Daily Tax Update - August 20, 2014: United Kingdom Proposes Strict Liability Criminal Offense for Undeclared Offshore Income

United Kingdom Proposes Strict Liability Criminal Offense for Undeclared Offshore Income:  Her Majesty’s Revenue and Customs (HMRC) published two consultation documents yesterday setting out plans to introduce a new strict liability criminal offense of failing to declare taxable offshore income and gains and options to strengthen civil sanctions relating to offshore tax evasion.  HMRC explains that a “strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting.”  HMRC states that this would be the first strict liability criminal offense in the field of direct tax under UK law, but that such a step is justified because the UK government has “offered generous opportunities for people to put their offshore tax affairs on the right footing” under its voluntary disclosure programs.  Although a taxpayer’s intentions would be irrelevant in determining his or her criminal liability under the proposal, HMRC requested comments for whether it should allow affirmative statutory defenses for “(i) a person to demonstrate that they had taken reasonable care in conducting their tax affairs, or (ii) a person to demonstrate that they had sought and followed appropriate professional advice.”  On the civil side, HMRC is considering extensions to the existing penalty regime to increase deterrence and reflect “the new global standard in tax information exchange.”

The criminal consultation document can be accessed here.

The civil consultation document can be accessed here.

Progress in Clearing Exempt Organization Application Backlog:  An IRS official stated yesterday that the Tax-Exempt and Government Entities Division (TE/GE) is making progress on clearing the substantial backlog of applications for status as a tax-exempt organization.  Donna Hansberry, the TE/GE deputy commissioner, told an audience at the IRS Nationwide Tax Forum that TE/GE is “on pace to close almost all the aged inventory by the end of calendar year 2014.”  In the Pension Protection Act of 2006, Congress provided that an entity’s status as an exempt organization would be automatically revoked if the entity failed to file required information returns for three consecutive years.  Ms. Hansberry said that the increased application volume caused by organizations whose status had been automatically revoked seeking reinstatement, coupled with reduced staffing levels at TE/GE, had created a substantial backlog, with 15% of outstanding applications as of the beginning of 2014 being filed in 2012 or earlier.  Hansberry said that a streamlined process under Rev. Proc. 2014-11, together with improved efficiency, has allowed TE/GE to begin reducing the backlog.

Miscellaneous Guidance Released:
Revenue Ruling 2014-22 provides various prescribed rates for federal income tax purposes, including the applicable federal interest rates, for the month of September 2014.