Category Archives: IRS

Outgoing IRS Chief Miller Denies Targeting at Congressional Hearing

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Steven Miller, who is being forced out as acting commissioner of the Internal Revenue Service, said the agency has learned from its mistakes while denying that it had targeted nonprofit groups for review because of their political views.

Under questioning from House Republicans at the first hearing on the agency’s selective scrutiny of small-government groups that applied for tax-exempt status, Miller insisted that IRS employees didn’t have partisan motivations.

“What happened here is that foolish mistakes were made by people trying to be more efficient,” Miller said at a House Ways and Means Committee hearing.

Republicans peppered Miller with questions, demanding that he explain why he didn’t inform Congress once he learned in May 2012 about what had happened.

Four congressional committees are investigating the IRS in a scandal that has erupted over the past week and hearings will be held next week. Miller is losing his job. The Justice Department has started a criminal probe that could ensnare senior officials for lying to Congress and lower-level workers for other potential offenses.

Miller revealed some new details today about what happened at the IRS and the agency’s response. He said one employee was reassigned while another was given “oral counseling.” He also said he didn’t know the name of the employee who created a list that subjected groups with “Tea Party” or “patriot” in their names to extra scrutiny.

In Advance
He also said that IRS officials had talked in advance with a Washington lawyer, Celia Roady, who asked the question at a May 10 tax conference that brought the controversy into the public eye. Lois Lerner, a mid-level official who oversees tax-exempt groups, answered Roady’s question, detailing what the IRS had done, and apologized.

Republicans sought to broaden the IRS controversy on tax-exempt groups to include other missteps at the agency and the Obama administration.

The IRS scandal is the “latest example of a culture of cover-ups” at the agency and in the Obama administration, said Representative Dave Camp, chairman of the House Ways and Means Committee.

Camp, a Michigan Republican, is leading the hearing today on the selective scrutiny of applications for tax-exempt status. In his opening statement, Camp cited other accusations against the agency, including the release of confidential information about nonprofit groups.
Miller and Russell George, inspector general for the IRS, are the only two witnesses testifying.

‘Systematic Abuse’
“This systematic abuse cannot be fixed with just one resignation or two,” Camp said. “And, as much as I expect more people need to go, the reality is this is not a personnel problem. This is a problem of the IRS being too large, too powerful.”

Representative Paul Ryan of Wisconsin, the 2012 Republican vice presidential candidate and a panel member, focused on Miller’s July 25, 2012, testimony to a Ways and Means subcommittee in which he didn’t explain how the grouping of organizations for further scrutiny was done.

“How can we not conclude that you misled this committee?” Ryan asked.

Miller said he answered the question truthfully.

“I did not mislead Congress or the American people,” Miller told the panel. “I answered questions as they were asked.”

Representative Sander Levin, the top Democrat on the Ways and Means panel, said he and other lawmakers are “angry” at the IRS for not being forthright. He is calling for the departure of Lerner.

Informed Lawmakers
Levin said Miller and former IRS Commissioner Douglas Shulman should have informed lawmakers when they found out in May 2012 about the targeting of these groups seeking tax-exempt status.

Still, Levin said the Republican-led panel should seek the “truth” and not use the opportunity for “political gain.”

Less than an hour after the hearing started, the National Republican Congressional Committee, the political arm of House Republicans, blasted an e-mail and is running paid ads on Facebook Inc.’s social network site that target Democrats for accepting campaign donations from the National Treasury Employees Union, which represents IRS employees.

The Republican groups in the ads are saying President Barack Obama, the Democratic Congressional Campaign Committee and a list of Democratic lawmakers, including James Clyburn of South Carolina and Debbie Wasserman Schultz of Florida, should return $700,000 in campaign contributions received from the organization.

Werfel Chosen
Obama yesterday announced that he’d chosen Danny Werfel, controller of the White House budget office, to replace Miller as acting IRS commissioner effective May 22.

Miller is a lawyer and a 25-year career employee of the IRS. At one point, he was in charge of overseeing tax-exempt organizations. Most recently, he was deputy commissioner for services and enforcement, a position that gave him broad authority over individual and corporate tax returns.

The inspector general’s May 14 report showed that IRS employees used terms such as “Tea Party” and “patriot” to select which applications would receive tougher questioning.

“The IRS leadership has demonstrated a total disregard for the oversight role of Congress and this committee,” he said.

‘Troubling’ Questions
George said the investigation raised “troubling” questions about whether the IRS has effective management oversight and control, “at least” when dealing with exempt organizations.

Miller said the IRS will implement all the recommendations made by the inspector general after its review of the incident. In its official response released May 14, the IRS had been resisting some of the recommendations.

Obama hasn’t nominated an IRS commissioner. Shulman, Miller’s predecessor, was appointed by President George W. Bush and announced in April 2012 that he wouldn’t seek a second term. Miller replaced him as acting commissioner in November. A nominee for IRS commissioner must be confirmed by the U.S. Senate. An acting commissioner doesn’t need confirmation.

Joseph Grant, who had been appointed to oversee tax-exempt groups and government entities on May 8, announced he would retire as of June 3.

House Speaker John Boehner yesterday cited a section of the tax code that provides criminal penalties of as much as five years in prison for people who commit “extortion or willful oppression under the color of law.”

The IRS inspector general, which already released one report May 14, will be recommending another investigation, Obama said yesterday. Karen Kraushaar, a spokeswoman for the inspector general, said she was prohibited by law from confirming the existence of an investigation.

 

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Obama Appoints OMB Official as Acting IRS Commissioner

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President Barack Obama appointed Danny Werfel, controller of the White House budget office, as acting commissioner of the Internal Revenue Service.

 

Werfel on May 22 will replace Steven Miller, who was forced to resign on Wednesday following disclosure of the agency’s selective scrutiny of small-government groups seeking tax-exempt status. (See “IRS Commissioner Fired Over Tea Party Targeting.”)

“As we work to get to the bottom of what happened and restore confidence in the IRS, Danny has the experience and management ability necessary to lead the agency at this important time,” Obama said in a statement released by the White House today.

Werfel, 42, will serve until the fiscal year ends September 30, the White House said. The acting IRS commissioner position doesn’t require Senate confirmation.

Obama hasn’t nominated a permanent commissioner since the term of Douglas Shulman, a George W. Bush appointee, ended in November.

OMB controller, and another departure:Werfel was confirmed as controller of the Office of Management and Budget in October 2009. He is in charge all federal programs on financial reporting, curbing improper payments, selling surplus government property, and streamlining government purchasing and information technology programs.

The IRS announced on Thursday that a second official will leave the agency. Joseph Grant, who oversees tax-exempt organizations and government entities, will retire June 3, according to an IRS memo.

Grant had only been appointed to his position on May 8. At the time, Miller issued a statement saying Grant would “provide strong leadership and continuity.”

Grant was previously the deputy commissioner over tax- exempt groups and government entities. He is a former member of the Democratic staff of the House Ways and Means Committee, according to the memo.

At a news conference earlier on Thursday, Obama said he wasn’t aware of the IRS matter before the counsel’s office was informed April 22.

“The minute I found out about it, then my main focus is making sure that we get the thing fixed,” he said in the White House Rose Garden.

Obama also said the IRS inspector general would be seeking a further investigation.

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IRS Commissioner Fired Over Tea Party Targeting

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President Obama announced during a press conference late Wednesday afternoon that he had asked for and received the resignation of Acting IRS Commissioner Steven T. Miller, over the recently revealed news that the agency had been targeting for extra scrutiny the applications of Tea Party and similar groups for tax-exempt status.

“It’s important to institute new leadership that can help restore confidence,” Obama said at the White House.

A report released on Wednesday night by the Treasury Inspector General for Tax Administration revealed that starting as early as 2010, a unit of the IRS had been using a list of politically charged and “inappropriate” criteria to single applications out, including whether the applying group’s name included the words “Tea Party,” “Patriot” or “9/12.” (See “TIGTA: ‘Ineffective Management’ Led to Targeting.”) The watchdog group found no evidence of outside political influence in the singling out of those groups.

Miller, who had been acting commissioner since November 2012, apparently knew about the targeting of the groups as early as May 2012, and has maintained that it was the result of the actions of a small number of IRS employees in a unit in Cincinnati, and not politically motivated.

“This has been an incredibly difficult time for the IRS given the events of the past few days,” Miller wrote in a letter to IRS employees. “And there is a strong and immediate need to restore public trust in the nation’s tax agency.”

No successor was named, and Miller wrote that he would leave the agency in June after working on an “orderly transition” to a new commissioner.

A number of senators and congressman had suggested that Miller resign or be fired, and Attorney General Eric Holder has announced that he will pursue a criminal investigation of the scandal. (See “Holder Orders Criminal Probe of IRS Tea-Party Group Focus.”)

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Holder Orders Criminal Probe of IRS Tea-Party Group Focus

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Attorney General Eric Holder ordered a criminal investigation into the Internal Revenue Service’s targeting of small-government advocacy groups for extra scrutiny.

 

“The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters related to the IRS,” Holder said at a news conference today.

The IRS has admitted that it singled out groups for extra scrutiny based solely on whether their names included words such as “tea party” and “patriot,” leading to investigations from four congressional committees and raising questions about whether partisan motivation drove the agency’s actions.

The White House said it had no involvement in the matter and that it is awaiting an inspector general’s report before deciding how to respond to treatment of advocacy groups as they sought tax exemptions as nonprofit organizations.

“I am certainly not aware and am confident that no one here was involved in this,” White House spokesman Jay Carney said in Washington. “We have to find out exactly what happened.”

A report by the inspector general who oversees the IRS is due to be released, officials from the inspector general’s office told congressional staff members at a meeting yesterday, said a Democratic aide who requested anonymity to discuss the private conversation.

Holder spoke about the planned investigation by the Justice Department and the Federal Bureau of Investigation at a news conference today in Washington.

IRS Errors
The acting IRS commissioner said the agency’s errors in targeting small-government groups stemmed from the lack of a “sufficient process” and weren’t the result of partisanship.

In an opinion piece in USA Today, Steven Miller wrote that the IRS sought to centralize its handling of applications for tax-exempt status following a “sharp increase” in the number of applications, which more than doubled between 2010 and 2012 (see IRS ‘Mistakes’ Didn’t Stem from Partisanship, Acting Chief Says).

“While centralizing cases for consistency made sense, the way we initially centralized them did not,” he wrote. “The mistakes we made were due to the absence of a sufficient process for working the increase in cases and a lack of sensitivity to the implications of some of the decisions that were made.”

President Barack Obama called it “outrageous” yesterday for the IRS to target groups promoting limited government for special attention (see Obama Calls IRS Targeting of Tea Party Groups ‘Outrageous’).

First Learned
The president said he first learned of the IRS targeting through news reports May 10. On that day Lois Lerner, the IRS official in charge of overseeing tax-exempt groups, acknowledged that the agency had targeted for special review groups promoting limited government and issued an apology.

Calls for congressional probes of the matter followed. They intensified after disclosures over the weekend that the Treasury Department inspector general’s report found that IRS officials knew of the targeting of the groups as early as June 2011, nine months before the agency’s head told lawmakers it wasn’t occurring.

“I think they purposely misled me,” said Senator Orrin Hatch of Utah, the top Republican on the Finance Committee. “This is really, really, very disconcerting to me.”

‘No Place’
The IRS hasn’t explained why it didn’t restart the screening process in June 2011, which was more than six months before it started sending inquiries to the groups.

“Mistakes were made, but they were in no way due to any political or partisan motivation,” Miller wrote.

“We fixed the situation last year, and have made significant progress in moving the centralized cases through our system,” Miller continued, adding that more than half of the cases have been approved or withdrawn. “These applications, which came from all parts of the political spectrum, received the same, even-handed treatment.”

The House Ways and Means Committee will hold a May 17 hearing with Miller and Inspector General J. Russell George as the only witnesses, according to a statement by panel Chairman Dave Camp and the committee’s top Democrat, Sander Levin, both of Michigan.

Representative Charles Boustany, a Louisiana Republican and chairman of the Ways and Means oversight subcommittee, sent a letter to Miller demanding by May 15 all agency communication containing the words “tea party” and “patriot” as well as the names “of all individuals involved in this discrimination.”

‘Improperly Identified’
The IRS said in a statement that Miller was first notified by agency staff on May 3, 2012, that “some specific applications were improperly identified by name” and had been forwarded for further review.

“Those were, I think as everyone can agree, if not criminal, they were certainly outrageous and unacceptable,” said Holder, who said he ordered the investigation on May 10. “We are examining the facts to see if there were criminal violations.”

Senate Majority Leader Harry Reid, a Nevada Democrat, compared what he called the “inexcusable” IRS actions to scrutiny he said was given in the past to the NAACP, the environmental group Greenpeace and a church in California.

Reid said the government must ensure that political groups don’t improperly gain tax-exempt status.

“Preventing overtly political groups like the one run by Karl Rove from masquerading as social welfare organizations is really a critically important task,” Reid said today. He said organizations run by Rove, a former top political strategist for President George W. Bush, have one purpose, “to defeat Democrats.”

Senate Finance Committee Chairman Max Baucus also said his panel would investigate. House Oversight and Government Reform Committee Chairman Darrell Issa has said his panel will hold hearings on the IRS’s actions, which he said represent a clear “abuse of power.”

Representative Mike Turner, an Ohio Republican on Issa’s committee, introduced legislation yesterday criminalizing IRS discrimination against individuals or groups based on political speech or expression. Florida Senator Marco Rubio, a Republican, said he will introduce the measure in his chamber.

The Senate Permanent Subcommittee on Investigations is expanding its inquiry of whether the IRS didn’t enforce the law on tax-exempt groups to include the extra scrutiny it gave to Tea Party-affiliated groups.

‘Ensure Consistency’
Miller, the acting IRS commissioner since November, told lawmakers in July that the agency had grouped together advocacy organizations seeking nonprofit status “to ensure consistency, to ensure quality” without saying that some groups had been scrutinized for having words like “tea party” in their names.

According to a timeline from the inspector general’s report, Miller became involved in the issue as early as March 8, 2012. That was 19 days before his predecessor, Douglas Shulman, testified to Congress that the IRS hadn’t targeted groups based on ideology.

Anti-tax Tea Party groups, some of which include the word “patriot” in their names, formed after Obama took office in January 2009 and helped fuel gains by Republicans in the 2010 midterm election that gave the party control of the U.S. House.

In addition to groups with “tea party” and “patriot” in their names, other organizations selected for the additional IRS review included those in which “statements in the case file criticize how the country is being run,” according to a June 29, 2011, briefing given to Lerner, the timetable says.

The IRS has been under pressure to regulate political spending by nonprofit groups, in particular those falling under Section 501(c)(4) of the U.S. tax code. Organizations qualifying for that status don’t have to disclose donors even when engaging in political activity.

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IRS Ramps up Criminal Investigations

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The Internal Revenue Service’s Criminal Investigation unit released an annual report Friday showing that it increased investigations, prosecutions and convictions of tax evaders and preparers last year.

 

Initiations of criminal investigation amounted to 5,125 cases in fiscal 2012 while the number of investigations completed was 4,937, an increase of 5 percent compared to fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

The IRS also investigated and prosecuted more tax preparers last fiscal year. It initiated 443 investigations in fiscal 2012, up from 371 in fiscal 2011. There were 276 prosecution recommendations in fiscal 2012, an increase from 233 in fiscal 2011. Sentencings rose to 172 in fiscal 2012 from 163 in fiscal 2011.

The 28-page report summarizes a wide variety of IRS CI activity on a range of tax-related issues during the year ending Sept. 30, 2012.

“The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes,” said IRS Chief of Criminal Investigation Richard Weber in a statement. “This annual report showcases some of the many significant cases that were completed by CI during fiscal year 2012 and the many program areas we cover as an organization. These cases are just a few examples of the thousands of investigations initiated by CI last year, as we continue to make our mark as the finest financial investigators in the world.”

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U.S., UK and Australian Tax Authorities Uncover Information on Offshore Tax Evaders and Advisors

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The Internal Revenue Service is teaming up with tax authorities in the United Kingdom and Australia to battle offshore tax havens after uncovering new information on specific taxpayers and advisors.

The tax administrations from the U.S., Australia and the U.K. announced a plan Thursday to share tax information involving trusts and companies that hold assets on behalf of residents in jurisdictions throughout the world. The IRS said the three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.

The data they have acquired purportedly contains both the identities of the individual owners of these entities, along with the advisors who assisted in establishing the entity structure.

The IRS said it has been working together with the Australian Tax Office and the U.K.’s HM Revenue & Customs to analyze the data they have acquired and have already uncovered information that may be relevant to the tax administrations of other jurisdictions. The IRS said they have also developed a plan for sharing the data, along with their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller in a statement. “Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

While there is nothing illegal about holding assets through offshore entities, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets, the IRS pointed out. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.

The IRS expects the multilateral cooperation and coordinated effort of the tax authorities will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken.  Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

The IRS is encouraging U.S. taxpayers holding assets through offshore entities to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution, the IRS warned.

Last month, a group known as the International Consortium of Investigative Journalists, reported that they had uncovered a large cache of secret documents revealing that tens of thousands of people, including government officials from around the world, are using offshore companies and trusts to avoid taxes (see Documents Shed Light on Wide Use of Tax Havens).

On Thursday, the ICIJ said it believes the secret records described by the IRS are believed to include those it obtained. It noted that British tax authorities claim they have even more data than that unearthed by ICIJ. The total size of the ICIJ files, measured in gigabytes, is more than 160 times larger than the leak of U.S. State Department documents by Wikileaks in 2010.

A statement from the British tax office puts the size of the data obtained by the three tax authorities at 400 gigabytes, compared to the 260 gigabytes gathered by the ICIJ.

“The 400 gigabytes of data is still being analyzed but early results show the use of companies and trusts in a number of territories around the world including Singapore, the British Virgin Islands, the Cayman Islands and the Cook Islands,” the British tax office statement said. “The data also exposes information that may be shared with other tax administrations as part of the global fight against tax evasion.”

Last month, the ICIJ and 37 media partners began reporting on more than 2.5 million files that include the names of thousands of American, Australian and British citizens as well as families and associates of long-time despots, Wall Street swindlers, Eastern European and Indonesian billionaires, Russian corporate executives, international arms dealers and a sham-director-fronted company that the European Union has labeled as a cog in Iran’s nuclear-development program.

The files leaked to ICIJ provide facts and figures—cash transfers, incorporation dates, links between companies and individuals—that illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy and the well-connected to dodge taxes and fueling corruption and economic woes in rich and poor nations alike. The records detail the offshore holdings of people and companies in more than 170 countries and territories.

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IRS Offshore Disclosure Programs Net $5.5 Billion

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The Internal Revenue Service has collected over $5.5 billion in revenue from taxpayers who came forward and reported on their foreign holdings under its Offshore Voluntary Disclosure Programs, but it could be missing billions more in revenue from tax evaders, according to a new report.

The report, issued Friday by the Government Accountability Office, found that as of December 2012, the IRS’s four offshore programs have resulted in more than 39,000 disclosures by taxpayers, producing over $5.5 billion in revenue. The offshore disclosure programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.

Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to amount to several tens of billions of dollars, but no precise figure exists. The IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest and penalties.

For the 2009 Offshore Voluntary Disclosure Program, nearly all the program participants received the standard offshore penalty of 20 percent of the highest aggregate value of the accounts, meaning the account value was greater than $75,000 and taxpayers used the accounts (that is, made deposits or withdrawals) during the period under review.

The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000. Participant cases with offshore penalties greater than $1 million represented about 6 percent of all the 2009 OVDP cases, but accounted for almost half of all offshore penalties.

Taxpayers from these cases disclosed a variety of reasons for having offshore accounts. More than half of them had accounts at the Swiss bank UBS, which signed a deferred prosecution agreement in 2009 with the IRS under which it agreed to pay $780 million in fines, penalties, interest and restitution and later agreed to turn over thousands of names of its U.S. account holders.

Using 2009 OVDP data, the IRS identified bank names and account locations that helped it pursue additional noncompliance. Based on a review of the cases, the GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants. Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance, the GAO noted.

The IRS has detected some taxpayers with previously undisclosed offshore accounts who were attempting to circumvent paying the taxes, interest and penalties that would otherwise be owed, but based on GAO reviews of IRS data, the IRS may be missing attempts by other taxpayers attempting to do so.

The GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to the IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected. In addition, the IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent the money owed, thereby missing opportunities to help ensure compliance.

From tax years 2007 through 2010, the IRS estimated that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest and penalties by not participating in an offshore program, but instead by simply amending past returns or reporting on their current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness, according to the GAO.

Among other suggestions, the GAO recommended that IRS use its offshore data to identify and educate taxpayers who might not be aware of their reporting requirements. The IRS should also explore options for using a methodology to detect and pursue quiet disclosures more effectively and implement the best option. The GAO also suggested that the IRS analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance.

The IRS agreed with all of the GAO recommendations. “Global tax enforcement is a top priority at IRS, and we have made significant progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments,” wrote IRS Acting Commissioner Steven T. Miller in response to the report. “In addition, the IRS and the Justice Department have increased efforts regarding criminal investigation of international tax evasion. This combination of efforts helped support the 2009 Offshore Voluntary Disclosure Program (2009 OVDP), the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the ongoing 2012 Offshore Voluntary Disclosure Program (2012 OVDP). The goal of these programs is to get individuals back into the U.S. tax system and to turn the tide against offshore tax evasion.”

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24 IRS Employees Indicted for Fraudulently Obtaining Government Benefits

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Federal prosecutors in Memphis have charged 24 current and former Internal Revenue Service employees with crimes stemming from fraudulently obtaining more than $250,000 in government benefits.

Thirteen of the current and former IRS employees have been charged federally with making false statements to obtain unemployment insurance payments, food stamps, welfare and housing vouchers. All 13, individually charged in separate indictments, are alleged to have falsely stated that they were unemployed while applying for or recertifying those government benefits.

“According to the allegations in the indictment, while these IRS employees were supposed to be serving the public, they were instead brazenly stealing from law-abiding American taxpayers,” said U.S. Attorney Edward L. Stanton III in a statement. “These charges demonstrate our unwavering resolve to work with our law enforcement partners and hold accountable anyone who fraudulently obtains government benefits and violates the public’s trust.”

Eleven other former and current IRS employees were charged by the District Attorney General’s Office with theft of property over $1,000, a class D felony.

“The taxes that we pay are supposed to support our nation and assist individuals in need, not free-loaders who are gaming the system,” said District Attorney General Amy Weirich in a statement. “Taxpayers can take comfort in knowing that we take these matters seriously and that we will prosecute these individuals to the fullest extent possible.”

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IRS to Serve Summons at Wells Fargo Seeking Identities of U.S. Taxpayers with Offshore Accounts at CIBC First Caribbean Bank

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A federal court in San Francisco has entered an order authorizing the Internal Revenue Service to serve a summons seeking information about U.S. taxpayers who may hold offshore accounts at Canadian Imperial Bank of Commerce First Caribbean International Bank, seeking records of FCIB’s U.S. correspondent account at Wells Fargo.

The order, signed Monday evening by Senior District Judge Thelton E. Henderson, will allow the IRS to identify U.S. taxpayers who hold or held interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account.

Under a petition filed by the Justice Department, the court granted the IRS permission to serve what is known as a “John Doe” summons on Wells Fargo. The IRS uses John Doe summonses to obtain information about possible violations of federal tax laws by individuals whose identities are unknown. The John Doe summons approved by the court will direct Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account.

According to the declaration of IRS Revenue Agent Cheryl R. Kiger filed in support of the petition, FCIB is based in Barbados and has branches in 18 Caribbean countries. While FCIB does not have U.S. branches, it maintains a correspondent account in the United States at Wells Fargo Bank.

A correspondent account is a bank deposit account maintained by one bank for another bank. Financial transactions involving U.S. dollars flow through U.S. banks. Therefore, foreign banks that do business in U.S. dollars, but have no office in the U.S., obtain a correspondent account at a U.S. bank in order to engage in such transactions. These transactions leave a trail in the U.S. that the IRS can access through the records of the correspondent bank accounts. These correspondent bank accounts have records of money deposited, money paid out through checks and money moved through the correspondent account by wire transfers. All of this information the IRS can obtain through a John Doe summons issued to the U.S. bank holding the correspondent account.

“This summons marks another milestone in international tax enforcement,” said IRS Acting Commissioner Steven T. Miller in a statement. “Our work here shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.”

As alleged in Agent Kiger’s declaration, the IRS learned that U.S. taxpayers were using FCIB to help them keep their offshore accounts undetected by the IRS and not to pay U.S. federal income tax on money placed in those offshore accounts. Kiger’s declaration describes her review of the information submitted by more than 120 FCIB customers who participated in the IRS’s Offshore Voluntary Disclosure Program. According to the Kiger declaration, many of the FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.

“The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade U.S. taxes,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, in a statement. “This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”

A deliberate failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

In a similar case in January, the U.S. District Court for the Southern District of New York entered an order authorizing the IRS to serve a John Doe summons on UBS AG, seeking records of Swiss bank Wegelin & Co.’s United States correspondent account at UBS, which will allow the IRS and the Justice Department to determine the identity of U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions to evade federal income taxes .

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Tips to Start Planning Next Year’s Tax Return

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For most taxpayers, the tax deadline has passed. But planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are six things you can do now to make next April 15 easier.

1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee’s Withholding Allowance Certificate.

2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.

3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Shop for a tax professional.  If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you’re not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at IRS.gov.

5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.

6. Keep up with changes.  Find out about tax law changes, helpful tips and IRS announcements all year by subscribing to IRS Tax Tips through IRS.gov or IRS2Go, the mobile app from the IRS. The IRS issues tips regularly during the summer and tax filing season.

For more information: www.onts9.com