Two developments in recent days pull in different directions in terms of appropriate enforcement of tax laws that should discourage the artificial tax sheltering activity engaged in mostly by very wealthy individuals or corporations.
First, the demise of the "biggest criminal tax case ever." The Wall Street Journal reported yesterday that the government has officially given up on the KPMG tax shelter case against the defendants that were released from the criminal tax case because of what Judge Kaplan held was an unconstitutional deprivation of their right to counsel when KPMG withdrew payment for their multimillion dollar defenses. The government let the 90-day deadline pass without appealing to the Supreme Court for review. See Government Throws in the Towel on KPMG, Wall St. Journal LawBlog, Dec. 1, 2008. Remember that there was no contract providing that KPMG was required to pay their defenses, merely an existing practice of generally paying such costs. These were fired KPMG employees. Although I still cannot fathom how refusal to pay for multimillion dollar Paul, Weiss lawyers is deprivation of counsel when poor people still have public defenders who haven't spent more than 10 minutes with them before their "trial", the Second Circuit upheld Kaplan's ruling on this issue three months ago. See law.com, 2d Circuit Upholds End of Cases Against Former KPMG Employees, Aug. 29, 2008.
The trial of the remaining four defendants opened October 15. See Sorkin, KPMG Tax Shelter Case Heads to Trial, on a Smaller Scale, Dealbook, Oct. 15, 2008. Before Thanksgiving, the judge refused to dismiss the case against the two remaining former KPMG partners. See U.S. Judge Denies Dismissal of Charges in KPMG Trial, Reuters, Nov. 26, 2008. there may still be some justice here as regards these remaining four, but I can't help thinking that 13 likely criminals have gotten off scot free because they wore shirts with white collars.
Second, on the brighter side, the likely demise of a tax haven for wealthy Americans to hide their assets from the IRS. According to a report this evening by Donmoyer for Bloomberg news (not yet available online), Liechtenstein has agreed to greater transparency--it will sign on December 8 a negotiated agreement that takes effect in 2010 for financial information from 2009 and later.
That means, as the report notes, that American clients of Swiss bank UBS (also involved in the offshore tax sheltering) would have "a brief window" to move those accounts to Liechtenstein without being subject to report. Asher Rubenstein, a New York lawyer who has clients with accounts in the principality, is quoted as saying that "Clients with non-compliant accounts with UBS and elsewhere have a month to set up a tax-compliant strategy in Liechtenstein. ... Anything before 2009 won’t be revealed to the IRS." Now, I can't help wondering--is Rubenstein's clear willingness to help clients with "non-compliant accounts" in one place set up similarly non-compliant accounts elsewhere just aiding and abetting those clients' tax evasion? The clients will have still commited misdeeds regarding their reporting of taxable income. The loophole just means it will continue to be hard to track them down. But as another tax attorney, Brian Skarlatos, states, "The IRS is simply going to go to the person and say ‘Did you have any foreign financial arrangements before 2009?’ ... A truthful answer would implicate the taxpayer if they didn’t file the necessary returns and report the income."
The Liechtenstein agreement will leave only Andorra and Monaco as havens beyond the reach of information sharing agreements with the US.
Comments