Criminal Tax Defenses (Issues)
For those U.S. taxpayers who voluntarily entered the IRS Offshore Voluntary Disclosure Program, they waived numerous rights, including:
1. The 5th Amendment right against self-incrimination;
2. A 4th Amendment right to be secure in their persons, papers and property from “unreasonable searches and seizures”;
3. A statute of limitations defense to criminal tax prosecution for the six-year statute of limitation (i.e. the U.S. government has six years to prosecute from the date of the alleged tax crime).
In addition, the taxpayer enters the OVDP 2012 voluntarily without either “transactional immunity” (i.e. immunity from prosecution for the entire “tax matter”) or “use immunity” (i.e. immunity from prosecution for the use of evidence submitted by the taxpayer as part of the voluntary disclosures).
For those taxpayers who enter the IRS Voluntary Disclosure Program, they have eliminated any negotiating leverage (i.e. the IRS voluntary disclosure terms are “iron-clad”; i.e. not subject to negotiation); they eliminated their chances of not being uncovered as a “tax cheat” by the filing of relevant amended tax returns (to declare tax, interest and a “smaller penalty”) since for most taxpayers, the audit risk is 1% (1 out of 100), for those earning over $1M per year, it is 12.48% (1 out of 8).
If the taxpayers name their advisors and those who encouraged or facilitated their offshore tax evasion, they implicate themselves as part of a “Klein conspiracy” subject to prosecution for tax conspiracy under 18 U.S.C. 371 (a five year felony); i.e. a conspiracy is when there was an agreement by two or more persons to impede the IRS and each participant knowingly, willfully and intentionally participated in the conspiracy.
If the U.S. taxpayer either withdraws from the offshore voluntary disclosure program (2012), or is otherwise disqualified (as is the case of the Bank Leumi taxpayers), they may be civilly and criminally prosecuted for:
1. Civil tax fraud (no statute of limitations/75% penalty;
2. Criminal tax evasion (a five year felony);
3. Conspiracy to commit tax evasion (i.e. impede the IRS) (a five year felony);
4. Money laundering.
Tax evasion, wire fraud and mail fraud are “Specified Unlawful Activities”; i.e. “SUAs”; predicate offenses for money laundering under the “Money Laundering Control Act, 18 U.S.C. Sec. 1956 and 1957.
Tax evasion is a Specified Unlawful Activity in a financial transaction involving the proceeds of a specified unlawful activity with the intent to violate IRC Sec. 7201 (willful attempt to evade tax), or IRC Sec. 7206 (false and fraudulent statements made to the IRS).
Mail fraud requires the use of the postal system to effectuate a scheme to defraud (18 U.S.C. Sec. 1341). Wire fraud requires the use of a telecommunication facility to effectuate a scheme to defraud (18 U.S.C. Sec. 1343). Wire fraud is punishable by a fine and up to 20 years in prison. If the wire fraud affects a financial institution, the fine is up to $1M and up to 30 years in prison.
In addition to monetary penalties, violations of mail fraud, wire fraud and money laundering statutes are punishable by civil and criminal forfeiture (18 U.S.C. Sec. 981(a)(1)(A): civil forfeiture, 18 U.S.C. Sec. 982(a)(1)(A): criminal forfeiture.