The newest target of U.S. authorities appears to be HSBC, the London-based retain bank prominent in Asia.

“It appears that it is indeed the next bank in what is likely a series of banks that will be targeted by the IRS,” said Miami tax litigator David Garvin.

“Since June of this year, there has been at a minimum 15 or more clients of HSBC who have already received letters from the United States government and are being investigated for tax evasion.”

Other HSBC clients are seeking legal consultations, concerned they will be caught up in another tax-evasion dragnet, lawyers said.

There is an estimated $700 billion in untaxed wealth in Asia, Garvin said. The owners are required to report taxes in the country where the
businesses are domiciled as well as their home country. The IRS plans to beef up its overseas operations with 800 new agents, most of them
heading to the Pacific Rim.

Not surprisingly, there is a South Florida component, as there was in the UBS case. A tax case against two HSBC customers is set for trial Sept.
7 in Fort Lauderdale federal court.

The HSBC probe shows how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland and UBS. The largest Swiss bank paid a $780 million fine for hiding assets of U.S. taxpayers, often in Caribbean accounts.

About 15,000 taxpayers filed for amnesty under an IRS program to disclose offshore holdings to keep from being prosecuted, and 16 UBS clients have been charged with tax crimes.

But South Florida tax attorneys say it’s unlikely there will be such a large fine for HSBC, which is cooperating with authorities. While UBS refused to release the names of its U.S. customers, HSBC is releasing not only names but customer service audio tapes.

“HSBC has more leeway in cooperating, and it may not be breaking any laws of any particular jurisdiction by cooperating with the Department of Justice,” said attorney Martin Press, a partner at Gunster in Fort Lauderdale. But it hasn’t been all strawberries and cream between the bank and investigators.

“The IRS appears to be suspicious that HSBC tipped their customers to what was about to happen,” Garvin said. “It let their better customers do what actors term ‘exit stage right.”

A lot of tax attorneys said many of those already targeted are just confused about reporting income in two countries.
Kevin Packman, a partner at Holland & Knight in Miami, said the Justice Department is lumping in those who simply did not know the international reporting rules on income tax with the true tax scofflaws.

“I look at this stuff as low-hanging fruit. The size of the account should not matter. Whether it’s $1 million or $15 million, the focus should be on intent and willfulness,” he said. “I have people who failed to report accounts with $100,000, and they are being treated the same way as those who intentionally evaded tax.”

Packman said an HSBC client who got a “subject letter” from the Justice Department already came forward under the voluntary UBS amnesty to disclose his HSBC holdings.

“It’s troubling that one side did not know what the other side was doing,” he said. “I was certainly stupefied. You’d think they would be working in conjunction.”

He declined to discuss the specifics of the case.

For those who wanted to hide foreign assets, HSBC could be the perfect vehicle. It prides itself on its brick-and-mortar operation with branches throughout the world.

The bank founded in Hong Kong in 1865 is doing everything it can to avoid becoming the next UBS by cooperating with U.S. authorities.
While UBS said it cooperated with U.S. authorities, it cited Swiss bank secrecy law when withholding the identities of U.S. account holders and didn’t produce an indicted executive.

“HSBC is interesting because they have taped a number of their customers who are just patently discussing during the taped conversation the best ways to open accounts with

HSBC and avoid the reporting requirements to the IRS,” Garvin said.
One of the first signs the bank was targeted was when father-son developers Mauricio Cohen Assor and Leon Cohen Levy were charged in April with pocketing $33 million in a

New York hotel deal in 2000 without paying taxes.

The Cohens ended up in Fort Lauderdale federal court.

An IRS agent testified about the Cohens’ business with HBSC, which is described in the complaint only as “one of the largest international banks.”

AUDIO TAPES

HSBC audio tapes allegedly have the elder Cohen talking to a staff member about hiding millions of dollars in the names of relatives, according to court documents. Paul Calli and

Michael S. Pasano, partners at Carlton Fields in Miami who represent the Cohens, claim the Justice Department is carrying water for a French bank suing the father and son over an unresolved loan.

“We are following this case very carefully to see if anyone with the right set of facts successfully can be found not guilty,” Press said.

In a legal showdown with the IRS, the Miccosukees say their members don’t owe any taxes on income they receive from the tribe’s gambling operation — a stance that sets them apart from possibly every Indian tribe with casinos in the United States.

Every year, the Miccosukees distribute millions in profits from the tribe’s West Miami-Dade casino to their 650 members. They say that distribution constitutes a “tax” by a sovereign government, so, they argue, the IRS cannot tax the income, too.

The Miccosukees may be the only one of about 240 Indian tribes with American gambling facilities to deploy such a defense, which has failed in the past, according to legal experts and Indian regulatory authorities.

Tribe lawyers, in a new Miami federal court filing, accuse the Internal Revenue Service of “abuse of authority” in its ongoing investigation into the tribe’s gambling distributions and former chairman Billy Cypress.

But the Miccosukees’ counterattack seems to fly in the face of a key federal law regulating Indian gaming operations, the experts and authorities said.

The Indian Gaming Regulatory Act, passed by Congress in 1988, requires tribes with gambling facilities to report all member payments to federal authorities. It also requires tribes to notify the recipients that they may have to pay income taxes to the government.

The law specifically says such “payments are subject to federal taxation.” Unlike the Seminole Tribe, which operates the Hard Rock Hotel & Casino in Hollywood and Tampa, the Miccosukees have never filed a required “revenue allocation plan” with the Bureau of Indian Affairs to show how much gambling income from their bingo-style slot machines and poker games is distributed to members.

Attorneys for the Miccosukees, represented by the Jorden Burt law firm in Miami, declined comment.

In court filings, IRS officials also cited federal law saying that while Indian tribes and their businesses are exempt from paying taxes, tribal members who receive income from such operations — including gambling casinos — are subject to federal reporting and taxes.

An often-cited analogy is nonprofit organizations, which are tax exempt. Such organizations’ earnings are not taxable, but salaries paid to staff are subject to income taxes.

HISTORICAL VIEW

Historically, Indian tribes have imposed taxes on non-Indian timber or mineral companies operating on their reservations to pay for public services such as roads or police — but they have not taxed their own gambling operations, said a Washington, D.C., attorney who specializes in Indian and income tax laws.

Lawyer Dennis Whittlesey described the Miccosukee Tribe’s defense against the IRS’ probe as “disingenuous and pettifogging.”  “It’s basically legal chicanery. They’re trying to scrub the gambling payments of their casino character,” said Whittlesey, who is involved in a wrongful-death lawsuit against a Miccosukee Indian in Miami-Dade court. “There’s no such thing as a nontaxable gift.”

Miami attorney David Garvin, who successfully represented Indy 500 champion Helio Castroneves in a criminal tax-evasion trial last year, said the tribe’s legal argument “is not novel and has been rejected in the past.”

Garvin said that many appellate cases have held that tribal income derived from any business on tax-exempt Indian land is not subject to taxes. But as soon as a tribe distributes any of that income to members, it becomes taxable under federal law, he said.

He cited a major federal appeals court case in which a Yakama Indian in Washington state was ordered to pay taxes on $18,000 he had received as income in 1976 for his duties as a tribe council member and smoke shop operator.

“There are a number of well established and often-cited cases that hold that individual tribe members’ payments are taxable,” Garvin said.

Garvin, a tax specialist, said he understands the Miccosukees’ legal strategy, describing it as “damage control.”

“It’s a slippery slope once the financial records for Mr. Cypress are turned over,” he said.

SUMMONS ISSUED

In April, the IRS issued a civil summons to Morgan Stanley Smith Barney, the tribe’s Miami bank, seeking Cypress’ credit card statements and other tribe financial records from 2003 to 2005. The summons also demanded the tribe’s credit card records and the names of members authorized to use the Morgan Stanley account for the same three-year period.

After the tribe refused to turn over the records, Justice Department lawyers and IRS agents disclosed that an earlier investigation into the Miccosukees’ unreported gambling distributions led them to the related probe of Cypress.

The former chairman, deposed in January, is suspected of charging at least $3 million on tribe credit cards for personal travel to casinos in Las Vegas, Foxwoods and other glitzy gaming venues, records show.

As a sovereign nation, the Miccosukees argue they don’t have to turn over any records on Cypress or the tribe to the IRS, though they agreed to hand over some of the tribe’s financial records in 2006 during the earlier probe.

In their latest court filing, the tribe’s lawyers said the U.S. government’s intent is to “harass” the Miccosukees and “punish” them for objecting to the summons, adding that the IRS improperly disclosed “confidential” records in court filings in the current case.

They also took umbrage at the IRS’ allegations that the Miccosukees have used armored vehicles to deliver up to $10 million four times a year to members, attacking the agency for trying to “malign the tribe by making public accusations based upon rumor and innuendo.”
“No armored trucks are ever used to transport currency from Miccosukee Resort and Gaming to the Miccosukee reservation or to any other place other than local banks,” Magdalena Salinas, a casino treasury manager, said in court papers.

PAYMENTS MADE

According to court records and people familiar with the Miccosukees, the tribe has handed out millions in cash payments from the gambling operation to every member on a quarterly basis for years.

Last August, for instance, the Miccosukee police delivered $18 million in cash from the casino off the Tamiami Trail to the tribe’s government center about 20 miles west, according to one person aware of the transport. SWAT team members accompanied the motorcade of three unmarked black Chevy Tahoes.

Miccosukee police officers carried the cash packed in five burlap sacks, each weighing over 100 pounds, to the government center’s safe, the person said.

Early the following morning, hundreds of tribe members — mothers, fathers and children carrying IDs — lined up outside the building to collect their quarterly payout,in a manila envelope or check.   Each received about $48,000, the knowledgeable source said.

An article written by Jay Weaver published in The Miami Herald on August 2, 2010

http://www.people.com/people/article/0,,20273324,00.html

“Helio will pay taxes when his retirement fund comes due like everyone else,” his lawyer David M. Garvin tells PEOPLE. “I am elated that justice was served here. Now it is up to the government to decide whether it is in the best interest of justice to hassle with another case on the deadlocked count.”

“Prosecution drops remaining tax charges against Helio Castroneves”

http://dailyme.com/story/2009052200010586/prosecution-drops-remaining-tax-charges-helio.html

“Castroneves’ whirlwind weekend ends in style at Long Beach”

http://sportsillustrated.cnn.com/2009/writers/bruce_martin/04/20/Martin/index.html

“Though, mentally and emotionally exhausted from his six-month legal ordeal, Castroneves couldn’t stop smiling. As he spoke to a group of reporters after the race, David Garvin, the Miami attorney who was instrumental in Castroneves’ acquittal, stood a few feet away, sporting a proud smile of his own.”It has been a blur for me, too,” Garvin said of the last three days. “From start to finish. But it was completely worth it. The last seven weeks were the most stressful. But in the end, the right things fell into place and justice was served. Helio never lost his faith in the system, and came out on top where he belongs.”

Garvin was stunned to see his client make such a rapid return to the race car after a six-month layoff.

“It’s shocking,” Garvin said. “During the year, we got permission to let him go to Australia and [race last] October. We had faith putting him on the track today was not a dangerous situation — that he would be up to the task. But what he’s gone through the last seven weeks, no human should have to go through. When he got into first place today, it was like a dream come true.”

Castroneves did not realize Garvin was standing behind him when he finished a television interview. When he turned around, the Brazilian’s smile grew even bigger. “I didn’t even know you were here,” he said.

Garvin replied, “Where else would I be?”

“Thank you so much,” Castroneves said.”

“Helio’s financial life under scrutiny”

http://sports.espn.go.com/espn/print?id=3997367&type=story

This report on the tax evasion trial of Helio Castroneves contained the following:”As the case wrapped up its abbreviated third week to begin the long weekend, the two sides of the U.S. Federal courtroom in downtown Miami fired shots across each other’s bow, each using the day’s featured witness, New York tax attorney Fred Feingold, as the cannon.”

* * *“Would you say that there was a hole in this agreement?” defense attorney David M. Garvin asked, referring to the racer’s 1999 contract with Seven Promotions, when he was a driver with now-defunct Hogan Racing and managed by Fittipaldi.”

“Yes,” Feingold replied, “a big one.”

The report noted the following testimony from the New York tax attorney:

“He made it clear to us that he did not own the company or shares of the company in any sense,” Feingold stated to the court, adding that he shared Miller’s concerns over the stability of Seven Promotions and before the meeting had already started researching the possible benefits of a new partnership with Netherlands-based Fintage Licensing, with whom Feingold had a prior relationship while representing “another driver.”

* * *Helio made it very clear that he wanted this done correctly,” Feingold said when asked about his one and only face-to-face meeting with the racer.

* * * “None of this was explained to Helio?” Garvin asked Feingold during cross-examination. “Is that correct?”

That is correct.” Feingold replied.

“Accountant: Castroneves not involved”

http://sports.espn.go.com/espn/print?id=3971536&type=story

Associate Press report on the testimony of witness Kevin Savoree, CPA who handled Castroneves tax work for 1999 and 2000 and was instrumental in tax planning decisions.”Helio Castroneves never suggested that you do something improper, right?” asked Castroneves attorney David Garvin.

“Absolutely not,” Savoree replied.

“Patrick’s maturity, Kanaan’s adversity on display at Indy”

http://www.usatoday.com/sports/columnist/lopresti/2009-05-25-danica-kanaan-indy_N.htm?csp=34

“guy [Castroneves] beats a federal tax rap and wins the race nearly six weeks later. Somewhere Perry Mason must be smiling.”

“Helio Castroneves case to the jury”

http://sdfla.blogspot.com/2009/04/helio-castroneves-case-to-jury.html

In closing arguments, defense lawyers for Castroneves insisted he did not cheat on his taxes and had followed the advice of his attorneys and accountants. They reminded jurors Castroneves has not collected most of the money at issue and would only owe taxes when he is paid.”There are mistakes and ignorance at times, but at the end of the day there is no crime,” said attorney David Garvin.

“Prosecutors: Guilt clear in Castroneves case”

http://www.usatoday.com/sports/motor/irl/2009-04-09-castroneves-trial_N.htm

But Castroneves’ attorney David Garvin said there was a legal explanation for the financial activities and insisted there was no intent to hide money from the U.S. government. Garvin also said Castroneves relied on experts to handle the complexities of U.S. tax law.”He signed anything in front of him, including documents he shouldn’t be signing,” Garvin said. “There is ignorance and mistakes at times. But there is no crime.”

“Castroneves’ father testifies he established Panama company”

http://www.usatoday.com/sports/motor/irl/2009-04-03-castroneves-trial_N.htm

It’s a mistake,” said the father, testifying in Portuguese. “No, he’s not the owner.”"Did Helio have any authority to do anything for Seven?” asked defense attorney David Garvin.

“No,” the elder Castroneves replied.”

“One turbulent ride for Castroneves”

http://sports.espn.go.com/rpm/racing/indycar/columns/story?columnist=mcgee_ryan&id=4008335

“Helio Castroneves, right, arrives at federal court in Miami with his sister, Katiucia Castroneves, and attorney David M. Garvin.”

“Castroneves’ fate may very well lie in the hands of, believe it or not, late boxing great Sugar Ray Robinson. While negotiating a fight at Madison Square Garden in 1957, Robinson asked to have his payment broken up into halves and delivered over the following two years. The IRS balked, but the six-time world champion claimed that the U.S. tax code actually allowed the practice as long as the payment schedule was spelled out before the services were rendered. Soon thereafter, his claims were upheld in U.S. tax court.”

“Helio Castroneves pleads innocent in tax case”

http://www.foxnews.com/story/0,2933,313705,00.html

Another Castroneves attorney, David Garvin, said he was disappointed that the tax dispute could not be resolved without criminal charges.”Helio has always done the appropriate thing and hired accountants and attorneys he relied upon,” Garvin said. “We are of the strong belief that he did not do anything wrong. We’re looking forward to going to court.”

Commissioner Art Teele,  talks to his attorney David Garvin , (left) on the first day of  jury selection.

The existing 10% and 15% rates remain unchanged. Furthermore, under a sunset rule, your rates will return to the pre-2001 Tax Act rates of 15%, 28%, 31%, 36% and 39.6% after 2010 unless Congress takes further action. The 10% rate would disappear entirely with 15% becoming the lowest rate.

Bigger 10% Bracket for Most Folks. In another favorable change, the new law widens the 10% rate bracket effective back to January 1st. The 10% bracket is expanded by $2,000 for married individuals who file jointly ($0 to $14,000 versus $0 to $12,000 under prior law). The bracket now is $1,000 wider for single filers and married individuals who file separately from their spouses ($0 to $7,000 versus $0 to $6,000 before). This means a bit more of your income will be taxed at the lowest 10% rate. However, this break was not extended to those who use head of household filing status (the 10% bracket continues to covers the first $10,000 of taxable income as before.)

Unless Congress takes further action, these expansions of the 10% rate bracket will expire after 2004.

Major Relief for Married Taxpayers (Finally). The unfairness of the “marriage penalty” has been a constant tax topic for many years. It just doesn’t seem quite right that getting married in and of itself can actually cause a higher federal income tax bill for the newly wedded pair. We have good news on this issue. While the 2003 Act doesn’t completely eliminate the problem, it nevertheless delivers significant relief to joint filers. It also helps married persons who file separately from their spouses. Here are the specifics:

Thanks to the new law, the 15% bracket for those who file jointly is now twice as wide as the 15% bracket for single filers. This means the 15% bracket for joint filers now extends to taxable income of $56,800 (up from the old-law figure of $47,450).

The standard deduction for joint filers has been made bigger too. It’s now $9,500, which is exactly double the amount for single filers (up from $7,950 under prior law).

The 15% bracket for married filing separate status is now the same as for single filers. So, the 15% bracket now extends to taxable income of $28,400 (versus only $23,725 under prior law).

Finally, the standard deduction for married filing separate status is now $4,750, which is the same as for single filers (under prior law it was only $3,975). Under yet another sunset rule, all these favorable changes will last only for 2003 and 2004 unless Congress takes further action.

Our New and Improved 2003 Federal Income Tax Rate Structure. This table includes all the taxpayer-friendly new rules we’ve covered so far.

Child Credit “Kicked up a Notch” to $1,000. For 2003 and 2004, the tax credit for each under-age-17 dependent child, stepchild, foster child, or grandchild is raised to $1,000 (up from only $600 for 2002). As under prior law, the credit is still subject to phase-out beginning at adjusted gross income of $110,000 for joint filers, or $75,000 for unmarried individuals.

If you are eligible for the credit, expect a tax rebate check from the government this summer (probably in July or August). Based on information in your 2002 tax return, you’ll automatically receive up to $400 for each child for whom you claims a credit last year (assuming the child is still under 17 as of the end of this year). However, if you have a qualifying child born this year, you’ll have to wait and claim the credit when you file your 2003 return next year (no automatic rebate check for you). One more thing: if you haven’t yet filed your 2002 return, please get right on it. You won’t receive the automatic rebate check until you file your 2002 return.

Now for the sunset rule: unless Congress acts, the $1,000 child tax credit will fall back to only $700 in 2005.

Alternative Minimum Tax Relief. For 2003 and 2004, the alternative minimum tax (AMT) exemption for joint filers goes up by $9,000 (to $58,000 versus only $49,000 under prior law). For singles and heads of households, the exemption rises by $4,500 (to $40,250, up from $35,750). For those who use married filing separate status, the exemption also increases by $4,500 (to $29,000 compared to the old-law figure of $24,500). These more-generous exemption amounts are supposed to prevent all of your advertised tax savings from being consumed by the AMT.

However, unless Congress takes further action, the exemptions for 2005 and later years will fall back to only $45,000, $33,750 and $22,500 respectively. Not good.

• For all of 2003 through the bitter end of 2008, your qualified dividends from domestic corporations and qualified foreign corporations will be taxed at no more than 15% (the same as the new maximum rate on most long-term capital gains).
• If you happen to be in the 10% or 15% rate bracket (see the new rate table presented earlier in this letter), your dividends will be taxed at only 5%. (For 2008, your rate will be an unbeatable zero percent, but just for that single year.) Naturally, there’s a catch, but it’s not too bad. To be eligible for the new, drastically reduced rates on qualified dividend income, you must hold the stock on which the dividends are paid for more than 60 days during the 120-day period that begins 60 days before the ex-dividend date (the last date on which shareholders of record are entitled to receive the upcoming dividend). If you fail this test, your dividends are taxed at your regular rate (up to 35%). Also, a slightly longer holding period applies to preferred stock.

Observation: Unfortunately, this change doesn’t help a bit for dividends received by tax-deferred retirement accounts (such as 401(k), SEP, Keogh, and traditional IRAs). Dividends that you accumulate in these tax-deferred accounts will still be taxed at your regular rate (up to 35%) when withdrawn as cash distributions. (As before, dividends accumulated in Roth IRAs can be withdrawn tax-free if you meet certain guidelines.)

Needless to say, the dividend break has a sunset rule too. Unless Congress acts, dividends received in 2009 and beyond will once again be taxed at your regular rate.

Ditto for Long-term Capital Gains. We have more good news. If you invest in securities via taxable accounts, your long-term capital gains from sales after May 5, 2003 will be taxed at no more than 15% (down from 20% under prior law). Those in the 10% or 15% rate brackets will pay only 5% on long-term gains from sales after the magic date (in 2008, the rate will be zero percent, but just for that one year). These same much-reduced rates also apply to the long-term capital gain component of installment sale payments you receive after May 5th of this year. So far, so very good. However, the rates for certain types of gains were not reduced by the 2003 Act.

• A maximum rate of 25% remains in effect for long-term real estate gains attributable to depreciation deductions claimed against your property (?unrecaptured Section 1250 gains?).
• A maximum rate of 28% remains for long-term gains from sales of collectibles and certain small business stock.
• Finally, long-term capital gains from sales that occurred before May 6 of this year will be taxed at the old-law rates (20% maximum rate for gains in the higher brackets, 10% maximum rate for gains within the 10% and 15% brackets, 8% for five-year gains within the 10% and 15% brackets).

Observation: The new, lower capital gains rates don’t apply to investments held in tax-deferred retirement accounts (such as 401(k), SEP, Keogh, and traditional IRAs). Gains that you accumulate in these tax-deferred accounts will still be taxed at your regular rate (up to 35%) when withdrawn as cash distributions. (As before, gains accumulated in Roth IRAs can be withdrawn tax-free if you meet certain guidelines.)

One more thing: unless Congress acts, long-term capital gains will once again be taxed under the “old rules” in 2009 and beyond.

Bottom line: Many small businesses can now deduct the entire cost of all equipment additions in the first year. No more complicated multi-year tax depreciation schedules! (Nobody is going to miss those things.)

The 2003 Act also makes most computer software eligible for the Section 179 deduction, which means you can deduct the whole cost in the year of purchase. (Under prior law, you generally had to depreciate software costs over 36 months.)

What about the sunset rule you ask? Good question. The favorable Section 179 changes will cease to exist after 2005 unless Congress acts. So if nothing happens, the Section 179 allowance will fall back to only $25,000 for tax years beginning in 2006 and beyond.

Bigger and Better Bonus Depreciation Break. Last year’s tax legislation introduced a new first-year bonus depreciation deduction equal to 30% of the cost of new (but not used) assets with a normal depreciation recovery period of 20 years or less. The 2003 Act takes the bonus depreciation idea and makes it bigger and better.

For qualifying assets acquired after May 5, 2003 and before 2005 (and placed in service before 2005, or 2006 for certain assets with long production periods), you can deduct a whopping 50% of cost in the first year. Wow! This break is available regardless of the size of your business. Qualifying assets acquired before May 6th of this year are still eligible for 30% first-year bonus depreciation.

Under a sunset rule, however, the bonus depreciation rule will vanish after 2004 unless Congress takes further action.

More Bonus Depreciation for Business Autos, Too. If you use a car for business purposes, you are no doubt aware of the incredibly unfavorable depreciation rules. Until now, the maximum first-year depreciation write-off for a new (not used) vehicle placed in service this year was a paltry $7,660. Thanks to the new 50% bonus depreciation break, you can deduct up to $10,710 worth of first-year depreciation for new (not used) vehicles acquired after May 5th of this year. For new autos acquired this year but before May 6th, the maximum first-year depreciation deduction is still only $7,660 (under the 30% bonus depreciation rule). For used vehicles placed in service at any time this year, the maximum first-year depreciation deduction remains at only $3,060.

Micro-break on Corporate Estimated Tax Payments. Corporations qualify for a break on this year’s estimated tax payments. Specifically, 25% of the installment otherwise due in September can be postponed until October 1st without penalty. Please hold your wild applause! Still, it’s better than nothing.