U.S. Attorney’s Office For the Southern District Of Florida Increasing Training And Expanding To Combat Fraud

The U.S. Department of Justice has granted the request of the US Attorney for the Southern District of Florida, Wifredo Ferrer, for additional resources and manpower as the US Attorneys office struggles with its efforts to combat rampant fraud in South Florida.

As South Florida has experienced increased amounts of health-care, mortgage and financial fraud, the U.S. Attorneys Office has found it increasingly difficult to prosecute offenders due to the strain on the offices staff of 280 attorneys and their resources. As a result of the large caseload and limited resources, the offices efforts at prosecuting fraud have been stifled. U.S. Attorney Ferrer hopes this will change based upon the news he received last month from the Department of Justice that his request to hire four new prosecutors was granted.

The new prosecutors and their support staff will focus on the voluminous amounts of Medicare fraud that occur in South Florida. South Florida currently has the reputation as being ground zero for the $60 billion a year that is bilked from Medicare as a result of fraud. The four new prosecutors follow Ferrers recent hire of 10 “top-flight” attorneys since June in the offices major crime division and the hiring of four prosecutors by the previous U.S. Attorney Jeff Sloman.

Ferrer also announced that the U.S. Attorneys office is focused on increasing training for all of the districts Assistant U.S. Attorneys. Recently, Ferrer appointed Assistant U.S. Attorney Dawn Bowen as the districts first training director. The new training will emphasize the importance of effective advocacy during the sentencing phase of criminal trials. As a result of the U.S. Supreme Courts landmark decision in United States v. Booker, 543 US 220 (2005), which declared that the U.S. Sentencing Guidelines were advisory rather than mandatory, the role of the prosecutor at the sentencing phase has changed. Federal prosecutors must now advocate what the right sentence for a particular crime is and why. In May, U.S. Attorney General Eric Holder issued a memo explaining the governments new policy that proposed sentences be weighed on a case-by-case basis.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Arizona Aviation Company Indicted for Violating Arms Export Control Act

On October 28, 2010, a federal grand jury indicted Floyd Stilwell, president and CEO of Marsh Aviation Co., an Arizona company for violating the Arms Export Control Act. The indictment charges that Stilwell and his company were part of a conspiracy to ship arms to Venezuela from November 2005 until February 2008.

The indictment alleges that Stilwell and his company shipped military engines to the Venezuelan air force and provided training on how to maintain them in violation of federal law. The engines sold are listed on the United States Munitions List. Under federal law, the export of arms on the US Munitions List is illegal without a federal export license or written authorization issued by the Department of State. Since 2006, the U.S. government has forbidden the export of military hardware to Venezuela because Venezuela does not cooperate with United States anti-terrorism efforts. Additionally, the Office of Foreign Assets Control also issues regulations regarding the import and export of goods to countries which do not comply with U.S. counter-terrorism efforts. These regulations can be found at the OFAC Website.

According to the indictment, Stilwell and Marsh Aviation agreed to upgrade turboprop engines for use on Venezuelan air force reconnaissance planes. The indictment further alleges that Stilwell agreed to disassemble the upgraded engines, disguise them as civilian models when exporting them, and that Marsh Aviation sent employees to Venezuela to reassemble the engines once they had arrived.

U.S. Authorities also allege that Stilwell received $1.8 million in his personal bank account for his role in the arms exporting scheme. If convicted, Stilwell faces up to 15 years in federal prison for the arms violations and conspiracy charges.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, as well as information regarding OFAC and strategies on maintaining compliance with federal customs regulations please contact us at contact@fidjlaw.com.

Can 5,783 People and Businesses be Wrong? IRS Inundated with Comments on Proposed Tax Preparer Regulations

Between the end of July and the beginning of November, the IRS reports that over 5,000 people and businesses “ predominantly certified public accountants (CPAs) “ have filed public comments in response to the proposed regulations that would regulate tax return preparers and amend rules governing practice before the IRS.

The IRS has proposed new regulations which are part of the preparer tax identification number (PTIN) system. This system permits tracking of work by all individuals involved in “significant tax decisions.” Under IRS Circular 230 (which enumerates the rules of practice before the Service), anyone who is not an attorney, certified public accountant, or enrolled agent is required to qualify as a registered tax return preparer. This applies to anyone involved in preparing documents that comprise a substantial part of tax returns “ such as the professional and clerical staff of a CPA.

In order to prepare tax returns after January 1, 2011, registered tax return preparers must register with the IRS and possess a PTIN. They are also required to pass a minimum competency examination when testing becomes available, probably beginning in mid 2011. Preparers who pass the exam also will be subject to suitability checks designed to uncover any past conduct that violates provisions of Circular 230. Once registered and accredited, registered tax return preparers have continuing professional education requirements similar to that of CPAs or enrolled agents.

In response to this regulatory initiative, the American Institute of Certified Public Accountants (AICPA) called on its members to blitz the IRS with public comments on the rules. The organization posted a sample email on its website that could be sent to the Service. Chief among the complaints about the new regulations is the PTIN requirement that is extended onto the non-signing tax-return preparers at CPA firms.

Edward Karl, AICPA vice president of taxation, testified before the IRS urging that the Service “exempt staff of CPA firms who prepare tax returns under the supervision of licensed CPAs from the proposed testing and continuing education requirements.” Karl noted that licensed CPAs already closely supervise the work of non-signing staff at firms and opined that such supervision, coupled with state monitoring of CPAs, was sufficient. He further assailed the “high costs and burdens of competency testing,” and suggested, “[t]he IRS should first evaluate whether the use of PTINs and extension of Circular 230 to all practitioners, combined with IRS tracking initiatives, is sufficient to address unethical and incompetent tax return preparation.”

A cursory review of the 5,783 public comments demonstrates that many CPAs have availed themselves to the AICPAs model email. Of the original work submitted to the IRS, however, the requirement that non-signing preparers must register is still the hot button issue. Many other CPAs opined that the extra costs to CPA firms for compliance would need to be passed long to their client taxpayers, which would force more taxpayers to do their own returns and actually increase errors and non-compliance “ results antithetical to the IRSs intentions.

It remains to be seen how the IRS will respond to this groundswell of opposition to their PTIN program.

Florida Ranked #5 Nationally in Business Tax Climate

The Tax Foundation, a nonpartisan, nonprofit organization that monitors fiscal policy nationwide, has released its 2011 edition of the State Business Tax Climate Index, which ranks from 1 (best) to 50 (worst) the tax systems of the 50 states. For this year, Fuerst Ittlemans home state of Florida ranked number 5 in the nation.

Floridas favorable ranking is noteworthy because the other top states are all west of the Mississippi River and are all states with much smaller populations (South Dakota, Alaska, Wyoming and Nevada, in rank order). Across a series of metrics evaluating tax policy and business friendliness, Florida ranked 1st in individual income taxes (there are none), 3rd in unemployment insurance taxes, 15th in corporate taxes, and offered strong tax incentives to businesses to relocate in certain parts of the state. On the downside, Florida ranked 28th in property taxes and 30th in sales taxes

“The top eight tax systems all raise sufficient revenue without imposing one or two of the three major state taxes” that include sales taxes, personal income taxes and corporate income taxes, said Tax Foundation president Scott Hodge. “The lesson is simple; a state that raises sufficient revenue without one of the major taxes will, all things being equal, out-compete those states that levy every tax in the state tax collectors arsenal,” writes Kail Padgitt, Ph.D., the author of the 2011 edition of the Index,

The index hopes to focus attention (from lawmakers and the business community) on “the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible.” The Foundation discovered that tax incentive programs alone do not work for businesses in the long-run as other forms of state taxation can nullify the incentive gains.

“The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses,” said Padgitt, “but that strategy often backfires if the company does not prosper.”

We have always championed Florida with our clients and friends as tax-favorable for business organizations. Its nice that the experts agree.

CBP Loosens the Reigns on Information Sharing for Customs Brokers

CBP recently proposed to amend federal regulations to allow customs brokers greater leeway in sharing confidential client information, with the clients written consent.

Under the proposed amendments to 19 C.F.R. § 111.24, “Permissible Sharing of Client Records by Customs Brokers,” brokers possessing prior, written authorization from their clients would be allowed to share a clients information with:

  • affiliated entities related to the broker in order to offer non-customs business services to its clients;
  • third-party service providers to perform photocopying and scanning of client records (with a signed non-disclosure agreement); and
  • third-party messenger services for transporting and/or delivering client documents on behalf of the broker (if those documents are sealed to prevent viewing, altering or amending).

The proposed regulations acknowledge that many companies affiliated with customs brokers are now offering a wider array of logistics services to its clients. Moreover, customs brokers increasingly face the need to use third-party service providers to meet client and CBP demands. Under existing regulations, brokers are only allowed to share importer information with the importers surety (on a particular entry), certain U.S. Customs and Border Protection offices and officials, and other U.S. government agents, “except on subpoena by a court of competent jurisdiction.”

CBP hails the proposed regulations as allowing brokers to offer services that are “streamlined with modern and efficient business practices, while protecting the confidentiality of client (importer) information.” We believe that it the proposed rules will allow these tireless trade professionals to do their jobs more effectively, at a lower cost to importers, and with greater benefits to both brokers and their clients.

Comments on this proposed regulation is due by December 27, 2010.

FDA Embarks on New “Swift and Aggressive” Enforcement Approach

The FDA has recently published its Strategic Priorities document on its website. Found here, the draft document outlines the Agencys goals for the years 2011-2015. According to the document, a variety of new programs will be instituted by the FDA in order to “sharpen the effectiveness and timeliness of its regulatory, compliance, and enforcement systems.” Reinforcing its commitment to “swift, aggressive enforcement actions to protect public health,” the goals contained in this document mirror those found in the Agencys recent Enforcement Strategy document.

Found here, the Enforcement Strategy document may be seen as a marked shift to more vigorous enforcement efforts by the FDA. Howard Sklamberg, Director of the Office of Enforcement at the Agency, has confirmed that the FDA is looking to step up its enforcement efforts. Referencing this newly-published document and other newly-published information on the Agencys website, Sklamberg noted that the FDA will no longer be extending warning letters to those deemed “repeat offenders.” Sklamberg suggested that this new “swift and aggressive” strategy will further the overall goals of the Agency, noting that its enforcement measures are designed to deter noncompliance. To this end, the “FDA will use any and all available enforcement tools, as appropriate, based on the facts of the case and the nature and seriousness of the violation.”

For more information on FDA enforcement measures or compliance, please contact us at contact@fidjlaw.com.

Cargolux Executives Indicted In Rate Fixing Conspiracy

On October 28, 2010, a federal grand jury in Miami indicted two executives with Luxembourg based Cargolux Airlines on charges of conspiring to fix surcharge rates on air cargo shipments to and from the United States.

According to the indictment, Cargoluxs president and CEO, Ulrich Ogiermann, and its senior vice president of sales, Robert Van de Weg, conspired with others to eliminate competition by fixing and coordinating fuel and security surcharges billed to their customers for air cargo shipments to and from the US. Ogiermann and Van de Weg, along with their co-conspirators, entered into surcharge agreements and accepted payments at noncompetitive and collusive rates. The conspirators also agreed not to pay commissions on those surcharges. A copy of the United States Department of Justices press release announcing the indictment can be read at: US DOJ Press Release.

Ogiermann and Van de Weg are charged with price fixing in violation of the Sherman Act. If convicted, both executives could be sentenced to up to 10 years in prison and a $1 million fine, though the fine could increase if either the amount of money made by the conspirators or the amount of money lost by the victim exceeds $1 million.

Ogiermann and Van de Wegs indictment comes during increased investigations by the U.S. Department of Justice into price fixing in the air transportation industry. In a separate case, four former airline executives were indicted on charges of conspiring to fix fuel surcharges. In that case, the indictment alleges that the conspirators agreed to increase their fuel surcharges on air cargo shipments to Central and South America after Hurricanes Katrina and Rita. Additionally, in September, six international freight forwarding companies plead guilty to price fixing and paid $50.3 million in criminal fines. To date, over $1.6 billion in criminal fines have been imposed on a total of 18 airlines and 14 executives for price fixing activities.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

FTC maintains momentum in dietary supplement regulation

The FDA and FTC have recently issued another joint warning letter, this time to Telledent, LLC, a dietary supplement manufacturer in Miami, Florida. In the letter, FDA and FTC cite Telledent for unlawful promotion involving treatment for Herpes, Epilepsy, Diabetes, Gonorrhea, Syphilis and Chlamydia. While it is certainly not groundbreaking news when companies get cited by the FDA or FTC for health claims, typically in these situations, the FDA targets enforcement of the FDCA and the FTC targets violations of the FTC Act under separate cover.  What is interesting here is the joint enforcement by FDA and FTC and the cross-organizational targeting implicit in the letter.

Additionally, the FTC appears to be gaining momentum in the regulation of dietary supplements.  Just recently, the FTC appears to have developed a new standard for claims associated with dietary supplements requiring, “competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating that the claims are true at the time they are made.”  This is an important departure from the previous FTC benchmark imposed over the last twenty years.  Current litigation, as previously addressed in our blog, is targeting the FTCs authority to institute such a benchmark and the application of this new standard to practice.  

Also, the warning letter states that “Violations of the FTC Actmay require (the company) pay back money to consumers.” The FDA is unable to take such an enforcement approach as it is not within its jurisdiction to do so.  Accordingly, this warning letter represents an important enforcement tool for the government and may provide the FTC with even greater momentum in the regulation of dietary supplements and an important complement to the FDA. 

For information on FTC regulations and substantiation requirements, please contact us at contact@fidjlaw.com.

IRS Commissioner Introduces the Return Preparer Initiative

Speaking before the American Institute of Certified Public Accountants (AICPA) on October 26, 2010, Commissioner Douglas H. Schulman announced the Internal Revenue Services (IRS) goals of “a sound, fair and efficient tax administration” and “improved compliance.” In implementing these goals, the IRS has adopted the “Return Preparer Initiative”, which Commissioner Schulman described as part of “an evolutionary change of getting smarter and working smarter.”

The purpose of the Initiative is to help taxpayers file accurate returns from the start. This avoids the difficult and time-consuming issues that arise when the IRS discovers inaccuracies on the taxpayers return. The Initiative targets the professional return preparer community to achieve these results. After pointing out that eight of every ten taxpayers use professional tax preparers when filing returns, Commissioner Schulman attributed inaccuracies in tax returns to the large amount of return preparers that are not subject to any professional oversight.

To ensure that return preparers are competent, the Initiative launched an online Preparer Tax Identification Number (PTIN) application, requiring all return preparers to be registered with the IRS. The IRS plans to use these applications to build a publicly accessible database that consumers can use to ensure their return preparers are qualified.

In addition to the registration requirement, the Initiative also seeks to impose testing and continuing education requirements for return preparers. As the Internal Revenue Code continues to become more complex, these requirements will help ensure that return preparers are aware of changes in the Code and are able to reflect these changes in the returns they prepare.

For the upcoming tax year, the online PTIN application appears to be the only requirement for return preparers. As the IRS has neither determined the start date for the testing requirement nor the effective date for continuing education, Commissioner Schulman stated the IRS intended to waive these requirements during the first year of implementation.

If you have any questions regarding the Return Preparer Initiative or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

Requesting a Private Letter Ruling on Uncertain Tax Positions? You may have to Wait for Guidance Instead

Back on September 24, 2010, the Internal Revenue Service released the final Schedule UTP and associated guidance regarding the disclosure of uncertain tax positions (UTP) by corporations.  At the same time, the IRS released a bevy of guidance documents pertaining to Schedule UTP:

So does this full guidance initiative on Schedule UTP mean that the IRS will be hesitant to issue private letter rulings on uncertain tax positions?

Not at all, according to a senior counsel in the IRS Office of Associate Chief Counsel (Corporate).  While discussing business regulations at a Practising Law Institute conference on tax strategies for corporate acquisitions in New York on October 21, 2010, IRS Senior Counsel Russell P. Subin stated that the Service will continue to issue private letter rulings applying an area of law even when it is involved in a guidance project that would address that law, so long as the current law is stable.

"In general, where current law is stable, we’re going to answer questions based on current law, notwithstanding the fact that we have a reg project open," echoed Subins boss William Alexander, IRS Associate Chief Counsel (Corporate). "But we will make you no promises about whether we’re going to work on your ruling request or on finalizing that reg first."

That final rejoinder from Alexander “ that work on guidance documents may take precedence over letter rulings “ appears to be the new mantra within the walls of the IRS on Pennsylvania Avenue. 

A recent report from the Department of Treasurys Inspector General for Tax Administration found that private letter rulings issued by lawyers at the IRS take too long to issue and are often redundant.  Although the target deadline for responding to ruling requests is 120 days, the IG found that IRS lawyers missed that target an astounding 77% of the time.  The IG reviewed responses to 65 sample letters and found 50 took longer than four months to promulgate, and one took almost 10 years.

The IG report stated:

Our review showed that Chief Counsel is not monitoring available information to consider whether published guidance should be issued on certain tax issues[.]   Each of these issues could represent a strong need for published guidance, which would be available for all taxpayers.

In a response letter to the IG report, IRS Deputy Chief Counsel Clarissa Potter agreed with the findings:  “[W]e should identify common issues in letter ruling requests, and when possible and beneficial, issue published guidance.”

The agencys position means that when contemplating reporting of UTPs, companies may have to rely on the published IRS guidance rather than seeking definitive guidance from the Service.  The often confusing nature of IRS guidance documents, however, means that companies will need strong legal advice on UTP reporting guidelines.  Luckily for companies contemplating UTP reporting issues, our phone lines are open.

For more information on Schedule UTP, click here.