International Tax Evasion and Money Laundering – Part 2 – Tax Counsel

A U.S. taxpayer’s failure to comply with U.S. tax law may implicate tax counsel in tax evasion. The IRS or the U.S. Dept. of Justice may allege that tax counsel aided and abetted the client in evading U.S. tax, if tax counsel:

1. Aided and assisted the U.S. taxpayer in the submission of materially false information to the IRS; IRC Sec. 7206(2), or

2. Assisted the client in removing or concealing assets with intent to defraud- (IRC Sec. 7206(4)).

For a U.S. taxpayer’s transfer of assets to an offshore trust, despite receiving U.S. tax counsel’s tax compliance recommendations, the U.S. taxpayer fails to comply with U.S. tax law, and tax counsel fails to ensure ongoing tax compliance, tax counsel may be implicated in money laundering.

If the U.S. taxpayer’s tax noncompliance includes: tax evasion and transfer of the “tax evasion proceeds” to the offshore trust by wire transfer or U.S. mail, the transfer of funds may be classified by the IRS/U.S. Dept. of Justice as wire fraud or mail fraud, both of which are “specified unlawful activities” under the Money Laundering Control Act (18 U.S.C. Sec. 1956 and 1957), the U.S. taxpayer and their tax counsel may be criminally prosecuted for violation of the money laundering statutes.

Specified Unlawful Activities (“SUA”) are listed in 18 U.S.C. Sec. 1956(c)(7). SUAs are the predicate offenses for money laundering and come in three categories:

1. State crimes;
2. Federal crimes; and
3. Foreign crimes.

If the U.S. client transfers funds to an offshore trust under a tax counsel’s tax-planning strategy and the U.S. tax client is not in compliance with U.S. tax laws (despite tax counsel’s recommendations) then tax counsel may be exposed to IRS penalties:

1. IRC Sec. 6694: imposes civil penalties on tax preparers;

2. IRC Sec. 7212: imposes criminal penalties for interfering with the administration of the Internal Revenue laws.

In addition, tax counsel may receive attention from the IRS/Treasury Dept. from the Office of Professional Responsibility in connection with Circular 230, which sets forth the rules to practice before the U.S. Treasury Dept. and is governed by regulations that appear in Title 31, Part 10 of the Code of Federal Regulations, which contains rules governing the tax professionals who represent taxpayers before the IRS, including attorneys, CPAs and enrolled agents.

A U.S. taxpayer risks having their trust assets seized or forfeited if the additional charges are approved; i.e. tax evasion/money laundering. Tax counsel may also be subject to asset seizures if their fees received come from illegal sources.

In Greenstein (superseding Indictment No. CR 08-0296 RSM, Western District of Washington at Seattle, United States Attorney’s Office, Western District of Washington, News Release 6/9/09): the U.S. government sought criminal forfeiture in a tax shelter scheme by adding charges of wire fraud, mail fraud and conspiracy to launder monetary instruments. The Greenstein case also involved additional offenses such as ill-gotten professional fees not disclosed to investor clients.

In Daugerdas (Indictment No. 51 09 Cr. 581, So. Dist. N.Y., U.S. Attorney, So. Dist. of N.Y., Press Release 6/9/09) the U.S. government used a civil forfeiture in a tax shelter and Klein conspiracy prosecution under 18 U.S.C. 371.

In U.S. v. Velez, Kuehne and Ochoa, D.C. Docket No. 05-20770-CR-MGC (CA-11, 10/26/09), while the U.S. government lost, it still may prosecute counsel who received fees from a client if the funds being used to pay the fee come from illegal sources.

Tax counsel may be implicated in a “Klein conspiracy” (18 U.S.C. 371 is the general conspiracy statute). It makes it a crime for two or more persons to conspire to commit an offense against the U.S. by violating a specific statute or statutes, as well as two or more persons to agree to defraud the U.S.

A Klein conspiracy is a prosecution where the government must prove that there was agreement by two or more persons to impede the IRS and each person knowingly, willfully and intentionally participated in the conspiracy. Additionally, there is no attorney-client privilege for the crimes.

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