International tax and estate planning may lead to tax evasion (and additional crimes: money laundering, mail fraud, wire fraud) if the U.S. taxpayer either fails to pay tax due to federal, state or foreign governments. The U.S. taxpayer may be culpable for violation of U.S. wire fraud laws, money laundering laws or mail fraud laws, which may lead to asset forfeiture.
Income tax deficiencies (i.e. failure to pay tax due) which create “tax cheating” proceeds, when used to purchase assets or make investments may subject the taxpayer to separate felonies:
1. Tax Evasion (failure to pay the tax due);
2. Money Laundering – The use of proceeds from a specified unlawful activity, i.e. tax evasion, to purchase or make investments in assets which transmute the original “illegal tax-cheating” proceeds into another asset;
3. Mail Fraud: The use of the postal system to effectuate a scheme to defraud (18 U.S.C. Sec. 1341);
4. Wire Fraud: the use of the telecommunications facilities to effectuate a scheme to defraud (18 U.S.C. Sec. 1341).
Money laundering may be linked to tax evasion. A violation of the money laundering statutes includes a financial transaction involving the proceeds of a specified unlawful activity (“SUA”) with the intent to either:
1. Promote that activity;
2. Violate IRC Sec. 7201 (which criminalizes willful attempts to evade tax);
3. Violate IRC Sec. 7206 (which criminalizes false and fraudulent statements made to the IRS).
The tax involved in the transaction (and which is avoided) may be any tax: i.e. income, employment, estate, gift and excise taxes (See: U.S. Dept. of Justice, Criminal Tax Manual, Chapter 25, 25.03(2)(a).
Under the money laundering statutes, the IRS is authorized to assess a penalty in an amount equal to the greater of:
– The financial proceeds received from the fraudulent activity, or
– $10,000 (under 18 U.S.C. Sec. 1956(b)), the authority is granted by statute to the U.S. not the IRS, and is enforced either by a civil penalty or a civil lawsuit.
Violations of statutes for:
– Mail Fraud
– Wire Fraud
– Money Laundering
are punishable by monetary penalties, civil and criminal forfeiture. (See 18 U.S.C. Sec. 981 (a)(1)(A) which permits property involved in a transaction that violates 18 U.S.C. Sec. 1956, 1957 and 1960 to be civilly forfeited).
Civil forfeiture statutes include:
1. 18 U.S.C. Sec. 1956, which outlaws the knowing and intentional transportation or transfer of monetary funds derived from specified criminal offenses. For Sec. 1956 violations, there must be an element of promotion, concealment or tax evasion;
2.18 U.S.C. Sec. 1957, which penalizes spending transactions when the funds are contaminated by a criminal enterprise;
3. 18 U.S.C. Sec. 1960, which penalizes the unlicensed money transmitting business.
Under 18 U.S.C. Sec. 981(b)(2), seizures are made by warrant in the same manner as search warrants. Under 18 U.S.C. Sec. 981(b)(1), the burden of proof is by a preponderance of the evidence. The property may be seized under the authority of the Secretary of the Treasury when a tax crime is involved.
Under 18 U.S.C. Sec. 982(a)(1)(A), if the offense charged is a violation of the Money Laundering Control Act, and the underlying specified unlawful activity is mail or wire fraud, courts may order criminal forfeiture of funds involved in the activity on conviction.
The U.S. Dept. of Justice Tax Division policy requires U.S. attorneys to obtain Tax Division approval before bringing any and all criminal charges against a taxpayer involving a violation of the Internal Revenue Code. Absent specific approval, additional criminal charges for wire fraud, mail fraud and money laundering would not normally be included (U.S. Dept. of Justice Criminal Tax Manual, Chapter 25, 25.01). If the additional criminal charges are approved, the taxpayer risks having the trust assets seized or forfeited.
Regarding asset seizure, the U.S. government may seize assets pursuant to a violation of the money laundering laws. In addition, the IRS has authority for seizure and forfeiture under Title 26. Under IRC Sec. 7321, any property that is subject to forfeiture under any provision of Title 26 may be seized by the IRS.
IRC Sec. 7301 allows for the IRS to seize property that was removed in fraud of the Internal Revenue laws. IRC Sec. 7302 allows the IRS to seize property that was used in violation of the Internal Revenue laws.
In the case of transfer of funds to an offshore trust, it can trigger a violation of U.S. money laundering laws and lead to asset forfeiture. For example, tax counsel may recommend a tax planning strategy, and provide instructions by telephone, email or U.S. mail, which include client’s transfer of funds pursuant to tax counsel’s instructions. These combined actions may trigger a violation of U.S. money laundering laws and lead to asset forfeiture.