Category Archives: Legal

In Ongoing Battle with IRS, UBS and Swiss Bank Privacy Score Minor Win

As the Journal of Accountancy reported yesterday, a Swiss court blocked the release of confidential information identifying the owners of 26 Swiss bank accounts sought in the IRS’ ongoing tax-fraud investigation. Considering that the earlier settlement entitled the IRS to information on 4,450 accounts, this is an almost imperceptible victory for proponents of Swiss bank secrecy. Nonetheless, for the owners of those accounts, the decision is certainly more than welcome.

The ruling, delivered by a Swiss administrative tribunal, determined that simply failing to file an informational form identifying the account owner as a U.S. citizen (IRS From W-9) does not constitute tax fraud. Since the tribunal ruled that its decision could not be appealed, the owners of the 26 accounts in question are, at least for now, safe from further scrutiny, and ultimately, penalties and interest on unreported earnings. As the settlement reached earlier this year between the IRS and Swiss government called for the release of roughly 10,000 names, the IRS will likely let the 26 accounts covered by the Bundesverwaltungsgericht’s1 ruling in U.S. Taxpayers v. Swiss Federal Tax Administration forgo further investigation. It is unclear, however, whether more of the 10,000 names to be released will benefit from this ruling.

  1. Swiss federal administrative tribunal ↩

Stock Option Backdating

The following is a paper I coauthored in December 2006 for a Seminar in Management Control Systems while completing my Masters of Science in Accounting & Taxation at the University of Hartford. Given the recent resurgence of news relating to options backdating, I thought I’d reprint the paper for those who might be interested.

Executive Summary
Stock option backdating is a complex issue. While there are legal ways to backdate stock options, as we found, few companies can properly account for backdated options. As a result, we found that many companies lose top talent, are scrutinized by regulatory bodies, and are subject to fines and penalties. The negative effects on shareholder value are significant cause for concern. Ultimately, the potential gain executives’ reap is far outweighed by the likelihood of detection. Nonetheless, stock option backdating is a prevalent practice. The statistics can be staggering: $5.9 billion in fines, more than 120 companies under investigation. In the coming pages, the history, legal issues, and effects on shareholder value will be explored.

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Do Stringent Underage Drinking Prohibitions Exacerbate The Problem?

After New London, NH police arrested 91 Colby Sawyer College students following a raid at an off-campus party, I couldn’t help but wonder if our nation’s drinking age and related policies weren’t contributing to the problem of underage drinking. Does barring our nation’s youth from an activity that is widely accepted, even encouraged, for those of legal age create a situation that compels minors to drink? After all, alcohol advertisements and sponsorships are widespread, be it at sporting events (including those at the college level), on roadside billboards, and in print and online publications. When underage individuals are continually confronted with alcohol, does it not make resisting the temptation to break the law that much more difficult?

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First Prosecutors, Now Judges – Is Reform Needed?

Last week, the US Supreme Court heard arguments in a case testing prosecutors’ immunity from lawsuits where misconduct, or outright fraud, is concerned. Yesterday, The Wall Street Journal reported on a lawsuit that seeks to test the limits of judicial immunity. While the two cases deal with very different circumstances, the potential outcomes raise many of the same concerns and highlight the need for reform.

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AT&T Takes Aim at Google Voice

It was only a matter of time until AT&T jumped into the fight over Google Voice. As The Wall Street Journal reported yesterday, AT&T sent a letter to the FCC on Friday alleging that because Google Voice does not connect calls to certain numbers, Google’s service violates FCC regulations governing phone carriers. The AT&T letter also accuses Google of violating the FCC’s “net neutrality” rules by blocking certain calls. AT&T’s arguments, however, are flawed for multiple reasons.

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Eight More Days to Disclose Unreported Foreign Bank Accounts

In the IRS’ ongoing battle against tax evasion, a key deadline is approaching. Individuals with previously-unreported offshore bank accounts have until next Wednesday, September 23, to disclose the accounts’ existence and pay both back taxes and penalties without facing criminal charges. The deadline comes as UBS prepared to turn over 4,450 account-holders’ names to the Department of Justice as part of the ongoing tax evasion investigation. Besides avoiding criminal penalties, individuals who voluntarily disclose their offshore accounts will not be subject to penalties for failing to file a Foreign Bank Account Report.

As Wendy Kaufman reported for NPR’s Morning Edition today, however, tax evasion cases can be hard to prove, making the decision to provide voluntary disclosure a particularly difficult one. Nonetheless, considering that the 4,450 names to be disclosed by UBS are just the starting point in the agreement between the Swiss and US governments, holders of undisclosed offshore accounts have reason to be concerned. Reflecting that concern, more than 400 voluntary disclosures were made in a single week in July of this year, more than were made in all of 2008.

UBS’ Troubles Spread to Hong Kong

Following the settlement between the IRS, UBS, and the Swiss government, the IRS probe now widens to include UBS’ operations in Hong Kong. According to court documents filed by the US government, UBS used Hong Kong-based entities to launder funds received from its American clients. As The Wall Street Journal reports, recent plea agreements negotiated between American clients of UBS and the US government are beginning to reveal how the Swiss bank serviced its US clients in its ellaborate efforts to help clients evade US taxes. As these plea agreements continue to be publicized, we should begin to better understand the extent of UBS’ illegal activities and, hopefully, the extent to which the Swiss bank swindled the American public. Remember, the evaded income tax revenue has to be made up somewhere, be it through borrowings (sales of US Treasury bills) or other taxes.