Another UBS client pleads guilty to US tax charges

MIAMI -- A New York businessman who last year was talked out of coming clean with the Internal Revenue Service pleaded guilty Tuesday to U.S. tax charges stemming from a wide-ranging investigation into secret accounts at Swiss bank UBS AG.

Jeffrey P. Chernick of Stanfordville, N.Y., owner of a company that represents Chinese and Hong Kong toy manufacturers, faces up to three years in prison after pleading guilty in federal court in Fort Lauderdale. U.S. District Judge James I. Cohn set sentencing for Oct. 30.

Chernick, the third American client of UBS to plead guilty to criminal charges, signed a statement of facts saying he sought in 2008 to reveal his UBS account to the IRS, file amended tax returns and pay back taxes. But Chernick was talked out of it by a lawyer named only as "Swiss Attorney" in the court documents.

This attorney told Chernick that a high-ranking Swiss government official had provided assurances that his name was not scheduled to be turned over to U.S. authorities investigating tax evasion by wealthy American clients. The attorney later told Chernick that this unidentified Swiss official had been paid $45,000 for the information, which Chernick then had withdrawn from his account.

But it was to no avail. Chernick's name was disclosed earlier this year on a list of about 300 UBS clients as part of a deferred prosecution agreement in which the bank also agreed to pay a $780 million penalty.

U.S. taxpayers who have secret offshore accounts face a Sept. 23 deadline to voluntarily come forward to the IRS under an amnesty program that promises reduced penalties, said John DiCicco, acting assistant attorney general for the U.S. Justice Department's tax division.

"Failure to come forward and to disclose offshore assets exposes these Americans to increased penalties and possible criminal prosecution," DiCicco said.

Chernick's plea comes amid intense negotiations between the Justice Department, UBS and the Swiss government over a broad U.S. attempt to force the bank to disclose some 52,000 names of suspected American tax cheats with secret accounts. A hearing is scheduled before a Miami judge Wednesday on the status of a possible settlement.

UBS and the Swiss say Switzerland's long-standing bank secrecy laws would make it a crime to turn over all the names. U.S. prosecutors say that is not the case.

Court documents show that Chernick admitted filing a false 2007 income tax return and had a UBS account in the name of a Hong Kong corporation called Simba International Ltd. In total, Chernick had about $8 million in UBS offshore assets in the name of Simba and other entities, prosecutors said.

Chernick met frequently with UBS advisers and executives, who "would dress as tourists to avoid detection," according to the factual statement. One unnamed UBS executive falsely claimed to customs agents that he was coming to the U.S. to visit his brother, court documents show. UBS officials also physically cut Chernick's name and account number from bank statements so they could not be linked to him.


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Home Front: Selling short can be scary

As attempted short sales proliferate across the capital region, many people are worried about bad things that might happen to them – even if they succeed in selling.

Foremost among worries are nasty state tax bills for forgiven debt. With short sales, banks take less than they are owed to avoid the high costs of foreclosing. And governments typically have taxed that kind of forgiven debt as extra income.

Home Front checked this week into the status of legislation that would get people off that hook. As many know, the federal government already has ordered the IRS not to tax forgiven mortgage debt through the end of 2012.

The state of California did the same last year with Senate Bill 1055. It told the Franchise Tax Board not to tax forgiven mortgage debt through the end of 2008. So what about 2009 and beyond? Two bills to extend the protection through the end of 2012 – Assembly Bill 111 and SB 97 – are parked in Assembly and Senate revenue and tax committees.

Technically, if they don't pass, people who do short sales in 2009 will owe taxes on that forgiven debt on April 15, 2010. But don't fret yet; SB 97, at least, by Sen. Ron Calderon, D-Montebello, provides an out.

Even if passed after April 15, "the bill says there are no penalties or interest imposed for failure to pay," said Eileen Newhall, consultant to the Senate Banking, Finance and Insurance Committee. In other words, if the bill passes after the tax filing deadline there are no tax problems for those who do short sales in 2009. (Again, this is only for people who own and occupy their homes, not for investors.)

There's another out, which also applies to investors, said Linda Hainsworth of Sacramento. She conducts classes on short sale complexities for other real estate agents.

"There's an exemption if you're insolvent," she said. The definition of insolvency is tricky, she added, so advice is best taken from a tax attorney.

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IRS Moves to Ban Tax Returns Filed By All But ‘Experts’

In an astonishing power grab, the Internal Revenue Service wants to license all who prepare returns for taxpayers. This means that Uncle Oscar couldn’t help his nephew prepare his income tax return unless a Washington bureaucrat grants a license.
H&R Block and the National Association of Tax Professionals (NATP) are supporting the effort by IRS Commissioner Douglas Shulman for selfish reasons: If Uncle Oscar can’t help, his nephew must pay a “licensed” preparer.
Shulman said in testimony before the House Ways and Means Committee that he expects to make his recommendations to Treasury Secretary Timothy Geithner and President Obama by the end of the year.
Shulman argued that licensing is needed because of bad guy tax preparers. Of the millions of tax returns filed over the last three years, only about 350 preparers were convicted of fraud, according to the IRS’s own records.
Ryan Ellis, tax policy director at Americans for Tax Reform, challenged IRS claims that licensing would generate significant funds from “tax cheats.” He told the Washington Times, “If the IRS thinks that licensing tax preparers will raise a lot of money, it won’t.”
Shulman’s recommendations “could focus on a new model for the regulation of tax return preparers; education and training of return preparers; and enforcement related to return preparer misconduct,” the IRS said.
“Education” and “training”? Many times over the years, newspapers have sent male and female reporters, posing as married couples, to IRS offices for “help” with their returns. They would offer simple situations: two kids and a mortgage. In an overwhelming majority of cases, four different IRS “professionals” would prepare their returns in four different ways.
Shulman said 87 percent of taxpayers now use computer software or paid preparers. “Tax preparers and the associated industry can help us increase compliance and strengthen the integrity of the tax system,” Shulman said. On the subject of “integrity,” he failed to mention David Rockefeller and other billionaires who pay no income tax at all by ducking their obligations with the help of high-priced “preparers.”
The first step in the licensing process, the IRS said, will involve fact-finding
and receiving input from unlicensed tax preparers and software vendors, as well as those who are licensed by state and federal authorities, including enrolled agents, lawyers and accountants.
“H&R Block strongly supports the IRS initiative announced by Commissioner Doug Shulman to review comprehensively alternatives for improving the accuracy of tax filings and the ethics and integrity of all who hold themselves out directly or indirectly in providing tax preparation services,” said Chairman Richard Breeden.
“We are all in favor of raising the bar,” said NATP’s Paul Cinquemani. “If people are operating out there without continuing education, they are on dangerous ground.”

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Deal far from done in UBS tax evasion case

MIAMI -- Attorneys say no settlement is imminent in the U.S. attempt to force Swiss bank UBS AG to disclose names of thousands of suspected tax dodgers.

Attorneys for the bank and the U.S. Justice Department told a federal judge in Miami on Wednesday that talks have hit a stumbling block. Both sides say they'll continue discussions, but for now a full-scale hearing on the dispute remains set to begin Monday.

The Internal Revenue Service wants the judge to order UBS to turn over names of some 52,000 wealthy Americans believed to be hiding assets and evading taxes. UBS is refusing, contending that Swiss bank secrecy laws would make it a crime.

Switzerland's foreign minister is to discuss the case later this week with Secretary of State Hillary Clinton.

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The Metro Crash and Tax: Leaseback Infrequently Asked Questions

As discussed in an earlier post, Metro said that it could not comply with the NTSB recommendation that Metro replace its 1000-series Rohr cars because of a “tax advantage lease.” This post explains tax advantage leases in more detail–not the specifics of the WMATA’s Rohr leases, which we haven’t seen, but rather sale-leasebacks (sometimes called “sale-in/lease-outs,” or “SILOs”) in general.  We’ll talk about two parties: TransitCo, which, like WMATA, is a tax-exempt transit authority, and Taxpayer, which is not tax exempt and has a regular flow of income.  (This post discusses domestic sale-leasebacks; there are additional tweaks for cross-border sale-leasebacks.)
So: Leaseback Infrequently Asked Questions (or, Everything You Wanted To Know About Leasebacks but Were Afraid To Ask, Because You Thought You Would Probably Get Really Bored).

What’s the main idea?
The main idea is that TransitCo, which is tax exempt and thus cannot use tax benefits, essentially sells these tax benefits to Taxpayer, a taxable party who can use them to offset income.
What tax benefits?
TransitCo is mostly selling depreciation deductions.
That is not helpful.  What are depreciation deductions?
Let’s back up for a minute.  Imagine you spend $100 buying baking supplies, which you then turn into cupcakes that you sell for $110. It seems inaccurate to say that you have $110 of income when overall, you are only $10 better off than you would have been if you had not baked the cupcakes at all. So to determine taxable income, you get to subtract your trade or business expenses from your gross income. In this case, you would have only $10 of taxable income.


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Law Proposed to Ease Home Office Tax Deduction

Proposed legislation would make it easier for small businesses to qualify for the home office tax deduction.
The bipartisan bill, introduced in both the House and Senate, would direct the Treasury Secretary to create an optional, easy-to-use standard deduction to encourage greater use of the home office tax incentive. In addition to instituting an optional home office tax deduction, the “Home Office Tax Deduction Simplification and Improvement Act of 2009” would require the IRS to streamline its reporting requirements to clearly identify the portion of the deduction devoted to real estate taxes, mortgage interest and depreciation in order to further reduce the burden on the taxpayer.
Under current law, a home office tax deduction can be claimed by qualified individuals who use a portion of their home as a principal place of business or as a space to meet with patients or clients. Recent research from the U.S. Small Business Administration indicates that roughly 53 percent of America’s small businesses are home-based, but few home businesses actually take advantage of the tax incentive because of the complex, rigid reporting requirements.

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The bill, introduced by Senators Olympia J. Snowe, R-Maine, and Kent Conrad, D-N.D., along with Rep. Charles A. Gonzalez, D-Texas, would also update the Tax Code to ease the burden of proof in claiming the deduction. Specifically, it would allow the home office deduction to be taken if taxpayers use part of their home to meet or deal with clients regardless of whether the clients are physically present. The bill would also allow for de minimis use of business space for personal activities so that taxpayers would not lose the ability to claim the deduction if they make a personal call or pay a bill online. 
“With a morass of paperwork attributable to the home office deduction, the time-consuming process of navigating the tangled web of rules and regulations makes it unsurprising that so many small-business owners forego the home office deduction,” said Snowe, who is ranking member of the Senate Committee on Small Business and Entrepreneurship. “By simplifying this vital tax incentive, our bill will give small firms much-needed relief from burdensome tax rules, which, in turn, will allow them to focus their efforts on developing new, cutting-edge 21st century products and services and creating new jobs.”
The Snowe-Conrad-Gonzalez initiative has already attracted strong support from the National Federation of Independent Business, the IRS National Taxpayer Advocate Service, and the SBA’s Office of Advocacy.

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Rogue NY Dem senator's health center owes back tax

ALBANY, N.Y. - The dissident Democrat who made a New York state Senate coup possible runs a health care center in the Bronx that owes the state at least $162,000 in taxes and may owe the IRS more than $185,000.

Bronx Sen. Pedro Espada was paid more than $450,000 to operate the Soundview Healthcare Network, which gets state Health Department funding. The state Department of Labor said Soundview currently owes $88,000 in unemployment insurance taxes. The group has repaid four different warrants since 1995.

Espada says his company is not delinquent in taxes and that $88,000 of what it owes is for penalties that the clinic is disputing.

Soundview also owes $58,557 for failure to pay withholding taxes dating to late 2008, and $15,285 for failure to pay withholding taxes from April. The health care center owed and repaid $600,000 worth of withholding taxes and penalties from 1996 to 2007 under previous warrants. he discrepancies were first reported Thursday by the Times Union of Albany, which also reported that Soundview owes $185,000 to the Internal Revenue Service. Kenneth Brennan, the nonprofit's chief financial officer, said officials aren't sure how much they owe the IRS, but acknowledged they have a federal debt that might be more than $185,000. Soundview is working out a payment plan with the federal government.

Espada says that as a "break-even organization" for poor neighborhoods, any disruptions in state Medicaid payments can pose major challenges.

"In aggravating circumstances with Soundview Healthcare Network, we had serious problems with our billing network and had difficulties collecting Medicaid payments for two months and various other collectibles," Espada said. "So we sought a payment plan to meet our obligations."

The health care centers have made Espada popular in the communities it serves, providing services to about 25,000 poor people each year, according to a report by The New York Times. The population Soundview cares for is predominantly Medicaid and uninsured patients, who otherwise might avoid treatment or wind up in emergency rooms for health problems.

Attorney General Andrew Cuomo has announced he is investigating managers at Soundview. Cuomo is looking into allegations that state money for programs serving poor women, children and people with HIV and AIDS were instead diverted to political campaigns.

Citing privacy laws, tax department spokesman Tom Bergin wouldn't comment on whether Espada's company is repaying its debt. He said, speaking generally, that a company or individual would still have a tax warrant outstanding even if the debt was being repaid under an agreed-upon schedule.

The business paid Espada nearly $460,000 in 2007, which included deferred compensation. The amount was initially omitted from a 2007 IRS form, an oversight that Brennan said is being corrected. Espada says he makes about $200,000 now.

Soundview has been promised a $3 million grant from the state Health Department, but hasn't received that money yet, Espada said. They were also promised $200,000 in computers and equipment to convert to electronic medical records systems, but have collected less than half of that so far.

"We stay in touch with the state and try to meet obligations," Espada said. "We don't put our head in the sand, we have caught up (before) and we will catch up on these various filing issues."

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IRS Issues Guidance On Offshore Account Tax Filings

NEW YORK (Dow Jones)--The Internal Revenue Service on Wednesday issued updated guidance on who must file a key tax form that reports on offshore investments.
In the guidance, the agency attempted to answer a number of questions about the FBAR, or Report of Foreign Bank and Financial Accounts.
The new guidance comes amid growing concern by tax advisers over whether their clients are complying with FBAR requirements as the IRS cracks down on offshore tax evaders.
Advisers have been confused over a number of FBAR issues and have been scrambling ahead of a June 30 FBAR filing deadline to meet requirements.
On Wednesday, the IRS also gave some taxpayers more time to file the FBAR. Taxpayers who have reported and paid tax on all of their 2008 taxable income, but can show they only recently learned they must file the form, now have until Sept. 23 to do it.
Among the questions addressed by the new guidance are whether everyone with signature authority over a trust account must file delinquent FBARs, and whether child signatories on a jointly owned foreign account must file the form.
Many tax advisers have been worried about whether clients with offshore investments through hedge funds, private equity and other funds must file an FBAR.
While the new guidance didn't address that question, an IRS official in an interview with Dow Jones said an FBAR is required if the offshore investments through a hedge fund or other vehicle total $10,000 at any time during the tax year.
This rule has been on the books, but many hedge fund investors haven't complied with it, and the issue has been causing a great deal of anxiety of late.
Bryan Skarlatos, a partner at New York law firm Kostelanetz & Fink, said that there are conflicting opinions about whether a person with an interest in a foreign hedge fund is required to file an FBAR.
The FBAR guidance to date is "very general and sometimes ambiguous, and it is insufficient to cover the myriad of situations that arise in everyday life," Skarlatos said.

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