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Jan 05

The tax man cometh (and cracketh down)

Posted by kcates in UBStax filingtax evasionSwiss bankingSabrixIRScomplianceBradley Birkenfeld


Mandated competency is coming finally to the tax-preparation industry. The IRS this week announced plans to make anybody who charges a fee to fill out a tax return register with the federal government. Those who aren't formally schooled in the fine art of tax filing will have to go through 15 hours of continuing education each year (relax CPAs and lawyers, your professional stature earns an exemption from the education requirement).

The federal program more or less mirrors one already enforced by some states, including California, where the L.A. Times reports that H&R Block is happily going along with the rule and that it's also endorsed by the National Association of Tax Professionals. "This has been a long time coming, and we're pretty pleased with the reasoned and rational approach," Paul Cinquemani, a CPA and an association executive tells the newspaper. "The whole idea of a competency exam just raises the bar. That's a great idea."

It's also a great idea for the bottom line for CPAs who would rather not have to compete with hole-in-the-wall fly-by-night "accountants" like the one that did the books for Bernie Madoff.  So you'd have to say the consensus is that this is a change for the better.

So, too, is the IRS crackdown on secret Swiss banking -- unless you're one of the people caught up in the government prosecution of UBS. One of those snagged was a whistleblower, midlevel UBS banker named Bradley Birkenfeld who came forward with evidence about UBS's systematic cloaking of American-client assets but then got in trouble himself because he didn't pull the curtain all the way back on everything he knew.  

It's hard to know exactly what to make of Birkenfeld - he's a character - but the Web-posted write-up of the piece that "60 Minutes" broadcast on him makes for some of the most intriguing reading yet on exactly how it is Swiss banking works. "Any transaction that happened on an account was held deep in the vault and sealed until the client came to pick it up personally. Then they would either take it with them, which was generally not the case, or they would tell you to shred it, which we would do on behalf of the client," Birkenfeld says.

The piece goes on to show that when Birkenfeld was asked if he brought client records into the country when coming to the U.S., he said, ‘Generally, no. I did not. My colleagues brought in encrypted laptops. ... So that even if they were discovered you couldn't see what was inside the computers, which were portfolios of the clients and they were product offerings for the clients.'"

The implication being, of course, that there was something to hide, and in fact it was more than just an implication, according to prosecutors. "They were going out of their way to cover their tracks," said Thomas Perrelli, a U.S. associate attorney who told the show the scam involved more than just a few bad apples. "It was certainly surprising that there would be a unit within a major bank that would be behaving in that way ... And we subsequently learned that senior officials knew about this. They knew it was wrong. They called it ‘toxic waste.' But it was very profitable and they didn't stop doing it."

Birkenfeld was the key to forcing a tough settlement in the case, Perrelli concedes, but Birkenfeld is going to jail for 40 months anyway in a harsh irony that may serve as a warning to anybody else thinking of coming just partially clean.

If that's not sobering enough, there's a whitepaper out by Sabrix, the global transaction-tax management company, that does the hard sell for "business of all sizes" to put better tax policies in place. 

"On average," it says, "businesses face a 90 percent chance of being audited once a year, with penalties and interest averaging $10,000 to $30,000 annually."


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