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Wall Street Journal Quotes Scott Michel on the Hazards of Offshore-Account Disclosure

June 27, 2014, The Wall Street Journal

Scott D. Michel, President of Caplin & Drysdale, spoke with The Wall Street Journal about what taxpayers need to consider before participating in the IRS' new "Streamlined" Voluntary Disclosure Program for previously unreported offshore accounts and other assets.  In particular, offshore-account holders who consider their conduct not "willful" have to be especially careful.  For the full article, please visit The Wall Street Journal's website.

Excerpt taken from the article.

Scott Michel, a criminal tax lawyer at Caplin & Drysdale in Washington, says people often assume they weren't willful if they had "compelling emotional reasons for not declaring the account," such as safeguarding assets from expropriation, or that they were told by a relative never to reveal it. "If those are your only reasons, they're losers," he says.

Experts say evidence of willfulness often includes the following: having an account in a country with bank secrecy rules; holding the account in a trust, foundation or other entity typically used to conceal ownership; moving the account from a firm under U.S. pressure to another, presumably to avoid disclosure; making large cash withdrawals; instructing a firm not to mail statements to the U.S., or communicating in code with it; or having secret meetings with advisers or account representatives.

For the complete article, please visit Bloomberg BNA's website.

Excerpt taken from the article.

Best stressed that if taxpayers stay in the OVDP, they can still request the penalty structure of the streamlined program if they believe their conduct wasn't willful. In answer to a question from panel moderator Scott D. Michel, a member of Caplin & Drysdale LLP in Washington, Best said even if taxpayers are denied the streamlined penalty, they will remain in the OVDP "at all times" and will still qualify for the 27.5 percent penalty and the protection from criminal prosecution.

Both Michel and panelist Michel Stein, a principal with Hochman, Salkin, Rettig, Toscher & Perez PC in Los Angeles, said tax advisers will have a tough road in working with their clients in the next few days and weeks to decide whether they should assert their conduct wasn't willful in the attempt to qualify for the streamlined penalties inside or outside of the OVDP.

Particularly for those who have begun the clearance process into the OVDP, the decision about whether to submit the voluntary disclosure intake letter in time to make the June 30 deadline will be a difficult one, Stein said.

Both Michel and Stein said disclosure letters might be rushed in the next few days and be submitted with information that is the "best available" but possibly not complete.

Keneally stressed the IRS and the Justice Department are getting information from a broad range of sources, including treaty requests, whistleblowers, cooperators and the like.

Michel emphasized that even though Swiss banks aren't allowed to disclose the specific names of account holders under Swiss law, the Justice Department has been able to get substantial amounts of information from banks in the program trying to minimize their penalties—information the DOJ can then turn into treaty requests.

"Many banks are having meetings with DOJ and are providing cases for the filing of treaty requests," Michel said.

Speaking at a separate event in New York June 20, Best said it is possible that the IRS could go back and re-evaluate willfulness certifications if the client's bank, through treaty requests or other means, produces account records or other information indicating the client was willfully keeping the account secret.

"We could do that," she said at the New York University School of Continuing and Professional Studies tax controversy conference in New York, answering a question from Caplin's Michel, who moderated that panel as well (120 DTR G-4, 6/23/14).

In answer to a question from Michel, McDougal said that with regard to the 50 percent penalty for clients whose banks are under investigation, a bank would not be put in that category if it has disclosed in a financial statement that it is under investigation and has set aside a reserve to cover any possible settlement or other outcome.


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