When a convicted criminal feels he has been ill-used by an accomplice, the normal recourse tends to involve unpleasant events in the prison gallery. Lawyers are rarely consulted. But when international tax cheating is involved, it apparently works differently.
A group of clients of Swiss bank UBS who claim that bad things happened to them as a result of their Swiss accounts sued UBS. Seventh Circuit appeals judge Posner was distinctly unsympathetic (my emphasis):
The plaintiffs are tax cheats, and it is very odd, to say the least, for tax cheats to seek to recover their penalties (let alone interest, which might simply compensate the IRS for the time value of money rightfully belonging to it rather than to the taxpayers) from the source, in this case UBS, of the income concealed from the IRS. One might have expected the plaintiffs to try to show that they had forgotten they had accounts with UBS (though that would be preposterous, for these were significant investments for each of the plaintiffs). Or that UBS had told them that income earned in those accounts was somehow tax exempt and moreover that the accounts themselves were somehow not foreign bank accounts within the meaning of the tax code and so the plaintiffs didn’t have to acknowledge having accounts with UBS. They don’t make any of these feeble arguments. They do argue, as we’ll see, that UBS was obligated to give them accurate tax advice and failed to do so, but not that it gave them inaccurate, as distinct from no, advice.
While the IRS offshore compliance programs have abused many innocent Americans who have foot-fault violations, that doesn’t appear to be the case here. A U.S. resident who set up a Swiss bank account probably didn’t do so to ensure tax compliance.
At worst, UBS, as we’re about to see, violated an agreement with the IRS designed to prevent the kind of evasion that the plaintiffs engaged in. That might conceivably make UBS an aider or abettor of the plaintiffs’s tax evasion and so make this case a distant relative to Everet v. Williams (Ex. 1725), better known as The Highwayman’s Case and eventually reported under that name in 9 L.Q. Rev. 197 (1893). A highwayman had sued his partner in crime for an accounting of the illegal profits of their criminal activity. The court refused to adjudicate the case, and both parties were hanged. Minus the hanging and with certain exceptions (such as contribution and indemnity) irrelevant to this case, the principle enunciated in The Highwayman’s Case applies to accomplices in civil wrongdoing, as noted in our recent decision in Schlueter v. Latek, 683 F.3d 350, 355-56 (7th Cir. 2012). In The Highwayman’s Case one accomplice was seeking a bigger share of the profit from the crime from the other one; here one accomplice is seeking a smaller share of the costs of the crime from the other one. The principle is the same; the law leaves the quarreling accomplices where it finds them.
The moral? Your banker isn’t your tax advisor, and when you are cheating, you are on your own. At least in Judge Posner’s court.
Overwhelming? A Tax Analysts story on the fallout from the Loving decision overturning the IRS preparer regulation program reports:
“There is overwhelming support for registration” among EAs, said Frank Degen, president of the National Association of Enrolled Agents. While preparers are watching to see what an appeals court will do — as the IRS said it would file an appeal soon — “most practitioners are just interested in cranking out those 1040s right now,” Degen said.
I’d want to see some polling showing that “overwhelming” support. The preparer regulation program strikes me as potentially fatal for the Enrolled Agent brand. EA’s, who have to pass a much stricter test and more stringent continuing education requirements than the registered preparers would have to, already have difficulty marketing their additional qualification. The IRS blessing of a competing bargain brand could easily bury the EA designation. At the very least, I see no overwhelming support for the preparer registration program from EA-bloggers Jason Dinesen and Russ Fox.
To your health! Compliance with ObamaCare Estimated to Take 127.6 Million Hours (Kyle Pomerleau, Tax Policy Blog).
Martin Sullivan, State of the Union: Stasis or Progress on Taxes? (Tax.com). My bet is on stasis.
Doom. What You Should Know About the Budget Outlook (William Gale, TaxVox).:
Even if seemingly everything goes right – in economic terms and in political terms – we are still on the edge of dangerously high debt and deficit levels with little room to spare.
Nah, we’re over the edge:
Jana Luttenegger, Social Media and Other Digital “Assets” After Death. (Davis Brown Tax Law Blog) If I die, please take me out of my high school reunion Facebook group.
William Perez, IRS Announces Start Dates For Processing Some Tax Returns. Y0u can file a return with depreciation starting today, and one with education credits starting Thursday.
Claudia Hill, Can This Tax Filing Season Be Saved? (Via @janetnovack’s Twitter Feed).
Paul Neiffer, Crop Insurance Proceeds on Feed Consumed by Livestock
And then pay your bill timely. 4 ways to be a better tax client (Kay Bell)
Patrick Temple-West, Higher payroll tax pinches those with the least to spare, and more
Jack Townsend, A Tax Curmudgeon Offers Ideas on Tax Compliance
Tax Trials, IRS Releases Schedule UTP Statistics for 2011. 1,783 taxpayers filed forms disclosing Uncertain Tax Positions for 2011. Seems low.
Proposed by a guy wearing wing-tips, no doubt. Lawmaker Proposes Sneaker Tax, Retailers Opposed (TaxGrrrl)
Tags: Claudia Hill, EA, Jack Townsend, Jana Luttenegger, Jason Dinesen, Judge Posner, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, RTRP, Russ Fox, tax crime, Tax Trials, TaxGrrrl, UBS, William Gale, William Perez