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December 12, 2012
Numerous New John Doe Summonses in the Works

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by Jeremiah Coder

The IRS is seeking to refine and extend its efforts to identify unreported offshore bank accounts and is actively working on drafting new John Doe summonses to that end, John McDougal, special trial attorney and division counsel, IRS Small Business and Self-Employed Division, said December 7.

The IRS is seeking to refine and extend its efforts to identify unreported offshore bank accounts and is actively working on drafting new John Doe summonses to that end, John McDougal, special trial attorney and division counsel, IRS Small Business and Self-Employed Division, said December 7.

The IRS has several of the summonses in various stages of preparation, McDougal said. "You are going to hear more from us on that, it just hasn't hit the press yet," he said. The summonses will target more entities than just banks and will focus on places other than Switzerland, McDougal said at a criminal tax fraud and tax controversy conference in Las Vegas sponsored by the American Bar Association Section of Taxation and Criminal Justice Section.

Summonses and prosecutions in parts of the world other than Switzerland will increase the number of voluntary disclosures coming into the IRS "as people feel more threatened, and that will increase our opportunities for information gathering," McDougal said. As a result, the offshore program will continue to grow, but the goal of the program is not to build cases for audit but to encourage voluntary compliance, he said. The IRS is building an "effective examination and prosecution process that adds credibility to the threat of action if you don't come in and self-report," he said.

The IRS has deployed teams of experienced agents and managers to review opt-out cases to gain consistency in case examination techniques, McDougal said. "We're making a real effort to coordinate what the agents are doing on these similar types of examinations" and are involving counsel earlier, he said. The presence of an attorney on the case isn't indicative of moving toward criminal prosecution but merely shows an intention to help support agents in properly developing the cases, he said.

McDougal said field agents are taking neutral positions in opt-out exams and asserting penalties only "when they fit." While the IRS doesn't intend to come down hard on taxpayers, everything is on the table in a civil audit as the Service tries to get to the right answer of what the taxpayer owes, he said.

Mark Daly, senior litigation counsel in the Justice Department's Tax Division, said the DOJ has an "embarrassment of riches" in offshore cases to work with. What hasn't been publicly known is that the government's efforts are causing middlemen to "beat a path" to the DOJ to provide information about clients, he said. In Switzerland, the DOJ's efforts have essentially forced enablers of tax evasion in the country to deal with the United States in order to travel for work.

The information the U.S. government received from the deferred prosecution agreement of Swiss bank UBS is not covered by the privacy restrictions of section 6103, which means that the DOJ can use it however it chooses, Daly said. He refuted the notion that the DOJ has been slow to act on cases outside Switzerland, saying, "We are not being reactive, we are being incredibly proactive." Taxpayers won't "skate through exam" in the future, he said, adding that the IRS is placing increasing priority on referring cases to the IRS Criminal Investigation division.

Sandra Brown, assistant U.S. attorney and tax division chief in the U.S. attorney's office for the Central District of California, said other countries are working with the U.S. to collectively gather information on tax evasion. There is a high level of cooperation, and treaty exchanges are now a matter of course rather than isolated incidents, she said. Todd Welty of SNR Denton said that intergovernmental cooperation only increases the odds of multijurisdictional tax evaders getting caught.

Kevin M. Downing of Miller & Chevalier said taxpayers can expect future bombshell announcements to come from the government, in part because of whistleblower activity that is helping the IRS and the DOJ pinpoint large-scale evasion and patterns of misconduct. "In 15 years at the Department of Justice, I've never seen anything like this with the number of people motivated to come in," he said. "It's a real game changer."

Although recent court decisions have highlighted a checked "no" box on Schedule B as evidence of willful evasion of the foreign bank account reporting requirements, McDougal said he believes a checked box is a red flag but not necessarily probative of willful intent to avoid Title 31. "In the civil context, willfulness doesn't have to mean subjective intent to defraud, it can be a reckless disregard," he said, but he added that the IRS needs to get a full picture of the situation by looking at the transaction and talking to the return preparer. (For prior coverage, see Doc 2012-23189 or 2012 TNT 219-3 .)

McDougal said there is a different process for asserting an FBAR penalty in a situation involving foreign trusts. For individuals, an FBAR penalty requires chief counsel approval, but there is no similar check on an agent or manager regarding foreign trusts, he said.

Even though the Foreign Account Tax Compliance Act is giving new information collection tools to the IRS, the Service will continue to need treaty exchanges to obtain relevant information such as foreign bank statements and documents about entity structure with regard to accounts, McDougal said. "Treaty requests are going to go through the roof and will be common, everyday business," said Welty.

Despite government reports that may seem to indicate that the U.S. is not actively handing out information in spontaneous information exchanges with treaty partners, the IRS often discloses information on dozens or hundreds of taxpayers in a single exchange, McDougal said.



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