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Top Ten Tax Enforcement Actions of 2019

Posted  January 17, 2020

Tax fraud and tax evasion persist each year in various forms and whistleblowers have been at the forefront in combatting entities and individuals cheating the system. Under the IRS Whistleblower Reward Program, whistleblowers who bring information regarding tax fraud to light that results in a recover of over $2 million can be eligible for a reward between 15 to 30% of the government’s recovery. The IRS Whistleblower Office’s Annual Report stated that whistleblower tips led to over $616 million in proceeds and over $120 million in awards to whistleblowers.

Additional options are available to whistleblowers at the state and international levels. The New York State False Claims Act allows whistleblowers to report violations of New York state tax laws. Programs in Canada and South Korea also provide for rewards for reporting tax violations. The role of whistleblowers in reporting tax fraud continues to grow as whistleblowers recently gained new protections against retaliation and the IRS Whistleblower Office has aimed to provide more communication with whistleblowers. All this points to a potential banner year for whistleblowers in 2020.

Looking back, here are the top ten tax recoveries we covered for 2019 by the numbers:

    1. Mizrahi-Tefahot Bank – $195,000,000: On March 12, 2019, Israeli bank Mizrahi-Tefahot Bank and its subsidiaries entered into a deferred prosecution agreement wherein it agreed to pay $195 million to resolve allegations that it concealed client funds to assist in the evasion of income taxes. The bank allegedly allowed U.S. taxpayer customers to use pseudonyms, code names, and other tactics, and violated its Qualified Intermediary Agreement with the IRS.
    2. HSBC Private Bank (Suisse) SA – $192,000,000: On December 10, 2019, HSBC Private Bank entered into a deferred prosecution agreement on allegations that it conspired with U.S. clients and others to evade taxes for over a decade. At its peak, HSBC Switzerland was said to have held almost $1.26 billion in undeclared assets for U.S. clients. HSBC self-disclosed to the government in 2010.
    3. FedEx – $35.3 million and UPS – $98 million: On January 14, 2019, shipping company FedEx agreed to pay New York State $35.3 million to resolve claims that illegally shipping hundreds of thousands of untaxed cigarettes directly to New York residents on behalf of cigarette traffickers.  In 2017, the state, together with New York City, had prevailed at trial on similar charges against United Parcel Service.  This year, a NY appeals court largely upheld that verdict, finding UPS could be held liable for $98 million in damages and penalties.
    4. “Ultimate Tax Plan” – $35 million: On April 26, 2019, DOJ reported that it had secured a permanent injunction barring Michael J. Meyer from marketing his “Ultimate Tax Plan,” an abusive tax avoidance scheme using sham charitable entities.  While the injunction did not result in any recovery from Meyer, the IRS reported that the scheme deprived the U.S. of at least $35 million in tax revenue.
    5. Coutts & Co Ltd. – $27,900,000: On December 20, 2019, Coutts & Co Ltd. agreed to pay $27.9 million as an amendment to its 2015 non-prosecution agreement. Coutts had previously paid $78 million to resolve claims under the Swiss Bank Program; with this amendment, Coutts admitted that at the time it had failed to disclose 311 additional accounts.
    6. Kenneth Coleman – $21,000,000: On April 4, 2019, Kenneth C. Coleman, the owner of Acacia Pharma Distributors, Inc. and other companies, was sentenced to 30 years in prison and ordered to pay approximately $21 million in forfeiture and restitution. Coleman was alleged to have participated in a scheme whereby he purchased second-hand pharmaceuticals and resold them to a third-party who then sold them as if they were new. Coleman allegedly paid drug suppliers in cash and failed to report income or file corporate income taxes.
    7. Adam Van Pelt – $20,000,000: On February 14, 2019, Adam Van Pelt was ordered to pay $20 million and sentenced to almost three years in prison for failure to pay over $20 million in employment taxes to the IRS between 2011 and 2015.
    8. LLB Verwaltung – $10,600,000: On August 5, 2019, Swiss bank LLB Verwaltung agreed to pay $10.6 million to resolve allegations that its management employees, in conjunction with a Swiss asset manager and clients, attempted to conceal client assets and income from the IRS. The scheme was allegedly conducted by using multiple layers of sham offshore entities and nominating directors in favorable countries.  
    9. Zurich Life Insurance Company Ltd. – $5,115,000: On April 25, 2019, Zurich Life Insurance Co. Ltd. entered into a non-prosecution agreement and agreed to pay a penalty of $5,115,000. The settlement resolved allegations that Zurich Life Insurance knew some of its U.S. taxpayer customers were using internal policies to avoid paying or properly reporting taxes.
    10. Mica Gabe Brooklyn LLC – $3,000,000: On November 8, 2019 Mica Gabe Brooklyn LLC and Brooklyn Warehouse 180 LLC agreed to pay $3 million to resolve allegations it improperly secured a New York State tax break. The claim was brought under the New York False Claim act by local union 32BJ SEIU.

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Tagged in: Abusive Tax Shelters, Employment Tax Fraud, IRS Whistleblower Reward Program, Tax Fraud, Top 10,