The next bank to draw the attention of the Internal Revenue Service (IRS) after the UBS investigation, on which we previously reported, is London-based HSBC. 

The Department of Justice (DOJ) has begun a criminal investigation of U.S. taxpayers using HSBC Holdings PLC accounts in India and Singapore to evade domestic taxes.  The DOJ is investigating whether the taxpayers have violated federal law by failing to report financial interests in accounts held in foreign countries.

Over the past two months, at least 15 or more HSBC clients have received correspondence from the U.S. government indicating that they will be investigated for tax evasion.  Two HSBC customers will be in front of a federal court in Fort Lauderdale on tax evasions charges on September 7.

It has been estimated that there is approximately $700 billion in untaxed wealth in Asia where HSBC maintains a prominent presence.  HSBC was founded in Hong Kong in 1865.  The Internal Revenue Service (IRS) will be placing 800 new agents overseas to strengthen its international operations due to President Obama’s goal to crack down on tax evasion.  Many of those agents will be heading to Asia.

HSBC is cooperating with authorities, unlike UBS which initially refused to release the names of its U.S. customers to authorities.  HSBC has already turned over names and customer service audio tapes to U.S. officials.

The IRS and DOJ have been investigating U.S. taxpayers using accounts with UBS in Switzerland to evade taxes by not reporting income on the assets in the accounts.  (See IRS announcement here and DOJ announcement here.)  UBS was recently hit with $780 million fine for hiding U.S. taxpayer assets.  It appears as if the IRS and DOJ interest in international banks will continue to spread and that the agencies will continue to take on tax evaders internationally.

For more information on international tax issues, please contact our tax attorneys at contact@fuerstlaw.com.

The Foreign Account Tax Compliance ACT (FATCA) is Congress’s newest attempt to tackle tax evasion, specifically that which occurs through the utilization of offshore accounts.  Nearly all provisions of the FATCA were incorporated into law with the enactment of the Hiring Incentives to Restore Employment Act (HIRE Act) in March of this year. The enacted FATCA provisions will become effective in 2013.

Douglas H. Schulman, Commissioner of the Internal Revenue Service, spoke about the newly enacted FATCA before the Organization for Economic Cooperation and Development (OECD).  During his speech, Commissioner Schulman described offshore tax evasion as “an issue of fundamental fairness.” “Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.” 

Commissioner Schulman attributed offshore tax evasion to bank secrecy jurisdictions, in which financial institutions essentially allow U.S. taxpayers to hide their money free of any possibility of disclosure to the IRS.  Many strategies have been employed to address bank secrecy, including international tax standards on information exchanges developed by the OECD and agreements with foreign governments regarding the release of information pertaining to U.S. account holders.  The IRS also developed a special voluntary disclosure program which provided incentives for U.S. persons who voluntarily disclosed their non-U.S. bank accounts through a temporary penalty framework.

Unlike the voluntary disclosure program, the FATCA is not based on an incentive system. The FATCA created new code sections to the Internal Revenue Code (I.R.C) which impose a 30 percent withholding tax to foreign financial institutions which do not take the appropriate measures to “avoid” the withholding tax.  These avoidance measures are included in 26 I.R.C. § 1471(b), which provides as follows:

(1) The requirements of this subsection are met with respect to any foreign financial institution if an agreement is in effect between such institution and the Secretary under which such institution agrees–
(A) to obtain such information regarding each holder of each account maintained by such institution as is necessary to determine which (if any) of such accounts are United States accounts,
(B) to comply with such verification and due diligence procedures as the Secretary may require with respect to the identification of United States accounts,
(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account,
(D) to deduct and withhold a tax equal to 30 percent of–
(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and
(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection,
(E) to comply with requests by the Secretary for additional information with respect to any United States account maintained by such institution, and
(F) in any case in which any foreign law would (but for a waiver described in clause (i)) prevent the reporting of any information referred to in this subsection or subsection (c) with respect to any united states account maintained by such institution—
(i) to attempt to obtain a valid and effective waiver of such law from each holder of such account, and
(ii) if a waiver described in clause (i) is not obtained from each such holder within a reasonable period of time, to close such account. 

The FATCA further requires all foreign entities to choose between a 30 percent withholding tax or compliance with reporting requirements. I.R.C. §1472 provides a withholding tax of 30 percent on the amount of any withholdable payment to a nonfinancial foreign entity.  In order to “avoid” this tax, the beneficial owner must comply with the requirements in subsection (b) which states:

(1) Such beneficial owner or the payee provides the withholding agent with either-
(A) a certification that such beneficial owner does not have any substantial United States owners, or
(B) the name, address, and TIN of each substantial United States owner of such beneficial owner,
(2) The withholding agent does not know, or have reason to know, that any information provided under paragraph (1) is incorrect, and
(3) The withholding agent reports the information provided under paragraph (1)(B) to the Secretary in such manner as the Secretary may provide.

The FATCA includes additional reporting requirements for passive foreign investment companies and foreign trusts, and also adds increased penalties for individuals who fail to furnish information regarding foreign assets.  

The FATCA does not waive or replace any reporting requirements already in place. Taxpayers are still required to comply with the requirements of Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  The FATCA’s reporting requirements supplement the FBAR, and often impose reporting requirements where the FBAR does not.  Individuals and entities that were not in the scope of the FBAR may still be within the scope of the FATCA.

The drastic measures of the FATCA may result in foreign financial institutions deciding not to manage U.S. account holders.  Many Swiss banks have “thrown out” their American clients.  Other Swiss banks, such as Vontobel and Franck, have seen the legislation as a business opportunity and have launched separate banks dedicated to wealth management for U.S clients.  These banks are aimed at the “sine qua non” of being in perfect order with the IRS.

Other possible consequences include foreign financial institutions becoming reluctant to invest in U.S. stocks and bonds.  Also, foreign jurisdictions may pass reciprocal legislation requesting U.S. financial institutions to make a choice between paying a hefty withholding tax or incurring expenses associated with compliance with the reporting requirements. 

The FATCA is a significant effort to monitor offshore transactions.   Although the legislation may have some unintended consequences, it is very likely to achieve the goals of reducing tax evasion resulting from offshore accounts.   As stated by Stephanie Jarret, the head of the Wealth Management Practice Group at Baker & McKenzie in Geneva, “[m]anaging U.S. clients is complicated. . . [b]ut isn’t the trend toward complexity inevitable?”

If you have any questions regarding the FATCA or any other tax provision, please contact Fuerst Ittleman, PL at contact@fuerstlaw.com

Indoor tanning has drawn the attention of both the Internal Revenue Service (IRS) and the U.S. Food and Drug Administration (FDA) recently. Both administrative bodies are taking action that will have effects on the indoor tanning industry.

IRS Announces New Tax on Indoor Tanning

The IRS has announced new regulations administering a 10-percent excise tax on indoor tanning that became effective on July 1, just in time for the summer vacation season. (The IRS announcement is available here.) Indoor tanning salons will collect the new tax when a customer pays for tanning services. The tanning salon then pays that tax to the federal government on a quarterly basis.

Phototherapy services that are performed by a licensed medical professional are exempt from this excise tax. Additionally, some physical fitness facilities that offer tanning as a supplementary service to members without charging a separate fee are exempt.

There are some record-keeping aspects of this new tax and tanning salon owners need to be aware of the new regulations and IRS guidance when conducting business.

FDA Warns of Tanning Health Risks

The FDA has issued a Consumer Health Information publication titled Indoor Tanning: The Risks of Ultraviolet Rays warning of the dangers posed by devices such as sunlamps and tanning beds. FDA scientists are cautioning consumers that a tan is the skin’s reaction to exposure to UV rays and that this damage will lead to prematurely aged skin and could possibly result in skin cancer.

The FDA regulates radiation-emitting products, including sunlamps and products that contain sunlamps, like tanning beds, tanning booths, and portable home units. The FDA has taken UV-exposure studies conducted by FDA officials and the National Cancer Institute (NCI) under review and is considering whether it is necessary to change the performance standards for sunlamp products.

In March of this year, the FDA held an advisory committee meeting seeking independent, professional expertise and advise on regulatory issues related to tanning devices. At this public meeting, the agency heard many suggestions from health professionals, scientists, tanning industry representatives, and consumers. The FDA is now considering revising some requirements for tanning beds including strengthening the warning labels to make consumers more aware of the risks the sunlamps present.

Tanning salons use lamps that emit both UV-A and UV-B radiation, both of which damage the skin and cause skin cancer. The FDA lists premature aging, immune suppression, eye damage, and allergic reaction as additional risks posed by tanning. Moreover, the FDA has noted that sunlamps could be more dangerous than the sun because the sunlamps can be used at the same high intensity every day of the year, unlike the sun’s intensity which can vary depending on the time of day and the season.

The FDA has expressed particular concern about children and teenagers exposed to UV rays particularly because teenage girls and young women make up a large number of tanning salon customers.

For more information on how FDA medical device regulations or the new IRS excise tax could affect your business, please contact us at contact@fuerstlaw.com.

IRS associate chief counsel (international), Steven Musher, told tax practitioners on June 21, 2010, that the IRS will attempt to balance the needs of taxpayers and their advisers when issuing guidance on the Foreign Account Tax Compliance Act (FATCA)(1). Musher stated that the IRS is weighing the benefits of issuing quick guidance against the push to make that guidance as comprehensive as possible. He explained that the government realizes how important FATCA guidance is to taxpayers, but issuing guidance too quickly may result guidance that is overly broad. During the conversation, Musher stated that the government intends to issue FATCA guidance in several parts over time.

FATCA was enacted on March 18, 2010 with a stated purpose to prevent perceived tax evasion, possible money laundering and terrorist financing activities. According to Musher, the IRS’s plan is to issue an initial round of guidance that will attempt to answer important questions, as determined by meetings conducted by the IRS with stakeholders, in headline form. Musher said the initial round of guidance may include information about the following: which financial institutions will be subject to the rules; which accounts are subject to the regulations; exemptions available to entities from statute requirements; and an interpretation of the statute’s grandfather provisions.

In addition to speaking with tax practitioners about FATCA guidance, Musher spoke about the act’s withholding regime. FATCA, in part, contains a 30% withholding requirement on specific payments and a reporting requirement that financial intermediaries report US account holders to the Treasury. According to Musher, the IRS is trying to design a system that creates reporting rather than a withholding regime through a manner of processes. Musher added that if one were to obtain a refund, documentation, presumably to prevent fraud, would need to be produced.

Other items in FATCA that may need guidance include the types of payments subject to withholding. To that, Musher provided that congressional intent pointed to “business oriented payments” as being a possible payment category exposed to FATCA.

Musher concluded by stating that the rules are partly designed to minimize the need for refunds, but that some taxpayers will deserve refunded amounts, and thus the IRS will have to prepare a refund process.

If you have any questions regarding the FATCA or any other tax provision, please contact Fuerst Ittleman, PL at contact@fuerstlaw.com.

(1) FATCA was enacted by the Hiring Incentives to Restore Employment Act (P.L. 111-147), requiring, in part, that non US financial institutions disclose data to the IRS on entities that invest in accounts outside the United States. FACTA also requires non US entities to provide information about US account owners to withholding agents.

Switzerland’s lower house voted on June 8 to reject a bill that would have allowed the Swiss government to provide the United States with names of UBS account holders allegedly dodging United States taxes. The vote has jeopardized a deal with the U.S. government concerning a tax battle with UBS AG, a giant global financial services company headquartered in Basel and Zurich Switzerland.

The U.S. and Switzerland reached a deal in August last year to settle a case involving hidden offshore accounts at UBS AG. The U.S. accused UBS of having helped thousands of Americans avoid paying taxes in the U.S by setting up offshore accounts. UBS admitted wrongdoing and agreed to provide the U.S. Internal Revenue Service (IRS) with the names of 4,450 American account holders by August. The U.S. has alleged that UBS AG has helped Americans hide approximately $20 billion.

A Swiss court threw a wrench in the works, however, in January when it ruled that the deal broke Swiss law. In April, the government presented a special bill that would have laid the legal groundwork to allow it to hand over the names. The Swiss Senate approved the bill in May.

On June 8 the IRS said it is prepared to reopen its case against UBS AG if the Swiss fail to meet the August deadline. An IRS spokesman indicated that the IRS is ready to pursue any legal options available if the Swiss do not provide the information required.

The Swiss government had hoped to put its dispute with the U.S. to rest and the rejection of the bill in the lower house puts a damper on that hope. If an agreement cannot be reached before the Swiss parliament adjorns later in June, the deal between the U.S. and UBS could be voided. These developments also complicate UBS AG’s efforts to rehabilitate its image and improve its wealth-management department. The wealth-management unit which has seen a significant loss of clients as a result of the U.S. tax squabble.

The Swiss parliament is seeking a compromise that could lead to another vote on the bill in both chambers. There is obviously considerable time pressure to obtain another vote. The U.S. has indicated that it will not extend the August deadline. If Switzerland does not hand over the names, the U.S. could begin a new tax case against UBS AG.

The current tax case against UBS AG has been particularly damaging to the bank’s wealth-management unit. The U.S. case has opened the door to pressure from other European states to urge Switzerland to loosen its bank-secrecy laws and relinquish its status as a tax haven. UBS AG has lost about 1,500 private bankers and the bank’s wealth-management department has experienced an outflow of almost $200 billion since 2008.

The realm of tax law has been significantly changed by the recent codification of the economic substance doctrine in the Health Care and Education Reconciliation Act of 2010(i) supplementing the Patient Protection and Affordable Care Act(ii), signed into law on March 30, 2010 (together, herein, as the “Act”).  The new provision takes a judicially created doctrine that has existed for decades and turns it into a statutory weapon for the Internal Revenue Service (IRS) to use.  With this codification, taxpayers need to pay attention and beware. 

There are several judicially created tax law doctrines, including the business purpose, sham transaction, and step transaction doctrines.  However, the Act’s inclusion of the economic substance doctrine represents the first codification of a judicially created doctrine.  The new provision provides for the imposition of severe penalties for violations of the economic substance doctrine.

History of the Economic Substance Doctrine

The substance over form doctrine provides that even though the form of a taxpayer’s transaction may have met the literal requirements of a statute or regulation, the court can still look to whether the transaction’s substance was consistent with its form.(iii)  The purpose of the substance over form doctrine being that a transaction that lacks such substance should not be given the tax benefit prescribed for the form of the transaction.  In other words, a taxpayer is usually bound to the form it has chosen, however, the government may dispute that form on the basis that the form does not reflect the actual substance of the transaction.

The economic substance doctrine is a subcategory of the substance over from doctrine.   The economic substance doctrine, a judicially created principle, has been treated by courts as a principle of statutory interpretation to construe the text of the Internal Revenue Code (IRC).  This doctrine allows the government to reclassify a transaction in a way that reflects its substance when the transaction has no economic substance other than its tax consequences.  The IRS and courts have used the economic substance doctrine as a primary tool in challenging questionable tax shelters.

The doctrine is universally recognized and applied by the courts.  However, the doctrine has not been consistently applied in the U.S. Circuit Courts of Appeal.  The Fourth and D.C. Circuits have adopted a two-prong conjunctive test.  In order to disregard a transaction for federal income tax purposes under this test, the court must conclude the transaction fails two requirements: 1) subjective business purpose, and 2) objective profit potential.  The Sixth, Eleventh, and Federal Circuits adopted the same test but in a disjunctive fashion.  Under the disjunctive version of the test, if the transaction fails either of the two prongs, the transaction at issue may be disregarded.  Finally, the Third, Ninth, and Tenth Circuits, adopted a unitary test in which the subjective business purpose and the objective profit potential combined shape the analysis of the transaction’s substance in relation to the tax consequences. 

The Act’s Codification of the Doctrine

The Act provides that the economic substance doctrine will be applied in any situation in which the courts would have applied it in the past.  Therefore, there is no definition as to when the doctrine should be applied.  The law codifies the conjunctive test previously applied by some jurisdictions, requiring that the taxpayer show that the transaction: 1) changes in a meaningful way (apart from federal income tax effects) the taxpayer’s economic position, and 2) that the taxpayer has a substantial non-tax purpose for entering into the transaction.(iv)

For a taxpayer to justify a transaction using potential economic profit, the taxpayer must demonstrate that the pre-tax profit is substantial in relation to the present value of the expected tax benefits.  The taxpayer may take into consideration fees expenses, and foreign taxes when determining pre-tax profit but state tax and financial accounting benefits do not count if the benefits are related to the federal tax treatment.

A noteworthy aspect of this provision is that the IRS may dissect any transaction or series of transaction if it claims that specific parts of the transaction fail the economic substance test even if, overall, the transaction is driven by non-tax economic reasons.(v)

With the enactment of this new law, Congress has indicated that it does not intend to alter the tax treatment of specific business transactions, like choosing to capitalize a business enterprise with debt or equity, engaging in corporate reorganization or choosing a foreign or domestic entity to make a foreign investment. 

The penalties dictated by this provision are a major facet of which taxpayers and tax professionals need to be aware.  A penalty equal to 20% of the tax is assessed if the transaction fails the two-prong test.  The penalty jumps to 40% of the tax if the IRS finds that the transaction was not sufficiently disclosed.  Moreover, taxpayer does not get to show that it had reasonable cause for its position regarding the transaction at issue.  If the taxpayer loses, the 20% or 40% penalty is automatic.

The new law, along with the resulting penalties, is already in effect.  All transactions that occur after March 30, 2010 are subject to the rule.

Conclusion

With the codification of the economic substance doctrine in the Act, Congress has provided the IRS with a serious weapon to utilize in its examinations.  The effects will likely be seen from the IRS, taxpayer, and tax practitioner perspectives.  Tax professionals may be less apt to push the boundaries with innovative tax planning and structuring transactions.  Additionally, IRS agents conducting examinations will likely be quick to use this new power instilled by the codification of the doctrine.  Ultimately, because the government has provided no guidance in the law and because the previous case law concerning this doctrine is so inconsistent, taxpayers must act at their own risk when entering into tax-benefitting transactions now that the economic substance doctrine has been codified.

A major escalation in revenue for pharmaceutical and medical device manufacturers, both large and small, will be the inevitable consequence of the increased number of insured Americans as a result of the recently enacted healthcare legislation. Approximately 30 million more Americans will have access to health insurance as a result of the developing overhaul of the public and private healthcare systems in the United States.

Small businesses in the pharmaceutical or medical device industries, and those small companies wishing to break into these industries, should pay attention to certain the new Therapeutic Discovery Project Program (the “Program”) provided for in the Patient Protection and Affordable Care Act (the “Act”), signed into law by President Obama on March 23, 2010. The program is geared toward promoting the development of new therapeutics by small businesses. Here we outline two of the Act’s provisions aimed at encouraging the development and growth of small pharmaceutical and medical device companies that are operating in the development of new therapies.

Small Business Tax Credit to Encourage Development of New Therapies

Under the Act, the government is providing a Qualifying Therapeutic Discovery Project Credit. This is a tax credit available to companies with 250 or fewer employees. The credit is designed to encourage the research and development of new therapies in the pharmaceutical and medical device industries. The tax credit is available for an amount equal to 50% of “qualified investments” made in the years 2009 and 2010. There is a maximum credit of $5 million per firm available with $1 billion available in total. “Qualified investments” are costs directly related to conducting a “qualifying therapeutic discovery project” that are incurred during the taxable year.

“Qualifying therapeutic discovery projects” include three different categories of pharmaceutical or medical device endeavors:

1. Projects designed to treat or prevent diseases through conducting pre-clinical or clinical studies and research protocols;
2. Projects that intend to diagnose diseases or conditions or to develop diagnostic procedures to assist doctors and patients in making therapy decisions; and
3. Projects with the purpose of creating or developing a product or technology to further the delivery of therapeutics.
This credit is geared toward projects that show potential to produce new therapies, address unmet medical needs, reduce the long-term growth of healthcare costs, and advance the goal of curing cancer within the next 30 years. This tax credit’s allocation will also factor the projects’ potential to create and sustain jobs in the United States.

Small businesses that have engaged in any of these categories of projects in the tax year 2009 or plan to operate projects of this nature in 2010 are eligible for consideration for this tax credit.

The Internal Revenue Service (IRS) released guidance (more information available here) on May 24, 2010 outlining the process by which firms can apply to have their research projects certified as eligible for this credit. Small businesses interested in taking advantage of this tax credit must submit an application to the Secretary of Health and Human Services (the “Secretary”) for consideration. The Secretary, when determining which businesses will receive the credit, will consider projects that show potential to develop new therapies in areas of medicine where there are unmet needs, projects that are seeking to develop treatment and prevention methods for chronic or severe diseases, and those operations that intend to advance the goal of discovering a cure for cancer. The Secretary will also take into consideration the project’s potential for creating jobs and advancing the United States’ competitiveness in the biological and medical sciences.

Small business owners and operators who have interest in taking advantage of this credit should speak with their tax attorneys as the $1 billion allocated for this tax credit could be utilized rather quickly given the high cost of drug and device research and development. Firms may begin submitting applications for certification beginning June 21, 2010 and applications must be postmarked no later than July 21, 2010.

Research and Development Grant Program

The Cures Acceleration Network (“CAN”) is a program to be implemented by the Act and administered by the National Institute of Health (“NIH”). (More information from the National Cancer Institute here.) The purpose of CAN will be to award grants and contracts to eligible entities. This program is especially relevant to start-up firms that are not yet profitable. These grants are not includable in the taxpayer’s gross income.

These awards will be for the promotion and acceleration of the development of “high need cures…through the development of medical products and behavioral therapies.” A “high need cure” is a drug, device, or biologic that “is a priority to diagnose, mitigate, prevent, or treat harm from any disease or condition; and for which the incentives of the commercial market are unlikely to result in its adequate or timely development.” Whether or not a drug, device, or biologic is a high need cure is determined by NIH.

CAN’s functions will include supporting advances in research, awarding grants to eligible entities to promote the advancement of high need cures, reduce obstacles that often come between laboratory discoveries and clinical trials for new therapies, and facilitate review in the United States Food and Drug Administration (“FDA”) for high need cures. CAN will communicate and coordinate with FDA to help expedite development by ensuring strict adherence to FDA regulations and requirements during protocols and clinical trials.

Entities eligible for a CAN award include any public or private entity, including biotechnology companies, pharmaceutical companies, disease advocacy organizations, medical centers, and research institutions.

The award program supported by CAN includes three different types of awards, described as follows:

1. The Cures Acceleration Partnership Award is available for up to $15 million dollar per project per year with the possibility for renewal after the first year. Under this award, there is a condition that the entity receiving the award must contribute one dollar for every three dollars awarded by the government;
2. The Cures Acceleration Grant Award is also an award of for up to $15 million per project per year with the possibility of subsequent funding after the initial year; and
3. The Cures Acceleration Flexible Research Award is an award that is available at the discretion of the Director of NIH based on the Director’s determination that a project is in furtherance of the goals and objectives of the provision.

Companies or organizations interested in obtaining a grant must submit an application describing, in detail, the project, a timeframe for completion, and a description of the protocols to be utilized, among other information. The protocols must, of course, comply with FDA’s standards and regulations at all times.

CAN has been allocated $500 million dollars for the remainder of the year 2010 which, given the cost of pre-clinical and clinical studies, could be used very quickly. These grants and awards will be awarded on a competitive basis, therefore, businesses wishing to compete for them need to act decisively and submit complete, structured application materials expeditiously.

Conclusion

With the passage of this new legislation, small companies doing business in the pharmaceutical and medical device industries have opportunity and incentive to move forward with research and development of new drug products, therapies, and medical devices. The Patient Protection and Affordable Care Act represents revolutionary change in the United States healthcare system and, combined with the escalation of Americans with access to health insurance, the potential for increased revenue for pharmaceutical and medical device manufacturers is boundless.

The inclusion of the tax credit provision for the encouragement of new therapies and the awards for research and development of life saving cures presents an excellent opportunity for small businesses to make advancements in pharmaceutical and medical device development which will profit the businesses themselves, the industries, and society as a whole. Operators and owners of small pharmaceutical and medical device companies should look into taking advantage of these credits and awards in their pursuit of new and innovative therapeutics.

For more information on how these tax credits and/or grants could help your business, please contact us at contact@fuerstlaw.com.

A Kansas City, Missouri federal judge permanently barred former CPA and Nebraska attorney, Allen R. Davison, from promoting tax fraud schemes. The court found that from at least the mid-1990s, Davison had promoted tax-fraud schemes that included arrangements involving sham companies and bogus deductions for the purpose of illegal tax avoidance.

The court order describes schemes Davison set up for clients which included medical practitioners, an insurance broker, and car dealership owners. As provided by the court, Davison’s schemes were “deliberately complex” in order to “evade IRS detection.” In attempts to evade detection, Davison fabricated records, prepared documents after the fact to address IRS concerns, and intentionally provided false information to the IRS during client audits. Davison also “deliberately disguised the nature of his work” and “expressed a willingness to change to new and different tax fraud schemes when faced with the heightened IRS scrutiny of older schemes.”

The court found that Davison “deliberately advised his clients to break the law, and helped them go about doing so.” The court provided examples of some of Davison’s schemes which included sham management companies whose shares were owed by employee stock option plans and Roth IRAs, bogus chicken – flock deductions claimed for clients who were not eligible to claim them because they failed to qualify as farmers under federal tax law, and sham corporations set up for the sole purpose of sponsoring pension plans for the benefit of Davison’s clients who owned businesses.

John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division stated that the “nation’s tax system relies on the integrity of tax professionals.”

At Fuerst Ittleman, PL you can be assured that our professionals will handle your tax matter with professionalism and integrity. Before you hire a professional to handle your financial matters please check their credentials.

If you have any questions or concerns as to the credentials of a financial professional, please contact Fuerst Ittleman, PL at contact@fuerstlaw.com.

Dorothy Lee Anderson of Hopkins, South Carolina was permanently barred by a federal district court judge in Columbia, South Carolina from preparing federal tax returns for others. The court found that Anderson, operating under the name “DL Anderson Tax Service,” fraudulently prepared and filed tax returns using individuals’ names and social security numbers without their assent, authorization, or knowledge. These fraudulent returns generated substantial tax refunds which Anderson deposited into bank accounts she controlled. The court found that Anderson deposited more than $290,000 in fraudulently obtained refunds and then absconded with over $220,000 of these funds for her personal use. After being tried, the court ordered Anderson to provide her customer lists to the government and mail copies of the court order to her former customers.

The Justice Department’s Tax Division has obtained more than 465 injunctions over the past decade to stop tax fraud promoters and tax return preparers. Before hiring a professional to handle your financial records, be sure to inform yourself of their credentials.

If you have any questions or concerns as to the credentials of a financial professional, please contact Fuerst Ittleman, PL at contact@fuerstlaw.com.

On April 26, 2010, the Treasury Department unveiled its regulatory agenda as part of the Unified Agenda of Regulatory and Deregulatory Actions covering IRS projects in the corporate tax, international tax, and exempt organizations area.

In the international tax arena, the agenda provides for projects that include guidance on the application of attribution rules to foreign trusts, clarification of the foreign base company sales income rules, and taxable years of foreign corporations. The agenda also includes international guidance projects dealing with US source income effectively connected with a US business and revisions relating to withholding reporting requirements for US source income paid to foreign persons. In the corporate arena, the agenda provides for projects dealing with reorganizations under IRC § 368(a)(1)(E) or (F), recharacterization of certain qualifying income of publically traded partnerships, and interest on deferred tax liability for contingent payment sales pursuant to IRC § 453A. Projects encompassing payments made pursuant to securities lending transactions or sale-repurchase transactions, deferred discharge of indebtedness income, and deferred original issue discount of corporation are also in the works. Finally, with regards to the exempt organizations arena, the IRS is working on guidance addressing charitable contributions of specific motor vehicles, lookback interest and tax-exempt entities, and qualified tax credit bonds.

From: BNA Spring Version of Treasury Regulatory Agenda Details Dozens of IRS Projects in Many Areas 29 TMWR 590