific or medical information that is responsive to the specific request, even if responding to the request requires a firm to provide information on unapproved or uncleared indications or conditions of use.” For any response made to a non-public unsolicited request for off-label information, the FDA recommends that a firm provide information only to the individual making the request. In addition, the information contained in the response should conform to the following:

- Information should be tailored to answer only the specific question(s) asked;

- Information should be truthful, non-misleading, accurate, and balanced;

- Information should be scientific in nature; and

- Information should be generated by medical or scientific personnel, independent from sales or marketing departments. 

In addition, the distributed information should be accompanied with a copy of the FDA-required labeling, a statement disclosing the indications for which the FDA approved or cleared the product, and a statement notifying the recipient that the FDA has not approved or cleared the product as safe and effective for use. If a firm’s response conforms to the FDA’s new draft guidance, the FDA would not use the response as evidence of the firm’s intent to unlawfully support or market the product for an unapproved or uncleared use.

The FDA also addressed responses to public unsolicited requests for off-label information made through electronic media. Although the FDA recognizes that addressing off-label use to the general public can result in potential benefits to the public health, the agency continues to have significant concerns about broad, public responses. First, the FDA is concerned that product information posted on websites or other public forums may provide information about off-label use to individuals who have not requested such information, and would thus promote a product for a use or condition not approved or cleared by the FDA. Secondly, the FDA is concerned that the information posted on websites or other public forums would be available for an indefinite amount of time, and could pose a serious risk to public safety if new scientific advances render the posted information outdated or obsolete. Based on these concerns, the FDA recommends that firms only respond to requests pertaining specifically to its own named product. Further, firms should omit any information pertaining to off-label usage, should provide the individual requesting information with the firm’s contact information, and should recommend that the individual contact a medical/scientific representative with the specific unsolicited request to obtain more information. Any public response should disclose a representative’s relationship to the firm and should not be promotional in nature. 

In addition to this draft guidance, the FDA also issued a notice in the Federal Register on December 28, 2011, announcing the comment-period for scientific exchange. (For the full text of this notice, please click here.) At present, FDA regulations do not restrict the promotion of the “exchange of scientific information” regarding an investigational drug or device. The FDA, however, has yet to define the scope of scientific exchange. This notice, a direct response to a Citizen Petition jointly filed by several major pharmaceutical manufacturers, seeks comments on all aspects of scientific exchange communications and activities related to off-label uses of marketed drugs, biologics, and devices and use of products that are not yet legally marketed.

Specifically, the FDA seeks comments on how “scientific exchange” should be defined, what types of activities fall under scientific exchange, how to determine the players involved in scientific exchange, how it should be distinguished from promotion, and how the FDA should treat scientific exchange for products that have not been approved or cleared by the FDA. These comments will help the FDA to evaluate its policies on off-label uses and possible pre-approval communications. The FDA will accept comments through March 27, 2012.

Fuerst Ittleman will continue to monitor any developments in the FDA’s regulation of off-label uses for medical drugs and devices. For more information, please contact us at contact@fuerstlaw.com.

On January 9, 2012, the IRS  reopened the Offshore Voluntary Disclosure Program (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.

The 2012 program will be open for an indefinite period.  Unlike the 2009 and 2011 programs, the 2012 program contains is no set deadline for people to apply.  However, the terms of the program are subject to  change by the IRS at any time with no advanced warning.

For the 2012 program, the penalty for failing to disclose their foreign bank accounts by failing to file a Form TD 90.22-1 is 27.5 percent of the highest aggregate balance during the eight full tax years prior to the disclosure. That is a small (2.5%) increase from 25 percent in the 2011 program. However, certain taxpayers will be eligible for 5% or 12.5% penalties that were available under the 2009 and 2011 programs. 

Like the 2009 program, participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties (usually 20% of the additional tax owed, which is separate and apart from the Bank Secrecy Act penalty of 27.5%). 

The announcement on the IRS website is available here.

The attorneys at Fuerst Ittleman have extensive experience working with taxpayers who have undisclosed foreign bank accounts and who have availed themselves of the IRS’s voluntary disclosure program.  You can reach an attorney by emailing us at  contact@fuerstlaw.com.

On December 31, 2011, President Barack Obama signed into law the National Defense Authorization Act. Among the various provisions included within the $662 billion defense spending bill are new sanctions that focus on foreign financial institutions which engage in financial transactions with the Central Bank of Iran and those which engage in financial transactions for the purposes of purchasing oil and petroleum products. However, because the new sanction provisions provide for several exceptions and waivers it is uncertain what effect, if any, they will have on foreign financial institutions engaging in business in the United States.

As we have previously reported, Iran is already subject to broad and sweeping sanctions which are administered by the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury. The Iranian Transactions Regulations (“ITR”), which are found at 31 C.F.R. part 560, were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC. General information regarding economic sanctions against Iran can be found at OFAC’s website here.

The new sanctions go further than those previously in place by prohibiting the opening of any correspondent account or payable-through account in the US by foreign financial institutions which “knowingly conducted or facilitated any significant financial transactions with the Central Bank of Iran.” Additionally, the new sanctions “shall apply with respect to a foreign financial institution owned or controlled by government of a foreign country, including a central bank of a foreign country, only insofar as it engages in a financial transaction for the sale or purchase of petroleum or petroleum products to or from Iran.” The practical effect of these sanctions would be to prohibit many countries, including allies of the US, from purchasing petroleum from Iran.

The broad language of the Act originally raised fears that the sanctions would drive oil prices up and alienate US allies that currently depend upon Iran for its oil supplies. However, Congress and the White House hoped to quash those fears by giving the President flexibility in his implementation of the sanctions program.

First, the statute provides that the sanctions scheme will not take effect until the President determines “that there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.” The President must make an initial determination within 90 days of the enactment of the Act and every 180 days thereafter. As a result, the President has the flexibility of delaying the ultimate implementation of the Act.

Second, once the sanctions take effect, the Act gives the President the authority to grant exemptions to foreign financial institutions that are located in countries which “significantly reduced its volume of crude oil purchases from Iran” in the prior 180 days. Finally, the Act provides that the President may waive the imposition of sanctions on a foreign financial institution “if the President determines that such a waiver is in the national security interest of the United States.”

Given the broad discretionary powers of the President in implementing the new Iranian sanction scheme, it is possible that foreign financial institutions may see little to no changes in their business dealings with Iran in the near future. Fuerst Ittleman, PL will continue to watch for developments in the implementation of the new Iranian sanctions program with a keen eye. For more information regarding the Iranian Sanctions Program, the Iranian Transaction Regulations, OFAC and for strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fuerstlaw.com

On December 2, 2011, the IRS issued Notice CC-2012-002, available here, setting forth the IRS’s position “that a federal common law analysis to prove alter ego status is legally correct and consistent with the important principle of uniformity of federal tax enforcement.”  The Notice is in response to recent U.S. Circuit Court of Appeals cases, Old West Annuity and Life Insurance Co. v. Apollo Group, 605 F.3d 856 (11th Cir. 2010), United States v. Scherping, 187 F.3d 796 (8th Cir. 1999) and Floyd v. IRS, 151 F.3d 1295 (10th Cir. 1998) holding that federal courts must look to state property law before determining if a federal tax lien attaches to the property or rights to the property. 

The IRS takes this new position based on a strained reading of the U.S. Supreme Court’s holding in G.M. Leasing Corp. v. United States, 429 U.S. 338, 351 (1977), to conclude that “if an entity is a taxpayer’s alter ego, then it is appropriate to ‘regard’ all of the entity’s assets as the taxpayer’s property for federal collection purposes.”

The significance of the Notice is that taxpayers now must be ready to counter IRS efforts to apply “federal common law” instead of more favorable state law.  The result will be, at least in the short term, that the IRS will seek to challenge state law and will seek to aggressively enforce tax liens against taxpayers who own business entities.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating against the IRS and the U.S. Department of Justice in tax lien and collection matters.  You can reach an attorney by emailing us at  contact@fuerstlaw.com.

On January 3, 2012, a grand jury sitting in the Southern District of New York returned an indictment charging Michael Berlinka, Urs Frei, and Roger Keller with conspiracy to defraud the United States in violation of 18 U.S.C. section 371.  The indictment alleges that the three Defendants worked at a Swiss Bank that actively solicited American taxpayers who were fleeing UBS in the wake of the 2008 Department of Justice investigation and deferred prosecution agreement against UBS.

The indictment alleges that the Defendants sought to take advantage of the UBS investigation by offering to allow American taxpayers to open bank accounts that would not be disclosed to the IRS.  American taxpayers maintaining financial accounts abroad have an obligation under Title 31 of the United States Code to file Form TD90-22.1 (Report of Foreign Bank and Financial Accounts (“FBAR”)), available here, with the United States Treasury Department.  The willful failure to file an FBAR form is a felony.  The Defendants, according to the indictment, gave as part of their sales pitch to prospective clients assurances that the bank accounts would not be disclosed because the bank had a long tradition of bank secrecy and did not have offices outside of Switzerland.   The Defendants opened accounts at the bank in the name of sham corporations and foundations in jurisdictions that the IRS considers to be tax havens.

In order to ensure that the accounts would remain secret, account holders names were not used, statements  were not mailed to the United States, and emails were sent from personal accounts instead of business email accounts, all with the aim of reducing the risk of detection by U.S. law enforcement.  To that end, according to the indictment, the Defendants used a third-party website called “SwissPrivateBank.com” to solicit new business from American taxpayers.  The indictment goes on to detail, without naming, various individuals who had accounts opened by the Defendants with the aim of avoiding IRS detection and to avoid income tax obligations.     

A full copy of the indictment is available here. 

The attorneys at Fuerst Ittleman have experience with IRS and Department of Justice investigations of U.S. taxpayers who have unreported income and undeclared foreign bank accounts.  You can reach an attorney by emailing us at:  contact@fuerstlaw.com, or by calling us at  305.350.5690.

On November 8, 2011, a grand jury sitting in the U.S. Virgin Islands returned a second superseding indictment in the case of United States of America and People of the Virgin Islands, v. Joseph Edge and Laura Edge, case # 3:10-cr-44. The indictment charged that the defendants had conspired to structure financial transactions and had violated and 33 V.I.C. section 1521, the Virgin Islands tax evasion statute.

A copy of the indictment can be found here

The Bank Secrecy Act (BSA) is codified at Title 31 of the United States Code and prohibits, among other things, the structuring of transactions with financial institutions in order to avoid the $10,000 reporting requirement for cash transactions. The indictment alleged that the Defendants used various business entities to attempt to conceal earned income by causing personal debts to be paid through the business entities.

The significance of the indictment is that the U.S. Department of Justice has now turned its eye on those U.S. citizens residing in the U.S. Virgin Islands who are in violation of the BSA and for related tax crimes.

The attorneys at Fuerst Ittleman have extensive experience defending against criminal violations of the BSA and the Internal Revenue Code throughout the country and in the U.S. Virgin Islands. Additionally, Joseph A. DiRuzzo is licensed to practice in the U.S. Virgin Islands and has litigated dozens of criminal cases there. You can reach an attorney by emailing us at: contact@fuerstlaw.com.

On December 13, 2011, the U.S. Department of Justice ("DOJ") announced that it formally brought charges against eight former executives and agents of Siemens AG. The indictment, found here, charges the defendants with violating various federal laws, including conspiracy to violate the Foreign Corrupt Practices Act ("FCPA").

According to the DOJ, the defendants sent bribes to officials in the Argentine government in order to secure a coveted contract for the Documento Nacional de Identidad ("DNI Project"), a project to replace the country’s national identity booklets with national identity cards. In addition to the alleged bribes to secure the contract, Siemens AG executives allegedly made further corrupt payments when the DNI Project was suspended and later pursued fraudulent arbitration in Washington D.C. against the Argentine government in an effort to recover profits that the company would have received had the Project not ultimately been terminated. In sum, the DOJ alleges that the conspiracy spanned almost two decades, from 1996 to 2009, and involved the commitment of over $100 million in bribes.

The FCPA makes it a crime for U.S. persons or companies, along with their subsidiaries and agents, to bribe officials of foreign countries in return for some business advantage. As we previously reported, the U.S. government has made it a priority to prosecute individuals and companies for violations of the FCPA, having secured lengthy prison sentences as well as hefty fines for offenders in 2011 alone. The DOJ has emphasized that heightened enforcement efforts aimed at thwarting corrupt payments to foreign officials will continue. This indictment against senior executives of a huge multi-national corporation with worldwide operations showcases the high profile of FCPA enforcement and prosecutions within the DOJ.

For more information about the FCPA or Fuerst Ittleman’s experience in defending against criminal investigations and prosecutions for white collar offenses, please contact us at contact@fuerstlaw.com.

In Gustashaw v. Comm’r, T.C. Memo 2011-195 (T.C. 2011), the Tax Court held that the taxpayers who conceded deficiencies in tax attributable to  participation in a Custom Adjustable Rate Debt Structure (CARDS) transaction are liable for accuracy-related penalties for gross valuation misstatements or, for 1 year, negligence, on account of resulting underpayments in tax.

The relevant facts are fairly straightforward. The Taxpayer exercised certain stock options, sold the stock and realized approximately $8M of income. The Taxpayer’s financial planner knew about the CARDS transaction, and the taxpayer consulted with a CPA  who promoted and arranged the CARDS transaction.  However, the taxpayer’s return preparer refused to prepare the income tax return without a tax opinion letter supporting the CARDS transaction and the related loss used to offset capital gains on the sale of the stock (the $8M gain).

The CPA provided a model tax opinion letter to the taxpayer from a major law firm.  The opinion letter  concluded that CARDS  transaction would more likely than not withstand an Internal Revenue Service examination and would protect the Taxpayer from substantial tax penalties if the transaction was ultimately disregarded for Federal tax purposes.  The Taxpayer subsequently received a formal tax opinion letter from the same major law firm, which arrived at the same "more likely than not" conclusions as the model tax opinion letter.

The Tax Court, in addressing the Taxpayer’s penalty defense based on reasonable cause, found that  “[the Taxpayer’s] reliance on  [the law firm’s] tax opinion letter was unreasonable because they should have known about the law firm’s inherent conflict of interest. [The CPA], the promoter of CARDS, both referred [the law firm] to [the Taxpayer] and supplied him with the law firm’s model tax opinion letter, which described a CARDS transaction that was not unique to [the Taxpayer’s] situation. [The Taxpayer] proffered no evidence that [the Taxpayer] had an engagement letter with [the law firm] spoke to any attorney at the law firm, or directly compensated [the law firm] for either tax opinion letter. On the facts presented, [the Taxpayer] could not have reasonably believed that [the law firm] was an independent adviser.”

A full copy of the opinion can be found here.

The teaching of Gustashaw is that a tax opinion must be tailored to the facts and circumstances of each taxpayer and “model” opinions can be problematic.  Likewise, penalty defenses based on tax opinions must be well developed and factually based in order to be successful in Tax Court litigation.

The attorneys at Fuerst Ittleman have experience in providing tax opinions and defending against penalties based on tax opinion reliance.  You can contact an attorney by emailing us at contact@fuerstlaw.com.

On November 17, 2011, a grand jury in the Northern District of California returned an indictment against Ashvin Desai alleging violation of 26 U.S.C. sections 7201 (tax evasion) and 7206(2) (aiding in the preparation of a false tax return); 31 U.S.C. sections 5314 and 5322 (failure to file report of foreign bank and financial accounts). A copy of the indictment can be found here.

The indictment against Mr. Desai provides as follows:

“[The Defendant] who during the calendar year 2008 was married, did willfully attempt to evade and defeat a large part of the income tax due and owing by him and his spouse to the United States of America for the calendar year 2008, by preparing and causing to be prepared, and by signing and causing to be signed, a false and fraudulent joint U.S. Individual Income Tax Return, Form 1040, on behalf of himself and his wife, which was filed with the Internal Revenue Service. In that false income tax return, it was stated that their joint taxable income for the calendar year 2008 was $69,917.84 and that the amount of tax due and owing thereon was $6,156.88. In fact, as DESAI then and there knew, their joint taxable income for the calendar year was in excess of the amount stated on the return, and, upon the additional taxable income an additional tax was due and owing to the United States of America, and he had an interest in, and signature or other authority over, bank accounts located in India during calendar year 2008.”

The significance of this criminal indictment is that the IRS’s and the U.S. Department of Justice’s investigation of those holding unreported foreign bank accounts at HSBC have now started to produce tax evasion and FBAR failure to file cases against U.S. citizens who have attempted to use HSBC to avoid paying taxes to the U.S. government. This appears to be the first of many such cases as Title 31 violations are the criminal charge of the moment.

The attorneys at Fuerst Ittleman have experience defending against IRS investigations/audits and Department of Justice investigations and criminal prosecutions for those with unreported foreign bank accounts and unreported/under-reported income. You can reach an attorney by emailing us at: contact@fuerstlaw.com.

On December 20, 2011, Brent Beckley, co-owner of Absolute Poker, an internet poker website, pled guilty to conspiracy to violate the Unlawful Internet Gambling Enforcement Act (“UIGEA”), mail fraud, and wire fraud in connection to his operation of the internet poker website. In pleading guilty before Magistrate Judge Ronald Ellis of the United States District Court for the Southern District of New York, Beckley admitted his wrongdoing: “I knew that it was illegal to accept credit cards from players to gamble on the internet.”

While internet pay-for-play poker remains very popular, generating $5.1 billion in revenues last year alone, Beckley’s prosecution stems from a larger effort by Federal prosecutors to target internet gambling websites for violations of federal law. Although the law does not specifically address internet pay for play poker sites, UIGEA defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. However, since UIGEA’s passage, debate has raged over whether pay for play poker actually violates federal law with poker sites and federal prosecutors reaching opposite conclusions. Internet poker site operators have argued that UIGEA does not apply because poker should be classified as a game of skill, not a game of chance, and thus beyond the reach of UIGEA.

As we previously reported, on April 15, 2011, federal prosecutors indicted eleven people, including Mr. Beckley, in connection with their involvement in running internet poker websites PokerStars, Full Tilt Poker, and Absolute Poker. Prosecutors alleged that after the passage of a 2006 law which prohibited banks from processing payments to offshore gambling websites, the defendants engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred by using third party payment processors to make funds appear as payments for goods and services to non-existent online merchants and fake companies.

Beckley is scheduled to be sentenced on April 19, 2012 and is expected to receive between 12 and 18 months imprisonment as punishment. If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittleman’s experience litigating white collar criminal cases, please contact us at contact@fuerstlaw.com.