News Briefings - DC Highlights

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02/09/2012 -- Oldest Swiss bank hit with federal indictment alleging tax evasion conspiracy

Wegelin & Co. Private Bankers, a venerable Swiss banking institution founded in 1741 and based in St. Gallen, Switzerland, has been indicted on charges it conspired with U.S. citizens to evade taxes on more than $1.2 billion, the Justice Department announced on Feb. 2. (Justice Department press release 12-153, Tax Division) The money in question was allegedly deposited in offshore accounts. The bank has no branches in the U.S. and relies on correspondent banking services provided by UBS AG in Stamford, CT. The federal government has seized $16 million from Wegelin's correspondent account at UBS. Wegelin was charged in a superseding indictment along with three bank client advisers who were previously charged with the same conspiracy. "This is the first time an overseas bank has been charged by the U.S. for facilitating tax fraud by U.S. taxpayers," DOJ said. By 2008, it was public knowledge that UBS was being subjected to a major IRS investigation and during that year it ceased servicing undisclosed accounts for U.S. taxpayers. "In the wake of the IRS investigation, members of Wegelin's senior management affirmatively decided to capture the illegal business that UBS exited," DOJ said. Despite IRS scrutiny of UBS, among other things, in 2008 and 2009, Wegelin and the other three named co-conspirators are alleged to have "opened and serviced dozens of undeclared accounts for U.S. taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports that the IRS was investigating UBS for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts." IRS is continuing its work "to crack down on offshore tax evasion," said IRS Commissioner Douglas Shulman. "Through our efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax evasion, and you can expect us to pursue all avenues to stop this abuse."

02/09/2012 -- Report finds weaknesses in IRS's handling of restitution payments

IRS needs to improve its procedures to ensure that defendants convicted of tax-related crimes are held responsible for the payment of taxes associated with the offenses they committed, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on Feb. 2. (Audit Report No. 2012-30-012) The agency's inability to properly account for restitution payments resulted in erroneous refunds to three defendants and 16 taxpayers totaling $543,000, auditors discovered. In addition, the systems for monitoring defendants' compliance with the conditions of probation and restitution "are neither effective nor reliable," TIGTA said. The audit also identified inaccurate tax account data totaling $330,000 for 25 defendants and determined that Criminal Investigation "inconsistently" used the refund offset procedure to collect restitution. "If the IRS does not collect the restitution that it is owed by criminals who have been convicted of tax-related crimes, justice has not been served," said J. Russell George, the inspector general, adding that "all efforts must be made to collect on the funds due." The audit is available at http://www.treasury.gov/tigta/auditreports/2012reports/201230012fr.pdf.

02/09/2012 -- IRS schedules telephone forum on Code Sec. 436 funding-based benefit restrictions

Funding-based benefit restrictions under Code Sec. 436 will be the subject of an IRS telephone forum on Feb. 23. IRS actuaries with Employee Plans Rulings and Agreements will participate in the discussions. To register go to https://www.attevent.com/rsvp-index.asp?PPass=250779.

02/09/2012 -- JCT publishes important reference document on expiring tax provisions

The Joint Committee on Taxation has published the legislative background of federal tax provisions that are currently scheduled to expire during the period of 2011 through 2022. (JCX-6-12) The legislative background provided for each expiring provision includes the following: a brief description of the provision; the public law in which the provision was originally enacted with the original expiration date; a brief description of substantial modifications to the provision, if any; and the public law in which the provision was most recently extended, if any, with the current expiration date. The document can be found at http://www.jct.gov/publications.html.

02/09/2012 -- CBO estimate suggests FY 2012 federal budget deficit will top $1.1 trillion

The federal budget deficit for the first four months of fiscal year 2012 was estimated to be $349 billion, the Congressional Budget Office (CBO) said on Feb. 7. (Monthly Budget Review) If there is no further legislation affecting spending or revenues, the fiscal year will end with a deficit in the neighborhood of $1.1 trillion, CBO said. "However, enactment of proposals such as pending legislation to extend the payroll tax cut could have a significant impact on the deficit for 2012," CBO noted. Spending for Social Security benefits was $4 billion higher last month than it was in January 2011, a fact primarily attributed to the 3.6% cost-of-living adjustment that kicked in for 2012. Receipts to date were up 4% compared to the same period in FY 2011. Corporate income tax revenue in the first four months was up $20 billion (or 51.8%) compared to last year, with tax payments $6 billion higher and refunds $14 billion lower. "The large drop in corporate tax refunds reflects a return to a level more in keeping with that seen before the recession," CBO said, adding that "such refunds were unusually high in the first quarter of fiscal year 2011. The monthly budget review is located at http://cbo.gov/ftpdocs/127xx/doc12744/2012_02_MBR.pdf.

02/09/2012 -- GAO reports significant decrease in EITC improper payments and error rate

Federal government agencies made an estimated $115.3 billion in improper payments in fiscal year 2011, down $5.3 billion when compared to FY 2010, the Government Accountability Office (GAO) said in congressional testimony on Feb. 7. (GAO-12-405T) One of the major contributors to the reduction in improper payments was a decrease in reported error rates for the Earned Income Tax Credit (EITC) program. Improper payments related to the EITC totaled $15.2 billion and the error rate was 23.5%, GAO reported. In FY 2010, EITC improper payments totaled $16.9 billion, which reflected an error rate of 26.3%. The primary causes for the error rate were "the complexity of the tax law, structure of the program, confusion among eligible claimants, high turnover of eligible claimants and unscrupulous return preparers," GAO said. The EITC program ranked third among the 10 programs with the highest reported improper payment rates in FY 2011. The Small Business Administration's disaster loan program had an error rate of 28.4% (with $96.3 million in improper payments) and the Agriculture Department's school breakfast program had an error rate of 25% (with $705 million in improper payments). The corrective actions that were taken to reduce improper payments "primarily focused on completing examinations on tax returns that claimed the EITC before issuing the EITC portion of the refund, identifying math or other statistical irregularities in taxpayer returns, and comparing income information provided by the taxpayer with matching information from employers to identify discrepancies," GAO said. The GAO testimony can be found at http://gao.gov/assets/590/588228.pdf.

02/09/2012 -- Report focuses on underreporting of retirement income

Just small improvements in IRS's examination of tax returns with retirement income could increase compliance and generate substantial revenue, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on Feb. 7. (Audit Report No. 2012-30-011) According to the audit, for tax years 2008 and 2009, taxpayers filed some 21 million returns with taxable Individual Retirement Arrangement (IRA) income totaling $293 billion and 52.2 million returns with taxable pension income totaling $1 trillion. TIGTA found that IRS's Automated Underreporter (AUR) Program is effectively determining the proper reporting on retirement income when Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., discloses the amount of the retirement distribution. In 2007, AUR Program examiners made tax assessments totaling $607 million on 217,800 tax returns, the audit found. "However, additional tax form information, if available, would improve compliance," TIGTA said. The audit is available at http://www.treasury.gov/tigta/auditreports/2012reports/201230011fr.pdf.

02/09/2012 -- Phone forum scheduled on issues found in 401(k) audits

The 401(k) Questionnaire Interim Report, its next steps, and current issues found in 401(k) audits will be the subjects of an IRS telephone forum scheduled for March 6. Monika Templeman, director of Employee Plans Examinations, will lead the discussions. Participants may submit specific issues that they would like addressed during the telephone forum no later than Feb. 17. To register go to https://www.attevent.com/rsvp-index.asp?PPass=246099.

02/09/2012 -- Online tool helps taxpayers who claimed the first time homebuyer credit

IRS on Feb. 6 announced the availability of a new online tool to help taxpayers in complying with the repayment requirements for their First Time Homebuyer Credit. Taxpayers can now use the First Time Homebuyer Credit Account Look-up to get account information such as the total amount of their credit and their repayment amount. To access their account, taxpayers must provide their Social Security Number (or IRS individual taxpayer identification number), date of birth, street address and ZIP code. The tool can be accessed at http://www.irs.gov/individuals/article/0,,id=252351,00.html?portlet=105.